It’s not uncommon for diners to place their trust in a bottle of French wine.
Lorenzo Donadeo and his business partners put their faith in French oil.
In 1997, Donadeo, Claudio Ghersinich and Jeff Boyce negotiated the purchase of 150 oil wells in France from ExxonMobil Corp. for $42 million. It was a big step for their Calgary-based company, Vermilion Energy Inc. (TSX: VET), which at the time was producing only a fraction of the approximately 3,500-barrels-per-day output of the French properties.
“We were looking domestically, but the problem was at that point in time the prices were starting to increase and it was getting very expensive to buy properties,” said Donadeo, Vermilion’s president and CEO, and a former Red Deer resident.
Not only was France a less competitive market to buy into, but Donadeo, Ghersinich and Boyce liked the idea of buying a non-core asset of a major operator. They reasoned that Exxon probably had not considered all the ways it might add value to its relatively small play in Europe.
“We started out just talking to the people who work there,” said Donadeo, noting that the suggestions they provided helped boost production.
One particularly useful conversation occurred while the deal was still being negotiated. A senior manager told the Canadians about a well-stocked wine cellar that was among Exxon’s French assets.
“We said, if they ask us to go to a higher number, we’ll tell them that we’ll meet them half way but we want them to throw in the wine cellar,” recalled Donadeo.
The opportunity came during a subsequent phone conversation with Exxon officials.
“When we suggested that, the phone line just went dead,” said Donadeo, adding that Exxon ultimately agreed.
In the years that followed, Vermilion expanded its presence in France. It also acquired assets in the Netherlands and Ireland, as well as Australia.
Today, the company produces about 35,000 barrels of oil-equivalent energy commodities a day, with this number expected to approach 55,000 barrels over the next several years as new assets in Ireland go into production. Vermilion’s market capitalization is around $4.5 billion and it has about 500 employees and contractors.
With oil currently trading at about $110 a barrel, and expected to rise, Donadeo is bullish about his company’s future.
“About 80 per cent of our revenues are tied to oil,” he pointed out.
“We’re in pretty good shape.”
Donadeo is also excited about the potential of new technologies like horizontal drilling and multi-stage fracturing to boost production from the company’s mature fields in Europe and Canada.
To some extent, Vermilion’s success is rooted in the coal mines of west-Central Alberta. Donadeo’s father Antonio toiled there in the 1950s after emigrating from Italy.
“It was a terrible place to work,” said Donadeo. “They worked about a thousand feet underground in really terrible working conditions.”
Antonio eventually settled in Red Deer, where he joined Border Paving and worked his way up to a foreman’s position. Donadeo’s mother Victoria, meanwhile, toiled as a cleaning lady at Alberta School Hospital — which later became Michener Centre.
Donadeo said he and his sisters Lina (Wedderburn), Luciana (Daniluck) and Lydia (Hrabec) learned the importance of hard work, perseverance and education while growing up.
“All of us have benefited from the hardships of my parents.”
After graduating from Camille J. Lerouge School, Donadeo earned an engineering degree from the University of Alberta. In 1981, he went to work for Hudson’s Bay Oil and Gas Co., which a few months later was purchased by Dome Petroleum Ltd. In 1988, Amoco Canada Petroleum Co. Ltd. acquired Dome.
Donadeo served as a facilities engineer and production engineer before moving into the company’s head office in Calgary.
In 1993, Donadeo and Ghersinich — a fellow engineer at Amoco — started their own natural gas marketing firm under the name Vista Nuova Energy Inc. Through a number of small acquisitions they accumulated about 300 barrels a day in producing assets.
Vista Nuova went public in 1995 by way of a reverse takeover of junior capital pool company Vermilion Resources Ltd. Boyce came on board at that time.
With about three-quarters of its production coming from international operations, Vermilion has become adept at working on foreign soil. For instance, said Donadeo, the company has learned to plan farther ahead to compensate for slower regulatory systems and fewer oilfield service providers.
It’s also developed an understanding of the mentalities of the people in the various countries it’s active in, he added.
“They all have different quirks, jut like Canadians do.”
Donadeo and his wife Donna — whom he also credits for his success — make frequent trips to Red Deer and spend much of their summers in Sylvan Lake. A big chunk of Vermilion’s shareholder base is also in Central Alberta, noted Donadeo, who lists his father and his brother-in-law Ray Keith as among his company’s biggest local boosters.