Canada Pension Plan Investment Board (“CPPIB”) and Vermilion Energy Inc. (“Vermilion”) (TSX:VET)(NYSE:VET) are pleased to announce a strategic partnership in the Corrib Natural Gas Field in Ireland (“Corrib”), whereby CPPIB will acquire Shell Exploration Company B.V.’s (“Shell”) 45% interest in the project, with Vermilion operating the assets after completion of the acquisition. Through its wholly owned subsidiary, CPP Investment Board Europe S.a.r.l., CPPIB has entered into a definitive purchase and sale agreement with Shell, to acquire 100% of Shell E&P Ireland Limited (“SEPIL”), which holds Shell’s 45% interest in Corrib (the “Acquisition”) for total cash consideration of EUR830 million, subject to customary closing adjustments and future contingent value payments based on performance and realized pricing. The Acquisition, which remains subject to customary conditions and receipt of all necessary government consents, has an effective date of January 1, 2017 with closing anticipated in the first half of 2018.

At closing, Vermilion will assume operatorship, and CPPIB plans to transfer SEPIL along with a 1.5% working interest to Vermilion for EUR19.4 million (before closing adjustments).

Following the transfer to Vermilion, ownership in Corrib would be as follows:

CPPIB would hold a 43.5% non-operated interest
Vermilion would hold a 20% operated interest
Statoil ASA would continue to hold a 36.5% non-operated interest
The transaction also contemplates two contingent payments; one linked to price and one linked to produced volumes:

Up to EUR150 million contingent on NBP prices being above 2.03 Euro cents/kWh on an annual basis from 2018 to 2022; and
Up to EUR100 million subject to exceeding certain production thresholds through 2025.
Corrib is located 83 kilometers off the northwest coast of Ireland. The field has a gross plant capacity of approximately 350 million cubic feet of natural gas per day, provides approximately 60% of Ireland’s natural gas consumption and constitutes approximately 95% of Ireland’s gas production.

Avik Dey, Managing Director and Head of Natural Resources at CPPIB said, “Ireland is an attractive destination for a long-term investor like CPPIB, and through this investment in the Corrib gas field, we are able to further our strategy of investing in high-quality natural resources assets alongside highly regarded and experienced operating partners such as Vermilion. Vermilion has a strong operational track record in both onshore and offshore projects and we look forward to working with them and are confident that this investment will benefit the CPP Fund by delivering strong risk-adjusted returns over the long-term horizon of the Fund.”

Anthony Marino, President and CEO of Vermilion said, “We welcome CPPIB as a strategic partner in this world-class gas field, and we look forward to a productive long-term relationship. Our ownership in Corrib and investment in Ireland date back to 2009, and we are proud to be a part of the energy industry in this stable jurisdiction. Our extensive experience in Europe, North America and Australia over our 23-year history will serve us well in Corrib. We look forward to working with SEPIL employees and Corrib stakeholders to implement our best-in-class approach to safety, environmental protection and strategic community investment.”

Pro forma for the transfer of SEPIL from CPPIB, Vermilion’s incremental 1.5% ownership of Corrib would represent approximately 850 boe/d at current production rates and approximately 2.0 million boe of 2P reserves(1) based on an independent evaluation by GLJ Petroleum Consultants Ltd. with an effective date of December 31, 2016. Assuming a purchase price of EUR19.4 million ($28.4 million at current exchange rates), before closing adjustments, the transaction metrics are estimated at approximately $33,400 per boe per day, $15.40 per boe of proved plus probable reserves(1) including future development capital (generating a 2P recycle ratio of 1.9 times based on projected 2017 netbacks), and 3.3 times estimated 2017 operating cash flow(2) using the current forward commodity strip. Vermilion expects the acquisition to be accretive for all pertinent per share metrics including production, fund flows from operations(2), reserves and net asset value. Vermilion intends to fund this acquisition with existing credit facilities.

The acquisition would significantly increase Vermilion’s degree of operating control of its asset base. Following the assumption of operatorship of Corrib, Vermilion estimates that it will operate 87% of its production base as compared to 72% currently.

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