Vero Energy

Energy success in Western Canada

Vero Energy Inc., based in Calgary and started in 2005, is engaged in the exploration, development, and production of natural gas, natural gas liquids, and oil in Western Canada. Since its inception Vero has proven its potential to achieve growth, citing a strong management team as one of the primary reasons for its success. Doug Bartole, President and CEO of Vero, explains that having good management is key to operating in today’s market. “To me, one of the biggest drivers of success is putting a group of driven people together who like each other, get along, and think alike; those are the dynamics that make Vero a successful company. That’s what I’ve enjoyed the most, working with a group of people that achieve great things together.”

The talented management team is made up of technically oriented leaders, all who have extensive histories creating value in energy-focused companies. Says Bartole: “it’s a technical management team, in geology, engineering, and operations.  Many of us have bonded to the point that we’ll probably be working together for the rest of our careers – that’s a good thing because I know the qualities our team brings”.

Vero currently employs 26 full time people. Since just 2005, Vero has built tremendous successes. In their year-end update, Vero reported that in the fourth quarter of 2008 they had drilled 12 wells with a success rate of 100%. For the 2008 year the company drilled 34 wells including 14 horizontal wells, which resulted in a 98% success rate – not bad for a company that is less than three and a half years old.

The school of hard knocks
Despite the success Vero has enjoyed, it has not all been easy.  “Myself, and my team understand the oil and gas side of the industry very well. But on the business end we’ve gone to the school of hard knocks with all the curveballs that have been thrown at us. We’ve shown a remarkable job of being resilient. Ultimately, you can control your spending and your costs, but you can’t control the market and all external sources. I think we’ve done a good job managing what we can control.”

“The three years since we started have been a tough environment” Bartole says. “We came out in the peak, when there were very good commodity prices. But there have been three swings in prices since then. And during that time the federal government changed the royalty trusts, and the province of Alberta also changed their royalty structure. Not to mention we’re now in the worst credit crisis that we’ve ever seen” he adds.

He adds that on an industry level, Vero is ahead of the game: “In Edson we were one of the first companies to drill horizontal wells . We now currently have more producing horizontal wells than any other operator in the zones that we’re chasing. We did our first multi-fracture completion on a horizontal well in early 2006, which was well ahead of most companies in Canada.” Vero is exploring deep zones, measuring generally 2400-2500 metres in vertical depth, with about another 1,000 metres of horizontal section. Bartole maintains that the company will continue to grow and expand the Edson area, where Vero has control of infrastructure and a low capital and operating cost structure.

A positive outlook for energy
“Despite the ups and downs, our success keeps getting better and better. We have one of the lowest cost structures, and that allows us to be profitable even in a low commodity price environment. In Edson we have operating costs of $4.50 a barrel, and transportation costs of $1.20 a barrel, which are 35-40% lower than our peers’ average. We have built a lot of inventory and infrastructure successfully over the last three years, and we’re poised to keep expanding.”

Vero has a solid land base of over 175,000 net undeveloped acres and over 245 drilling locations.

“We have a resource that continues to grow and develop; as we get bigger we’ll look at other opportunities, even though some of the  best opportunities and value are quite close to home. We’re a technical group that wants to drill wells and firmly believe that doing that is the only way, in the long run, to profitably grow in this industry” Bartole explains.

Watching their steps
The company has been ever careful to maintain high reporting and environment standards.  The company deals with environmental issues on both a broad based scope and on an individual basis as it can be very job specific. As they are drilling for natural gas, Vero is able to trap and sell every portion of product that they extract. “An advantage to what we’re doing is that we’re drilling horizontal wells, and we drill less wells because we’re accessing more reservoir in one well bore” says Bartole. “We’re draining gas from larger subsurface areas, but we are using less well bores and that has less of an environmental imprint at the surface” he adds. Vero has also ensured that waste products are minimal, and that the company is up front with stakeholders in the field, investors, shareholders, partners, and the public. Bartole believes that being sound communicators and Vero’s reporting strategy has leveraged the faith of all stakeholders. “We report everything we can; we’re very forthright and up front. I think we’ve become an operator of choice just because of how we work in that sense.” He adds: “Our technical abilities, our predictability, our dependability and our relationships with regulatory bodies have given us credibility. We think long-term, simply because short-term thinking is a recipe for disaster.”

Quick facts:
•  Technically proven team with a history of value creation
•  Low cost producer focused on core areas in west central Alberta
•  Solid balance sheet with a bank line of $100 mm
•  Current production: approximately 8,100 boe/d (81% gas)
•  Shares outstanding (basic/FD): 37.1 mm/40.1 mm
•  Market cap (February 2, 2009): $160 mm
•  Management and insiders (basic/FD): 11% / 16%

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