Canada's Vermilion Energy has been around for 20 years and public for 18 of them, and it already has a unique history.
It's been a consistent grower, but in a rare move for a Canadian oil and gas producer, Vermilion went global in the 1990s when oil and gas properties became too expensive in western Canada. After making its first international deal in France, the company not only tripled its size, but also managed to have a cellar full of well-aged wines included in the deal.
Management has had plenty of reason to celebrate and imbibe since then. In 2002, Vermilion converted into a trust like many other energy companies in Canada so that it could more efficiently share its substantial cash flow with investors. But, unlike most of its peers, when it converted back to being a corporation in 2010, Vermilion didn't cut its dividend.
Vermilion's story is unique and the company is fairly well known in Canada, but it isn't as familiar to investors in the States. I suspect that will gradually change now that Vermilion has added a NYSE listing and investors catch onto its consistent growth and above-average dividend.
I've been following Vermilion for the last few years and I'll be adding shares of this unique energy company to my real money portfolio in the next few days.
Canada's emerging global player
Vermilion isn't the biggest oil and gas company in Canada and it isn't the cheapest energy play, but I like it for its diverse production base, seasoned management, and dividend growth potential as its production expands over the next few years.
Production growth at Vermilion looks bright for the next few years as new projects come online. Production at Vermilion has grown by an average of 6% over the past 10 years. That growth has been diverse with property acquisitions in Canada, France, Australia, and the Netherlands driving growth in production. In 2012 production grew by 7% to 37,803 barrels of oil per day and the company is looking at another 3%-7% addition for 2013. By early 2015 the company's investment in a natural gas project off the coast of Ireland should start adding to production growth, too.
Of course, growing production isn't helpful if reserves aren't growing to support the long-term expansion of the business. In the past decade, property acquisitions and additional exploration within those properties have allowed proved and probable reserves to grow at an 8% clip at Vermillion. With 80% of its production -- including its Netherlands gas -- tied to Brent Oil prices, Vermilion has been able to grow cash flows substantially while securing production growth for the future.
Conservatively financed, employee friendly, and Foolish
I like the growth potential at Vermilion, but I'm more impressed with how the board and management have balanced the needs of shareholders, employees, and the citizens in its operating areas to keep all parties happy. Directors and other insiders own 7% of the shares, with CEO Lorenzo Donadeo holding a 3.6% position, so as a group they have a clear interest in growing the business and keeping everybody motivated.
Employees at Vermilion also seem to enjoy working for the management team. In the past three years Vermilion's Canadian and French operations have been recognized as among the top 25 places to work. A quick glance at Glassdoor.com shows that these awards aren't just fluff, as the primary complaint seems to be that people are so happy they stick around, which means promotions don't come along as often as some might like. That didn't stop employees from ranking the company and its management highly, though.
Shareholders have plenty of reason to be happy, too. Vermilion has delivered solid cash flow growth, which has led to a steady appreciation in the shares and it has achieved this growth while returning a substantial amount of cash to shareholders. Currently Vermilion shares currently yield 4.5%; it makes its payout monthly so shareholders see a constant stream of payments. With more production coming online and a conservative use of debt, I believe the dividend will be increased again at some point in the next two or three years.
Foolish final thoughts
Looking around the energy industry I believe Suncor Energy and ConocoPhillips are also attractively valued -- I'm considering both as potential additions to my real money portfolio. But I believe Vermilion is the complete package with the most potential.
I'll be making my first investment in Vermilion in the coming days, and I suspect this is a position that I will gradually add to in the coming months. I'm hopeful that I'll have reason to celebrate the returns with a bottle or two from my wine cellar!