Perpetual Energy Inc. releases first quarter 2014 financial and operating results and reports an increase in its credit facility borrowing base
CALGARY, May 6, 2014 /PRNewswire/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual" or the "Corporation" or the "Company") is pleased to report its financial and operating results for the three months ended March 31, 2014. Overall, results show significant gains from the comparative period in 2013 and the previous fourth quarter, reflecting both positive operating results and stronger commodity prices. A complete copy of Perpetual's unaudited interim consolidated financial statements and related Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2014 can be obtained through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
Perpetual is also pleased to report that an 18 percent increase in borrowing capacity from $110 million to $130 million will be made available on or before May 10, 2014 as a result of the lenders' semi-annual borrowing base review under the Corporation's credit facility which has now been completed.
FIRST QUARTER 2014
First quarter average production of 18,794 boe/d was three percent
higher than first quarter 2013 (18,244 boe/d) and one percent higher
than the preceding fourth quarter of 2013. Including deemed production,
total deemed and actual production averaged 22,036 boe/d, down two
percent from the first quarter of 2013, reflecting the annual 10
percent reduction in deemed production and the termination of deemed
production for multiple wells shut-in during 2003 which reached the end
of their 10 year deemed production period.
Oil and natural gas liquids ("NGL" or "liquids") production of 3,451
bbl/d remained consistent with the prior year (3,483 bbl/d) with
additions from the Company's Mannville heavy oil drilling program
offsetting declines on liquids production from Edson wells related to
changes in plant and liquids recovery operations.
Natural gas production of 92.1 MMcf/d was up two percent from the
preceding fourth quarter and four percent from the first quarter of
2013, reflecting production from new wells drilled at West Edson which
more than offset natural declines on Perpetual's shallow gas assets.
- Capital expenditures of $31.4 million were concentrated on the Company's Mannville heavy oil property and liquids-rich natural gas activity in the greater Edson area. Drilling activities in the first quarter included 11 (9.7 net) horizontal heavy oil wells at Mannville and three (2.0 net) horizontal wells in the greater Edson area. Expenditures also included capital costs related to the completion and tie-in of wells drilled at West Edson in the fourth quarter of 2014, facilities costs related to the addition of incremental condensate stabilization and compression equipment at the West Edson plant and spending to reactivate, recomplete and workover eastern Alberta shallow gas wells to optimize production operations in eastern Alberta.
Funds flow of $17.4 million ($0.12 per share) was 82 percent higher than
the comparative first quarter of 2013 ($9.5 million) and 34 percent
higher than the preceding fourth quarter ($13.0 million), reflecting
increased natural gas prices, higher average production and higher
average heat content gas as the relative proportion of gas produced
from West Central Alberta increased 50 percent over the 2013 period.
- Improved natural gas prices were reflected in a first quarter operating netback of $16.23/boe, up 27 percent from the prior year (Q1 2013 - $12.78/boe).
Perpetual's average natural gas price, before derivatives, was
$4.90/Mcf, up 54 percent from $3.18/Mcf for the first quarter of 2013,
consistent with the increase in AECO monthly prices. With close to 60
percent of Perpetual's production hedged or sold forward at AECO
monthly prices below the settled market prices during the first
quarter, the losses on financial natural gas contracts reduced
Perpetual's realized gas revenue by $5.0 million resulting in a
realized price of $4.35/Mcf.
Perpetual's oil and NGL price, before derivatives, of $77.72/bbl was 42
percent higher than the prior year's first quarter ($54.74/bbl)
primarily due to higher crude oil prices and a narrowing of the West
Texas Intermediate ("WTI") to Western Canada Select ("WCS")
differential price. Perpetual's realized oil and NGL price, including
derivatives, was impacted by losses recorded on financial WTI fixed
price contracts, resulting in a realized price of $72.06/bbl.
- A net loss of $17.3 million was recorded for the first quarter of 2014, reflecting an unrealized loss on derivatives of $12.7 million, primarily due to outstanding physical and financial natural gas contracts with contract prices below forward market prices at the end of the first quarter.
2014 STRATEGIC PRIORITIES
Perpetual remains focused on its top five strategic priorities for 2014:
- Reduce debt and manage downside risk;
- Grow Edson liquids-rich gas production, reserves, cash flow, inventory and value;
- Maximize value of Mannville heavy oil;
- Maximize cash flow from shallow gas; and
- Advance and broaden the portfolio of high impact opportunities with risk-managed investment.
Downside risk management
Perpetual continues to target capital spending in 2014 to be fully
funded by 2014 funds flow. The 2014 capital program was heavily
weighted to the first quarter with an active winter drilling program,
resulting in first quarter capital spending of $31.4 million and $48.6
million planned for the remainder of 2014.
Perpetual has entered into commodity price management contracts for the
remainder of 2014 to protect a base level of funds flow. Perpetual has
in place natural gas hedges on an estimated 55 percent of forecast
actual and deemed production from April to December of 2014 with an
average of 64,163 GJ/day of natural gas production hedged at AECO
Monthly Index at an average price of $4.10/GJ. Perpetual also has
financial contracts in place for the period from June to October 2014
to fix the basis differential between the NYMEX and AECO for an average
of 7,500 MMBtu/d at US$(0.48)/MMBtu.
Perpetual has oil sales arrangements for 1,500 bbl/d in place from April
through December 2014 protecting an average WTI index floor price of
US$86.67/bbl with an average ceiling price of US$95.15/bbl. In
addition, the Corporation has fixed WTI oil sales contracts in place
for 1,000 bbl/d for the period of April through June 2014 and 750 bbl/d
for the period of July through December, both at US$90.00/bbl as a
result of the trigger of a swaption call on December 31, 2013. The
Corporation also has financial contracts in place for 2,000 bbl/d to
fix the basis differential between the WTI and WCS trading hubs at an
average of US$(21.64)/bbl.
- The lenders under Perpetual's credit facility have completed their semi-annual borrowing base review and total availability under the facility will be increased from $110 to $130 million on or before May 10, 2014. The increase from the previous borrowing base was primarily due to strong gas and NGL reserve additions in West Central Alberta reported in Perpetual's December 31, 2013 external reserve evaluation. Pro forma for the increased borrowing base, Perpetual has approximately $50 million of undrawn credit capacity under the credit facility.
Edson Wilrich liquids-rich gas
Capital spending in the West Central district during the first quarter
totaled $19.1 million, which included drilling three (2.0 net)
liquids-rich wells in the greater Edson area as well as the multi-stage
fracture stimulation and tie-in of two horizontal wells drilled in the
fourth quarter of 2013. The new wells have all performed at or above
the type curve for West Edson since being placed on production during
the first quarter. Drilling operations on a fourth well (0.5 net)
extended into the second quarter. Completion operations for this well
are planned for immediately after spring breakup.
Approximately $1.3 million of capital was also directed to facility
enhancements at West Edson during the quarter, to add additional
condensate stabilization and prepare for the installation of additional
compression in the second quarter. The additional compression and other
plant components are projected to increase the capacity at West Edson
to 60 MMcf/d plus associated liquids (50 percent working interest) by
the end of the second quarter.
Perpetual plans to spend an additional $26 million in the West Central
district during the remainder of 2014 for the drilling of up to 10 (5.5
net) wells and completion of the facility enhancements at the West
Edson gas plant.
- Production results from a new tighter spacing infill well drilled at West Edson during the first quarter of 2014 will be monitored to assess the optimal development spacing program for the area.
Mannville heavy oil
A continuous one-rig winter drilling program resulted in 11 (9.7 net)
new heavy oil wells drilled during the first quarter, with $10.9
million of first quarter capital allocated to Mannville heavy oil
exploration and development. The winter drilling program resulted in
three new heavy oil pool discoveries. Production from these new pools
will be closely monitored to evaluate follow-up development drilling
Drilling activities will resume after spring break-up with capital
spending of approximately $15 million budgeted for drilling, completion
and tie-in activities on up to 10 (8.8 net) wells for the remainder of
2014, including six (5.1 net) development wells related to the recent
new pool discoveries.
Capital will also be directed to a water handling and injection project
to begin pressure maintenance through waterflood on two small pools in
the Mannville area.
- Perpetual continues to monitor performance of the waterflood pilot initiated in the Mannville I2I pool in December 2013. Expansion of the waterflood pilot will likely proceed in late 2014.
Approximately $1.4 million of first quarter capital was allocated to
reactivate shut-in shallow gas wells, workover existing wells and
recomplete additional zones. In addition, an estimated $1 million was
incurred as one-time operating expenditures to further enhance shallow
gas productivity. Production additions of 6.2 MMcf/d (IP 30) were
achieved as a result of these capital and operating activities,
translating into extremely high capital efficiencies of less than
$5,000 per flowing boe/d on this shallow gas optimization program.
- The remaining 2014 capital budget includes an additional $5 million of spending to maximize value and mitigate production declines on the Corporation's legacy shallow gas assets through facility optimization projects, workovers and uphole recompletions.
High impact opportunities
- Project planning and full scale development scoping continued on Perpetual's bitumen recovery pilot project in the Bluesky formation at Panny during the quarter. Regulatory approval of the pilot project to assess the proprietary LEAD (Low-Pressure Electro-Thermal Assisted Drive) technology is expected to be received prior to the end of the third quarter of 2014.
Perpetual continues to target capital spending to be fully funded by 2014 funds flow. The Corporation's Board of Directors has approved a $70 to $80 million capital budget for full calendar year 2014. Capital spending for the remainder of the year will be approximately $48 million. The table below summarizes expected capital spending and planned drilling activities in accordance with Perpetual's 2014 strategic priorities for the remainder of 2014.
|Capital expenditures for Q2 - Q4 of 2014||$ millions||# of Wells|
|West Central liquids-rich gas||26||10 (5.5 net)|
|Mannville heavy oil||15||10 (8.8 net)|
|Abandonment and reclamation||2||-|
|48||20 (14.3 net)|
Perpetual estimates that 2014 funds flow will total $80 to $90 million based on current forward commodity prices, with oil and liquids production averaging close to 3,400 - 3,500 bbl/d and natural gas sales averaging approximately 90 to 95 MMcf/d. The enhanced heat content of Perpetual's liquids-rich gas in West Central Alberta results in premium pricing to AECO market prices. Perpetual expects to average 36 to 38 MMcf/d of gas production in the Edson area in 2014, where the average heat content is estimated at 1.18 GJ/Mcf.
The table below highlights the sensitivities of Perpetual's 2014 forecasted funds flow to commodity index prices:
|Projected 2014 funds flow(2) ($ millions)||AECO Gas Price ($/GJ)(1)|
|(1)||The current settled and forward average AECO and WTI prices for April to December 2014 as of May 6, 2014 were $4.58 per GJ and US$96.82 per bbl, respectively.|
|(2)||This is a non-GAAP measure; see "Non-GAAP measures" in this News Release.|
|Financial and Operating Highlights||Three Months Ended March 31|
|(Cdn$ thousands except as noted)||2014||2013||% Change|
|Oil and natural gas revenue||64,754||42,477||52|
|Funds flow (1)||17,384||9,534||82|
|Per share (1) (2)||0.12||0.06||100|
|Net earnings (loss)||(17,324)||32,764||(153)|
|Per share - basic (2)||(0.12)||0.22||(153)|
|Per share - diluted (2)||(0.12)||0.21||(157)|
|Net bank debt outstanding (1)||84,048||32,062||162|
|Senior notes, at principal amount||150,000||150,000||-|
|Convertible debentures, at principal amount||159,779||159,972||-|
|Total net debt (1)||393,827||342,034||15|
|Exploration and development (3)||31,428||39,507||(20)|
|Dispositions, net of Acquisitions||151||(76,178)||100|
|Net capital expenditures||31,579||(36,671)||186|
|Common shares outstanding (thousands)|
|End of period||148,944||147,704||1|
|Weighted average - basic||148,448||147,672||1|
|Weighted average - diluted||148,448||171,667||(14)|
|Natural gas (MMcf/d) (4)||92.1||88.6||4|
|Oil and NGL (bbl/d) (4)||3,451||3,483||(1)|
|Total (boe/d) (5)||18,794||18,244||3|
|Gas over bitumen deemed production (MMcf/d) (5)||19.5||25.0||(22)|
|Average daily (actual and deemed - boe/d) (4) (5)||22,036||22,403||(2)|
|Natural gas, before derivatives ($/Mcf)||4.90||3.18||54|
|Natural gas, including derivatives ($/Mcf)||4.35||3.28||33|
|Oil and NGL, before derivatives ($/bbl)||77.72||54.74||42|
|Oil and NGL, including derivatives ($/bbl)||72.06||56.82||27|
|Barrel of oil equivalent, including derivatives ($/boe)||34.51||26.80||29|
|Drilling (wells drilled gross/net)|
|Success rate (%)||100/100||100/100|
|(1)||These are non-GAAP measures. Please refer to "Non-GAAP Measures" in this News Release.|
|(2)||Based on weighted average basic or diluted common shares outstanding for the period.|
|(3)||Exploration and development costs include geological and geophysical expenditures and other.|
|(4)||Production amounts are based on the Corporation's interest before royalty expense.|
|(5)||The deemed production volume describes all gas shut-in or denied production pursuant to a decision report, corresponding order or general bulletin of the Alberta Energy and Utilities Board ("AEUB"), or through correspondence in relation to an AEUB ID 99-1 application. This deemed production volume is not actual gas sales but represents shut-in gas that is the basis of the gas over bitumen financial solution which is received monthly from the Alberta Crown as a reduction against other royalties payable.|
Certain information regarding Perpetual in this news release including management's assessment of future plans and operations and including the information contained under the heading "Outlook" may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding capital expenditure levels for 2014, prospective drilling activities; forecast production, production type, operations, funds flows, and timing thereof; forecast and realized commodity prices; expected funding, allocation and timing of capital expenditures; projected use of funds flow and anticipated funds flow; planned drilling and development and the results thereof; expected dispositions, anticipated proceeds therefrom and the use of proceeds therefrom; and commodity prices. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management analysis of historical trends, experience, current conditions, and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in Perpetual's Annual Information Form and MD&A for the year ended December 31, 2013 and those included in other reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.
Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101 ("NI 51-101"), a conversion ratio for natural gas of 6 Mcf:1bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between natural gas and crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl.
This news release contains financial measures that may not be calculated in accordance with generally accepted accounting principles in Canada ("GAAP"). Readers are referred to advisories and further discussion on non-GAAP measures contained in the "Significant Accounting Policies and non-GAAP Measures" section of management's discussion and analysis.
Perpetual Energy Inc. is a Canadian energy company with a spectrum of resource-style opportunities spanning heavy oil, NGL and bitumen along with a large base of shallow gas assets. Perpetual's shares and convertible debentures are listed on the Toronto Stock Exchange under the symbol "PMT", "PMT.DB.D" and "PMT.DB.E", respectively. Further information with respect to Perpetual can be found at its website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
SOURCE Perpetual Energy Inc.