Vermilion Energy Inc. is pleased to announce that our Board of Directors has approved an exploration and development ("E&D") capital budget for 2016 of $285 million.

Highlights

- Budgeted E&D investment of $285 million for 2016 represents a 41% decrease from 2015 forecasted E&D investment of $485 million, and a 59% decrease from 2014 investment of $688 million.
- Production guidance for 2016 is 62,500 to 63,500 boe/d, representing year-over-year growth of approximately 15%.
- At current strip prices, Vermilion expects to fully fund 2016 E&D expenditures and cash dividends from fund flows from operations, with surplus cash generation used to reduce debt in 2016.
- Vermilion has the operational flexibility to further reduce its 2016 E&D program if commodity prices continue to weaken.

2016 E&D Budget Overview and Production Guidance

Our 2016 E&D budget of $285 million is a reduction of $65 million or 19% from our preliminary 2016 expenditure guidance of $350 million (announced in November 2015), and a decrease of $200 million or 41% from our projected 2015 E&D expenditures of approximately $485 million. This marks the second year-over-year decrease in E&D spending in response to lower commodity prices, and a total reduction in annual E&D investment of more than $400 million (59%) as compared to 2014.

We are reducing E&D investment to preserve value, maintain our strong balance sheet, and support the long-term sustainability of our capital markets model. At current strip prices, we anticipate that fund flows from operations will fully fund 2016 E&D expenditures and cash dividends. Surplus funds will be applied to debt reduction during 2016. We will continue to monitor commodity prices and make further adjustments to our capital program if required.

Our production guidance for 2016 is 62,500 to 63,500 boe/d. This is little changed from the range of 63,000 to 65,000 boe/d that we originally set in March 2014, before the significant decrease in commodity prices began. We believe that our ability to substantially maintain the original guidance - in the face of delays at Corrib and successive reductions in capital investment in 2015 and 2016 - demonstrates the strength of our asset base and our continuing operational improvement.

Despite the significant decrease in E&D spending, we expect to deliver year-over-year production growth of approximately 15% in 2016. Our robust project portfolio contains a very large set of investment projects that offer strong return and efficiency characteristics in the current economic environment. In addition to imparting greater stability to our cash flows, our geographic and commodity diversification makes it possible to generate a high return capital program even in depressed commodity markets, and provides the flexibility to respond to changes in individual commodity markets when recovery occurs.

Should capital availability increase during the year as a result of a meaningful improvement in commodity prices, we do have the capability to increase E&D investment levels. However, we expect that any increase would be fully funded by internal cash generation under the prevailing commodity strip. Moreover, we consider it highly unlikely that we would elect to invest more than our original 2016 target of $350 million into E&D activities.

North America

Our 2016 drilling activities in North America will predominately focus on lease expiries and non-operated wells, in line with our objective of preserving value during this period of commodity weakness. We expect to invest approximately $73 million in E&D activities in Canada in 2016, which is 64% less than the $202 million forecasted for 2015, and 78% less than $336 million in 2014.

We expect to drill or participate in nine (4.9 net) Mannville wells in 2016. Economics for our Mannville program, particularly condensate-rich Ellerslie targets, remain strong in the current commodity price environment. Our budgeted Cardium program includes eight (2.0 net) non-operated wells. Lastly, we intend to drill or participate in eight (6.0 net) Midale wells in our Southeast Saskatchewan light oil play.

In the United States, we expect to complete and tie-in two (2.0 net) wells that were drilled late in 2015 and drill, complete and tie-in one (1.0 net) additional well. All three wells target the Turner Sand in the Powder River Basin of Wyoming.

Europe

Our 2016 E&D budget for the Netherlands of $42 million represents a decrease of 11% from our forecasted 2015 investment of $47 million. We anticipate drilling two (0.9 net) wells, as compared to 2015 activity of two (1.9 net) wells. We also plan to complete a pipeline twinning in our Gorredijk concession to address pipeline constraints that are restricting well deliverability. Incremental production associated with this infrastructure project is expected in 2017.

In France, we intend to complete approximately 30 highly capital-efficient workovers with expected rates of return in excess of 85%. Despite continued strong economics at current strip prices, we have elected to not proceed with a previously planned Champotran drilling program. However, we do have the operational flexibility to reinstate this program later in 2016 in the event we implement a modestly-increased investment program.

In Germany, the majority of our capital will be directed to activities associated with the farm-in agreement we signed in July 2015. Specifically, we expect to commence permitting and pre-drill activities for two prospects, as well as to continue our ongoing analysis of the proprietary geologic data associated with the farm-in assets.

Following the achievement of first gas at Corrib on December 30, 2015, capital activities in Ireland are expected to be minimal in 2016. The P2 well is scheduled to be tied-in to the subsea production system during April. This well will provide additional back-up to augment the deliverability of the other five wells in the Corrib field.

Australia

Following our successful 2013 and 2015 drilling programs, we are planning a two-well drilling program in Australia for 2016. Program economics remain strong with an expected after-tax rate of return of 20% at US$40 Brent. The Australian drilling program requires a great deal of advance contracting and logistical planning, which means that full-cycle costs are minimized by proceeding with this program in the second quarter of 2016, as previously scheduled. Furthermore, we expect services costs to be near their lows in 2016, making this a desirable time to drill these high-quality sidetrack locations. The majority of the budgeted $66 million of E&D expenditures for Australia are for the drilling program, with the remainder funding ongoing facilities maintenance, enhancement and refurbishment.

About Vermilion

Vermilion (TSX, NYSE: VET) is an international energy producer that seeks to create value through the acquisition, exploration, development and optimization of producing properties in North America, Europe and Australia. Our business model targets annual organic production growth, along with providing reliable and increasing dividends to investors. Vermilion is targeting growth in production primarily through the exploitation of light oil and liquids-rich natural gas conventional resource plays in Canada and the United States, the exploration and development of high impact natural gas opportunities in the Netherlands and Germany, and through oil drilling and workover programs in France and Australia. Vermilion also holds an 18.5% working interest in the Corrib gas field in Ireland. Vermilion pays a monthly dividend of Canadian $0.215 per share, which provides a current yield of approximately 7%. Management and directors of Vermilion hold approximately 6% of the outstanding shares, are committed to consistently delivering superior rewards for all stakeholders, and have delivered a 20-year history of market outperformance. Vermilion trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbol VET.

Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel equivalent of oil. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.