Perpetual Energy Inc. releases second quarter 2013 financial and operating results

CALGARY, Aug. 9, 2013 /PRNewswire/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual" or the "Corporation") is pleased to release its financial and operating results for the three and six months ended June 30, 2013. A complete copy of Perpetual's unaudited interim consolidated financial statements and related notes and management's discussion and analysis for the three and six months ended June 30, 2013 and 2012 can be obtained through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.

SECOND QUARTER 2013

Operations highlights

  • Oil and natural gas liquids ("NGL or liquids") production of 4,384 bbl/d was 26 percent higher than the first quarter of 2013 and 27 percent higher than the second quarter of 2012 as a result of Perpetual's focus on commodity diversification with capital spending directed to the development of oil and liquids-rich natural gas assets.

  • Oil and NGL production represented 22 percent of the Corporation's total quarterly production, up from 16 percent in the prior year's quarter and 19 percent in the first quarter of 2013. Oil and NGL production represented 18 percent of the Corporation's total actual plus deemed gas over bitumen production for the second quarter of 2013.

  • Natural gas production of 91.9 MMcf/d increased four percent from the first quarter of 2013 (88.6 MMcf/d) with new production tied-in from liquids-rich Wilrich gas wells drilled in late 2012. Compared with the 2012 second quarter, natural gas production decreased 13 percent due to asset dispositions and natural declines as the operational focus has shifted to more profitable oil and NGL projects.

  • Average production (including deemed production) for the second quarter was 23,725 boe/d, up six percent from the preceding first quarter of 2013. Compared to the second quarter 2012, total actual and deemed production was down seven percent, reflecting the impact of property dispositions completed in 2012.

Financial highlights

  • Funds flow of $17.3 million ($0.12/common share) increased 36 percent from last year's second quarter and 81 percent from the first quarter of 2013, as a result of stronger natural gas prices combined with increased production from higher netback oil and liquids-rich natural gas properties.

  • Operating netbacks of $14.81/boe increased 14 percent from second quarter 2012, reflecting higher commodity prices and the increased percentage of higher priced oil and NGL in the production mix.

  • Realized natural gas prices, before derivatives, increased 74 percent to $3.68/Mcf in the second quarter of 2013 from $2.12/Mcf in 2012, reflecting the increase in AECO Monthly Index prices quarter over quarter. With Perpetual's hedge position in 2012 and 2013, realized natural gas prices, including derivatives, increased 19 percent from the prior year's quarter to $3.90/Mcf.

  • Perpetual's oil and NGL price, before derivatives, of $66.18/bbl increased eight percent from second quarter 2012 following a marginal increase in West Texas Intermediate Index ("WTI") prices as well as a narrowing of WTI to the Western Canadian Select ("WCS") differential price.

  • Second quarter exploration and development spending of $10.4 million remained focused on two key plays: Mannville heavy oil and Edson liquids-rich gas. Expenditures included installation of facilities for the start-up of production from the active first quarter Mannville heavy oil drilling program, drilling two (2.0 net) Mannville heavy oil wells to kick off the year's second half Mannville drilling program, and expenditures related to facilities enhancements and construction of a sales pipeline at West Edson.

  • Acquisition costs for the second quarter included $19.1 million to buy back an additional 20 percent interest in the Warwick Gas Storage ("WGS LP") business as well as $5.4 million for additional undeveloped land in the West Central district which the Corporation considers prospective for liquids-rich natural gas.

Perpetual remains focused on five key strategic priorities in 2013:

  1. Maximize value of Mannville heavy oil;
  2. Position for growth of Edson liquids-rich gas;
  3. Manage downside risk and reduce debt;
  4. Advance and broaden the portfolio of high impact opportunities with risk-managed investment; and
  5. Prepare to maximize value from shallow gas base assets in gas price recovery.

Perpetual continued to make significant progress with respect to these priorities during the second quarter of 2013, as highlighted below.

Maximize value of Mannville heavy oil

  • Second quarter exploration and development activities in the Mannville area focused on installation of facilities and production start-up operations on wells drilled during the first quarter drilling program. As a result, 26 (24.7 net) new wells from the winter drilling program were on production by the end of the second quarter.

  • Mannville heavy oil production continued to increase with second quarter production of 3,575 bbl/d, up 30 percent from the preceding first quarter of 2013 (2,754 bbl/d) as a result of capital spending allocated to heavy oil projects during the first quarter.

  • Operating netbacks for heavy oil production from the Mannville area improved to $36.10/bbl from $34.64/bbl in the prior year's quarter due to increased onsite processing and drying of oil, which allows access to enhanced oil marketing opportunities and improved pricing. The Corporation shipped 1,300 bbl/d to market through rail arrangements in the second quarter whereas there were no shipments via rail in the prior year. With access to a newly constructed third party rail terminal at Mannville, Perpetual expects netbacks to improve further.

  • Perpetual began its second half drilling program after spring break-up with two (2.0 net) wells drilled before the end of the second quarter and an additional three (3.0 net) wells drilled in early July. Two wells were drilled as multi-laterals, resulting in a total of seven (7.0 net) new horizontal laterals. Preliminary results are in line with expected type curves, and budget volumes and facilities work to optimize production on these new wells is ongoing. Up to nine (8.7 net) Mannville heavy oil wells are planned for the remainder of the second half of 2013.

  • On July 15, 2013, Perpetual received regulatory approval to initiate a waterflood in a portion of the Mannville I2I pool for pressure maintenance to reduce the Sparky pool's decline rate and enhance recoverable oil reserves. Water injection is expected to commence in the fourth quarter of 2013.  Planning is underway to convert this waterflood to a polymer flood in late 2014.

Position for growth of Edson liquids-rich gas

  • Perpetual began enhancements to the West Edson compressor station during the second quarter, including the installation of refrigeration and liquids handling equipment. Construction of a 15.5 km sales gas pipeline also began during the second quarter. Start-up of the new plant components and sales gas pipeline is expected in the third quarter of 2013.

  • Construction at the gas plant to complement the 30 MMcf/d compressor station (50 percent net to Perpetual) and the sales pipeline will allow Perpetual to benefit from marketing and transportation agreements with Aux Sable Canada and Alliance Canada which allow access to a premium market in the mid-west United States. The facility and pipeline projects combined with the new marketing and transportation arrangements are expected to reduce operating costs, decrease downtime and increase overall netbacks for the West Edson production.

  • Perpetual increased its acreage position in the West Central district during the second quarter, primarily through undeveloped land acquisitions totaling $5.4 million. The lands acquired are viewed by the Corporation to be highly prospective for future Wilrich development as well as horizontal development of several other Cretaceous zones. Capital activities are planned for the second half of 2013 to evaluate the new acreage and prove up additional future drilling locations to enhance the Corporation's deep basin prospect inventory.

  • Drilling operations in the West Central district recommenced in early July following spring break-up. Perpetual expects to drill up to six (3.0 net) horizontal wells during the second half of 2013, primarily at West Edson to grow production to fill the 30 MMcf/d (15 MMcf/d net) capacity of the new facility. Included in the second half drilling program are two (1.0 net) exploratory delineation wells targeting to prove up additional liquids-rich gas horizontal drilling inventory.

Manage downside risk and reduce debt

  • In April 2013 Perpetual's bank syndicate completed its annual borrowing base review which resulted in a revision to its credit facility to $125 million (from $127.5 million), stepping down to $110 million on July 31, 2013. The reductions reflect dispositions and lower natural gas price forecasts used in lender evaluations, offset by increased lending values attributable to higher oil and NGL reserves.

  • Total net debt, including net bank debt, convertible debentures and Senior Notes, decreased by $31.8 million over the prior year's quarter to $370.1 million at June 30, 2013, a decrease of eight percent, and a seven percent decline from year end 2012.

  • Near term natural gas prices at AECO have weakened for summer and fall 2013 as lower than normal temperatures throughout North American have reduced expected electrical demand for summer cooling. In addition, the AECO basis differential has widened considerably since the end of the second quarter, driven by changes in interruptible tolls put in place on the TransCanada Mainline. To manage downside risk, Perpetual has in place natural gas hedges on 50 percent of forecast actual and deemed production for the remainder of 2013 (September through December 2013) with an average of 60,000 GJ/day of natural gas production hedged at AECO at an average price of $3.38/GJ. These hedges bring certainty to a portion of funds flow for the remainder of 2013 and support planned capital programs.

  • To reduce exposure to fluctuations in oil prices, Perpetual has oil sales arrangements for 2,250 bbl/d for the remainder of 2013, protecting an average WTI index floor price of US$88.22/bbl with an average ceiling price of US$101.18/bbl. The Corporation has also entered into financial contracts for 2,250 bbl/d to fix the basis differential between the WTI and WCS trading hubs at an average of US$(22.79)/bbl.

  • In June 2013, Perpetual commenced purchasing for cancellation under a normal course issuer bid (the "Bid") up to a maximum of $7,536,000 principal amount of 7.25 percent convertible extendible unsecured subordinated debentures (the "7.25% Debentures") and $3,873,000 principal amount of 7.00 percent convertible extendible unsecured subordinated debentures due December 31, 2015 (the "7.00% Debentures"). The daily limits on purchases under the Bid are $9,000 7.25% Debentures and $14,000 7.00% Debentures, based on 25 percent of average daily trading volumes for the prior six months. Purchases to June 30 were $35,242 for the 7.25% Debentures and $67,045 for the 7.00% Debentures.

Advance and broaden the portfolio of high impact opportunities with risk-managed investment

  • Funding approval through the Alberta government's Innovative Energy Technology Program ("IETP") was received for Perpetual's Low-Pressure Electro-Thermally Assisted Drive ("LEAD") pilot project to develop bitumen in the Bluesky reservoir in the Panny area of northeast Alberta. The total capital and operating costs for the pilot project are estimated at $18.2 million. Approved funding through IETP is 30 percent of actual eligible costs to a maximum of $5.5 million. Perpetual plans to activate the IETP funding with the drilling of a water source well in the third quarter of 2013. Application for regulatory approval for the LEAD pilot has been submitted but, as operations are largely restricted by winter access conditions, Perpetual does not expect material capital spending on the project to commence until winter 2014/2015.

  • During the second quarter, Perpetual exercised its option to acquire an additional 20 percent interest in WGS LP. Pursuant to the option agreement, the Corporation paid $19.1 million and increased its interest in WGS LP to 30 percent from 10 percent. Since April 2012, through new drilling and delta pressuring approvals, WGS LP has increased the working gas capacity of the storage facility to 21.5 Bcf from 17 Bcf.

Prepare to maximize value from shallow gas base assets in gas price recovery

  • Production from shallow gas base assets was 65.5 MMcf/d in the second quarter of 2013, representing 71 percent of Perpetual's natural gas production. These assets have significant leverage to higher funds flow with improved natural gas prices.

  • Optimization of facilities and gathering systems, field office consolidation and streamlining of metering and other operations resulted in lower operating expenses related to Perpetual's shallow gas assets. Operating costs for these shallow gas assets were $12.9 million in the second quarter of 2013, down three percent ($0.4 million) from the second quarter of 2012.

  • A significant number of highly profitable shallow gas recompletions and workovers have been reviewed and high graded. Capital spending will occur primarily in 2014 as Perpetual expects improved AECO natural gas prices will generate higher returns on these activities.

2013 Outlook

Perpetual expects capital spending for 2013 to be $75 to $85 million. Consistent with the strategy in the first half, capital spending in the second half will be driven by Perpetual's commodity diversification strategy, with spending focused on Mannville heavy oil drilling and liquids-rich gas horizontal drilling and infrastructure in the West Central district in the Alberta deep basin. Planned capital spending for the remainder of the second half of 2013 includes up to nine (8.7 net) Mannville heavy oil wells, up to six (3.0 net) liquids-rich natural gas wells in the West Central district and additional facility and infrastructure spending on the Corporation's West Edson facilities.

In addition, Perpetual will continue to pursue dispositions with proceeds from any potential divestitures to be utilized to strengthen the balance sheet. Perpetual may adjust its planned capital spending program based on prevailing commodity prices as allowed by the Corporation's diverse inventory of exploration and development opportunities.

Perpetual estimates that 2013 funds flow will total $60 to $70 million based on current forward commodity prices with oil and liquids production averaging 3,900 to 4,200 bbl/d and natural gas averaging 85 to 95 MMcf/d.

FINANCIAL AND OPERATING HIGHLIGHTS Three Months Ended June 30 Six Months Ended June 30
($Cdn thousands except volume and per share amounts) 2013 2012 % Change 2013 2012 % Change
Financial            
Revenue (1) (2) 58,460 50,762 15 102,427 107,489 (5)
Funds flow (2) 17,286 12,668 36 26,820 27,169 (1)
  Per share (2) (3) 0.12 0.09 30 0.18 0.18 1
Net earnings (loss) (5,327) 25,899 (121) 27,005 12,859 110
  Per share - basic (3) (0.04) 0.18 (122) 0.18 0.09 100
  Per share - diluted (3) (0.04) 0.17 (124) 0.18 0.09 100
Total assets 708,616 840,118 (16) 708,616 840,118 (16)
Net bank debt outstanding (2) 60,226 91,940 (34) 60,226 91,940 (34)
Senior notes, at principal amount 150,000 150,000 - 150,000 150,000 -
Convertible debentures, at principal amount 159,867 159,972 - 159,867 159,972 -
Total net debt (2) 370,093 401,912 (8) 370,093 401,912 (8)
Shareholders' equity 64,458 93,958 (31) 64,458 93,958 (31)
Capital expenditures            
  Exploration and development (4) 10,360 9,606 8 49,816 40,617 23
  Acquisitions, net of dispositions 5,349 (80,650) 107 (70,829) (143,342) (51)
  Other 33 14 136 84 204 (59)
  Net capital expenditures 15,742 (71,030) 122 (20,929) (102,521) (80)
Common shares outstanding (thousands)            
End of period 148,274 147,114 1 148,274 147,114 1
Weighted average 148,015 147,056 1 147,853 147,016 1
Shares outstanding at August 9, 2013 148,346     148,346    
Operating            
Daily average production            
  Natural gas (MMcf/d) (5) 91.9 105.1 (13) 90.2 109.4 (18)
  Oil and NGL (bbl/d) (5) 4,384 3,446 27 3,937 3,460 14
  Total (boe/d) (5) 19,708 20,962 (6) 18,980 21,695 (13)
  Gas over bitumen deemed production (MMcf/d) (6) 24.1 27.7 (13) 24.5 27.7 (12)
  Average daily (actual and deemed - boe/d) (5) (6) 23,725 25,579 (7) 23,063 26,312 (12)
  Per common share (boe/d/share) (3) 0.16 0.17 (6) 0.16 0.18 (11)
Average prices            
  Natural gas, before derivatives ($/Mcf) 3.68 2.12 74 3.43 2.32 48
  Natural gas, including derivatives ($/Mcf) 3.90 3.28 19 3.60 3.20 13
  Oil and NGL, before derivatives ($/bbl) 66.18 61.10 8 61.15 65.43 (7)
  Oil and NGL, including derivatives ($/bbl) 64.84 58.58 11 61.31 62.61 (2)
  Barrel of oil equivalent, including derivatives ($/boe) 32.60 26.07 25 29.82 26.14 14
Land (thousands of net acres)            
Undeveloped land holdings  1,584 1,756 (10) 1,584 1,756 (10)
Drilling (wells drilled gross/net)            
  Gas -/- -/- -/- -/- 4/3.5 (100)/(100)
  Oil 2/2.0 6/6.0 100/100 29/27.7 22/21.3 32/30
  Total 2/2.0 6/6.0 (67)/(67) 29/27.7 26/24.8 12/12
  Success rate (%) 100/100 100/100 -/- 100/100 100/100 -/-

(1)      Revenue includes realized gains (losses) on derivatives.
(2)      These are non-GAAP measures. Please refer to "Non-GAAP Measures" included in management's discussion and analysis.
(3)      Based on weighted average basic or diluted common shares outstanding for the period.
(4)      Exploration and development costs include geological and geophysical expenditures.
(5)      Production amounts are based on the Corporation's interest before royalty expense.
(6)      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.


Forward-Looking Information

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 "2013 Outlook" above may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding anticipated reduction in operating costs, decreased operational downtime and netback increases, expected timing for the operation of new facilities, expected access to capital markets; 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; commodity prices; and estimated funds flow sensitivity. 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, 2012 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.

Also included in this press release is an estimate of Perpetual's 2013 funds flow, which is based on the various assumptions as to production levels, capital expenditures, and other assumptions disclosed in this press release and including current commodity price assumptions for natural gas, crude oil and exchange rate assumption. To the extent such estimate constitutes a financial outlook, it was approved by management of Perpetual on August 9, 2013 and is included to provide readers with an understanding of Perpetual's anticipated funds flow based on the capital expenditure and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

Non-GAAP Measures

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.

About Perpetual

Perpetual Energy Inc. is a Canadian energy company with a spectrum of resource-style opportunities spanning heavy oil, liquids-rich natural gas 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.




Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.