EXHIBIT
99.2



VERMILION
ENERGY INC.

2012
MANAGEMENT’S DISCUSSION AND ANALYSISs

















|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



ABBREVIATIONS



|bbl(s) | barrel(s)                                                                                                                                 
|------ | ------------------------------------------------------------------------------------------------------------------------------------------
|mbbls  | thousand barrels                                                                                                                          
|bbls/d | barrels per day                                                                                                                           
|mcf    | thousand cubic feet                                                                                                                       
|mmcf   | million cubic feet                                                                                                                        
|bcf    | billion cubic feet                                                                                                                        
|mcf/d  | thousand cubic feet per day                                                                                                               
|mmcf/d | million cubic feet per day                                                                                                                
|GJ     | gigajoules                                                                                                                                
|boe    | barrel of oil equivalent, including: crude oil, natural gas liquids
    and natural gas on the basis of one boe for six mcf of natural gas
|mboe   | thousand barrel of oil equivalent                                                                                                         
|mmboe  | million barrel of oil equivalent                                                                                                          
|boe/d  | barrel of oil equivalent per day                                                                                                          
|NGLs   | natural gas liquids                                                                                                                       
|WTI    | West Texas Intermediate, the reference price paid for crude oil
    of standard grade in U.S. dollars at Cushing, Oklahoma                
|AECO   | the daily average benchmark price for natural gas at the AECO ‘C’
    hub in southeast Alberta                                            
|$M     | thousand dollars                                                                                                                          
|$MM    | million dollars                                                                                                                           
|PRRT   | Petroleum Resource Rent Tax, a profit based tax levied on petroleum
    projects in Australia                                             



2







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



DISCLAIMER



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



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



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



| | · | the
                                                                                                          ability of Vermilion
                                                                                                          to obtain equipment,
                                                                                                          services and supplies
                                                                                                          in a timely manner to
                                                                                                          carry out its activities
                                                                                                          in Canada and internationally;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          ability of Vermilion
                                                                                                          to market crude oil,
                                                                                                          natural gas liquids
                                                                                                          and natural gas successfully
                                                                                                          to current and new customers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          timing and costs of
                                                                                                          pipeline and storage
                                                                                                          facility construction
                                                                                                          and expansion and the
                                                                                                          ability to secure adequate
                                                                                                          product transportation;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          timely receipt of required
                                                                                                          regulatory approvals;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          ability of Vermilion
                                                                                                          to obtain financing
                                                                                                          on acceptable terms;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | foreign
                                                                                                          currency exchange rates
                                                                                                          and interest rates;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | future
                                                                                                          crude oil, natural gas
                                                                                                          liquids and natural
                                                                                                          gas prices; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Management’s
                                                                                                          expectations relating
                                                                                                          to the timing and results
                                                                                                          of exploration and development
                                                                                                          activities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



In
accordance with National Instruments 51-101, natural gas volumes have been converted on the basis of six thousand cubic feet of
natural gas to one barrel of oil equivalent. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation.
A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the wellhead.



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



3







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



MANAGEMENT’S
DISCUSSION AND ANALYSIS



The
following is Management’s Discussion and Analysis (“MD&A”), dated February 28, 2013, of Vermilion Energy
Inc.’s (“Vermilion” or the “Company”) operating and financial results as at and for the year ended
December 31, 2012 compared with the corresponding period in the prior year.



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



The
audited consolidated financial statements for the year ended December 31, 2012 and comparative information have been prepared
in Canadian dollars, except where another currency has been indicated, and in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.



NON-GAAP
MEASURES



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



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



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



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



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



|                                                              |  | Three
    Months Ended |         |  | %
    change |  |         | Year
    Ended |  |  | %
    change |  
|------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------ |  | ------- | -------------- |  |  | ------------ | -
|                                                              |  | Dec 31,                |         |  | Sept 30,     |  |         | Dec 31,        |  |  | Q4/12 vs.    |  
|($M)                                                          |  | 2012                   |         |  | 2012         |  |         | 2011           |  |  | Q3/12        |  
|Cash flows from operating activities                          |  |                        | 99,907  |  |              |  | 148,301 |                |  |  | 158,639      |  
|Changes
    in non-cash operating working capital             |  |                        | 33,406  |  |              |  | (13,175 | )              |  |  | (29,315      | )
|Asset retirement obligations
    settled                      |  |                        | 8,424   |  |              |  | 1,968   |                |  |  | 7,559        |  
|Fund flows from operations                                    |  |                        | 141,737 |  |              |  | 137,094 |                |  |  | 136,883      |  
|Expenses related to the Corrib
    project                    |  |                        | 2,023   |  |              |  | 2,171   |                |  |  | 2,619        |  
|Fund
    flows from operations (excluding the Corrib project) |  |                        | 143,760 |  |              |  | 139,265 |                |  |  | 139,502      |  



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



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



4







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



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



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



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



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



|                                                                                                                  |  | Three Months Ended |         |   | Year Ended | 
|----------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------- | 
|                                                                                                                  |  | Dec 31,            |         |   | Sept 30,   | 
|($M)                                                                                                              |  | 2012               |         |   | 2012       | 
|Dividends declared                                                                                                |  |                    | 56,435  |   |            | 
|Issuance of shares pursuant to the dividend reinvestment plan                                                     |  |                    | (18,468 | ) |            | 
|Net dividends                                                                                                     |  |                    | 37,967  |   |            | 
|Drilling and development                                                                                          |  |                    | 151,157 |   |            | 
|Exploration and evaluation                                                                                        |  |                    | 5,878   |   |            | 
|Asset retirement obligations settled                                                                              |  |                    | 8,424   |   |            | 
|Total net dividends, capital expenditures and asset retirement obligations settled                                |  |                    | 203,426 |   |            | 
|Capital expenditures and asset retirement obligations settled related to the Corrib project                       |  |                    | (18,092 | ) |            | 
|Total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) |  |                    | 185,334 |   |            | 



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



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



|                    |  | As At   |         
|------------------- |  | ------- | --------
|                    |  | Dec 31, |         
|($M)                |  | 2012    |         
|Long-term debt      |  |         | 642,022 
|Current liabilities |  |         | 355,711 
|Current assets      |  |         | (320,502
|Net debt            |  |         | 677,231 



“Netbacks”are per boe and per mcf measures used in operational and capital allocation decisions.



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



Shares
outstanding is reconciled to diluted shares outstanding as follows:



|                                                                         |  | As At   |        
|------------------------------------------------------------------------ |  | ------- | -------
|                                                                         |  | Dec 31, |        
|('000s of shares)                                                        |  | 2012    |        
|Shares outstanding                                                       |  |         | 99,135 
|Potential shares issuable pursuant to the equity based compensation plan |  |         | 2,778  
|Diluted shares outstanding                                               |  |         | 101,913



5







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



2012
REVIEW AND 2013 GUIDANCE



The
following table summarizes Vermilion's 2012 actual results as compared to guidance and Vermilion's 2013 guidance:



|                       |  | Date              |  | Capital
    Expenditures ($MM) |  | Production
    (boe/d)
|---------------------- |  | ----------------- |  | ------------------------------ |  | ----------------------
|2012 Guidance          |  | December 21, 2011 |  | 375                            |  | 37,000 to 38,000      
|2012 Guidance (Update) |  | May 4, 2012       |  | 450                            |  | 37,000 to 38,000      
|2012 Guidance (Update) |  | November 1, 2012  |  | 465                            |  | 37,000 to 38,000      
|2012 Guidance (Update) |  | November 14, 2012 |  | 450                            |  | 37,000 to 38,000      
|2012 Actual            |  | February 28, 2013 |  | 453                            |  | 37,803                
|2013 Guidance          |  | November 14, 2012 |  | 485                            |  | 39,000 to 40,500      



On
May 4, 2012, concurrent with the release of first quarter 2012 operating and financial results, Vermilion announced an increase
to its 2012 planned capital expenditures to approximately $450 million, a 20% increase from its previous budget of $375 million
announced in December 2011.  The additional capital was primarily targeted at Cardium drilling and completions.



On
November 1, 2012, concurrent with the release of third quarter 2012 operating and financial results, Vermilion updated its 2012
capital expenditure guidance to $465 million, subject to variability with respect to timing of the Company's Australian drilling
activities. However, as a result of delays in the arrival of our Australian drilling rig, the Company announced a revision
in the 2012 capital expenditure guidance to $450 million on November 14, 2012.



OPERATIONAL
ACTIVITIES



Canada



Vermilion
drilled 76 (54.7 net) wells during 2012, including 59 (47.5 net) operated Cardium horizontal wells and 13 (4.0 net) non-operated
Cardium wells. The Company also drilled three (3 net) vertical appraisal wells in the Duvernay trend. Fourth quarter 2012 activity
comprised the drilling of 25 (16.7 net) Cardium wells and the drilling of our second Duvernay test well.



France



Vermilion
completed a number of workovers in both the Paris and Aquitaine Basins. Further work included the dry-docking and structural overhaul
of our Parentis workover barge, which was returned to water in late December. The Company also re-commissioned two oil tanks,
one on the Chaunoy battery and the other on the Vic Bihl battery associated with the Company’s January 2012 acquisition.



Netherlands



In
2012, Vermilion drilled two (1.4 net) new wells, Vinkega-2 and Eernwoude-2. The Eernwoude-2 well was subsequently brought on production
late in the fourth quarter of 2012. During the fourth quarter, the Company also received necessary partner approvals and initiated
a debottlenecking project at Garijp, planned for completion during the second quarter of 2013, that is expected to enable production
additions from the Vinkega-2 well to be brought on-stream. During the second quarter of 2012, Vermilion completed the tie-in of
the De Hoeve-1 exploration well (drilled in 2009) and initiated production from the Rotliegend zone. Pipeline construction for
the Company’s Langezwaag-1 well (drilled in the fourth quarter of 2011) was completed late in 2012 and the well is expected
to come on production following the anticipated completion of surface facilities in the second quarter of 2013. In December, Vermilion
was awarded the exploration license for the Opmeer concession located directly west of the Company’s existing Slootdorp
concession.



Australia



The
two well drilling program at Wandoo which was originally planned for late 2012 was deferred into 2013 due to late receipt of the
drilling rig. During the second half of 2012, Vermilion completed both planned annual maintenance and unplanned equipment repairs
which led to higher than normal downtime.



6







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



PRODUCTION



|                              |  | Three
    Months Ended |        |   | %
    change |  |        | Year
    Ended |  |  | %
    change |  
|----------------------------- |  | ---------------------- | ------ | - | ------------ |  | ------ | -------------- |  |  | ------------ | -
|                              |  | Dec 31,                |        |   | Sept 30,     |  |        | Dec 31,        |  |  | Q4/12 vs.    |  
|                              |  | 2012                   |        |   | 2012         |  |        | 2011           |  |  | Q3/12        |  
|Canada                        |  |                        |        |   |              |  |        |                |  |  |              |  
|Crude oil & NGLs
    (bbls/d) |  |                        | 9,089  |   |              |  | 8,526  |                |  |  | 7,837        |  
|Natural gas (mmcf/d)          |  |                        | 31.41  |   |              |  | 35.54  |                |  |  | 43.96        |  
|Total (boe/d)                 |  |                        | 14,323 |   |              |  | 14,449 |                |  |  | 15,163       |  
|% of consolidated             |  |                        | 40     | % |              |  | 40     | %              |  |  | 41           | %
|France                        |  |                        |        |   |              |  |        |                |  |  |              |  
|Crude oil (bbls/d)            |  |                        | 9,843  |   |              |  | 9,767  |                |  |  | 7,819        |  
|Natural gas (mmcf/d)          |  |                        | 3.91   |   |              |  | 3.39   |                |  |  | 0.94         |  
|Total (boe/d)                 |  |                        | 10,495 |   |              |  | 10,333 |                |  |  | 7,976        |  
|% of consolidated             |  |                        | 29     | % |              |  | 28     | %              |  |  | 22           | %
|Netherlands                   |  |                        |        |   |              |  |        |                |  |  |              |  
|NGLs (bbls/d)                 |  |                        | 70     |   |              |  | 41     |                |  |  | 66           |  
|Natural gas (mmcf/d)          |  |                        | 33.03  |   |              |  | 34.59  |                |  |  | 34.58        |  
|Total (boe/d)                 |  |                        | 5,574  |   |              |  | 5,806  |                |  |  | 5,829        |  
|% of consolidated             |  |                        | 15     | % |              |  | 16     | %              |  |  | 16           | %
|Australia                     |  |                        |        |   |              |  |        |                |  |  |              |  
|Crude oil (bbls/d)            |  |                        | 5,873  |   |              |  | 5,958  |                |  |  | 7,686        |  
|% of consolidated             |  |                        | 16     | % |              |  | 16     | %              |  |  | 21           | %
|Consolidated                  |  |                        |        |   |              |  |        |                |  |  |              |  
|Crude oil & NGLs (bbls/d)     |  |                        | 24,875 |   |              |  | 24,292 |                |  |  | 23,408       |  
|% of consolidated             |  |                        | 69     | % |              |  | 66     | %              |  |  | 64           | %
|Natural gas (mmcf/d)          |  |                        | 68.34  |   |              |  | 73.52  |                |  |  | 79.48        |  
|% of consolidated             |  |                        | 31     | % |              |  | 34     | %              |  |  | 36           | %
|Total (boe/d)                 |  |                        | 36,265 |   |              |  | 36,546 |                |  |  | 36,654       |  



|(boe/d)      |  | Q4 2012 |        |  | Q3 2012 |  |        | Q2 2012 |  |  | Q1 2012 |  |  | Q4 2011 |        |  | Q3 2011 |  |        | Q2 2011 |  |  | Q1 2011 | 
|------------ |  | ------- | ------ |  | ------- |  | ------ | ------- |  |  | ------- |  |  | ------- | ------ |  | ------- |  | ------ | ------- |  |  | ------- | 
|Canada       |  |         | 14,323 |  |         |  | 14,449 |         |  |  | 15,965  |  |  |         | 15,848 |  |         |  | 15,163 |         |  |  | 12,987  | 
|France       |  |         | 10,495 |  |         |  | 10,333 |         |  |  | 10,526  |  |  |         | 10,850 |  |         |  | 7,976  |         |  |  | 8,108   | 
|Netherlands  |  |         | 5,574  |  |         |  | 5,806  |         |  |  | 5,707   |  |  |         | 5,919  |  |         |  | 5,829  |         |  |  | 5,589   | 
|Australia    |  |         | 5,873  |  |         |  | 5,958  |         |  |  | 6,970   |  |  |         | 6,648  |  |         |  | 7,686  |         |  |  | 7,992   | 
|Consolidated |  |         | 36,265 |  |         |  | 36,546 |         |  |  | 39,168  |  |  |         | 39,265 |  |         |  | 36,654 |         |  |  | 34,676  | 



Canadian
production averaged 15,142 boe/d in 2012, an increase of 14% over 2011 production of 13,227 boe/d. The increased volumes were
largely attributable to strong crude oil and liquids growth of 48%, arising primarily from Cardium related drilling activities,
offset by natural declines and the intentional shut-in of a portion of the Company’s dry natural gas production during the
second half of the year. Fourth quarter 2012 production of 14,323 boe/d remained comparatively flat versus third quarter production
of 14,449 boe/d and was modestly lower than same quarter production in 2011 of 15,163 boe/d, despite the impact of significant
volumes of shut-in natural gas production. Vermilion’s exposure to high netback oil and liquids production represented approximately
63% of Canadian production in the fourth quarter of 2012 compared to 52% and 41% in the fourth quarters of 2011 and 2010, respectively.



France
production averaged 10,550 boe/d in 2012 representing a 28% increase compared to 8,269 boe/d in 2011. This increase is largely
attributable to volumes associated with our France acquisition completed in January of 2012. During 2012, annual workover and
recompletion activities were undertaken to largely offset natural declines in the region.



Netherlands
average production increased 4% to 5,751 boe/d in 2012, from 5,538 boe/d in 2011. Incremental production from Vinkega-1, brought
on-stream in December 2011, De Hoeve-1, brought on-stream in May 2012, and Eernwoude-2, drilled during the third quarter 2012
and brought on-stream in late November 2012, contributed to the modest year-over-year increase.



Average
Australian production was 6,360 boe/d in 2012, a 22% decline from 8,168 boe/d in 2011. The decrease was largely attributable to
natural production declines, both planned and unplanned shut-ins for maintenance and the deferral of anticipated 2012 drilling
activities to the first quarter of 2013.



7







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



FINANCIAL
REVIEW



During
the three months ended December 31, 2012, Vermilion generated fund flows from operations of $141.7 million compared to $137.1
million for the three months ended September 30, 2012 and $136.9 million for the three months ended December 31, 2011. During
the fourth quarter of 2012, Vermilion recorded an inventory build of crude oil in France and Australia totalling approximately
260,000 bbls.



Fund
flows from operations increased for the fourth quarter of 2012 as compared to the third quarter of 2012 despite lower revenues,
due to lower general and administration expenses, operating costs and taxes. The increase in fund flows from operations for the
fourth quarter of 2012 as compared to the same period in the prior year was primarily the result of reduced current taxes.



The
increase in fund flows from operations for the year ended December 31, 2012 as compared to the 2011 period was primarily the result
of reduced PRRT in Australia and the shifting of Vermilion’s commodity mix in favour of more crude oil from the Canadian
Cardium development and the two acquisitions in France. These increases were partially offset by an $8.5 million payment to regulatory
authorities relating to transfer taxes on the acquisition in France during the first quarter of 2012.



Cash
flow from operating activities decreased for the three months ended December 31, 2012 as compared to the three months ended December
31, 2011. This decrease occurred despite the increase in fund flows from operations due to timing differences pertaining to the
settlement of working capital. On a year-over-year basis, cash flow from operating activities increased due to the increase in
fund flows from operations, as discussed above, partially offset by timing differences pertaining to working capital.



Vermilion’s
net debt was $677.2 million at December 31, 2012 (December 31, 2011 - $429.0 million) representing approximately 1.2 times 2012
fund flows from operations. The increase in net debt was the result of the two acquisitions in France during the first and fourth
quarters of 2012 and current year development capital expenditures.



Long-term
debt increased to $642.0 million at December 31, 2012 (December 31, 2011 - $373.4 million) as a result of payment of the US$135
million deferred payment, which pertained to the 2009 acquisition of Vermilion’s 18.5% non-operated interest in the Corrib
field, as well as funding of the two acquisitions in France.



For
the year ended December 31, 2012, total net dividends, capital expenditures and asset retirement obligations settled (excluding
capital expenditures and asset retirement obligations settled on the Corrib project) expressed as a percentage of fund flows from
operations were 99% (year ended December 31, 2011 - 123)%. The year-over-year decrease in this ratio relates primarily to improved
fund flows from operations and lower expenditures on land in Canada.



8







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



COMMODITY
PRICES



|                                           |  | Three
    Months Ended |        |   | %
    change |  |        | Year
    Ended |  |  | %
    change |  
|------------------------------------------ |  | ---------------------- | ------ | - | ------------ |  | ------ | -------------- |  |  | ------------ | -
|                                           |  | Dec 31,                |        |   | Sept 30,     |  |        | Dec 31,        |  |  | Q4/12 vs.    |  
|                                           |  | 2012                   |        |   | 2012         |  |        | 2011           |  |  | Q3/12        |  
|Average reference prices                   |  |                        |        |   |              |  |        |                |  |  |              |  
|WTI (US $/bbl)                             |  |                        | 88.18  |   |              |  | 92.22  |                |  |  | 94.06        |  
|Edmonton Sweet index (US $/bbl)            |  |                        | 84.86  |   |              |  | 85.01  |                |  |  | 95.49        |  
|Dated Brent (US $/bbl)                     |  |                        | 110.02 |   |              |  | 109.61 |                |  |  | 109.31       |  
|AECO ($/GJ)                                |  |                        | 3.05   |   |              |  | 2.17   |                |  |  | 3.01         |  
|Netherlands gas price ($/GJ)               |  |                        | 9.78   |   |              |  | 9.06   |                |  |  | 10.03        |  
|Netherlands gas price (€/GJ)               |  |                        | 7.58   |   |              |  | 7.28   |                |  |  | 7.27         |  
|Average realized prices ($/boe)            |  |                        |        |   |              |  |        |                |  |  |              |  
|Canada                                     |  |                        | 58.80  |   |              |  | 53.61  |                |  |  | 59.03        |  
|France                                     |  |                        | 102.26 |   |              |  | 104.95 |                |  |  | 112.71       |  
|Netherlands                                |  |                        | 60.96  |   |              |  | 56.88  |                |  |  | 62.95        |  
|Australia                                  |  |                        | 115.22 |   |              |  | 114.44 |                |  |  | 108.00       |  
|Consolidated                               |  |                        | 78.40  |   |              |  | 80.35  |                |  |  | 81.60        |  
|Production mix (% of production)           |  |                        |        |   |              |  |        |                |  |  |              |  
|% priced with reference to WTI             |  |                        | 25     | % |              |  | 23     | %              |  |  | 21           | %
|% priced with reference to AECO            |  |                        | 14     | % |              |  | 16     | %              |  |  | 20           | %
|% priced with reference to European gas    |  |                        | 17     | % |              |  | 17     | %              |  |  | 16           | %
|% priced with reference to Dated
    Brent |  |                        | 44     | % |              |  | 44     | %              |  |  | 43           | %



Reference
prices



Overall,
crude oil prices remained relatively consistent during the fourth quarter of 2012 as compared to the third quarter of 2012. WTI
and the Edmonton Sweet index continued to trade at a significant discount to Dated Brent due to increased production in North
America and the subsequent increase in inventories at Cushing, Oklahoma.



The
AECO reference price increased from the third quarter of 2012 to the fourth quarter of 2012. However, AECO pricing remained significantly
lower in 2012 compared to the previous year due in part to the excess supply of natural gas in North America and continued high
levels of inventory.



The
Netherlands realized gas price remained relatively consistent quarter-over-quarter.



Realized
pricing



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



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



The
price of Vermilion’s natural gas in the Netherlands is based on pricing established by GasTerra, a state owned entity which
purchases all natural gas produced by Vermilion in the Netherlands. The natural gas price in the Netherlands is calculated using
a trailing average of Dated Brent and the natural gas prices from European trading hubs.



Average
realized prices in Vermilion’s international jurisdictions will differ from their corresponding average reference prices
due to a number of factors, including the timing of: the sale of production, differences in the quality of production and point
of settlement. In Canada, average realized prices are impacted by the production mix of crude oil, NGLs and natural gas. The quarter-over-quarter
increase in the average realized price for Canada was due to an increase in the percentage of crude oil and NGLs production in
Canada, from 59% for the third quarter of 2012 to 63% for the fourth quarter of 2012, this favorable shift in Vermilion’s
commodity mix was coupled with the increase in the AECO reference price for natural gas from $2.17/GJ to $3.05/GJ quarter-over-quarter.



On
a consolidated basis, for the three months ended December 31, 2012, crude oil and NGL production represented approximately 69%
of total production (three months ended December 31, 2011 - 64)%.



9







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



CAPITAL
EXPENDITURES AND ACQUISITIONS



|                                              |  | Three Months Ended |         |  | Year Ended | 
|--------------------------------------------- |  | ------------------ | ------- |  | ---------- | 
|By classification                             |  | Dec 31,            |         |  | Sept 30,   | 
|($M)                                          |  | 2012               |         |  | 2012       | 
|Drilling and development                      |  |                    | 151,157 |  |            | 
|Exploration and evaluation                    |  |                    | 5,878   |  |            | 
|Capital expenditures                          |  |                    | 157,035 |  |            | 
|                                              |  |                    |         |  |            | 
|Property acquisitions                         |  |                    | -       |  |            | 
|Corporate acquisition                         |  |                    | 74,947  |  |            | 
|Payment of amount due pursuant to acquisition |  |                    | 134,307 |  |            | 
|Acquisitions                                  |  |                    | 209,254 |  |            | 



|                                            |  | Three Months Ended |         |  | Year Ended | 
|------------------------------------------- |  | ------------------ | ------- |  | ---------- | 
|By category                                 |  | Dec 31,            |         |  | Sept 30,   | 
|($M)                                        |  | 2012               |         |  | 2012       | 
|Land                                        |  |                    | 462     |  |            | 
|Seismic                                     |  |                    | 3,963   |  |            | 
|Drilling and completion                     |  |                    | 76,774  |  |            | 
|Production equipment and facilities         |  |                    | 64,232  |  |            | 
|Recompletions                               |  |                    | 5,040   |  |            | 
|Other                                       |  |                    | 6,564   |  |            | 
|Capital expenditures                        |  |                    | 157,035 |  |            | 
|Acquisitions                                |  |                    | 209,254 |  |            | 
|Total capital expenditures and acquisitions |  |                    | 366,289 |  |            | 



|            |  | Three Months Ended |         |  | Year Ended | 
|----------- |  | ------------------ | ------- |  | ---------- | 
|By country  |  | Dec 31,            |         |  | Sept 30,   | 
|($M)        |  | 2012               |         |  | 2012       | 
|Canada      |  |                    | 84,609  |  |            | 
|France      |  |                    | 95,905  |  |            | 
|Netherlands |  |                    | 8,118   |  |            | 
|Australia   |  |                    | 25,257  |  |            | 
|Ireland     |  |                    | 152,400 |  |            | 



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.



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.



10







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



Amount
due pursuant to acquisition:



The
payment of the amount due pursuant to acquisition relates to Vermilion’s acquisition of its 18.5% non-operated interest
in the Corrib gas field in 2009. Pursuant to the terms of the acquisition agreement, Vermilion made a final payment to the vendor
of $134.3 million (US$135 million) at the end of 2012.



Capital
expenditures:



Capital
expenditures for the fourth quarter of 2012 increased from the third quarter of 2012 primarily as a result of increased activity
in Canada, France, and Australia. In Canada, capital expenditures increased by approximately $20.9 million quarter-over-quarter.
This increase was largely driven by increased drilling activity as Vermilion participated in the drilling of 26 (17.7 net) wells
during the fourth quarter as compared to 16 (11.5 net) wells during the third quarter. In France, capital expenditures increased
by approximately $10.6 million quarter-over-quarter, due primarily to expenditures on facilities. In Australia, capital expenditures
increased by approximately $15.5 million quarter-over-quarter, due to the purchase of long lead items for the 2013 drilling campaign
and expenditures for certain marine activities.



Capital
expenditures for the fourth quarter of 2012 increased slightly as compared to the same period in 2011. This increase was the result
of increased drilling and facilities expenditures offset by significantly lower expenditures on land. The increased drilling and
facilities expenditures in 2012 were primarily in France and Australia relating to the preparation for the respective 2013 drilling
campaigns and the aformentioned facilities and marine activities.



Overall,
capital expenditures in 2012 were lower than in 2011 due to reduced expenditures in all jurisdictions except for Australia. The
reduced expenditures were primarily in Canada as a result of lower facilities expenditures, including the absence of construction
costs relating to the 15,000 bbls/d Cardium oil processing facility that was completed in 2011, reduced land acquisitions and
well tie-in activity.



PETROLEUM
AND NATURAL GAS SALES



|                                    |  | Three
    Months Ended |         |  | %
    change |  |         | Year
    Ended |  |  | %
    change | 
|----------------------------------- |  | ---------------------- | ------- |  | ------------ |  | ------- | -------------- |  |  | ------------ | 
|By product                          |  | Dec 31,                |         |  | Sept 30,     |  |         | Dec 31,        |  |  | Q4/12 vs.    | 
|($M except
    per boe and per mcf) |  | 2012                   |         |  | 2012         |  |         | 2011           |  |  | Q3/12        | 
|Crude oil & NGLs                    |  |                        | 196,286 |  |              |  | 243,471 |                |  |  | 227,166      | 
|Per boe                             |  |                        | 96.74   |  |              |  | 100.70  |                |  |  | 105.49       | 
|Natural gas                         |  |                        | 44,947  |  |              |  | 41,367  |                |  |  | 48,006       | 
|Per mcf                             |  |                        | 7.15    |  |              |  | 6.12    |                |  |  | 6.57         | 
|Petroleum and natural gas sales     |  |                        | 241,233 |  |              |  | 284,838 |                |  |  | 275,172      | 
|Per boe                             |  |                        | 78.40   |  |              |  | 80.35   |                |  |  | 81.60        | 



|                        |  | Three
    Months Ended |        |  | %
    change |  |         | Year
    Ended |  |  | %
    change | 
|----------------------- |  | ---------------------- | ------ |  | ------------ |  | ------- | -------------- |  |  | ------------ | 
|By country              |  | Dec 31,                |        |  | Sept 30,     |  |         | Dec 31,        |  |  | Q4/12 vs.    | 
|($M except
    per boe) |  | 2012                   |        |  | 2012         |  |         | 2011           |  |  | Q3/12        | 
|Canada                  |  |                        | 77,476 |  |              |  | 71,268  |                |  |  | 82,342       | 
|Per boe                 |  |                        | 58.80  |  |              |  | 53.61   |                |  |  | 59.03        | 
|France                  |  |                        | 87,702 |  |              |  | 102,369 |                |  |  | 82,707       | 
|Per boe                 |  |                        | 102.26 |  |              |  | 104.95  |                |  |  | 112.71       | 
|Netherlands             |  |                        | 31,260 |  |              |  | 30,386  |                |  |  | 33,753       | 
|Per boe                 |  |                        | 60.96  |  |              |  | 56.88   |                |  |  | 62.95        | 
|Australia               |  |                        | 44,795 |  |              |  | 80,815  |                |  |  | 76,370       | 
|Per boe                 |  |                        | 115.22 |  |              |  | 114.44  |                |  |  | 108.00       | 



Vermilion’s
consolidated petroleum and natural gas sales for the three months ended December 31, 2012 were lower than both the three months
ended September 30, 2012 and December 31, 2011. The quarter-over-quarter and year-over-year decreases were primarily the result
of lower sold volumes in both France and Australia as a result of a build in inventory during December of 2012. On a year-over-year
basis, the impact of the inventory build was partially offset by increased production in France, resulting from the acquisition
in January of 2012.



Consolidated
petroleum and natural gas sales for the year ended December 31, 2012 were higher than the previous year. This increase was driven
largely by higher production in both Canada and France as a result of Vermilion’s continued Cardium development and the
acquisition of producing properties in January of 2012. These increases were partially offset by lower production in Australia
and weaker Canadian crude oil and natural gas prices year-over-year.



11







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



CRUDE
OIL INVENTORY



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



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



|                            |  | Three Months Ended |          |   | Year Ended | 
|--------------------------- |  | ------------------ | -------- | - | ---------- | 
|                            |  | Dec 31,            |          |   | Sept 30,   | 
|(bbls)                      |  | 2012               |          |   | 2012       | 
|France                      |  |                    |          |   |            | 
|Opening crude oil inventory |  |                    | 245,995  |   |            | 
|Crude oil production        |  |                    | 905,560  |   |            | 
|Crude oil sales             |  |                    | (797,638 | ) |            | 
|Closing crude oil inventory |  |                    | 353,917  |   |            | 
|Australia                   |  |                    |          |   |            | 
|Opening crude oil inventory |  |                    | 116,849  |   |            | 
|Crude oil production        |  |                    | 540,331  |   |            | 
|Crude oil sales             |  |                    | (388,772 | ) |            | 
|Closing crude oil inventory |  |                    | 268,408  |   |            | 



Inventory
as at December 31, 2012 was comprised of the following components:



|($M)              |  | France |        |  | Australia |  |        | Total | 
|----------------- |  | ------ | ------ |  | --------- |  | ------ | ----- | 
|Operating expense |  |        | 6,304  |  |           |  | 7,305  |       | 
|Royalties         |  |        | 1,757  |  |           |  | -      |       | 
|Depletion         |  |        | 6,397  |  |           |  | 3,956  |       | 
|                  |  |        | 14,458 |  |           |  | 11,261 |       | 



12







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



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.



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.



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.



|Risk Management - Natural Gas |  | Funded Cost ($/GJ) |      |  | GJ/d |  |       | Strike Price(s) $/GJ
|----------------------------- |  | ------------------ | ---- |  | ---- |  | ----- | --------------------
|Collar - AECO (Physical)      |  |                    |      |  |      |  |       |                     
|April 2012 - March 2014       |  |                    | 0.10 |  |      |  | 5,500 |                     
|June 2012 - March 2014        |  |                    | 0.10 |  |      |  | 3,000 |                     



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



The
following table summarizes the impact of derivative instruments on cash flows from operating activities:



|                                        |  | Three Months Ended |       |  | % change |  |       | Year Ended |  |  | % change  | 
|--------------------------------------- |  | ------------------ | ----- |  | -------- |  | ----- | ---------- |  |  | --------- | 
|                                        |  | Dec 31,            |       |  | Sept 30, |  |       | Dec 31,    |  |  | Q4/12 vs. | 
|($M except per boe)                     |  | 2012               |       |  | 2012     |  |       | 2011       |  |  | Q3/12     | 
|Realized loss on derivative instruments |  |                    | 1,559 |  |          |  | 1,869 |            |  |  | 6,115     | 
|Per boe                                 |  |                    | 0.51  |  |          |  | 0.53  |            |  |  | 1.81      | 



The
realized loss on derivative instruments was lower in the fourth quarter of 2012 as compared to both the third quarter of 2012
and the fourth quarter of 2011 due to weaker crude oil prices relative to the ceiling on certain derivative instruments pertaining
to 2012. During the current quarter, crude oil prices were generally lower than the ceiling price of Vermilion’s derivative
instruments and as such the realized loss related primarily to premiums paid on funded collars and put options.



13







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



ROYALTIES



|                                         |  | Three
    Months Ended |        |   | %
    change |  |        | Year
    Ended |  |  | %
    change |  
|---------------------------------------- |  | ---------------------- | ------ | - | ------------ |  | ------ | -------------- |  |  | ------------ | -
|By product                               |  | Dec 31,                |        |   | Sept 30,     |  |        | Dec 31,        |  |  | Q4/12 vs.    |  
|($M
    except per boe and per mcf)      |  | 2012                   |        |   | 2012         |  |        | 2011           |  |  | Q3/12        |  
|Crude oil & NGLs                         |  |                        | 11,429 |   |              |  | 12,087 |                |  |  | 14,233       |  
|Per boe                                  |  |                        | 5.63   |   |              |  | 5.00   |                |  |  | 6.61         |  
|Natural gas                              |  |                        | 509    |   |              |  | 276    |                |  |  | 772          |  
|Per mcf                                  |  |                        | 0.08   |   |              |  | 0.04   |                |  |  | 0.11         |  
|Royalties                                |  |                        | 11,938 |   |              |  | 12,363 |                |  |  | 15,005       |  
|Per boe                                  |  |                        | 3.88   |   |              |  | 3.49   |                |  |  | 4.45         |  
|% of petroleum and natural
    gas sales |  |                        | 4.9    | % |              |  | 4.3    | %              |  |  | 5.5          | %



|                                         |  | Three
    Months Ended |       |   | %
    change |  |       | Year
    Ended |  |  | %
    change |  
|---------------------------------------- |  | ---------------------- | ----- | - | ------------ |  | ----- | -------------- |  |  | ------------ | -
|By country                               |  | Dec 31,                |       |   | Sept 30,     |  |       | Dec 31,        |  |  | Q4/12 vs.    |  
|($M
    except per boe)                  |  | 2012                   |       |   | 2012         |  |       | 2011           |  |  | Q3/12        |  
|Canada                                   |  |                        | 7,401 |   |              |  | 7,081 |                |  |  | 10,176       |  
|Per boe                                  |  |                        | 5.62  |   |              |  | 5.33  |                |  |  | 7.29         |  
|% of petroleum and natural
    gas sales |  |                        | 9.6   | % |              |  | 9.9   | %              |  |  | 12.4         | %
|France                                   |  |                        | 4,537 |   |              |  | 5,282 |                |  |  | 4,829        |  
|Per boe                                  |  |                        | 5.29  |   |              |  | 5.42  |                |  |  | 6.58         |  
|% of petroleum and natural
    gas sales |  |                        | 5.2   | % |              |  | 5.2   | %              |  |  | 5.8          | %



In
Canada, royalties as a percentage of sales for the three months ended December 31, 2012 was 9.6% as compared to 9.9% for the prior
quarter and 12.4% for the comparative period of the prior year. Low natural gas pricing in 2011 and 2012 resulted in minimal natural
gas royalties for those periods. Crude oil and NGL royalties as a percentage of sales for the current quarter of 10.4% were consistent
with the rate of 10.9% for the prior quarter but have decreased from 13.7% for the fourth quarter of 2011 due to lower royalty
rates levied on initial production volumes from Vermilion’s horizontal Cardium wells. As Vermilion’s production mix
has continued to shift toward these types of wells, the Company’s crude oil and NGL royalty expense as a percentage of sales
has declined. Crude oil and NGL royalties as a percentage of sales for the year ended December 31, 2012 decreased to 11.5% from
16.0% for the prior year reflecting additional wells being put on production that benefit from this royalty incentive.



In
France, the primary portion of the royalties is levied in Euros and is based on units of production and therefore is not subject
to changes in commodity prices. France royalties as a percentage of sales remained constant at 5.2% for the third and fourth quarters
of 2012. Royalties as a percentage of sales for the three and twelve months ended December 31, 2012 decreased to 5.2% and 5.3%,
respectively, as compared to 5.8% and 5.9% for the same periods of the prior year due to the impact of a weakened Euro year-over-year.



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



14







|Vermilion
    Energy Inc. | 2012
    Management’s Discussion and Analysis – Exhibit 99.2
|------------------------- | ------------------------------------------------------------



OPERATING
EXPENSE



|                                    |  | Three
    Months Ended |        |  | %
    change |  |        | Year
    Ended |  |  | %
    change | 
|----------------------------------- |  | ---------------------- | ------ |  | ------------ |  | ------ | -------------- |  |  | ------------ | 
|By product                          |  | Dec 31,                |        |  | Sept 30,     |  |        | Dec 31,        |  |  | Q4/12 vs.    | 
|($M
    except per boe and per mcf) |  | 2012                   |        |  | 2012         |  |        | 2011           |  |  | Q3/12        | 
|Crude oil & NGLs                    |  |                        | 31,212 |  |              |  | 36,889 |                |  |  | 29,249       | 
|Per boe                             |  |                        | 15.38  |  |              |  | 15.26  |                |  |  | 13.58        | 
|Natural gas                         |  |                        | 12,422 |  |              |  | 10,141 |                |  |  | 11,264       | 
|Per mcf                             |  |                        | 1.98   |  |              |  | 1.50   |                |  |  | 1.54         | 
|Operating                           |  |                        | 43,634 |  |              |  | 47,030 |                |  |  | 40,513       | 
|Per boe                             |  |                        | 14.18  |  |              |  | 13.27  |                |  |  | 12.01        | 



|                        |  | Three
    Months Ended |        |  | %
    change |  |        | Year
    Ended |  |  | %
    change | 
|----------------------- |  | ---------------------- | ------ |  | ------------ |  | ------ | -------------- |  |  | ------------ | 
|By country              |  | Dec 31,                |        |  | Sept 30,     |  |        | Dec 31,        |  |  | Q4/12 vs.    | 
|($M
    except per boe) |  | 2012                   |        |  | 2012         |  |        | 2011           |  |  | Q3/12        | 
|Canada                  |  |                        | 14,514 |  |              |  | 13,420 |                |  |  | 11,970       | 
|Per boe                 |  |                        | 11.01  |  |              |  | 10.10  |                |  |  | 8.58         | 
|France                  |  |                        | 13,699 |  |              |  | 12,351 |                |  |  | 11,381       | 
|Per boe                 |  |                        | 15.97  |  |              |  | 12.66  |                |  |  | 15.51        | 
|Netherlands             |  |                        | 5,713  |  |              |  | 3,870  |                |  |  | 5,141        | 
|Per boe                 |  |                        | 11.14  |  |              |  | 7.24   |                |  |  | 9.59         | 
|Australia               |  |                        | 9,708  |  |              |  | 17,389 |                |  |  | 12,021       | 
|Per boe                 |  |                        | 24.97  |  |              |  | 24.62  |                |  |  | 17.00        | 



In
Canada, fourth quarter operating expense of $14.5 million was higher than the $13.4 million for the third quarter of 2012 and
the $12.0 million for the fourth quarter of 2011 due to two facility turnarounds that occurred during the fourth quarter of this
year. Canadian operating expense increased to $55.4 million for the year ended December 31, 2012 from $51.5 million for the prior
year as a result of costs related to an oil processing facility that was commissioned in 2011 to handle Cardium oil volumes as
well as additional downhole work. On a per boe basis, quarter-over-quarter operating expense increased due to the aforementioned
turnarounds. Operating costs per boe for the three months ended December 31, 2012, as compared to the same period in the prior
year, increased by $2.43 as a result of the turnaround activity in the fourth quarter of 2012 plus additional downhole work year-over-year.
For the full year, operating costs per boe decreased by $0.66 due to significantly higher production volumes.



In
France, fourth quarter operating expense of $13.7 million was higher than both the third quarter expense of $12.4 million and
the expense of $11.4 million for the fourth quarter of 2011 due to increased downhole and maintenance work. Higher expenditures
resulted in increased costs per boe for the current quarter versus the previous quarter. As compared to the previous year, higher
sales volumes minimized the increase on a per boe basis. For the twelve months ended December 31, 2012 operating costs increased
to $54.9 million from $46.9 million for the corresponding period in the prior year due to the acquisition of producing properties
in the first quarter of 2012. The increased volumes associated with this acquisition resulted in operating expense per boe decreasing
to $14.86 for the year ended December 31, 2012 from $15.55 in the prior year.



In
the Netherlands, operating expense for the three months ended December 31, 2012 of $5.7 million increased from $3.9 million in
the prior quarter and from $5.1 million for the fourth quarter of 2011 due to the timing of project work. For the year ended December
31, 2012 operating expense increased to $19.1 million as compared to $17.5 million for the prior year primarily as a result of
higher electricity usage related to the Vinkega-2 well. Operating expense per boe for the three and twelve months ended December
31, 2012 increased in comparison to the same periods of the prior year due to these higher expenditures and relatively consistent
sales volumes. Quarter-over-quarter operating costs per boe increased due to higher expenditures and slightly lower sales volumes.



In
Australia, fourth quarter operating expense decreased to $9.7 million from the previous quarter’s expense of $17.4 million
due to an increase in crude oil inventory associated with shipment timing. An increase in crude oil inventory results in the related
production costs being carried on the balance sheet until the product is sold. Operating costs were further decreased quarter-over-quarter
as the platform ran on diesel for fewer days during the fourth quarter as compared to the third quarter. Operating expense for
the year ended December 31, 2012 increased as compared to the prior year due to higher compensation costs. On a per boe basis,
quarter-over-quarter operating expenses remained consistent. However, fourth quarter 2012 operating expense per boe of $24.97
was higher than the $17.00 for the fourth quarter of the prior year due to lower volumes. For the year ended December 31, 2012,
operating expense per boe was higher than the prior year due to increased maintenance costs coupled with a decrease in volumes.



15







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



TRANSPORTATION EXPENSE



|                    |  | Three Months Ended |       |  | % change |  |       |         | Year Ended |  |           | % change | 
|------------------- |  | ------------------ | ----- |  | -------- |  | ----- | ------- | ---------- |  | --------- | -------- | 
|By country          |  | Dec 31,            |       |  | Sept 30, |  |       | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe) |  | 2012               |       |  | 2012     |  |       | 2011    |            |  | Q3/12     |          | 
|Canada              |  |                    | 1,922 |  |          |  | 2,005 |         |            |  | 1,972     |          | 
|Per boe             |  |                    | 1.46  |  |          |  | 1.51  |         |            |  | 1.41      |          | 
|France              |  |                    | 1,854 |  |          |  | 1,840 |         |            |  | 2,955     |          | 
|Per boe             |  |                    | 2.16  |  |          |  | 1.89  |         |            |  | 4.03      |          | 
|Ireland             |  |                    | 1,682 |  |          |  | 1,899 |         |            |  | 2,101     |          | 
|Transportation      |  |                    | 5,458 |  |          |  | 5,744 |         |            |  | 7,028     |          | 
|Per boe             |  |                    | 1.77  |  |          |  | 1.62  |         |            |  | 2.08      |          | 



Transportation expense is a function of
the point of legal transfer of the product and is dependent upon where the product is sold, product split, location of properties
and industry transportation rates that are driven by supply and demand of available transport capacity.



For the majority of Canadian crude oil
and natural gas production, transportation expense relates to the delivery to major pipelines where legal title transfers. In France,
the majority of Vermilion’s transportation expense relates to production from the Aquitaine Basin, which is transported by
pipeline to the Ambès terminal in Bordeaux and then shipped by tanker to refineries in North Western Europe, where the production
is sold once unloaded from the tanker. In Australia, crude oil is sold directly from the Wandoo B Platform and in the Netherlands,
gas is sold at the plant gate, resulting in no transportation expense relating to Vermilion’s production in these countries.



Transportation expense for Ireland pertains
to the amount due under a ship or pay agreement related to the Corrib project. However, as there is a ceiling on the total payments
due in relation to the associated pipeline, these expenses essentially represent a prepayment for future pipeline transportation
services.



Consolidated transportation expense for
the fourth quarter of 2012 was slightly lower than the expense for the third quarter of 2012. This quarter-over-quarter decrease
was primarily as a result of lower payments under the ship or pay agreement related to the Corrib project.



Consolidated transportation expense for
the three months ended December 31, 2012 was lower than the same period in the prior year. This decrease was primarily in France
as a result of a reduced number of Aquitaine shipments due to the usage of higher volume cargo vessels in 2012.



Consolidated transportation expense for
the year ended December 31, 2012 was slightly lower than the expense for 2011. The decrease was a result of lower transportation
expense in France and Ireland, as discussed above, offset partially by higher transportation expense in Canada due to increased
volumes.



OTHER EXPENSE (INCOME)



|                       |  | Three Months Ended |      |  | % change |  |       |         | Year Ended |  |           | % change | 
|---------------------- |  | ------------------ | ---- |  | -------- |  | ----- | ------- | ---------- |  | --------- | -------- | 
|                       |  | Dec 31,            |      |  | Sept 30, |  |       | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)    |  | 2012               |      |  | 2012     |  |       | 2011    |            |  | Q3/12     |          | 
|Other expense (income) |  |                    | 460  |  |          |  | (277  | )       |            |  | (787      | )        | 
|Per boe                |  |                    | 0.15 |  |          |  | (0.08 | )       |            |  | (0.24     | )        | 



For the year ended December 31, 2012, other
expense was comprised primarily of $8.5 million relating to transfer taxes paid to regulatory authorities in France pursuant to
the acquisition, in the first quarter of 2012, of certain working interests in six producing fields located in the Paris and Aquitaine
basins in France.



16







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



GENERAL AND ADMINISTRATION EXPENSE



|                           |  | Three Months Ended |       |  | % change |  |        |         | Year Ended |  |           | % change | 
|-------------------------- |  | ------------------ | ----- |  | -------- |  | ------ | ------- | ---------- |  | --------- | -------- | 
|                           |  | Dec 31,            |       |  | Sept 30, |  |        | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)        |  | 2012               |       |  | 2012     |  |        | 2011    |            |  | Q3/12     |          | 
|General and administration |  |                    | 8,888 |  |          |  | 12,669 |         |            |  | 9,753     |          | 
|Per boe                    |  |                    | 2.89  |  |          |  | 3.57   |         |            |  | 2.89      |          | 



General and administration expense for
the fourth quarter of 2012 was lower than the expense for both the previous quarter and the fourth quarter of the prior year largely
due to the timing of expenditures and higher capital overhead recoveries.  General and administration expense for the year
ended December 31, 2012 remained consistent as compared to the prior year.



EQUITY BASED COMPENSATION EXPENSE



|                          |  | Three Months Ended |        |  | % change |  |       |         | Year Ended |  |           | % change | 
|------------------------- |  | ------------------ | ------ |  | -------- |  | ----- | ------- | ---------- |  | --------- | -------- | 
|                          |  | Dec 31,            |        |  | Sept 30, |  |       | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)       |  | 2012               |        |  | 2012     |  |       | 2011    |            |  | Q3/12     |          | 
|Equity based compensation |  |                    | 18,484 |  |          |  | 8,704 |         |            |  | 16,150    |          | 
|Per boe                   |  |                    | 6.01   |  |          |  | 2.46  |         |            |  | 4.79      |          | 



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



Equity based compensation expense for the
three months ended December 31, 2012 was higher than both the prior quarter and the same quarter in 2011 primarily as a result
of a change in performance factor assumptions in the current quarter. Performance factors are determined annually 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 change in the performance factor assumptions
in the fourth quarter reflected information that was more readily available in the latter part of the fiscal year regarding Vermilion’s
2012 performance.



INTEREST EXPENSE



|                    |  | Three Months Ended |       |  | % change |  |       |         | Year Ended |  |           | % change | 
|------------------- |  | ------------------ | ----- |  | -------- |  | ----- | ------- | ---------- |  | --------- | -------- | 
|                    |  | Dec 31,            |       |  | Sept 30, |  |       | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe) |  | 2012               |       |  | 2012     |  |       | 2011    |            |  | Q3/12     |          | 
|Interest expense    |  |                    | 7,656 |  |          |  | 7,229 |         |            |  | 6,365     |          | 
|Per boe             |  |                    | 2.49  |  |          |  | 2.04  |         |            |  | 1.89      |          | 



Interest expense increased during the current
quarter as compared to both the prior quarter and same quarter in the previous year primarily due to increased borrowings under
Vermilion’s revolving credit facility. Interest expense increased during 2012 as compared to 2011 as a result of higher debt
levels, including the impact of the 6.5% senior unsecured notes, issued in February of 2011, being outstanding for all of 2012.



17







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



DEPLETION AND DEPRECIATION, ACCRETION, IMPAIRMENTS AND GAIN
ON ACQUISITION



|                           |  | Three Months Ended |        |  | % change |  |        |         | Year Ended |  |           | % change | 
|-------------------------- |  | ------------------ | ------ |  | -------- |  | ------ | ------- | ---------- |  | --------- | -------- | 
|                           |  | Dec 31,            |        |  | Sept 30, |  |        | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)        |  | 2012               |        |  | 2012     |  |        | 2011    |            |  | Q3/12     |          | 
|Depletion and depreciation |  |                    | 66,642 |  |          |  | 76,941 |         |            |  | 64,895    |          | 
|Per boe                    |  |                    | 21.66  |  |          |  | 21.70  |         |            |  | 19.24     |          | 
|Accretion                  |  |                    | 6,119  |  |          |  | 5,891  |         |            |  | 5,793     |          | 
|Per boe                    |  |                    | 1.99   |  |          |  | 1.66   |         |            |  | 1.72      |          | 
|Impairments                |  |                    | -      |  |          |  | -      |         |            |  | 64,400    |          | 
|Per boe                    |  |                    | -      |  |          |  | -      |         |            |  | 19.10     |          | 
|Gain on acquisition        |  |                    | -      |  |          |  | -      |         |            |  | -         |          | 
|Per boe                    |  |                    | -      |  |          |  | -      |         |            |  | -         |          | 



Depletion and depreciation expense on a
per boe basis was relatively consistent for the three months ended December 31, 2012 as compared to the three months ended September
30, 2012. On a year-over-year basis, depletion and depreciation expense on a per boe basis was higher primarily due to the result
of higher finding, development and acquisition costs incurred. These increased costs were the result of additional liquids development
in Canada and the acquisition of six producing fields in France in January of 2012.



Accretion expense increased for the fourth
quarter of 2012 as compared to the third quarter of 2012. The increase quarter-over-quarter was primarily the result of the impact
of the appreciation of the Euro against the Canadian dollar on Euro denominated accretion expense in France, Ireland and the Netherlands.
Accretion expense was higher for both the three months and year ended December 31, 2012 as compared to the same periods in 2011
due to an increase in asset retirement obligations.



The impairment losses for both the years
ended December 31, 2012 and 2011 pertain to impairment losses recorded on Vermilion’s conventional deep gas and shallow coal
bed methane natural gas plays. These impairment charges were the result of significant declines in the forward pricing assumptions
for natural gas in Canada.



The gain on acquisition for the year ended
December 31, 2012 relates to Vermilion’s acquisition of certain working interests in the Paris and Aquitaine basins in France
during the first quarter of 2012. The gain arose as a result of the increase in the fair value of the acquired petroleum and natural
gas reserves from the time when the acquisition was negotiated to the acquisition date. The increase resulted from a change in
the underlying commodity price forecasts used to determine the fair value of the acquired reserves.



TAXES



|                          |  | Three Months Ended |        |  | % change |  |        |         | Year Ended |  |           | % change | 
|------------------------- |  | ------------------ | ------ |  | -------- |  | ------ | ------- | ---------- |  | --------- | -------- | 
|By classification         |  | Dec 31,            |        |  | Sept 30, |  |        | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)       |  | 2012               |        |  | 2012     |  |        | 2011    |            |  | Q3/12     |          | 
|Current taxes before PRRT |  |                    | 21,470 |  |          |  | 38,784 |         |            |  | 33,446    |          | 
|Per boe                   |  |                    | 6.98   |  |          |  | 10.94  |         |            |  | 9.92      |          | 
|PRRT                      |  |                    | 1,598  |  |          |  | 22,743 |         |            |  | 21,541    |          | 
|Per boe                   |  |                    | 0.52   |  |          |  | 6.42   |         |            |  | 6.39      |          | 
|Current taxes             |  |                    | 23,068 |  |          |  | 61,527 |         |            |  | 54,987    |          | 
|Per boe                   |  |                    | 7.50   |  |          |  | 17.36  |         |            |  | 16.31     |          | 
|                          |  |                    |        |  |          |  |        |         |            |  |           |          | 
|                          |  | Three Months Ended |        |  | % change |  |        |         | Year Ended |  |           | % change | 
|By country                |  | Dec 31,            |        |  | Sept 30, |  |        | Dec 31, |            |  | Q4/12 vs. |          | 
|($M except per boe)       |  | 2012               |        |  | 2012     |  |        | 2011    |            |  | Q3/12     |          | 
|Canada                    |  |                    | 259    |  |          |  | 36     |         |            |  | (783      | )        | 
|Per boe                   |  |                    | 0.20   |  |          |  | 0.03   |         |            |  | (0.56     | )        | 
|France                    |  |                    | 13,335 |  |          |  | 21,051 |         |            |  | 17,738    |          | 
|Per boe                   |  |                    | 15.55  |  |          |  | 21.58  |         |            |  | 24.17     |          | 
|Netherlands               |  |                    | 1,102  |  |          |  | 9,614  |         |            |  | 6,431     |          | 
|Per boe                   |  |                    | 2.15   |  |          |  | 18.00  |         |            |  | 11.99     |          | 
|Australia                 |  |                    | 8,372  |  |          |  | 30,826 |         |            |  | 31,601    |          | 
|Per boe                   |  |                    | 21.53  |  |          |  | 43.66  |         |            |  | 44.69     |          | 



18







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



Vermilion pays current taxes in France,
the Netherlands and Australia. Corporate income taxes in France and the Netherlands apply to taxable income after eligible deductions.
In France, taxable income is taxed at a rate of approximately 34.4%, plus an additional profit tax of 1.7% levied from 2012 to
2014 if annual gross revenues exceed 250 million Euros. In the Netherlands, taxable income is taxed at a rate of approximately
46%. As a function of the impact of Vermilion’s Canadian tax pools, the Company does not presently pay current taxes in Canada.
The Canadian segment includes holding companies that pay current taxes in foreign jurisdictions.



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



Total current taxes before PRRT for the
year ended December 31, 2012 were relatively unchanged as compared to the same period in 2011 due to the offsetting impact of increased
taxes in the Netherlands and decreased taxes in Australia. In the Netherlands, current taxes increased due to the absence of a
2011 tax incentive which allowed Vermilion to accelerate the rate of depreciation of certain assets. In Australia, current taxes
before PRRT decreased due to lower revenues.



Total current taxes before PRRT for the
fourth quarter of 2012 were lower than both the third quarter of 2012 and the fourth quarter of 2011. The decrease was primarily
a result of deductions for asset retirement obligations and depletion recorded in the fourth quarter of 2012.



PRRT decreased for the three months and
year ended December 31, 2012 compared to the same periods in the prior year. The year-over-year decreases were primarily a result
of lower revenues and higher capital expenditures in Australia. On a quarter over quarter basis, PRRT was lower for the fourth
quarter as compared to the third quarter. This decrease is primarily attributable to the inventory build in the fourth quarter,
which significantly reduced revenues for the Australia segment.



As at December 31, 2012, Vermilion had the following tax pools:



|($M)        |  | Oil & Gas Assets |           |   | Tax Losses4 |  |         | Other |  |  | Total  | 
|----------- |  | ---------------- | --------- | - | ----------- |  | ------- | ----- |  |  | ------ | 
|Canada      |  |                  | 802,741   | 1 |             |  | 418,927 |       |  |  | 19,062 | 
|France      |  |                  | 289,430   | 2 |             |  | 35,059  |       |  |  | -      | 
|Netherlands |  |                  | 30,475    | 3 |             |  | -       |       |  |  | -      | 
|Australia   |  |                  | 220,641   | 1 |             |  | -       |       |  |  | -      | 
|Ireland     |  |                  | 670,841   | 4 |             |  | 186,724 |       |  |  | -      | 
|Total       |  |                  | 2,014,128 |   |             |  | 640,710 |       |  |  | 19,062 | 

| | 1 | Deduction calculated using various declining balance rates
| | - | ----------------------------------------------------------

| | 2 | Deduction calculated using a combination of straight-line
over the assets life and unit of production method
| | - | ------------------------------------------------------------------------------------------------------------

| | 3 | Deduction calculated using a unit of production method
| | - | ------------------------------------------------------

| | 4 | Development expenditures and losses are deductible at 100%
against taxable income
| | - | ---------------------------------------------------------------------------------



FOREIGN EXCHANGE



|                                        |  | Three Months Ended |         |   |          | Year Ended |      
|--------------------------------------- |  | ------------------ | ------- | - | -------- | ---------- | -----
|                                        |  | Dec 31,            |         |   | Sept 30, |            |      
|($M except per boe)                     |  | 2012               |         |   | 2012     |            |      
|Unrealized foreign exchange (gain) loss |  |                    | (13,873 | ) |          |            | 6,740
|Per boe                                 |  |                    | (4.50   | ) |          |            | 1.89 
|Realized foreign exchange gain          |  |                    | (2,459  | ) |          |            | (410 
|Per boe                                 |  |                    | (0.81   | ) |          |            | (0.11
|Foreign exchange (gain) loss            |  |                    | (16,332 | ) |          |            | 6,330
|Per boe                                 |  |                    | (5.31   | ) |          |            | 1.78 



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



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



19







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



For the three months ended December 31,
2012, the unrealized foreign exchange gain primarily resulted from the impact of the depreciation of the Canadian dollar against
the Euro and the resultant impact on Euro denominated loans made by Vermilion to its subsidiaries.



NET EARNINGS



For the three months and year ended December
31, 2012, Vermilion had net earnings of $56.9 million or $0.58 per share and $190.6 million or $1.94 per share, respectively (three
months and year ended December 31, 2011, net loss of $30.2 million or $0.32 per share and net earnings of $142.8 million or $1.57
per share, respectively).



Vermilion’s net earnings for the
year ended December 31, 2012 increased over 33% from 2011. The increase in net earnings was driven in part by a shift in the Company’s
commodity mix in favor of higher value crude oil and European gas production while reducing exposure to depressed Canadian natural
gas prices. This commodity shift resulted from Vermilion’s continued Canadian Cardium development and acquisitions of Brent-based
crude properties in France during the first and fourth quarters of 2012. In addition, Vermilion recorded a gain on acquisition
on the first quarter of 2012 acquisition in France and lower unrealized losses on foreign exchange year-over-year. Vermilion’s
net earnings for the three months ended December 31, 2012 similarly increased over the net loss from 2011. This change was primarily
the result of the aforementioned commodity mix shift coupled with the absence of the impairment that was recorded in the fourth
quarter of 2011 related to Vermilion’s conventional deep gas and shallow coal bed methane natural gas plays.



SUMMARY OF RESULTS



|                                |  | Year Ended   |          
|------------------------------- |  | ------------ | ---------
|($M except per share)           |  | Dec 31, 2012 |          
|Petroleum and natural gas sales |  |              | 1,083,103
|Net earnings                    |  |              | 190,622  
|Net earnings per share          |  |              |          
|Basic                           |  |              | 1.94     
|Diluted                         |  |              | 1.92     
|Total assets                    |  |              | 3,076,257
|Long-term debt                  |  |              | 642,022  
|Cash dividends ($/share)        |  |              | 2.28     



|                                |  | Three Months Ended |        
|------------------------------- |  | ------------------ | -------
|                                |  | Dec 31,            |        
|($M except per share)           |  | 2012               |        
|Petroleum and natural gas sales |  |                    | 241,233
|Net earnings (loss)             |  |                    | 56,914 
|Net earnings (loss) per share   |  |                    |        
|Basic                           |  |                    | 0.58   
|Diluted                         |  |                    | 0.57   



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



20







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES



Vermilion’s net debt as at December 31, 2012 was $677.2
million compared to $429.0 million as at December 31, 2011.



Long-term debt was comprised of the following balances as at
December 31, 2012 and December 31, 2011:



|                          |  | As At   |        
|------------------------- |  | ------- | -------
|                          |  | Dec 31, |        
|($M)                      |  | 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.



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%.



CONTRACTUAL OBLIGATIONS AND COMMITMENTS



As at December 31, 2012, Vermilion had the following contractual
obligations and commitments:



|($M)                                                 |  | Less than 1 year |        |  | 1 - 3 years |  |         | 3 - 5 years |  |  | After 5 years |  |  | Total |       
|---------------------------------------------------- |  | ---------------- | ------ |  | ----------- |  | ------- | ----------- |  |  | ------------- |  |  | ----- | ------
|Long-term debt                                       |  |                  | 13,406 |  |             |  | 449,034 |             |  |  | 226,625       |  |  |       | -     
|Operating lease obligations                          |  |                  | 9,178  |  |             |  | 17,941  |             |  |  | 14,924        |  |  |       | 34,006
|Ship or pay agreement relating to the Corrib project |  |                  | 6,374  |  |             |  | 10,377  |             |  |  | 8,280         |  |  |       | 35,548
|Purchase obligations                                 |  |                  | 18,529 |  |             |  | 9,417   |             |  |  | 997           |  |  |       | -     
|Drilling and service agreements                      |  |                  | 14,702 |  |             |  | -       |             |  |  | -             |  |  |       | -     
|Total contractual obligations                        |  |                  | 62,189 |  |             |  | 486,769 |             |  |  | 250,826       |  |  |       | 69,554



21







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



ASSET RETIREMENT OBLIGATIONS



As at December 31, 2012, Vermilion’s
asset retirement obligations were $371.1 million compared to $310.5 million as at December 31, 2011.



The increase in asset retirement obligations
is largely attributable to liabilities acquired pursuant to the two acquisitions in France during the first and fourth quarters
of 2012.



DIVIDENDS



|                                                                       |  | Three Months Ended |        |  |  | Year Ended |  |         | Year Ended | 
|---------------------------------------------------------------------- |  | ------------------ | ------ |  |  | ---------- |  | ------- | ---------- | 
|                                                                       |  | Dec 31,            |        |  |  | Dec 31,    |  |         | Dec 31,    | 
|($M)                                                                   |  | 2012               |        |  |  | 2012       |  |         | 2011       | 
|Cash flows from operating activities                                   |  |                    | 99,907 |  |  |            |  | 496,580 |            | 
|Net earnings                                                           |  |                    | 56,914 |  |  |            |  | 190,622 |            | 
|Dividends declared                                                     |  |                    | 56,435 |  |  |            |  | 223,717 |            | 
|Excess of cash flows from operating activities over dividends declared |  |                    | 43,472 |  |  |            |  | 272,863 |            | 
|Excess (shortfall) of net earnings over dividends declared             |  |                    | 479    |  |  |            |  | (33,095 | )          | 



During year ended December 31, 2012, Vermilion
maintained monthly dividends at $0.19 per share and declared dividends totalling $223.7 million.



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



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



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



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



SHAREHOLDERS’ EQUITY



During the year ended December 31, 2012,
Vermilion issued 2.7 million shares pursuant to the dividend reinvestment plan and Vermilion’s equity based compensation
programs. Shareholders’ capital increased by $113.2 million as a result of the issuance of those shares.



As at December 31, 2012, there were 99.1
million shares outstanding. As at February 28, 2013, there were 99.4 million shares outstanding.



22







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



CORRIB PROJECT



Vermilion holds an 18.5% non-operating
interest in the offshore Corrib gas field located off the northwest coast of Ireland. Production from Corrib is expected to increase
Vermilion’s volumes by approximately 55 mmcf/d (9,000 boe/d) once the field reaches peak production. Vermilion acquired its
18.5% working interest in the project on July 30, 2009. The project comprises five offshore wells, both offshore and onshore pipeline
segments as well as a significant natural gas processing facility. At the time of the acquisition most of the key components of
the project, with the exception of the onshore pipeline, were either complete or in the latter stages of development. Vermilion’s
interest was acquired for cash consideration of $136.8 million with subsequent capital expenditures to December 31, 2012 of $302.6
million, primarily related to completion of the natural gas processing facility, sub-surface well work, and permitting and preparations
for construction of the onshore pipeline. Furthermore, pursuant to the terms of the acquisition agreement, Vermilion made an additional
payment to the vendor of $134.3 million (US$135 million) at the end of 2012. In 2011, approvals and permissions were granted for
the onshore gas pipeline, with tunneling activities starting late in December of 2012. Vermilion expects to continue significant
capital investment on this project over the next two years and currently expects to achieve initial gas production from this field
in late 2014 and reach peak production levels in mid-2015.



ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED



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



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



IFRS 9 “Financial Instruments”

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



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.



RISKS AND UNCERTAINTIES



Crude oil and natural gas exploration,
production, acquisition and marketing operations involve a number of risks and uncertainties including financial risks and uncertainties.
These include fluctuations in commodity prices, exchange rates and interest rates as well as uncertainties associated with reserve
and resource volumes, sales volumes and government regulatory and income tax regime changes. These and other related risks and
uncertainties are discussed in additional detail below.



Commodity Prices

Vermilion’s operational results and
financial condition is dependent on the prices received by Vermilion for oil and natural gas production. Oil and natural gas prices
have fluctuated significantly during recent years and are determined by supply and demand factors, including weather and general
economic conditions as well as conditions in other oil and natural gas producing regions.



23







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



Exchange Rates

Much of Vermilion’s revenue stream
is priced in U.S. dollars and as such an increase in the strength of the Canadian dollar relative to the U.S. dollar may result
in the receipt of fewer Canadian dollars by Vermilion in respect of its production. In addition, Vermilion incurs expenses and
capital costs in U.S. dollars, Euros and Australian dollars and accordingly, the Canadian dollar equivalent of these expenditures
as reported by Vermilion in its financial results is impacted by the prevailing foreign currency exchange rates at the time the
transaction occurs. Vermilion monitors risks associated with exchange rates and, when appropriate, uses derivative financial instruments
to manage its exposure to these risks.



Production and Sales Volumes

The operation of oil and gas wells and
facilities involves a number of operating and natural hazards which may result in blowouts, environmental damage and other unexpected
or dangerous conditions resulting in damage to Vermilion and possible liability to third parties. Vermilion maintains liability
insurance, where available, in amounts consistent with industry standards. Business interruption insurance may also be purchased
for selected operations, to the extent that such insurance is commercially viable. Vermilion may become liable for damages arising
from such events against which it cannot insure or against which it may elect not to insure because of high premium costs or other
reasons. Costs incurred to repair such damage or pay such liabilities may materially impact Vermilion’s financial results.



Continuing production from a property,
and to some extent the marketing of produced volumes, is largely dependent upon the ability of the operator of the property. To
the extent the operator fails to perform these functions properly, revenue may be reduced. Payments from production generally flow
through the operator and there is a risk of delay and additional expense in receiving such revenues if the operator becomes insolvent.
Although satisfactory title reviews are generally conducted in accordance with industry standards, such reviews do not guarantee
or certify that a defect in the chain of title may not arise to defeat the claim of Vermilion or its subsidiaries to certain properties.
Such circumstances could negatively affect Vermilion’s financial results.



An increase in operating costs or a decline
in Vermilion’s production level could have an adverse effect on Vermilion’s financial results. The level of production
may decline at rates greater than anticipated due to unforeseen circumstances, many of which are beyond Vermilion's control. A
significant decline in production could result in materially lower revenues.



Interest Rates

An increase in interest rates could result in a significant
increase in the amount Vermilion pays to service debt.



Reserve Volumes

Vermilion’s reserve volumes and related
reserve values support the carrying value of Vermilion’s oil and gas assets on the consolidated balance sheets and provide
the basis to calculate the depletion of those assets. There are numerous uncertainties inherent in estimating quantities of reserves
and future net revenues to be derived therefrom, including many factors beyond Vermilion’s control. These include a number
of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of reserves, timing
and amount of capital expenditures, marketability of production, future prices of crude oil, NGLs and natural gas, operating expenses,
well abandonment and salvage values, royalties and any government levies that may be imposed over the producing life of the reserves.
These assumptions were based on estimated prices in use at the date the evaluation was prepared, and many of these assumptions
are subject to change and are beyond Vermilion’s control. Actual production and income derived therefrom will vary from these
evaluations, and such variations could be material.



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 and the related timing may impact Vermilion’s financial position
and results of operations.



Government Regulation and Income Tax Regime

Vermilion's operations are governed by
many levels of government, including municipal, state, provincial and federal governments, in Canada, France, the Netherlands,
Australia and Ireland. Vermilion is subject to laws and regulations regarding health and safety issues, lease interests, taxes
and royalties, among others. Failure to comply with the applicable laws can result in significant increases in costs, penalties
and even losses of operating licences. The regulatory process involved in each of the countries in which Vermilion operates is
not uniform and regulatory regimes vary as to complexity, timeliness of access to, and response from, regulatory bodies and other
matters specific to each jurisdiction. If regulatory approvals or permits are delayed or not obtained, there can also be delays
or abandonment of projects and decreases in production and increases in costs, potentially resulting in Vermilion being unable
to fully execute its strategy. Governments may also amend or create new legislation and regulatory bodies may also amend regulations
or impose additional requirements which could result in increased capital, operating and compliance costs.



There can be no assurance that income tax
laws and government incentive programs relating to the oil and gas industry in Canada and the foreign jurisdictions in which Vermilion
operates, will not be changed in a manner which adversely affects Vermilion’s results of operations.



24







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



A change in the royalty regime resulting
in an increase in royalties would reduce Vermilion's net earnings and could make future capital expenditures or Vermilion's operations
uneconomic and could, in the event of a material increase in royalties, make it more difficult to service and repay outstanding
debt. Any material increase in royalties would also significantly reduce the value of the associated assets.



FINANCIAL RISK MANAGEMENT



To mitigate the aforementioned risks whenever
possible, Vermilion seeks to hire personnel with experience in specific areas. In addition, Vermilion provides continued training
and development to staff to further develop their skills. When appropriate, Vermilion uses third party consultants with relevant
experience to augment its internal capabilities with respect to certain risks.



Vermilion considers its commodity price
risk management program as a form of insurance that protects its cash flow and rate of return. The primary objective of the risk
management program is to support Vermilion’s dividends and its internal capital development program. The level of commodity
price risk management that occurs is highly dependent on the amount of debt that is carried. When debt levels are higher, Vermilion
will be more active in protecting its cash flow stream through its commodity price risk management strategy.



When executing its commodity price risk
management programs, Vermilion uses derivative financial instruments encompassing over-the-counter financial structures as well
as fixed/collar structures to economically hedge a part of its physical oil and gas production. Vermilion has strict controls and
guidelines in relation to these activities and contracts principally with counterparties that have investment grade credit ratings.



CRITICAL ACCOUNTING ESTIMATES



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



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



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.
As a result, depletion and depreciation charges are based on estimates of total proven and probable reserves that Vermilion expects
to recover in the future. The reserve estimates are reviewed annually by management or when material changes occur to the underlying
assumptions.



Asset Retirement Obligations

Vermilion’s estimate of asset retirement obligations are
based on past experience and current economic factors which management believes are reasonable. The estimates include assumptions
of environmental regulations, legal requirements, technological advances, inflation and the timing of expenditures, all of which
impact Vermilion’s measurement of the present value of the obligations. Due to these estimates, the actual cost of the obligation
may change from period to period due to new information being available. Several or all of these estimates are subject to change
and such changes could have a material impact on the financial position and net earnings of Vermilion.



Assessment of Impairments

Impairment tests are performed at the level
of the CGUs, which are determined based on management’s judgment of the lowest level at which there are identifiable cash
inflows which are largely independent of the cash inflows of other groups of assets or properties. The factors used to determine
CGUs vary by country due to the unique operating and geographical circumstances in each jurisdiction. 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 or transport production.



25







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



The calculation of the recoverable amount
of CGUs is based on market factors as well as estimates of PNG reserves and future costs required to develop reserves. Vermilion’s
reserves estimates and the related future cash flows are subject to measurement uncertainty, and the impact on the consolidated
financial statements in 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 from such production.



Taxes

Tax interpretations, regulations and legislation
in the various jurisdictions in which Vermilion and its subsidiaries operate are subject to change. 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 determination of deferred tax amounts recognized in the consolidated
financial statements was based on management’s assessment of the tax positions, including consideration of their technical
merits and communications with tax authorities. The effect of a change in income tax rates or legislation on tax assets and liabilities
is recognized in net earnings of Vermilion in the period in which the change is enacted.



OFF BALANCE SHEET ARRANGEMENTS



Vermilion has certain lease agreements
that are entered into in the normal course of operations, all of which are operating leases and accordingly no asset or liability
value has been assigned to the consolidated balance sheet as at December 31, 2012.



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



ENVIRONMENT, HEALTH AND SAFETY



Vermilion is committed to ensuring it conducts
its activities in a manner that will protect the health and safety of its employees, contractors and the public.  The Company’s
health, safety and environment vision is to fully integrate health, safety and environment into Vermilion’s business, where
its culture is recognized as a model by industry and stakeholders, resulting in a workplace free of incidents.



Vermilion maintains health, safety and
environmental practices and procedures that comply or exceed regulatory requirements and industry standards.  It is a condition
of employment that Vermilion personnel work safely and in accordance with established regulations and procedures.



In 2012, Vermilion remained committed to
the principles of the Responsible Canadian EnergyTM program set out by the Canadian Association of Petroleum Producers. 
Responsible Canadian EnergyTM is an association-wide performance reporting program to demonstrate progress in environmental,
health, safety, and social performance.



Vermilion continued its commitment to reduce
impacts to land, water and air, as policies and procedures demonstrating leadership in these areas, were maintained and further
developed in 2012.  Examples of accomplishments during the year included:



| | - | Continuation of third party audits on our Health Safety and Environment (“HSE”) Management System;
| | - | --------------------------------------------------------------------------------------------------

| | - | Reducing long-term environmental liabilities through decommissioning, abandoning and reclaiming well leases and facilities;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | - | Continuous auditing and management inspections;
| | - | -----------------------------------------------

| | - | Development, communication and measurement against leading and lagging HSE key performance indicators;
| | - | ------------------------------------------------------------------------------------------------------

| | - | Managing our waste products by reducing, recycling and recovering; and
| | - | ----------------------------------------------------------------------

| | - | Continuing risk management efforts in addition to detailed emergency-response planning.
| | - | ---------------------------------------------------------------------------------------



Vermilion is a member of several organizations
concerned with environment, health and safety, including numerous regional co-operatives and synergy groups.  In the area
of stakeholder relations, Vermilion works to build long-term relationships with environmental stakeholders and communities.



26







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



SENSITIVITIES



Crude oil and natural gas prices may change
significantly because of factors Vermilion cannot control. The following table provides a summary of estimated sensitivities to
price fluctuations for pro-forma production levels and expenses.



|                                                    |  | Change in Cash Available for
Dividends ($/share) |      |  | Change in Cash Available for
Dividends ($MM) | 
|--------------------------------------------------- |  | ------------------------------------------------ | ---- |  | -------------------------------------------- | 
|Change in crude oil by US $1.00/bbl                 |  |                                                  | 0.09 |  |                                              | 
|Change in AECO prices by $0.10/mcf                  |  |                                                  | 0.02 |  |                                              | 
|Change in interest rate by one hundred basis points |  |                                                  | 0.08 |  |                                              | 
|Change in CDN $/US $ foreign exchange rate by $0.01 |  |                                                  | 0.08 |  |                                              | 
|Change in CDN $/Euro foreign exchange rate by $0.01 |  |                                                  | 0.01 |  |                                              | 



CORPORATE GOVERNANCE



Vermilion is committed to a high standard
of corporate governance practices, a dedication that begins at the Board level and extends throughout the Company. We believe good
corporate governance is in the best interest of our shareholders, and that successful companies are those that deliver growth and
a competitive return along with a commitment to the environment, to the communities where they operate and to their employees.



We comply with the objectives and guidelines
relating to corporate governance adopted by the Canadian Securities Administrators and the Toronto Stock Exchange. In addition,
the Board monitors and considers the implementation of corporate governance standards proposed by various regulatory and non-regulatory
authorities in Canada. A discussion of corporate governance policies will be provided in our Management Proxy Circular, which will
be filed on SEDAR (www.sedar.com) and mailed to all shareholders in April of 2013.



DISCLOSURE CONTROLS AND PROCEDURES



Vermilion’s officers have established
and maintained disclosure controls and procedures and evaluated the effectiveness of these controls in conjunction with Vermilion’s
filings.



As of December 31, 2012, Vermilion has
evaluated the effectiveness of the design and operation of Vermilion’s disclosure controls and procedures. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded and certified that Vermilion’s disclosure
controls and procedures are effective.



INTERNAL CONTROL OVER FINANCIAL REPORTING



A company's internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. 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 of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, 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.



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, as reflected in their report included in the 2012 audited annual financial statements filed with the US Securities and Exchange
Commission. No changes were made to Vermilion’s internal control over financial reporting during the year ending December
31, 2012, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.



27







|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------



NETBACKS



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



|                                                 |  |                                 |        |   |                         |  |       |       | Three Months Ended |  |            | Year Ended   | 
|------------------------------------------------ |  | ------------------------------- | ------ | - | ----------------------- |  | ----- | ----- | ------------------ |  | ---------- | ------------ | 
|                                                 |  | Three Months Ended Dec 31, 2012 |        |   | Year Ended Dec 31, 2012 |  |       |       | Dec 31, 2011       |  |            | Dec 31, 2011 | 
|                                                 |  | Oil & NGLs                      |        |   | Natural Gas             |  |       | Total |                    |  | Oil & NGLs |              | 
|                                                 |  | $/bbl                           |        |   | $/mcf                   |  |       | $/boe |                    |  | $/bbl      |              | 
|Canada                                           |  |                                 |        |   |                         |  |       |       |                    |  |            |              | 
|Price                                            |  |                                 | 80.47  |   |                         |  | 3.53  |       |                    |  | 58.80      |              | 
|Realized hedging loss                            |  |                                 | -      |   |                         |  | -     |       |                    |  | -          |              | 
|Royalties                                        |  |                                 | (8.36  | ) |                         |  | (0.14 | )     |                    |  | (5.62      | )            | 
|Transportation                                   |  |                                 | (1.67  | ) |                         |  | (0.18 | )     |                    |  | (1.46      | )            | 
|Operating                                        |  |                                 | (9.76  | ) |                         |  | (2.20 | )     |                    |  | (11.01     | )            | 
|Operating netback                                |  |                                 | 60.68  |   |                         |  | 1.01  |       |                    |  | 40.71      |              | 
|France                                           |  |                                 |        |   |                         |  |       |       |                    |  |            |              | 
|Price                                            |  |                                 | 104.78 |   |                         |  | 11.47 |       |                    |  | 102.26     |              | 
|Realized hedging loss                            |  |                                 | (1.10  | ) |                         |  | -     |       |                    |  | (1.02      | )            | 
|Royalties                                        |  |                                 | (5.56  | ) |                         |  | (0.27 | )     |                    |  | (5.29      | )            | 
|Transportation                                   |  |                                 | (2.32  | ) |                         |  | -     |       |                    |  | (2.16      | )            | 
|Operating                                        |  |                                 | (16.73 | ) |                         |  | (1.00 | )     |                    |  | (15.97     | )            | 
|Operating netback                                |  |                                 | 79.07  |   |                         |  | 10.20 |       |                    |  | 77.82      |              | 
|Netherlands                                      |  |                                 |        |   |                         |  |       |       |                    |  |            |              | 
|Price                                            |  |                                 | 98.89  |   |                         |  | 10.08 |       |                    |  | 60.96      |              | 
|Operating                                        |  |                                 | -      |   |                         |  | (1.88 | )     |                    |  | (11.14     | )            | 
|Operating netback                                |  |                                 | 98.89  |   |                         |  | 8.20  |       |                    |  | 49.82      |              | 
|Australia                                        |  |                                 |        |   |                         |  |       |       |                    |  |            |              | 
|Price                                            |  |                                 | 115.22 |   |                         |  | -     |       |                    |  | 115.22     |              | 
|Realized hedging loss                            |  |                                 | (1.75  | ) |                         |  | -     |       |                    |  | (1.75      | )            | 
|Operating                                        |  |                                 | (24.97 | ) |                         |  | -     |       |                    |  | (24.97     | )            | 
|PRRT1                                            |  |                                 | (4.11  | ) |                         |  | -     |       |                    |  | (4.11      | )            | 
|Operating netback                                |  |                                 | 84.39  |   |                         |  | -     |       |                    |  | 84.39      |              | 
|Total Company                                    |  |                                 |        |   |                         |  |       |       |                    |  |            |              | 
|Price                                            |  |                                 | 96.74  |   |                         |  | 7.15  |       |                    |  | 78.40      |              | 
|Realized hedging loss                            |  |                                 | (0.77  | ) |                         |  | -     |       |                    |  | (0.51      | )            | 
|Royalties                                        |  |                                 | (5.63  | ) |                         |  | (0.08 | )     |                    |  | (3.88      | )            | 
|Transportation                                   |  |                                 | (1.60  | ) |                         |  | (0.35 | )     |                    |  | (1.77      | )            | 
|Operating                                        |  |                                 | (15.38 | ) |                         |  | (1.98 | )     |                    |  | (14.18     | )            | 
|PRRT1                                            |  |                                 | (0.79  | ) |                         |  | -     |       |                    |  | (0.52      | )            | 
|Operating netback                                |  |                                 | 72.57  |   |                         |  | 4.74  |       |                    |  | 57.54      |              | 
|General and administration                       |  |                                 |        |   |                         |  |       |       |                    |  | (2.89      | )            | 
|Interest expense                                 |  |                                 |        |   |                         |  |       |       |                    |  | (2.49      | )            | 
|Realized foreign exchange gain                   |  |                                 |        |   |                         |  |       |       |                    |  | 0.81       |              | 
|Other income (expense)                           |  |                                 |        |   |                         |  |       |       |                    |  | 0.08       |              | 
|Current income taxes1                            |  |                                 |        |   |                         |  |       |       |                    |  | (6.98      | )            | 
|Fund flows netback                               |  |                                 |        |   |                         |  |       |       |                    |  | 46.07      |              | 
|Accretion                                        |  |                                 |        |   |                         |  |       |       |                    |  | (1.99      | )            | 
|Depletion and depreciation                       |  |                                 |        |   |                         |  |       |       |                    |  | (21.66     | )            | 
|Impairments                                      |  |                                 |        |   |                         |  |       |       |                    |  | -          |              | 
|Gain on acquisition                              |  |                                 |        |   |                         |  |       |       |                    |  | -          |              | 
|Deferred taxes                                   |  |                                 |        |   |                         |  |       |       |                    |  | (3.75      | )            | 
|Unrealized other (expense) income                |  |                                 |        |   |                         |  |       |       |                    |  | (0.23      | )            | 
|Unrealized foreign exchange gain (loss)          |  |                                 |        |   |                         |  |       |       |                    |  | 4.50       |              | 
|Unrealized gain (loss) on derivative instruments |  |                                 |        |   |                         |  |       |       |                    |  | 1.56       |              | 
|Equity based compensation                        |  |                                 |        |   |                         |  |       |       |                    |  | (6.01      | )            | 
|Earnings netback                                 |  |                                 |        |   |                         |  |       |       |                    |  | 18.49      |              | 



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



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|Vermilion Energy Inc. | 2012 Management’s Discussion and Analysis – Exhibit 99.2
|--------------------- | --------------------------------------------------------







|DIRECTORSLarry J. Macdonald 1, 2, 3, 4, 5Chairman & CEO, Point Energy Ltd.Calgary, AlbertaW. Kenneth Davidson 2, 3Toronto, OntarioLorenzo DonadeoCalgary, AlbertaClaudio A. Ghersinich 2, 4, 5Executive Director, Carrera Investments Corp.Calgary, AlbertaJoseph F. Killi 2, 3Chairman, Parkbridge Lifestyle Communities Inc.Vice Chairman, Realex Properties Corp.Calgary, AlbertaLoren M. Leiker 5Houston, TexasWilliam F. Madison 2, 4, 5Sugar Land, TexasTimothy R. Marchant 3, 4, 5Calgary, Alberta1  Chairman of the Board2  Audit Committee3  Governance and Human Resources Committee4  Health, Safety and Environment Committee5  Independent Reserves CommitteeANNUAL AND SPECIAL MEETINGMay 1, 2013 at 1:30 p.m.The BallroomMetropolitan Centre333 – 4th Avenue S.W.Calgary, Alberta | OFFICERS AND KEY PERSONNELCANADALorenzo Donadeo, P.Eng.President & Chief Executive OfficerJohn D. Donovan, F.C.A.Executive Vice President BusinessDevelopmentCurtis W. Hicks, C.A.Executive Vice President & CFOAnthony Marino, P.Eng.Executive Vice President & COOMona Jasinski, M.B.A., C.H.R.P.Executive Vice President PeopleTerry Hergott, CMAVice President MarketingDaniel Goulet, P.Eng.Director Corporate HSECameron A. Hercus, MScDirector Exploration and New GrowthMichael Kaluza, P.Eng.Director Canada Business UnitDean N. Morrison, CFADirector Investor RelationsMike PrinzDirector Information TechnologyGerardo RiveraDirector Strategy and Portfolio ManagementRobert (Bob) J. Engbloom, LL.BCorporate SecretaryEUROPEGerard Schut, P.Eng.Vice President European OperationsDavid Burghardt, P.Eng.Interim Managing Director France Business UnitNeil WallaceManaging Director Netherlands Business UnitAUSTRALIABruce D. Lake, P.Eng.Managing Director Australia Business Unit | AUDITORSDeloitte LLPCalgary, AlbertaBANKERSThe Toronto-Dominion BankCalgary, AlbertaBank of MontrealCalgary, Alberta The Bank of Nova ScotiaCalgary, Alberta Royal Bank of CanadaCalgary, Alberta Canadian Imperial Bank of CommerceCalgary, AlbertaNational Bank of CanadaCalgary, Alberta Alberta Treasury BranchesCalgary, Alberta Citibank N.A., Canadian BranchCitibank CanadaCalgary, AlbertaWells Fargo Bank N.A., London BranchLondon, EnglandLa Caisse Centrale Desjardins du QuébecMontréal, QuebecHSBC Bank CanadaCalgary, AlbertaJPMorgan Chase Bank, N.A., Toronto BranchToronto, Ontario   EVALUATION ENGINEERSGLJ Petroleum Consultants Ltd.Calgary, AlbertaLEGAL COUNSELNorton Rose Canada LLPCalgary, AlbertaTRANSFER AGENTComputershare Trust Company of CanadaSTOCK EXCHANGE LISTINGSThe Toronto Stock Exchange (“VET”)The New York Stock Exchange (“VET”)INVESTOR RELATIONSDean Morrison, Director Investor Relations
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