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
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.
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
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
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:
- Maximize value of Mannville heavy oil;
- Position for growth of Edson liquids-rich gas;
- Manage downside risk and reduce debt;
- Advance and broaden the portfolio of high impact opportunities with risk-managed investment; and
- 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
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
- 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.
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|
|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|
|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)|
|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)|
|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|
|Shares outstanding at August 9, 2013||148,346||148,346|
|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)|
|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)|
|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.|
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.
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, 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.