EXHIBIT
99.3



VERMILION
ENERGY INC.



2011
AUDITED ANNUAL FINANCIAL STATEMENTS















|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



DISCLAIMER



Certain statements
included or incorporated by reference in this document may constitute forward looking statements under applicable securities legislation.
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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | revenue;
| | - | --------

| | · | future
                                                                                                          production levels and
                                                                                                          rates of average annual
                                                                                                          production growth;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | exploration
                                                                                                          plans;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | development
                                                                                                          plans;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | acquisition
                                                                                                          and disposition plans
                                                                                                          and the timing thereof;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | operating
                                                                                                          and other expenses;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | · | royalty
                                                                                                          rates;
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          timing of regulatory
                                                                                                          proceedings and approvals;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                          timing of first commercial
                                                                                                          gas from the Corrib
                                                                                                          field; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | estimate
                                                                                                          of Vermilion’s
                                                                                                          share of the expected
                                                                                                          gas rates 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 oil 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
                                                                                                          oil and natural gas
                                                                                                          prices; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Management’s
                                                                                                          expectations relating
                                                                                                          to the timing and results
                                                                                                          of 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.
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 and natural
                                                                                                          gas and market demand;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | risks
                                                                                                          and uncertainties involving
                                                                                                          geology of oil 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, costs
                                                                                                          and expenses;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | potential
                                                                                                          delays or changes in
                                                                                                          plans with respect to
                                                                                                          exploration or development
                                                                                                          projects or capital
                                                                                                          expenditures;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Vermilion's
                                                                                                          ability to enter into
                                                                                                          or renew leases;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | fluctuations
                                                                                                          in oil 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 development
                                                                                                          and exploration activities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | general
                                                                                                          economic and business
                                                                                                          conditions;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.



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.



2







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



MANAGEMENT’S REPORT TO SHAREHOLDERS



Management’s
Responsibility for Financial Statements



The accompanying
consolidated financial statements of Vermilion Energy Inc. (“Vermilion” or the “Company”) are the responsibility
of management and have been approved by the Board of Directors of Vermilion Resources Ltd., on behalf of the Company. The financial
statements have been prepared in accordance with accounting policies detailed in the notes to the financial statements and are
in accordance with accounting principles generally accepted in Canada. Where necessary, management has made informed judgments
and estimates of transactions that were not complete at the balance sheet date. Financial information throughout the Annual Report
is consistent with the financial statements.



Management ensures
the integrity of the financial statements by maintaining high-quality systems of internal control. Procedures and policies are
designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded, and that the financial
records are reliable for preparation of the financial statements.



Deloitte &
Touche LLP, the Company’s Independent Registered Chartered Accountants, have conducted an audit of the consolidated financial
statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States) and have provided their report.



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



Management’s
Report on Internal Control Over Financial Reporting



Management
is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Management conducted
an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established
in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission.



A
company’s internal control system is designed to provide reasonable assurance that the financial information is relevant,
reliable and accurate and that the company’s assets are appropriately accounted for and adequately safeguarded. Based on
this evaluation, management concluded that Vermilion’s system of internal control over financial reporting was effective
as of December 31, 2011.



Deloitte & Touche LLP audited
our consolidated financial statements as stated in their report which is on page 4 of this Exhibit 99.3 of Form 40-F and has issued
an attestation report on our internal control over financial reporting.



|(Signed “Lorenzo Donadeo”)          | (Signed “Curtis W. Hicks”)                        
|----------------------------------- | --------------------------------------------------
|                                    |                                                   
|Lorenzo Donadeo                     | Curtis W. Hicks                                   
|President & Chief Executive Officer | Executive Vice President & Chief Financial Officer
|March 1, 2012                       |                                                   



3







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



Report
of Independent Registered Chartered Accountants



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



We have audited
the accompanying consolidated financial statements of Vermilion Energy Inc. and subsidiaries, which comprise the consolidated
balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of net earnings
and comprehensive income, consolidated statements of changes in shareholders‘ (unitholders‘) equity and consolidated
statements of cash flows for the years ended December 31, 2011 and December 31, 2010, and the notes to the consolidated financial
statements.



Management’s
Responsibility for the Consolidated Financial Statements



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



Auditor’s
Responsibility



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



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



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



Opinion



In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of Vermilion Energy Inc.
and subsidiaries as at December 31, 2011, December 31, 2010 and January 1, 2010 and their financial performance and cash flows
for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.



Other Matter



We have also
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company‘s
internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2012
expressed an unqualified opinion on the Company‘s internal control over financial reporting.



(Signed “Deloitte & Touche
LLP”)



Independent Registered
Chartered Accountants

March 1, 2012

Calgary, Canada



4







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



Report
of Independent Registered Chartered Accountants



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



We have audited
the internal control over financial reporting of Vermilion Energy Inc.and subsidiaries
(the “Company”)as of December 31, 2011, based on the criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.



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



A company’s
internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with 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 and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with 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.



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



In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2011, based on the criteria established in Internal Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.



We have also
audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as at and for the year ended December 31, 2011 of
the Company and our report dated March 1, 2012 expressed an unqualified opinion on those financial statements.



(Signed “Deloitte & Touche
LLP”)



Independent Registered
Chartered Accountants

March 1, 2012

Calgary, Canada



5







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



CONSOLIDATED BALANCE SHEETS

(THOUSANDS OF CANADIAN DOLLARS)



|                                                  |  |      |  |  | December 31, |           |           | December 31, |  |           | January 1, |  
|------------------------------------------------- |  | ---- |  |  | ------------ | --------- | --------- | ------------ |  | --------- | ---------- | -
|                                                  |  | Note |  |  | 2011         |           |           | 2010         |  |           | 2010       |  
|ASSETS                                            |  |      |  |  |              |           |           |              |  |           |            |  
|Current                                           |  |      |  |  |              |           |           |              |  |           |            |  
|Cash and cash equivalents                         |  | 19   |  |  |              | 234,507   |           |              |  | 160,755   |            |  
|Accounts receivable                               |  |      |  |  |              | 176,820   |           |              |  | 147,329   |            |  
|Crude oil inventory                               |  |      |  |  |              | 13,885    |           |              |  | 10,707    |            |  
|Derivative instruments                            |  | 15   |  |  |              | 186       |           |              |  | 10,249    |            |  
|Prepaid expenses                                  |  |      |  |  |              | 10,261    |           |              |  | 11,157    |            |  
|                                                  |  |      |  |  |              | 435,659   |           |              |  | 340,197   |            |  
|Derivative instruments                            |  | 15   |  |  |              | -         |           |              |  | 942       |            |  
|Deferred taxes                                    |  | 10   |  |  |              | 175,545   |           |              |  | 147,949   |            |  
|Exploration and evaluation assets                 |  | 5    |  |  |              | 92,301    |           |              |  | 17,157    |            |  
|Goodwill                                          |  | 6    |  |  |              | -         |           |              |  | -         |            |  
|Reclamation fund                                  |  | 7    |  |  |              | -         |           |              |  | -         |            |  
|Capital assets                                    |  | 4    |  |  |              | 2,031,682 |           |              |  | 1,819,552 |            |  
|                                                  |  |      |  |  |              |           | 2,735,187 |              |  |           | 2,325,797  |  
|LIABILITIES                                       |  |      |  |  |              |           |           |              |  |           |            |  
|Current                                           |  |      |  |  |              |           |           |              |  |           |            |  
|Accounts payable and accrued liabilities          |  |      |  |  |              | 297,756   |           |              |  | 252,319   |            |  
|Dividends or distributions payable                |  | 11   |  |  |              | 18,322    |           |              |  | 16,910    |            |  
|Derivative instruments                            |  | 15   |  |  |              | 11,568    |           |              |  | 12,143    |            |  
|Income taxes payable                              |  |      |  |  |              | 36,407    |           |              |  | 59,562    |            |  
|Amount due pursuant to acquisition                |  | 8    |  |  |              | 127,131   |           |              |  | -         |            |  
|                                                  |  |      |  |  |              | 491,184   |           |              |  | 340,934   |            |  
|Derivative instruments                            |  | 15   |  |  |              | 767       |           |              |  | 8,157     |            |  
|Long-term debt                                    |  | 9    |  |  |              | 373,436   |           |              |  | 302,558   |            |  
|Amount due pursuant to acquisition                |  | 8    |  |  |              | -         |           |              |  | 114,349   |            |  
|Asset retirement obligations                      |  | 7    |  |  |              | 310,531   |           |              |  | 267,389   |            |  
|Equity based compensation liability               |  | 13   |  |  |              | -         |           |              |  | -         |            |  
|Deferred taxes                                    |  | 10   |  |  |              | 227,668   |           |              |  | 246,508   |            |  
|                                                  |  |      |  |  |              | 1,403,586 |           |              |  | 1,279,895 |            |  
|Liability associated with exchangeable
    shares |  | 12   |  |  |              | -         |           |              |  | -         |            |  
|                                                  |  |      |  |  |              |           |           |              |  |           |            |  
|SHAREHOLDERS’ OR UNITHOLDERS’
    EQUITY          |  |      |  |  |              |           |           |              |  |           |            |  
|Shareholders’ capital                             |  | 11   |  |  |              | 1,368,145 |           |              |  | 1,025,770 |            |  
|Unitholders’capital                               |  | 11   |  |  |              | -         |           |              |  | -         |            |  
|Contributed surplus                               |  |      |  |  |              |           | 56,468    |              |  |           | 40,726     |  
|Accumulated other comprehensive loss              |  |      |  |  |              |           | (33,387   | )            |  |           | (31,577    | )
|Retained earnings (deficit)                       |  |      |  |  |              |           | (59,625   | )            |  |           | 10,983     |  
|                                                  |  |      |  |  |              |           | 1,331,601 |              |  |           | 1,045,902  |  
|                                                  |  |      |  |  |              |           | 2,735,187 |              |  |           | 2,325,797  |  



|APPROVED
    BY THE BOARD         |                               
|--------------------------------- | ------------------------------
|                                  |                               
|(Signed
    “Kenneth Davidson”)   | (Signed “Lorenzo
    Donadeo”)
|                                  |                               
|W. Kenneth Davidson,
    Director | Lorenzo Donadeo, Director     

6







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



CONSOLIDATED
STATEMENTS OF NET EARNINGS AND COMPREHENSIVE INCOME

(THOUSANDS
OF CANADIAN DOLLARS, EXCEPT SHARE OR UNIT AND PER SHARE OR UNIT AMOUNTS)



|                                                                        |  |      |    |  | Year Ended   |        
|----------------------------------------------------------------------- |  | ---- | -- |  | ------------ | -------
|                                                                        |  |      |    |  | December 31, |        
|                                                                        |  | Note |    |  | 2011         |        
|REVENUE                                                                 |  |      |    |  |              |        
|Petroleum and natural gas sales                                         |  |      |    |  |              |        
|Royalties                                                               |  |      |    |  |              |        
|Petroleum and natural gas
    revenue                                   |  |      |    |  |              |        
|                                                                        |  |      |    |  |              |        
|EXPENSES                                                                |  |      |    |  |              |        
|Operating                                                               |  | 23   |    |  |              | 162,384
|Transportation                                                          |  |      |    |  |              | 25,539 
|Equity based compensation                                               |  | 13   |    |  |              | 38,667 
|Loss on derivative instruments                                          |  | 15   |    |  |              | 31,340 
|Interest expense                                                        |  |      |    |  |              | 24,967 
|General and administration                                              |  | 23   |    |  |              | 44,583 
|Foreign exchange loss                                                   |  |      |    |  |              | 9,998  
|Other expense                                                           |  |      |    |  |              | 1,155  
|Accretion                                                               |  | 7    |    |  |              | 21,889 
|Depletion and depreciation                                              |  | 4, 5 |    |  |              | 236,708
|Impairments                                                             |  | 4, 6 |    |  |              | 64,400 
|                                                                        |  |      |    |  |              | 661,630
|EARNINGS BEFORE INCOME
    TAXES AND OTHER ITEM                         |  |      |    |  |              | 315,705
|                                                                        |  |      |    |  |              |        
|INCOME TAXES                                                            |  | 10   |    |  |              |        
|Deferred                                                                |  |      |    |  |              | (46,210
|Current                                                                 |  |      |    |  |              | 219,094
|                                                                        |  |      |    |  |              | 172,884
|OTHER ITEM                                                              |  |      |    |  |              |        
|Remeasurement loss on liability associated
    with exchangeable shares |  | 12   |    |  |              | -      
|NET EARNINGS                                                            |  |      |    |  |              |        
|                                                                        |  |      |    |  |              |        
|OTHER COMPREHENSIVE LOSS                                                |  |      |    |  |              |        
|Currency translation adjustments                                        |  |      |    |  |              |        
|COMPREHENSIVE INCOME                                                    |  |      |    |  |              |        
|                                                                        |  |      |    |  |              |        
|NET EARNINGS PER SHARE OR UNIT                                          |  |      | 14 |  |              |        
|Basic                                                                   |  |      |    |  |              |        
|Diluted                                                                 |  |      |    |  |              |        
|                                                                        |  |      |    |  |              |        
|WEIGHTED AVERAGE SHARES OR UNITS OUTSTANDING ('000s)                    |  |      | 14 |  |              |        
|Basic                                                                   |  |      |    |  |              |        
|Diluted                                                                 |  |      |    |  |              |        



7







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH
FLOWS

(THOUSANDS OF CANADIAN DOLLARS)



|                                                                                                  |  |      |  |  | Year
    Ended |         
|------------------------------------------------------------------------------------------------- |  | ---- |  |  | -------------- | --------
|                                                                                                  |  |      |  |  | December 31,   |         
|                                                                                                  |  | Note |  |  | 2011           |         
|OPERATING                                                                                         |  |      |  |  |                |         
|Net earnings                                                                                      |  |      |  |  |                |         
|Adjustments:                                                                                      |  |      |  |  |                |         
|Accretion                                                                                         |  | 7    |  |  |                | 21,889  
|Depletion and depreciation                                                                        |  | 4, 5 |  |  |                | 236,708 
|Impairments                                                                                       |  | 4, 6 |  |  |                | 64,400  
|Unrealized loss on derivative instruments                                                         |  | 15   |  |  |                | 3,040   
|Equity based compensation                                                                         |  | 13   |  |  |                | 38,667  
|Unrealized foreign exchange loss                                                                  |  |      |  |  |                | 11,022  
|Remeasurement loss on liability associated with
    exchangeable shares                           |  | 12   |  |  |                | -       
|Unrealized other expense                                                                          |  |      |  |  |                | 1,999   
|Deferred taxes                                                                                    |  | 10   |  |  |                | (46,210 
|                                                                                                  |  |      |  |  |                | 474,336 
|Asset retirement obligations settled                                                              |  | 7    |  |  |                | (23,071 
|Changes in non-cash operating working capital                                                     |  | 16   |  |  |                | (4,173  
|Cash flows from operating activities                                                              |  |      |  |  |                | 447,092 
|                                                                                                  |  |      |  |  |                |         
|INVESTING                                                                                         |  |      |  |  |                |         
|Drilling and development                                                                          |  | 4    |  |  |                | (411,227
|Exploration and evaluation                                                                        |  | 5    |  |  |                | (79,553 
|Property acquisitions                                                                             |  | 4    |  |  |                | (50,878 
|Sale of short-term investments                                                                    |  |      |  |  |                | -       
|Withdrawals from reclamation fund                                                                 |  |      |  |  |                | -       
|Changes in non-cash investing working capital                                                     |  | 16   |  |  |                | (6,068  
|Cash flows used in investing activities                                                           |  |      |  |  |                |         
|                                                                                                  |  |      |  |  |                |         
|FINANCING                                                                                         |  |      |  |  |                |         
|(Decrease) increase in long-term debt                                                             |  | 9    |  |  |                | (150,001
|Issuance of senior unsecured notes                                                                |  | 9    |  |  |                | 220,561 
|Issuance of shares or trust units pursuant to the dividend or distribution
    reinvestment plans |  | 11   |  |  |                | 59,081  
|Cash dividends or distributions                                                                   |  | 11   |  |  |                | (206,434
|Issuance of shares                                                                                |  | 11   |  |  |                | 252,004 
|Cash flows from (used in) financing activities                                                    |  |      |  |  |                |         
|Foreign exchange loss on cash held in foreign
    currencies                                      |  |      |  |  |                |         
|                                                                                                  |  |      |  |  |                |         
|Net change in cash and cash equivalents                                                           |  |      |  |  |                |         
|Cash and cash equivalents, beginning of year                                                      |  |      |  |  |                |         
|Cash and cash equivalents, end of year                                                            |  | 19   |  |  |                | 234,507 
|                                                                                                  |  |      |  |  |                |         
|Supplementary information for operating activities - cash payments                                |  |      |  |  |                |         
|Interest paid                                                                                     |  |      |  |  |                |         
|Income taxes paid                                                                                 |  |      |  |  |                |         



8







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ (UNITHOLDERS’) EQUITY

(THOUSANDS OF CANADIAN DOLLARS)



|                                                                                           |  |      |  |  |                 |         |           |             |  |   | Accumulated   |  |  |          |         |   | Total           |  
|------------------------------------------------------------------------------------------ |  | ---- |  |  | --------------- | ------- | --------- | ----------- |  | - | ------------- |  |  | -------- | ------- | - | --------------- | -
|                                                                                           |  |      |  |  | Shareholders’   |         |           |             |  |   | Other         |  |  |          |         |   | Shareholders’   |  
|                                                                                           |  |      |  |  | or Unitholders’ |         |           | Contributed |  |   | Comprehensive |  |  | Retained |         |   | or Unitholders’ |  
|                                                                                           |  | Note |  |  | Capital         |         |           | Surplus     |  |   | Loss          |  |  | Earnings |         |   | Equity          |  
|Balances as at January 1, 2010                                                             |  |      |  |  |                 |         | 711,667   |             |  |   | -             |  |  |          | -       |   |                 |  
|Currency translation adjustments                                                           |  |      |  |  |                 |         | -         |             |  |   | -             |  |  |          | (31,577 | ) |                 |  
|Vesting of equity based awards                                                             |  | 13   |  |  |                 | 23,149  |           |             |  | - |               |  |  | -        |         |   |                 | -
|Modification of equity
    based compensation from liability to equity                     |  |      |  |  |                 |         | -         |             |  |   | 7,159         |  |  |          | -       |   |                 |  
|Issuance of shares or
    units pursuant to the dividend or distribution reinvestment plan |  |      |  |  |                 |         | 40,824    |             |  |   | -             |  |  |          | -       |   |                 |  
|Equity based compensation expense                                                          |  |      |  |  |                 |         | -         |             |  |   | 33,567        |  |  |          | -       |   |                 |  
|Shares or units issued
    on conversion of exchangeable shares                            |  | 12   |  |  |                 | 249,121 |           |             |  | - |               |  |  | -        |         |   |                 | -
|Units issued for bonus plan                                                                |  |      |  |  |                 |         | 1,009     |             |  |   | -             |  |  |          | -       |   |                 |  
|Net earnings                                                                               |  |      |  |  |                 |         | -         |             |  |   | -             |  |  |          | -       |   |                 |  
|Dividends or distributions declared                                                        |  |      |  |  |                 |         | -         |             |  |   | -             |  |  |          | -       |   |                 |  
|Balances as at December 31, 2010                                                           |  |      |  |  |                 |         | 1,025,770 |             |  |   | 40,726        |  |  |          | (31,577 | ) |                 |  



|                                                                  |  |      |  |  |               |        |           |             |  |         | Accumulated   |  |  |           |         |   |               |       
|----------------------------------------------------------------- |  | ---- |  |  | ------------- | ------ | --------- | ----------- |  | ------- | ------------- |  |  | --------- | ------- | - | ------------- | ------
|                                                                  |  |      |  |  |               |        |           |             |  |         | Other         |  |  | Retained  |         |   | Total         |       
|                                                                  |  |      |  |  | Shareholders’ |        |           | Contributed |  |         | Comprehensive |  |  | Earnings  |         |   | Shareholders’ |       
|                                                                  |  | Note |  |  | Capital       |        |           | Surplus     |  |         | Loss          |  |  | (Deficit) |         |   | Equity        |       
|Balances as at January 1, 2011                                    |  |      |  |  |               |        | 1,025,770 |             |  |         | 40,726        |  |  |           | (31,577 | ) |               |       
|Currency translation adjustments                                  |  |      |  |  |               |        | -         |             |  |         | -             |  |  |           | (1,810  | ) |               |       
|Vesting of equity based awards                                    |  | 13   |  |  |               | 22,139 |           |             |  | (22,139 | )             |  |  | -         |         |   |               | -     
|Issuance of shares, net of deferred taxes                         |  |      |  |  |               |        | 254,786   |             |  |         | -             |  |  |           | -       |   |               |       
|Issuance of shares pursuant
    to the dividend reinvestment plan |  |      |  |  |               |        | 59,081    |             |  |         | -             |  |  |           | -       |   |               |       
|Equity based compensation expense                                 |  |      |  |  |               |        | -         |             |  |         | 37,881        |  |  |           | -       |   |               |       
|Shares issued for bonus plan                                      |  |      |  |  |               |        | 786       |             |  |         | -             |  |  |           | -       |   |               |       
|Net earnings                                                      |  |      |  |  |               |        | -         |             |  |         | -             |  |  |           | -       |   |               |       
|Dividends declared                                                |  |      |  |  |               |        | -         |             |  |         | -             |  |  |           | -       |   |               |       
|Share-settled
    dividends on vested equity based awards         |  | 13   |  |  |               | 5,583  |           |             |  | -       |               |  |  | -         |         |   |               | (5,583
|Balances as at December 31, 2011                                  |  |      |  |  |               |        | 1,368,145 |             |  |         | 56,468        |  |  |           | (33,387 | ) |               |       



Description
of equity reserves



Shareholders’
(Unitholders’) capital

Represents the
recognized amount for common shares or trust units when issued, net of equity issuance costs and deferred taxes. Prior to September
1, 2010, the equity instruments issued and outstanding were trust units.



Contributed
surplus

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



Accumulated
other comprehensive loss

Represents the
cumulative income and expenses which are not recorded immediately in net earnings and are accumulated until an event triggers
recognition in net earnings. Any such event would result in a change to both accumulated other comprehensive loss and retained
earnings (deficit). The current balance consists of currency translation adjustments resulting from translating financial statements
of subsidiaries with a foreign functional currency to Canadian dollars at period end rates.



Retained
earnings (deficit)

Represents the
consolidated earnings less distributed earnings of Vermilion Energy Inc.



9







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



notes
to the Consolidated Financial Statements

For
the Year ended december 31, 2011 and 2010

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



1. BASIS OF
PRESENTATION



Vermilion Energy
Inc. (the “Company” or “Vermilion”) is a corporation governed by the laws of the Province of Alberta and
is actively engaged in the business of petroleum and natural gas development, acquisition and production. The Company is the successor
entity to Vermilion Energy Trust (the “Trust”) following a corporate conversion completed on September 1, 2010 pursuant
to an arrangement under the Business Corporations Act(Alberta).



As a result of
the conversion, units of the Trust were converted to common shares of Vermilion on a one-for-one basis and holders of exchangeable
shares in Vermilion Resources Ltd., a wholly owned subsidiary of Vermilion, received 1.89344 common shares of the Company for
each exchangeable share held (Note 12). There were no exchangeable shares outstanding subsequent to the corporate conversion.



The conversion
was accounted for on a continuity of interests basis, which recognizes Vermilion as the successor entity and accordingly, all
comparative information presented for the pre-conversion period is that of the Trust. All transaction costs associated with the
conversion were expensed as general and administration expense.



These consolidated financial statements
were approved and authorized for issuance by the Board of Directors of Vermilion on March 1, 2012.



2. SIGNIFICANT
ACCOUNTING POLICIES



Accounting
Framework

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



Principles
of Consolidation

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



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



Exploration
and Evaluation Assets

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



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



E&E assets
are not depleted, and are carried at cost until technical feasibility and commercial viability of the area can be determined.
The technical feasibility and commercial viability of extracting the reserves is considered to be determinable when proven and/or
probable reserves are identified. If proven and/or probable reserves are identified as recoverable, the related E&E costs
are reclassified to Petroleum and Natural Gas (“PNG”) assets pending an impairment test. If reserves are not found
within the license area or the area is abandoned, the related E&E costs are amortized over a period not greater than five
years. E&E assets are subject to an impairment test at least annually, as part of the group of Cash Generating Units (“CGU’s”)
attributable to the jurisdiction in which the exploration area resides.



Petroleum
and Natural Gas Operations

Vermilion recognizes
PNG assets at cost less accumulated depletion, depreciation and impairment losses. The cost of PNG assets as at January 1, 2010
was determined in accordance with the IFRS 1 “Deemed Cost for Oil and Gas Assets” exemption through the allocation
of the pre-transition Canadian GAAP carrying value to depletion units based upon relative reserve values at that date (Note 26).
Directly attributable costs incurred for the drilling of development wells and for the construction of production facilities are
capitalized together with the discounted value of estimated future costs of asset retirement obligations. When components of PNG
assets are replaced, disposed of, or no longer in use, they are derecognized.



10







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



2. SIGNIFICANT
ACCOUNTING POLICIES (Continued)



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



Depletion
and Depreciation

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



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



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



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



Impairment
of Long-Lived Assets

E&E assets
are tested for impairment when reclassified to PNG assets or when indicators of impairment are identified.  An impairment
loss is recognized for the amount by which the carrying value of E&E assets exceeds its recoverable amount.  The recoverable
amount is the higher of the E&E assets’ fair value less costs to sell and their value in use.



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



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



Cash and
Cash Equivalents

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



Crude Oil
Inventory

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



Goodwill

Goodwill is tested
for impairment at least annually by comparing the fair value of the CGU to the carrying amount attributable to the goodwill. If
the carrying amount exceeds the fair value, an impairment loss is recognized for the excess.



Provisions
and Asset Retirement Obligations

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



11







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



2. SIGNIFICANT
ACCOUNTING POLICIES (Continued)



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



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



Revenue
Recognition

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



Financial
Instruments

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



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



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



All derivative
instruments have been classified as held for trading and are measured at fair value.  Accordingly, gains and losses are reflected
in net earnings in the period in which they arise.



Equity
Based Compensation

Vermilion has
equity based long-term compensation plans for directors, officers and employees of Vermilion and its subsidiaries. The expense
recognized for equity based awards is measured as the grant date fair value of the award adjusted for the ultimate number of awards
that eventually vest as determined by the Company’s achievement of a number of performance conditions. Equity based compensation
expense is recognized in net earnings over the vesting period of the awards with a corresponding adjustment to contributed surplus.
Prior to September 1, 2010, Vermilion’s equity based compensation plans were accounted for as liabilities (Note 13).



Upon vesting,
the amount previously recognized in contributed surplus is reclassified to shareholders’ capital. Vermilion has incorporated
an estimated forfeiture rate based on historical vesting data.



12







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



2. SIGNIFICANT
ACCOUNTING POLICIES (Continued)



Per Share
or Unit Amounts

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



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



Foreign
Currency Translation

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



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



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



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



Income
Taxes

Deferred taxes
are calculated using the liability method whereby income tax assets and liabilities are recognized for the estimated tax consequences
attributable to temporary differences between the amounts reported in the consolidated balance sheets of Vermilion and the respective
tax bases using enacted or substantively enacted income tax rates in the respective jurisdictions that will be in effect when
the differences are expected to reverse.  The effect of a change in income tax rates on deferred tax liabilities and assets
is recognized in net earnings in the period in which the related legislation is substantively enacted.



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



Liability
Associated with Exchangeable Shares

Exchangeable
shares outstanding prior to corporate conversion were recorded as a liability until exchanged for trust units. The liability was
remeasured at each reporting date to the associated redemption value with the resulting loss recorded within net earnings. When
the exchangeable shares were converted into common shares upon conversion of the trust, the conversions were recorded as an extinguishment
of the liability and accordingly the remeasured amount at the date of conversion was then recorded to equity.



Borrowing
Costs

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



Measurement
Uncertainty

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



13







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



2. SIGNIFICANT
ACCOUNTING POLICIES (Continued)



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



Asset Retirement
Obligations

Vermilion’s
asset retirement obligations are based on environmental regulations and estimates of future costs and the timing of expenditures.
Changes in environmental regulations, the estimated costs associated with reclamation activities, the discount rate applied and
the timing of expenditures impact Vermilion’s measurement of the obligations. Changes related to any of these assumptions
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 is identifiable cash inflows that 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.



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



Deferred 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, and management’s view of the most likely
expected outcome.



3.
CHANGES TO ACCOUNTING PRONOUNCEMENTS



New
accounting pronouncements adopted

The year
ended 2011 was Vermilion’s first year preparing financial statements in accordance with IFRS. Accounting standards effective
for the year ended December 31, 2011 have been adopted as part of the transition to IFRS.



Recent
pronouncements issued

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
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 vehicles. The new disclosures require information that will assist financial statement users in evaluating the nature,
risks and financial effects of an entity’s interest in subsidiaries and joint arrangements.



14







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



3.
CHANGES TO ACCOUNTING PRONOUNCEMENTS (Continued)



Vermilion
is currently assessing the impact of the adoption of the following standards on 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
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 the item to be measured at fair value, with limited exceptions.



4. CAPITAL ASSETS



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





|                                                     |  | Petroleum and      |           |   | Furniture and    |  |         | Total          | 
|---------------------------------------------------- |  | ------------------ | --------- | - | ---------------- |  | ------- | -------------- | 
|($M)                                                 |  | Natural Gas Assets |           |   | Office Equipment |  |         | Capital Assets | 
|Balance at January 1, 2010                           |  |                    | 1,608,957 |   |                  |  | 5,952   |                | 
|Additions                                            |  |                    | 400,241   |   |                  |  | 13,911  |                | 
|Property acquisitions                                |  |                    | 448       |   |                  |  | -       |                | 
|Borrowing costs capitalized                          |  |                    | 8,772     |   |                  |  | -       |                | 
|Changes in estimate for asset retirement obligations |  |                    | 43,621    |   |                  |  | -       |                | 
|Depletion and depreciation                           |  |                    | (180,350  | ) |                  |  | (2,343  | )              | 
|Effect of movements in foreign exchange rates        |  |                    | (79,267   | ) |                  |  | (390    | )              | 
|Balance at December 31, 2010                         |  |                    | 1,802,422 |   |                  |  | 17,130  |                | 
|Additions                                            |  |                    | 408,810   |   |                  |  | 2,417   |                | 
|Property acquisitions                                |  |                    | 50,878    |   |                  |  | -       |                | 
|Borrowing costs capitalized                          |  |                    | 9,923     |   |                  |  | -       |                | 
|Changes in estimate for asset retirement obligations |  |                    | 45,267    |   |                  |  | -       |                | 
|Depletion and depreciation                           |  |                    | (228,562  | ) |                  |  | (4,414  | )              | 
|Impairment loss                                      |  |                    | (64,400   | ) |                  |  | -       |                | 
|Effect of movements in foreign exchange rates        |  |                    | (7,727    | ) |                  |  | (62     | )              | 
|Balance at December 31, 2011                         |  |                    | 2,016,611 |   |                  |  | 15,071  |                | 
|                                                     |  |                    |           |   |                  |  |         |                | 
|Cost                                                 |  |                    | 1,608,957 |   |                  |  | 15,150  |                | 
|Accumulated depletion and depreciation               |  |                    | -         |   |                  |  | (9,198  | )              | 
|Carrying value at January 1, 2010                    |  |                    | 1,608,957 |   |                  |  | 5,952   |                | 
|                                                     |  |                    |           |   |                  |  |         |                | 
|Cost                                                 |  |                    | 1,984,963 |   |                  |  | 27,986  |                | 
|Accumulated depletion and depreciation               |  |                    | (182,541  | ) |                  |  | (10,856 | )              | 
|Carrying value at December 31, 2010                  |  |                    | 1,802,422 |   |                  |  | 17,130  |                | 
|                                                     |  |                    |           |   |                  |  |         |                | 
|Cost                                                 |  |                    | 2,427,848 |   |                  |  | 30,148  |                | 
|Accumulated depletion and depreciation               |  |                    | (411,237  | ) |                  |  | (15,077 | )              | 
|Carrying value at December 31, 2011                  |  |                    | 2,016,611 |   |                  |  | 15,071  |                | 



Depletion
and depreciation rates

PNG assets (unit
of production method)

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



During the year
ended December 31, 2011, Vermilion capitalized $4.5 million (for the year ended December 31, 2010 – $1.3 million) of overhead
costs directly attributable to PNG activities and $9.9 million (2010 – $8.8 million) of interest expense associated with
the unwinding of the discount on the amount due pursuant to the Corrib acquisition (Note 8).



15







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



4. CAPITAL
ASSETS (Continued)



At December 31,
2011 and December 31, 2010, Vermilion performed an assessment as to whether any CGU had indicators of impairment. When indicators
of impairment are identified, Vermilion assesses the recoverable amount of each CGU based on the estimated fair value less costs
to sell as at the reporting date. The estimated fair value takes into account the most recent commodity price forecasts, expected
future production and estimated costs of development. For the year ended December 31, 2011, Vermilion recorded an impairment charge
of $64.4 million related to conventional deep gas and shallow coal bed methane natural gas plays. The impairment charges were
as a result of declines in the price forecasts for natural gas in Canada which decreased the expected cash flows from the CGU’s.



The benchmark
prices used in the December 31, 2011 calculations of recoverable amounts are as follows:



|CDN$/BOE                    |  | Canada |       |   | France |  |        | Netherlands |  |  | Australia |   |  | Ireland |       
|--------------------------- |  | ------ | ----- | - | ------ |  | ------ | ----------- |  |  | --------- | - |  | ------- | ------
|2012                        |  |        | 60.95 |   |        |  | 97.95  |             |  |  | 60.69     |   |  |         | 107.14
|2013                        |  |        | 65.34 |   |        |  | 98.04  |             |  |  | 61.64     |   |  |         | 107.14
|2014                        |  |        | 66.79 |   |        |  | 95.75  |             |  |  | 62.72     |   |  |         | 104.08
|2015                        |  |        | 67.06 |   |        |  | 93.64  |             |  |  | 64.58     |   |  |         | 102.04
|2016                        |  |        | 66.85 |   |        |  | 93.68  |             |  |  | 64.59     |   |  |         | 102.04
|2017                        |  |        | 67.37 |   |        |  | 93.85  |             |  |  | 64.59     |   |  |         | 102.04
|2018                        |  |        | 68.63 |   |        |  | 95.21  |             |  |  | 65.47     |   |  |         | 103.42
|2019                        |  |        | 69.80 |   |        |  | 97.10  |             |  |  | 66.79     |   |  |         | 105.49
|2020                        |  |        | 71.61 |   |        |  | 99.06  |             |  |  | 68.13     |   |  |         | 107.60
|2021                        |  |        | 73.72 |   |        |  | 101.01 |             |  |  | 69.49     |   |  |         | 109.76
|Average increase thereafter |  |        | 2.0   | % |        |  | 2.0    | %           |  |  | 2.0       | % |  |         | 2.0   



5. EXPLORATION AND EVALUATION ASSETS



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



|($M)                                          |  | Exploration
    and Evaluation Assets |       
|--------------------------------------------- |  | ------------------------------------- | ------
|Balance at January 1, 2010                    |  |                                       | -     
|Additions                                     |  |                                       | 18,030
|Depreciation                                  |  |                                       | (927  
|Effect of movements in foreign exchange rates |  |                                       | 54    
|Balance at December 31, 2010                  |  |                                       | 17,157
|Additions                                     |  |                                       | 79,553
|Depreciation                                  |  |                                       | (3,732
|Effect of movements in foreign exchange rates |  |                                       | (677  
|Balance at December 31, 2011                  |  |                                       | 92,301
|                                              |  |                                       |       
|Cost                                          |  |                                       | 18,060
|Accumulated depreciation                      |  |                                       | (903  
|Carrying value at December 31, 2010           |  |                                       | 17,157
|                                              |  |                                       |       
|Cost                                          |  |                                       | 96,773
|Accumulated depreciation                      |  |                                       | (4,472
|Carrying value at December 31, 2011           |  |                                       | 92,301



E&E assets
are held at cost less accumulated depreciation. Depreciation is recognized only if the costs are attributable to a project which
was determined to not contain economic reserves. The useful life used in calculating depreciation is between one to five years
and is assessed based upon the prospect or area and is recognized within depletion and depreciation expense.



16







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



6. GOODWILL



The following table reconciles the
change in Vermilion's goodwill balance:



|($M)                         |  | Goodwill |        
|---------------------------- |  | -------- | -------
|Balance at January 1, 2010   |  |          | 19,840 
|Goodwill impairment          |  |          | (19,840
|Balance at December 31, 2010 |  |          | -      



The goodwill
balance as at January 1, 2010 was the result of a previous business combination. As a result of declines in Canadian natural gas
prices, it was determined that the carrying value of $19,840 was not recoverable and as such an impairment expense was recorded
during the year ended December 31, 2010. The goodwill balance was a part of the Canadian conventional shallow gas CGU and was
no longer recoverable due to a decline in the price forecasts for North American natural gas.



7. ASSET RETIREMENT OBLIGATIONS



Vermilion has
estimated the net present value of its asset retirement obligations to be $310.5 million as at December 31, 2011 (December 31,
2010 - $267.4 million) based on a total undiscounted future liability after inflation adjustment of $1.2 billion (December 31,
2010 - $967.5 million). These payments are expected to be made between 2012 and 2061. Vermilion calculated the present value of
the obligations using discount rates between 6.3% and 7.6% (2010 - between 7.4% and 9.4%) to reflect the market assessment of
the time value of money as well as risks specific to the liabilities that have not been included in the cash flow estimates. Inflation
rates used in determining the cash flow estimates were between 1.5% and 2.6% (2010 - between 1.4% and 2.6%).



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



|($M)                                          |  | Asset
    Retirement Obligations |        
|--------------------------------------------- |  | -------------------------------- | -------
|Balance at January 1, 2010                    |  |                                  | 224,005
|Additional obligations recognized             |  |                                  | 851    
|Changes in estimates for existing obligations |  |                                  | 39,352 
|Obligations settled                           |  |                                  | (6,861 
|Accretion                                     |  |                                  | 17,903 
|Changes in discount rates                     |  |                                  | 3,418  
|Effect of movements in foreign exchange rates |  |                                  | (11,279
|Balance at December 31, 2010                  |  |                                  | 267,389
|Additional obligations recognized             |  |                                  | 8,612  
|Changes in estimates for existing obligations |  |                                  | (4,364 
|Obligations settled                           |  |                                  | (23,071
|Accretion                                     |  |                                  | 21,889 
|Changes in discount rates                     |  |                                  | 41,019 
|Effect of movements in foreign exchange rates |  |                                  | (943   
|Balance at December 31, 2011                  |  |                                  | 310,531



At least once
per year, Vermilion reviews its estimates of the expected costs to reclaim the net interest in its wells and facilities. The resulting
changes are categorized as changes in estimates for existing obligations in the table above. The significant changes in estimates
for the year ended December 31, 2010 related primarily to the Netherlands operations and resulted from the availability additional
data associated with the abandonment obligations.



Vermilion had
previously established a reclamation fund to provide for the ultimate payout of the environmental and site restoration costs on
its asset base. After an extensive review, Vermilion concluded that the reclamation fund assets would be more effectively employed
supporting Vermilion’s operations and in July 2010, the reclamation fund assets were liquidated.



17







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



8. AMOUNT
DUE PURSUANT TO ACQUISITION



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



To reflect the
future payment due to the vendor, Vermilion recognized a non-current liability which was determined by discounting the expected
future payment of US $135 million; this non-current liability has been reclassified to current liability for the year ended December
31, 2011. The discount rate used to present value this obligation was 8%, which is Vermilion’s best estimate of the interest
rate that would result from an arm’s length financing transaction associated with the purchase of these assets.



9.
LONG-TERM DEBT



Revolving
Credit Facility



At December 31,
2011, Vermilion had in place a bank revolving credit facility totalling $800 million. The facility, which matures in May 2014,
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, 2011, the interest rate on the revolving
credit facility was between 3.2% and 3.8% (2010 - between 2.9 and 3.5%).



The amount available
to Vermilion under this facility is reduced by outstanding letters of credit associated with Vermilion’s operations totaling
$3.7 million as at December 31, 2011.



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 less certain debts related to Corrib (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 earnings before interest, income taxes, depreciation, accretion and other certain non-cash
items of not greater than 3.0.



As at December
31, 2011, Vermilion is 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%.



Long-term debt as at December 31,
2011, December 31, 2010 and January 1, 2010 is comprised of the following:



|                          |  | As
    At        |        
|------------------------- |  | ---------------- | -------
|($M)                      |  | Dec
    31, 2011 |        
|Revolving credit facility |  |                  | 152,086
|Senior unsecured notes    |  |                  | 221,350
|Total long-term debt      |  |                  | 373,436



18







|Vermilion Energy Inc. | 2011 Audited
    Annual Financial Statements – Exhibit 99.3
|--------------------- | -----------------------------------------------------------



10. INCOME TAXES



The net deferred income
tax liability at December 31, 2011 and 2010 is comprised of the following:



|                                  |  | As
    At |         
|--------------------------------- |  | --------- | --------
|                                  |  | Dec 31,   |         
|($M)                              |  | 2011      |         
|Deferred income tax liabilities:  |  |           |         
|Capital assets                    |  |           | (264,700
|Partnership income deferral       |  |           | (27,316 
|Asset retirement obligations      |  |           | (47,056 
|Basis difference of investments   |  |           | (413    
|Unrealized foreign exchange       |  |           | (21,589 
|Other                             |  |           | (2,026  
|Deferred income tax assets:       |  |           |         
|Derivative contracts              |  |           | 3,037   
|Capital assets                    |  |           | 60,202  
|Non-capital losses                |  |           | 174,143 
|Cumulative eligible capital       |  |           | 4,618   
|Asset retirement obligations      |  |           | 68,977  
|Net deferred income tax liability |  |           | (52,123 
|Comprised of:                     |  |           |         
|Deferred income tax asset         |  |           | 175,545 
|Deferred income tax liability     |  |           | (227,668
|Net deferred income tax liability |  |           | (52,123 



The provision for income
tax differs from the amount that would have been expected if the reported earnings had been subject only to the statutory Canadian
income tax rate of 26.5% (2010 – 28.0%), as follows:



|                                                                                                          |  | Year
    Ended |        
|--------------------------------------------------------------------------------------------------------- |  | -------------- | -------
|                                                                                                          |  | Dec 31,        |        
|($M)                                                                                                      |  | 2011           |        
|Earnings before income taxes and other item                                                               |  |                | 315,705
|Canadian corporate tax rate                                                                               |  |                | 26.50  
|Expected tax expense                                                                                      |  |                | 83,662 
|Increase (decrease) in taxes resulting from:                                                              |  |                |        
|Petroleum resource rent tax rate differential
    2                                                       |  |                | 61,010 
|Income attributable to Unitholders prior to
    corporate conversion (Note 1)                             |  |                | -      
|Impairment losses on Goodwill                                                                             |  |                | -      
|Foreign tax rate differentials 1, 2                                                                       |  |                | 11,164 
|Equity based compensation expense                                                                         |  |                | 10,246 
|Amended returns and changes to estimated tax
    pools                                                    |  |                | (7,537 
|Changes in statutory tax
    rates and the estimated reversal rates associated with temporary differences |  |                | (98    
|Adjustment for uncertain tax positions                                                                    |  |                | 3,427  
|Adjustment for share issuance costs                                                                       |  |                | 2,782  
|Other non-deductible items                                                                                |  |                | 8,228  
|Provision for income taxes                                                                                |  |                | 172,884

| | 1 | The corporate tax rate is 34.4%
in France, 46.0% in the Netherlands and 25.0% in Ireland.
| | - | -----------------------------------------------------------------------------------------

| | 2 | In Australia, current taxes include
both corporate income taxes and PRRT. Corporate income taxes are applied at a rate of 30%, and PRRT is applied at a rate of 40%.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------





19







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



11. SHAREHOLDERS’ OR UNITHOLDERS’
CAPITAL



As a result of the conversion from an income
trust to a corporation on September 1, 2010, (Note 1), all of the outstanding units of Vermilion Energy Trust were exchanged on
a one-for-one basis for common shares of Vermilion Energy Inc. Exchangeable shares of Vermilion Resources Ltd., a wholly owned
subsidiary of Vermilion Energy Trust, were converted to common shares of Vermilion Energy Inc. at the prevailing exchange ratio
of 1.89344.



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



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



|Unitholders’ Capital                                             |  | Number of Units |             |   | Amount ($M) | 
|---------------------------------------------------------------- |  | --------------- | ----------- | - | ----------- | 
|Balance as at January 1, 2010                                    |  |                 | 79,523,028  |   |             | 
|Issuance of units pursuant to the distribution reinvestment plan |  |                 | 718,424     |   |             | 
|Units issued on conversion of exchangeable shares (Note 12)      |  |                 | 4,547       |   |             | 
|Vesting of equity based awards                                   |  |                 | 668,986     |   |             | 
|Units issued for bonus plan                                      |  |                 | 28,624      |   |             | 
|Units exchanged pursuant to corporate conversion                 |  |                 | (80,943,609 | ) |             | 
|Balance as at August 31, 2010                                    |  |                 | -           |   |             | 



|Shareholders’ Capital                                         |  | Number of Shares |            |  | Amount ($M) | 
|------------------------------------------------------------- |  | ---------------- | ---------- |  | ----------- | 
|Balance as at August 31, 2010                                 |  |                  | -          |  |             | 
|Issuance of shares for units pursuant to corporate conversion |  |                  | 80,943,609 |  |             | 
|Shares issued on conversion of exchangeable shares (Note 12)  |  |                  | 7,586,546  |  |             | 
|Issuance of shares pursuant to the dividend reinvestment plan |  |                  | 468,087    |  |             | 
|Balance as at December 31, 2010                               |  |                  | 88,998,242 |  |             | 
|Issuance of shares, net of deferred taxes                     |  |                  | 5,370,000  |  |             | 
|Vesting of equity based awards                                |  |                  | 608,073    |  |             | 
|Share-settled dividends on vested equity based awards         |  |                  | 114,487    |  |             | 
|Issuance of shares pursuant to the dividend reinvestment plan |  |                  | 1,323,482  |  |             | 
|Shares issued for bonus plan                                  |  |                  | 15,851     |  |             | 
|Balance as at December 31, 2011                               |  |                  | 96,430,135 |  |             | 



Dividends and Distributions



Dividends declared to shareholders for the year
ended December 31, 2011 were $207.8 million (for the year ended December 31, 2010, distributions to unitholders and dividends to
shareholders were $189.7 million). Dividends are determined by the Board of Directors and are paid monthly. Vermilion has a dividend
reinvestment plan which allows eligible holders of common shares to purchase additional common shares at a 5% discount to market
by reinvesting their cash dividends. Subsequent to the end of the period and prior to the consolidated financial statements being
authorized for issue on March 1, 2012, Vermilion declared dividends totalling $36.7 million or $0.19 per share for each of January
and February of 2012.



Equity Issuance



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



Prior to Corporate Conversion



Prior to the corporate conversion which occurred
on September 1, 2010, Vermilion’s outstanding equity instruments consisted of publically traded trust units. Pursuant to
applicable legislation, those trust units included a redemption feature which required Vermilion to assess the appropriate presentation
of those units under IFRS.



The trust units were redeemable at the option
of the trust unit holders. The redemption price was calculated as the lower of the closing price on the day the units were tendered
for redemption and 90% of the market price of the units for the ten days after redemption. The Trust had no redemptions for the
period for which the trust units were outstanding.



20







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



11. SHAREHOLDERS’ OR UNITHOLDERS’
CAPITAL (Continued)



In general, IFRS requires that financial instruments
which include a redemption feature making the instruments puttable be presented as a liability rather than as equity. However,
an exception to that requirement is available if the financial instrument meets certain criteria. Vermilion determined that its
trust units met the requirements for this exception and accordingly the trust units are presented as equity for the periods prior
to the corporate conversion.



Subsequent to Corporate Conversion



On September 1, 2010, Vermilion issued common
shares in exchange for the outstanding trust units and exchangeable shares (Note 12). The conversion of the trust units was accounted
for as an exchange of equity instruments at carrying value. The exchange of exchangeable shares for common shares was accounted
for as an extinguishment of the liability associated with exchangeable shares at the redemption value which was measured on the
date of the exchange.



12. LIABILITY ASSOCIATED WITH EXCHANGEABLE SHARES



From 2003 to September 1, 2010, inclusive, Vermilion
had a number of exchangeable shares outstanding that did not meet the definition of an equity instrument in accordance with IAS
32 “Financial Instruments: Presentation” and accordingly were classified as financial liabilities. The exchangeable
shares were recorded upon transition to IFRS at redemption value and subsequent to transition were remeasured at each balance sheet
date to reflect the change in redemption value. The resulting change from carrying value to redemption value was recorded upon
transition to IFRS (Notes 25 and 26) and at each reporting period to retained earnings and net earnings respectively. All dividends
attributable to exchangeable shareholders were recorded within remeasurement loss on liability associated with exchangeable shares
in the reporting period for which the dividends were declared.



As a result of the corporate conversion (Note
1), Vermilion issued 7,586,546 common shares in exchange for all remaining 4,006,753 exchangeable shares based on an exchange ratio
of 1.89344. Prior to the corporate conversion, 4,547 units were issued on conversion of 2,500 exchangeable shares. There were no
exchangeable shares outstanding following the conversion.



The following table summarizes the changes in
the liability associated with exchangeable shares:



|                                                                                |  | Number of           |            |   |             | 
|------------------------------------------------------------------------------- |  | ------------------- | ---------- | - | ----------- | 
|Liability Associated with Exchangeable Shares                                   |  | Exchangeable Shares |            |   | Amount ($M) | 
|Balance as at January 1, 2010                                                   |  |                     | 4,009,253  |   |             | 
|Exchanged for trust units                                                       |  |                     | (2,500     | ) |             | 
|Remeasurement loss on liability associated with exchangeable shares             |  |                     | -          |   |             | 
|Extinguishment of exchangeable share liability pursuant to corporate conversion |  |                     | (4,006,753 | ) |             | 
|Balance as at December 31, 2010                                                 |  |                     | -          |   |             | 



13. EQUITY BASED COMPENSATION PLANS



Trust Unit Award Incentive Plan

Prior to corporate conversion on September 1,
2010, Vermilion established and issued unvested trust units under the Trust Unit Award Incentive Plan (the “TAP Plan”).
The TAP Plan was established in 2005 and allowed for the issuance of unvested trust units of the Trust to directors, officers and
employees of the Trust and its Affiliates.



At vesting, the ultimate number of unrestricted
units received by the grantee under the TAP Plan was adjusted for the cumulative distributions which notionally accrued to the
awards during the vesting period; the resulting total was multiplied by a performance factor based on the performance of the Trust
compared to its peers which ranged from zero to two times the number of awards originally granted. Original awards to new employees
vested in equal tranches over three years and subsequent grants vested after three years.



As the award holders were entitled to receive
trust units, which under IFRS were considered puttable financial instruments, the awards were classified as liability based awards.
The fair value of awards was estimated at each reporting period using a Monte Carlo simulation and the fair market value of the
trust units as at the reporting date. Volatility was determined using historical market data for Vermilion and its peers. The resulting
remeasurements of the liability were recorded as equity based compensation expense.



21







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



13. EQUITY BASED COMPENSATION PLANS (Continued)



Vermilion Incentive Plan

The Vermilion Incentive Plan (the “VIP
Plan”), replaced the TAP Plan as part of the corporate conversion on September 1, 2010 whereby all TAP Plan awards were exchanged
on a one-for-one basis for VIP Plan awards. At vesting, the ultimate number of unrestricted shares received by the grantee under
the VIP Plan is adjusted for the cumulative dividends which notionally accrue to the awards during the vesting period and the resulting
total is multiplied by a performance factor which ranges from zero to two times the number of awards originally granted.



The performance factor is determined by the
Board of Directors after consideration of a number of key corporate performance measures including, but not limited to, shareholder
return, capital efficiency metrics, production and reserves growth and safety performance. The total expense recognized over the
vesting period for a VIP Plan award is based on the fair value of the unvested share at the date of grant adjusted for the performance
factor ultimately achieved.



As a result of the corporate conversion, Vermilion’s
equity based compensation plan awards are now settled in non-redeemable common shares resulting in equity settled accounting under
IFRS. Accordingly, at the date of conversion, the fair value of the vested portion of outstanding awards was reclassified from
equity based compensation liability to contributed surplus.



The following table summarizes the number of
awards outstanding under the TAP Plan and the VIP Plan. The table does not reflect the exchange of TAP Plan awards for VIP Plan
awards as the exchange was completed on a one-for-one basis.



|                 |  | Year Ended   |          
|---------------- |  | ------------ | ---------
|Number of Awards |  | Dec 31, 2011 |          
|Opening balance  |  |              | 1,683,776
|Granted          |  |              | 566,425  
|Vested           |  |              | (434,150 
|Forfeited        |  |              | (65,996  
|Closing balance  |  |              | 1,750,055



The fair value of a VIP award is determined
at the grant date as the closing price of Vermilion’s common shares on the Toronto Stock Exchange, adjusted by the estimated
performance factor that will ultimately be achieved. Dividends, which notionally accrue to the awards during the vesting period,
are not included in the determination of grant date fair values. For the year ended December 31, 2011, the awards granted had a
weighted average fair value of $47.05 (2010 - $39.24).



The amount of equity compensation expense is
reduced by an estimated forfeiture rate of 5.29% (2010 - 4.09%). Equity based compensation expense of $37.9 million was recorded
during the year ended December 31, 2011 (2010 - $33.6) related to the VIP Plan and TAP Plan awards.



14. PER SHARE OR UNIT AMOUNTS



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



|                                                         |  | Year Ended   |           
|-------------------------------------------------------- |  | ------------ | ----------
|($M except per share or unit amounts)                    |  | Dec 31, 2011 |           
|Net earnings [1]                                         |  |              | 142,821   
|Basic weighted average shares or units outstanding [2]   |  |              | 90,877,604
|Dilutive impact of equity based award plans              |  |              | 1,394,461 
|Diluted weighted average shares or units outstanding [3] |  |              | 92,272,065
|Basic earnings per share or unit ([1] ÷ [2])             |  |              | 1.57      
|Diluted earnings per share or unit ([1] ÷ [3])           |  |              | 1.55      



Basic net earnings per share or unit has been
calculated based on net earnings divided by the basic weighted average shares or units outstanding. For the year ended December
31, 2010, the exchangeable shares and the unit based compensation awards were anti-dilutive and accordingly were excluded from
the number of shares and units outstanding for the calculation of diluted earnings per unit.



22







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



15. 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 petroleum and natural gas production. Vermilion
does not use derivative financial instruments for speculative purposes. Vermilion has elected not to designate any of its price
risk management activities as accounting hedges and thus accounts for changes in fair value in net earnings at each reporting period.
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.
Vermilion does not obtain collateral or other security to support its financial derivatives as management reviews the creditworthiness
of its counterparties prior to entering into derivative contracts.



The following table summarizes Vermilion’s outstanding financial
derivative positions as at December 31, 2011:



|Risk Management               | Funded Cost  |  | bbls/d |       |  | US $/bbl | 
|----------------------------- | ------------ |  | ------ | ----- |  | -------- | 
|Collar - WTI                  |              |  |        |       |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 350   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 250   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 250   |  |          | 
|January 2012 to December 2012 | US $1.00/bbl |  |        | 250   |  |          | 
|July 2012 to December 2012    | US $1.00/bbl |  |        | 500   |  |          | 
|July 2012 to December 2012    | US $1.00/bbl |  |        | 500   |  |          | 
|July 2012 to December 2012    | US $1.00/bbl |  |        | 500   |  |          | 
|Collar - DATED BRENT          |              |  |        |       |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 750   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 750   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 750   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to June 2012     | US $1.00/bbl |  |        | 350   |  |          | 
|January 2012 to December 2012 | US $1.00/bbl |  |        | 1,000 |  |          | 
|January 2012 to December 2012 | US $1.00/bbl |  |        | 500   |  |          | 
|January 2012 to December 2012 | US $1.00/bbl |  |        | 500   |  |          | 
|July 2012 to December 2012    | US $1.00/bbl |  |        | 1,000 |  |          | 
|July 2012 to December 2012    | US $1.00/bbl |  |        | 1,000 |  |          | 
|Put - DATED BRENT             |              |  |        |       |  |          | 
|January 2012 to December 2012 | US $4.46/bbl |  |        | 600   |  |          | 
|January 2012 to December 2012 | US $4.90/bbl |  |        | 600   |  |          | 
|January 2012 to December 2012 | US $4.49/bbl |  |        | 600   |  |          | 
|January 2012 to December 2012 | US $4.39/bbl |  |        | 600   |  |          | 
|January 2012 to December 2012 | US $3.65/bbl |  |        | 500   |  |          | 



23







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



15. DERIVATIVE INSTRUMENTS (Continued)



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





|                                                                                     |  | Year Ended   |        
|------------------------------------------------------------------------------------ |  | ------------ | -------
|($M)                                                                                 |  | Dec 31, 2011 |        
|Fair value of contracts, beginning of year                                           |  |              | (9,109 
|Reversal of opening unrealized loss (gain) on contracts settled during the year      |  |              | 8,494  
|Realized (loss) gain on contracts settled during the year                            |  |              | (28,300
|Unrealized loss during the year on contracts outstanding at the end of the year      |  |              | (11,534
|Net payment to (receipt from) counterparties on contract settlements during the year |  |              | 28,300 
|Fair value of contracts, end of year                                                 |  |              | (12,149
|Comprised of:                                                                        |  |              |        
|Current derivative asset                                                             |  |              | 186    
|Current derivative liability                                                         |  |              | (11,568
|Non-current derivative asset                                                         |  |              | -      
|Non-current derivative liability                                                     |  |              | (767   
|Fair value of contracts, end of year                                                 |  |              | (12,149



The loss on derivatives for 2011 and 2010 are comprised of the following:



|                                                                     |  | Year Ended   |       
|-------------------------------------------------------------------- |  | ------------ | ------
|($M)                                                                 |  | Dec 31, 2011 |       
|Realized loss (gain) on contracts settled during the year            |  |              | 28,300
|Reversal of opening unrealized (loss) gain on contracts settled      |  |              | (8,494
|Unrealized loss during the year on contracts outstanding at year-end |  |              | 11,534
|Loss on derivative instruments                                       |  |              | 31,340



16. SUPPLEMENTAL CASH FLOW INFORMATION



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



|                                                                  |  | Year Ended   |        
|----------------------------------------------------------------- |  | ------------ | -------
|($M)                                                              |  | Dec 31, 2011 |        
|Changes in:                                                       |  |              |        
|Accounts receivable                                               |  |              | (29,491
|Crude oil inventory                                               |  |              | (3,178 
|Prepaid expenses                                                  |  |              | 425    
|Accounts payable and accrued liabilities and income taxes payable |  |              | 22,282 
|Movements in foreign exchange rates                               |  |              | (279   
|Changes in non-cash working capital                               |  |              | (10,241
|Changes in non-cash operating working capital                     |  |              | (4,173 
|Changes in non-cash investing working capital                     |  |              | (6,068 
|Changes in non-cash working capital                               |  |              | (10,241



24







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



17. SEGMENTED INFORMATION



Vermilion has operations principally in Canada,
France, the Netherlands, Australia and Ireland. Vermilion’s entire operating activities are related to exploration, development
and production of PNG. As each of the operating activities is undertaken in each of the countries in which Vermilion operates,
the following segment information has been prepared by segregating the results into the geographic areas in which Vermilion operates.
The segregation by country is consistent with how the financial performance of the business is measured internally by Vermilion’s
chief operating decision maker.



The amounts below include transactions between
segments, which are recorded at fair value at the date of recognition.





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





|                                        |  | Year Ended December 31, 2010 |        
|--------------------------------------- |  | ---------------------------- | -------
|($M)                                    |  | Canada                       |        
|Total assets                            |  |                              | 867,265
|Drilling and development                |  |                              | 242,452
|Exploration and evaluation              |  |                              | -      
|                                        |  |                              |        
|Operating Income (Loss)                 |  |                              |        
|Oil and gas sales to external customers |  |                              | 185,241
|Royalties                               |  |                              | (27,982
|Revenue from external customers         |  |                              | 157,259
|Realized gain on derivative instruments |  |                              | 5,709  
|Transportation expense                  |  |                              | (6,251 
|Operating expense                       |  |                              | (40,848
|Operating income (loss)                 |  |                              | 115,869
|                                        |  |                              |        
|Corporate income taxes                  |  |                              | 1,343  
|PRRT                                    |  |                              | -      
|Current income taxes                    |  |                              | 1,343  



25







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



17. SEGMENTED INFORMATION (Continued)



Reconciliation of operating income to net earnings



|                                                                    |  | Year Ended   |         
|------------------------------------------------------------------- |  | ------------ | --------
|($M)                                                                |  | Dec 31, 2011 |         
|Operating income                                                    |  |              | 761,112 
|Equity based compensation                                           |  |              | (38,667 
|Unrealized loss on derivative instruments                           |  |              | (3,040  
|Interest expense                                                    |  |              | (24,967 
|General and administration                                          |  |              | (44,583 
|Foreign exchange loss                                               |  |              | (9,998  
|Other expense                                                       |  |              | (1,155  
|Accretion                                                           |  |              | (21,889 
|Depletion and depreciation                                          |  |              | (236,708
|Impairments                                                         |  |              | (64,400 
|Earnings before income taxes and other item                         |  |              | 315,705 
|Income taxes                                                        |  |              | (172,884
|Remeasurement loss on liability associated with exchangeable shares |  |              | -       
|Net earnings                                                        |  |              | 142,821 



Vermilion has two major customers with revenues
in excess of 10% within the France and the Netherlands segments. Sales to the major customer in the France segment for year ended
December 31, 2011 were $232.0 million (2010 - $164.9 million). All sales in the Netherlands segment were to one customer.



18. COMMITMENTS



Vermilion had the following future commitments associated with its
operating leases as at December 31, 2011:



|($M)               |  | Less than 1 year |        |  | 1 - 3 years |  |        | 4 - 5 years |  |  | After 5 years |  |  | Total |       
|------------------ |  | ---------------- | ------ |  | ----------- |  | ------ | ----------- |  |  | ------------- |  |  | ----- | ------
|Payments by period |  |                  | 16,163 |  |             |  | 29,251 |             |  |  | 24,194        |  |  |       | 84,973



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



19. CASH AND CASH EQUIVALENTS



Cash and cash equivalents was comprised of the following:



|($M)                        |  | Dec 31, 2011 |         |  | Dec 31, 2010 |  |         | Jan 1, 2010 | 
|--------------------------- |  | ------------ | ------- |  | ------------ |  | ------- | ----------- | 
|Money on deposit with banks |  |              | 220,158 |  |              |  | 145,623 |             | 
|Short-term investments      |  |              | 14,349  |  |              |  | 15,132  |             | 
|Cash and cash equivalents   |  |              | 234,507 |  |              |  | 160,755 |             | 



26







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



20. CAPITAL DISCLOSURES



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



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



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



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



|                                                            |  | Year Ended   |         
|----------------------------------------------------------- |  | ------------ | --------
|($M except as noted below)                                  |  | Dec 31, 2011 |         
|Long-term debt                                              |  |              | 373,436 
|Current liabilities                                         |  |              | 491,184 
|Current assets                                              |  |              | (435,659
|Net debt [1]                                                |  |              | 428,961 
|Cash flows from operating activities                        |  |              | 447,092 
|Changes in non-cash operating working capital               |  |              | 4,173   
|Asset retirement obligations settled                        |  |              | 23,071  
|Fund flows from operations [2]                              |  |              | 474,336 
|Ratio of net debt to fund flows from operations ([1] ÷ [2]) |  |              | 0.9     



For 2011, the ratio of net debt to fund flows
from operations was 0.9. This was higher than 2010 as a result of increased long-term debt and current liabilities following the
issuance of the senior unsecured notes in the first quarter of 2011 and the amount due pursuant to acquisition now being classified
as a current liability as at the balance sheet date. The increase in debt levels resulted from the larger 2011 capital program
and acquisitions and its impact on the ratio of net debt to fund flows from operations was partially offset by the share issuance
in the fourth quarter and higher fund flows from operations year over year.



Vermilion is subject to certain externally imposed
capital requirements under its revolving credit facility (Note 9). During the periods covered by these consolidated financial statements,
Vermilion continued to comply with these requirements.



27







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



21. FINANCIAL INSTRUMENTS



Classification of Financial Instruments



The following table summarizes information relating to Vermilion’s
financial instruments as at December 31, 2011 and December 31, 2010:





|                                  |  |                                            |  |  |                            |  |  |                                                                                                                                                     |  |  | As
    at December 31, 2011 |          |   | As
    at December 31, 2010 |  |          |                         | 
|--------------------------------- |  | ------------------------------------------ |  |  | -------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------------------- | -------- | - | --------------------------- |  | -------- | ----------------------- | 
|Class of financial
    instrument |  | Consolidated
    balance
    sheet caption |  |  | Accounting
    designation |  |  | Related caption
    on Statement of Net Earnings                                                                                                    |  |  | Carrying
    value ($M)     |          |   | Fair
    value
    ($M)     |  |          | Carrying
    value ($M) | 
|Cash                              |  | Cash and cash equivalents                  |  |  | HFT                        |  |  | Gains and losses on foreign exchange are included in foreign exchange loss (gain)                                                                   |  |  |                             | 234,507  |   |                             |  | 234,507  |                         | 
|Receivables                       |  | Accounts receivable                        |  |  | LAR                        |  |  | Gains and losses on foreign exchange are included in foreign exchange loss (gain)  Impairments are recognized as general and administration expense |  |  |                             | 176,820  |   |                             |  | 176,820  |                         | 
|Derivative assets                 |  | Derivative instruments                     |  |  | HFT                        |  |  | (Gain) loss on derivative instruments                                                                                                               |  |  |                             | 186      |   |                             |  | 186      |                         | 
|Derivative liabilities            |  | Derivative instruments                     |  |  | HFT                        |  |  | (Gain) loss on derivative instruments                                                                                                               |  |  |                             | (12,335  | ) |                             |  | (12,335  | )                       | 
|Payables                          |  | Accounts payable and accrued liabilities   |  |  | OTH                        |  |  | Gains and losses on foreign exchange are included in foreign exchange loss (gain).                                                                  |  |  |                             | (316,078 | ) |                             |  | (316,078 | )                       | 
|                                  |  | Dividends or distributions payable         |  |  |                            |  |  |                                                                                                                                                     |  |  |                             |          |   |                             |  |          |                         | 
|Payables                          |  | Amount due pursuant to acquisition         |  |  | OTH                        |  |  | Gains and losses on foreign exchange are included in foreign exchange loss (gain).                                                                  |  |  |                             | (127,131 | ) |                             |  | (127,131 | )                       | 
|Long-term debt                    |  | Long-term debt                             |  |  | OTH                        |  |  | Interest expense                                                                                                                                    |  |  |                             | (373,436 | ) |                             |  | (383,275 | )                       | 
|                                  |  |                                            |  |  |                            |  |  |                                                                                                                                                     |  |  |                             |          |   |                             |  |          |                         | 



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



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



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



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



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



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



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



Determination of Fair Values



The level in the fair value hierarchy into which
the fair value measurements are categorized is determined on the basis of the lowest level input that is significant to the fair
value measurement. Fair values for derivative assets and derivative liabilities are determined using option pricing models incorporating
future prices that are based on assumptions which are supported by prices from observable market transactions and are adjusted
for credit risk. The carrying value of receivables approximate their fair value due to their short maturities. The carrying value
of long-term debt outstanding on the revolving credit facility approximates its fair value due to the use of short-term borrowing
instruments at market rates of interest. The amount due pursuant to acquisition was determined by calculating the expected value
of the future payment due to the vendor based on management’s best estimates associated with the timing of first commercial
gas and discounting the resulting amount. The discount rate which would be used to present value this obligation as at December
31, 2011 would not differ significantly from the discount rate originally used. The fair value of the senior unsecured notes changes
in response to changes in the market rates of interest payable on similar instruments and was determined with reference to prevailing
market rates for such instruments.



28







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



21. FINANCIAL INSTRUMENTS (Continued)



Nature and Extent of Risks Arising From
Financial Instruments



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



Credit risk:

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



Currency risk:

Vermilion conducts business in currencies other
than Canadian dollars and accordingly is subject to currency risk associated with changes in foreign exchange rates in relation
to cash and cash equivalents, receivables, payables and derivative assets and liabilities. The impact related to working capital
is somewhat mitigated as a result of the offsetting effects of foreign exchange fluctuations on assets and liabilities. Vermilion
monitors its exposure to currency risk and reviews whether the use of derivative financial instruments is appropriate to manage
potential fluctuations in foreign exchange rates.



Commodity price risk:

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



Interest rate risk:

Vermilion’s debt is comprised of short-term
bankers acceptances that bear interest at market rates plus applicable margins and senior unsecured notes with a fixed interest
rate. Accordingly, Vermilion’s exposure to interest rate risk in relation to its long-term debt at the balance sheet date
is not material.



Liquidity risk:

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



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



Summarized Quantitative Data Associated
with the Risks Arising from Financial Instruments



Credit risk:

As at December 31, 2011, Vermilion’s maximum
exposure to receivable credit risk was $177.0 million (December 31, 2010 - $158.5 million) which is the aggregate value of receivables
and derivative assets at the balance sheet date. Vermilion’s receivables are due from counterparties that have investment
grade third party credit ratings or, in the absence of the availability of such ratings, have been satisfactorily reviewed by Vermilion
for creditworthiness. Additionally, cash and cash equivalents consist of moneys on deposit and short-term investments which may
be subject to counterparty credit risk. Vermilion mitigates this risk by transacting with North American institutions with high
third party credit ratings.



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



Liquidity risk:

The following table summarizes Vermilion’s undiscounted non-derivative
financial liabilities and their contractual maturities as at December 31, 2011 and December 31, 2010:



|                  |  |           |         |  | Later than     |  |         | Later than       |  |  | Later than     |  |  |  |        
|----------------- |  | --------- | ------- |  | -------------- |  | ------- | ---------------- |  |  | -------------- |  |  |  | -------
|                  |  |           |         |  | one month and  |  |         | three months and |  |  | one year and   |  |  |  |        
|                  |  | Due in    |         |  | not later than |  |         | not later than   |  |  | not later than |  |  |  |        
|($M)              |  | one month |         |  | three months   |  |         | one year         |  |  | five years     |  |  |  |        
|December 31, 2011 |  |           | 115,594 |  |                |  | 206,777 |                  |  |  | 131,002        |  |  |  | 377,087
|December 31, 2010 |  |           | 88,296  |  |                |  | 163,110 |                  |  |  | 17,823         |  |  |  | 438,371



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





29









|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



21. FINANCIAL INSTRUMENTS (Continued)



Market risk:

Vermilion is exposed to currency risk related
to changes in foreign currency denominated financial instruments and commodity price risk related to outstanding derivative positions.
The following table summarizes what the impact on comprehensive income before tax would be for the year ended December 31, 2011
and 2010 given changes in the relevant risk variables that Vermilion considers were reasonably possible at the respective balance
sheet dates. The impact on comprehensive income before tax associated with changes in these risk variables for assets and liabilities
that are not considered financial instruments are excluded from this analysis. This analysis does not attempt to reflect any interdependencies
between the relevant risk variables.





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







|                                  |  |                                                                                                |  |  | December 31, 2010                  |        
|--------------------------------- |  | ---------------------------------------------------------------------------------------------- |  |  | ---------------------------------- | -------
|                                  |  |                                                                                                |  |  | Before tax effect on comprehensive |        
|Risk ($M except per bbl)          |  | Description of change in risk variable                                                         |  |  | income (decrease) increase         |        
|Currency risk - Euro to Canadian  |  | Increase in strength of the Canadian dollar against the                                        |  |  |                                    | (2,473 
|                                  |  | Euro by 5% over the relevant closing rates on December 31, 2010                                |  |  |                                    |        
|                                  |  | Decrease in strength of the Canadian dollar against the                                        |  |  |                                    | 2,473  
|                                  |  | Euro by 5% over the relevant closing rates on December 31, 2010                                |  |  |                                    |        
|Currency risk - US $ to Canadian  |  | Increase in strength of the Canadian dollar against the                                        |  |  |                                    | 2,527  
|                                  |  | US$ by 5% over the relevant closing rates on December 31, 2010                                 |  |  |                                    |        
|                                  |  | Decrease in strength of the Canadian dollar against the                                        |  |  |                                    | (2,527 
|                                  |  | US$ by 5% over the relevant closing rates on December 31, 2010                                 |  |  |                                    |        
|Currency risk - AUD $ to Canadian |  | Increase in strength of the Canadian dollar against the                                        |  |  |                                    | 773    
|                                  |  | AUD$ by 5% over the relevant closing rates on December 31, 2010                                |  |  |                                    |        
|                                  |  | Decrease in strength of the Canadian dollar against the                                        |  |  |                                    | (773   
|                                  |  | AUD$ by 5% over the relevant closing rates on December 31, 2010                                |  |  |                                    |        
|Commodity price risk              |  | Increase in relevant oil reference price within option pricing models used to                  |  |  |                                    | (11,440
|                                  |  | determine the fair value of financial derivative positions by US$5.00/bbl at December 31, 2010 |  |  |                                    |        
|                                  |  | Decrease in relevant oil reference price within option pricing models used to                  |  |  |                                    | 9,950  
|                                  |  | determine the fair value of financial derivative positions by US$5.00/bbl at December 31, 2010 |  |  |                                    |        
|                                  |  |                                                                                                |  |  |                                    |        



Reasonably possible changes in interest rates
and natural gas prices would not have had a material impact on comprehensive income for the periods ended December 31, 2011 or
2010.



30







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



22. RELATED PARTY DISCLOSURES



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



The following table summarizes the compensation of directors and
other members of key management personnel during the years ended December 31, 2011 and December 31, 2010:



|                                                    |  | Year Ended   |       
|--------------------------------------------------- |  | ------------ | ------
|($M)                                                |  | Dec 31, 2011 |       
|Short-term benefits                                 |  |              | 5,185 
|Share-based payments                                |  |              | 10,616
|                                                    |  |              | 15,801
|                                                    |  |              |       
|Number of individuals included in the above amounts |  |              | 15    



23. WAGES AND BENEFITS

Included in operating expenses and
general and administrative expenses are $37.8 million and $29.8 million of wages and benefits, respectively (2010 – $33.2
million and $25.9 million, respectively).

24. SUBSEQUENT EVENT



On January 24, 2012, Vermilion completed purchase
and sale agreements with Total E&P France whereby Vermilion, through its wholly owned subsidiaries, acquired certain working
interests in six producing fields located in the Paris and Aquitaine basins in France. Taking into consideration an effective date
of January 1, 2011 and customary closing adjustments, Vermilion paid approximately $107 million cash at closing. Vermilion financed
this acquisition through proceeds received from the November 2011 equity issuance.



25. TRANSITION TO IFRS



For all periods up to and including the year
ended December 31, 2010, Vermilion prepared its consolidated financial statements in accordance with Generally Accepted Accounting
Principles as issued by the Canadian Accounting Standards Board (“Previous GAAP”). The consolidated financial statements
for the year ended December 31, 2011 are the first financial statements presented under IFRS. IFRS 1 “First-time Adoption
of International Financial Reporting Standards” requires an entity to issue an explicit and unreserved statement of compliance
with its first annual financial statements prepared under IFRS.



IFRS 1 also requires that comparative financial
information be provided. As a result, the first date at which Vermilion began applying IFRS was January 1, 2010, its transition
date. IFRS 1 requires that a first time adopter use the same accounting policies in its opening IFRS balance sheet and for all
subsequent periods presented in its first IFRS financial statements. The adoption of IFRS includes full retrospective application
of all IFRS standards which are effective at the end of its first IFRS reporting period, which for Vermilion is the year ended
December 31, 2011. In order to facilitate an effective adoption of IFRS there are a number of discretionary exemptions as well
as mandatory exceptions from retrospective application of a number of IFRS standards.



31







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



25. TRANSITION TO IFRS (Continued)



Exceptions to restatement under
IFRS 1



Vermilion is subject to the following
mandatory exceptions to restatement under IFRS.



1. 	Estimates

The estimates made under Previous GAAP
are required to be applied to the balances in accordance with IFRS unless there is evidence that the estimates were in error or
to reflect any adjustments made to accounting policies to comply with IFRS. The only significant change in estimate as at the date
of transition related to the calculation of the present value of Vermilion’s asset retirement obligations, which resulted
from differing requirements between Previous GAAP and IFRS.



2. 	Derecognition of financial instruments

A first-time adopter shall apply the
requirements within IAS 39 “Financial instruments – recognition and measurement” prospectively from the transition
date unless it chooses to apply the derecognition guidance retrospectively from a date of its election. Vermilion has elected to
apply derecognition of financial instruments prospectively from the transition date. Based on the election there were no significant
adjustments required as a result of derecognition.



3. 	Non-controlling interests

At the date of transition, IFRS prescribes
that certain requirements of IAS 27 “Consolidated and separate financial statements” be applied prospectively. As Vermilion
had no outstanding instruments which were accounted for as a non-controlling interest there was no impact of this exception under
IFRS.



Exemptions from restatement



1. 	Business combinations

A first-time adopter may elect to not
apply IFRS 3 “Business combinations” retrospectively to past business combinations. Vermilion is electing to not apply
IFRS 3 retrospectively to business combinations that occurred prior to the transition date. The exemption for past business combinations
also applies to past acquisitions of investments in associates and of interests in joint ventures. Furthermore, the date selected
for transition applies equally for all such acquisitions. As such, Vermilion is electing not to apply IFRS 3 to past investments
in associates and joint ventures prior to the transition date.



2. 	Foreign currency translation

A first-time adopter may elect to not
retrospectively apply IAS 21 “The effects of changes in foreign exchange rates”. Under this exemption, the cumulative
translation differences for all foreign operations are deemed to be zero at the date of transition, and any resulting gains or
losses on a subsequent disposal of a foreign operation will then exclude translation differences that arose before the date of
transition to IFRS and include only translation differences arising subsequent to the transition date. Vermilion has elected to
utilize the exemption pertaining to the cumulative translation differences and as a result there is a nil balance in cumulative
translation adjustments upon the date of transition to IFRS.



3. 	Oil & gas deemed cost exemption

Under Previous GAAP, exploration and
development costs for oil and gas properties in the development or production phases are accounted for in cost centres that include
all properties in a country. A first-time adopter using full cost accounting may elect to measure oil and gas assets at the date
of transition to IFRS on the following basis:



| | a) | E&E assets at the amount determined under the entity's previous
GAAP; and
| | -- | -------------------------------------------------------------------------

| | b) | Assets in the development or production phases at the amount determined for the cost centre under
the entity's previous GAAP. The entity shall allocate this amount to the cost centre's underlying assets pro rata using reserve
volumes or reserve values as of that date.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the entity shall test E&E
assets and assets in the development and production phases for impairment at the date of transition to IFRS in accordance with
IFRS 6 “Exploration for and evaluation of mineral resources” or IAS 36 “Impairment of assets”, respectively
and, if necessary, reduce the amount determined in accordance with (a) or (b) above. Oil and gas assets comprise only those assets
used in the exploration, evaluation, development or production of oil and gas.



Vermilion elected to measure oil and
gas assets using the exemption permitted by IFRS 1 and therefore allocated the development and production phase assets based on
reserve values as at the transition date. There was no impairment as at the transition date.



32







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



25. TRANSITION TO IFRS (Continued)



4. 	Asset retirement obligations

A first-time adopter that utilizes the
oil and gas deemed cost exemption above shall measure asset retirement obligations at the transition date in accordance with IAS
37 ”Provisions, contingent liabilities and contingent assets”. Any difference between the remeasured amount in accordance
with IFRS and the carrying amount of those liabilities at the date of transition to IFRS determined under the entity's previous
GAAP is recognized directly in retained earnings. The impact of the remeasurement of asset retirement obligations is disclosed
in 26 (f).



5. 	Borrowing costs

A first-time adopter may apply the transitional
provisions set out in IAS 23 “Borrowing costs”, as revised in 2007. IAS 23 “Borrowing costs” transitional
provisions should be interpreted to be January 1, 2009 or the date of transition to IFRS, whichever is later. Vermilion elected
to apply the transitional provisions set out in IAS 23 and elected the transition date to be its date of application of IAS 23.
There was no impact pursuant to the application of this exemption.



6. 	Share-based payment transactions

A first-time adopter is encouraged, but
not required, to apply IFRS 2 “Share-based payment” to liability instruments that were granted after November 7, 2002
and vested or settled at the later of the date of transition to IFRS and January 1, 2005. Vermilion elected to apply IFRS 2 as
at the transition date and applied IFRS 2 for all liabilities arising from share-based payment transactions that existed at that
date.





|EFFECT OF TRANSITION ON THE CONSOLIDATED BALANCE SHEET
|------------------------------------------------------
|                                                      
|                                                      
|($M)                                                  
|ASSETS                                                
|Current                                               
|Cash and cash equivalents                             
|Accounts receivable                                   
|Crude oil inventory                                   
|Derivative instruments                                
|Prepaid expenses                                      
|Deferred taxes                                        
|                                                      
|Derivative instruments                                
|Deferred taxes                                        
|Exploration and evaluation assets                     
|Goodwill                                              
|Capital assets                                        
|                                                      
|LIABILITIES                                           
|Current                                               
|Accounts payable and accrued liabilities              
|Dividends payable                                     
|Derivative instruments                                
|Income taxes payable                                  
|                                                      
|Derivative instruments                                
|Long-term debt                                        
|Amount due pursuant to acquisition                    
|Asset retirement obligations                          
|Deferred taxes                                        
|                                                      
|                                                      
|SHAREHOLDERS’ EQUITY                                  
|Shareholders’ capital                                 
|Contributed surplus                                   
|Accumulated other comprehensive loss                  
|Retained earnings                                     
|                                                      
|                                                      







33







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



25. TRANSITION TO IFRS (Continued)



EFFECT OF TRANSITION ON THE CONSOLIDATED
STATEMENT OF NET EARNINGS AND COMPREHENSIVE INCOME

|                                                                    |  |      |   |  | Year Ended December 31, 2010 | 
|------------------------------------------------------------------- |  | ---- | - |  | ---------------------------- | 
|                                                                    |  | Note |   |  | Previous                     | 
|($M)                                                                |  | 26   |   |  | GAAP                         | 
|REVENUE                                                             |  |      |   |  |                              | 
|Petroleum and natural gas sales                                     |  |      |   |  |                              | 
|Royalties                                                           |  |      | a |  |                              | 
|Petroleum and natural gas revenue                                   |  |      |   |  |                              | 
|                                                                    |  |      |   |  |                              | 
|EXPENSES                                                            |  |      |   |  |                              | 
|Operating                                                           |  |      |   |  |                              | 
|Transportation                                                      |  |      |   |  |                              | 
|Equity based compensation                                           |  |      | d |  |                              | 
|Loss on derivative instruments                                      |  |      | i |  |                              | 
|Interest expense                                                    |  |      |   |  |                              | 
|General and administration                                          |  |      |   |  |                              | 
|Foreign exchange (gain) loss                                        |  |      | b |  |                              | 
|Other expense                                                       |  |      |   |  |                              | 
|Accretion                                                           |  |      | f |  |                              | 
|Depletion and depreciation                                          |  |      | e |  |                              | 
|Impairment                                                          |  |      | j |  |                              | 
|                                                                    |  |      |   |  |                              | 
|EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS                        |  |      |   |  |                              | 
|                                                                    |  |      |   |  |                              | 
|INCOME TAXES                                                        |  |      |   |  |                              | 
|Deferred                                                            |  |      | a |  |                              | 
|Current                                                             |  |      | a |  |                              | 
|                                                                    |  |      |   |  |                              | 
|OTHER ITEMS                                                         |  |      |   |  |                              | 
|Remeasurement loss on liability associated with exchangeable shares |  |      | c |  |                              | 
|Non-controlling interest - exchangeable shares                      |  |      | c |  |                              | 
|NET EARNINGS                                                        |  |      |   |  |                              | 
|                                                                    |  |      |   |  |                              | 
|OTHER COMPREHENSIVE LOSS                                            |  |      |   |  |                              | 
|Currency translation adjustments                                    |  |      | b |  |                              | 
|COMPREHENSIVE INCOME                                                |  |      |   |  |                              | 
|                                                                    |  |      |   |  |                              | 
|NET EARNINGS PER SHARE OR UNIT                                      |  |      |   |  |                              | 
|Basic                                                               |  |      |   |  |                              | 
|Diluted                                                             |  |      |   |  |                              | 

34







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



25. TRANSITION TO IFRS (Continued)



EFFECT OF TRANSITION ON THE CONSOLIDATED
STATEMENT OF CASH FLOWS

|                                                                                       |  |      |   |  | Year Ended December 31, 2010 | 
|-------------------------------------------------------------------------------------- |  | ---- | - |  | ---------------------------- | 
|                                                                                       |  | Note |   |  | Previous                     | 
|($M)                                                                                   |  | 26   |   |  | GAAP                         | 
|OPERATING                                                                              |  |      |   |  |                              | 
|Net earnings                                                                           |  |      |   |  |                              | 
|Adjustments:                                                                           |  |      |   |  |                              | 
|Accretion                                                                              |  |      | f |  |                              | 
|Depletion and depreciation                                                             |  |      | e |  |                              | 
|Impairment                                                                             |  |      | j |  |                              | 
|Unrealized loss on derivative instruments                                              |  |      | i |  |                              | 
|Equity based compensation                                                              |  |      | d |  |                              | 
|Unrealized foreign exchange (gain) loss                                                |  |      | b |  |                              | 
|Non-controlling interest exchangeable shares                                           |  |      | c |  |                              | 
|Remeasurement loss on liability associated with exchangeable shares                    |  |      | c |  |                              | 
|Unrealized other expense                                                               |  |      |   |  |                              | 
|Deferred taxes                                                                         |  |      | a |  |                              | 
|                                                                                       |  |      |   |  |                              | 
|Asset retirement obligations settled                                                   |  |      |   |  |                              | 
|Changes in non-cash operating working capital                                          |  |      |   |  |                              | 
|Cash flows from operating activities                                                   |  |      |   |  |                              | 
|                                                                                       |  |      |   |  |                              | 
|INVESTING                                                                              |  |      |   |  |                              | 
|Drilling and development                                                               |  |      | e |  |                              | 
|Exploration and evaluation                                                             |  |      | e |  |                              | 
|Property acquisitions                                                                  |  |      | i |  |                              | 
|Sale of short-term investments                                                         |  |      |   |  |                              | 
|Withdrawals from reclamation fund                                                      |  |      |   |  |                              | 
|Changes in non-cash investing working capital                                          |  |      | i |  |                              | 
|Cash flows used in investing activities                                                |  |      |   |  |                              | 
|                                                                                       |  |      |   |  |                              | 
|FINANCING                                                                              |  |      |   |  |                              | 
|Increase in long-term debt                                                             |  |      |   |  |                              | 
|Issuance of shares or units pursuant to the dividend ordistribution reinvestment plans |  |      |   |  |                              | 
|Cash dividends or distributions                                                        |  |      |   |  |                              | 
|Cash flows used in financing activities                                                |  |      |   |  |                              | 
|Foreign exchange loss on cash held in foreign currencies                               |  |      |   |  |                              | 
|                                                                                       |  |      |   |  |                              | 
|Net change in cash and cash equivalents                                                |  |      |   |  |                              | 
|Cash and cash equivalents, beginning of year                                           |  |      |   |  |                              | 
|Cash and cash equivalents, end of year                                                 |  |      |   |  |                              | 
|                                                                                       |  |      |   |  |                              | 
|Supplementary information for operating activities – cash payments                     |  |      |   |  |                              | 
|Interest paid                                                                          |  |      |   |  |                              | 
|Income taxes paid                                                                      |  |      | a |  |                              | 



35







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



25. TRANSITION TO IFRS (Continued)



EFFECT OF TRANSITION ON THE CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ (UNITHOLDERS’) EQUITY

|                                                       |  |      |   |  |                 |  |           |             |  |  |               |   |  |          |         |   | Total           | 
|------------------------------------------------------ |  | ---- | - |  | --------------- |  | --------- | ----------- |  |  | ------------- | - |  | -------- | ------- | - | --------------- | 
|                                                       |  |      |   |  | Shareholders’   |  |           |             |  |  | Accumulated   |   |  |          |         |   | Shareholders’   | 
|                                                       |  | Note |   |  | or Unitholders’ |  |           | Contributed |  |  | Comprehensive |   |  | Retained |         |   | or Unitholders’ | 
|($M)                                                   |  | 26   |   |  | Capital         |  |           | Surplus     |  |  | Loss          |   |  | Earnings |         |   | Equity          | 
|Balance per Previous GAAP as at
    January 1, 2010    |  |      |   |  |                 |  | 711,667   |             |  |  | 30,413        |   |  |          | -       |   |                 | 
|Transition adjustments:                                |  |      |   |  |                 |  |           |             |  |  |               |   |  |          |         |   |                 | 
|Deferred tax adjustments                               |  |      | a |  |                 |  | -         |             |  |  | -             |   |  |          | -       |   |                 | 
|Retranslation of capital assets                        |  |      | b |  |                 |  | -         |             |  |  | -             |   |  |          | -       |   |                 | 
|Remeasurement of exchangeable shares                   |  |      | c |  |                 |  | -         |             |  |  | -             |   |  |          | -       |   |                 | 
|Differences in equity based compensation               |  |      | d |  |                 |  | -         |             |  |  | (30,413       | ) |  |          | -       |   |                 | 
|Remeasurement of asset retirement obligation           |  |      | f |  |                 |  | -         |             |  |  | -             |   |  |          | -       |   |                 | 
|Initial recognition of derivative instrument           |  |      | i |  |                 |  | -         |             |  |  | -             |   |  |          |         |   |                 | 
|Balance per IFRS as at January 1, 2010                 |  |      |   |  |                 |  | 711,667   |             |  |  | -             |   |  |          | -       |   |                 | 
|                                                       |  |      |   |  |                 |  |           |             |  |  |               |   |  |          |         |   |                 | 
|Balance per Previous GAAP as at December 31,
    2010  |  |      |   |  |                 |  | 1,045,930 |             |  |  | 39,841        |   |  |          | -       |   |                 | 
|Transition adjustments (see above):                    |  |      |   |  |                 |  | -         |             |  |  | (30,413       | ) |  |          | -       |   |                 | 
|Comparative period adjustments:                        |  |      |   |  |                 |  |           |             |  |  |               |   |  |          |         |   |                 | 
|Remeasurement of shares issued for exchangeable shares |  |      | c |  |                 |  | (21,642   | )           |  |  | -             |   |  |          | -       |   |                 | 
|Differences in equity based compensation               |  |      | d |  |                 |  | 1,482     |             |  |  | 31,298        |   |  |          | -       |   |                 | 
|Difference in net earnings for the year                |  |      |   |  |                 |  | -         |             |  |  | -             |   |  |          | -       |   |                 | 
|Currency translation adjustment                        |  |      | b |  |                 |  | -         |             |  |  | -             |   |  |          | (31,577 | ) |                 | 
|Balance per IFRS as at December 31, 2010               |  |      |   |  |                 |  | 1,025,770 |             |  |  | 40,726        |   |  |          | (31,577 | ) |                 | 



EFFECT OF TRANSITION ON NET EARNINGS AND COMPREHENSIVE INCOME

|                                                                    |  | Note |   | Year Ended        | 
|------------------------------------------------------------------- |  | ---- | - | ----------------- | 
|($M)                                                                |  | 26   |   | December 31, 2010 | 
|Net earnings and comprehensive income - Previous GAAP               |  |      |   |                   | 
|Increase in equity based compensation expense                       |  |      | d |                   | 
|Increase in loss on derivative instruments                          |  |      | i |                   | 
|Increase in unrealized foreign exchange loss                        |  |      | b |                   | 
|Decrease in accretion expense                                       |  |      | f |                   | 
|Decrease in depletion and depreciation                              |  |      | e |                   | 
|Decrease in deferred income tax recovery                            |  |      | a |                   | 
|Goodwill impairment                                                 |  |      | j |                   | 
|Reversal of non-controlling interest - exchangeable shares          |  |      | c |                   | 
|Remeasurement loss on liability associated with exchangeable shares |  |      | c |                   | 
|Net earnings - IFRS                                                 |  |      |   |                   | 
|Currency translation adjustments                                    |  |      | b |                   | 
|Comprehensive income - IFRS                                         |  |      |   |                   | 





36







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



26.	EXPLANATION OF TRANSITION TO IFRS



| | a. | Deferred taxes
| | -- | --------------

Under Previous GAAP deferred tax assets and
liabilities were classified between current and non-current portions based on the nature of the balances upon which the temporary
differences were related. IAS 1 “Presentation of financial statements” requires that all recorded deferred taxes be
classified as non-current.



Deferred tax adjustments also resulted from
changes in the carrying values of capital assets and asset retirement obligations which resulted in changes to the temporary differences
associated with those balances. The adjustments in the temporary differences to comply with IFRS resulted in adjustments to retained
earnings and net earnings for the opening balance sheet and subsequent period balance sheets, respectively.



In addition, PRRT was classified as a royalty
expense under Previous GAAP. Under IFRS, this item is considered a component of current taxes and the related payables and expenses
have been reclassified in the balance sheet and consolidated statement of net earnings, respectively, to reflect this change. As
there are timing differences in the deductibility of certain expenditures for PRRT purposes as compared to the IFRS accounting,
there were additional deferred tax adjustments which resulted from the change to account for PRRT as an income tax. The adjustments
to deferred taxes required to record PRRT as an income tax were recorded to retained earnings and net earnings for the opening
balance sheet and subsequent period balance sheets, respectively.



| | b. | Foreign currency translation
| | -- | ----------------------------

Under Previous GAAP, Vermilion concluded that
the functional currency of its foreign operating subsidiaries was the Canadian dollar. As a result of differences in the guidance
for functional currency determination, Vermilion has concluded that under IFRS the functional currency of its foreign operating
subsidiaries is their respective local currencies. As a consequence of this change, gains and losses related to the translation
of the financial statements of these subsidiaries are recorded through other comprehensive income (loss) and do not impact net
earnings until a disposal or partial disposal of a foreign operation. In addition, the capital asset accounts of Vermilion’s
foreign operating subsidiaries are now translated to Canadian dollars at the foreign exchange rates in effect at the balance sheet
date whereas, under Previous GAAP, these capital asset accounts were translated at historical foreign exchange rates. Due to the
election to not retrospectively apply IAS 21 “The effects of changes in foreign exchange rates”, the results of the
restatement of capital assets to the period end foreign exchange rates was recorded as an adjustment to retained earnings. The
translation of all balances denominated in foreign currencies resulted in an adjustment at each period from net earnings to other
comprehensive income (loss).



| | c. | Exchangeable shares
| | -- | -------------------

Under Previous GAAP, pursuant to EIC 151 “Exchangeable
shares issued by subsidiaries of income trusts” Vermilion classified the outstanding exchangeable shares as non-controlling
interest. Under Previous GAAP, the balance in non-controlling interest was adjusted for the conversion of exchangeable shares for
trust units and the portion of net earnings attributable to holders of exchangeable shares.



Under IFRS, pursuant to IAS 32 “Financial
instruments: presentation” exchangeable shares outstanding were classified as financial liabilities and recorded based on
the redemption value of the underlying trust units. The adjustment to recognize the liability associated with exchangeable shares
in accordance with IFRS resulted in the elimination of the non-controlling interest balance and an adjustment to retained earnings.
Subsequent to the transition date, adjustments to reflect the remeasurement of the liability associated with exchangeable shares
at each reporting period to the redemption amount were recorded in net earnings in the respective periods. Upon conversion to a
corporation the liability was extinguished at the corporate conversion date redemption value and the carrying value was reclassified
to shareholders’ capital.



| | d. | Equity based compensation
| | -- | -------------------------

Under Previous GAAP, Vermilion’s TAP Plan
was accounted for as an equity settled plan with the value of the awards accumulating in contributed surplus until vested. The
awards vested based on the fair value upon issuance and were amortized based on the vesting period of the awards. Under IFRS, the
TAP Plan was reclassified to a liability settled plan due to the redemption features which were implicit in the underlying trust
units. The balance under Previous GAAP which had been accumulated in contributed surplus was reclassified to equity based compensation
liability with the difference between the value of the awards upon the date of transition and the amount in contributed surplus
recorded to retained earnings. Subsequent to the date of transition, the awards outstanding were remeasured with the gains and
losses recorded to equity based compensation expense. Upon conversion to a corporation, the TAP plan was replaced by the VIP plan
which is accounted for as an equity settled plan and accordingly, the balance within the equity based compensation liability was
reclassified to contributed surplus.



| | e. | Property, plant and equipment
| | -- | -----------------------------

Under Previous GAAP, PNG assets were carried
at cost using the full cost method of accounting. The costs were accumulated and depleted at a country level using proven reserves.
Under IFRS, the initially recognized cost on adoption was the balance under Previous GAAP, allocated to depletion units based upon
reserve value as at the transition date. Costs associated with PNG assets from the transition date onward are accumulated at the
level of a depletion unit and depleted based on proven and probable reserves. Due to the use of proven and probable reserves, the
depletion recorded under IFRS is lower than the amount recorded for the same period under Previous GAAP. IFRS requires that E&E
assets are presented separately in the consolidated balance sheets; under Previous GAAP, these assets were included within capital
assets.



37







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------



26.	EXPLANATION OF TRANSITION TO IFRS
(Continued)



| | f. | Asset retirement obligations
| | -- | ----------------------------

The basic fundamental premise underlying the
accounting for asset retirement obligations is consistent between Previous GAAP and IFRS, however under IFRS, the liability is
remeasured at each reporting date using the pre-tax discount rate that reflects current market assessment of time value of money
and risks specific to the liabilities that have not been reflected in the cash flow estimates. As Vermilion elected to use the
IFRS 1 deemed cost accounting exemption noted above, upon transition Vermilion recognized its asset retirement obligations based
on the measurement in accordance with IFRS and recorded the differences against retained earnings. Subsequent to the transition
date, the asset retirement obligations were remeasured to reflect changes in the discount rate at each reporting period and the
revised accretion expense under IFRS. The adjustments for the discount rate and accretion expense were recorded to PNG assets and
net earnings, respectively. At the transition date, Vermilion recalculated the present value of the obligations using discount
rates between 7.4% and 9.4% and inflation rates between 1.4% and 2.6%. Under previous GAAP, Vermilion used a credit adjusted risk
free rate of 8% and inflation rates between 1.4% and 2.6%.



| | g. | Revenue
| | -- | -------

Under Previous GAAP, royalties on production
were included as royalty expense on the consolidated statement of earnings. Under IFRS, revenue is presented net of royalties when
the royalty relates directly to the produced volume and does not relate to a net profit interest by the governing body. Accordingly,
under IFRS, Vermilion now presents revenue net of royalties. This change in presentation did not have an impact on the opening
balance sheet presented in accordance with IFRS. The statement of net earnings for all periods presented subsequent to the date
of transition to IFRS reflect this change.



| | h. | Cash flow statements
| | -- | --------------------

The statement of cash flows prepared under IAS
7 “Statement of cash flows” present cash flows in the same manner as under Previous GAAP. Other than reclassifications
between net earnings and the adjustments to compute cash flows from operating activities there were no material changes to the
statement of cash flows.



| | i. | Derivative instruments
| | -- | ----------------------

Prior to the transition date, Vermilion completed
a business combination that included a contingent consideration arrangement which is dependent upon the price of oil. Under Previous
GAAP, contingent payments made under this arrangement were accounted for as additional consideration. Although Vermilion has elected
to not restate past business combinations, the contingent payment, outstanding at the date of transition, is subject to remeasurement
under IFRS 3 “Business combinations” and accordingly the contingent payment is accounted for as a derivative liability
with changes in the estimated fair value recorded at each period end through earnings. Upon transition to IFRS the initial recognition
of the contingent payment was recorded to derivative liability and retained earnings.



| | j. | Goodwill
| | -- | --------

Under Previous GAAP Vermilion tested impairment
at the level of a reporting unit, which for the year ended December 31, 2010 and prior periods related to assets in Canada. Under
IFRS the testing of goodwill was performed by allocating the goodwill where possible to the CGU’s upon which the goodwill
value is attributable. As a result of the impairment testing under IFRS for the year ended December 31, 2010, the balance of goodwill
was identified as being impaired and was charged to net earnings in that year. The transition to IFRS therefore resulted in an
adjustment to goodwill and a decrease to net earnings of $19.8 million in the year ended December 31, 2010.



The remaining adjustment to goodwill in the
2010 comparable period resulted from the reversal of the exchangeable share conversion under Previous GAAP. Under Previous GAAP,
the conversion of exchangeable shares was recorded as an acquisition of non-controlling interest at fair value; and the fair value
of the common shares issued in consideration for the non-controlling interest represented by the exchangeable shares was $270.6
million. The difference between the recorded fair value and the carrying value of the non-controlling interest of $109.0 million
resulted in increases to capital assets of $189.9 million, goodwill of $31.7 million and future income tax liability of $60.0 million.
The accounting for the exchangeable shares under IFRS is discussed in above.



38







|Vermilion Energy
    Inc. | 2011
    Audited Annual Financial Statements – Exhibit 99.3
|------------------------- | -----------------------------------------------------------







|DIRECTORS
        
        Larry J. Macdonald 1,
        2, 3, 4, 5
        Chairman & CEO, Point Energy
        Ltd.
        Calgary, Alberta
        
        W. Kenneth Davidson 2,
        3Toronto, Ontario
        
        Lorenzo Donadeo
        Calgary, Alberta
        
        Claudio A. Ghersinich 2,
        4, 5
        Executive Director, Carrera
        Investments Corp.
        Calgary, Alberta
        
        Joseph F. Killi 2, 3
        Chairman, Parkbridge Lifestyle
        Communities Inc.
        Vice Chairman, Realex Properties Corp.
        Calgary, Alberta
        
        William F. Madison 2,
        4, 5Sugar Land, Texas
        Timothy R. Marchant 3, 4, 5Calgary, Alberta
        
        1Chairman
        of the Board
        2	Audit Committee
        3	Governance and Human Resources Committee
        4	Health, Safety and Environment Committee
        5	Independent Reserves Committee
        
        ANNUAL GENERAL
        MEETINGMay 4, 2012 at 10:00 a.m.
        The Ballroom
        Metropolitan Centre
        333 – 4th Avenue S.W.
        Calgary, Alberta | OFFICERS
                                                  AND KEY PERSONNEL
        
        CANADA
        Lorenzo Donadeo, P.Eng.
        President & Chief Executive
        Officer
        
        John D. Donovan, F.C.A.
        Executive Vice President Business
        Development
        
        Curtis W. Hicks, C.A.
        Executive Vice President &
        CFO
        
        G. R. (Bob) Mac Dougall, P.Eng.
        Executive Vice President &
        COO
        
        Mona Jasinski, M.B.A., C.H.R.P.
        Executive Vice President People
        
        Raj C. Patel, P.Eng.
        Vice President Marketing
        
        Daniel
        Goulet, P.Eng.
        Director
        Production and Operations
        
        Cameron
        A. Hercus, MSc
        Director
        Exploitation and New Growth
        
        Dean N.
        Morrison, CFA
        Director
        Investor Relations
        Gerardo Rivera
        Director
        Strategy and Portfolio Management
        
        Robert
        (Bob) J. Engbloom, LL.B
        Corporate
        Secretary
        
        Paul L.
        Beique
        Investor
        Relations
        
        EUROPE
        Peter
        Sider, P.Eng.
        Vice President
        European Operations
        
        David
        Burghardt, P.Eng.
        Director
        Exploitation
        
        Scott
        Ferguson, P.Eng.
        Director
        European Operations
        
        AUSTRALIA
        Bruce
        D. Lake, P.Eng.
        Managing
        Director
        Vermilion Oil & Gas Australia
        Pty Ltd. | AUDITORS
        Deloitte & Touche LLP
        Calgary, Alberta
        
        BANKERS
        The Toronto-Dominion Bank
        Calgary, Alberta
        
        Bank of Montreal
        Calgary, Alberta
        
        BNP Paribas (Canada)
        Toronto, Ontario
        
        Royal Bank of Canada
        Calgary, Alberta
        
        The Bank of Nova Scotia
        Calgary, Alberta
        
        Canadian Imperial Bank of Commerce
        Calgary, Alberta
        
        Alberta Treasury Branches
        Calgary, Alberta
        
        National Bank of Canada
        Calgary, Alberta
        Citibank N.A., Canadian Branch
        Calgary, Alberta
        
        EVALUATION ENGINEERS
        GLJ Petroleum Consultants Ltd.
        Calgary, Alberta
        
        LEGAL COUNSEL
        Norton Rose Canada LLP
        Calgary, Alberta
        
        TRANSFER AGENT
        Computershare Trust Company
        of Canada
        
        STOCK EXCHANGE LISTING
        The Toronto Stock Exchange
        Symbol: 	VET
        US OTC
        Symbol:
        	VEMTF
        
        INVESTOR
        RELATIONS CONTACT
        Dean Morrison, Director Investor
        Relations
        403.269.4884 TEL
        403.476.8100 FAX
        1.866.895.8101 IR TOLL FREE
        investor_relations@vermilionenergy.com
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