Perpetual Energy Inc. Closes Sale of Elmworth Property for Net Proceeds of $77.5 Million
CALGARY, March 12, 2013 /PRNewswire/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual" or the "Corporation") is pleased to announce that it has closed the previously announced sale of its Elmworth property for net proceeds to Perpetual of $77.5 million, subject to certain closing adjustments and transaction costs.
The Elmworth property consists of 3 gross (1.5 net) non-producing horizontal Montney gas wells at Elmworth, one vertical well at Wapiti, and undeveloped land, including 20,256 net acres of Montney rights. At year-end 2012, McDaniel estimated total proved and probable reserves of 13.1 MMboe net to Perpetual at Elmworth. Furthermore, McDaniel estimated $122.8 million of future development capital ("FDC") would be required to convert these undeveloped reserves to producing reserves. There is currently no production or funds flow from operations at the Elmworth property. This disposition will have no negative effect on Perpetual's 2013 projected production or funds flow, and interest expense will be reduced by approximately $4.0 million on an annual basis, assuming that the proceeds are used to permanently reduce bank debt.
Proceeds from this disposition will initially be applied to reduce outstanding bank debt and, along with the interest savings on reduced bank debt, will significantly bolster Perpetual's financial flexibility to continue to deploy capital to its chosen key commodity-diversifying growth strategies in Mannville heavy oil and Edson liquids-rich Wilrich gas development. It will also allow Perpetual to continue to advance the Corporation's portfolio of medium and long term value and growth plays with risk-managed investment. In addition, this transaction provides added optionality for managing the Corporation's long term debt obligations.
Upon closing, net bank debt is estimated to be approximately $21 million, reflecting funds flow and capital program spending to date since year end 2012. Proforma for the disposition and the Corporation's planned first quarter 2013 capital spending program, and assuming the current forward markets for commodity prices, Perpetual expects to exit the first quarter of 2013 drawn approximately $35 to $40 million on its credit facility. Although there was no lending value associated with the Elmworth property, upon closing of the Elmworth sale, Perpetual's lenders have limited availability under the credit facility to $110 million, pending conclusion of the annual borrowing base review which is underway and expected to be completed by April 30, 2013.
Net asset value ("NAV")
The following table shows a pro forma adjustment to the Corporation's December 31, 2012 NAV table for the Elmworth disposition. The table shows what is normally referred to as a "produce-out" NAV calculation under which the Corporation's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of Perpetual's Shares. The calculations below do not reflect the value of the Corporation's prospect inventory as the prospects are not recognized within the NI 51-101 compliant reserve assessment.
| Pre-tax NAV at December 31, 2012(1) | |||||||
| ($ millions except as noted) | Undiscounted | 5% | 8% | Discounted at 10% |
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| Total proved and probable reserves(2) | $757 | $580 | $507 | $467 | |||
| Fair market value of undeveloped land(3) | 152 | 152 | 152 | 152 | |||
| Market value of TriOil Resources Ltd. shares | 2 | 2 | 2 | 2 | |||
| Warwick Gas Storage(4) | 9 | 9 | 9 | 9 | |||
| Net bank debt (1,5) | (12) | (12) | (12) | (12) | |||
| Convertible debentures | (160) | (160) | (160) | (160) | |||
| Senior notes | (150) | (150) | (150) | (150) | |||
| Estimate of additional future abandonment and Reclamation costs(6) | (104) | (67) | (48) | (45) | |||
| NAV | $494 | $354 | $300 | $263 | |||
| Shares outstanding (million) - basic | 147 | 147 | 147 | 147 | |||
| NAV per Common Share as previously reported ($/Share) | $4.24 | $2.42 | $1.84 | $1.50 | |||
| Pro Forma NAV per Common Share ($/Share) | $3.36 | $2.41 | $2.04 | $1.79 |
| (1) | Financial information is per Perpetual's 2012 audited consolidated financial statements. Net debt reduced by $77.5 for Elmworth proceeds. | |||||
| (2) | Reserve values per McDaniel Report as at December 31, 2012, including gas over bitumen financial solution and reduced by discounted Elmworth reserve values (0% - $198 million; 5% - $70 million; 8% - $39 million; 10% - $26 million). | |||||
| (3) | Independent Third party estimate reduced by $9.5 million for Elmworth undeveloped land. | |||||
| (4) | Reflects 10 percent interest in WGS LP valued at proportionate disposition value at April 25, 2012. | |||||
| (5) | Includes long-term bank debt, net of working capital, excluding marketable securities. | |||||
| (6) | Amounts are in addition to amounts in the McDaniel report for future well abandonment costs, net of salvage value, related to developed reserves. See "Abandonment and reclamation costs". |
The above evaluation includes future capital expenditure expectations required to bring undeveloped reserves recognized by McDaniel that meet the criteria for booking under NI 51-101 on production. The fair market value of undeveloped land does not reflect the value of the Company's prospect inventory which will be converted into reserves and production over time through future capital investment.
Forward-Looking Information
Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding prospective drilling activities; forecast debt levels and credit facility draws; forecast and realized commodity prices; expected funding and timing of capital expenditures; projected use of funds flow; planned drilling and development and the results thereof; expected dispositions and the use of proceeds therefrom; effects of dispositions on production, cash flow, debt levels, liquidity and financial flexibility; commodity prices; and estimated interest expense. 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 management's discussion and analysis for the year ended December 31, 2012 and those included in 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.
SOURCE Perpetual Energy Inc.
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