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Vermilion reduces capital spending program

Last updated: 10:23 08 Dec 2014 EST, First published: 11:23 08 Dec 2014 EST

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Vermilion Energy (TSE:VET) took a fall Monday after the company lowered its 2015 capital spending program to $525 million from $675 million this year, citing continued weakness in commodity prices.

Dundee Capital Markets analysts maintained their neutral rating and C$68.00 target price on the Calgary, Alberta-based energy company, saying the reduction in capital spending was introduced to maintain its balance sheet strength and to protect the dividend. 

Analyst Geoff Ready noted that Vermilion has never reduced its dividend since it was instituted in 2003.

The company will also shift its spending to focus on its European gas projects, as euro gas price fundamentals remain strong. Vermilion, with operations in Canada, Europe, Australia and the US, has exposure to world oil and European gas prices, which have recently been much stronger than North America, Dundee said.

"We have made adjustments to our model to account for new management guidance," wrote Dundee analyst Ready in his report issued earlier today.

"While we see a slight decrease in 2015 cash flow, the company's 2015E D/CF is reduced to 1.3x. The company has the flexibility to make adjustments to its 2015 capital program as the year progresses," he added, noting that Vermilion's balance sheet is still in good shape.

The company's production guidance for next year remains unchanged, at 55,000 to 57,000 barrels of oil equivalent per day, representing year-over-year growth of 15 percent.

Its Canadian focus next year will shift to the liquids-rich Mannville gas plays, where it plans to drill 30 gross wells, a 50 percent increase over 2014 due to strong economics and anticipated partner activity.

Shares of Vermilion dropped 7.4 percent to C$45.37 as of 11:05am ET on Monday.

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