Westbrick Energy Ltd. (VET) Earnings Call Transcript & Summary

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Vermilion Energy Westbrick Energy Acquisition Conference Call. [Operator Instructions] Mr. Hatcher, you may now begin your conference.

Thank you, Sylvie. Well, good morning, ladies and gentlemen. Thank you for joining us. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International & HSE; Randy McQuaig, Vice President, North America; and Geoff MacDonald, Vice President of Geosciences. We will be referencing a PowerPoint presentation to discuss the acquisition of Westbrick Energy announced this morning. The presentation can be found on our website under Invest with Us in Events and Presentations. Please refer to our advisory and forward-looking statements at the end of this presentation. It describes forward-looking information, non-GAAP measures and oil and gas terms used today, and outlines the risk factors and assumptions relevant to this discussion. While we're excited to announce the acquisition of Westbrick Energy, this strategic acquisition represents a significant forward step of Vermilion's North American high-grading initiatives to increase operational scale and enhance full-cycle margins in our liquids-rich Deep Basin. The acquisition adds 50,000 BOEs a day of production and 770,000 net acres of contiguous land along with valuable infrastructure. As shown on the map on this slide, this land and infrastructure is complementary to Vermilion's legacy Deep Basin assets, which we expect will provide operational synergies and add further value over time. The acquisition adds 256 million BOEs of 2P reserves increasing our pro forma 2P reserves by 60% to approximately 690 million BOEs. From our initial evaluation, our team has identified over 700 net future drilling locations, providing a robust inventory to keep production flat for over 15 years, while generating significant free cash flow. Based on forward commodity prices, we forecast 2025 net operating income of $275 million, with over $110 million of free cash flow, which is immediately accretive to all per share metrics. The acquisition also significantly increases our long-term free cash flow profile, which will further enhance our return of capital. I'll now pass it to Geoff to provide an overview of the inventory.

Thanks, Dion. Some history for context. Since our first Spirit River, Ellerslie and Cardium wells going back as far as 2009, Vermilion has drilled nearly 300 wells spanning the corridor that we're acquiring from Westbrick. With this technical familiarity, we proactively mapped Westbrick's position sometime ago, determining that we could add over 700 net drilling locations across multiple formations that Vermilion has a history of exploiting in the Deep Basin. Furthermore, Vermilion currently operates significant infrastructure in the Deep Basin, which we can leverage in developing these newly acquired locations. We've been these formations into three groups: the shallows being the oily Upper Cretaceous, Belly River, Cardium and Viking formations; the middle being the high deliverability Spirit River Group, which includes Notikewin, Falher and Wilrich; and lastly, the liquids-rich Lower Mannville and Jurassic age, Bluesky, Ellerslie and Rock Creek. Of note, we were already a partner with Westbrick on approximately 140 of these locations, which speaks to the operational synergies as well as our knowledge of the asset. These newly acquired locations are competitive with Vermilion's existing Deep Basin inventory with half cycle rates of return ranging from 40% to over 100% based on our third-party reserve engineer estimates. Except in unique cases, the existing surface infrastructure in the Deep Basin allows us to view half-cycle economics as a reasonable proxy for full cycle returns. With ongoing discovery, delineation and development of additional zones, the attractive capital efficiency and return profile of the Deep Basin can be expected to perpetuate well into the future. We expect these assets to attract capital within the pro forma portfolio immediately and for the foreseeable future. Although not shown on the Deep Basin rate of return plot, we continue to be impressed by our Montney returns, which rank at the top end of our pro forma Canadian inventory. I'll now pass it back to Dion.

Thank you, Geoff. As noted, we have a long successful history of nearly 30 years operating in the Deep Basin. As shown on the chart on the right-hand side of this slide, we've successfully tripled production from 2010 to 2020 mainly from organic development of the Cardium, the Ellerslie, the Notikewin, and Falher zones. We recently started having success in the Rock Creek formation. The acquisition of Westbrick adds significant operational scale to an established core operating region. Increasing our footprint to over 1.1 million net acres of land with over 75,000 BOEs a day of current production. Following the integration of the asset, we expect to realize operational and financial synergies including capital efficiency improvements, infrastructure optimization, gas marketing opportunities and other corporate synergies. The red wedge on the plot is our Montney Mica asset. We remain excited about the asset and confident and are achieving our target of 28,000 BOEs per day of production and $9 million to $9.5 million of DCET costs. We'll produce over 13,000 BOEs per day in Q4 due to the continued strong well performance. Montney is another long-duration asset where we see over 2 decades of runway given our production plans and depth of drilling inventory. Our Deep Basin Montney liquids-rich natural gas assets will be the primary drivers of growth within our Canadian portfolio with combined production expected to exceed 100,000 BOEs per day in the next several years. Upon closing of the acquisition, Vermilion will have a production base of approximately 135,000 BOEs per day with 80% of our production derived from our global gas franchise, consisting of liquids-rich gas in Alberta and B.C. and European gas weighted production in Ireland, Germany, Netherlands and Croatia. Our Canadian gas netbacks are enhanced by an average liquid yields of 28%, half of which is light oil and condensate, while our European gas production provides direct exposure to LNG prices, which results in top decile netbacks. As a result of this global gas mix, Vermilion realized the highest gas price among our Canadian peers, as shown on the chart illustrating the pro forma realized prices. Pro forma, the company will maintain a balanced fund flow profile between North America and international. We are committed to our International portfolio and continue to view the diversification as a key strategic advantage for the company. We believe our increased scale in North America positions us for even larger international opportunities. Our international assets provide exposure to premium global prices and strong capital efficiencies owing to the low decline nature of the conventional assets, which drives significant free cash flow. We will continue to focus on growing our international assets organically and by acquisitions. As we have demonstrated, following prior acquisitions, we will initiate a process to identify and execute non-core asset divestments in order to accelerate debt reduction and further high-grade our portfolio. With that, I will now pass it over to Lars to discuss the acquisition and pro forma outlook.

Thank you, Dion. We plan to fund the acquisition through Vermilion's existing $1.35 billion credit facility. In connection with the acquisition, we have entered into a new $250 million term loan maturing May of 2028 and have access to a new USD 300 million bridge loan through a debt commitment letter with Royal Bank of Canada and TD Securities. Over the past 4 years, Vermilion made a very concerted effort to pay down debt and successfully reduced debt by over $1.1 billion, while also funding over $1 billion of acquisitions during this time frame. It is because of this prudence that we are able to execute the strategic long-duration acquisition. Upon closing, Vermilion is expected to have net debt of $2 billion with pro forma year-end 2025 net debt of $1.8 billion, a net debt-to-FFO ratio of 1.5x and ample liquidity of approximately $500 million. We plan to increase hedge levels to mitigate financial risk and as mentioned, we will pursue non-core asset divestments in North America to accelerate debt reduction and further high-grade our portfolio, with the objective of reducing the net debt-to-FFO ratio for a targeted range of 1x or less. We expect the acquisition to close by mid-February 2025. Based on this assumption, we anticipate full year 2025 average production to be in the range of 126,000 to 133,000 BOEs a day and 62% natural gas weighted. Capital expenditures are expected to be in the range of $725 million to $775 million. Inclusive of the incremental capital being allocated to the newly acquired Deep Basin assets, the aggregate capital investment into Vermilion's global gas portfolio will represent over 70% of total capital for 2025. We plan to release an updated budget when the acquisition closes. As noted in our budget press release last week, we are increasing our base dividend by 8% to $0.13 per share per quarter effective Q1 2025. This represents 4 consecutive years of dividend increases since 2022. The fixed dividend represents less than 7% of 2025 pro forma FFO and remains at a level we believe is sustainable through commodity cycles, while also providing capacity for continued increases in the future. We remain committed to returning capital to our shareholders through our base dividend and utilizing share buybacks to further reduce our share count. On a pro forma basis, the company will target a return of capital payout of 40% of excess free cash flow until net debt reaches an appropriate level, at which time we will increase the payout back to 50%. The absolute amount of capital returned to shareholders at the pro forma target is expected to be equivalent to our base business with a 50% return of capital payout. Over the long term, the acquisition is expected to increase the amount of capital available for shareholder returns. On a pro forma basis, assuming a mid-February close and using the midpoint of our preliminary production guidance, we forecast 2025 FFO of $1.2 billion or approximately $7.80 per share. On an unhedged basis, FFO was forecast to be about $7.70 per share, which represents a 34% increase over the forecasted 2024 unhedged FFO per share. Free cash flow is forecast to be $450 million or approximately $2.80 per share on an unhedged basis, which represents an over 70% increase over forecast 2024 unhedged FCF and is an indication of just how much value per share this acquisition provides. Based on this preliminary forecast, we expect to exit 2025 with net debt of approximately $1.8 billion representing a net debt-to-FFO ratio of 1.5x. In addition to funding our increased dividend, we plan to continue share repurchases and expect the total value of share repurchases for 2025 to be equivalent to what we would have repurchased under our base business. I will now pass it back to Dion.

Thank you, Lars. To close this presentation, I would like to summarize the positive attributes of this acquisition and the pro forma business. The acquisition refocuses our portfolio on liquids-rich Canadian gas and high-margin European gas. Our premium priced international commodity exposure remains a key differentiating factor for Vermilion, with our international assets generating 50% of our corporate funds flow. On a pro forma basis, Vermilion after almost 3 decades of operational experience in Deep Basin is now the fifth largest Deep Basin producer. The acquisition enhances quality and quantity of our Deep Basin inventory and increases our operational scale, which should drive improved margins. Our absolute return on capital in the near term is expected to be equivalent to our base business and expect it to be positive to shareholder return of capital in the medium and long term. We were able to fund the acquisition on our balance sheet, which enhances the per share value. Debt structure is appropriately termed out and provides ample liquidity of a revolving credit facility, 2025, year-end debt to fund flow ratio is forecasted at a very manageable 1.5x under current strip. We plan to divest non-core assets to accelerate debt reduction and further high-grade our portfolio with the objective of reducing the net debt to fund flow ratio to our targeted range of 1x or less. With this acquisition, the pro forma company has 15% higher excess free cash flow per share of 2025, excluding the impact from any synergies, which we expect to realize over time. We also have 60% higher reserves per share with hundreds of unbooked locations providing significant upside and duration. Well, that concludes my prepared remarks. And with that, we'd like to open it up for questions.

[Operator Instructions] First, we will hear from Menno Hulshof at TD Security.

Can you maybe just give us some background on how this deal came together? How much tension there was in the process? And why you settled on this opportunity instead of consolidating Coelacanth or doing another Eurogas acquisition? And finally, presumably, this precludes you from doing any the other acquisitions over the midterm, but any thoughts there would be helpful as well.

I'll kick it off and then pass it to Lars to talk about the funding of potential other acquisitions. Yes, without getting the detailed thing, if you look at this acquisition, Menno, building on Geoff's comments earlier, I mean, this is an asset that's adjacent to us. We're already a partner in about 140 locations. And so, it's something that we've been monitoring closely for quite a period of time and doing some detailed work for at least a couple of quarters here. There was a process in the fall and that ultimately ended with this acquisition today and this announcement. The process, again, was competitive. But if you look at what's unique about Vermilion in this area, it's just given our legacy position. Again, we've got a lot of land, a lot of infrastructure, a lot of knowledge. We've drilled wells, over 300 of them from top to bottom of this land base. And so I think we are in a unique position given our history and significant holdings in this area. As to Coelacanth, we are a holder in Coelacanth, about 22% of that company. As mentioned on the call, we are very, very excited with our Montney position. Our wells continue to perform quite well. We're trending over 13,000 BOEs per day in Q4, just given the strong well results. We're currently drilling right now, and we'll drill into next year. Coelacanth, we're a happy shareholder. They've got some activity planned going into next year with their infrastructure and starting some production. And so we'll continue to monitor that activity and that opportunity as we go forward. As other European acquisitions, we are super keen to grow our international assets. We've been quite active and looked at multiple opportunities as one would expect, given that's our backyard. We are uniquely positioned, given that we're only 5% of the market in Netherlands and Germany. When you think about that, the majors have messaged, they will exit. We are excited about that. We're well positioned given our 30 years of working with them in these kind of jurisdictions. But one thing we have learned with the majors that you don't control the timing. So we'll be well positioned like everything in our backyard to add operational scale with time. With that, I'll pass it over to Lars to talk about funding of future acquisitions with our debt.

And what we press released this morning was the fully underwritten financing plan that gives us that $500 million of liquidity. So very comfortable with that. If we're able to enhance that plan with non-core asset sales and/or be able to access the public debt markets, that would be more incremental to what we announced in there. And then to Dion's point, from a European acquisition perspective, I would say right now, our capital allocation is very focused on the organic side, just as we look at the sort of queue of opportunities there as we go forward. Being a larger entity as we execute on our deleveraging plan, we think that we are going to be in a position to be opportunistic if the right opportunity comes to fruition overseas.

And maybe I'll just -- for my second question, I'll just touch on operational synergies, which you talked about in your prepared remarks. They're not factored into the valuation, but they are expected to be realized over time. Can you just maybe give us a sense of what is most likely to drive that synergies upside over time? And then are you in a position today to put some rough bookends around it?

I'm going to kick off here, and I'll pass it over to Randy McQuaig. We're not prepared to provide bookends on that. It's something that is real and we'll look to do over time. But maybe just to provide some color on that, Randy, can you elaborate on the type of synergies we're thinking about?

So like as mentioned through this acquisition, we've become one of the dominant players in our core area. So that leads to the ability of further consolidating working interest and drilling high rate of return long-reach wells. A large portion of this infrastructure will now be interconnected, which allows us to optimize production and our operating costs. We also see the ability to high-grade the existing locations that we currently have in our budget, so we can expect to see an improvement there. And then lastly, we do see marketing upside with our commercial-based approach and successful track record of maximizing pricing in the area.

And Menno, you can get a sense, like, again, if you look at the map, you look at the infrastructure, you look at the gas plants, you look at the pipes, hopefully, you get a sense of how intertwined this land base and this infrastructure is. And to Randy's point, whether it's the wells we drill, the length of those wells, the sharing of rigs, sharing our services, the synergies you would expect across the field, things like technology, we're really excited, and I think we'll provide more color on that clarity as we go forward. But at this point, we're quite pleased with the outlook and the opportunity for these synergies.

Next question will be from Jeremy McCrea at BMO.

A couple of questions. The first one I want to start on here is just the inventory that's coming with Westbrick. I'm wondering if you can give like some economics around payout when you get 2x payout, how does this inventory compared to what you have existing here in Vermilion? How do you plan to capitalize this on this inventory in terms of your change in spending plans? And is there anything that you are looking at Westbrick's land and say, we can do better here. We're going to try doing this drill design, this completion design. So a lot in there. If you could just kind of just generally comment on any one of those.

I'll start with some high-level comments and then pass it over to Randy and Geoff, if you want to add to that. We did show the rate of return, so maybe we can start there for the inventory that we see on the land base. And again, this is based on current outlook of commodity prices. So we'll see what happens there. But again, we're seeing 40% to 100% rate of returns. And Geoff talked about the different play types. If you count them up, there's nine discrete plays on our land base here. The range, again, of rate of returns are anywhere from 40% to 100%. The spending profile, Randy touched on this, as you look at the legacy business and the opportunity for synergies, we've been quite active on our land base over the decades. And I think you will see us high-grading some of the inventories that we've got planned with some of these new assets. And then finally on, are the areas we can do better. I think we want to give credit to Westbrick. They are a very good operator and a low-cost operator. And we've done a lot of work, as you can imagine, around benchmarking and whether it's operating costs or drilling costs. So I think we're at a very, very similar level. We'll look to improve on that over time, and that's maybe some of those synergies that we referred to before, we have more activity, more rigs or wells, those kind of things, tying in up infrastructure between the different areas in which we operate. So again, a long-winded way to say is we're quite confident in the outlook. We think we're going to see high grading of our current inventory. They're a great operator. Randy, is there anything else you want to add on the payouts or returns on some of the wells in addition to the rate of returns?

Yes, the payouts are averaging 1 to 2 years and some of the best wells are paying out in under a year. So I mean, very, very positive in that sense, another way to think about when you compare our -- what we're acquiring versus what we have is, we've been active in this area for over 3 decades, and so we're much deeper into our inventory set than Westbrick. Another way to look at it is that roughly 25% of our current land position in this area is undeveloped, whereas our evaluation showed that roughly 75% of Westbrick's land is undeveloped. So there's a lot more Tier 1 inventory available, which has higher rate of returns, and we'll continue to progress that as we evaluate.

And maybe just kind of a final question. Just pulling up Westbrick's production here just for their most recent October month, I know there's some nuances and different things, but we pull something closer to like 57,000 BOE for Westbrick. Does the extra production just related to the Duvernay production and some other associated production with the Duvernay lands? Or is there a bit of a cushion here just not knowing how quickly some of this production is going to decline with Westbrick?

I would say the Westbrick Duvernay production is low. It would not be material relative to the numbers you're quoting here. As to the current production, again, we're guiding to 50,000 BOE for the year. We're quite confident in that production guidance, and we'll look to -- work hard to deliver that or better. But to your point, I think the current run rate is higher than the 50,000 BOE. You also have to factor in the level of capital that we're spending this year. So quite confident. We think we've got a good runway, good plan to meet or beat the guidance that we're talking about today.

Next question will be from Arun Jayaram at JPMorgan Chase.

I wanted to get your thoughts on how the CapEx profile could look over the next 5 years. You guys have highlighted about -- just under $140 million of incremental CapEx to your pro forma guide. But the plan is to maybe grow the production base from 50 to 60 over the next 5 years in BOE per day. Give us a sense of maybe what the CapEx requirements to achieve that level of growth? And maybe just your planned activity levels next year in the Deep Basin?

I'll get it kicked off at a high level and then pass it over to Lars. I would say at the corporate allocation strategy, nothing has changed there. We're going to target modest production growth of that 2% to 3%. We want to ensure we've got a resilient base dividend, and we've increased our base dividend. We've got the capacity, the commitment to increase it from here given the low percentage of our fund flow. And then the variable return of capital for us will continue to be share buybacks. We see a lot of value in the base business, and we're excited to be buying back shares. And again, that's going to range to 3% to 5%. So when you add those things up, again, we're targeting that consistent 9% to 10% TSR. We're able to supplement that from time to time with high rate of return acquisitions. We're excited to do that. Maybe I'll now pass it over to Lars, and you can talk maybe some of the nuance better capital allocation within that overall framework.

So Arun, with the guidance we put out last week, the base business, roughly 86,000 barrels a day on capital of, call it, $610 million, the midpoint there. Now with the pro forma entity, we'll be closer to that 135,000 barrels a day. Capital on these assets will be in that $175 million range. That's on the Westbrick assets for full year 2025. And so I think going forward, we are still committed to delivering that 1% to 3% production growth be on a higher production level now and growing off of that 135 base and sort of think about those two capital numbers that I gave you as a pro forma capital number for Vermilion. I think the other thing that's really exciting, too, and Dion pointed this out in his prepared remarks. The majority of that production growth, the majority of that capital investment happens within this natural gas weighted portion of the portfolio. So Montney Deep Basin in North America and then the onshore gas portfolio within Europe, but hopefully, that gives you a sense. And I mean, if you fast-forward that over the next 5 years, those aren't bad bookends to think about in terms of 1% to 3% production growth on that capital number of, call it, $610 million plus the $175 million.

Got it. So the $140 million increase is just because it's a partial year close, because you'll close in 1Q. Got it. Okay. In terms of -- Lars, any more specifics on the on -- just the general asset sales program, what are some thoughts on what type of proceeds would you like to get in terms of you're high grading with this acquisition this morning, but just maybe some bookends on just general thoughts on the divestiture program?

No, I think at this point, we have done some internal work on this leading up to today's acquisition. We would like to complete that internal work. I think, we do have a vast robust portfolio here in North America, you think about light oil in the U.S., Southeast Saskatchewan, the legacy Deep Basin position and an even this position that we just acquired here, we want to do a fulsome analysis of that in terms of what is the right path forward to sort of strike that balance between accelerating the deleveraging side of it, but also just having as long of a runway possible from an inventory perspective as well. So at this point on, I'd say it's hard to put out sort of targeted disposition numbers and that type of thing because, it's really going to depend on what is sold, what is kept as we sort of go on that path forward.

Next question will be from Travis Wood of National Bank Financial.

I wanted to get a sense around the non-core value. I'm sure you've kind of walked through some debt repayment scenarios on the back end of the deal here. Trying to get a sense of at least some numbers? And then if you could share any light of what non-core means to Vermilion, in the context of the pro forma business, that would be great.

I'll get started here and ask Lars to collaborate more. A couple of data points that we referenced on the call. We're planning to be without acquisition sales, I mean, 1.5x debt to cash flow at the end of the year. Our business, our pro forma business will generate on current strip, about $200 million of excess -- or sorry, a free flow to go down against the balance sheet. And so we'll be deleveraging about a couple of hundred million a year, and we'll finish this year about $1.5 million without any asset sales. And so again, I think we're in a position of strength. Anything we do on the non-core side, and we will do something as we've shown before, it really comes down to that capital allocation thinking. We'll look across the portfolio. We'll say which assets may not attract capital. We'll run a process, we'll say can those assets, can we obtain a retention value that warrants those investment. And through that, we'll make the best business decision for the long-term shareholders. So difficult to point to particular assets at this point, as Lars mentioned, because we're going to want to do that detailed work. We're going to want to test the market. But capital allocation as to what's going to track capital and what's not, will be a big part of that decision given the high-graded depth and quality inventory that we now find ourselves being able to fund. But Lars, do you want to add to that?

Yes. And the only thing I would add Travis, just on the balance sheet side specifically. We're not in a rush to execute those asset sales as well. And so we'll take our time, let that process unfold. That was the rationale for having $500 million of liquidity fully underwritten. We're comfortable here in the near term at that 1.5x leverage that's on sub-$70 oil. That's on, let's call it, $2.35 gas per Mcf. So that's the only thing I would add in addition to Dion's comments is, we'll let this process play out, and we're not in a rush.

Fair enough. And any potential to -- of the infrastructure that comes with this deal on close? Have you kind of earmarked the potential value around that? And given some of your peers have done some infrastructure deals, do you see opportunity there to unlock some short-term liquidity to help fund some of the bridge loans to structure this?

Yes. We'll evaluate everything, Travis. To Randy's point around some of the synergies that we'll look for Geoff's comments on just the quality of the inventory, we'll look to preserve as much of that as we can. Now if the right decision is to sort of forward sell some of those economics because of the price that you can get today, something that we'll consider. But the cost base that we've been able to execute on over the past couple of decades, the cost structure that Westbrick has been able to execute on, it is because of that infrastructure or at least partially part of -- as a result of that infrastructure. So it's something we'll consider, but you just got to think about the cost benefits of it.

And then final question from me is, was the Duvernay ever part of the discussion in terms of the negotiations on getting this across the line?

Yes. We look at everything, Travis. I mean, I think we would have put some initial work in the Duvernay. We look at our legacy skill sets, Geoff spoke about the 3 decades. We've spent working in the Deep Basin and the nine different plays in which we have an opportunity to drill. It's green lower for us, just given what we're focused on with our skill sets and where we see the most value. So that led us to the position we're in today.

Next question will be from Jason Mandel at RBC Capital Markets.

Wondering if you could put a little context around the potential for acquisition opportunity in Europe as it relates to funding in the balance sheet. You talked about sources. But I guess, with this transaction, we go to about 1.5x and then bringing it down, is there kind of a level you're willing to take it to that's above that 1.5x for future acquisition opportunities when they show up?

I'll get it kicked off here and then pass to Lars to build on that. A couple of things. There are still opportunities on the horizon that we spoke in the past, particularly in the Netherlands, we do expect to see that divestment onshore Netherlands proceed. And again, in summary, we're 5% of the market in the Netherlands and Germany and the majors, although they control the time line have messaged that over time, we would expect them to divest. The other color I would add to this, if you think back to the core acquisition where we consolidated our working interest in Ireland, again, that was a great deal for us. And as a reminder, the effective date was Jan 1, 2022. We spent 15 months, which is not uncommon with international acquisitions to close that acquisition. So it closed in March of 2023. So that interim free cash flow. In that case, it was $400 million, took our purchase price from $600 million to an effective purchase price of $200 million at close. So we cut a track for $200 million and consolidated our working interest and added about 8,000 BOEs a day. So again, the nuance in international versus, first is they're often value deals. Second, they do take time to close. And sort of the actual check you cut to acquire those assets is a reasonable number. But with that, do you want to build on that, Lars, with respect to funding of international opportunities?

Yes. Couple of things I'll add to that, Jason. We are very focused on reducing leverage here over the next bit as opposed to increasing leverage. That will be the primary focus. And then, the comment I made earlier to is when we look at capital allocation opportunities, right now, it's actually the organic investment into Europe that is screening tighter than acquisition opportunities. And so we have another very active year in 2025 within Europe, and that's where the focus will be here in the time being. But again, we'll continue to screen everything in our backyard that potentially comes to market.

And then with this acquisition and the added scale as well as leverage, any updates we should expect or any conversations you've had with the rating agencies?

Yes. No, I think with an acquisition of this magnitude, we will make sure that we're in touch with the rating agencies. And you can look back at some of their past publishing and research. I think, they've spoken about the desire for Vermilion to add more operational scale. Dion referenced, our reserve book is going to be growing 60% as a result of this, the production base growing significantly as well. No, we don't do deals just for the sake of getting bigger. The fact that we have an operational presence in the Deep Basin, we're able to add meaningful operational scale. We hope that things like that do come through on the equity and the debt research side.

And if I could just one quick last one. I know you kind of gave what the expectations were for organic production growth. Can you give us a sense as to what maintenance CapEx would look like both North America and in total?

Yes. So we started to steward away from referencing sustaining CapEx. There's a lot of inputs into it in terms of -- if you look at even our capital program here in 2024, a meaningful amount of our capital was invested in projects that won't deliver production growth until 2025 and beyond. And so I think sort of a good couple of benchmarks there, Jason, would be pro forma production in that 135,000 barrel a day range. if you have capital kind of in that, call it, $775 million to $825 million range, that's not a bad way to think about the company. You're getting some production growth out of that. You're still investing in projects that will yield production sort of other than the year that the capital is being invested. So it's not getting to your question there around sustaining CapEx, but we started to steward towards those numbers versus just a flat sustaining capital number.

And at this time, Mr. Hatcher, we have no other questions registered. Please proceed, sir.

Well, thanks for that. We appreciate the time as we go into the holidays. It's fair to say, I am super excited about this acquisition, as I look around the team here, the management team, they're pumped. We're excited to move into the new year, this opportunity. So I want to thank everyone. I want to thank the teams for all their hard work and thank you for participating in this conference call.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Happy, safe holidays.