Perpetual Energy Inc. releases third quarter 2013 financial and operating results
CALGARY, Nov. 7, 2013 /PRNewswire/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual" or the "Corporation") is pleased to release its financial and operating results for the three and nine months ended September 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 nine months ended September 30, 2013 and 2012 can be obtained through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
THIRD QUARTER 2013
Third quarter capital spending of $23 million continued to advance
Perpetual's commodity diversification strategy, concentrating on
liquids-rich natural gas and heavy oil development projects.
Drilling activities during the third quarter included five (4.0 net)
wells, with three (3.0 net) heavy oil wells on the Corporation's
Mannville property and two (1.0 net) natural gas wells drilled in the
greater Edson area.
- Enhancements to the West Edson gas processing facility, including construction of a refrigeration plant and sales pipeline, were completed late in the third quarter, with deliveries into the Alliance pipeline commencing on October 1, 2013.
Oil and natural gas liquids ("NGL" or "liquids") production of 4,064
bbl/d was 22 percent higher than the third quarter of 2012, reflecting
Perpetual's focus on commodity diversification with capital spending
directed to the development of oil and liquids-rich gas assets. Oil and
NGL production represented 22 percent of third quarter actual
production and 18 percent of actual plus deemed production, up from 18
percent and 14 percent respectively in the comparative 2012 period.
Natural gas production of 85.3 MMcf/d was down nine percent from the
third quarter of 2012, reflecting asset dispositions, natural declines
and the limited second quarter drilling program due to wet spring
break-up conditions. Gas production from resource-style assets in West
Central Alberta increased 33 percent from the comparative 2012 period
to 22.5 MMcf/d, representing 26 percent of total gas production in the
third quarter. Compared to the prior year period, shallow gas
production decreased 18 percent as a result of asset dispositions and
natural declines as the capital investment and operational focus was
strategically shifted almost entirely to oil and liquids-rich,
resource-style gas assets.
- Total actual production for the third quarter was 18,274 boe/d, down four percent from 18,955 boe/d in the third quarter of 2012. Total actual production was down seven percent from the previous quarter, reflecting the natural declines and the production lag due to the interruption in drilling activity during spring break-up. Total actual and deemed production for the third quarter was 21,991 boe/d (Q3 2012 - 23,288 boe/d), down six percent from the third quarter of 2012.
Funds flow of $18.7 million ($0.13/common and diluted share) increased
73 percent from the prior year (Q3 2012 - $10.8 million) as a result of
increased production from higher netback oil and NGL properties coupled
with stronger oil prices, despite lower natural gas production and
continued low natural gas prices. Compared to the preceding second
quarter of 2013, funds flow increased eight percent, with increased oil
and NGL revenue coupled with reduced royalties and operating costs more
than offsetting lower natural gas prices.
Operating netbacks continued to improve with the increased percentage of
higher priced oil and NGL production. The third quarter operating
netback was $17.65/boe, up 19 percent from the preceding second quarter
of 2013 and 34 percent higher than the third quarter of 2012.
Perpetual's average natural gas price, before derivatives, was
$2.79/Mcf, down 24 percent from $3.68/Mcf in the preceding second
quarter, which was consistent with the decrease in AECO market prices
during the quarter. The Corporation's realized natural gas price,
including derivatives was $3.31/Mcf, 17 percent higher than the AECO
Monthly Index as a result of Perpetual's active risk management program
but four percent lower than Perpetual's realized natural gas price of
$3.44/Mcf for the same period in 2012.
- Perpetual's oil and NGL price, before derivatives, of $82.03/bbl was 28 percent higher than third quarter 2012, reflecting the increase in West Texas Intermediate Index ("WTI") prices as well as a narrowing of WTI to the Western Canadian Select ("WCS") differential price. Including derivatives, Perpetual realized an average third quarter oil and NGL price of $76.86/bbl relative to $59.63/bbl in the prior year period.
Perpetual remains focused on its five key strategic priorities in 2013:
- Maximize value of Mannville heavy oil;
- Position for growth of Edson liquids-rich gas;
- Advance and broaden the portfolio of high impact opportunities with risk-managed investment;
- Manage downside risk and reduce debt; and
- Prepare to maximize value from shallow gas base assets in a gas price recovery.
Perpetual continued to make significant progress with respect to these priorities during the third quarter of 2013, as highlighted below.
Maximize value of Mannville heavy oil
Drilling operations resumed on the Mannville heavy oil property with
three (3.0 net) wells drilled during the third quarter of 2013. Results
from new wells continue to meet expected type curves. An additional
four (4.0 net) wells are planned for the remainder of 2013 commencing
in mid-November to begin the one rig winter drilling program.
Mannville heavy oil production of 3,346 bbl/d for the third quarter of
2013 was 28 percent higher than the third quarter of 2012 (2,622 bbl/d)
as a result of targeted capital spending in the first quarter of 2013.
With limited drilling in the second quarter due to break-up conditions,
production declined seven percent from 3,575 bbl/d in the preceding
second quarter of 2013.
Operating netbacks for heavy oil production from the Mannville area
strengthened in the third quarter with improved prices and reduced
costs resulting from the onsite processing and drying of oil and the
increased use of rail transportation. Heavy oil operating netbacks for
the third quarter were $61.02/bbl, compared to $47.43/bbl in the third
quarter of 2012.
- 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. Perpetual is in the process of converting two wells for injection and water injection is expected to commence during the fourth quarter to initiate the waterflood pilot scheme. Planning is underway to expand the waterflood operation in 2014 and convert the pilot waterflood to a pilot polymer flood in 2015.
Position for growth of Edson liquids-rich gas
The first (0.5 net) well in a five (2.5 net) well development drilling
program designed to fully utilize capacity at the upgraded West Edson
gas plant was drilled, completed and tied in at West Edson late in the
third quarter. The new well recorded the highest test rate of any
Perpetual-operated well in the greater Edson area to date, exceeding 40
MMcf/d plus associated liquids at 12.5 MPa for a limited portion of its
initial flow back and test period. Production commenced from this new
well early in the fourth quarter at restricted rates of 20 MMcf/d plus
associated liquids and has produced over 500 MMcfe in its first 30 days
Perpetual completed enhancements to the 30 MMcf/d West Edson gas
processing facility (50 percent net to Perpetual) during the third
quarter, which included the installation of refrigeration and liquids
handling equipment. Capacity through the refrigeration plant now stands
at 37 MMcf/d gross (50 percent Perpetual WI), with condensate
stabilization capacity of 400 bbl/d. The installation of additional
stabilization and compression to increase the capacity to 45 MMcf/d,
with condensate stabilization capacity of 1,000 bbl/d, is planned for
Construction of a 15.5 km sales gas pipeline and operated meter station
was also completed in the third quarter, with start-up of the new plant
components and sales gas pipeline commencing as planned on October 1,
- Completion of the facilities 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 Corporation's West Edson production. Reported NGL production at West Edson will decrease in volume on a bbl/MMcf basis but increase in value with the new facility and sales configuration. A portion of the previously recovered liquids will now be included in higher heat content gas sales and sold directly to Aux Sable while high grade condensate liquids (C5 plus) are recovered through the new plant.
Advance and broaden the portfolio of high impact opportunities with risk-managed investment
In West Central Alberta, Perpetual drilled one (0.5 net) exploratory
horizontal well targeting the Fahler formation on recently acquired
undeveloped land in the Alberta deep basin south of the Corporation's
greater Edson core operating area. Tie in and extended flow test
operations are underway to evaluate the potential of this zone for
- During the third quarter, Perpetual drilled a water source well to activate funding which was previously approved 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 LEAD project received approval under the Alberta government's Innovative Energy Technology Program ("IETP"). 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. 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.
Manage downside risk and reduce debt
Perpetual's total net debt, including net bank debt ($65.6 million),
convertible debentures and Senior Notes, was $375.3 million at the end
of the third quarter, a decrease of $21.2 million from year end 2012.
The ratio of net debt to trailing 12 months funds flow at September 30,
2013 has improved by 19 percent from year end to a ratio of 6.6 times.
In October 2013 Perpetual's bank syndicate renewed the Corporation's
credit facility at $110 million, with effect until the next semi-annual
borrowing base review in April 2014.
Perpetual will continue to pursue dispositions in 2014, targeting
proceeds of a minimum of $100 million, which will be utilized to
strengthen the Corporation's balance sheet.
Near term natural gas prices at NYMEX weakened during the third quarter
as milder than normal temperatures throughout North American reduced
expected cooling electrical demand. The AECO basis differential also
widened considerably during the third quarter, driven by changes in
interruptible tolls put in place on the TransCanada Mainline. To
mitigate the negative impact of the reduction in AECO daily prices from
$3.53/Mcf in the second quarter of 2013 to $2.43/Mcf in the third
quarter, Perpetual entered into additional short term price management
contracts to realize an average price of $3.31/Mcf in the third
quarter. Realized gains on gas price management contracts for the third
quarter totaled $3.9 million.
To further manage commodity price risk, Perpetual has in place natural
gas hedges on 60 percent of forecast actual and deemed production for
the fourth quarter of 2013 with an average of 70,000 GJ/day of natural
gas production hedged at AECO at an average price of $3.20/GJ.
Perpetual has also entered into financial contracts in the fourth
quarter to fix the basis differential between the NYMEX and AECO for an
average of 11,600 MMBtu/d at US$(0.36)/MMBtu. These hedges bring
further certainty to a portion of funds flow for the remainder of 2013
to support planned capital programs.
Perpetual utilized oil hedges to manage oil price risk and the potential
negative impact on project economics and to protect a base level of
funds flow from oil and NGL production, which represented 58 percent of
third quarter petroleum and natural gas revenues. Perpetual's realized
oil and NGL price, including derivatives, of $76.86/bbl was impacted by
losses on derivative contracts of $1.9 million.
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. Additionally the Corporation has multiple oil price
risk management contracts in place for 2014.
- To further diversify its funds flow, Perpetual increased its equity investment in the Warwick Gas Storage business ("WGS LP") during the second quarter of 2013 to a 30 percent interest. With the increase in natural gas price spreads related to the drop in AECO natural gas prices during the third quarter, combined with increased working gas capacity related to new drilling and delta pressuring operations, Perpetual locked in contracts to increase the expected contribution to funds flow from WGS LP to approximately $2 million for the fourth quarter of 2013.
Prepare to maximize value from shallow gas base assets in gas price recovery
Shallow gas assets represented 74 percent of Perpetual's third quarter
natural gas production of 62.8 MMcf/d. Optimization of operations for
these properties has resulted in lower operating costs, giving this
portfolio of base assets significant leverage to higher funds flow
related to improved natural gas prices.
- 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 approximately $90 million. Consistent with the strategy during the nine months ended September 30, 2013, capital spending in the fourth quarter of 2013 will be driven by Perpetual's commodity diversification strategy, with spending focused on Mannville heavy oil and NGL in the Alberta deep basin. Planned capital spending totaling approximately $20 million for the fourth quarter of 2013 includes four (4.0 net) additional Mannville heavy oil wells and the implementation of a waterflood pilot in the Sparky Manville I2I pool. In West Central Alberta, the remaining four (2.0 net) liquids-rich gas wells in the West Edson program will be drilled along with minor facility and infrastructure spending on the Corporation's West Edson facilities.
Perpetual estimates 2013 funds flow will total $55 to $60 million based on current forward commodity prices, with oil and liquids production averaging close to 3,900 bbl/d and natural gas sales averaging approximately 90 MMcf/d.
Capital spending for the first quarter of 2014 is expected to be $26 to $32 million, with expenditures concentrated on the Corporation's proven commodity diversifying assets. Development and exploration in Mannville for heavy oil will continue with the drilling of up to 10 wells and additional waterflood implementation activities. In the greater Edson area, wells drilled in the fourth quarter of 2013 will be completed and brought on production and up to two additional wells will be drilled to maintain production at capacity at the upgraded facility in West Edson and to continue mineral leases and grow production at Edson.
Additionally, capital will be directed to winter-only access shallow gas assets in northeast Alberta to execute high return facility optimization projects, well workovers and uphole recompletions. 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.
Furthermore, Perpetual is targeting a minimum of $100 million in disposition proceeds in 2014 with funds to be utilized to strengthen the balance sheet.
|FINANCIAL AND OPERATING HIGHLIGHTS||
Three Months Ended
Nine Months Ended
|($Cdn thousands except volume and per share amounts)||2013||2012||% Change||2013||2012||% Change|
|Revenue (1) (2)||54,725||47,973||14||157,152||155,462||1|
|Funds flow (2)||18,650||10,760||73||45,470||37,929||20|
|Per share (2) (3)||0.13||0.07||86||0.30||0.25||19|
|Net earnings (loss)||(7,267)||(6,158)||(18)||19,738||6,701||195|
|Per share - basic and diluted (3)||(0.05)||(0.04)||(22)||0.13||0.05||160|
|Net bank debt outstanding (2)||65,560||84,925||(23)||65,560||84,925||(23)|
|Senior notes, at principal amount||150,000||150,000||-||150,000||150,000||-|
|Convertible debentures, at principal amount||159,779||159,972||-||159,779||159,972||-|
|Total net debt (2)||375,339||394,897||(5)||375,339||394,897||(5)|
|Exploration and development (4)||22,350||17,922||25||72,166||58,590||23|
|Acquisitions, net of dispositions||472||(14,498)||(103)||(51,228)||(157,840)||(68)|
|Net capital expenditures||22,856||3,468||559||21,056||(99,053)||(121)|
|Common shares outstanding (thousands)|
|End of period||148,482||147,126||1||148,482||147,126||1|
|Shares outstanding at November 7, 2013||148,490||148,490|
|Daily average production|
|Natural gas (MMcf/d) (5)||85.3||93.8||(9)||88.7||104.1||(15)|
|Oil and NGL (bbl/d) (5)||4,064||3,335||22||3,978||3,419||16|
|Total (boe/d) (5)||18,274||18,955||(4)||18,741||20,775||(10)|
|Gas over bitumen deemed production (MMcf/d) (6)||22.3||26.0||(14)||23.8||27.0||(12)|
|Average daily (actual and deemed - boe/d) (5) (6)||21,991||23,288||(6)||22,708||25,275||(10)|
|Natural gas, before derivatives ($/Mcf)||2.79||2.36||18||3.23||2.33||39|
|Natural gas, including derivatives ($/Mcf)||3.31||3.44||(4)||3.50||3.28||7|
|Oil and NGL, before derivatives ($/bbl)||82.03||64.24||28||68.33||65.04||5|
|Oil and NGL, including derivatives ($/bbl)||76.86||59.63||29||66.66||61.64||8|
|Barrel of oil equivalent, including derivatives ($/boe)||32.55||27.51||18||30.71||26.56||16|
|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 "Outlook" 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 timing to initiate a waterflood pilot scheme and potential expansion thereof, capital expenditure levels for 2013, 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, 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.
Production tests are not necessarily indicative of long-term performance or ultimate recovery.
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, NGLs 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.