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Last updated on April 23, 2014 at 20:00 EDT

Vermilion Energy Inc. Announces Results for the Three and Six Months Ended June 30, 2013

August 1, 2013

CALGARY, Aug. 1, 2013 /PRNewswire/ – Vermilion Energy Inc. (“Vermilion”, “We”,
“Our”, “Us” or the “Company”) (TSX, NYSE: VET) is pleased to report
interim operating and unaudited financial results for the three and six
months ended June 30, 2013.

HIGHLIGHTS

        --  We recorded the strongest operating quarter in our history in
            the second quarter of 2013.  Thus far, our capital program has
            achieved better than anticipated results, generating production
            growth in all four of our business units.  The Company
            previously increased production guidance following the first
            quarter of 2013. However, in view of our operational
            performance, we are further increasing our production guidance
            for 2013 to between 40,500 and 41,000 boe/d, up from previous
            guidance of 39,500 to 40,500 boe/d and original guidance of
            39,000 to 40,500 boe/d.

        --  Achieved record average production of 42,813 boe/d during the
            second quarter of 2013, compared to 38,707 boe/d in the first
            quarter of 2013 and 39,168 boe/d in the second quarter of 2012.
            Quarter-over-quarter growth resulted primarily from strong
            production additions from our Cardium and Mannville drilling in
            Canada and high productivity from our two-well sidetrack
            program in Australia.

        --  Increased quarter-over-quarter production by 13% to over 9,500
            boe/d during the second quarter of 2013 from our Cardium light
            oil play in Western Canada.

        --  Continued our Mannville liquids-rich gas horizontal development
            program by drilling our third Ellerslie well and bringing on
            production from the second well which was drilled and completed
            during the first quarter.  In their third and fourth months of
            production, the first two wells are averaging approximately 4.0
            mmcf/d of sales gas and over 400 bbls/d of natural gas liquids
            (75% condensate) per well.

        --  Completed a two-well sidetrack drilling program in Australia.
            The wells were brought on production at restricted rates and
            have demonstrated productive capacity in excess of 6,000 bbls/d
            and 3,000 bbls/d, respectively.  These wells are currently
            being produced intermittently to match production to marketing
            arrangements and to maintain our long-term Wandoo field
            production rate at between 6,000 and 8,000 bbls/d.

        --  Concluded a five-well drilling program in the Champotran field
            in France in the second quarter.  Four of the wells were infill
            wells and the fifth well was an approximately two-kilometer
            step-out well to test southern extension of the field.  All
            five of the wells were successful, with the four infill wells
            completed in June and the extension well completed in July.
            All five wells currently have per-well production rates in
            excess of 300 bbls/d at low water cuts.  In aggregate, current
            production from the wells is approximately 1,800 bbls/d at a 4%
            water cut.

        --  Generated fund flows from operations of $174.6 million ($1.73
            per share) in the second quarter of 2013, as compared to $163.6
            million ($1.65 per share) in the first quarter of 2013 and
            $127.8 million ($1.30 per share) in the second quarter of
            2012.  Fund flows from operations for the second quarter of
            2013 increased 7% on a quarter-over-quarter basis and 37% on a
            year-over-year basis.

        --  We continue to benefit from strong pricing driven by our
            significant exposure to Brent-based crude oil, WTI-based crude
            oil and European gas. Vermilion's Brent-based crude production,
            representing 41% of total production, averaged $105.25 per bbl
            in the quarter.  WTI crude, representing 25% of our production,
            averaged $94.22 per bbl. Vermilion's natural gas production in
            the Netherlands, representing approximately 15% of production,
            received an average price of $10.82 per mcf during the second
            quarter of 2013, a premium of $7.29 per mcf as compared to
            AECO.

        --  Increased our significant position in the Duvernay liquids-rich
            natural gas resource play with the acquisition of an additional
            46 sections since the first quarter, bringing our total land
            position to 318 net sections. This land position, which spans
            the breadth of the liquids-rich natural gas fairway in two
            largely-contiguous blocks, was assembled for approximately $76
            million dollars ($375 per acre). We currently anticipate
            drilling our first horizontal Duvernay well prior to year-end
            2013, with completion planned for early 2014.

        --  In Ireland, tunneling, onshore pipelining, offshore
            umbilical-laying, and offshore seismic acquisition activities
            for our Corrib project continued during the second quarter.
            Based on our deterministic schedule for remaining construction
            and commissioning activities, first gas production is
            anticipated to occur between the end of 2014 and early 2015.

        --  In June 2013, Vermilion's syndicate of lenders agreed to
            increase the Company's 3-year revolving borrowing base from
            $950 million to $1.2 billion. At the end of the second quarter,
            Vermilion had available capacity under the borrowing base of
            $591 million and a net debt to annualized second quarter fund
            flows from operations ratio of 0.97 times.

Conference Call and Audio Webcast Details

Vermilion will discuss these results in a conference call to be held on
Thursday, August 1, 2013 at 9:00 AM MST (11:00 AM EST).  To
participate, you may call 1-888-231-8191 (Canada and US Toll Free) or
1-647-427-7450 (International and Toronto Area).  The conference call
will also be available on replay by calling 1-855-859-2056 using
conference ID number 78595598.  The replay will be available until
midnight eastern time on August 8, 2013.

You may also listen to the audio webcast by clicking http://event.on24.com/r.htm?e=626589&s=1&k=1A994A34B44915C6630ABBE2027B8AD9 or visit Vermilion’s website at www.vermilionenergy.com/ir/eventspresentations.cfm.

ABBREVIATIONS


    bbl(s)    barrel(s)

    mbbls     thousand barrels

    bbls/d    barrels per day

    mcf       thousand cubic feet

    mmcf      million cubic feet

    bcf       billion cubic feet

    mcf/d     thousand cubic feet per day

    mmcf/d    million cubic feet per day

    GJ        gigajoules

    MWh       megawatt hour

    boe       barrel of oil equivalent, including: crude oil, natural gas
              liquids and natural gas (converted on the basis of one boe
              for  six mcf of natural gas)

    mboe      thousand barrel of oil equivalent

    mmboe     million barrel of oil equivalent

    boe/d     barrel of oil equivalent per day

    NGLs      natural gas liquids

    WTI       West Texas Intermediate, the reference price paid for crude
              oil of standard grade in U.S. dollars at Cushing, Oklahoma

    AECO      the daily average benchmark price for natural gas at the AECO
              'C' hub in southeast Alberta

    TTF       the price for natural gas in the Netherlands, quoted in MWh
              of natural gas per hour per day, at the Title Transfer
              Facility Virtual Trading Point operated by Dutch TSO Gas
              Transport Services

    $M        thousand dollars

    $MM       million dollars

    PRRT      Petroleum Resource Rent Tax, a profit based tax levied on
              petroleum projects in Australia

DISCLAIMER

Certain statements included or incorporated by reference in this
document may constitute forward looking statements or financial
outlooks under applicable securities legislation.  Such forward looking
statements or information typically contain statements with words such
as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”,
“propose”, or similar words suggesting future outcomes or statements
regarding an outlook.  Forward looking statements or information in
this document may include, but are not limited to:

        --  capital expenditures;
        --  business strategies and objectives;
        --  reserve quantities and the discounted present value of future
            net cash flows from such reserves;
        --  petroleum and natural gas sales;
        --  future production levels (including the timing thereof) and
            rates of average annual production growth;
        --  exploration and development plans;
        --  acquisition and disposition plans and the timing thereof;
        --  operating and other expenses, including the payment of future
            dividends;
        --  royalty and income tax rates;
        --  the timing of regulatory proceedings and approvals; and
        --  the timing of first commercial natural gas; and the estimate of
            Vermilion's share of the expected natural gas production from
            the Corrib field.

Such forward looking statements or information are based on a number of
assumptions all or any of which may prove to be incorrect.  In addition
to any other assumptions identified in this document, assumptions have
been made regarding, among other things:

        --  the ability of Vermilion to obtain equipment, services and
            supplies in a timely manner to carry out its activities in
            Canada and internationally;
        --  the ability of Vermilion to market crude oil, natural gas
            liquids and natural gas successfully to current and new
            customers;
        --  the timing and costs of pipeline and storage facility
            construction and expansion and the ability to secure adequate
            product transportation;
        --  the timely receipt of required regulatory approvals;
        --  the ability of Vermilion to obtain financing on acceptable
            terms;
        --  foreign currency exchange rates and interest rates;
        --  future crude oil, natural gas liquids and natural gas prices;
            and
        --  Management's expectations relating to the timing and results of
            exploration and development activities.

Although Vermilion believes that the expectations reflected in such
forward looking statements or information are reasonable, undue
reliance should not be placed on forward looking statements because
Vermilion can give no assurance that such expectations will prove to be
correct.  Financial outlooks are provided for the purpose of
understanding Vermilion’s financial strength and business objectives
and the information may not be appropriate for other purposes.  Forward
looking statements or information are based on current expectations,
estimates and projections that involve a number of risks and
uncertainties which could cause actual results to differ materially
from those anticipated by Vermilion and described in the forward
looking statements or information.  These risks and uncertainties
include but are not limited to:

        --  the ability of management to execute its business plan;
        --  the risks of the oil and gas industry, both domestically and
            internationally, such as operational risks in exploring for,
            developing and producing crude oil, natural gas liquids and
            natural gas;
        --  risks and uncertainties involving geology of crude oil, natural
            gas liquids and natural gas deposits;
        --  risks inherent in Vermilion's marketing operations, including
            credit risk;
        --  the uncertainty of reserves estimates and reserves life;
        --  the uncertainty of estimates and projections relating to
            production and associated expenditures;
        --  potential delays or changes in plans with respect to
            exploration or development projects
        --  Vermilion's ability to enter into or renew leases on acceptable
            terms;
        --  fluctuations in crude oil, natural gas liquids and natural gas
            prices, foreign currency exchange rates and interest rates;
        --  health, safety and environmental risks;
        --  uncertainties as to the availability and cost of financing;
        --  the ability of Vermilion to add production and reserves through
            exploration and development activities;
        --  the possibility that government policies or laws may change or
            governmental approvals may be delayed or withheld;
        --  uncertainty in amounts and timing of royalty payments;
        --  risks associated with existing and potential future law suits
            and regulatory actions against Vermilion; and
        --  other risks and uncertainties described elsewhere in this
            document or in Vermilion's other filings with Canadian
            securities regulatory authorities.

The forward looking statements or information contained in this document
are made as of the date hereof and Vermilion undertakes no obligation
to update publicly or revise any forward looking statements or
information, whether as a result of new information, future events or
otherwise, unless required by applicable securities laws.

In accordance with National Instruments 51-101, natural gas volumes have
been converted on the basis of six thousand cubic feet of natural gas
to one barrel of oil equivalent.  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.

Financial data contained within this document are reported in Canadian
dollars, unless otherwise stated.


    HIGHLIGHTS                                                               

                               Three Months Ended           Six Months Ended

    ($M except as        June       March        June        June        June
    indicated)            30,         31,         30,         30,         30,

    Financial            2013        2013        2012        2013        2012

    Petroleum and
    natural gas
    sales             311,966     309,576     246,544     621,542     557,032

    Fund flows
    from
    operations1       174,592     163,629     127,775     338,221     278,897

      Fund flows
      from
      operations
      ($/basic
      share)             1.73        1.65        1.30        3.38        2.87

      Fund flows
      from
      operations
      ($/diluted
      share)             1.71        1.61        1.28        3.33        2.82

    Net earnings      106,198      52,137      37,816     158,335     102,910

      Net
      earnings
      per share
      ($/basic
      share)             1.05        0.53        0.39        1.58        1.06

    Capital
    expenditures       78,118     180,469      94,888     258,587     189,248

    Acquisitions            -           -           -           -     106,184

    Asset
    retirement
    obligations
    settled             2,370       1,388       2,581       3,758       3,347

    Cash
    dividends
    ($/share)            0.60        0.60        0.57        1.20        1.14

    Dividends
    declared           60,776      59,612      55,962     120,388     111,086

    Net
    dividends1         42,146      44,080      37,181      86,226      74,747

      % of fund
      flows from
      operations,
      gross               35%         36%         44%         36%         40%

      % of fund
      flows from
      operations,
      net                 24%         27%         29%         25%         27%

    Total net
    dividends,
    capital
    expenditures
    and asset
    retirement
    obligations       122,634     225,937     134,650     348,571     267,342

      % of fund
      flows from
      operations          70%        138%        105%        103%         96%

      % of fund
      flows from
      operations
      (excluding
      the Corrib
      project)            55%        127%         93%         90%         86%

    Net debt1         674,368     744,762     524,610     674,368     524,610

    Operational                                                        

    Production                                                               

      Crude oil
      (bbls/d)         26,638      23,583      24,658      25,119      24,576

      NGLs
      (bbls/d)          1,775       1,431       1,405       1,604       1,389

      Natural gas
      (mmcf/d)          86.40       82.16       78.63       84.29       79.51

      Total
      (boe/d)          42,813      38,707      39,168      40,772      39,217

    Average
    realized
    prices                                                                   

      Crude oil
      and NGLs
      ($/bbl)           98.95      103.98      100.07      101.42      103.17

      Natural gas
      ($/mcf)            7.22        6.77        5.79        7.00        5.78

    Production
    mix (% of
    production)                                                              

      % priced
      with
      reference
      to WTI              25%         24%         23%         24%         23%

      % priced
      with
      reference
      to AECO             17%         18%         18%         18%         18%

      % priced
      with
      reference
      to European
      gas                 17%         18%         16%         17%         16%

      % priced
      with
      reference
      to Dated
      Brent               41%         40%         43%         41%         43%

    Netbacks
    ($/boe)1                                                                 

      Operating
      netback           59.30       59.18       53.88       59.24       54.79

      Fund flows
      netback           44.90       43.89       39.40       44.40       39.85

      Operating
      expenses          12.36       14.10       12.41       13.21       12.54

    Average
    reference
    prices                                                                   

      WTI (US
      $/bbl)            94.22       94.37       93.49       94.30       98.21

      Edmonton
      Sweet index
      (US $/bbl)        90.56       87.42       83.29       88.99       87.86

      Dated Brent
      (US $/bbl)       102.44      112.55      108.19      107.50      113.34

      AECO ($/GJ)        3.35        3.03        1.80        3.19        1.92

      Netherlands
      gas price
      ($/GJ)            10.14       10.40        9.45       10.23        9.50

    Share
    information
    ('000s)                                                            

    Shares
    outstanding -
    basic             101,418      99,462      98,330     101,418      98,330

    Shares
    outstanding -
    diluted1          103,735     102,380     101,249     103,735     101,249

    Weighted
    average
    shares
    outstanding -
    basic             100,964      99,301      97,937     100,137      97,291

    Weighted
    average
    shares
    outstanding -
    diluted           102,223     101,349      99,923     101,578      99,000


    1  The above table includes non-GAAP measures which may not be
       comparable to other companies.  Please see the "Non-GAAP
       Measures" section of Management's Discussion and Analysis.

OPERATIONAL REVIEW AND OUTLOOK

Vermilion’s strong performance during the second quarter illustrates our
consistent operational execution and the advantages of our global
diversification strategy. Thus far in 2013, we have achieved growth
across all four of our operating regions resulting in record
consolidated three and six-month production volumes of 42,813 and
40,772 boe/d, respectively.

Our diversified product mix continues to afford a significant
competitive advantage. In the second quarter, 66% of production volumes
were Brent and WTI-based crude oil and liquids and 17% was high-netback
European gas. Our Brent-based crude (41% of production) continues to
receive a premium to the Dated Brent index, resulting in an average
realized price of $105.25 per barrel for the second quarter. In
addition, our Netherlands natural gas production received an average
price of $10.82 per mcf, a premium of $7.29 per mcf compared to an
average second quarter price of $3.53 per mcf for AECO natural gas in
Canada. Our consistent production growth and increasing exposure to
liquids and European gas enabled fund flows from operations to grow 7%
quarter-over-quarter and 37% year-over-year.

The majority of our Canadian development activities continued to be
focused on the development of our Cardium light oil play. Well
performance continues to outpace that of our peers in the area,
demonstrating the quality of our land position in the West Pembina
region. Since entering the play in 2009, we have drilled 202 gross
wells (141 net) in the Cardium and increased production to over 9,500
boe/d. We continue to optimize completion technology and well designs,
and remain one of few companies in our producing area to employ long
reach wells (greater than one mile in length). After demonstrating
production improvement and a significant reduction in per-section costs
by drilling long-reach 1.5-mile horizontal wells, we are now planning
on drilling a higher percentage of 1.5-mile wells and several 2.0-mile
pilot wells over the remainder of 2013. The optimization of frac design
and fluids, multi-well pads and drilling longer horizontal wells has
enabled us to reduce well costs from more than $5 million per section
at the outset of development in 2009 to approximately $3 million per
section in the second quarter of 2013. Furthermore, in pursuit of
ongoing well cost reduction and enhanced environmental stewardship, we
are testing several alternative processes for the recycling of frac
flowback water. We also initiated a water injection pilot to test
applicability of water-flooding to this reservoir. We anticipate our
Cardium drilling inventory will last five to six years at a drilling
rate of 40 to 60 wells per year. Our per unit operating costs remain
less than $6 per boe for our operated production, resulting in strong
operating netbacks of approximately $65 per boe during the second
quarter.

In addition to the Cardium, we have also identified a significant
inventory of Mannville condensate-rich natural gas targets in the
Drayton Valley area. During 2013, our plans are to drill a total of six
gross (3.2 net) Mannville wells targeting the Ellerslie formation.
During the second quarter, we drilled and completed our third Ellerslie
well and brought on production from our second well, which was drilled
and completed during the first quarter. In its fourth month of
production, the first well is producing at a rate of approximately 3.5
mmcf/d of sales gas with 496 barrels per day condensate and natural gas
liquids (79% condensate).  In its third month of production, the second
well is producing at approximately 4.5 mmcf/d of sales gas with 322
barrels per day of natural gas liquids (70% condensate).  The third
well was brought on production in July and has averaged approximately
1.3 mmcf/d of sales gas with 466 barrels per day of associated natural
gas liquids (77% condensate) at an average flowing tubing pressure of
1,125 pounds per square inch during the first two weeks of production.

We continue to expand our position in the Duvernay liquids-rich natural
gas resource play with an additional 36.6 net sections acquired in the
second quarter and nine net sections acquired subsequent to quarter
end. In total, we have amassed 318 net sections in the Edson and
Drayton Valley areas spanning the breadth of the liquids-rich natural
gas fairway, at a cost of approximately $76 million ($375 per acre). 
To date, we have drilled three vertical stratigraphic test wells and
plan to drill our first horizontal well late in 2013, with completion
to occur in 2014. Our Duvernay rights generally underlie our Cardium
and Mannville liquids-rich gas positions, allowing for potential
infrastructure, operational and timing advantages should full field
development of the Duvernay be pursued.  Combined, our Cardium,
Mannville and Duvernay positions provide us with exploration and
development opportunities in our core Canadian operating region that
have the potential to deliver strong production and reserve growth into
the latter half of the decade.

Our Australian activities during the first half of 2013 were focused on
completion of the drilling program at Wandoo. We drilled two sidetracks
off existing wells, including the longest horizontal section yet
drilled at Wandoo to-date of 3,400 metres. The 2013 drilling program
has been our most successful effort yet in Australia.  Both sidetracks
were brought on production at restricted rates in April, demonstrating
productive capacities in excess of 6,000 bbls/d and 3,000 bbls/d,
respectively.  To meet current marketing agreements and provide
long-term certainty to our customers, our current plan is to maintain
production levels within our prior guidance of between 6,000 bbls/d and
8,000 bbls/d. We anticipate maintaining these production levels in
Australia for the foreseeable future with drilling programs
approximately every two years. Wandoo oil garners a premium to the
Dated Brent index and incurs no transportation cost as production is
sold directly from the platform, leading to very high netbacks.

During the second quarter, we concluded an initial four-well infill
drilling program in the Champotran field in France. The program was
subsequently expanded to five wells to drill a two-kilometer step-out
well to the south of the existing field.  All five of the wells were
successful, with the four infill wells completed in June and the
extension well completed in July.  All five wells currently have
per-well production rates in excess of 300 bbls/d at low water cuts. 
In aggregate, current production from the wells is approximately 1,800
bbls/d at a 4% water cut.  Additional activities in France included
workovers, recompletions and facilities upgrades in both the Paris and
Aquitaine Basins. In 2012, we completed two acquisitions that were
natural additions to our asset base in France and further secured our
position as the leading oil producer in the country. We continue to
integrate these assets and to identify further opportunities to
increase production through seismic data acquisition, workovers,
optimized water-flood management and development drilling. Our French
business is now an organic growth asset, featuring low base decline
rates, high netbacks from Brent-indexed production, strong cash flow
generation and high capital efficiencies on development projects. We
are increasing our France-based technical staffing to identify and
execute additional investment opportunities in these large, complex,
conventional light oil fields in both the Paris and Aquitaine Basins.

We continued permitting and drilling preparations in the Netherlands for
a three-well drilling campaign in the second half of 2013. Our Garijp
debottlenecking project was completed in the first quarter of 2013,
enabling incremental production from two wells previously drilled at
Vinkega.  Surface facilities for the multi-zone Langezwaag-1 well (42%
working interest) were completed and commissioned mid-way through the
second quarter.  Langezwaag-1 is currently producing from the Vlieland
zone at an average rate of 3.0 mmcf/d, net to Vermilion.  We intend to
increase activity in the Netherlands each year to maintain a rolling
inventory of projects so that each year’s capital program will involve
a combination of drilling new wells and the tie-in of previous
successes. In March, we were awarded an exploration license for the
Akkrum concession, located directly between our existing Gorredijk and
Leeuwarden concessions. Covering more than 54,000 acres, the Akkrum
concession adds to our significant land position and future potential
prospects in the Netherlands. Over the last year, we have more than
doubled our undeveloped acreage position in the Netherlands to more
than 435,000 net acres.  Like our French Business Unit, we now consider
our Netherlands Business Unit to be an organic growth business, and we
are increasing our technical staffing in the Netherlands to turn our
substantial inventory of prospect leads into drillable projects.

In Ireland, tunneling activities related to the completion of the nine
kilometer onshore pipeline for Corrib commenced in December, 2012. 
Various other onshore and offshore activities have progressed as well
over the first half of 2012, including umbilical lays to the offshore
wells, onshore pipelining in segments that are not within the tunnel,
construction of the tunnel boring machine reception site and gas plant
pre-commissioning.  Tunneling, construction, commissioning and start-up
activities are anticipated to take approximately 18 months to complete,
with first gas anticipated between the end of 2014 and early 2015. Peak
production is expected to be reached in mid-2015, with peak production
levels of approximately 55 mmcf/d (9,000 boe/d), net to Vermilion.

With respect to current well and facility deliverability, we are not
currently producing at full capacity in our Australia and Netherlands
business units. Our conservative approach to utilizing available well
deliverability is supported by several considerations.  In general, we
seek to maximize capital efficiency, which means that in some cases, we
do not install facility capacity and well equipment to maximize initial
production rates.  In other cases, there are technical or commercial
drivers, such as reservoir management or long-term product marketing
considerations, that lead us to hold production levels below available
deliverability.  Moreover, our capital markets model is based on
low-risk, ratable organic growth along with income to our
shareholders.  We believe that our conservative approach to production
management reduces the risk of execution of our growth and income model
in future time periods.

Our objective remains to produce ratable annual growth at the
consolidated company level of approximately 5% to 7% per year, before
consideration of Corrib’s future impact.  With Corrib’s anticipated
contribution  to our production and cash flow streams, we continue to
target overall growth of approximately 30% to 50,000 boe/d from 2012 to
2015, and fund flows from operations growth of approximately 40% over
the same period. Near term growth and cash flow are expected to be
driven by continued Cardium and Mannville development in Canada, oil
development activities in France, and high-netback natural gas drilling
in the Netherlands.  A significant increment of production growth and
free cash flow growth is expected from Corrib between the end of 2014
and early 2015, with full production achieved during 2015.  Our
Australian Business Unit is expected to provide steady production as
well as significant free cash flow.

We increased our monthly dividend by 5.3% in the first quarter of 2013,
from $0.19 to $0.20 per share. The increase became effective for the
January 2013 dividend paid February 15, 2013. With the increasing
certainty for Corrib development timing and the anticipated strength of
future cash flows from all of our worldwide businesses, we are
committed and believe we are well positioned to provide a reliable and
growing dividend stream to investors.

On March 12, 2013, Vermilion shares began trading on the New York Stock
Exchange under the ticker symbol “VET”.  As an international oil and
gas producer, we believe the secondary listing will assist in
broadening our investor base and increase trading liquidity.

Vermilion’s conservative fiscal management and capital discipline leaves
us well positioned to execute our growth-and-income model and provide
growth to investors on a per share basis. The management and directors
of Vermilion continue to hold approximately 8% of the outstanding
shares and remain committed to delivering superior rewards to all
stakeholders. Continuing to be acknowledged for excellence in our
business practices, Vermilion was recognized for the fourth consecutive
year by the Great Place to Work® Institute in both Canada and France.
Vermilion ranked as the 22nd Best Workplace in Canada among more than
315 companies. Our French unit ranked as the 27th Best Workplace in the
country.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following is Management’s Discussion and Analysis (“MD&A”), dated
July 31, 2013, of Vermilion Energy Inc.’s (“Vermilion” or the
“Company”) operating and financial results as at and for the three and
six months ended June 30, 2013 as compared with the corresponding
periods in the prior year.

This discussion should be read in conjunction with the unaudited
condensed consolidated interim financial statements for the three and
six months ended June 30, 2013 and the audited consolidated financial
statements for the year ended December 31, 2012 and 2011, together with
accompanying notes.  Additional information relating to Vermilion,
including its Annual Information Form, is available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.

The unaudited condensed consolidated interim financial statements for
the three and six months ended June 30, 2013 and comparative
information have been prepared in Canadian dollars, except where
another currency has been indicated, and in accordance with IAS 34,
“Interim financial reporting”, as issued by the International
Accounting Standards Board.

NON-GAAP MEASURES

This report includes non-GAAP measures as further described herein. 
These non-GAAP measures do not have standardized meanings prescribed by
International Financial Reporting Standards (“IFRS” or, alternatively,
“GAAP”) and therefore may not be comparable with the calculations of
similar measures for other entities.

“Fund flows from operations” represents cash flows from operating activities before changes in
non-cash operating working capital and asset retirement obligations
settled.  Management considers fund flows from operations and fund
flows from operations per share to be key measures as they demonstrate
Vermilion’s ability to generate the cash necessary to pay dividends,
repay debt, fund asset retirement obligations and make capital
investments.  Management believes that by excluding the temporary
impact of changes in non-cash operating working capital, fund flows
from operations provides a useful measure of Vermilion’s ability to
generate cash that is not subject to short-term movements in non-cash
operating working capital.

“Fund flows from operations (excluding the Corrib project)” represents fund flows from operations excluding expenses related to the
Corrib project.  Management believes that by excluding expenses related
to the Corrib project, fund flows from operations (excluding the Corrib
project) provides a useful measure of Vermilion’s ability to generate
cash from its current producing assets.

The most directly comparable GAAP measure to fund flows from operations
and fund flows from operations (excluding the Corrib project) is cash
flows from operating activities.

Cash flows from operating activities as presented in Vermilion’s
consolidated statements of cash flows are reconciled to fund flows from
operations and fund flows from operations (excluding the Corrib
project) as follows:


                                Three Months Ended            Six Months Ended

                         June        March        June     June 30,        June
                          30,          31,         30,                      30,

    ($M)                 2013         2013        2012         2013        2012

    Cash flows        179,074      190,712     123,485      369,786     248,372
    from
    operating
    activities

    Changes in        (6,852)     (28,471)       1,709     (35,323)      27,178
    non-cash
    operating
    working
    capital

    Asset               2,370        1,388       2,581        3,758       3,347
    retirement
    obligations
    settled

    Fund flows        174,592      163,629     127,775      338,221     278,897
    from
    operations

    Expenses            2,036        1,855       2,344        3,891       4,708
    related to
    the Corrib
    project

    Fund flows        176,628      165,484     130,119      342,112     283,605
    from
    operations
    (excluding
    the Corrib
    project)

“Cash dividends per share” represents cash dividends declared per share by Vermilion.

“Net dividends” are dividends declared less proceeds received by Vermilion for the
issuance of shares pursuant to the dividend reinvestment plan, both as
presented in Vermilion’s consolidated statements of changes in
shareholders’ equity.  Dividends both before and after the dividend
reinvestment plan are reviewed by management and are assessed as a
percentage of fund flows from operations to analyze the amount of cash
that is generated by Vermilion which is being used to fund dividends. 
Dividends declared is the most directly comparable GAAP measure to net
dividends.

“Total net dividends, capital expenditures and asset retirement
obligations settled”
are net dividends plus the following amounts from Vermilion’s
consolidated statements of cash flows: drilling and development,
exploration and evaluation, dispositions and asset retirement
obligations settled.

“Total net dividends, capital expenditures and asset retirement
obligations settled (excluding the Corrib project)”
are total net dividends, capital expenditures and asset retirement
obligations settled excluding drilling and development and asset
retirement obligations settled relating to the Corrib project.

Total net dividends, capital expenditures and asset retirement
obligations settled and total net dividends, capital expenditures and
asset retirement obligations settled (excluding the Corrib project) are
reviewed by management and are assessed as a percentage of fund flows
from operations and fund flows from operations (excluding the Corrib
project) to analyze the amount of cash that is generated by Vermilion
that is available to repay debt and fund potential future acquisitions
and capital expenditures.

Dividends declared, total net dividends, capital expenditures and asset
retirement obligations settled and total net dividends, capital
expenditures and asset retirement obligations settled (excluding the
Corrib project) are reconciled to their most directly comparable GAAP
measures as follows:


                                   Three Months Ended            Six Months Ended

                       June 30,        March     June 30,     June 30,     June 30,
                                         31,

    ($M)                   2013         2013         2012         2013        2012 

    Dividends            60,776       59,612       55,962      120,388      111,086
    declared

    Issuance of        (18,630)     (15,532)     (18,781)     (34,162)     (36,339)
    shares
    pursuant to
    the dividend
    reinvestment
    plan

    Net                  42,146       44,080       37,181       86,226       74,747
    dividends

    Drilling and         75,005      179,520       77,956      254,525      165,852
    development

    Dispositions              -      (8,627)            -      (8,627)            -

    Exploration           3,113        9,576       16,932       12,689       23,396
    and
    evaluation

    Asset                 2,370        1,388        2,581        3,758        3,347
    retirement
    obligations
    settled

    Total net           122,634      225,937      134,650      348,571      267,342
    dividends,
    capital
    expenditures
    and asset
    retirement
    obligations
    settled

    Capital
    expenditures
    and asset
    retirement
    obligations
    settled

       related         (24,878)     (16,520)     (13,928)     (41,398)     (23,410)
    to the
    Corrib
    project

    Total net
    dividends,
    capital
    expenditures
    and asset
    retirement
    obligations
    settled

                         97,756      209,417      120,722      307,173      243,932
    (excluding
    the Corrib
    project)

“Net debt” is the sum of long-term debt and working capital as presented in
Vermilion’s consolidated balance sheets.  Net debt is used by
management to analyze the financial position and leverage of
Vermilion.  The most directly comparable GAAP measure is long-term
debt.

Long-term debt as presented in Vermilion’s consolidated balance sheets
is reconciled to net debt as follows:


                                                              As At

                                                  June 30,       Dec 31,

    ($M)                                              2013          2012

    Long-term debt                                 780,470       642,022

    Current                                        325,912       355,711
    liabilities

    Current assets                               (432,014)     (320,502)

    Net debt                                       674,368       677,231

“Netbacks” are per boe and per mcf measures used in the analysis of operational
activities and are used by management as a basis for decisions on
capital allocation.

“Diluted shares outstanding” is the sum of shares outstanding at the period-end plus outstanding
awards under Vermilion’s equity based compensation plan, based on
current estimates of future performance factors and forfeitures. The
most directly comparable GAAP measure is shares outstanding.

Shares outstanding is reconciled to diluted shares outstanding as
follows:


                                                             As At

                                       June 30,     March 31,     June 30,

    ('000s of shares)                      2013          2013         2012

    Shares outstanding                  101,418        99,462       98,330

    Potential shares issuable             2,317         2,918        2,919
    pursuant to the equity based
    compensation plan

    Diluted shares outstanding          103,735       102,380      101,249

OPERATIONAL ACTIVITIES  

Canada

Vermilion drilled three (1.9 net) wells during the second quarter of
2013. In the Cardium, Vermilion drilled one (1.0 net) horizontal well
and brought twelve gross operated and two non-operated wells on
production during the quarter. In the Mannville, Vermilion drilled two
(0.9 net) wells and brought one well on production. Drilling and
completion activities were lower than in the first quarter of 2013 as a
result of some activities being deferred until the summer months
following spring break-up.

France

Vermilion completed its five-well Champotran drilling program during the
second quarter of 2013. The Company also completed a number of
workovers in both the Paris and Aquitaine Basins. Late in the quarter,
Vermilion commenced 3D seismic and subsurface studies in the Vic Bilh
region that will continue into the latter half of the year.

Netherlands

Operating activities in the second quarter focused on facility
maintenance and site construction. Vinkega-2 surface facilities were
commissioned for first gas in late June, and Langezwaag-1 surface
facilities were commissioned for first gas in mid-May.  Vermilion is
currently planning and preparing for a three well drilling program in
the Netherlands during the second half of 2013.

Australia

Australian activity in the second quarter focused on completion of a
two-well drilling program and demobilization of the rig.  Other
activities included minor facility maintenance and repairs.

PRODUCTION


                                Three Months Ended           % change       Six Months Ended         %
                                                                                                change

                           June      March       June   Q2/13     Q2/13       June       June     2013
                            30,        31,        30,     vs.       vs.        30,        30,      vs.

                           2013       2013       2012   Q1/13     Q2/12       2013       2012     2012

    Canada                                                                                            

      Crude oil &        10,610      9,301      9,078     14%       17%      9,959      8,977      11%
      NGLs
      (bbls/d)

      Natural gas         43.69      41.04      41.32      6%        6%      42.37      41.58       2%
      (mmcf/d)

      Total              17,892     16,140     15,965     11%       12%     17,021     15,906       7%
      (boe/d)

      % of                  42%        41%        40%                          41%        41%
      consolidated

    France                                                                                            

      Crude oil          10,390     10,330      9,931      1%        5%     10,360     10,101       3%
      (bbls/d)

      Natural gas          4.19       4.21       3.57      -        17%       4.20       3.53      19%
      (mmcf/d)

      Total              11,088     11,032     10,526      1%        5%     11,060     10,689       3%
      (boe/d)

      % of                  26%        29%        27%                          27%        27%
      consolidated

    Netherlands                                                                                       

      NGLs                   50         96         84   (48%)     (40%)         73         78     (6%)
      (bbls/d)

      Natural gas         38.52      36.91      33.74      4%       14%      37.72      34.41      10%
      (mmcf/d)

      Total               6,470      6,248      5,707      4%       13%      6,360      5,813       9%
      (boe/d)

      % of                  15%        16%        15%                          16%        15%
      consolidated

    Australia                                                                                         

      Crude oil           7,363      5,287      6,970     39%        6%      6,331      6,809     (7%)
      (bbls/d)

      % of                  17%        14%        18%                          16%        17%
      consolidated

    Consolidated                                                                                      

      Crude oil &        28,413     25,014     26,063     14%        9%     26,723     25,965       3%
      NGLs
      (bbls/d)

      % of                  66%        65%        67%                          66%        66%
      consolidated

      Natural gas         86.40      82.16      78.63      5%       10%      84.29      79.51       6%
      (mmcf/d)

      % of                  34%        35%        33%                          34%        34%
      consolidated

      Total              42,813     38,707     39,168     11%        9%     40,772     39,217       4%
      (boe/d)

Average total production in Canada of 17,892 boe/d during the second
quarter of 2013 represented an increase of 11% compared to 16,140 boe/d
in the first quarter of 2013, and 12% as compared to 15,965 boe/d in
the second quarter of the prior year. The increased volumes are largely
attributable to continued development in the Cardium. Mannville
development also contributed with two wells on production during the
second quarter.  Vermilion’s exposure to oil and liquids represented
approximately 59% of Canadian production in the second quarter of 2013
compared to 57% in the second quarter of 2012.

Production in France averaged 11,088 boe/d in the second quarter of
2013, essentially flat with production of 11,032 boe/d in the first
quarter of 2013. On a year-over-year basis, production has grown by 5%.
This increase is largely attributable to incremental production volumes
associated with Vermilion’s acquisition completed in December 2012 and
continued workover and recompletion activities largely offsetting
natural declines. Production from the five-well drilling program
started to be brought on late in the second quarter.  In France,
Vermilion remains predominantly weighted to Brent crude at
approximately 94% of production.

Average production volumes of 6,470 boe/d in the Netherlands during the
second quarter of 2013 represented an increase of 4%
quarter-over-quarter and 13% year-over-year. Production growth was
largely attributable to Vermilion completing debottlenecking activities
at Garijp, facilitating increased throughput of production from
Vinkega-1.

Australia production averaged 7,363 boe/d during the second quarter of
2013, an increase of 39% compared to 5,287 boe/d in the prior quarter,
and 6% compared to 6,970 boe/d in the second quarter of 2012.
Production volumes in the second quarter of 2013 reflect the strength
of the base production at Wandoo with growth attributable to
incremental production from the new wells which were brought on
production at restricted rates in April.

FINANCIAL REVIEW


                                Three Months Ended            % change         Six Months Ended         %
                                                                                                   change

                          June       March        June   Q2/13     Q2/13        June        June     2013
                           30,         31,         30,     vs.       vs.         30,         30,      vs.

    ($M)                  2013        2013        2012   Q1/13     Q2/12        2013        2012     2012

    Net earnings       106,198      52,137      37,816    104%      181%     158,335     102,910      54%

    Fund flows         174,592     163,629     127,775      7%       37%     338,221     278,897      21%
    from
    operations

    Cash flow          179,074     190,712     123,485    (6%)       45%     369,786     248,372      49%
    from
    operating
    activities

    Net debt           674,368     744,762     524,610    (9%)       29%     674,368     524,610      29%

    Long-term          780,470     712,763     452,267      9%       73%     780,470     452,267      73%
    debt

    Ratio of net
    debt to
    annualized
    fund flows

       from                1.0         1.1         1.0    (9%)        -          1.0         0.9      11%
    operations

    Total net
    dividends,
    capital
    expenditures

       and asset
    retirement
    obligations
    settled

       % of fund           70%        138%        105%                          103%         96%
    flows from
    operations

       % of fund
    flows from
    operations

                           55%        127%         93%                           90%         86%
    (excluding
    the Corrib
    project)

Net earnings for the three and six months ended June 30, 2013 increased
as compared to first quarter of 2013 and the same periods in 2012 due
to the increases in operating income resulting from production growth
coupled with unrealized foreign exchange gains recorded in the current
periods.  The unrealized foreign exchange gain of $25.5 million
recorded in 2013 primarily resulted from the impact of the appreciation
of the Euro against the Canadian dollar and the resultant impact on
Vermilion’s financial balances.

Fund flows from operations for the second quarter of 2013 was 7% higher
($11.0 million) than the first quarter.  This increase was driven by
record production, including growth across all of Vermilion’s operating
regions.  Fund flows from operations for the three and six months ended
June 30, 2013 was 37% and 21% higher, respectively, than the same
periods in 2012.  The significant increases were largely the result of
year-over-year production growth, coupled with the absence of the large
build in inventory that occurred in 2012.  On a year-to-date basis,
inventory decreased by 238,000 bbls in 2013 versus an increase of
137,000 bbls in 2012.  While the Dated Brent reference price declined
by 5% from the 2012 periods, the impact of these declines were entirely
offset by increased realized prices for Vermilion’s production in
Canada and the Netherlands.

Cash flow from operating activities for the second quarter of 2013
decreased as compared to the first quarter of the same year despite the
increased net earnings due to the impact of unfavorable timing
differences pertaining to working capital.  Cash flow from operating
activities for the three and six months ended June 30, 2013 increased
as compared to the same periods in 2012 due to the aforementioned
increase in net earnings coupled with favorable timing differences
pertaining to working capital.

Long-term debt as at June 30, 2013 increased to $780.5 million from
$642.0 million as at December 31, 2012 as a result of increased
borrowings on the revolving credit facility to fund current year
development capital expenditures.  As fund flows from operations
exceeded dividends paid, Vermilion ended the second quarter with net
debt of $674.4 million, a reduction from $744.8 million as at March 31,
2013 and $677.2 million as at December 31, 2012.

The ratio of total net dividends, capital expenditures and asset
retirement obligations settled (excluding capital expenditures and
asset retirement obligations settled on the Corrib project) expressed
as a percentage of fund flows from operations for the second quarter of
2013 decreased compared to both the first quarter of 2013 and the
second quarter of 2012.   This decrease was primarily the result of the
aforementioned increase in fund flows from operations coupled with
reduced capital expenditures in the second quarter of 2013.  The
decreases in capital expenditures were due to the absence of
expenditures relating to the Australia drilling campaign, which
primarily took place in the first quarter of 2013, and higher
expenditures during the second quarter of 2012 relating to Duvernay
land acquisitions in Canada.

COMMODITY PRICES


                              Three Months Ended           % change       Six Months Ended         %
                                                                                              change

                         June      March       June   Q2/13     Q2/13       June       June     2013
                          30,        31,        30,     vs.       vs.        30,        30,      vs.

                         2013       2013       2012   Q1/13     Q2/12       2013       2012     2012

    Average
    reference
    prices

    WTI (US             94.22      94.37      93.49       -        1%      94.30      98.21     (4%)
    $/bbl)

    Edmonton            90.56      87.42      83.29      4%        9%      88.99      87.86       1%
    Sweet index
    (US $/bbl)

    Dated Brent        102.44     112.55     108.19    (9%)      (5%)     107.50     113.34     (5%)
    (US $/bbl)

    AECO ($/GJ)          3.35       3.03       1.80     11%       86%       3.19       1.92      66%

    Netherlands         10.14      10.40       9.45    (3%)        7%      10.23       9.50       8%
    gas price
    ($/GJ)

    Netherlands          7.57       7.81       7.27    (3%)        4%       7.69       7.31       5%
    gas price
    (EUR/GJ)

    Average
    realized
    prices
    ($/boe)

    Canada              62.00      57.61      51.58      8%       20%      59.93      53.70      12%

    France              98.04     107.17     104.15    (9%)      (6%)     102.84     106.56     (3%)

    Netherlands         65.08      61.21      57.88      6%       12%      63.19      58.49       8%

    Australia          111.54     120.76     129.94    (8%)     (14%)     115.89     119.16     (3%)

    Consolidated        80.21      83.04      76.04    (3%)        5%      81.60      79.57       3%

    Production
    mix (% of
    production)

    % priced              25%        24%        23%                          24%        23%
    with
    reference to
    WTI

    % priced              17%        18%        18%                          18%        18%
    with
    reference to
    AECO

    % priced              17%        18%        16%                          17%        16%
    with
    reference to
    European gas

    % priced              41%        40%        43%                          41%        43%
    with
    reference to
    Dated Brent

Reference prices

During the second quarter of 2013, North American crude oil prices
remained relatively consistent with the preceding quarter while Dated
Brent crude oil prices decreased 9% quarter-over-quarter.  Western
Canadian supply issues and increased rail capacity resulted in a
narrowing differential for both WTI and the Edmonton Sweet index versus
Dated Brent ($8.22 and $11.88 per bbl, respectively, for the second
quarter of 2013 as compared to $18.18 and $25.13 per bbl, respectively,
for the first quarter of 2013).

The AECO reference price for the second quarter of 2013 increased 11% as
compared to the first quarter of 2013 and is significantly higher when
compared to the same period in 2012 as a result of relatively flat
North American production coupled with downward trending storage
levels.

Realized pricing

The realized price of Vermilion’s crude oil in Canada is directly linked
to WTI but is subject to market conditions in Western Canada.  These
market conditions can result in fluctuations in the pricing
differential, as reflected by the Edmonton Sweet index price.  The
realized price of Vermilion’s NGLs in Canada is based on product
specific differentials pertaining to trading hubs in the U.S.  The
realized price of Vermilion’s natural gas in Canada is based on the
AECO spot price in Alberta.

Vermilion’s crude oil in France and Australia is priced with reference
to Dated Brent.

As of January 1, 2013, the price of Vermilion’s natural gas in the
Netherlands is now based on the TTF day-ahead index, as determined on
the Title Transfer Facility Virtual Trading Point operated by Dutch TSO
Gas Transport Services, plus various fees.  GasTerra, a state owned
entity, continues to purchase all natural gas produced by Vermilion in
the Netherlands.  Prior to 2013, the natural gas price received by
Vermilion in the Netherlands was calculated using a trailing average of
Dated Brent and the natural gas prices from European trading hubs.

Average realized prices in Vermilion’s jurisdictions will differ from
their corresponding average reference prices due to a number of
factors, including the timing of the sale of production, differences in
the quality of production and point of settlement.  In Canada, average
realized prices are also impacted by the production mix of crude oil,
NGLs and natural gas.

CAPITAL EXPENDITURES AND ACQUISITIONS


                                 Three Months Ended          Six Months Ended

    By                     June       March       June        June        June
    classification          30,         31,        30,         30,         30,

    ($M)                   2013        2013       2012        2013        2012

    Drilling and         75,005     179,520     77,956     254,525     165,852
    development

    Dispositions              -     (8,627)          -     (8,627)           -

    Exploration           3,113       9,576     16,932      12,689      23,396
    and evaluation

    Capital              78,118     180,469     94,888     258,587     189,248
    expenditures

    Property                  -           -          -           -     106,184
    acquisition

    Acquisitions              -           -          -           -     106,184

                                 Three Months Ended          Six Months Ended

    By category            June       March       June        June        June
                            30,         31,        30,         30,         30,

    ($M)                   2013        2013       2012        2013        2012

    Land                  2,307       3,129     31,713       5,436      38,380

    Seismic               5,569       3,813      1,327       9,382       2,126

    Drilling and         20,235     126,185     28,309     146,420      83,167
    completion

    Production           40,819      49,942     26,718      90,761      51,473
    equipment and
    facilities

    Recompletions         4,510       4,131      1,403       8,641       4,048

    Other                 4,678       1,896      5,418       6,574      10,054

    Dispositions              -     (8,627)          -     (8,627)           -

    Capital              78,118     180,469     94,888     258,587     189,248
    expenditures

    Acquisitions              -           -          -           -     106,184

    Total capital        78,118     180,469     94,888     258,587     295,432
    expenditures
    and
    acquisitions

                                 Three Months Ended          Six Months Ended

    By country             June       March       June        June        June
                            30,         31,        30,         30,         30,

    ($M)                   2013        2013       2012        2013        2012

    Canada               17,578      86,636     55,456     104,214     127,438

    France               23,223      21,592     10,281      44,815     122,123

    Netherlands           4,157         372      5,379       4,529       7,949

    Australia             8,282      55,349      9,867      63,631      14,411

    Ireland              24,878      16,520     13,905      41,398      23,511

Capital expenditures:

Capital expenditures for the second quarter of 2013 were significantly
lower than both the first quarter of 2013 and the second quarter of
2012.   The decrease from the first quarter of 2013 was the result of
reduced drilling activity in both Canada and Australia.  The decrease
from the second quarter of 2012 was the result of reduced land
purchases in Canada for the Duvernay play, partially offset by
increased drilling activity in France and tunnelling activity in
Ireland.

Capital expenditures for the six months ended June 30, 2013 was higher
than the same period in 2012 as a result of increased drilling activity
in France and Australia and tunnelling activity in Ireland.  These
increases were partially offset by reduced land purchases in Canada for
the Duvernay play.

PETROLEUM AND NATURAL GAS SALES


                             Three Months Ended            % change         Six Months Ended         %
                                                                                                change

    By product         June       March        June   Q2/13     Q2/13        June        June     2013
                        30,         31,         30,     vs.       vs.         30,         30,      vs.

    ($M except         2013        2013        2012   Q1/13     Q2/12        2013        2012     2012
    per boe and
    per mcf)

    Crude oil &     255,183     259,498     205,126    (2%)       24%     514,681     473,417       9%
    NGLs

    Per boe           98.95      103.98      100.07    (5%)      (1%)      101.42      103.17     (2%)

    Natural gas      56,783      50,078      41,418     13%       37%     106,861      83,615      28%

    Per mcf            7.22        6.77        5.79      7%       25%        7.00        5.78      21%

    Petroleum       311,966     309,576     246,544      1%       27%     621,542     557,032      12%
    and natural
    gas sales

    Per boe           80.21       83.04       76.04    (3%)        5%       81.60       79.57       3%

                             Three Months Ended            % change         Six Months Ended         %
                                                                                                change

    By country         June       March        June   Q2/13     Q2/13        June        June     2013
                        30,         31,         30,     vs.       vs.         30,         30,      vs.

    ($M except         2013        2013        2012   Q1/13     Q2/12        2013        2012     2012
    per boe)

    Canada          100,950      83,688      74,932     21%       35%     184,638     155,458      19%

    Per boe           62.00       57.61       51.58      8%       20%       59.93       53.70      12%

    France          100,418     121,566      94,828   (17%)        6%     221,984     198,339      12%

    Per boe           98.04      107.17      104.15    (9%)      (6%)      102.84      106.56     (3%)

    Netherlands      38,316      34,421      30,062     11%       27%      72,737      61,882      18%

    Per boe           65.08       61.21       57.88      6%       12%       63.19       58.49       8%

    Australia        72,282      69,901      46,722      3%       55%     142,183     141,353       1%

    Per boe          111.54      120.76      129.94    (8%)     (14%)      115.89      119.16     (3%)

Vermilion’s consolidated petroleum and natural gas sales for the second
quarter of 2013 was relatively consistent with the first quarter of
2013 as the decrease in Dated Brent prices was offset by increased
natural gas production and higher AECO pricing.  Petroleum and natural
gas sales for the second quarter of 2013 was higher than the same
period in 2012 as a result of increased sales volumes and favorable
North American commodity prices.

Vermilion’s consolidated petroleum and natural gas sales for the six
months ended June 30, 2013 was higher than the same period in 2012. 
This increase was the result of increased sales volumes in all of
Vermilion’s jurisdictions, partially offset by lower Dated Brent
pricing year-over-year.

CRUDE OIL INVENTORY

Vermilion carries an inventory of crude oil in France and Australia,
which is a result of timing differences between production and sales.

The following table summarizes the changes in Vermilion’s crude oil
inventory positions:


                                Three Months Ended          Six Months Ended

                           June       March      June        June        June
                            30,         31,       30,         30,         30,

    (mbbls)                2013        2013      2012        2013        2012

    France                                                                   

       Opening              218         354       223         354         187
    crude oil
    inventory

                              -           5         -           5           -
    Adjustments

       Crude                945         930       904       1,875       1,838
    oil
    production

       Crude              (961)     (1,071)     (856)     (2,032)     (1,754)
    oil sales

       Closing              202         218       271         202         271
    crude oil
    inventory

    Australia                                                                

       Opening              165         268         -         268         222
    crude oil
    inventory

       Crude                670         476       634       1,146       1,239
    oil
    production

       Crude              (648)       (579)     (359)     (1,227)     (1,186)
    oil sales

       Closing              187         165       275         187         275
    crude oil
    inventory

Inventory held on the balance sheet as at June 30, 2013 was comprised of
the following components:


    ($M)                                    France       Australia        Total

    Operating                                3,667           3,956        7,623
    expense

    Royalties                                1,217               -        1,217

    Depletion                                4,217           3,617        7,834

                                             9,101           7,573       16,674

DERIVATIVE INSTRUMENTS

The following tables summarize Vermilion’s outstanding risk management
positions as at June 30, 2013:


    Risk Management -                       bbls/d       Strike Price(s) US
    Oil                                                               $/bbl

    Swap - WTI                                                             

    January 2013 -                           2,000                    93.04
    December 2013

    July 2013 -                                500                    95.47
    September 2013

    July 2013 -                                500                    94.98
    December 2013

    Collar - WTI                                                           

    July 2013 -                                400            92.00 - 98.85
    September 2013

    Collar - Dated
    Brent

    January 2013 -                           3,500           96.14 - 107.34
    December 2013

    July 2013 -                              1,750           97.86 - 107.68
    September 2013

    July 2013 -                              1,000           97.50 - 109.10
    December 2013

    Risk Management -                         GJ/d          Strike Price(s)
    European natural                                             EUR/GJ
    gas

    Swap - TTF1                                                            

    April 2013 -                             1,800                    7.12
    September 2013

    May 2013 - December                      3,600                    7.41
    2013

    June 2013 -                             14,400                    7.44
    December 2013

    October 2013 -                           1,800                    7.53
    December 2013

    Risk Management -                         GJ/d          Strike Price(s)
    Canadian natural                                                   $/GJ
    gas

    Swap - AECO                                                            

    May 2013 - December                      2,500                     3.65
    2013

    Collar - AECO                                                          

    April 2013 -                             2,500              2.90 - 3.47
    September 2013

    April 2013 -                             3,500              3.05 - 3.66
    October 2013

    April 2013 -                             5,000              2.93 - 3.52
    December 2013

    October 2013 -                           2,500              2.85 - 3.56
    December 2013

    Collar - AECO
    (Physical)2

    April 2012 - March                       5,500              2.60 - 3.78
    2014

    June 2012 - March                        3,000              2.30 - 3.75
    2014

    1    TTF derivatives are priced based on the TTF "day-ahead" bid and
         offer quotations, which
         are quoted in MWh of natural gas per hour per day.  MWh of natural
         gas per hour per day
         measures are converted at a ratio of 1 MWh to 3.6 GJ.

    2    Physical AECO collars have a funded cost of $0.10/GJ.

From time to time Vermilion enters into new risk management positions. 
Up to date information regarding outstanding risk management positions
is available on Vermilion’s website at www.vermilionenergy.com/ir/hedging.cfm.


                                Three Months Ended            % change           Six Months          %
                                                                                    Ended       change

                             June     March      June    Q2/13      Q2/13      June      June     2013
                              30,       31,       30,      vs.        vs.       30,       30,      vs.

    ($M except               2013      2013      2012    Q1/13      Q2/12      2013      2012     2012
    per boe)

    Realized
    (gain) loss
    on

                          (1,770)     2,787     3,591   (164%)     (149%)     1,017     9,309    (89%)
    derivative
    instruments

    Per boe                (0.46)      0.75      1.11   (161%)     (141%)      0.13      1.33    (90%)

The realized gain on derivative instruments for the second quarter of
2013 is comprised primarily of amounts received on Vermilion’s WTI
extendable swaps (which matured on June 30, 2013) and Dated Brent
costless collars (as the reference price was below the floor price on
select instruments for the entirety of the second quarter).  The
realized gain for the second quarter of 2013 compares to a realized
loss in both the first quarter of 2013, which primarily resulted from
Dated Brent reference prices exceeding the ceiling price on the
costless collars, and the second quarter of 2012, where the loss
related both to premiums and amounts paid for settlement.

The realized loss for the six months ended June 30, 2013 is lower than
the realized loss for the same period in 2012 due to the aforementioned
realized gain recorded in the second quarter of 2013 and the absence of
premiums paid on funded derivatives.

ROYALTIES


                           Three Months Ended           % change       Six Months Ended      %
                                                                                           change

    By                June      March       June   Q2/13     Q2/13       June       June     2013
    product            30,        31,        30,     vs.       vs.        30,        30,      vs.

    ($M               2013       2013       2012   Q1/13     Q2/12       2013       2012     2012
    except
    per boe
    and per
    mcf)

    Crude oil       15,353     14,810     13,242      4%       16%     30,163     27,483      10%
    & NGLs

    Per boe           5.95       5.93       6.46      -       (8%)       5.94       5.99     (1%)

    Natural            447        980         89   (54%)      402%      1,427        300     376%
    gas

    Per mcf           0.06       0.13       0.01   (54%)      500%       0.09       0.02     350%

    Royalties       15,800     15,790     13,331      -        19%     31,590     27,783      14%

    Per boe           4.06       4.24       4.11    (4%)      (1%)       4.15       3.97       5%

    % of              5.1%       5.1%       5.4%                         5.1%       5.0%
    petroleum
    and
    natural
    gas sales

                           Three Months Ended           % change       Six Months Ended         %
                                                                                           change

    By                June      March       June   Q2/13     Q2/13       June       June     2013
    country            30,        31,        30,     vs.       vs.        30,        30,      vs.

    ($M               2013       2013       2012   Q1/13     Q2/12       2013       2012     2012
    except
    per boe)

    Canada           9,707      8,989      8,216      8%       18%     18,696     17,185       9%

    Per boe           5.96       6.19       5.66    (4%)        5%       6.07       5.94       2%

    % of              9.6%      10.7%      11.0%                        10.1%      11.1%
    petroleum
    and
    natural
    gas sales

    France           6,093      6,801      5,115   (10%)       19%     12,894     10,598      22%

    Per boe           5.95       6.00       5.62    (1%)        6%       5.97       5.69       5%

    % of              6.1%       5.6%       5.4%                         5.8%       5.3%
    petroleum
    and
    natural
    gas sales

Canadian royalties, as a percentage of sales, decreased to 9.6% for the
three months ended June 30, 2013 from 10.7% for the prior quarter and
11.0% for the comparative period of the prior year.  For the six months
ended June 30, 2013, royalties, as a percentage of sales, decreased to
10.1% from 11.1% for the six months ended June 30, 2012.  These
decreases are largely associated with the timing of placing additional
Cardium wells on production that benefit from a royalty incentive on
initial production volumes.

In France, the primary portion of the royalties levied is based on units
of production and that component, therefore, is not subject to changes
in commodity prices.  As average Brent-crude oil prices were slightly
weaker for the three and six month periods ended June 30, 2013 versus
the comparative periods presented, royalties, as a percentage of sales,
were higher in the current periods.

Production in the Netherlands and Australia is not subject to royalties.

OPERATING EXPENSE


                           Three Months Ended           % change        Six Months Ended         %
                                                                                            change

    By product        June      March       June   Q2/13     Q2/13        June       June     2013
                       30,        31,        30,     vs.       vs.         30,        30,      vs.

    ($M except        2013       2013       2012   Q1/13     Q2/12        2013       2012     2012
    per boe and
    per mcf)

    Crude oil &     35,682     41,855     28,645   (15%)       25%      77,537     65,511      18%
    NGLs

    Per boe          13.84      16.77      13.97   (17%)      (1%)       15.28      14.28       7%

    Natural gas     12,400     10,720     11,580     16%        7%      23,120     22,267       4%

    Per mcf           1.58       1.45       1.62      9%      (2%)        1.52       1.54     (1%)

    Operating       48,082     52,575     40,225    (9%)       20%     100,657     87,778      15%

    Per boe          12.36      14.10      12.41   (12%)         -       13.21      12.54       5%

                           Three Months Ended           % change        Six Months Ended         %
                                                                                            change

    By country        June      March       June   Q2/13     Q2/13        June       June     2013
                       30,        31,        30,     vs.       vs.         30,        30,      vs.

    ($M except        2013       2013       2012   Q1/13     Q2/12        2013       2012     2012
    per boe)

    Canada          15,975     13,841     13,217     15%       21%      29,816     27,484       8%

    Per boe           9.81       9.53       9.10      3%        8%        9.68       9.49       2%

    France          16,935     19,939     13,755   (15%)       23%      36,874     28,857      28%

    Per boe          16.53      17.58      15.11    (6%)        9%       17.08      15.50      10%

    Netherlands      5,260      3,969      5,457     33%      (4%)       9,229      9,566     (4%)

    Per boe           8.93       7.06      10.51     26%     (15%)        8.02       9.04    (11%)

    Australia        9,912     14,826      7,796   (33%)       27%      24,738     21,871      13%

    Per boe          15.30      25.61      21.68   (40%)     (29%)       20.16      18.44       9%

In Canada, second quarter operating expense of $16.0 million was higher
than the $13.8 million for the first quarter of 2013 and the $13.2
million for the second quarter of 2012.  The quarter-over-quarter
increase was due to higher fuel and electricity costs, additional
expense associated with rig mats as well as additional major project
activity.  The increase in operating expense for the three and six
months ended June 30, 2013 as compared to the same periods of the prior
year is related to higher fuel and electricity costs, higher property
tax expense and the timing of major project work.  Despite additional
volumes, operating costs per boe for the three months and six months
ended June 30, 2013 increased as compared to the comparative periods
presented, due to the higher level of expense.

In France, second quarter operating expense of $16.9 million was lower
than the expense of $19.9 million for the first quarter of 2013 due to
the large inventory draw that occurred in the prior quarter.  When
inventoried product is sold, the related costs are expensed in the
period of sale.  Operating expense for the three and six months ended
June 30, 2013 was higher than the expense for the comparative periods
of the prior year due to inventory draws in the current periods as
opposed to inventory builds for the comparative periods, additional
operating expense associated with a December 2012 acquisition in France
as well as the timing of repair and optimization activities.  Operating
expense per boe has decreased quarter-over-quarter due to the timing of
downhole work.  Operating expense per boe for the three and six months
ended June 30, 2013 increased from the comparative periods in the prior
year despite higher volumes as a result of additional downhole work and
higher salary costs.

In the Netherlands, operating expense for the three months ended June
30, 2013 increased to $5.3 million from $4.0 million in the prior
quarter due to the timing of project work.  This resulted in a
quarter-over-quarter increase in operating expense per boe.  For the
three and six months ended June 30, 2013, operating expense remained
relatively consistent with the same periods of the prior year; however,
higher volumes resulted in lower operating expense per boe for the
current periods.

In Australia, second quarter operating expense decreased to $9.9 million
from the previous quarter’s expense of $14.8 million due to the prior
quarter’s crude oil inventory draw.  A decrease in crude oil inventory
results in the related production costs being expensed when the product
is sold.  Operating expense for the three and six months ended June 30,
2013 increased from the comparative periods in the prior year due to
inventory builds in those prior periods which resulted in production
costs being temporarily carried on the balance sheet until sale. 
Higher production for the current quarter resulted in a decrease in
operating expense per boe versus both the prior quarter as well as the
second quarter of 2012.

TRANSPORTATION EXPENSE


                                Three Months Ended          % change       Six Months Ended         %
                                                                                               change

    By country              June     March      June   Q2/13     Q2/13       June       June     2013
                             30,       31,       30,     vs.       vs.        30,        30,      vs.

    ($M except per          2013      2013      2012   Q1/13     Q2/12       2013       2012     2012
    boe)

    Canada                 2,611     2,269     2,350     15%       11%      4,880      4,394      11%

    Per boe                 1.60      1.56      1.62      3%      (1%)       1.58       1.52       4%

    France                 2,416     2,754     1,894   (12%)       28%      5,170      4,542      14%

    Per boe                 2.36      2.43      2.08    (3%)       13%       2.39       2.44     (2%)

    Ireland                1,626     1,618     1,974       -     (18%)      3,244      3,975    (18%)

    Transportation         6,653     6,641     6,218       -        7%     13,294     12,911       3%

    Per boe                 1.71      1.78      1.92    (4%)     (11%)       1.75       1.84     (5%)

Consolidated transportation expense for the second quarter of 2013 was
relatively unchanged as compared to the first quarter of 2013 as the
impact of higher sales volumes in Canada was offset by the impact of a
reduced number of shipments in France.

Consolidated transportation expense for the three and six months ended
June 30, 2013 was higher than the same periods in 2012.  This increase
resulted from higher sales volumes in Canada and France, partially
offset by lower payments under the ship or pay agreement related to the
Corrib project.

GENERAL AND ADMINISTRATION EXPENSE


                                  Three Months Ended           % change       Six Months Ended         %
                                                                                                  change

                             June      March       June   Q2/13     Q2/13       June       June     2013
                              30,        31,        30,     vs.       vs.        30,        30,      vs.

    ($M except per           2013       2013       2012   Q1/13     Q2/12       2013       2012     2012
    boe)

    General and            11,313     12,610     12,068   (10%)      (6%)     23,923     22,216       8%
    administration

    Per boe                  2.91       3.38       3.72   (14%)     (22%)       3.14       3.17     (1%)

General and administration expense for the second quarter of 2013
decreased slightly from the prior quarter due to the timing of
corporate expenditures.  The decrease in expense for the current
quarter, as compared to the second quarter of the prior year, is
associated with higher third party overhead recoveries.  For the six
months ended June 30, 2013, general and administration expense
increased as a result of increased staffing levels required to support
Vermilion’s operational activities coupled with expenditure timing.

EQUITY BASED COMPENSATION EXPENSE


                               Three Months Ended           % change       Six Months Ended      %
                                                                                               change

                           June      March      June   Q2/13     Q2/13       June       June     2013
                            30,        31,       30,     vs.       vs.        30,        30,      vs.

    ($M except             2013       2013      2012   Q1/13     Q2/12       2013       2012     2012
    per boe)

    Equity based         10,724     16,136     9,861   (34%)        9%     26,860     19,916      35%
    compensation

    Per boe                2.76       4.33      3.04   (36%)      (9%)       3.53       2.84      24%

Equity based compensation expense relates to non-cash compensation
expense attributable to long-term incentives granted to directors,
officers and employees under the Vermilion Incentive Plan (VIP). The
expense is recognized over the vesting period based on the grant date
fair value of awards, adjusted for the ultimate number of awards that
actually vest as determined by the Company’s achievement of performance
conditions.

Equity based compensation expense for the second quarter of 2013 was
lower than the preceeding quarter due to an overall decrease in
outstanding awards.  The expense for the three and six months ended
June 30, 2013 was higher than the expense for the same period in 2012
as the 2013 expense reflects the revision of future performance
condition assumptions starting in the fourth quarter of 2012.

INTEREST EXPENSE


                          Three Months Ended          % change       Six Months Ended         %
                                                                                         change

                      June     March      June   Q2/13     Q2/13       June       June     2013
                       30,       31,       30,     vs.       vs.        30,        30,      vs.

    ($M               2013      2013      2012   Q1/13     Q2/12       2013       2012     2012
    except
    per boe)

    Interest         9,336     8,689     6,600      7%       41%     18,025     12,701      42%
    expense

    Per boe           2.40      2.33      2.04      3%       18%       2.37       1.81      31%

Interest expense for the three and six months ended June 30, 2013
increased versus the comparable periods due to increased borrowings
under Vermilion’s revolving credit facility.

DEPLETION AND DEPRECIATION, ACCRETION, IMPAIRMENTS AND GAIN ON
ACQUISITION


                                Three Months Ended           % change          Six Months Ended         %
                                                                                                   change

                           June      March       June   Q2/13     Q2/13        June     June 30,     2013
                            30,        31,        30,     vs.       vs.         30,                   vs.

    ($M except             2013       2013       2012   Q1/13     Q2/12        2013         2012     2012
    per boe)

    Depletion            78,418     81,448     76,512    (4%)        2%     159,866      152,360       5%
    and
    depreciation

    Per boe               20.16      21.85      23.60    (8%)     (15%)       20.99        21.76     (4%)

    Accretion             6,000      5,824      5,792      3%        4%      11,824       11,030       7%

    Per boe                1.54       1.56       1.79    (1%)     (14%)        1.55         1.58     (2%)

    Impairments               -          -          -       -         -           -       65,800   (100%)

    Per boe                   -          -          -       -         -           -         9.40   (100%)

    Gain on                   -          -          -       -         -           -     (45,309)   (100%)
    acquisition

    Per boe                   -          -          -       -         -           -       (6.47)   (100%)

Depletion and depreciation expense for the second quarter of 2013 was
relatively consistent with both the first quarter of 2013 and the
second quarter of 2012.  Depletion and depreciation expense for the six
months ended June 30, 2013 was 5% higher than the same period in 2012
primarily due to the result of increased production year-over-year.

Accretion expense for the second quarter of 2013 was relatively
consistent with both the first quarter of 2013 and the second quarter
of 2012.  Accretion expense was higher for the six months ended June
30, 2013 as compared to the same period in 2012 as a result of
accretion expense on asset retirement obligations recorded for the
acquisition in France in the fourth quarter of 2012.

The impairment losses for the six months ended June 30, 2012 pertained
to impairment losses recorded on Vermilion’s conventional deep gas and
shallow coal bed methane natural gas plays.  These impairment charges
were the result of significant declines in the forward pricing
assumptions for natural gas in Canada.

The gain on acquisition for the six months ended June 30, 2012 relates
to Vermilion’s acquisition of certain working interests in the Paris
and Aquitaine basins in France.  The gain arose as a result of the
increase in the fair value of the acquired petroleum and natural gas
reserves from the time when the acquisition was negotiated to the
acquisition date.  The increase resulted from a change in the
underlying commodity price forecasts used to determine the fair value
of the acquired reserves.

TAXES


                                Three Months Ended           % change       Six Months Ended         %
                                                                                                change

    By                     June      March       June   Q2/13     Q2/13       June       June     2013
    classification          30,        31,        30,     vs.       vs.        30,        30,      vs.

    ($M except per         2013       2013       2012   Q1/13     Q2/12       2013       2012    2012
    boe)

    Current taxes        36,719     35,557     29,225      3%       26%     72,276     61,589      17%
    before PRRT

    Per boe                9.44       9.54       9.01    (1%)        5%       9.49       8.80       8%

    PRRT                 12,590     11,153      8,460     13%       49%     23,743     35,729    (34%)

    Per boe                3.24       2.99       2.61      8%       24%       3.12       5.10    (39%)

    Current taxes        49,309     46,710     37,685      6%       31%     96,019     97,318     (1%)

    Per boe               12.68      12.53      11.62      1%        9%      12.61      13.90     (9%)

                                Three Months Ended           % change       Six Months Ended         %
                                                                                                change

    By country             June      March       June   Q2/13     Q2/13       June       June     2013
                            30,        31,        30,     vs.       vs.        30,        30,      vs.

    ($M except per         2013       2013       2012   Q1/13     Q2/12       2013       2012    2012
    boe)

    Canada                  328        251        845     31%     (61%)        579      1,287    (55%)

    Per boe                0.20       0.17       0.58     18%     (66%)       0.19       0.44    (57%)

    France               16,124     18,659     15,725   (14%)        3%     34,783     28,620      22%

    Per boe               15.74      16.45      17.27    (4%)      (9%)      16.11      15.38       5%

    Netherlands           9,621      9,434      5,875      2%       64%     19,055     14,932      28%

    Per boe               16.34      16.78      11.31    (3%)       44%      16.55      14.11      17%

    Australia            23,236     18,366     15,240     27%       52%     41,602     52,479    (21%)

    Per boe               35.86      31.73      42.38     13%     (15%)      33.91      44.24    (23%)

Vermilion pays current taxes in France, the Netherlands and Australia. 
Corporate income taxes in France and the Netherlands apply to taxable
income after eligible deductions.  In France, taxable income is taxed
at a rate of approximately 34.4%, plus an additional profit tax of 1.7%
levied until 2014 if annual gross revenues exceed 250 million Euros. 
In the Netherlands, taxable income is taxed at a rate of approximately
46%.  As a function of the impact of Vermilion’s Canadian tax pools,
the Company does not presently pay current taxes in Canada. The
Canadian segment includes holding companies that pay current taxes in
foreign jurisdictions.

In Australia, current taxes include both corporate income taxes and
PRRT.  Corporate income taxes are applied at a rate of approximately
30% on taxable income after eligible deductions, which include PRRT. 
PRRT is a profit based tax applied at a rate of 40% on sales less
eligible expenditures, including operating expenses and capital
expenditures.

Current taxes for the second quarter of 2013 was higher than the first
quarter of 2013 and the same period in 2012 due to higher petroleum and
natural gas sales.  Current taxes for the six months ended June 30,
2013 was slightly lower than the same period in 2012 despite higher
petroleum and natural gas sales due to higher capital expenditures in
Australia during the current year, which resulted in decreased PRRT.

OTHER EXPENSE (INCOME)


                                       Three Months Ended          Six Months
                                                                     Ended

                                   June      March     June     June      June
                                    30,        31,      30,      30,       30,

    ($M                            2013       2013     2012     2013      2012
    except
    per boe)

    Other                           271       (67)      585      204     8,568
    expense
    (income)

    Per boe                        0.07     (0.02)     0.18     0.03      1.22

Other expense for the six months ended June 30, 2012 was comprised
primarily of $8.5 million relating to transfer taxes paid to regulatory
authorities in France pursuant to the first quarter of 2012 acquisition
of certain working interests in six producing fields located in the
Paris and Aquitaine basins.

FOREIGN EXCHANGE


                                 Three Months Ended          Six Months Ended

                         June 30,     March       June     June 30,       June
                                        31,        30,                     30,

    ($M except               2013      2013       2012         2013       2012
    per boe)

    Unrealized           (28,025)     2,519     16,730     (25,506)     11,483
    foreign
    exchange
    (gain)
    loss

    Per boe                (7.21)      0.68       5.16       (3.35)       1.64

    Realized              (1,272)       617      (755)        (655)         65
    foreign
    exchange
    (gain)
    loss

    Per boe                (0.33)      0.17     (0.23)       (0.09)       0.01

    Foreign              (29,297)     3,136     15,975     (26,161)     11,548
    exchange
    (gain)
    loss

    Per boe                (7.54)      0.85       4.93       (3.44)       1.65

As a result of Vermilion’s international operations, Vermilion conducts
business in currencies other than the Canadian dollar and has monetary
assets and liabilities (including cash, receivables, payables,
derivative assets and liabilities, and intercompany loans) denominated
in such currencies.  Vermilion’s exposure to foreign currencies
includes the U.S. Dollar, the Euro and the Australian Dollar.

Foreign exchange gains and losses are comprised of both unrealized and
realized amounts.  Unrealized foreign exchange gains and losses are the
result of translating monetary assets and liabilities held in
non-functional currencies to the respective functional currencies of
Vermilion and its subsidiaries.  Realized gains and losses are the
result of foreign exchange fluctuations and the timing of payments on
transactions conducted in non-functional currencies and as such are
subject to fluctuations.

For the three and six months ended June 30, 2013, the unrealized foreign
exchange gain primarily resulted from the impact of the appreciation of
the Euro against the Canadian dollar and the resultant impact on
Vermilion’s financial balances.

SUMMARY OF RESULTS


                                                                               Three Months Ended

                        Jun 30,     Mar 31,     Dec 31,        Sept     Jun 30,     Mar 31,      Dec 31,        Sept
                                                                30,                                              30,

    ($M                    2013        2013        2012        2012        2012        2012         2011        2011
    except
    per
    share)

    Petroleum           311,966     309,576     241,233     284,838     246,544     310,488      275,172     248,361
    and
    natural
    gas sales

    Net                 106,198      52,137      56,914      30,798      37,816      65,094     (30,243)      64,442
    earnings
    (loss)

    Net
    earnings
    (loss)
    per share

       Basic               1.05        0.53        0.58        0.31        0.39        0.67       (0.32)        0.71

                           1.04        0.51        0.57        0.31        0.38        0.66       (0.32)        0.70
     Diluted

The fluctuations in Vermilion’s petroleum and natural gas sales and net
earnings (loss) from quarter-to-quarter are primarily caused by
variations in sales volumes, crude oil and natural gas prices and the
impact of royalties and tax legislation in the jurisdictions in which
Vermilion operates.  In addition, changes in foreign exchange rates may
result in unrealized gains and losses on Vermilion’s financial balances
held in foreign currencies while changes in petroleum and natural gas
prices may impact gains and losses on derivative instruments and may
result in impairment charges or the reversal of impairment charges
incurred in previous periods.

LIQUIDITY AND CAPITAL RESOURCES

Vermilion’s net debt as at June 30, 2013 was $674.4 million compared to
$677.2 million as at December 31, 2012.

Long-term debt was comprised of the following:


                                     Annualized                  As At
                                  Interest Rate

                                  June      Dec        June         Dec 31,
                                   30,      31,         30,

    ($M)                          2013     2012        2013            2012

    Revolving                     3.3%     3.3%     557,788         419,784
    credit
    facility

    Senior                        6.5%     6.5%     222,682         222,238
    unsecured
    notes

    Long-term                     4.3%     4.7%     780,470         642,022
    debt

Revolving Credit Facility

At June 30, 2013, Vermilion had in place a bank revolving credit
facility totalling $1.2 billion, of which approximately $557.8 million
was drawn.  The facility, which matures on May 31, 2016, is fully
revolving up to the date of maturity.

The facility is extendable from time to time, but not more than once per
year, for a period not longer than three years, at the option of the
lenders and upon notice from Vermilion.  If no extension is granted by
the lenders, the amounts owing pursuant to the facility are repayable
on the maturity date.  This facility bears interest at a rate
applicable to demand loans plus applicable margins.

The amount available to Vermilion under this facility is reduced by
outstanding letters of credit associated with Vermilion’s operations
totalling $51.3 million as at June 30, 2013 (December 31, 2012 – $49.2
million).

The facility is secured by various fixed and floating charges against
the subsidiaries of Vermilion.  Under the terms of the facility,
Vermilion must maintain a ratio of total bank borrowings (defined as
consolidated total debt), to consolidated net earnings before interest,
income taxes, depreciation, accretion and other certain non-cash items
(defined as consolidated EBITDA) of not greater than 4.0.  In addition,
Vermilion must maintain a ratio of consolidated total senior debt
(defined as consolidated total debt excluding unsecured and
subordinated debt) to consolidated EBITDA of not greater than 3.0.

As at June 30, 2013, Vermilion was in compliance with its financial
covenants.

Senior Unsecured Notes

On February 10, 2011, Vermilion issued $225.0 million of senior
unsecured notes at par.  The notes bear interest at a rate of 6.5% per
annum and will mature on February 10, 2016.  As direct senior unsecured
obligations of Vermilion, the notes rank pari passu with all other
present and future unsecured and unsubordinated indebtedness of the
Company.

Vermilion may, at its option, prior to February 10, 2014, redeem up to
35% of the notes with net proceeds of equity offerings by the Company
at a redemption price equal to 106.5% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
applicable redemption date.  Subsequently, Vermilion may, on or after
February 10, 2014, redeem all or part of the notes at fixed redemption
prices, plus, in each case, accrued and unpaid interest, if any, to the
applicable redemption date.  The notes were initially recognized at
fair value net of transaction costs and are subsequently measured at
amortized cost using an effective interest rate of 7.1%.

ASSET RETIREMENT OBLIGATIONS


                                                               As At

                                                   June 30,       Dec 31,

    ($M)                                               2013          2012

    Asset retirement                                358,868       371,063
    obligations

The decrease in asset retirement obligations was primarily the result of
an overall increase in the discount rates applied to the obligations.

DIVIDENDS


                             Three Months       Six Months
                                Ended             Ended          Year Ended

                                 June 30,         June 30,          Dec 31,

    ($M)                             2013             2013             2012

    Cash flows                    179,074          369,786          496,580
    from operating
    activities

    Net earnings                  106,198          158,335          190,622

    Dividends                      60,776          120,388          223,717
    declared

    Excess of cash                118,298          249,398          272,863
    flows from
    operating
    activities
    over dividends
    declared

    Excess                         45,422           37,947         (33,095)
    (shortfall) of
    net earnings
    over dividends
    declared

During the six months ended June 30, 2013, Vermilion maintained monthly
dividends at $0.20 per share and declared dividends totalling $120.4
million.

Excess cash flows from operating activities over dividends declared are
used to fund capital expenditures, asset retirement obligations and
debt repayments.

Following Vermilion’s conversion to a trust in January 2003, the
distribution remained at $0.17 per unit per month until it was
increased to $0.19 per unit per month in December 2007.  Effective
September 1, 2010, Vermilion converted to a dividend paying corporation
and dividends remained at $0.19 per share per month until increased to
$0.20 per share per month in January 2013.  The January 2013 increase
was announced on November 14, 2012 and resulted in an increase in the
monthly cash dividends by 5.3% to $0.20 per share per month beginning
with the January 2013 dividend (paid on February 15, 2013).

Vermilion’s policy with respect to dividends is to be conservative and
maintain a low ratio of dividends to fund flows from operations. 
During low price commodity cycles, Vermilion will initially maintain
dividends and allow the ratio to rise.  Should low commodity price
cycles remain for an extended period of time, Vermilion will evaluate
the necessity of changing the level of dividends, taking into
consideration capital development requirements, debt levels and
acquisition opportunities.

Over the next two years, Vermilion anticipates that Corrib, Cardium and
other exploration and development activities will require a significant
capital investment by Vermilion.  Although Vermilion currently expects
to be able to maintain its current dividend, Vermilion’s fund flows
from operations may not be sufficient during this period to fund cash
dividends, capital expenditures and asset retirement obligations. 
Vermilion will evaluate its ability to finance any shortfalls with
debt, issuances of equity or by reducing some or all categories of
expenditures to ensure that total expenditures do not exceed available
funds.

SHAREHOLDERS’ EQUITY

During the six months ended June 30, 2013, Vermilion issued 2.3 million
shares pursuant to the dividend reinvestment plan and Vermilion’s
equity based compensation programs.  Shareholders’ capital increased by
$99.0 million as a result of the issuance of those shares.

As at June 30, 2013, there were 101.4 million shares outstanding.  As at
July 31, 2013, there were 101.6 million shares outstanding.

CORRIB PROJECT

Vermilion holds an 18.5% non-operating interest in the offshore Corrib
gas field located off the northwest coast of Ireland.  Production from
Corrib is expected to increase Vermilion’s volumes by approximately 55
mmcf/d (9,000 boe/d) once the field reaches peak production.  Vermilion
acquired its 18.5% working interest in the project on July 30, 2009. 
The project comprises five offshore wells, both offshore and onshore
pipeline segments as well as a natural gas processing facility.  At the
time of the acquisition most of the key components of the project, with
the exception of the onshore pipeline, were either complete or in the
latter stages of development.  Vermilion’s interest was acquired for
cash consideration of $136.8 million with subsequent capital
expenditures to June 30, 2013 of $344.0 million, primarily related to
completion of the natural gas processing facility, sub-surface well
work, and permitting, preparations and construction of the onshore
pipeline.  Furthermore, pursuant to the terms of the acquisition
agreement, Vermilion made an additional payment to the vendor of $134.3
million (US$135 million) at the end of 2012.  In 2011, approvals and
permissions were granted for the onshore gas pipeline and tunneling
activities commenced in December of 2012.  Vermilion expects to
continue significant capital investment on this project over the next
two years and currently expects to achieve initial gas production from
this field between the end of 2014 and early 2015, and to reach peak
production levels in mid-2015.

RISK MANAGEMENT

Vermilion is exposed to various market and operational risks.  For a
detailed discussion of these risks, please see Vermilion’s Annual
Report for the year ended December 31, 2012.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with IFRS requires
management to make estimates, judgments and assumptions that affect
reported assets, liabilities, revenues and expenses, gains and losses,
and disclosures of any possible contingencies.  These estimates and
assumptions are developed based on the best available information which
management believed to be reasonable at the time such estimates and
assumptions were made.  As such, these assumptions are uncertain at the
time estimates are made and could change, resulting in a material
impact on Vermilion’s consolidated financial statements.  Estimates are
reviewed by management on an ongoing basis, and as a result, certain of
these estimates may change from period to period due to the
availability of new information. Additionally, as a result of the
unique circumstances of each jurisdiction that Vermilion operates in,
the critical accounting estimates may affect one or more jurisdictions.

The following outlines what management believes to be the most critical
accounting policies involving the use of estimates and assumptions:


      i.       Depletion and depreciation charges are based on estimates of
               total proven and probable reserves that Vermilion expects to
               recover in the future.

     ii.       Asset retirement obligations are based on past experience
               and current economic factors which management believes are
               reasonable.

    iii.       Impairment tests are performed at the cash generating unit
               (CGU) level, which is determined based on management's
               judgment.  The calculation of the recoverable amount of a
               CGU is based on market factors as well as estimates of PNG
               reserves and future costs required to develop reserves.

     iv.       Deferred tax amounts recognized in the consolidated
               financial statements are based on management's assessment of
               the tax positions at the end of each reporting period.

OFF BALANCE SHEET ARRANGEMENTS

Vermilion has certain lease agreements that are entered into in the
normal course of operations, all of which are operating leases and
accordingly no asset or liability value has been assigned to the
consolidated balance sheet as at June 30, 2013.

Vermilion has not entered into any guarantee or off balance sheet
arrangements that would materially impact Vermilion’s financial
position or results of operations.

INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in Vermilion’s internal control over financial
reporting that occurred during the period covered by this MD&A that has
materially affected, or is reasonably likely to materially affect, its
internal control over financial reporting.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

As of January 1, 2013, Vermilion adopted the following pronouncements as
issued by the IASB.  The adoption of these standards did not have a
material impact on Vermilion’s consolidated financial statements. 

IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaced Standing Interpretations Committee 12, “Consolidation -
Special Purpose Entities” and the consolidation requirements of IAS 27
“Consolidated and Separate Financial Statements”.  The new standard
replaces the existing risk and rewards based approaches and establishes
control as the determining factor when determining whether an interest
in another entity should be included in the consolidated financial
statements. 

IFRS 11 “Joint Arrangements”

IFRS 11 replaced IAS 31 “Interests in Joint Ventures”.  The new standard
focuses on the rights and obligations of an arrangement, rather than
its legal form.  The standard redefines joint operations and joint
ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted. 

IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 provides comprehensive disclosure requirements on interests in
other entities, including joint arrangements, associates, and special
purpose entities.  The new disclosures are intended to assist financial
statement users in evaluating the nature, risks and financial effects
of an entity’s interest in subsidiaries and joint arrangements. 

IFRS 13 “Fair Value Measurement”

IFRS 13 provides a common definition of fair value within IFRS.  The new
standard provides measurement and disclosure guidance and applies when
another IFRS requires or permits an item to be measured at fair value,
with limited exceptions.

IAS 34 “Interim Financial Reporting”

Amendments to IAS 34 require specific disclosure on the fair value of
financial instruments for interim reporting.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

The adoption of the following pronouncements is not expected to have a
material impact on Vermilion’s consolidated financial statements:

IFRS 9 “Financial Instruments”

As of January 1, 2015, Vermilion will be required to adopt IFRS 9, as
part of the first phase of the IASB’s project to replace IAS 39,
“Financial Instruments: Recognition and Measurement”. The new standard
replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value.

NETBACKS

The following table includes segmented financial statement information
on a per unit basis.  Natural gas sales volumes have been converted on
a basis of six thousand cubic feet of natural gas to one barrel of oil
equivalent.


                                                                                          Three      Six
                                                                                         Months    Months
                                                                                          Ended     Ended
                                                                                          June      June
                         Three Months Ended June 30,       Six Months Ended June 30,       30,       30,
                                                2013                            2013      2012      2012

                         Oil &   Natural                 Oil &   Natural
                          NGLs       Gas       Total      NGLs       Gas       Total       Total     Total

                         $/bbl     $/mcf       $/boe     $/bbl     $/mcf       $/boe       $/boe     $/boe

    Canada                                                                                                

    Price                88.74      3.84       62.00     87.12      3.60       59.93       51.58     53.70

    Realized
    hedging gain
    (loss)                0.35      0.01        0.22      0.32         -        0.19      (0.29)    (0.37)

    Royalties           (9.70)    (0.09)      (5.96)    (9.70)    (0.16)      (6.07)      (5.66)    (5.94)

    Transportation      (2.02)    (0.17)      (1.60)    (2.01)    (0.16)      (1.58)      (1.62)    (1.52)

    Operating           (9.76)    (1.65)      (9.81)    (9.51)    (1.65)      (9.68)      (9.10)    (9.49)

    Operating
    netback              67.61      1.94       44.85     66.22      1.63       42.79       34.91     36.38

    France                                                                                                

    Price               100.79      9.41       98.04    105.40     10.28      102.84      104.15    106.56

    Realized
    hedging gain
    (loss)                1.47         -        1.38    (0.30)         -      (0.28)      (3.30)    (4.25)

    Royalties           (6.23)    (0.28)      (5.95)    (6.24)    (0.29)      (5.97)      (5.62)    (5.69)

    Transportation      (2.51)         -      (2.36)    (2.54)         -      (2.39)      (2.08)    (2.44)

    Operating          (17.01)    (1.55)     (16.53)   (17.54)    (1.62)     (17.08)     (15.11)   (15.50)

    Operating
    netback              76.51      7.58       74.58     78.78      8.37       77.12       78.04     78.68

    Netherlands                                                                                           

    Price                84.11     10.82       65.08     96.46     10.47       63.19       57.88     58.49

    Operating                -    (1.50)      (8.93)         -    (1.35)      (8.02)     (10.51)    (9.04)

    Operating
    netback              84.11      9.32       56.15     96.46      9.12       55.17       47.37     49.45

    Australia                                                                                             

    Price               111.54         -      111.54    115.89         -      115.89      129.94    119.16

    Realized
    hedging loss             -         -           -    (0.82)         -      (0.82)      (0.47)    (0.28)

    Operating          (15.30)         -     (15.30)   (20.16)         -     (20.16)     (21.68)   (18.44)

    PRRT1              (19.43)         -     (19.43)   (19.35)         -     (19.35)     (23.53)   (30.12)

    Operating
    netback              76.81         -       76.81    75.56          -       75.56       84.26     70.32

    Total Company                                                                                         

    Price                98.95      7.22       80.21    101.42      7.00       81.60       76.04     79.57

    Realized
    hedging gain
    (loss)                0.68         -        0.46    (0.21)         -      (0.13)      (1.11)    (1.33)

    Royalties           (5.95)    (0.06)      (4.06)    (5.94)    (0.09)      (4.15)      (4.11)    (3.97)

    Transportation      (1.69)    (0.29)      (1.71)    (1.73)    (0.30)      (1.75)      (1.92)    (1.84)

    Operating          (13.84)    (1.58)     (12.36)   (15.28)    (1.52)     (13.21)     (12.41)   (12.54)

    PRRT1               (4.88)         -      (3.24)    (4.68)         -      (3.12)      (2.61)    (5.10)

    Operating
    netback              73.27      5.29       59.30     73.58      5.09       59.24       53.88     54.79

    General and
    administration                            (2.91)                          (3.14)      (3.72)    (3.17)

    Interest
    expense                                   (2.40)                          (2.37)      (2.04)    (1.81)

    Realized
    foreign
    exchange
    gain (loss)                                 0.33                            0.09        0.23    (0.01)

    Other income
    (expense)                                   0.02                            0.07        0.06    (1.15)

    Current income
    taxes1                                    (9.44)                          (9.49)      (9.01)    (8.80)

    Fund flows
    netback                                    44.90                           44.40       39.40     39.85

    Accretion                                 (1.54)                          (1.55)      (1.79)    (1.58)

    Depletion and
    depreciation                             (20.16)                         (20.99)     (23.60)   (21.76)

    Impairments                                    -                               -           -    (9.40)

    Gain on
    acquisition                                    -                               -           -      6.47

    Deferred taxes                            (2.46)                          (1.79)      (0.09)      4.02

    Unrealized
    other expense                             (0.09)                          (0.10)      (0.24)    (0.07)

    Unrealized
    foreign
    exchange
    gain (loss)                                 7.21                            3.35      (5.16)    (1.64)

    Unrealized
    gain on
    derivative
    instruments                                 2.22                            0.99        6.17      1.67

    Equity based
    compensation                              (2.76)                          (3.53)      (3.04)    (2.84)

    Earnings
    netback                                    27.32                           20.78       11.65     14.72

    1    Vermilion considers Australian PRRT to be an operating item and
         accordingly has included PRRT in the calculation of operating
         netbacks.  Current
         income taxes presented above excludes PRRT.

    CONSOLIDATED BALANCE SHEETS
    (THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)

                                                June 30,       December 31,

                                    Note            2013               2012

    ASSETS                                                                 

    Current                                                                

    Cash and cash                                235,598            102,125
    equivalents

    Accounts                                     160,425            180,064
    receivable

    Crude oil                                     16,674             25,719
    inventory

    Derivative                                     2,149              2,086
    instruments

    Prepaid                                       17,168             10,508
    expenses

                                                 432,014            320,502

    Deferred taxes                               192,124            193,354

    Exploration and                   4          128,571            117,161
    evaluation
    assets

    Capital assets                    3        2,546,298          2,445,240

                                               3,299,007          3,076,257

    LIABILITIES                                                            

    Current                                                                

    Accounts                                     232,249            300,682
    payable and
    accrued
    liabilities

    Dividends                         7           20,284             18,836
    payable

    Derivative                                     1,009              8,484
    instruments

    Income taxes                                  72,370             27,709
    payable

                                                 325,912            355,711

    Long-term debt                    6          780,470            642,022

    Asset                             5          358,868            371,063
    retirement
    obligations

    Deferred taxes                               298,519            288,815

                                               1,763,769          1,657,611

    SHAREHOLDERS'
    EQUITY

    Shareholders'                     7        1,580,314          1,481,345
    capital

    Contributed                                   41,442             69,581
    surplus

    Accumulated                                 (14,786)           (32,409)
    other
    comprehensive
    loss

    Deficit                                     (71,732)           (99,871)

                                               1,535,238          1,418,646

                                               3,299,007          3,076,257

    CONSOLIDATED STATEMENTS OF NET EARNINGS AND COMPREHENSIVE INCOME
    (THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS, UNAUDITED)

                                      Three Months Ended         Six Months Ended

                                    June 30,     June 30,     June 30,     June 30,

                         Note           2013         2012         2013         2012

    REVENUE                                                                        

    Petroleum and                    311,966      246,544      621,542      557,032
    natural gas
    sales

    Royalties                       (15,800)     (13,331)     (31,590)     (27,783)

    Petroleum and                    296,166      233,213      589,952      529,249
    natural gas
    revenue

    EXPENSES                                                                       

    Operating                         48,082       40,225      100,657       87,778

    Transportation                     6,653        6,218       13,294       12,911

    Equity based           8          10,724        9,861       26,860       19,916
    compensation

    Gain on                         (10,421)     (16,424)      (6,521)      (2,367)
    derivative
    instruments

    Interest                           9,336        6,600       18,025       12,701
    expense

    General and                       11,313       12,068       23,923       22,216
    administration

    Foreign                         (29,297)       15,975     (26,161)       11,548
    exchange
    (gain) loss

    Other expense                        271          585          204        8,568

    Accretion              5           6,000        5,792       11,824       11,030

    Depletion and        3, 4         78,418       76,512      159,866      152,360
    depreciation

    Impairments            3               -            -            -       65,800

    Gain on                                -            -            -     (45,309)
    acquisition

                                     131,079      157,412      321,971      357,152

    EARNINGS                         165,087       75,801      267,981      172,097
    BEFORE INCOME
    TAXES

    INCOME TAXES                                                                   

    Deferred                           9,580          300       13,627     (28,131)

    Current                           49,309       37,685       96,019       97,318

                                      58,889       37,985      109,646       69,187

    NET EARNINGS                     106,198       37,816      158,335      102,910

    OTHER
    COMPREHENSIVE
    INCOME (LOSS)

    Currency                          18,955     (16,411)       17,623      (9,030)
    translation
    adjustments

    COMPREHENSIVE                    125,153       21,405      175,958       93,880
    INCOME

    NET EARNINGS
    PER SHARE

    Basic                               1.05         0.39         1.58         1.06

    Diluted                             1.04         0.38         1.56         1.04

    WEIGHTED
    AVERAGE SHARES
    OUTSTANDING
    ('000s)

    Basic                            100,964       97,937      100,137       97,291

    Diluted                          102,223       99,923      101,578       99,000

    CONSOLIDATED
    STATEMENTS OF
    CASH FLOWS
    (THOUSANDS OF
    CANADIAN
    DOLLARS,
    UNAUDITED)

                                      Three Months Ended            Six Months Ended

                                    June 30,      June 30,      June 30,      June 30,

                        Note            2013          2012          2013          2012

    OPERATING                                                                         

    Net earnings                     106,198        37,816       158,335       102,910

    Adjustments:                                                                      

                          5            6,000         5,792        11,824        11,030
    Accretion

                        3, 4          78,418        76,512       159,866       152,360
    Depletion and
    depreciation

                          3                -             -             -        65,800
    Impairments

          Gain on                          -             -             -      (45,309)
    acquisition

                                     (8,651)      (20,015)       (7,538)      (11,676)
    Unrealized
    gain on
    derivative
    instruments

          Equity          8           10,724         9,861        26,860        19,916
    based
    compensation

                                    (28,025)        16,730      (25,506)        11,483
    Unrealized
    foreign
    exchange
    (gain) loss

                                         348           779           753           514
    Unrealized
    other expense

                                       9,580           300        13,627      (28,131)
    Deferred
    taxes

    Asset                 5          (2,370)       (2,581)       (3,758)       (3,347)
    retirement
    obligations
    settled

    Changes in                         6,852       (1,709)        35,323      (27,178)
    non-cash
    operating
    working
    capital

    Cash flows                       179,074       123,485       369,786       248,372
    from
    operating
    activities

    INVESTING                                                                         

    Drilling and          3         (75,005)      (77,956)     (254,525)     (165,852)
    development

    Exploration           4          (3,113)      (16,932)      (12,689)      (23,396)
    and
    evaluation

    Property              3                -             -             -     (106,184)
    acquisitions

    Dispositions          3                -             -         8,627             -

    Changes in                      (75,613)      (23,030)      (37,403)      (29,784)
    non-cash
    investing
    working
    capital

    Cash flows                     (153,731)     (117,918)     (295,990)     (325,216)
    used in
    investing
    activities

    FINANCING                                                                         

    Increase in                       70,000        76,774       139,429        76,774
    long-term
    debt

    Issuance of                            -        18,781             -        36,339
    shares
    pursuant to
    the dividend
    reinvestment
    plan

    Cash                            (41,754)      (55,678)      (84,778)     (110,725)
    dividends

    Cash flows                        28,246        39,877        54,651         2,388
    from
    financing
    activities

    Foreign                            5,496       (2,608)         5,026       (2,578)
    exchange gain
    (loss) on
    cash held in
    foreign
    currencies

    Net change in                     59,085        42,836       133,473      (77,034)
    cash and cash
    equivalents

    Cash and cash                    176,513       114,637       102,125       234,507
    equivalents,
    beginning of
    period

    Cash and cash                    235,598       157,473       235,598       157,473
    equivalents,
    end of period

    Supplementary
    information
    for operating
    activities -
    cash payments

       Interest                        8,417         4,419        20,509        13,926
    paid

       Income                         18,669        84,012        51,304       103,711
    taxes paid

    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
    (THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)

                                                                     Accumulated                                  

                                                                           Other                             Total

                                 Shareholders'     Contributed     Comprehensive                     Shareholders'

                        Note           Capital         Surplus              Loss         Deficit            Equity

    Balances as                      1,368,145          56,468          (33,387)        (59,625)         1,331,601
    at January 1,
    2012

    Net earnings                             -               -                 -         102,910           102,910

    Currency                                 -               -           (9,030)               -           (9,030)
    translation
    adjustments

    Equity based                             -          19,280                 -               -            19,280
    compensation
    expense

    Dividends             7                  -               -                 -       (111,086)         (111,086)
    declared

    Issuance of
    shares
    pursuant to
    the

       dividend           7             36,339               -                 -               -            36,339
    reinvestment
    plan

    Vesting of          7, 8            33,356        (33,356)                 -               -                 -
    equity based
    awards

    Share-settled
    dividends

       on vested        7, 8             7,116               -                 -         (7,116)                 -
    equity based
    awards

    Shares issued         7                636               -                 -               -               636
    pursuant to
    the bonus
    plan

    Balances as                      1,445,592          42,392          (42,417)        (74,917)         1,370,650
    at June 30,
    2012

                                                                     Accumulated                                  

                                                                           Other                             Total

                                 Shareholders'     Contributed     Comprehensive                     Shareholders'

                        Note           Capital         Surplus              Loss         Deficit            Equity

    Balances as                      1,481,345          69,581          (32,409)        (99,871)         1,418,646
    at January 1,
    2013

    Net earnings                             -               -                 -         158,335           158,335

    Currency                                 -               -            17,623               -            17,623
    translation
    adjustments

    Equity based                             -          26,231                 -               -            26,231
    compensation
    expense

    Dividends             7                  -               -                 -       (120,388)         (120,388)
    declared

    Issuance of
    shares
    pursuant to
    the

       dividend           7             34,162               -                 -               -            34,162
    reinvestment
    plan

    Vesting of          7, 8            54,370        (54,370)                 -               -                 -
    equity based
    awards

    Share-settled
    dividends

       on vested        7, 8             9,808               -                 -         (9,808)                 -
    equity based
    awards

    Shares issued         7                629               -                 -               -               629
    pursuant to
    the bonus
    plan

    Balances as                      1,580,314          41,442          (14,786)        (71,732)         1,535,238
    at June 30,
    2013

DESCRIPTION OF EQUITY RESERVES

Shareholders’ capital

Represents the recognized amount for common shares when issued, net of
equity issuance costs and deferred taxes.

Contributed surplus

Represents the recognized value of employee awards which are settled in
shares. Once vested, the value of the awards is transferred to
shareholders’ capital.

Accumulated other comprehensive loss

Represents the cumulative income and expenses which are not recorded
immediately in net earnings and are accumulated until an event triggers
recognition in net earnings. The current balance consists of currency
translation adjustments resulting from translating financial statements
of subsidiaries with a foreign functional currency to Canadian dollars
at period-end rates.

Retained earnings (deficit)

Represents the cumulative net earnings less distributed earnings of
Vermilion Energy Inc.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER
SHARE AMOUNTS, UNAUDITED)

1. BASIS OF PRESENTATION

Vermilion Energy Inc. (the “Company” or “Vermilion”) is a corporation
governed by the laws of the Province of Alberta and is actively engaged
in the business of crude oil and natural gas exploration, development,
acquisition and production.

These condensed consolidated interim financial statements are in
compliance with IAS 34, “Interim financial reporting” and have been
prepared using the same accounting policies and methods of computation
as Vermilion’s consolidated financial statements for the year ended
December 31, 2012, except as discussed in Note 2.

These condensed consolidated interim financial statements should be read
in conjunction with Vermilion’s consolidated financial statements for
the year ended December 31, 2012, which are contained within
Vermilion’s Annual Report for the year ended December 31, 2012 and are
available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.

These condensed consolidated interim financial statements were approved
and authorized for issuance by the Board of Directors of Vermilion on
July 31, 2013.

2. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On January 1, 2013, Vermilion adopted the following pronouncements as
issued by the IASB.  The adoption of these standards did not have a
material impact on Vermilion’s consolidated financial statements. 

IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaced Standing Interpretations Committee 12, “Consolidation -
Special Purpose Entities” and the consolidation requirements of IAS 27
“Consolidated and Separate Financial Statements”.  The new standard
replaces the existing risk and rewards based approaches and establishes
control as the determining factor when determining whether an interest
in another entity should be included in the consolidated financial
statements. 

IFRS 11 “Joint Arrangements”

IFRS 11 replaced IAS 31 “Interests in Joint Ventures”.  The new standard
focuses on the rights and obligations of an arrangement, rather than
its legal form.  The standard redefines joint operations and joint
ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted. 

IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 provides comprehensive disclosure requirements on interests in
other entities, including joint arrangements, associates, and special
purpose entities.  The new disclosures are intended to assist financial
statement users in evaluating the nature, risks and financial effects
of an entity’s interest in subsidiaries and joint arrangements. 

IFRS 13 “Fair Value Measurement”

IFRS 13 provides a common definition of fair value within IFRS.  The new
standard provides measurement and disclosure guidance and applies when
another IFRS requires or permits an item to be measured at fair value,
with limited exceptions.

IAS 34 “Interim Financial Reporting”

Amendments to IAS 34 require specific disclosure on the fair value of
financial instruments for interim reporting.  These disclosures are
included in Note 11.

3. CAPITAL ASSETS

The following table reconciles the change in Vermilion’s capital assets:


                        Petroleum and     Furniture and              Total

    ($M)                  Natural Gas            Office     Capital Assets
                               Assets         Equipment

    Balance at              2,016,611            15,071          2,031,682
    January 1,
    2012

    Additions                 407,973             5,248            413,221

    Transfers                  10,528                 -             10,528
    from
    exploration
    and
    evaluation
    assets

    Property                  206,260                 -            206,260
    acquisitions

    Corporate                 136,297                 -            136,297
    acquisitions

    Borrowing                   9,994                 -              9,994
    costs
    capitalized

    Changes in                  1,334                 -              1,334
    estimate for
    asset
    retirement
    obligations

    Depletion and           (289,194)           (5,165)          (294,359)
    depreciation

    Impairments              (65,800)                 -           (65,800)

    Effect of                 (3,882)              (35)            (3,917)
    movements in
    foreign
    exchange
    rates

    Balance at              2,430,121            15,119          2,445,240
    December 31,
    2012

    Additions                 252,454             2,071            254,525

    Dispositions              (8,627)                 -            (8,627)

    Changes in               (25,774)                 -           (25,774)
    estimate for
    asset
    retirement
    obligations

    Depletion and           (152,433)           (3,363)          (155,796)
    depreciation

    Effect of                  36,628               102             36,730
    movements in
    foreign
    exchange
    rates

    Balance at              2,532,369            13,929          2,546,298
    June 30, 2013

4. EXPLORATION AND EVALUATION ASSETS

The following table reconciles the change in Vermilion’s exploration and
evaluation assets:


    ($M)                                         Exploration and Evaluation
                                                                     Assets

    Balance at January 1,                                            92,301
    2012

    Additions                                                        39,317

    Transfers to petroleum                                         (10,528)
    and natural gas assets

    Depreciation                                                    (3,485)

    Effect of movements in                                            (444)
    foreign exchange rates

    Balance at December 31,                                         117,161
    2012

    Additions                                                        12,689

    Depreciation                                                    (1,810)

    Effect of movements in                                              531
    foreign exchange rates

    Balance at June 30, 2013                                        128,571

5. ASSET RETIREMENT OBLIGATIONS

The following table reconciles the change in Vermilion’s asset
retirement obligations:


    ($M)                                           Asset Retirement
                                                        Obligations

    Balance at January 1, 2012                              310,531

    Additional obligations                                   55,228
    recognized

    Changes in estimates for                               (26,560)
    existing obligations

    Obligations settled                                    (13,739)

    Accretion                                                23,040

    Changes in discount rates                                22,807

    Effect of movements in                                    (244)
    foreign exchange rates

    Balance at December 31,                                 371,063
    2012

    Additional obligations                                    1,420
    recognized

    Obligations settled                                     (3,758)

    Accretion                                                11,824

    Changes in discount rates                              (27,194)

    Effect of movements in                                    5,513
    foreign exchange rates

    Balance at June 30, 2013                                358,868

6. LONG-TERM DEBT

The following table summarizes Vermilion’s outstanding long-term debt:


                                                            As At

    ($M)                                    June 30,       Dec 31, 2012
                                                2013

    Revolving                                557,788            419,784
    credit
    facility

    Senior                                   222,682            222,238
    unsecured
    notes

    Long-term                                780,470            642,022
    debt

Revolving Credit Facility

At June 30, 2013, Vermilion had in place a bank revolving credit
facility totalling $1.2 billion, of which approximately $557.8 million
was drawn.  The facility, which matures on May 31, 2016, is fully
revolving up to the date of maturity.

The facility is extendable from time to time, but not more than once per
year, for a period not longer than three years, at the option of the
lenders and upon notice from Vermilion.  If no extension is granted by
the lenders, the amounts owing pursuant to the facility are repayable
on the maturity date.  This facility bears interest at a rate
applicable to demand loans plus applicable margins.

The amount available to Vermilion under this facility is reduced by
outstanding letters of credit associated with Vermilion’s operations
totalling $51.3 million as at June 30, 2013 (December 31, 2012 – $49.2
million).

The facility is secured by various fixed and floating charges against
the subsidiaries of Vermilion.  Under the terms of the facility,
Vermilion must maintain a ratio of total bank borrowings (defined as
consolidated total debt), to consolidated net earnings before interest,
income taxes, depreciation, accretion and other certain non-cash items
(defined as consolidated EBITDA) of not greater than 4.0.  In addition,
Vermilion must maintain a ratio of consolidated total senior debt
(defined as consolidated total debt excluding unsecured and
subordinated debt) to consolidated EBITDA of not greater than 3.0.

As at June 30, 2013, Vermilion was in compliance with its financial
covenants.

Senior Unsecured Notes

On February 10, 2011, Vermilion issued $225.0 million of senior
unsecured notes at par.  The notes bear interest at a rate of 6.5% per
annum and will mature on February 10, 2016.  As direct senior unsecured
obligations of Vermilion, the notes rank pari passu with all other
present and future unsecured and unsubordinated indebtedness of the
Company.

Vermilion may, at its option, prior to February 10, 2014, redeem up to
35% of the notes with net proceeds of equity offerings by the Company
at a redemption price equal to 106.5% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
applicable redemption date.  Subsequently, Vermilion may, on or after
February 10, 2014, redeem all or part of the notes at fixed redemption
prices, plus, in each case, accrued and unpaid interest, if any, to the
applicable redemption date.  The notes were initially recognized at
fair value net of transaction costs and are subsequently measured at
amortized cost using an effective interest rate of 7.1%.

7. SHAREHOLDERS’ CAPITAL

The following tables reconcile the change in Vermilion’s shareholders’
capital:


    Shareholders'                       Number of Shares        Amount ($M)
    Capital                                       ('000s)

    Balance as at                                  96,430         1,368,145
    January 1, 2012

    Issuance of shares                              1,631            72,058
    pursuant to the
    dividend
    reinvestment plan

    Vesting of equity                                 904            33,355
    based awards

    Share-settled                                     157             7,151
    dividends on vested
    equity based awards

    Shares issued                                      13               636
    pursuant to the
    bonus plan

    Balance as at                                  99,135         1,481,345
    December 31, 2012

    Issuance of shares                                697            34,162
    pursuant to the
    dividend
    reinvestment plan

    Vesting of equity                               1,372            54,370
    based awards

    Share-settled                                     202             9,808
    dividends on vested
    equity based awards

    Shares issued                                      12               629
    pursuant to the
    bonus plan

    Balance as at June                            101,418         1,580,314
    30, 2013

Dividends declared to shareholders for the six months ended June 30,
2013 were $120.4 million.

Subsequent to the end of the period and prior to the condensed
consolidated interim financial statements being authorized for issue on
July 31, 2013, Vermilion declared dividends totalling $20.3 million or
$0.20 per share.

8. EQUITY BASED COMPENSATION

The following table summarizes the number of awards outstanding under
the Vermilion Incentive Plan (“VIP”):


    Number of Awards                                 2013        2012
    ('000s)

    Opening balance                                 1,690       1,750

    Granted                                           712         681

    Vested                                          (749)       (596)

    Forfeited                                        (73)       (145)

    Closing balance                                 1,580       1,690

The fair value of a VIP award is determined on the grant date at the
closing price of Vermilion’s common shares on the Toronto Stock
Exchange, adjusted by the estimated performance factor that will
ultimately be achieved.  Dividends, which notionally accrue to the
awards during the vesting period, are not included in the determination
of grant date fair values.

9. SEGMENTED INFORMATION

The following segment information has been prepared by segregating the
results into the geographic areas in which Vermilion operates.  The
following amounts include transactions between segments, which are
recorded at fair value at the date of recognition.


                                                             Three Months Ended June 30, 2013

    ($M)                    Canada         France     Netherlands     Australia     Ireland         Total

    Drilling and            14,465         23,223           4,157         8,282      24,878        75,005
    development

    Exploration              3,113              -               -             -           -         3,113
    and evaluation

    Operating
    Income (Loss)

    Oil and gas            100,950        100,418          38,316        72,282           -       311,966
    sales to
    external
    customers

    Royalties              (9,707)        (6,093)               -             -           -      (15,800)

    Revenue from            91,243         94,325          38,316        72,282           -       296,166
    external
    customers

    Realized gain              360          1,411             (1)             -           -         1,770
    (loss) on
    derivative
    instruments

    Transportation         (2,611)        (2,416)               -             -     (1,626)       (6,653)
    expense

    Operating             (15,975)       (16,935)         (5,260)       (9,912)           -      (48,082)
    expense

    Operating               73,017         76,385          33,055        62,370     (1,626)       243,201
    income (loss)

    Corporate                  328         16,124           9,621        10,646           -        36,719
    income taxes

    PRRT                         -              -               -        12,590           -        12,590

    Current income             328         16,124           9,621        23,236           -        49,309
    taxes

                                                             Three Months Ended June 30, 2012

    ($M)                    Canada         France     Netherlands     Australia     Ireland         Total

    Drilling and            38,476         10,281           5,427         9,867      13,905        77,956
    development

    Exploration             16,980              -            (48)             -           -        16,932
    and evaluation

    Operating
    Income (Loss)

    Oil and gas             74,932         94,828          30,062        46,722           -       246,544
    sales to
    external
    customers

    Royalties              (8,216)        (5,115)               -             -           -      (13,331)

    Revenue from            66,716         89,713          30,062        46,722           -       233,213
    external
    customers

    Realized loss            (423)        (3,000)               -         (168)           -       (3,591)
    on derivative
    instruments

    Transportation         (2,350)        (1,894)               -             -     (1,974)       (6,218)
    expense

    Operating             (13,217)       (13,755)         (5,457)       (7,796)           -      (40,225)
    expense

    Operating               50,726         71,064          24,605        38,758     (1,974)       183,179
    income (loss)

    Corporate                  845         15,725           5,875         6,780           -        29,225
    income taxes

    PRRT                         -              -               -         8,460           -         8,460

    Current income             845         15,725           5,875        15,240           -        37,685
    taxes

                                                              Six Months Ended June 30, 2013

    ($M)                    Canada         France     Netherlands     Australia     Ireland         Total

    Total assets         1,325,667        873,242         142,317       311,415     646,366     3,299,007

    Drilling and            98,525         44,815           6,156        63,631      41,398       254,525
    development

    Exploration             12,689              -               -             -           -        12,689
    and evaluation

    Operating
    Income (Loss)

    Oil and gas            184,638        221,984          72,737       142,183           -       621,542
    sales to
    external
    customers

    Royalties             (18,696)       (12,894)               -             -           -      (31,590)

    Revenue from           165,942        209,090          72,737       142,183           -       589,952
    external
    customers

    Realized gain              597          (608)             (1)       (1,005)           -       (1,017)
    (loss) on
    derivative
    instruments

    Transportation         (4,880)        (5,170)               -             -     (3,244)      (13,294)
    expense

    Operating             (29,816)       (36,874)         (9,229)      (24,738)           -     (100,657)
    expense

    Operating              131,843        166,438          63,507       116,440     (3,244)       474,984
    income (loss)

    Corporate                  579         34,783          19,055        17,859           -        72,276
    income taxes

    PRRT                         -              -               -        23,743           -        23,743

    Current income             579         34,783          19,055        41,602           -        96,019
    taxes

                                                              Six Months Ended June 30, 2012

    ($M)                    Canada         France     Netherlands     Australia     Ireland         Total

    Total assets         1,170,481        701,189         142,612       285,474     516,377     2,816,133

    Drilling and           104,022         16,008           7,900        14,411      23,511       165,852
    development

    Exploration             23,347              -              49             -           -        23,396
    and evaluation

    Operating
    Income (Loss)

    Oil and gas            155,458        198,339          61,882       141,353           -       557,032
    sales to
    external
    customers

    Royalties             (17,185)       (10,598)               -             -           -      (27,783)

    Revenue from           138,273        187,741          61,882       141,353           -       529,249
    external
    customers

    Realized loss          (1,061)        (7,914)               -         (334)           -       (9,309)
    on derivative
    instruments

    Transportation         (4,394)        (4,542)               -             -     (3,975)      (12,911)
    expense

    Operating             (27,484)       (28,857)         (9,566)      (21,871)           -      (87,778)
    expense

    Operating              105,334        146,428          52,316       119,148     (3,975)       419,251
    income (loss)

    Corporate                1,287         28,620          14,932        16,750           -        61,589
    income taxes

    PRRT                         -              -               -        35,729           -        35,729

    Current income           1,287         28,620          14,932        52,479           -        97,318
    taxes

Reconciliation of operating income to net earnings


                               Three Months Ended           Six Months Ended

    ($M)                     June 30,     June 30,      June 30,      June 30,
                                 2013         2012          2013          2012

    Operating                 243,201      183,179       474,984       419,251
    income

    Equity based             (10,724)      (9,861)      (26,860)      (19,916)
    compensation  

    Unrealized                  8,651       20,015         7,538        11,676
    gain on
    derivative
    instruments

    Interest                  (9,336)      (6,600)      (18,025)      (12,701)
    expense

    General and              (11,313)     (12,068)      (23,923)      (22,216)
    administration

    Foreign                    29,297     (15,975)        26,161      (11,548)
    exchange gain
    (loss)

    Other expense               (271)        (585)         (204)       (8,568)

    Accretion                 (6,000)      (5,792)      (11,824)      (11,030)

    Depletion and            (78,418)     (76,512)     (159,866)     (152,360)
    depreciation

    Impairments                     -            -             -      (65,800)

    Gain on                         -            -             -        45,309
    acquisition

    Earnings                  165,087       75,801       267,981       172,097
    before income
    taxes

    Income taxes             (58,889)     (37,985)     (109,646)      (69,187)

    Net earnings              106,198       37,816       158,335       102,910

10. CAPITAL DISCLOSURES


                          Three Months Ended            Six Months Ended

    ($M except          June 30,      June 30,      June 30,      June 30,
    as                      2013          2012          2013          2012
    indicated)

    Long-term            780,470       452,267       780,470       452,267
    debt

    Current              325,912       397,483       325,912       397,483
    liabilities

    Current            (432,014)     (325,140)     (432,014)     (325,140)
    assets

    Net debt [1]         674,368       524,610       674,368       524,610

    Cash flows           179,074       123,485       369,786       248,372
    from
    operating
    activities

    Changes in           (6,852)         1,709      (35,323)        27,178
    non-cash
    operating
    working
    capital

    Asset                  2,370         2,581         3,758         3,347
    retirement
    obligations
    settled

    Fund flows           174,592       127,775       338,221       278,897
    from
    operations

    Annualized           698,368       511,100       676,442       557,794
    fund flows
    from
    operations
    [2]

    Ratio of net             1.0           1.0           1.0           0.9
    debt to
    annualized
    fund flows
    from
    operations (
    [1] ÷ [2])

The ratio of net debt to annualized fund flows from operations for the
three and six months ended June 30, 2013 was relatively consistent with
same periods in 2012 as fund flows from operations increased
proportionately with net debt.  The increase in net debt was the result
of the second of two acquisitions that occurred in France during 2012
and capital expenditures pertaining to the Ireland assets, which are
currently under development.

Vermilion is subject to certain externally imposed capital requirements
under its revolving credit facility.  During the periods covered by
these consolidated financial statements, Vermilion continued to comply
with these requirements.

11. FINANCIAL INSTRUMENTS

Classification of Financial Instruments

The following table summarizes information relating to Vermilion’s
financial instruments as at June 30, 2013 and December 31, 2012:


                                                                          As at June 30, 2013        As at December 31,
                                                                                                                   2012

                                                     Related                                                                Fair value
                    Consolidated                     caption on                                                             measurement
    Class of        balance                          Statement of        Carrying        Fair      Carrying        Fair     hierarchy
    financial       sheet            Accounting      Net                   value        value        value        value
    instrument      caption          designation     Earnings                ($M)        ($M)          ($M)        ($M)

    Cash            Cash and               HFT       Gains and            235,598     235,598       102,125     102,125     Level 1
                    cash                             losses on
                    equivalents                      foreign
                                                     exchange are
                                                     included in
                                                     foreign
                                                     exchange
                                                     (gain) loss

    Receivables     Accounts               LAR       Gains and            160,425     160,425       180,064     180,064     Not
                    receivable                       losses on                                                              applicable
                                                     foreign
                                                     exchange are
                                                     included in
                                                     foreign
                                                     exchange
                                                     (gain) loss
                                                     and
                                                     impairments
                                                     are recognized
                                                     as general and
                                                     administration
                                                     expense

    Derivative      Derivative             HFT       Gain on                2,149       2,149         2,086       2,086     Level 2
    assets          instruments                      derivative
                                                     instruments

    Derivative      Derivative             HFT       Gain on              (1,009)     (1,009)       (8,484)     (8,484)     Level 2
    liabilities     instruments                      derivative
                                                     instruments

    Payables        Accounts               OTH       Gains and          (252,533)   (252,533)     (319,518)   (319,518)     Not
                    payable and                      losses on                                                              applicable
                    accrued                          foreign
                    liabilities                      exchange are
                                                     included in
                                                     foreign
                                                     exchange
                                                     (gain) loss

                                      Dividends
                                       payable

    Long-term       Long-term              OTH       Interest           (780,470)   (787,288)     (642,022)   (656,315)     Not
    debt            debt                             expense                                                                applicable

The accounting designations used in the above table refer to the
following:

HFT – Classified as “Held for trading” in accordance with International
Accounting Standard 39 “Financial Instruments: Recognition and
Measurement”.  These financial assets and liabilities are carried at
fair value on the consolidated balance sheets with associated gains and
losses reflected in net earnings.

LAR – “Loans and receivables” are initially recognized at fair value and
are subsequently measured at amortized cost.  Impairments and foreign
exchange gains and losses are recognized in net earnings.

OTH – “Other financial liabilities” are initially recognized at fair
value net of transaction costs directly attributable to the issuance of
the instrument and subsequently are measured at amortized cost. 
Interest is recognized in net earnings using the effective interest
method.  Foreign exchange gains and losses are recognized in net
earnings.

Level 1 – Fair value measurement is determined by reference to
unadjusted quoted prices in active markets for identical assets or
liabilities.

Level 2 – Fair value measurement is determined based on inputs other
than unadjusted quoted prices that are observable, either directly or
indirectly.

Level 3 – Fair value measurement is based on inputs for the asset or
liability that are not based on observable market data.

Determination of Fair Values

The level in the fair value hierarchy into which the fair value
measurements are categorized is determined on the basis of the lowest
level input that is significant to the fair value measurement. 
Transfers between levels on the fair value hierarchy are deemed to have
occurred at the end of the reporting period.

Fair values for derivative assets and derivative liabilities are
determined using pricing models incorporating future prices that are
based on assumptions which are supported by prices from observable
market transactions and are adjusted for credit risk.

The carrying value of receivables approximate their fair value due to
their short maturities.

The carrying value of long-term debt outstanding on the revolving credit
facility approximates its fair value due to the use of short-term
borrowing instruments at market rates of interest.

The fair value of the senior unsecured notes changes in response to
changes in the market rates of interest payable on similar instruments
and was determined with reference to prevailing market rates for such
instruments.

Nature and Extent of Risks Arising from Financial Instruments

Market risk:

Vermilion’s financial instruments are exposed to currency risk related
to changes in foreign currency denominated financial instruments and
commodity price risk related to outstanding derivative positions.  The
following table summarizes what the impact on comprehensive income
before tax would be for the six months ended June 30, 2013 given
changes in the relevant risk variables that Vermilion considers were
reasonably possible at the balance sheet date.  The impact on
comprehensive income before tax associated with changes in these risk
variables for assets and liabilities that are not considered financial
instruments are excluded from this analysis.  This analysis does not
attempt to reflect any interdependencies between the relevant risk
variables.


                                                              June 30, 2013

                                  Before tax effect on comprehensive income

    Risk ($M)                   Description of change   Increase (decrease)
                                in risk variable

    Currency risk - Euro        Increase in strength                (4,128)
    to Canadian                 of the Canadian
                                dollar against the

                                Euro by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

                                Decrease in strength                  4,128
                                of the Canadian
                                dollar against the

                                Euro by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

    Currency risk - US $        Increase in strength                (4,953)
    to Canadian                 of the Canadian
                                dollar against the

                                US$ by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

                                Decrease in strength                  4,953
                                of the Canadian
                                dollar against the

                                US$ by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

    Currency risk - AUD $       Increase in strength                  (261)
    to Canadian                 of the Canadian
                                dollar against the

                                AUD$ by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

                                Decrease in strength                    261
                                of the Canadian
                                dollar against the

                                AUD$ by 5% over the
                                relevant closing
                                rates on June 30,
                                2013

    Commodity price risk        Increase in relevant                (6,067)
                                oil reference price
                                within option pricing
                                models used to

                                determine the fair
                                value of financial
                                derivative positions
                                by US$5.00/bbl at
                                June 30, 2013

                                Decrease in relevant                  5,923
                                oil reference price
                                within option pricing
                                models used to

                                determine the fair
                                value of financial
                                derivative positions
                                by US$5.00/bbl at
                                June 30, 2013

    Interest rate risk          Increasein average                  (2,250)
                                Canadian prime
                                interest rate

                                by 100 basis points
                                during the six months
                                ended June 30, 2013

                                Decreasein average                    2,250
                                Canadian prime
                                interest rate

                                by 100 basis points
                                during the six months
                                ended June 30, 2013

SOURCE Vermilion Energy Inc.


Source: PR Newswire