EXHIBIT
99.3



VERMILION
ENERGY INC.

2012
AUDITED ANNUAL FINANCIAL STATEMENTS

















|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



MANAGEMENT’S
REPORT TO SHAREHOLDERS



Management’s
Responsibility for Financial Statements



The
accompanying consolidated financial statements of Vermilion Energy Inc. are the responsibility of management and have been approved
by the Board of Directors of Vermilion Energy Inc. The consolidated financial statements have been prepared in accordance with
the accounting policies detailed in the notes to the consolidated financial statements and are prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Where necessary, management has made
informed judgements and estimates of transactions that were not yet completed at the balance sheet date. Financial information
throughout the Annual Report is consistent with the consolidated financial statements.



Management
ensures the integrity of the consolidated financial statements by maintaining high-quality systems of internal control. Procedures
and policies are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded,
and that the financial records are reliable for preparation of the consolidated financial statements. Deloitte LLP, Vermilion’s
external auditors, have conducted an audit of the consolidated financial statements in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States) and have provided their
report.



The
Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
control. The Board carries out this responsibility principally through the Audit Committee, which is appointed by the Board and
is comprised entirely of independent Directors. The Committee meets periodically with management and Deloitte LLP to satisfy itself
that each party is properly discharging its responsibilities and to review the consolidated financial statements, the Management’s
Discussion and Analysis and the external Auditor’s Report before they are presented to the Board of Directors.



Management’s
Report on Internal Control Over Financial Reporting



Management
is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Management conducted
an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established
in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management has assessed the effectiveness of Vermilion’s internal control
over financial reporting as defined in Rule 13a-15 under the US Securities Exchange Act of 1934 and as defined in Canada by National
Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. Management concluded that Vermilion’s
internal control over financial reporting was effective as of December 31, 2012. The effectiveness of Vermilion’s internal
control over financial reporting as of December 31, 2012 has been audited by Deloitte LLP, the Company’s Independent Registered
Chartered Accountants, who also audited the Company’s consolidated financial statements for the year ended December 31,
2012.



|(Signed “Lorenzo
    Donadeo”)      | (Signed “Curtis
    W. Hicks”)                    
|----------------------------------- | --------------------------------------------------
|                                    |                                                   
|Lorenzo Donadeo                     | Curtis W. Hicks                                   
|President & Chief Executive Officer | Executive Vice President & Chief Financial Officer



February
28, 2013



2









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



Report
of Independent Registered Chartered Accountants



To
the Board of Directors and Shareholders of Vermilion Energy Inc.



We
have audited the accompanying consolidatedfinancial statements of Vermilion Energy Inc. and
subsidiaries (the “Company”), which comprise the consolidatedbalance sheets as
at December 31, 2012and2011, and the consolidated statements
of net earnings and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements
of cash flows for the years then ended, and notes to the consolidated financial statements.



Management's
Responsibility for the Consolidated Financial Statements



Management
is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.



Auditor's
Responsibility



Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.



An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.



We
believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.



Opinion



In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Vermilion
Energy Inc. and subsidiaries as at December 31, 2012and2011,
and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.



Other
Matter



We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28,
2013expressed an unqualified opinion on the Company’s internal control over
financial reporting.



(Signed
“Deloitte LLP”)



Independent
Registered Chartered Accountants



February
28, 2013

Calgary,
Canada



3









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





Report
of Independent Registered Chartered Accountants



To
the Shareholders and Board of Directors of Vermilion Energy Inc.



We
have audited the internal control over financial reporting of Vermilion Energy Inc. and subsidiaries (the “Company”)
as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.



A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with International Financial Reporting Standards. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International
Financial Reporting Standards, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.



Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk
that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.



In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.



We
have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2012 of the Company
and our report dated February 28, 2013 expressed an unqualified opinion on those financial statements.



(Signed
“Deloitte LLP”)



Independent
Registered Chartered Accountants



February
28, 2013

Calgary,
Canada



4









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





CONSOLIDATED
BALANCE SHEETS(THOUSANDS OF CANADIAN DOLLARS)



|                                             |  |      |    |  | December
    31, |  |           | December
    31, | 
|-------------------------------------------- |  | ---- | -- |  | ---------------- |  | --------- | ---------------- | 
|                                             |  | Note |    |  | 2012             |  |           | 2011             | 
|ASSETS                                       |  |      |    |  |                  |  |           |                  | 
|Current                                      |  |      |    |  |                  |  |           |                  | 
|Cash
    and cash equivalents                |  |      | 18 |  |                  |  | 102,125   |                  | 
|Accounts
    receivable                      |  |      |    |  |                  |  | 180,064   |                  | 
|Crude
    oil inventory                      |  |      |    |  |                  |  | 25,719    |                  | 
|Derivative
    instruments                   |  |      | 14 |  |                  |  | 2,086     |                  | 
|Prepaid
    expenses                         |  |      |    |  |                  |  | 10,508    |                  | 
|                                             |  |      |    |  |                  |  | 320,502   |                  | 
|                                             |  |      |    |  |                  |  |           |                  | 
|Deferred
    taxes                           |  |      | 10 |  |                  |  | 193,354   |                  | 
|Exploration
    and evaluation assets        |  |      | 6  |  |                  |  | 117,161   |                  | 
|Capital
    assets                           |  |      | 5  |  |                  |  | 2,445,240 |                  | 
|                                             |  |      |    |  |                  |  | 3,076,257 |                  | 
|                                             |  |      |    |  |                  |  |           |                  | 
|LIABILITIES                                  |  |      |    |  |                  |  |           |                  | 
|Current                                      |  |      |    |  |                  |  |           |                  | 
|Accounts
    payable and accrued liabilities |  |      |    |  |                  |  | 300,682   |                  | 
|Dividends
    payable                        |  |      | 11 |  |                  |  | 18,836    |                  | 
|Derivative
    instruments                   |  |      | 14 |  |                  |  | 8,484     |                  | 
|Income
    taxes payable                     |  |      |    |  |                  |  | 27,709    |                  | 
|Amount
    due pursuant to acquisition       |  |      | 8  |  |                  |  | -         |                  | 
|                                             |  |      |    |  |                  |  | 355,711   |                  | 
|                                             |  |      |    |  |                  |  |           |                  | 
|Derivative
    instruments                   |  |      | 14 |  |                  |  | -         |                  | 
|Long-term
    debt                           |  |      | 9  |  |                  |  | 642,022   |                  | 
|Asset
    retirement obligations             |  |      | 7  |  |                  |  | 371,063   |                  | 
|Deferred
    taxes                           |  |      | 10 |  |                  |  | 288,815   |                  | 
|                                             |  |      |    |  |                  |  | 1,657,611 |                  | 
|                                             |  |      |    |  |                  |  |           |                  | 
|SHAREHOLDERS’
    EQUITY                     |  |      |    |  |                  |  |           |                  | 
|Shareholders’
    capital                    |  |      | 11 |  |                  |  | 1,481,345 |                  | 
|Contributed
    surplus                      |  |      |    |  |                  |  | 69,581    |                  | 
|Accumulated
    other comprehensive loss     |  |      |    |  |                  |  | (32,409   | )                | 
|Deficit                                      |  |      |    |  |                  |  | (99,871   | )                | 
|                                             |  |      |    |  |                  |  | 1,418,646 |                  | 
|                                             |  |      |    |  |                  |  | 3,076,257 |                  | 



APPROVED
BY THE BOARD



|(Signed “Kenneth
    Davidson”) | (Signed “Lorenzo
    Donadeo”)
|------------------------------- | ------------------------------
|                                |                               
|W. Kenneth Davidson, Director   | Lorenzo Donadeo, Director     



5









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





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



|                                                |  |          |  | Year
    Ended   |          
|----------------------------------------------- |  | -------- |  | ---------------- | ---------
|                                                |  |          |  | December
    31, |          
|                                                |  | Note     |  | 2012             |          
|REVENUE                                         |  |          |  |                  |          
|Petroleum
    and natural gas sales             |  |          |  |                  | 1,083,103
|Royalties                                       |  |          |  |                  | (52,084  
|Petroleum
    and natural gas revenue           |  |          |  |                  | 1,031,019
|                                                |  |          |  |                  |          
|EXPENSES                                        |  |          |  |                  |          
|Operating                                       |  | 22       |  |                  | 178,442  
|Transportation                                  |  |          |  |                  | 24,113   
|Equity
    based compensation                   |  | 12       |  |                  | 47,104   
|Loss
    on derivative instruments              |  | 14       |  |                  | 6,986    
|Interest
    expense                            |  |          |  |                  | 27,586   
|General
    and administration                  |  | 22       |  |                  | 43,773   
|Foreign
    exchange loss                       |  |          |  |                  | 1,546    
|Other
    expense                               |  | 4        |  |                  | 8,751    
|Accretion                                       |  | 7        |  |                  | 23,040   
|Depletion
    and depreciation                  |  | 5,
    6 |  |                  | 295,943  
|Impairments                                     |  | 5        |  |                  | 65,800   
|Gain
    on acquisition                         |  | 4        |  |                  | (45,309  
|                                                |  |          |  |                  | 677,775  
|EARNINGS
    BEFORE INCOME TAXES                |  |          |  |                  | 353,244  
|                                                |  |          |  |                  |          
|INCOME
    TAXES                                |  | 10       |  |                  |          
|Deferred                                        |  |          |  |                  | (19,291  
|Current                                         |  |          |  |                  | 181,913  
|                                                |  |          |  |                  | 162,622  
|                                                |  |          |  |                  |          
|NET
    EARNINGS                                |  |          |  |                  | 190,622  
|                                                |  |          |  |                  |          
|OTHER
    COMPREHENSIVE INCOME (LOSS)           |  |          |  |                  |          
|Currency
    translation adjustments            |  |          |  |                  | 978      
|COMPREHENSIVE
    INCOME                        |  |          |  |                  | 191,600  
|                                                |  |          |  |                  |          
|NET
    EARNINGS PER SHARE                      |  | 13       |  |                  |          
|Basic                                           |  |          |  |                  | 1.94     
|Diluted                                         |  |          |  |                  | 1.92     
|                                                |  |          |  |                  |          
|WEIGHTED
    AVERAGE SHARES OUTSTANDING ('000s) |  | 13       |  |                  |          
|Basic                                           |  |          |  |                  | 98,016   
|Diluted                                         |  |          |  |                  | 99,294   



6









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





CONSOLIDATED
STATEMENTS OF CASH FLOWS(THOUSANDS OF CANADIAN DOLLARS)



|                                                                       |  |          |  | Year
    Ended   |         
|---------------------------------------------------------------------- |  | -------- |  | ---------------- | --------
|                                                                       |  |          |  | December
    31, |         
|                                                                       |  | Note     |  | 2012             |         
|OPERATING                                                              |  |          |  |                  |         
|Net
    earnings                                                       |  |          |  |                  | 190,622 
|Adjustments:                                                           |  |          |  |                  |         
|Accretion                                                              |  | 7        |  |                  | 23,040  
|Depletion
    and depreciation                                         |  | 5,
    6 |  |                  | 295,943 
|Impairments                                                            |  | 5        |  |                  | 65,800  
|Gain
    on acquisition                                                |  | 4        |  |                  | (45,309 
|Unrealized
    (gain) loss on derivative instruments                   |  | 14       |  |                  | (5,751  
|Equity
    based compensation                                          |  | 12       |  |                  | 47,104  
|Unrealized
    foreign exchange loss                                   |  |          |  |                  | 4,350   
|Unrealized
    other expense                                           |  |          |  |                  | 1,220   
|Deferred
    taxes                                                     |  | 10       |  |                  | (19,291 
|Asset
    retirement obligations settled                               |  | 7        |  |                  | (13,739 
|Changes
    in non-cash operating working capital                      |  | 15       |  |                  | (47,409 
|Cash
    flows from operating activities                               |  |          |  |                  | 496,580 
|                                                                       |  |          |  |                  |         
|INVESTING                                                              |  |          |  |                  |         
|Drilling
    and development                                           |  | 5        |  |                  | (413,221
|Exploration
    and evaluation                                         |  | 6        |  |                  | (39,317 
|Property
    acquisitions                                              |  | 4        |  |                  | (106,184
|Corporate
    acquisitions, net of cash acquired                       |  | 4        |  |                  | (63,482 
|Payment
    of amount due pursuant to acquisition                      |  | 8        |  |                  | (134,307
|Changes
    in non-cash investing working capital                      |  | 15       |  |                  | 16,588  
|Cash
    flows used in investing activities                            |  |          |  |                  | (739,923
|                                                                       |  |          |  |                  |         
|FINANCING                                                              |  |          |  |                  |         
|Increase
    (decrease) in long-term debt                              |  | 9        |  |                  | 265,395 
|Issuance
    of senior unsecured notes                                 |  | 9        |  |                  | -       
|Issuance
    of shares pursuant to the dividend reinvestment plan      |  | 11       |  |                  | 36,339  
|Cash
    dividends                                                     |  | 11       |  |                  | (187,484
|Issuance
    of shares                                                 |  | 11       |  |                  | -       
|Cash
    flows from financing activities                               |  |          |  |                  | 114,250 
|Foreign
    exchange loss on cash held in foreign currencies           |  |          |  |                  | (3,289  
|                                                                       |  |          |  |                  |         
|Net
    change in cash and cash equivalents                            |  |          |  |                  | (132,382
|Cash
    and cash equivalents, beginning of year                       |  |          |  |                  | 234,507 
|Cash
    and cash equivalents, end of year                             |  | 18       |  |                  | 102,125 
|                                                                       |  |          |  |                  |         
|Supplementary
    information for operating activities - cash payments |  |          |  |                  |         
|Interest
    paid                                                      |  |          |  |                  | 30,792  
|Income
    taxes paid                                                  |  |          |  |                  | 190,611 



7









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(THOUSANDS OF CANADIAN DOLLARS)





|                                                                  |  |            |  |               |           |  |             |  |         | Accumulated   |  |  |           |   |  |               |         
|----------------------------------------------------------------- |  | ---------- |  | ------------- | --------- |  | ----------- |  | ------- | ------------- |  |  | --------- | - |  | ------------- | --------
|                                                                  |  |            |  |               |           |  |             |  |         | Other         |  |  | Retained  |   |  | Total         |         
|                                                                  |  |            |  | Shareholders' |           |  | Contributed |  |         | Comprehensive |  |  | Earnings  |   |  | Shareholders’ |         
|                                                                  |  | Note       |  | Capital       |           |  | Surplus     |  |         | Loss          |  |  | (Deficit) |   |  | Equity        |         
|Balances
    as at January 1, 2011                                |  |            |  |               | 1,025,770 |  |             |  | 40,726  |               |  |  | (31,577   | ) |  |               | 10,983  
|Net
    earnings                                                  |  |            |  |               | -         |  |             |  | -       |               |  |  | -         |   |  |               | 142,821 
|Currency
    translation adjustments                              |  |            |  |               | -         |  |             |  | -       |               |  |  | (1,810    | ) |  |               | -       
|Equity
    based compensation expense                             |  |            |  |               | -         |  |             |  | 37,881  |               |  |  | -         |   |  |               | -       
|Dividends
    declared                                            |  | 11         |  |               | -         |  |             |  | -       |               |  |  | -         |   |  |               | (207,846
|Issuance
    of shares, net of deferred taxes                     |  | 11         |  |               | 254,786   |  |             |  | -       |               |  |  | -         |   |  |               | -       
|Issuance
    of shares pursuant to the dividend reinvestment plan |  | 11         |  |               | 59,081    |  |             |  | -       |               |  |  | -         |   |  |               | -       
|Vesting
    of equity based awards                                |  | 11,
    12 |  |               | 22,139    |  |             |  | (22,139 | )             |  |  | -         |   |  |               | -       
|Share-settled
    dividends on vested equity based awards         |  | 11,
    12 |  |               | 5,583     |  |             |  | -       |               |  |  | -         |   |  |               | (5,583  
|Shares
    issued for bonus plan                                  |  | 11         |  |               | 786       |  |             |  | -       |               |  |  | -         |   |  |               | -       
|Balances
    as at December 31, 2011                              |  |            |  |               | 1,368,145 |  |             |  | 56,468  |               |  |  | (33,387   | ) |  |               | (59,625 



|                                                                  |  |            |  |               |           |  |             |  |         | Accumulated   |  |  |         |   |  |               |         
|----------------------------------------------------------------- |  | ---------- |  | ------------- | --------- |  | ----------- |  | ------- | ------------- |  |  | ------- | - |  | ------------- | --------
|                                                                  |  |            |  |               |           |  |             |  |         | Other         |  |  |         |   |  | Total         |         
|                                                                  |  |            |  | Shareholders’ |           |  | Contributed |  |         | Comprehensive |  |  |         |   |  | Shareholders’ |         
|                                                                  |  | Note       |  | Capital       |           |  | Surplus     |  |         | Loss          |  |  | Deficit |   |  | Equity        |         
|Balances
    as at January 1, 2012                                |  |            |  |               | 1,368,145 |  |             |  | 56,468  |               |  |  | (33,387 | ) |  |               | (59,625 
|Net
    earnings                                                  |  |            |  |               | -         |  |             |  | -       |               |  |  | -       |   |  |               | 190,622 
|Currency
    translation adjustments                              |  |            |  |               | -         |  |             |  | -       |               |  |  | 978     |   |  |               | -       
|Equity
    based compensation expense                             |  |            |  |               | -         |  |             |  | 46,468  |               |  |  | -       |   |  |               | -       
|Dividends
    declared                                            |  | 11         |  |               | -         |  |             |  | -       |               |  |  | -       |   |  |               | (223,717
|Issuance
    of shares pursuant to the dividend reinvestment plan |  | 11         |  |               | 72,058    |  |             |  | -       |               |  |  | -       |   |  |               | -       
|Vesting
    of equity based awards                                |  | 11,
    12 |  |               | 33,355    |  |             |  | (33,355 | )             |  |  | -       |   |  |               | -       
|Share-settled
    dividends on vested equity based awards         |  | 11,
    12 |  |               | 7,151     |  |             |  | -       |               |  |  | -       |   |  |               | (7,151  
|Shares
    issued for bonus plan                                  |  | 11         |  |               | 636       |  |             |  | -       |               |  |  | -       |   |  |               | -       
|Balances
    as at December 31, 2012                              |  |            |  |               | 1,481,345 |  |             |  | 69,581  |               |  |  | (32,409 | ) |  |               | (99,871 





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.



8









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





notes
to the Consolidated Financial Statements

For
the year ended December 31, 2012 and 2011

(Tabular
amounts in thousands of Canadian dollars, except share and per share amounts)



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
consolidated financial statements were approved and authorized for issuance by the Board of Directors of Vermilion on February
28, 2013.



2.
SIGNIFICANT ACCOUNTING POLICIES



Accounting
Framework

The
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”).



Principles
of Consolidation

Subsidiaries
that are directly controlled by the parent company or indirectly controlled by other consolidated subsidiaries are fully consolidated.
Vermilion accounts for jointly controlled operations and jointly controlled assets by recognizing its share of assets, liabilities,
income and expenses. All significant intercompany balances, transactions, income and expenses are eliminated upon consolidation.



Vermilion
currently has no special purpose entities of which it retains control and accordingly the consolidated financial statements do
not include the accounts of any such entities.



Exploration
and Evaluation Assets

Vermilion
accounts for exploration and evaluation of petroleum and natural gas property (“E&E”) costs in accordance with
IFRS 6 “Exploration for and Evaluation of Mineral Resources”. Costs incurred are classified as E&E costs when
they relate to exploring and evaluating a property for which the Company has the licence or right to explore and extract resources.



E&E
costs related to each license or prospect area are initially capitalized within E&E assets. E&E costs that are capitalized
may include costs of licence acquisitions, technical services and studies, seismic acquisitions, exploration drilling and testing,
directly attributable overhead and administration expenses and, if applicable, the estimated costs of retiring the assets. Any
costs incurred prior to the acquisition of the legal rights to explore an area are expensed as incurred.



E&E
assets are not depleted and are carried at cost until technical feasibility and commercial viability of the area can be determined.
The technical feasibility and commercial viability of extracting the reserves is considered to be determinable when proven and
probable reserves are identified. If proven and probable reserves are identified as recoverable, the related E&E costs are
reclassified to Petroleum and Natural Gas (“PNG”) assets pending an impairment test. If reserves are not found within
the license area or the area is abandoned, the related E&E costs are amortized over a period not greater than five years.



Petroleum
and Natural Gas Assets

Vermilion
recognizes PNG assets at cost less accumulated depletion, depreciation and impairment losses. Directly attributable costs incurred
for the drilling of development wells and for the construction of production facilities are capitalized together with the discounted
value of estimated future costs of asset retirement obligations. When components of PNG assets are replaced, disposed of, or no
longer in use, they are derecognized.



Gains
and losses on disposal of a component of PNG assets, including oil and gas interests, are determined by comparing the proceeds
of disposal with the carrying amount of the component, and are recognized in net earnings.



Depletion
and Depreciation

Vermilion
classifies its assets into PNG depletion units, which are groups of assets or properties that are within a specific production
area and have similar economic lives. The PNG depletion units represent the lowest level of disaggregation for which Vermilion
accumulates costs for the purposes of calculating and recording depletion and depreciation.



The
net carrying value of each PNG depletion unit is depleted using the unit of production method by reference to the ratio of production
in the period to the total proven and probable reserves, taking into account the future development costs necessary to bring the
applicable reserves into production. The reserve estimates are reviewed annually by management or when material changes occur
to the underlying assumptions.



9









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)



For
the purposes of the depletion calculations, oil and gas reserves are converted to a common unit of measure on the basis of their
relative energy content based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent.



Furniture
and office equipment are recorded at cost and are depreciated on a declining-balance basis at rates ranging from 5% to 25% per
year.



Impairment
of Long-Lived Assets

E&E
assets are tested for impairment when reclassified to PNG assets or when indicators of impairment are identified.  If indicators
of impairment are identified, E&E assets are tested for impairment as part of the group of Cash Generating Units (“CGU’s”)
attributable to the jurisdiction in which the exploration area resides.



PNG
depletion units are aggregated into CGUs for impairment testing.  The determination of CGU’s is based on managements’
judgement and represents the lowest level at which there are identifiable cash inflows that are largely independent of the cash
inflows of other groups of assets or properties. CGUs are reviewed for indicators that the carrying value of the CGU may exceed
its recoverable amount.  If an indication of impairment exists, the CGU’s recoverable amount is then estimated. 
A CGU’s recoverable amount is defined as the higher of the fair value less costs to sell and its value in use.  If
the carrying amount exceeds its recoverable amount, an impairment loss is recorded to net earnings in the period to reduce the
carrying value of the CGU to its recoverable amount.



For
PNG assets and E&E assets, when there has been an impairment loss recognized, at each reporting date an assessment is performed
as to whether the circumstances which led to the impairment loss have reversed. If the change in circumstances leads to the recoverable
amount being higher than the carrying value after recognition of an impairment, that impairment loss is reversed, with such reversal
not to exceed the depreciated value of the asset had no impairment loss been previously recognized.



Cash
and Cash Equivalents

Cash
and cash equivalents include monies on deposit and short-term investments, which are comprised primarily of guaranteed investment
certificates.



Crude
Oil Inventory

Inventories
of crude oil, consisting of production for which title has not yet transferred to the buyer, are valued at the lower of cost or
net realizable value. Cost is determined on a weighted-average basis and includes related operating expenses, royalties, and depletion.



Provisions
and Asset Retirement Obligations

Vermilion
recognizes a provision or asset retirement obligation in the consolidated financial statements when an event gives rise to an
obligation of uncertain timing or amount.



The
estimated present value of the asset retirement obligation is recorded as a long term liability, with a corresponding increase
in the carrying amount of the related asset. This increase is depleted with the related depletion unit and is allocated to a CGU
for impairment testing. The liability recorded is increased each reporting period due to the passage of time and this change is
charged to net earnings in the period as accretion expense. The asset retirement obligation can also increase or decrease due
to changes in the estimated timing of cash flows, changes in the discount rate and/or changes in the original estimated undiscounted
costs. Increases or decreases in the obligation will result in a corresponding change in the carrying amount of the related asset.
Actual costs incurred upon settlement of the asset retirement obligation are charged against the asset retirement obligation to
the extent of the liability recorded. Vermilion discounts the costs related to asset retirement obligations using the discount
rate that reflects current market assessment of time value of money and risks specific to the liabilities that have not been reflected
in the cash flow estimates. Vermilion applies discount rates applicable to each of the jurisdictions in which it has future asset
retirement obligations. Asset retirement obligations are remeasured at each reporting period in order to reflect the discount
rates in effect at that time.



A
provision for onerous contracts is recognized when the expected benefits to be derived by Vermilion from a contract are lower
than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the lower of the expected
cost of terminating the contract and the present value of the expected net cost of the remaining term of the contract. Before
a provision is established, Vermilion first recognizes any impairment loss on assets associated with the onerous contract. For
the periods presented in the consolidated financial statements there were no onerous contracts recognized.



Revenue
Recognition

Revenues
associated with the sale of crude oil, natural gas and natural gas liquids are recorded when title passes to the customer. For
the majority of Canadian oil and natural gas production, legal title transfers upon delivery to major pipelines. In Australia,
oil is sold at the Wandoo B Platform. In the Netherlands, natural gas is sold at the plant gate. In France, oil is sold either
when delivered to the refinery by pipeline or when delivered to the refinery via tanker.



10









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Financial
Instruments

Cash
and cash equivalents are classified as held for trading and are measured at fair value.  A gain or loss arising from a change
in the fair value is recognized in net earnings in the period in which it occurs.



Accounts
receivable are classified as loans and receivables and are initially measured at fair value and are then subsequently measured
at amortized cost. The carrying value of accounts receivable approximates the fair value due to the short-term nature of these
instruments.



Accounts
payable and accrued liabilities, dividends payable, long-term debt and amount due pursuant to acquisition have been classified
as other financial liabilities and are initially recognized at fair value and are subsequently measured at amortized cost. 
Transaction costs and discounts are recorded against the fair value of long-term debt on initial recognition.



All
derivative instruments have been classified as held for trading and are measured at fair value.  A gain or loss arising from
a change in the fair value is recognized in net earnings in the period in which it occurs.



Equity
Based Compensation

Vermilion
has long-term equity based compensation plans for directors, officers and employees of Vermilion and its subsidiaries. Equity
based compensation expense is recognized in net earnings over the vesting period of the awards with a corresponding adjustment
to contributed surplus. Upon vesting, the amount previously recognized in contributed surplus is reclassified to shareholders’
capital.



The
expense recognized is based on the grant date fair value of the awards and incorporates an estimate of the forfeiture rate based
on historical vesting data. The grant date fair value of the awards is determined as the grant date closing price of Vermilion’s
common shares on the Toronto Stock Exchange, adjusted by the Company’s estimate of the performance factor that will ultimately
be achieved.



Per
Share Amounts

Net
earnings per share is calculated using the weighted-average number of shares outstanding during the period. Diluted net earnings
per share is calculated using the diluted weighted-average number of shares outstanding during the period. The diluted weighted-average
number of shares is determined by considering whether equity based compensation plans, if converted during the year, would result
in reduced net earnings per share.



The
treasury stock method is used to determine the dilutive effect of equity based compensation plans. The treasury stock method assumes
that the deemed proceeds related to unrecognized equity based compensation expense are used to repurchase shares at the average
market price during the period. Equity based awards outstanding are included in the calculation of diluted net earnings per share
based on estimated performance factors.



Foreign
Currency Translation

The
consolidated financial statements are presented in Canadian dollars, which is Vermilion’s reporting currency. As several
of Vermilion’s subsidiaries transact and operate primarily in countries other than Canada, they accordingly have functional
currencies other than the Canadian dollar.



Transactions
denominated in currencies other than the functional currency of the subsidiary are translated to the functional currency at the
prevailing rates on the date of the transaction. Non-monetary assets or liabilities that result from such transactions are held
at the prevailing rate on the date of the transaction. Monetary items denominated in non-functional currencies are translated
to the functional currency of the subsidiary at the prevailing rate at the balance sheet date. All translations associated with
currencies other than the respective functional currencies are recorded in net earnings.



Translation
of all assets and liabilities from the respective functional currencies to the reporting currency are performed using the rates
prevailing at the balance sheet date. The differences arising upon translation from the functional currency to the reporting currency
are recorded as currency translation adjustments in other comprehensive loss and are held within accumulated other comprehensive
loss until a disposal or partial disposal of a subsidiary. A disposal or partial disposal may give rise to a realized gain or
loss, which is recorded in net earnings.



Within
the consolidated group there are outstanding intercompany loans which in substance represent investments in certain subsidiaries.
When these loans are identified as part of the net investment in a foreign subsidiary, any exchange differences arising on those
loans are recorded to currency translation adjustments within other comprehensive loss until the disposal or partial disposal
of the subsidiary.



11









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)



Income
Taxes

Deferred
taxes are calculated using the liability method of accounting. Under this method, deferred tax is recognized for the estimated
effect of any temporary differences between the amounts recognized on Vermilion’s consolidated balance sheets and respective
tax basis. This calculation uses enacted or substantively enacted tax rates that will be in effect when the temporary differences
are expected to reverse. The effect of a change in tax rates on deferred taxes is recognized in net earnings in the period in
which the related legislation is substantively enacted.



Vermilion
is subject to current income taxes based on the tax legislation of each respective country in which Vermilion has operations.



Borrowing
Costs

Borrowing
costs that are directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period
of time to prepare for its intended use are capitalized as part of the cost of that asset. Borrowing costs are capitalized by
applying interest rates attributable to the project being financed and could include both general and/or specific borrowings.
Interest rates applied from general borrowings are computed using the weighted average borrowing rate for the period.



Measurement
Uncertainty

The
preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses for the periods presented.



Key
areas where management has made complex or subjective judgements include asset retirement obligations, assessment of impairment
of long-lived assets and income taxes. Actual results could differ significantly from these and other estimates.



Asset
Retirement Obligations

Vermilion’s
asset retirement obligations are based on environmental regulations and estimates of future costs and the timing of expenditures.
Changes in environmental regulations, the estimated costs associated with reclamation activities, the discount rate applied and
the timing of expenditures could materially impact Vermilion’s measurement of the obligations and, correspondingly, impact
Vermilion’s financial position and net earnings.



Assessment
of Impairments

Impairment
tests are performed at a CGU level. CGUs are determined based on management’s judgment of the lowest level at which there
is identifiable cash inflows that are largely independent of the cash inflows of other groups of assets or properties. The factors
used by Vermilion to determine CGUs may vary by country due to the unique operating and geographical circumstances in each country.
However, in general, Vermilion will assess the following factors in determining whether a group of assets generate largely independent
cash inflows: geographical proximity of the assets within a group to one another, geographical proximity of the group of assets
to other groups of assets, homogeneity of the production from the group of assets and the sharing of infrastructure used to process
and/or transport production.



The
calculation of the recoverable amount of the CGUs is based on market factors, estimates of PNG reserves and future costs required
to develop reserves. Vermilion’s reserve estimates and the related future cash flows are subject to measurement uncertainty,
and the impact on the consolidated financial statements of future periods could be material. Considerable management judgment
is used in determining the recoverable amount of PNG assets, including determining the quantity of reserves, the time horizon
to develop and produce such reserves and the estimated revenues and expenditures of such production.



Income
Taxes

Tax
interpretations, regulations, and legislation in the various jurisdictions in which Vermilion and its subsidiaries operate are
subject to change and interpretation. Such changes can affect the timing of the reversal of temporary tax differences, the tax
rates in effect when such differences reverse and Vermilion’s ability to use tax losses and other credits in the future.
The Company’s income tax filings are subject to audit by taxation authorities in numerous jurisdictions and the results
of such audits may increase or decrease our tax liability.The determination of current and deferred tax amounts recognized
in the consolidated financial statements was based on management’s assessment of the tax positions, which includes consideration
of their technical merits, communications with tax authorities and management’s view of the most likely outcome.



Unless
otherwise noted, as of January 1, 2013, Vermilion will be required to adopt the following standards and amendments as issued by
the IASB.



12









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





3.
CHANGES TO ACCOUNTING PRONOUNCEMENTS



The
adoption of the following standards are 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.



IFRS
10 “Consolidated Financial Statements”

IFRS
10 replaces 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 replaces 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.



4.
BUSINESS COMBINATION



Property
acquisition:



On
January 19, 2012, Vermilion acquired, through its wholly owned subsidiaries, working interests in six producing fields located
in the Paris and Aquitaine basins in France, for total consideration of $106.1 million before closing adjustments. The acquired
working interests expanded Vermilion's existing interests and was a natural addition to the Company’s existing France asset
base.



The
acquired assets include land, wells, facilities, and inventory located in the Company’s core producing basins in France.
The fair value of the acquired identifiable assets and liabilities assumed at the date of acquisition was $151.4 million. A gain
of $45.3 million was recognized as a result of an 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.



The
acquisition has been accounted for as a business combination with the fair value of the assets acquired and liabilities assumed
at the date of acquisition summarized as follows:



|($M)                    |  | Consideration |        
|----------------------- |  | ------------- | -------
|Cash
    paid to vendor |  |               | 106,115
|Total
    consideration |  |               | 106,115



|($M)                                                |  | Allocation
    of Consideration |        
|--------------------------------------------------- |  | ------------------------------- | -------
|Petroleum
    and natural gas assets                |  |                                 | 206,191
|Asset
    retirement obligations assumed            |  |                                 | (27,518
|Deferred
    tax liabilities                        |  |                                 | (23,151
|Acquired
    non-cash working capital deficiencies  |  |                                 | (4,098 
|Net
    assets acquired                             |  |                                 | 151,424
|Gain
    on acquisition                             |  |                                 | (45,309
|Net
    assets acquired, net of gain on acquisition |  |                                 | 106,115





13











|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





4.
BUSINESS COMBINATION (Continued)



Transfer
taxes associated with this acquisition totalling $8.5 million have been excluded from the consideration and have been recognized
as an expense in the year ended December 31, 2012, within “Other expense” in the consolidated statements of net earnings
and comprehensive income.



The
results of operations from the assets acquired have been included in Vermilion'sconsolidated
financial statements beginning January 19, 2012 and have contributed revenues of $104.9 million and
operating income of $93.4 million for the year ended December 31, 2012.



Had
the acquisition occurred on January 1, 2012, management estimates that consolidated revenues would have increased by an additional
$6.6 million and consolidated operating income would have increased by $4.8 million for the year ended December 31, 2012. In determining
the pro-forma amounts, management has assumed that the fair value adjustments, determined provisionally, that arose at the date
of acquisition would have been the same if the acquisition had occurred on January 1, 2012. It is impracticable to derive all
amounts necessary to determine the increase to net earnings from the acquired working interests as operations were immediately
merged with Vermilion’s operations.



Corporate
acquisition:



On
December 21, 2012, Vermilion acquired, through its wholly owned subsidiaries, 100% of the shares of ZaZa Energy France S.A.S for
total consideration of $74.9 million. The acquired company holds operating interests covering approximately 24,300 acres with
100% working interests in the Saint Firmin, Chateaurenard, Courtenay, Chuelles, and Charmottes fields in the Paris Basin. The
acquired company expands Vermilion’s existing operations in France and is aligned with Vermilion’s objective to consolidate
assets within the Company’s core operating areas.



The
acquisition has been accounted for as a business combination with the fair value of the assets acquired and liabilities assumed
at the date of acquisition summarized as follows:



|($M)                    |  | Consideration |       
|----------------------- |  | ------------- | ------
|Cash
    paid to vendor |  |               | 74,947
|Total
    consideration |  |               | 74,947



|($M)                                     |  | Allocation
    of Consideration |        
|---------------------------------------- |  | ------------------------------- | -------
|Petroleum
    and natural gas assets     |  |                                 | 136,297
|Asset
    retirement obligations assumed |  |                                 | (22,623
|Deferred
    tax liabilities             |  |                                 | (40,046
|Cash
    acquired                        |  |                                 | 11,465 
|Acquired
    non-cash working capital    |  |                                 | (10,146
|Net
    assets acquired                  |  |                                 | 74,947 



The
results of operations from the assets acquired have been included in Vermilion'sconsolidated
financial statements beginning December 21, 2012 and have contributed revenues of $0.8 million and
operating income of $0.6 million for the year ended December 31, 2012.



Had
the acquisition occurred on January 1, 2012, management estimates that consolidated revenues would have increased by an additional
$29.9 million and consolidated operating income would have increased by $23.4 million for the year ended December 31, 2012. In
determining the pro-forma amounts, management has assumed that the fair value adjustments, determined provisionally, that arose
at the date of acquisition would have been the same if the acquisition had occurred on January 1, 2012. It is impracticable to
derive all amounts necessary to determine the increase to net earnings from the acquired working interests as operations were
immediately merged with Vermilion’s operations.



14









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





5.
CAPITAL ASSETS



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



|                                                         |  | Petroleum
    and      |           |   | Furniture
    and    |  |         | Total              | 
|-------------------------------------------------------- |  | ---------------------- | --------- | - | -------------------- |  | ------- | ------------------ | 
|($M)                                                     |  | Natural
    Gas Assets |           |   | Office
    Equipment |  |         | Capital
    Assets | 
|Balance
    at January 1, 2011                           |  |                        | 1,802,422 |   |                      |  | 17,130  |                    | 
|Additions                                                |  |                        | 408,810   |   |                      |  | 2,417   |                    | 
|Property
    acquisitions                                |  |                        | 50,878    |   |                      |  | -       |                    | 
|Borrowing
    costs capitalized                          |  |                        | 9,923     |   |                      |  | -       |                    | 
|Changes
    in estimate for asset retirement obligations |  |                        | 45,267    |   |                      |  | -       |                    | 
|Depletion
    and depreciation                           |  |                        | (228,562  | ) |                      |  | (4,414  | )                  | 
|Impairments                                              |  |                        | (64,400   | ) |                      |  | -       |                    | 
|Effect
    of movements in foreign exchange rates        |  |                        | (7,727    | ) |                      |  | (62     | )                  | 
|Balance
    at December 31, 2011                         |  |                        | 2,016,611 |   |                      |  | 15,071  |                    | 
|Additions                                                |  |                        | 407,973   |   |                      |  | 5,248   |                    | 
|Transfers
    from exploration and evaluation assets     |  |                        | 10,528    |   |                      |  | -       |                    | 
|Property
    acquisitions                                |  |                        | 206,260   |   |                      |  | -       |                    | 
|Corporate
    acquisitions                               |  |                        | 136,297   |   |                      |  | -       |                    | 
|Borrowing
    costs capitalized                          |  |                        | 9,994     |   |                      |  | -       |                    | 
|Changes
    in estimate for asset retirement obligations |  |                        | 1,334     |   |                      |  | -       |                    | 
|Depletion
    and depreciation1                          |  |                        | (289,194  | ) |                      |  | (5,165  | )                  | 
|Impairments                                              |  |                        | (65,800   | ) |                      |  | -       |                    | 
|Effect
    of movements in foreign exchange rates        |  |                        | (3,882    | ) |                      |  | (35     | )                  | 
|Balance
    at December 31, 2012                         |  |                        | 2,430,121 |   |                      |  | 15,119  |                    | 
|                                                         |  |                        |           |   |                      |  |         |                    | 
|Cost                                                     |  |                        | 2,427,848 |   |                      |  | 30,148  |                    | 
|Accumulated
    depletion and depreciation               |  |                        | (411,237  | ) |                      |  | (15,077 | )                  | 
|Carrying
    amount at December 31, 2011                 |  |                        | 2,016,611 |   |                      |  | 15,071  |                    | 
|                                                         |  |                        |           |   |                      |  |         |                    | 
|Cost                                                     |  |                        | 3,260,772 |   |                      |  | 35,268  |                    | 
|Accumulated
    depletion and depreciation               |  |                        | (830,651  | ) |                      |  | (20,149 | )                  | 
|Carrying
    amount at December 31, 2012                 |  |                        | 2,430,121 |   |                      |  | 15,119  |                    | 



1Depletion and depreciation above excludes depletion recorded as a component of crude oil inventory.



Depletion
and depreciation rates

PNG
assets (unit of production method)

Furniture
and office equipment (declining balance at rates of 5% to 25%)



Capitalized
overhead and borrowing costs

During
the year ended December 31, 2012, Vermilion capitalized $4.8 million (2011 - $4.5 million) of overhead costs directly attributable
to PNG activities and $10.0 million (2011 - $9.9 million) of borrowing costs associated with the unwinding of the discount on
the amount due pursuant to the Corrib acquisition (Note 8).



Impairments

On
a quarterly basis, Vermilion performs an assessment as to whether any CGUs have indicators of impairment. When indicators of impairment
are identified, Vermilion assesses the recoverable amount of the applicable CGU based on the estimated fair value less costs to
sell as at the reporting date. The estimated fair value takes into account the most recent commodity price forecasts, expected
production and estimated costs of development.



During
the years ended December 31, 2011 and 2012, Vermilion performed quarterly assessments as to whether any cash generating units
(“CGU”) had indicators of impairment.



For
the three months ended December 31, 2011 and March 31, 2012, Vermilion recorded an impairment charge of $64.4 million and $65.8
million, respectively, related to conventional deep natural gas and shallow coal bed methane gas plays. These impairment charges
were a result of declines in the price forecasts for natural gas in Canada which decreased the expected cash flows from the CGU’s.



15









|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------





5.
CAPITAL ASSETS (Continued)



Benchmark
prices used in the December 31, 2011 and March 31, 2012 calculations of recoverable amounts were determined by multiplying the
mix of oil, natural gas and NGLs inherent in the reserves of the conventional deep natural gas and shallow coal bed methane CGUs
by the price forecasts for each year. The blended price per barrel of oil equivalent (BOE) forecasts were:



|$/BOE                           |  | March
    31, 2012 |       |   | December
    31, 2011 | 
|------------------------------- |  | ------------------ | ----- | - | --------------------- | 
|2012                            |  |                    | 27.01 |   |                       | 
|2013                            |  |                    | 33.46 |   |                       | 
|2014                            |  |                    | 35.78 |   |                       | 
|2015                            |  |                    | 38.23 |   |                       | 
|2016                            |  |                    | 40.68 |   |                       | 
|2017                            |  |                    | 43.13 |   |                       | 
|2018                            |  |                    | 45.61 |   |                       | 
|2019                            |  |                    | 46.53 |   |                       | 
|2020                            |  |                    | 47.51 |   |                       | 
|2021                            |  |                    | 48.44 |   |                       | 
|Average
    increase thereafter |  |                    | 2.0   | % |                       | 



6.
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, 2011                    |  |                                       | 17,157 
|Additions                                         |  |                                       | 79,553 
|Depreciation                                      |  |                                       | (3,732 
|Effect
    of movements in foreign exchange rates |  |                                       | (677   
|Balance
    at December 31, 2011                  |  |                                       | 92,301 
|Additions                                         |  |                                       | 39,317 
|Transfers
    to petroleum and natural gas assets |  |                                       | (10,528
|Depreciation                                      |  |                                       | (3,485 
|Effect
    of movements in foreign exchange rates |  |                                       | (444   
|Balance
    at December 31, 2012                  |  |                                       | 117,161
|                                                  |  |                                       |        
|Cost                                              |  |                                       | 96,773 
|Accumulated
    depreciation                      |  |                                       | (4,472 
|Carrying
    value at December 31, 2011           |  |                                       | 92,301 
|                                                  |  |                                       |        
|Cost                                              |  |                                       | 125,165
|Accumulated
    depreciation                      |  |                                       | (8,004 
|Carrying
    value at December 31, 2012           |  |                                       | 117,161



16











|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



7.
ASSET RETIREMENT OBLIGATIONS



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



|($M)                                              |  | Asset Retirement Obligations |        
|------------------------------------------------- |  | ---------------------------- | -------
|Balance
    at January 1, 2011                    |  |                              | 267,389
|Additional obligations
    recognized             |  |                              | 8,612  
|Changes in estimates for
    existing obligations |  |                              | (4,364 
|Obligations settled                               |  |                              | (23,071
|Accretion                                         |  |                              | 21,889 
|Changes in discount rates                         |  |                              | 41,019 
|Effect
    of movements in foreign exchange rates |  |                              | (943   
|Balance
    at December 31, 2011                  |  |                              | 310,531
|Additional obligations
    recognized             |  |                              | 55,228 
|Changes in estimates for
    existing obligations |  |                              | (26,560
|Obligations settled                               |  |                              | (13,739
|Accretion                                         |  |                              | 23,040 
|Changes in discount rates                         |  |                              | 22,807 
|Effect
    of movements in foreign exchange rates |  |                              | (244   
|Balance
    at December 31, 2012                  |  |                              | 371,063



Vermilion
has estimated the net present value of its asset retirement obligations to be $371.1 million as at December 31, 2012 (December
31, 2011 - $310.5 million) based on a total undiscounted future liability, after inflation adjustment, of $1.3 billion (December
31, 2011 - $1.2 billion). These payments are expected to be made between 2013 and 2061. Vermilion calculated the present value
of the obligations using discount rates between 5.8% and 7.5% (2011 - between 6.3% and 7.6%) to reflect the market assessment
of the time value of money as well as risks specific to the liabilities that have not been included in the cash flow estimates.
Inflation rates used in determining the cash flow estimates were between 1.4% and 2.5% (2011 - between 1.5% and 2.6%).



At
least once per year, Vermilion reviews its estimates of the expected costs to reclaim the net interest in its wells and facilities.
The resulting changes are categorized as changes in estimates for existing obligations in the table above. The significant changes
in the liability for the year ended December 31, 2012 relates primarily to the asset retirement obligations assumed in France
pursuant to the acquisitions completed in the first and fourth quarters.



8.
AMOUNT DUE PURSUANT TO ACQUISITION



On
July 30, 2009, Vermilion completed the acquisition of an 18.5% non-operated interest in the Corrib gas field located off the northwest
coast of Ireland. Pursuant to the terms of the acquisition agreement, Vermilion made a final payment to the vendor of US$135 million
on December 31, 2012.



As
at December 31, 2011, this amount was classified as a current liability. The discount rate used to present value this obligation
was 8%, which was Vermilion’s best estimate of the interest rate that would result from an arm’s length financing
transaction associated with the purchase of these assets.



9.
LONG-TERM DEBT



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



|                              |  | As
    At        |        
|----------------------------- |  | ---------------- | -------
|($M)                          |  | Dec
    31, 2012 |        
|Revolving credit
    facility |  |                  | 419,784
|Senior
    unsecured notes    |  |                  | 222,238
|Long-term debt                |  |                  | 642,022



Revolving
Credit Facility



At
December 31, 2012, Vermilion had in place a bank revolving credit facility totalling $950 million, of which approximately $419.8
million was drawn. The facility, which matures in May of 2015, is fully revolving up to the date of maturity.



18







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



9.
LONG-TERM DEBT (Continued)



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.
For the year ended December 31, 2012, the interest rate on the revolving credit facility was approximately 3.3% (2011 –
3.4%).



The
amount available to Vermilion under this facility is reduced by outstanding letters of credit associated with Vermilion’s
operations totalling $49.2 million as at December 31, 2012 (December 31, 2011 - $3.7 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 of not greater than 4.0. In addition, Vermilion
must maintain a ratio of consolidated total senior debt (consolidated total debt excluding unsecured and subordinated debt) to
consolidated net earnings before interest, income taxes, depreciation, accretion and other certain non-cash items of not greater
than 3.0.



As
at December 31, 2012, 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%.



10.
INCOME TAXES



The
net deferred income tax liability at December 31, 2012 and 2011 is comprised of the following:



|                                      |  | As
    At        |         
|------------------------------------- |  | ---------------- | --------
|($M)                                  |  | Dec
    31, 2012 |         
|Deferred income tax liabilities:      |  |                  |         
|Capital
    assets                    |  |                  | (322,620
|Partnership
    income deferral       |  |                  | -       
|Asset
    retirement obligations      |  |                  | (45,362 
|Basis
    difference of investments   |  |                  | (330    
|Unrealized
    foreign exchange       |  |                  | (22,603 
|Other                                 |  |                  | (11,502 
|Deferred income tax assets:           |  |                  |         
|Derivative
    contracts              |  |                  | 1,600   
|Capital
    assets                    |  |                  | 67,310  
|Non-capital losses                    |  |                  | 167,230 
|Cumulative
    eligible capital       |  |                  | -       
|Asset
    retirement obligations      |  |                  | 69,359  
|Other                                 |  |                  | 1,457   
|Net
    deferred income tax liability |  |                  | (95,461 
|Comprised of:                         |  |                  |         
|Deferred
    income tax assets        |  |                  | 193,354 
|Deferred
    income tax liability     |  |                  | (288,815
|Net
    deferred income tax liability |  |                  | (95,461 



19







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



10.
INCOME TAXES (Continued)



The
provision for income tax differs from the amount that would have been expected if the reported earnings had been subject only
to the statutory Canadian income tax rate of 25.0% (2011 - 26.5%), as follows:



|                                                                                                          |  | Year
    Ended   |        
|--------------------------------------------------------------------------------------------------------- |  | ---------------- | -------
|($M)                                                                                                      |  | Dec
    31, 2012 |        
|Earnings
    before income taxes                                                                          |  |                  | 353,244
|Canadian
    corporate tax rate                                                                           |  |                  | 25.0   
|Expected
    tax expense                                                                                  |  |                  | 88,311 
|Increase
    (decrease) in taxes resulting from:                                                          |  |                  |        
|Petroleum
    resource rent tax rate (PRRT) differential1                                                 |  |                  | 44,605 
|Foreign
    tax rate differentials1, 2                                                                    |  |                  | 18,539 
|Equity
    based compensation expense                                                                     |  |                  | 11,776 
|Amended
    returns and changes to estimated tax pools                                                    |  |                  | (1,635 
|Changes
    in statutory tax rates and the estimated reversal rates associated with temporary differences |  |                  | 7,506  
|Adjustment
    for uncertain tax positions                                                                |  |                  | 5,113  
|Gain
    on acquisition                                                                                   |  |                  | (12,389
|Adjustment
    for share issuance costs                                                                   |  |                  | -      
|Other
    non-deductible items                                                                            |  |                  | 796    
|Provision
    for income taxes                                                                            |  |                  | 162,622



| | 1 | In
                                                                                                                                 Australia,
                                                                                                                                 current
                                                                                                                                 taxes
                                                                                                                                 include
                                                                                                                                 both
                                                                                                                                 corporate
                                                                                                                                 income
                                                                                                                                 tax
                                                                                                                                 rates
                                                                                                                                 and
                                                                                                                                 PRRT.
                                                                                                                                 Corporate
                                                                                                                                 income
                                                                                                                                 tax
                                                                                                                                 rates
                                                                                                                                 are
                                                                                                                                 applied
                                                                                                                                 at
                                                                                                                                 a
                                                                                                                                 rate
                                                                                                                                 of
                                                                                                                                 30%
                                                                                                                                 and
                                                                                                                                 PRRT
                                                                                                                                 is
                                                                                                                                 applied
                                                                                                                                 at
                                                                                                                                 a
                                                                                                                                 rate
                                                                                                                                 of
                                                                                                                                 40%.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2The corporate tax rate is 34.4% in France, 46.0% in the Netherlands and 25.0% in Ireland.



11.
SHAREHOLDERS’ CAPITAL



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



|Shareholders’ Capital                                             |  | Number of Shares |            |  | Amount ($M) | 
|----------------------------------------------------------------- |  | ---------------- | ---------- |  | ----------- | 
|Balance
    as at January 1, 2011                                 |  |                  | 88,998,242 |  |             | 
|Issuance of shares,
    net of deferred taxes                     |  |                  | 5,370,000  |  |             | 
|Issuance
    of shares pursuant to the dividend reinvestment plan |  |                  | 1,323,482  |  |             | 
|Vesting
    of equity based awards                                |  |                  | 608,073    |  |             | 
|Share-settled
    dividends on vested equity based awards         |  |                  | 114,487    |  |             | 
|Shares
    issued for bonus plan                                  |  |                  | 15,851     |  |             | 
|Balance
    as at December 31, 2011                               |  |                  | 96,430,135 |  |             | 
|Issuance
    of shares pursuant to the dividend reinvestment plan |  |                  | 1,630,258  |  |             | 
|Vesting
    of equity based awards                                |  |                  | 904,210    |  |             | 
|Share-settled
    dividends on vested equity based awards         |  |                  | 157,137    |  |             | 
|Shares
    issued for bonus plan                                  |  |                  | 13,167     |  |             | 
|Balance
    as at December 31, 2012                               |  |                  | 99,134,907 |  |             | 



Vermilion
is authorized to issue an unlimited number of common shares with no par value.



Dividends



Dividends
declared to shareholders for the year ended December 31, 2012 were $223.7 million (December 31, 2011, $207.8 million). Dividends
are determined by the Board of Directors and are paid monthly. Vermilion has a dividend reinvestment plan which allows eligible
holders of common shares to purchase additional common shares at a 5% discount to market by reinvesting their cash dividends.
Subsequent to the end of the period and prior to the consolidated financial statements being authorized for issue on February
28, 2013, Vermilion declared dividends totalling $39.7 million or $0.20 per share for each of January and February of 2013.



20







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



11.
SHAREHOLDERS’ CAPITAL (Continued)



Equity
Issuance



On
November 28, 2011, Vermilion issued 5,370,000 common shares at $49.00 per common share for gross proceeds of approximately $263.1
million. The sale was completed on a bought deal basis and gross proceeds included partial exercise of the underwriters’
over-allotment option. Net cash proceeds of $252.0 million were received by Vermilion; including the impact of deferred taxes,
$254.8 million was recognized in Shareholder’s capital.



12.
EQUITY BASED COMPENSATION



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



|Number
    of Awards |  | 2012 |           |   | 2011 | 
|-------------------- |  | ---- | --------- | - | ---- | 
|Opening
    balance  |  |      | 1,750,055 |   |      | 
|Granted              |  |      | 681,383   |   |      | 
|Vested               |  |      | (596,423  | ) |      | 
|Forfeited            |  |      | (145,061  | ) |      | 
|Closing
    balance  |  |      | 1,689,954 |   |      | 



The
grant date fair value of the awards is determined as the grant date closing price of Vermilion’s common shares on the Toronto
Stock Exchange, adjusted by the Company’s estimate of the 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.
For the year ended December 31, 2012, the awards granted had a weighted average fair value of $61.08 (2011 - $47.05).



The
performance factor is determined by the Board of Directors after consideration of a number of key corporate performance measures
including, but not limited to, shareholder return, capital efficiency metrics, production and reserves growth and safety performance.



The
expense recognized is based on the grant date fair value of the awards and incorporates an estimate of forfeiture rate based on
historical vesting data. For the year ended December 31, 2012, Vermilion incorporated an estimated forfeiture rate of 5.37% (2011
- 5.29%). Equity based compensation expense of $46.5 million was recorded during the year ended December 31, 2012 (2011 - $37.9
million) related to the VIP.



13.
PER SHARE AMOUNTS



Basic
and diluted net earnings per share have been determined based on the following:



|                                                    |  | Year Ended   |        
|--------------------------------------------------- |  | ------------ | -------
|($M except per share amounts)                       |  | Dec 31, 2012 |        
|Net
    earnings [1]                                |  |              | 190,622
|Basic weighted average
    shares outstanding [2]   |  |              | 98,016 
|Dilutive
    impact of equity based award plans     |  |              | 1,278  
|Diluted
    weighted average shares outstanding [3] |  |              | 99,294 
|Basic
    earnings per share ([1] ÷ [2])            |  |              | 1.94   
|Diluted
    earnings per share ([1] ÷ [3])          |  |              | 1.92   



14.
DERIVATIVE INSTRUMENTS



The
nature of Vermilion’s operations results in exposure to fluctuations in commodity prices, interest rates and foreign currency
exchange rates. Vermilion monitors and, when appropriate, uses derivative financial instruments to manage its exposure to these
fluctuations. All transactions of this nature entered into by Vermilion are related to an underlying financial position or to
future crude oil and natural gas production. Vermilion does not use derivative financial instruments for speculative purposes.
Vermilion has elected not to designate any of its derivative financial instruments as accounting hedges and thus accounts for
changes in fair value in net earnings at each reporting period. Vermilion has not obtained collateral or other security to support
its financial derivatives as management reviews the creditworthiness of its counterparties prior to entering into derivative contracts.



21







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



During
the normal course of business, Vermilion may enter into fixed price arrangements to sell a portion of its production or purchase
commodities for operational use. Vermilion does not apply fair value accounting on these contracts as they were entered into and
continue to be held for the sale of production or operational use in accordance with the Company’s expected requirements.



22







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



14.
DERIVATIVE INSTRUMENTS (Continued)



The
following table summarizes Vermilion’s outstanding risk management positions as at December 31, 2012:



|Risk Management - Oil         |  | Funded Cost (US $/bbl) |      |  | bbls/d |  |       | Strike Price(s) US $/bbl | 
|----------------------------- |  | ---------------------- | ---- |  | ------ |  | ----- | ------------------------ | 
|Swap
    - WTI                |  |                        |      |  |        |  |       |                          | 
|January 2013 - June
    20131 |  |                        | -    |  |        |  | 1,000 |                          | 
|January 2013 - December 2013  |  |                        | -    |  |        |  | 2,000 |                          | 
|Collar
    - WTI              |  |                        |      |  |        |  |       |                          | 
|January 2013 - March 2013     |  |                        | -    |  |        |  | 650   |                          | 
|April 2013 - June 2013        |  |                        | -    |  |        |  | 250   |                          | 
|Collar
    - Dated Brent      |  |                        |      |  |        |  |       |                          | 
|January 2013 - March 2013     |  |                        | -    |  |        |  | 1,550 |                          | 
|January 2013 - March 2013     |  |                        | 1.00 |  |        |  | 250   |                          | 
|January 2013 - June 2013      |  |                        | -    |  |        |  | 2,000 |                          | 
|January 2013 - December 2013  |  |                        | -    |  |        |  | 3,500 |                          | 
|April 2013 - June 2013        |  |                        | -    |  |        |  | 250   |                          | 
|July 2013 - December 2013     |  |                        | -    |  |        |  | 500   |                          | 



1The counterparties to the swaps have the option on June 28, 2013 to extend the swap to December 31, 2013 at the contracted
volume and price.



The
following table reconciles the change in the fair value of Vermilion’s derivative instruments:





|                                                                                    |  | Year Ended   |        
|----------------------------------------------------------------------------------- |  | ------------ | -------
|($M)                                                                                |  | Dec 31, 2012 |        
|Fair value of contracts, beginning
    of year                                      |  |              | (12,149
|Reversal of opening unrealized
    loss on contracts settled during the year        |  |              | 12,149 
|Realized loss on contracts
    settled during the year                              |  |              | (12,737
|Unrealized loss during
    the year on contracts outstanding at the end of the year |  |              | (6,398 
|Net
    payment to counterparties on contract settlements during the year           |  |              | 12,737 
|Fair value of contracts,
    end of year                                            |  |              | (6,398 
|Comprised of:                                                                       |  |              |        
|Current
    derivative asset                                                        |  |              | 2,086  
|Current
    derivative liability                                                    |  |              | (8,484 
|Non-current
    derivative liability                                                |  |              | -      
|Fair value of contracts,
    end of year                                            |  |              | (6,398 



The
loss on derivative instruments for 2012 and 2011 are comprised of the following:



|                                                                         |  | Year
    Ended   |        
|------------------------------------------------------------------------ |  | ---------------- | -------
|($M)                                                                     |  | Dec
    31, 2012 |        
|Realized loss
    on contracts settled during the year                   |  |                  | 12,737 
|Reversal of opening unrealized
    loss on contracts settled             |  |                  | (12,149
|Unrealized
    loss during the year on contracts outstanding at year-end |  |                  | 6,398  
|Loss
    on derivative instruments                                       |  |                  | 6,986  



23







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



15.
SUPPLEMENTAL CASH FLOW INFORMATION



Changes
in non-cash working capital is comprised of the following:



|                                                                      |  | Year
    Ended   |        
|--------------------------------------------------------------------- |  | ---------------- | -------
|($M)                                                                  |  | Dec
    31, 2012 |        
|Changes in:                                                           |  |                  |        
|Accounts
    receivable                                               |  |                  | (818   
|Crude
    oil inventory                                               |  |                  | (11,661
|Prepaid
    expenses                                                  |  |                  | 2,375  
|Accounts
    payable and accrued liabilities and income taxes payable |  |                  | (18,836
|Movements
    in foreign exchange rates                               |  |                  | (1,881 
|Changes
    in non-cash working capital                               |  |                  | (30,821
|Changes in non-cash operating
    working capital                     |  |                  | (47,409
|Changes
    in non-cash investing working capital                     |  |                  | 16,588 
|Changes
    in non-cash working capital                               |  |                  | (30,821



16.
SEGMENTED INFORMATION



Vermilion
has operations principally in Canada, France, the Netherlands, Australia and Ireland. Vermilion’s operating activities in
each country relate solely to the exploration, development and production of petroleum and natural gas. Vermilion’s chief
operating decision maker reviews the financial performance of the Company by assessing the operating income of each country individually.
Operating income is a profit or loss measure defined by Vermilion as oil and gas sales to external customers less royalties and
production costs, which include realized losses on derivative instruments, transportation expense and operating expense.



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.





|                                            |  | Year Ended December 31, 2012 |          
|------------------------------------------- |  | ---------------------------- | ---------
|($M)                                        |  | Canada                       |          
|Total
    assets                            |  |                              | 1,178,264
|Drilling
    and development                |  |                              | 236,634  
|Exploration
    and evaluation              |  |                              | 39,045   
|                                            |  |                              |          
|Operating
    Income (Loss)                 |  |                              |          
|Oil
    and gas sales to external customers |  |                              | 304,202  
|Royalties                                   |  |                              | (31,667  
|Revenue
    from external customers         |  |                              | 272,535  
|Realized
    loss on derivative instruments |  |                              | (1,337   
|Transportation
    expense                  |  |                              | (8,321   
|Operating
    expense                       |  |                              | (55,418  
|Operating
    income (loss)                 |  |                              | 207,459  
|                                            |  |                              |          
|Corporate
    income taxes                  |  |                              | 1,582    
|PRRT                                        |  |                              | -        
|Current
    income taxes                    |  |                              | 1,582    



24







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



16.
SEGMENTED INFORMATION (Continued)





|                                            |  | Year
    Ended December 31, 2011 |          
|------------------------------------------- |  | -------------------------------- | ---------
|($M)                                        |  | Canada                           |          
|Total
    assets                            |  |                                  | 1,285,138
|Drilling
    and development                |  |                                  | 261,101  
|Exploration
    and evaluation              |  |                                  | 64,597   
|                                            |  |                                  |          
|Operating
    Income (Loss)                 |  |                                  |          
|Oil and gas sales to external
    customers |  |                                  | 259,854  
|Royalties                                   |  |                                  | (34,980  
|Revenue from external customers             |  |                                  | 224,874  
|Realized loss on derivative
    instruments |  |                                  | (1,539   
|Transportation expense                      |  |                                  | (6,599   
|Operating
    expense                       |  |                                  | (51,473  
|Operating
    income (loss)                 |  |                                  | 165,263  
|                                            |  |                                  |          
|Corporate income taxes                      |  |                                  | 508      
|PRRT                                        |  |                                  | -        
|Current
    income taxes                    |  |                                  | 508      



Reconciliation
of operating income to net earnings



|                                                     |  | Year
    Ended   |         
|---------------------------------------------------- |  | ---------------- | --------
|($M)                                                 |  | Dec
    31, 2012 |         
|Operating
    income                                 |  |                  | 815,727 
|Equity based compensation                            |  |                  | (47,104 
|Unrealized gain (loss)
    on derivative instruments |  |                  | 5,751   
|Interest expense                                     |  |                  | (27,586 
|General and administration                           |  |                  | (43,773 
|Foreign exchange loss                                |  |                  | (1,546  
|Other expense                                        |  |                  | (8,751  
|Accretion                                            |  |                  | (23,040 
|Depletion and depreciation                           |  |                  | (295,943
|Impairments                                          |  |                  | (65,800 
|Gain
    on acquisition                              |  |                  | 45,309  
|Earnings before income
    taxes                     |  |                  | 353,244 
|Income
    taxes                                     |  |                  | (162,622
|Net
    earnings                                     |  |                  | 190,622 



Vermilion
has two major customers with revenues in excess of 10% within the France and Netherlands segments. Sales to the major customer
in the France segment for year ended December 31, 2012 were $380.6 million (2011 - $232.0 million). All sales in the Netherlands
segment were to one customer.



17.
COMMITMENTS



Vermilion
had the following future commitments associated with its operating leases as at December 31, 2012:



|($M)                   |  | Less than 1
    year |        |  | 1 - 3 years |  |        | 4 - 5 years |  |  | After 5 years |  |  | Total |       
|---------------------- |  | -------------------- | ------ |  | ----------- |  | ------ | ----------- |  |  | ------------- |  |  | ----- | ------
|Payments
    by period |  |                      | 15,552 |  |             |  | 28,318 |             |  |  | 23,204        |  |  |       | 69,554



In
addition, Vermilion has various other commitments associated with its business operations; none of which, in management’s
view, are significant in relation to Vermilion’s financial position.



25







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



18.
CASH AND CASH EQUIVALENTS



Cash
and cash equivalents was comprised of the following:



|($M)                            |  | Dec
    31, 2012 |         |  | Dec
    31, 2011 | 
|------------------------------- |  | ---------------- | ------- |  | ---------------- | 
|Money on deposit
    with banks |  |                  | 78,396  |  |                  | 
|Short-term investments          |  |                  | 23,729  |  |                  | 
|Cash
    and cash equivalents   |  |                  | 102,125 |  |                  | 



19.
CAPITAL DISCLOSURES



Vermilion
defines capital as net debt (a non-standardized measure, which is defined by management as long-term debt as shown on the consolidated
balance sheets plus net working capital) and shareholders’ capital.



In
managing capital, Vermilion reviews whether fund flows from operations (a non-standardized measure, defined by management as cash
flows from operating activities before changes in non-cash operating working capital and asset retirement obligations settled),
is sufficient to pay for all capital expenditures, dividends and abandonment and reclamation expenditures. To the extent that
the forecasted fund flows from operations is not expected to be sufficient in relation to these expenditures, Vermilion will evaluate
its ability to finance any excess with debt, an issuance of equity or by reducing some or all categories of expenditures to ensure
that total expenditures do not exceed available funds.



Additionally,
Vermilion monitors the ratio of net debt to fund flows from operations. Vermilion typically strives to maintain a ratio of net
debt to fund flows from operations near 1.0. In a commodity price environment where prices trend higher, Vermilion may target
a lower ratio and conversely, in a lower commodity price environment, the acceptable ratio may be higher. At times, Vermilion
will use its balance sheet to finance acquisitions and, in these situations, Vermilion is prepared to accept a higher ratio in
the short term but will implement a plan to reduce the ratio to acceptable levels within a reasonable period of time, usually
considered to be no more than 12 to 18 months. This plan could potentially include an increase in hedging activities, a reduction
in capital expenditures, an issuance of equity or the utilization of excess fund flows from operations to reduce outstanding indebtedness.



The
following table calculates Vermilion’s ratio of net debt to fund flows from operations:



|                                                                |  | Year
    Ended   |         
|--------------------------------------------------------------- |  | ---------------- | --------
|($M
    except as indicated)                                    |  | Dec
    31, 2012 |         
|Long-term
    debt                                              |  |                  | 642,022 
|Current liabilities                                             |  |                  | 355,711 
|Current
    assets                                              |  |                  | (320,502
|Net
    debt [1]                                                |  |                  | 677,231 
|                                                                |  |                  |         
|Cash flows from operating
    activities                        |  |                  | 496,580 
|Changes in non-cash
    operating working capital               |  |                  | 47,409  
|Asset
    retirement obligations settled                        |  |                  | 13,739  
|Fund
    flows from operations [2]                              |  |                  | 557,728 
|                                                                |  |                  |         
|Ratio
    of net debt to fund flows from operations ([1] ÷ [2]) |  |                  | 1.2     



The
ratio of net debt to fund flows from operations was higher in the current year as compared to the prior year primarily as a result
of an increase in net debt. The increase in net debt was the result of the two acquisitions that occurred in France during the
first and fourth quarter of 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.



26







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



20.
FINANCIAL INSTRUMENTS



Classification
of Financial Instruments



The
following table summarizes information relating to Vermilion’s financial instruments as at December 31, 2012 and December
31, 2011:



|                             |  |                                              |  |                       |  |                                                                                                                                                     |  | As at December 31, 2012 |          |   | As at December 31, 2011 |  |          |                   
|---------------------------- |  | -------------------------------------------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ----------------------- |  | -------- | ------------------
|Class of financialinstrument |  | Consolidated balancesheet caption            |  | Accountingdesignation |  | Related caption on Statement of NetEarnings                                                                                                         |  | Carryingvalue ($M)      |          |   | Fair value($M)          |  |          | Carryingvalue ($M)
|Cash                         |  | Cash and cashequivalents                     |  | HFT                   |  | Gains and losses
    on foreign exchangeare included in foreign exchange loss                                                                       |  |                         | 102,125  |   |                         |  | 102,125  |                   
|Receivables                  |  | Accounts receivable                          |  | LAR                   |  | Gains and losses on foreign
    exchange are included in foreign exchange loss and impairments are recognized as general and administration expense |  |                         | 180,064  |   |                         |  | 180,064  |                   
|Derivative assets            |  | Derivative instruments                       |  | HFT                   |  | Loss on derivative instruments                                                                                                                      |  |                         | 2,086    |   |                         |  | 2,086    |                   
|Derivative liabilities       |  | Derivative instruments                       |  | HFT                   |  | Loss on derivative instruments                                                                                                                      |  |                         | (8,484   | ) |                         |  | (8,484   | )                 
|Payables                     |  | Accounts payable and accrued
    liabilities |  | OTH                   |  | Gains and losses on foreign
    exchange are included in foreign exchange loss                                                                      |  |                         | (319,518 | ) |                         |  | (319,518 | )                 
|                             |  | Dividends payable                            |  |                       |  |                                                                                                                                                     |  |                         |          |   |                         |  |          |                   
|Payables                     |  | Amount due pursuant to acquisition           |  | OTH                   |  | Gains and losses on foreign
    exchange are included in foreign exchange loss                                                                      |  |                         | -        |   |                         |  | -        |                   
|Long-term debt               |  | Long-term debt                               |  | OTH                   |  | Interest expense                                                                                                                                    |  |                         | (642,022 | ) |                         |  | (656,315 | )                 



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 subsequently are 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.



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.



27







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



20.
FINANCIAL INSTRUMENTS (Continued)



The
amount due pursuant to acquisition was determined by calculating the expected value of the future payment due to the vendor based
on management’s best estimates associated with the timing of first commercial gas and discounting of the resulting amount.
The discount rate which would be used to present value this obligation as at December 31, 2011 would not differ significantly
from the discount rate originally used.



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



Vermilion
is exposed to the following types of risks in relation to its financial instruments:



Credit
risk:

Vermilion
extends credit to customers and may, from time-to-time, be due amounts from counterparties in relation to derivative instruments.
Accordingly, there is a risk of financial loss in the event that a counterparty fails to discharge its obligation. For transactions
that are financially significant, Vermilion reviews third-party credit ratings and may require additional forms of security. Cash
held on behalf of the Company by financial institutions is also subject to credit risk.



Liquidity
risk:

Liquidity
risk is the risk that Vermilion will encounter difficulty in meeting obligations associated with its financial liabilities. Vermilion
does not consider this to be a significant risk as its financial position and available committed borrowing facility provide significant
financial flexibility and allow Vermilion to meet its obligations as they come due.



Currency
risk:

Vermilion
conducts business in foreign currencies in addition to Canadian dollars and accordingly is subject to currency risk associated
with changes in foreign exchange rates in relation to cash and cash equivalents, receivables, payables and derivative assets and
liabilities. The impact related to working capital is somewhat mitigated as a result of the offsetting effects of foreign exchange
fluctuations on assets and liabilities. Vermilion monitors its exposure to currency risk and reviews whether the use of derivative
financial instruments is appropriate to manage potential fluctuations in foreign exchange rates. During 2012, Vermilion did not
use derivative financial instruments to manage potential fluctuations in foreign exchange rates.



Commodity
price risk:

Vermilion
uses derivative financial instruments as part of its risk management program to mitigate the effects of changes in commodity prices
on future cash flows. Changes in the underlying commodity prices impact the fair value and future cash flows related to these
derivatives.



Interest
rate risk:

Vermilion’s
long-term debt is comprised of borrowings under the revolving credit facility and the Company’s senior unsecured notes.
Borrowings under the revolving credit facility bear interest at market rates plus applicable margins and as such changes in interest
rates could result in an increase or decrease in the amount Vermilion pays to service this debt. The senior unsecured notes bear
interest at a fixed 6.5% interest rate and as such, changes in prevailing interest rates would affect the fair value of these
notes. However, as Vermilion does not intend to settle this debt prior to maturity, the notes are carried at amortized cost and
changes in fair value do not affect the Company’s net earnings.



The
nature of these risks and Vermilion’s strategy for managing these risks has not changed significantly from the prior period.



Summarized
Quantitative Data Associated with the Risks Arising from Financial Instruments



Credit
risk:

As
at December 31, 2012, Vermilion’s maximum exposure to receivable credit risk was $182.2 million (December 31, 2011 - $177.0
million) which is the aggregate value of receivables and derivative assets at the balance sheet date. Vermilion’s receivables
are due from counterparties that have investment grade third party credit ratings or, in the absence of the availability of such
ratings, have been satisfactorily reviewed by Vermilion for creditworthiness. Additionally, cash and cash equivalents consist
of moneys on deposit and short-term investments which may be subject to counterparty credit risk. Vermilion mitigates this risk
by transacting with North American institutions with high third party credit ratings.



As
at the balance sheet date the amount of financial assets that were past due or impaired was not material.



Liquidity
risk:

Vermilion’s
derivative financial instruments settle on a monthly basis.



28







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



20.
FINANCIAL INSTRUMENTS (Continued)



The
following table summarizes Vermilion’s undiscounted non-derivative financial liabilities and their contractual maturities
as at December 31, 2012 and December 31, 2011:



|                  |  |           |         |  | Later than     |  |         | Later than       |  | Later than    
|----------------- |  | --------- | ------- |  | -------------- |  | ------- | ---------------- |  | --------------
|                  |  |           |         |  | one month and  |  |         | three months and |  | one year and  
|                  |  | Due in    |         |  | not later than |  |         | not later than   |  | not later than
|($M)              |  | one month |         |  | three months   |  |         | one year         |  | five years    
|December 31, 2012 |  |           | 109,312 |  |                |  | 209,783 |                  |  | 423           
|December 31, 2011 |  |           | 115,594 |  |                |  | 206,777 |                  |  | 131,002       



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 year ended December 31, 2012 and 2011 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.



|                                      |  |                                                                                                    |  | December 31, 2012                         |        
|------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | -------
|                                      |  |                                                                                                    |  | Before tax effect on comprehensive income |        
|Risk ($M)                             |  | Description of change in risk variable                                                             |  | Increase (decrease)                       |        
|Currency risk
    - Euro to Canadian  |  | Increasein strength of the Canadian dollar against the                                             |  |                                           | (6,476 
|                                      |  | Euro by 5% over the relevant
    closing rates on December 31, 2012                                |  |                                           |        
|                                      |  | Decreasein strength of the Canadian dollar against the                                             |  |                                           | 6,476  
|                                      |  | Euro by 5% over the relevant
    closing rates on December 31, 2012                                |  |                                           |        
|Currency risk - US $ to
    Canadian  |  | Increasein strength of the Canadian dollar against the                                             |  |                                           | (1,971 
|                                      |  | US$ by 5% over the relevant
    closing rates on December 31, 2012                                 |  |                                           |        
|                                      |  | Decreasein strength of the Canadian dollar against the                                             |  |                                           | 1,971  
|                                      |  | US$ by 5% over the relevant
    closing rates on December 31, 2012                                 |  |                                           |        
|Currency risk - AUD $ to
    Canadian |  | Increasein strength of the Canadian dollar against the                                             |  |                                           | (1,167 
|                                      |  | AUD$ by 5% over the relevant
    closing rates on December 31, 2012                                |  |                                           |        
|                                      |  | Decreasein strength of the Canadian dollar against the                                             |  |                                           | 1,167  
|                                      |  | AUD$ by 5% over the relevant
    closing rates on December 31, 2012                                |  |                                           |        
|Commodity price risk                  |  | Increasein relevant oil reference price within option pricing models used to                       |  |                                           | (12,908
|                                      |  | determine the fair value
    of financial derivative positions by US$5.00/bbl at December 31, 2012 |  |                                           |        
|                                      |  | Decreasein relevant oil reference price within option pricing models used to                       |  |                                           | 12,296 
|                                      |  | determine the fair value
    of financial derivative positions by US$5.00/bbl at December 31, 2012 |  |                                           |        
|Interest rate risk                    |  | Increasein average Canadian prime interest rate                                                    |  |                                           | (2,007 
|                                      |  | by 100 basis points during
    the year ended December 31, 2012                                    |  |                                           |        
|                                      |  | Decreasein average Canadian prime interest rate                                                    |  |                                           | 2,007  
|                                      |  | by 100 basis points during
    the year ended December 31, 2012                                    |  |                                           |        



29







|Vermilion
    Energy Inc. | 2012
    Audited Financial Statements – Exhibit 99.3
|------------------------- | ----------------------------------------------------



20.
FINANCIAL INSTRUMENTS (Continued)





|                                      |  |                                                                                                                                                                                     |  | December 31, 2011                         |       
|------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------
|                                      |  |                                                                                                                                                                                     |  | Before tax effect on comprehensive income |       
|Risk ($M)                             |  | Description of change in risk variable                                                                                                                                              |  | Increase (decrease)                       |       
|Currency risk
    - Euro to Canadian  |  | Increasein strength of the Canadian dollar against the                                                                                                                              |  |                                           | (1,825
|                                      |  | Euro by 5% over the relevant closing rates on December
    31, 2011                                                                                                                 |  |                                           |       
|                                      |  | Decreasein strength of the Canadian dollar
    against the                                                                                                                          |  |                                           | 1,825 
|                                      |  | Euro by 5% over the relevant closing rates on December
    31, 2011                                                                                                                 |  |                                           |       
|Currency risk - US $ to
    Canadian  |  | Increasein
    strength of the Canadian dollar against the                                                                                                                          |  |                                           | 6,035 
|                                      |  | US$ by 5% over the relevant closing rates on December
    31, 2011                                                                                                                  |  |                                           |       
|                                      |  | Decreasein strength of the Canadian dollar
    against the                                                                                                                          |  |                                           | (6,035
|                                      |  | US$ by 5% over the relevant closing rates on December
    31, 2011                                                                                                                  |  |                                           |       
|Currency risk - AUD $
    to Canadian |  | Increasein
    strength of the Canadian dollar against the                                                                                                                          |  |                                           | (59   
|                                      |  | AUD$ by 5% over the relevant closing rates on December
    31, 2011                                                                                                                 |  |                                           |       
|                                      |  | Decreasein strength of the Canadian dollar
    against the                                                                                                                          |  |                                           | 59    
|                                      |  | AUD$ by 5% over the relevant closing rates on December
    31, 2011                                                                                                                 |  |                                           |       
|Commodity price risk                  |  | Increasein
    relevant oil reference price within option pricing models used to determine the fair value of financial derivative positions
    by US$5.00/bbl at December 31, 2011 |  |                                           | (6,964
|                                      |  | Decreasein relevant oil reference price within
    option pricing models used to determine the fair value of financial derivative positions by US$5.00/bbl at December 31, 2011     |  |                                           | 6,372 





Reasonably
possible changes in natural gas prices would not have had a material impact on comprehensive income for the years ended December
31, 2012 and 2011.



21.
RELATED PARTY DISCLOSURES



The
compensation of directors and management are reviewed annually by the independent Governance and Human Resources Committee against
industry practices for oil and gas companies of similar size and scope.



The
following table summarizes the compensation of directors and other members of key management personnel during the years ended
December 31, 2012 and December 31, 2011:



|                                                        |  | Year
    Ended   |       
|------------------------------------------------------- |  | ---------------- | ------
|($M)                                                    |  | Dec
    31, 2012 |       
|Short-term benefits                                     |  |                  | 6,545 
|Share-based payments                                    |  |                  | 15,428
|                                                        |  |                  | 21,973
|                                                        |  |                  |       
|Number
    of individuals included in the above amounts |  |                  | 19    



22.
WAGES AND BENEFITS



Included
in operating expenses and general and administrative expenses for the year ended December 31, 2012 were $45.3 million and $30.9
million of wages and benefits, respectively (2011 – $37.8 million and $29.8 million, respectively).





30













|DIRECTORS                                       | OFFICERS AND KEY PERSONNEL                         | AUDITORS                                  
|----------------------------------------------- | -------------------------------------------------- | ------------------------------------------
|                                                |                                                    | Deloitte LLP                              
|Larry J. Macdonald 1, 2, 3, 4, 5                | CANADA                                             | Calgary, Alberta                          
|Chairman & CEO, Point Energy Ltd.               |                                                    |                                           
|Calgary, Alberta                                | Lorenzo Donadeo, P.Eng.                            | BANKERS                                   
|                                                | President & Chief Executive Officer                | The Toronto-Dominion Bank                 
|W. Kenneth Davidson 2, 3                        |                                                    | Calgary, Alberta                          
|Toronto, Ontario                                | John D. Donovan, F.C.A.                            |                                           
|                                                | Executive Vice President Business Development      | Bank of Montreal                          
|Lorenzo Donadeo                                 |                                                    | Calgary, Alberta                          
|Calgary, Alberta                                | Curtis W. Hicks, C.A.                              |                                           
|                                                | Executive Vice President & CFO                     | The Bank of Nova Scotia                   
|Claudio A. Ghersinich 2, 4, 5                   |                                                    | Calgary, Alberta                          
|Executive Director, Carrera Investments Corp.   | Anthony Marino, P.Eng.                             |                                           
|Calgary, Alberta                                | Executive Vice President & COO                     | Royal Bank of Canada                      
|                                                |                                                    | Calgary, Alberta                          
|Joseph F. Killi 2, 3                            | Mona Jasinski, M.B.A., C.H.R.P.                    |                                           
|Chairman, Parkbridge Lifestyle Communities Inc. | Executive Vice President People                    | Canadian Imperial Bank of Commerce        
|Vice Chairman, Realex Properties Corp.          |                                                    | Calgary, Alberta                          
|Calgary, Alberta                                | Terry Hergott, CMA                                 |                                           
|                                                | Vice President Marketing                           | National Bank of Canada                   
|Loren M. Leiker 5                               |                                                    | Calgary, Alberta                          
|Houston, Texas                                  | Daniel Goulet, P.Eng.                              |                                           
|                                                | Director Corporate HSE                             | Alberta Treasury Branches                 
|William F. Madison 2, 4, 5                      |                                                    | Calgary, Alberta                          
|Sugar Land, Texas                               | Cameron A. Hercus, MSc                             |                                           
|                                                | Director Exploration and New Growth                | Citibank N.A., Canadian Branch            
|Timothy R. Marchant 3, 4, 5                     |                                                    | Citibank Canada                           
|Calgary, Alberta                                | Michael Kaluza, P.Eng.                             | Calgary, Alberta                          
|                                                | Director Canada Business Unit                      |                                           
|1Chairman
    of the Board                      |                                                    | Wells Fargo Bank N.A., London Branch      
|2Audit
    Committee                            | Dean N. Morrison,
    CFA                          | London, England                           
|3Governance
    and Human Resources Committee   | Director Investor
    Relations                    |                                           
|4Health,
    Safety and Environment Committee   |                                                    | La Caisse Centrale Desjardins du Québec   
|5Independent
    Reserves Committee             | Mike Prinz                                         | Montréal, Quebec                          
|                                                | Director Information Technology                    |                                           
|ANNUAL AND SPECIAL MEETING                      |                                                    | HSBC Bank Canada                          
|May 1, 2013 at 1:30 p.m.                        | Gerardo Rivera                                     | Calgary, Alberta                          
|The Ballroom                                    | Director Strategy and Portfolio Management         |                                           
|Metropolitan Centre                             |                                                    | JPMorgan Chase Bank, N.A., Toronto Branch 
|333 – 4thAvenue S.W.                            | Robert (Bob) J. Engbloom, LL.B                     | Toronto, Ontario                          
|Calgary, Alberta                                | Corporate Secretary                                |                                           
|                                                |                                                    | EVALUATION ENGINEERS                      
|                                                | EUROPE                                             | GLJ Petroleum Consultants Ltd.            
|                                                |                                                    | Calgary, Alberta                          
|                                                | Gerard Schut, P.Eng.                               |                                           
|                                                | Vice President European Operations                 | LEGAL COUNSEL                             
|                                                |                                                    | Norton Rose Canada LLP                    
|                                                | David Burghardt, P.Eng.                            | Calgary, Alberta                          
|                                                | Interim Managing Director France Business
    Unit |                                           
|                                                |                                                    | TRANSFER AGENT                            
|                                                | Neil Wallace                                       | Computershare Trust Company of Canada     
|                                                | Managing Director Netherlands Business
    Unit    |                                           
|                                                |                                                    | STOCK EXCHANGE LISTINGS                   
|                                                | AUSTRALIA                                          | The Toronto Stock Exchange (“VET”)        
|                                                |                                                    | The New York Stock Exchange (“VET”)       
|                                                | Bruce D. Lake, P.Eng.                              |                                           
|                                                | Managing Director Australia Business
    Unit      | INVESTOR RELATIONS                        
|                                                |                                                    | Dean Morrison, Director Investor Relations











31