CALGARY, May 8, 2019 /CNW/ - (TSX:PMT) – Perpetual
Energy Inc. ("Perpetual", the "Corporation" or the "Company") is
pleased to release its first quarter 2019 financial and operating
results. Highlights from the quarter include:
- Heavy oil production in Eastern
Alberta grew 30% relative to the prior year first quarter,
driven by positive results from heavy oil focused drilling and
waterflood investment during the second half of 2018.
- Perpetual's market diversification strategy delivered strong
natural gas pricing of $3.54/Mcf.
- Perpetual's realized operating netback increased 4% to
$13.36/boe (Q1 2018 – $12.87/boe), reflecting continued top quartile
operating costs at the East Edson
liquids-rich gas property in West Central Alberta.
- Cash flow from operating activities in the first quarter of
2019 was $9.3 million ($0.15/share) and adjusted funds flow was
$6.4 million ($0.11/share).
- On March 27, 2019, the Company's
reserve-based credit facility was extended for an additional 1.5
years to November 30, 2020 and the
borrowing limit was maintained at $55
million.
- Net debt declined 9% ($10.2
million) from December 31,
2018 to $102.4 million.
- On May 7, 2019, Perpetual
announced it will early redeem the $14.6
million 2019 Senior Notes due July
23, 2019, effective June 11,
2019. The redemption will be funded by the issuance of
$15.7 million 2022 Senior Notes.
A complete copy of Perpetual's unaudited condensed interim
consolidated financial statements and related Management's
Discussion and Analysis ("MD&A") for the three months ended
March 31, 2019 can be obtained
through the Company's website at www.perpetualenergyinc.com and
SEDAR at www.sedar.com.
Perpetual adopted IFRS 16 "Leases" effective January 1, 2019 using the modified retrospective
approach, therefore comparative information has not been restated.
The adoption of IFRS 16 had a minimal impact on net loss, and
increased cash flow from operating activities and adjusted funds
flow by $0.1 million compared to what
would have occurred had the new accounting policy not been adopted.
Refer to the "recently adopted accounting pronouncements" section
of the Q1 2019 MD&A for details.
FIRST QUARTER 2019 HIGHLIGHTS
Capital Spending, Production and Operations
- Perpetual's 2019 budgeted capital spending program funded by
adjusted funds flow, is largely planned for the second half of 2019
with approximately 50% of expenditures targeting heavy oil drilling
in Eastern Alberta, and 50%
targeting continued development of liquids-rich natural gas at the
Company's East Edson property.
- Exploration and development spending in the first quarter of
2019 was just $1.2 million, 92% lower
than the comparative period in 2018, and consistent with guidance
released with its 2018 year-end results on March 27, 2019.
-
- Spending at the East Edson
property in West Central Alberta was $0.7
million, and was directed towards the installation of field
compression and a sweetening tower to enable reactivation of
several higher liquids ratio wells back to production. The
installation of the field compression and sweetening tower was
completed in January, resulting in incremental production in Q1
2019 of approximately 300 boe/d.
- Spending in Eastern Alberta
was $0.5 million, 91% lower than the
comparative period in 2018. Spending included the installation of
automated leak detection monitoring equipment at several well
pads.
- Perpetual also spent $0.3 million
(Q1 2018 – $0.6 million) on
abandonment and reclamation projects. As part of Perpetual's focus
on well and pipeline abandonment and reclamation, four reclamation
certificates were received from the Alberta Energy Regulator
("AER") during the first quarter of 2019 (Q1 2018 – eight
reclamation certificates) which will result in the cessation of
associated property tax and surface lease expenses. The Company's
ratio of deemed assets to deemed liabilities as per the AER's
Licensee Liability Rating was 4.7 at the end of the first
quarter.
- Production averaged 10,240 boe/d in the first quarter of 2019,
down 20% from the comparable period in 2018. The decrease was
driven by natural declines resulting from limited capital
investment on the Company's natural gas assets during 2018, to
preserve value during this period of depressed natural gas pricing
in Alberta. Production was 8%
higher than the fourth quarter of 2018, as there were no voluntary
market related shut-ins of natural gas during the quarter, and the
four well pad that was shut-in by the AER until December 2018 was back on production for the
entire first quarter.
- Heavy oil production in Eastern
Alberta was up 30% to 1,113 bbl/d (11% of production)
relative to the comparative 2018 period (Q1 2018 – 7% of
production), as capital spending in the second half of 2018 was
focused on heavy oil waterflood and development drilling in the
Mannville area where return on
capital is anticipated to be significantly higher than expected
natural gas focused investment returns that sell into current AECO
hub forward market prices. Heavy oil exploration and development
activities will recommence once weather permits after spring
break-up.
- Production and operating expenses were up by $0.5 million relative to the 2018 first quarter,
attributable to the increase in Eastern
Alberta heavy oil production. West Central production and
operating expenses were essentially flat relative to the first
quarter of 2018 at $2.0 million, but
up on a unit-of-production basis to $2.60/boe (Q1 2018 - $2.05/boe), illustrating the largely fixed cost
nature of the East Edson
property.
Financial Highlights
- Realized revenue was $24.24/boe
in the first quarter of 2019, 16% higher than the comparative
period of 2018 ($20.96/boe). The
increase was due largely to the 34% increase in Perpetual's
realized natural gas price to $3.54/Mcf and a higher proportion of oil and NGL
in the production mix (Q1 2019 – 19%; Q1 2018 – 14%), which more
than offset the decline in realized crude oil and NGL prices.
-
- Natural gas revenue decreased 4% from $15.5 million in the first quarter of 2018,
reflecting the impact of the 24% decrease in natural gas production
volumes driven by natural declines following limited capital
investment in East Edson during
2018. Higher realized natural gas prices were the result of a 26%
increase in the AECO Daily Index, combined with the positive impact
of the Company's market diversification contract, which contributed
$3.5 million of incremental revenue
($0.77/Mcf) over the AECO Daily Index
price in the quarter (Q1 2018 - $2.4
million and $0.41/Mcf).
Perpetual's market diversification contract enabled the Company to
sell approximately 72% of its natural gas production (adjusted for
heat content) to markets priced at five pricing hubs outside of
Alberta, and provided a 29% uplift
over average AECO Daily Index prices during the first quarter (Q1
2018 – 20%).
- Oil revenue was 44% higher than the same period in 2018, due to
the 25% increase in crude oil production which more than offset a
15% decrease in the realized oil price. Compared to the first
quarter of 2018, the Western Canadian Select ("WCS") average price
of $56.67/bbl increased by 17%,
mainly due to the tightening of the WCS differential by
US$11.99/bbl in response to the
Alberta government's introduction
of production quotas effective January 1,
2019. Perpetual did not fully participate in the improved
WCS differential, as hedges were in place protecting a WCS
differential of US$25.22/bbl on 750
bbl/d for 2019.
- NGL revenue decreased by 48% over the prior year period while
NGL production decreased only 7%, reflecting the 44% decrease in
Perpetual's realized NGL price compared to the prior year period.
Propane and butane prices have become disconnected from WTI light
oil prices in recent months, reflecting excess supply produced from
Western Canada and the United States. This oversupply condition
is expected to continue.
- Perpetual's operating netback of $12.3
million in the first quarter of 2019 decreased 17% from
$14.8 million in the comparative
period of 2018. This decrease was due to the 20% decrease in
production caused by natural declines at East Edson, combined with increased higher
cost Eastern Alberta heavy oil
production and increased royalties due to higher natural gas
prices. On a unit-of-production basis, the operating netback per
boe increased 4% to $13.36/boe (Q1
2018 – $12.87/boe), reflecting a 16%
increase in realized revenue per boe due to improved natural gas
pricing, which more than offset the lower realized crude oil and
NGL prices, offset by higher cash costs.
- Net loss for the first quarter of 2019 was $4.9 million ($0.08/share), compared to a net loss of
$6.5 million ($0.11/share) in the comparative period of 2018.
The decrease in net loss from the prior year period was due to the
change in fair value of the TOU share investment, which increased
by $6.1 million in the first quarter
of 2019 compared to a decrease of $1.6
million in the comparative period of 2018. This was
partially offset by a $5.8 million
reduction in the fair value of derivatives compared to the prior
year period, attributable to the reduction in future NYMEX natural
gas prices and an increase in future oil prices during the first
quarter of 2019.
- Cash flow from operating activities in the first quarter of
2019 was $9.3 million ($0.15/share), down $1.9
million from the prior year period of $11.2 million ($0.19/share) due to the impact of a 20% decrease
in production, as the changes in fair value of the TOU share
investment and derivatives that impacted net loss did not impact
cash flow from operating activities.
- Adjusted funds flow in the first quarter of 2019 was
$6.4 million ($0.11/share), down $2.7
million (30%) from the prior year period of $9.1 million ($0.15/share) due to lower cash flow from
operating activities and a $0.4
million change in non-cash working capital. Adjusted funds
flow was $6.90/boe in the first
quarter of 2019, down 13% from the prior year period of
$7.94/boe as the impact of higher
production and operating costs, combined with lower production, was
only partially offset by a 16% increase in realized revenue per
boe.
- At March 31, 2019, Perpetual had
total net debt of $102.4 million,
down $10.2 million (9%) from
December 31, 2018. The decrease in
net debt was mainly attributable to the $6.1
million increase in the fair value of TOU shares during the
first quarter of 2019, combined with net cash flow from operations
which exceeded capital expenditures during the period.
- On March 27, 2019, the
$55 million reserve-based credit
facility borrowing limit (the "Borrowing Limit") was confirmed by
the Company's lenders and the maturity was extended to November 30, 2020. The Credit Facility will
revolve until May 31, 2020 and may be
extended for a further 364-day period subject to approval by the
Company's lenders.
- As at March 31, 2019, 61% of net
debt outstanding was repayable in 2021 or later. During the three
months ended March 31, 2019,
Perpetual's net debt to trailing twelve-months adjusted funds flow
was unchanged at 3.7 times (December 31,
2018 – 3.7 times).
- Perpetual had available liquidity at March 31, 2019 of $31.8
million, comprised of an unutilized revolving bank debt
Borrowing Limit of $11.7 million and
the market value of its Tourmaline Oil Corp. ("TOU") share
investment, net of the principal amount of the associated TOU share
margin demand loan, of $20.1
million.
- Perpetual's Application for Summary Dismissal of the Sequoia
litigation was heard during the fourth quarter of 2018. There were
no developments during the first quarter of 2019 concerning this
litigation. The Court's decision is anticipated to be received in
the second quarter of 2019.
EARLY REDEMPTION OF 2019 SENIOR NOTES
On May 7, 2019, Perpetual
announced it will early redeem the $14.6
million 8.75% senior unsecured notes due July 23, 2019 (the "2019 Senior Notes"),
effective June 11, 2019 for
$1,000 for each $1,000 principal amount of 2019 Senior Notes (the
"Cash Consideration"), or $1,075
principal amount of 8.75% senior unsecured notes due January 23, 2022 (the "2022 Senior Notes"). A
significant shareholder will backstop the Cash Consideration such
that the redemption of the $14.6
million 2019 Senior Notes will be fully funded, and result
in the issuance of $15.7 million 2022
Senior Notes.
OUTLOOK
Perpetual's 2019 capital expenditure and adjusted funds flow
guidance remains unchanged from guidance released with its 2018
year-end results on March 27,
2019.
The Company's Board of Directors has approved a total capital
spending program of $21 to
$25 million for 2019 to be funded
from adjusted funds flow. At least 50% will be spent in
Eastern Alberta, primarily
targeting heavy oil development at Mannville along with abandonment and
reclamation work of up to $2 million
to prudently address decommissioning obligations associated with
non-producing wells. The remaining expenditures will be
concentrated in East Edson,
developing liquids-rich natural gas reserves in the Wilrich
formation if AECO forward gas prices support investment in the
second half of 2019, or alternatively, will be deployed in an
expanded heavy oil drilling program.
Forecast capital activity in Eastern
Alberta for 2019 includes the drilling of up to 10 (10.0
net) horizontal wells, including several multi-lateral wells,
targeting a mix of step outs, exploratory wells, and infill wells
in waterflooded pools. Timing for start-up of the 2019 program is
dependent on surface lease conditions, but is expected to be in
June or early July to take advantage of lower drilling, completion,
and equipping costs generally realized in the summer in
Eastern Alberta. Decommissioning
expenditures will continue to be focused in the Mannville area and are expected to provide
future surface lease rental and property tax expense reductions
while maintaining regulatory compliance. In Eastern Alberta, production is forecast to
increase by 20% to 30% from 2018, to a range of 2,200 to 2,400
boe/d (61% oil) in 2019.
At East Edson, the Company has
budgeted a two (2.0 net) well drilling program to come onstream
during the fourth quarter of 2019. The two wells will be extended
reach horizontal ("ERH") wells, as the performance of the ERH wells
drilled in late 2017 and early 2018 indicate improved capital
efficiencies over the wells drilled with less than 2,500 meters of
lateral length. If AECO forward gas prices normalize above
$2.00/Mcf, drilling activities are
expected to continue into 2020. Processing capacity at the
Company's 100% working interest and operated West Wolf Lake
facility is 65 MMcf/d, with an additional 13 MMcf/d of working
interest capacity at the non-operated Rosevear plant, plus
associated liquids. The planned drilling will not have a material
impact on production in 2019, as new wells are forecast to come on
stream late in the year. Natural declines and capital spending
deferrals to late 2019 result in lower anticipated 2019 production
in East Edson with an average of
7,000 to 7,200 boe/d (10% oil and NGL). Despite reduced production
in East Edson and a substantially
fixed operating cost base, operating costs are forecast to remain
low in 2019, at less than $3.25/boe.
The table below summarizes anticipated capital spending and
drilling activities for the first and second half of 2019.
2019 Exploration and Development Forecast Capital
Expenditures
|
Q1
2019
($
millions)
|
# of
wells
(gross/net)
|
Q2 – Q4
2019
($
millions)
|
# of
wells
(gross/net)
|
West Central
liquids-rich gas
|
0.7
|
0/0.0
|
11.3
|
2/2.0
|
Eastern
Alberta
|
0.5
|
0/0.0
|
10.5
|
10/10.0
|
Total(1)
|
1.2
|
0/0.0
|
21.8
|
12/12.0
|
(1)
|
Excludes budgeted
abandonment and reclamation spending of $1.5 to $2.0 million in
2019 (Q1 2019 - $0.3 million).
|
Perpetual expects the 2019 capital program will be funded by
adjusted funds flow. Perpetual forecasts average production of
9,200 to 9,600 boe/d, with oil and NGL production growing to
represent approximately 20% to 24% of the production mix. This
represents an expected reduction in average daily production in
2019 of approximately 11% relative to 2018, but includes a 16%
increase in oil and NGL production. The Company expects to exit the
year at over 11,500 boe/d as natural gas and NGL production ramps
up again driven by the second half capital spending program
targeting seasonal natural gas price optimization.
Cash costs of $17.00 to
$18.00/boe are forecast for 2019, up
approximately 13% to 16% from 2018 due to the impact of lower
forecast 2019 production on a substantially fixed operating cost
base. Increased oil production in 2019, which is higher cost
compared to natural gas cash costs, is also expected to contribute
to the increase in 2019 cash costs per boe.
Perpetual has diversified its commodity and natural gas pricing
point exposure (net of royalties) away from AECO as detailed
below:
Market/Pricing Point
Natural
gas
|
Estimated 2019
Exposure
|
AECO(1)
|
–
|
AECO - fixed
price(2)
|
11%
|
Empress
|
7%
|
Dawn
|
14%
|
Michcon
|
9%
|
Chicago
|
21%
|
Malin
|
18%
|
Total natural
gas
|
80%
|
Natural gas liquids -
Condensate(1)
|
3%
|
Natural gas liquids -
Other(1)
|
2%
|
Crude
oil(1)(2)
|
15%
|
Total forecast
production, net of royalties
|
100%
|
(1)
|
Net of
royalties.
|
(2)
|
See "Commodity price
risk management and sales obligations" section of the Q1 2019
MD&A for details.
|
The market diversification contract is expected to continue to
provide higher natural gas pricing and enhanced risk management
through future periods of volatile natural gas prices in
Western Canada related to market
access constraints.
Guidance assumptions are as follows:
|
2019 Annual
Guidance
|
2019 exploration and
development expenditures ($ millions)
|
$21 - $25
|
2019 cash costs
($/boe)
|
$17.00 -
$18.00
|
2019 average daily
production (boe/d)
|
9,200 –
9,600
|
2019 average
production mix (%)
|
20% - 24% oil and
NGL
|
2019 adjusted funds
flow ($ millions)
|
$22 - $27
|
2019 adjusted funds
flow ($/share)
|
$0.36 -
$0.44
|
Commodity price assumptions reflect forward market price levels
as follows:
Market
Prices(1)
|
Current
Guidance
|
Prior
Guidance
|
2019 average NYMEX
natural gas price (US$/MMBtu)
|
$2.91
|
$2.99
|
2019 average West
Texas Intermediate ("WTI") oil price (US$/bbl)
|
$60.65
|
$56.56
|
2019 average Western
Canadian Select ("WCS") differential (US$/bbl)
|
($14.26)
|
($15.88)
|
2019 average exchange
rate (US$1.00 = Cdn$)
|
1.33
|
1.34
|
(1)
|
Reflects settled and
forward market prices.
|
Year-end 2019 net debt (net of the estimated market value of the
Company's TOU share investment of approximately $35 million), is forecast at $107 - $113
million, consistent with prior 2019 guidance issued on
March 27, 2019. Current guidance is
based on the following assumptions:
- Net debt at March 31, 2019 of
$102.4 million;
- Forecast adjusted funds flow for the remainder of 2019 of
$16 to $21
million;
- Forecast capital spending for the remainder of 2019 of
$20 to $24
million; and
- Forecast decommissioning expenditures for the remainder of 2019
of $1.2 to $1.7 million.
The following sensitivities can be applied to estimate changes
to annualized cash flow from operating activities and adjusted
funds flow, assuming no change in differentials to Perpetual's
market pricing points:
- For every US$0.25/MMBtu increase
or decrease in the NYMEX Daily Index price, annualized adjusted
funds flow increases or decreases by $4.8
million;
- For every US$2.50/bbl increase or
decrease in the WTI light oil price, annualized adjusted funds flow
increases or decreases by $1.5
million;
- For every 2.5 MMcf/d increase or decrease in average natural
gas production, annualized adjusted funds flow increases or
decreases by $1.6 million;
- For every 100 bbl/d increase or decrease in average crude oil
and NGL production, annualized adjusted funds flow increases or
decreases by $1.8 million; and
- For every $0.05 increase or
decrease in the Cdn$/US$ exchange rate, annualized adjusted funds
flow increases or decreases by $1.5
million.
Financial and
Operating Highlights
|
Three months ended
March 31,
|
($Cdn thousands
except volume and per share amounts)
|
2019
|
2018
|
Change
|
Financial
|
|
|
|
Oil and natural gas
revenue
|
22,199
|
23,340
|
(5%)
|
Net loss
|
(4,892)
|
(6,465)
|
24%
|
Per share – basic and
diluted(2)
|
(0.08)
|
(0.11)
|
27%
|
Cash flow from
operating activities
|
9,292
|
11,198
|
(17%)
|
Adjusted funds
flow(1)
|
6,362
|
9,101
|
(30%)
|
Per share – basic and
diluted(1)(2)
|
0.11
|
0.15
|
(27%)
|
Total
assets
|
328,495
|
363,273
|
(10%)
|
Revolving bank
debt
|
39,598
|
46,912
|
(16%)
|
Term loan, principal
amount
|
45,000
|
45,000
|
–
|
TOU share margin
demand loan, principal amount
|
14,100
|
15,990
|
(12%)
|
Senior Notes,
principal amount
|
32,490
|
32,490
|
–
|
TOU share
investment
|
(34,196)
|
(36,434)
|
(6%)
|
Adjusted working
capital deficiency (surplus)(1)
|
5,364
|
11,101
|
(52%)
|
Net
debt(1)
|
102,356
|
115,059
|
(11%)
|
Capital
expenditures
|
1,238
|
14,897
|
(92%)
|
Net payments on
acquisitions and dispositions
|
–
|
926
|
(100%)
|
Net capital
expenditures
|
1,238
|
15,823
|
(92%)
|
Common shares
(thousands)(3)
|
|
|
|
End of
period
|
60,037
|
59,847
|
–
|
Weighted average -
basic and diluted
|
60,111
|
59,345
|
1%
|
Operating
|
|
|
|
Daily average
production
|
|
|
|
Natural gas
(MMcf/d)
|
50.0
|
65.9
|
(24%)
|
Oil
(bbl/d)
|
1,121
|
900
|
25%
|
NGL
(bbl/d)
|
785
|
848
|
(7%)
|
Total
(boe/d)
|
10,240
|
12,742
|
(20%)
|
Average
prices
|
|
|
|
Realized natural gas
price ($/Mcf)
|
3.54
|
2.65
|
34%
|
Realized oil price
($/bbl)
|
41.12
|
48.31
|
(15%)
|
Realized NGL price
($/bbl)
|
32.16
|
57.61
|
(44%)
|
Wells drilled –
gross (net)
|
|
|
|
Natural gas
|
-
(-)
|
1 (1.0)
|
|
Oil
|
-
(-)
|
3 (3.0)
|
|
Total
|
-
(-)
|
4 (4.0)
|
|
(1)
|
These are non-GAAP
measures. Please refer to "Non-GAAP Measures" below.
|
(2)
|
Based on weighted
average basic common shares outstanding for the period.
|
(3)
|
All common shares are
net of shares held in trust (Q1 2019 – 0.9 million; Q1 2018 – 0.3
million). See "Note 15 to the condensed interim consolidated
financial statements".
|
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and
marketing company headquartered in Calgary, Alberta. Perpetual operates a
diversified asset portfolio, including liquids-rich natural gas
assets in the deep basin of west central Alberta, heavy oil and shallow natural gas in
eastern Alberta, with longer term
opportunities through undeveloped oil sands leases in northern
Alberta. Additional information on
Perpetual can be accessed at www.sedar.com or from the
Corporation's website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
Forward-Looking Information
Certain information regarding Perpetual in this news release
including management's assessment of future plans and operations
may constitute forward-looking information or statements under
applicable securities laws. The forward looking information
includes, without limitation, anticipated amounts and allocation of
capital spending; statements pertaining to adjusted funds flow
levels, statements regarding estimated production and timing
thereof; statements pertaining to type curves being exceeded,
forecast average production; completions and development
activities; infrastructure expansion and construction; estimated
FDC required to convert proved plus probable non-producing and
undeveloped reserves to proved producing reserves; prospective oil
and natural gas liquids production capability; projected realized
natural gas prices and adjusted funds flow; estimated
decommissioning obligations; commodity prices and foreign exchange
rates; and commodity price management. Various assumptions were
used in drawing the conclusions or making the forecasts and
projections contained in the forward-looking information contained
in this news release, which assumptions are based on management's
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 news 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, 2018 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 law.
Non-GAAP Measures
This news release contains the terms "adjusted funds flow",
"adjusted funds flow per share", "adjusted funds flow per boe",
"available liquidity", "cash costs", "net working capital
deficiency (surplus)", "net debt", "net bank debt", "net debt to
adjusted funds flow ratio", "operating netback", "realized revenue"
and "enterprise value" which do not have standardized meanings
prescribed by GAAP. Management believes that in addition to net
income (loss) and net cash flows from operating activities as
defined by GAAP, these terms are useful supplemental measures to
evaluate operating performance. Users are cautioned however that
these measures should not be construed as an alternative to net
income (loss) or net cash flows from operating activities
determined in accordance with GAAP as an indication of Perpetual's
performance and may not be comparable with the calculation of
similar measurements by other entities.
Adjusted funds flow: Management uses adjusted funds flow and
adjusted funds flow per boe as key measures to assess the ability
of the Company to generate the funds necessary to finance capital
expenditures, expenditures on decommissioning obligations and meet
its financial obligations. Adjusted funds flow is calculated based
on cash flows from (used in) operating activities, excluding
changes in non-cash working capital and expenditures on
decommissioning obligations since Perpetual believes the timing of
collection, payment or incurrence of these items is variable.
Expenditures on decommissioning obligations may vary from period to
period depending on capital programs and the maturity of the
Company's operating areas. Expenditures on decommissioning
obligations are managed through the capital budgeting process which
considers available adjusted funds flow. The Company has also
deducted the change in gas over bitumen royalty financing from
adjusted funds flow, in order to present these payments net of gas
over bitumen royalty credits received. These payments are indexed
to gas over bitumen royalty credits and are recorded as a reduction
to the Corporation's gas over bitumen royalty financing obligation
in accordance with IFRS. Additionally, the Company has
excluded payments of restructuring costs associated with surplus
office lease obligations, which management considers to not be
related to cash flow from operating activities.
Adjusted funds flow per share is calculated using the same
weighted average number of shares outstanding used in calculating
income (loss) per share. Adjusted funds flow is not intended to
represent net cash flows from (used in) operating activities
calculated in accordance with IFRS.
Adjusted funds flow per boe is calculated as adjusted funds
flow divided by total production sold in the period.
Available Liquidity: Available Liquidity is defined as
Perpetual's Credit Facility Borrowing Limit, plus Tourmaline Oil
Corp. ("TOU") share investment, less borrowings and letters of
credit issued under the Credit Facility and TOU share margin demand
loan. Management uses available liquidity to assess the ability of
the Company to finance capital expenditures, expenditures on
decommissioning obligations and meet financial obligations.
Cash costs: Management believes that cash costs assist
management and investors in assessing Perpetual's efficiency and
overall cost structure. Cash costs are comprised of royalties,
production and operating, transportation, general and
administrative and cash interest expense and income. Cash costs per
boe is calculated by dividing cash costs by total production sold
in the period.
Realized revenue: Realized revenue is the sum of realized
natural gas revenue, realized oil revenue and realized NGL revenue
which includes realized gains (losses) on financial natural gas,
crude oil and foreign exchange contracts but excludes any realized
gains (losses) resulting from contracts associated with the
disposition of the shallow gas assets on October 1, 2016 (the "Shallow Gas Disposition").
Realized revenue, including foreign exchange and market
diversification contracts, is used by management to calculate the
Corporation's net realized commodity prices, taking into account
monthly settlements on financial crude oil and natural gas forward
sales, collars, basis differentials, and forward foreign exchange
sales. These contracts are put in place to protect Perpetual's
adjusted funds flow from potential volatility in commodity prices
and foreign exchange rates, and as such, any related realized gains
or losses are considered part of the Corporation's realized
price.
Operating netback: Perpetual considers operating netback to
be an important performance measure as it demonstrates its
profitability relative to current commodity prices. Operating
netback is calculated by deducting royalties, production and
operating, and transportation costs from realized revenue.
Operating netback is also calculated on a per boe basis using
production sold for the period. Operating netback on a per boe
basis can vary significantly for each of the Company's operating
areas.
Net working capital deficiency (surplus): Net working capital
deficiency (surplus) includes total current assets and current
liabilities excluding short-term derivative assets and liabilities
related to the Corporation's risk management activities, current
portion of gas over bitumen royalty financing, TOU share
investment, TOU share margin demand loan, current portion of senior
notes, current portion of lease liabilities, revolving bank debt,
and current portion of provisions.
Net bank debt, net debt and net debt to adjusted funds flow
ratio: Net bank debt is measured as current and long-term revolving
bank debt including net working capital deficiency (surplus). Net
debt includes the carrying value of net bank debt, the principal
amount of the term loan, the principal amount of the TOU share
margin demand loan and the principal amount of senior notes,
reduced for the mark-to-market value of the TOU share investment.
Net debt, net bank debt and net debt to adjusted funds flow ratios
are used by management to assess the Corporation's overall debt
position and borrowing capacity. Net debt to adjusted funds flow
ratios are calculated on a trailing twelve-month basis.
Enterprise value: Enterprise value is equal to net debt plus
the market value of issued equity and is used by management to
analyze leverage. Enterprise value is not intended to represent the
total funds from equity and debt received by the Corporation upon
issuance.
For additional reader advisories in regards to non-GAAP
financial measures, including Perpetual's method of calculation and
reconciliation of these terms to their corresponding GAAP measures,
see the section entitled "Non-GAAP Measures" within the Company's
MD&A filed on SEDAR.
BOE Equivalents
Perpetual's aggregate proved and probable reserves are
reported in barrels of oil equivalent (boe). Boe may be misleading,
particularly if used in isolation. In accordance with NI 51-101, a
boe conversion ratio for natural gas of 6 Mcf: 1 boe has been used,
which is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not necessarily represent a
value equivalency at the wellhead. As the value ratio between
natural gas and crude oil based on the current prices of natural
gas and crude oil is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
The following abbreviations used in this news release have
the meanings set forth below:
bbls
|
barrels
|
boe
|
barrels of oil
equivalent
|
Mcf
|
thousand cubic
feet
|
MMcf
|
million cubic
feet
|
MMBtu
|
million British
Thermal Units
|
GJ
|
gigajoules
|
Financial Outlook
Also included in this news release are estimates of
Perpetual's 2019 adjusted funds flow and year-end 2019 net debt,
which is based on, among other things, the various assumptions as
to production levels, capital expenditures, and other assumptions
disclosed in this news release. To the extent such estimate
constitutes a financial outlook, it was approved by management and
the Board of Directors of Perpetual on May
7, 2019 and is included to provide readers with an
understanding of Perpetual's anticipated adjusted funds flow and
sensitivities based on the capital expenditure, production, and
other assumptions described herein and readers are cautioned that
the information may not be appropriate for other purposes.
SOURCE Perpetual Energy Inc.