CALGARY, July 31, 2019 /CNW/ - (TSX:PMT) –
Perpetual Energy Inc. ("Perpetual" or the "Company") is pleased to
release its second quarter 2019 financial and operating results.
Highlights include:
- The Company took advantage of dry early spring conditions to
accelerate capital activity plans. Exploration and development
spending for the second quarter of 2019 was $5.2 million, of which 75% was directed towards
the drilling, completion and tie-in of three (3.0 net) heavy oil
wells and a re-entry to add two additional laterals to an existing
oil well at Mannville. The four
wells were brought on-stream late in the second quarter and have
ramped up to approximately 300 boe/d at the end of July. Two
additional six-leg multi-laterals targeting heavy oil in
Eastern Alberta will complete the
summer drilling program in mid-August.
- Heavy oil production in Eastern
Alberta grew 27% relative to the prior year second quarter
and 7% from first quarter 2019 levels, driven by positive results
from heavy oil focused drilling and waterflood investment during
the second half of 2018 and first half of 2019.
- Perpetual's market diversification contract provided an 82%
uplift ($0.84/Mcf) over average AECO
Daily Index prices, adding $3.4
million of incremental revenue and contributing to a
realized natural gas price in the second quarter of $2.25/Mcf. Perpetual has extended the term of its
market diversification contract by two years. From November 1, 2022 to October 31, 2024, Perpetual will deliver 40,000
MMBtu/d at AECO and receive Malin, Dawn and Emerson daily index
prices less US$0.0775/MMBtu and
transportation costs from AECO to the market price point.
- Cash flow from operating activities in the second quarter of
2019 was $4.3 million ($0.07/share) and adjusted funds flow was
$3.6 million ($0.06/share).
- On June 11, 2019, Perpetual
completed the early redemption of the $14.6
million 2019 Senior Notes due July
23, 2019. The redemption was funded by the issuance of
$15.7 million 2022 Senior Notes.
- Perpetual's Application for Summary Dismissal of the Sequoia
litigation relating to the Company's disposition of shallow gas
assets in October 2016 to an
unrelated third party was heard during the fourth quarter of 2018.
The Court's decision is scheduled to be received on August 15, 2019.
A complete copy of Perpetual's unaudited condensed interim
consolidated financial statements and related Management's
Discussion and Analysis ("MD&A") for the three and six months
ended June 30, 2019 can be obtained
through the Company's website at www.perpetualenergyinc.com and
SEDAR at www.sedar.com.
SECOND QUARTER 2019 HIGHLIGHTS
Capital Spending, Production and Operations
- Perpetual's exploration and development spending in the second
quarter of 2019 was $5.2 million,
above Previous Guidance as dry conditions in Mannville allowed for an accelerated start to
the summer drilling program.
-
- Capital spending in Eastern
Alberta was $4.7 million,
$3.3 million higher than the
comparative period in 2018. Capital activity included the drilling
and completion of three (3.0 net) single leg horizontal heavy oil
wells, and one re-entry to add two additional lateral legs to an
existing heavy oil well at Mannville. Spending also included the
installation of automated leak detection monitoring equipment at
several water transfer and water injection pipelines in the
Mannville area.
- Spending at the East Edson
property in West Central Alberta was $0.4
million and was directed towards compressor optimization
work and non-operated facility turnaround costs at the Rosevear
plant.
- Perpetual also spent $0.4 million
(Q2 2018 – $0.4 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 AER during the second quarter
of 2019 (Q2 2018 – five reclamation certificates) which will result
in the cessation of associated property tax and surface lease
expenses. The Company's combined ratio of deemed assets to deemed
liabilities as per the AER's Licensee Liability Rating was 4.5 at
June 30, 2019.
- Production averaged 9,370 boe/d in the second quarter of 2019,
down 12% 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 and the
first half of 2019 to preserve value during this period of
depressed natural gas pricing in Alberta. In addition, Perpetual voluntarily
shut-in an average 175 boe/d of East
Edson production (2% of total production) during the quarter
to take advantage of short-term situations when natural gas could
be purchased at minimal cost to satisfy pre-sold volume commitments
at attractive margins, resulting in an increase in realized revenue
of $0.03/Mcf while retaining reserves
for future production.
-
- Production at East Edson is
expected to decline throughout 2019. Two new wells are planned for
the fourth quarter to come on-stream in November when gas prices
are expected to be higher, driven by seasonal heating demand.
- Crude oil production in Eastern
Alberta was 27% higher than the second quarter of 2018,
reflecting increased production from the 2018 drilling program and
lower base declines at Mannville
due to waterflood operations. Compared to the first quarter of
2019, Eastern Alberta crude oil
production was 7% higher, reflecting decreased maintenance and
downtime from winter freeze-ups, combined with the impact of larger
downhole pumps installed late in the first quarter. Crude oil
production in Eastern Alberta is
expected to increase in the second half of 2019 as new production
from the 2019 heavy oil drilling program comes on-stream.
- Production and operating expenses were up by $0.6 million (14%) relative to the same period in
2018, as Eastern Alberta heavy oil
production increased by 27% over the prior year period, comprising
13% of total production in the second quarter (Q2 2018 – 9% of
total production). West Central production and operating expenses
were essentially flat relative to the first quarter of 2019 at
$2.0 million, reflecting the largely
fixed cost nature of the East
Edson property.
Financial Highlights
- Realized revenue was $21.26/boe
in the second quarter of 2019, 6% lower than the comparative period
of 2018 ($22.58/boe). The decrease
was due to lower realized pricing across all products, despite the
higher proportion of oil and NGL in the production mix (Q2 2019 –
21%; Q2 2018 – 17%).
-
- Natural gas revenue of $9.0
million in the second quarter of 2019 comprised 47% (Q2 2018
– 54%) of total P&NG revenue while natural gas production was
79% (Q2 2018 – 83%) of total production. Natural gas revenue
decreased 20% from $11.3 million in
the second quarter of 2018, reflecting lower natural gas prices and
the impact of the 16% decrease in natural gas production volumes.
Perpetual's market diversification contract contributed
$3.4 million of incremental revenue
($0.84/Mcf) over the AECO Daily Index
price in the quarter (Q2 2018 - $5.1
million and $1.06/Mcf).
- Oil revenue of $6.7 million
represented 35% (Q2 2018 – 24%) of total P&NG revenue while oil
production was 13% (Q2 2018 – 9%) of total production. Oil revenue
was 33% higher than the same period in 2018, due to the 24%
increase in crude oil production combined with the 5% increase in
the Western Canadian Select ("WCS") average price. The 5% increase
in the WCS price was mainly due to the tightening of the WCS
differential by US$8.59/bbl to
US$10.68/bbl in response to the
Government of Alberta'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 was $3.5 million,
representing 18% (Q2 2018 – 22%) of total P&NG revenue while
NGL production was just 8% (Q2 2018 – 8%) of total Company
production. NGL revenue decreased by 21% from the prior year period
while NGL production decreased only 6%, reflecting the 16% decrease
in Perpetual's realized NGL price compared to the prior year
period. Compared to the first quarter of 2019, realized NGL prices
increased by 60% as prices for condensate recovered in the second
quarter, close to parity with Cdn$ WTI prices. Condensate
production comprised 66% of NGL production in the second quarter
(Q1 2019 – 58%). Propane, butane and ethane prices remain
disconnected from WTI light oil prices, reflecting excess NGL
supply produced from Western
Canada and the United
States. This oversupply condition is expected to
continue.
- Perpetual's operating netback of $9.1
million ($10.69/boe) in the
second quarter of 2019 decreased 32% from $13.4 million ($13.85/boe) in the comparative period of 2018.
This decrease was due to a 6% reduction in realized revenue per
boe, due to lower realized pricing across all products combined
with higher costs per boe due to the 12% production decline against
a largely fixed cost base. The higher percentage of oil and NGL in
the production mix was less impactful during the second quarter of
2019, as realized oil prices were 6% lower than the prior year
period due to realized hedging losses on crude oil derivatives of
$1.2 million ($11.30/boe).
- Net loss for the second quarter of 2019 was $36.3 million ($0.60/share), compared to a net loss of
$1.3 million ($0.02/share) in the comparative period of 2018.
The increase in net loss from the prior year period was largely
driven by an impairment charge of $22.6
million triggered by lower forecast natural gas prices,
combined with the $6.6 million
decrease in the fair value of the TOU share investment compared to
an increase of $2.8 million in the
comparative period of 2018, and lower operating netback
performance.
- Cash flow from operating activities in the second quarter of
2019 was $4.3 million ($0.07/share), down $4.1
million from the prior year period of $8.4 million ($0.14/share) due to the impact of the 12%
decrease in production, as the impairment loss and changes in fair
value of the TOU share investment that impacted net loss did not
impact cash flow from operating activities. Adjusted funds flow in
the second quarter of 2019 was $3.6
million ($0.06/share), down
$4.2 million (53%) from the prior
year period of $7.8 million
($0.13/share). On a
unit-of-production basis, adjusted funds flow was $4.28/boe in the second quarter of 2019, down 47%
from the prior year period of $8.12/boe due to the combined impact of lower
commodity prices and the effect of a largely fixed cost base
against lower total production, partially offset by the increase in
higher netback heavy oil.
- On June 11, 2019, the Company
successfully completed the early redemption of all of the
$14.6 million 8.75% senior unsecured
notes due July 23, 2019 (the "2019
Senior Notes"). Pursuant to the early redemption, Perpetual issued
$15.7 million of 8.75% senior
unsecured notes due January 23, 2022
(the "2022 Senior Notes") to fully redeem the 2019 Senior Notes.
After giving effect to the senior note refinancing, there are
$33.6 million 2022 Senior Notes
outstanding.
- At June 30, 2019, Perpetual had
total net debt of $112.5 million,
unchanged from December 31, 2018 and
$10.2 million higher than
March 31, 2019. The increase in net
debt from the first quarter of 2019 was mainly attributable to the
$6.6 million decrease in the fair
value of the Tourmaline Oil Corp. ("TOU") share investment during
the second quarter of 2019, combined with capital expenditures
which exceeded net cash flow from operating activities during the
period.
- As at June 30, 2019, 70% of net
debt outstanding was repayable in 2021 or later. Perpetual's net
debt to trailing twelve-months adjusted funds flow at the end of
the second quarter increased to 4.8 times (December 31, 2018 – 3.7 times; March 31, 2019 – 3.7 times), due primarily to the
impact of lower adjusted funds flow.
- Perpetual had available liquidity at June 30, 2019 of $27.6
million, comprised of an unutilized revolving bank debt
Borrowing Limit of $13.5 million and
the market value of its TOU share investment, net of the principal
amount of the associated TOU share margin demand loan, of
$14.1 million.
OUTLOOK
Perpetual has reduced its 2019 capital expenditure and adjusted
funds flow guidance from a range of $21 to $25 million
and $22 to $27
million respectively, provided in a press release dated
May 8, 2019 (the "Previous Guidance")
to $18 to $21
million due to the 15% decline in NYMEX natural gas price
expectations for the remainder of 2019. Approximately 80% of
Perpetual's natural gas volumes are priced in NYMEX based markets
outside of Alberta. The Company
continues to anticipate spending 50% of the 2019 capital program in
Eastern Alberta targeting heavy
oil development. The remaining capital expenditures are planned for
East Edson in the fourth quarter,
developing liquids-rich natural gas reserves in the Wilrich
formation if AECO natural gas prices support investment, or
alternatively, will be directed to an expanded heavy oil drilling
program. Annual abandonment and reclamation spending of
$1.5 to $2.0
million to address decommissioning obligations associated
with non-producing wells is expected to provide future surface
lease rental and property tax expense reductions, while maintaining
regulatory compliance.
Forecast capital activity in Eastern
Alberta for the second half of 2019 includes the drilling
and completion of two exploratory (2.0 net) multi-lateral heavy oil
wells in July. As a result of the drilling program, heavy oil
production is forecast to increase by 20% to 30% in the second half
of 2019 over first half levels.
At East Edson, the Company has
budgeted a two (2.0 net) well drilling program in the fourth
quarter of 2019. The two wells will be monobore, extended reach
horizontal ("ERH") wells with approximately 2,500 meters of lateral
length to optimize the drilling and completion design. 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 when AECO
natural gas prices are expected to be stronger due to winter
heating demand. Natural declines and capital spending deferrals to
late 2019 result in lower forecast 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 $3.25/boe.
The table below summarizes actual and anticipated capital
spending and drilling activities for the first and second half of
2019.
2019 Exploration and Development Forecast Capital
Expenditures
|
First half
2019
($
millions)
|
# of
wells
(gross/net)
|
Second half
2019
($
millions)
|
# of
wells
(gross/net)
|
West Central
liquids-rich gas
|
1.1
|
0/0.0
|
8.4
|
2/2.0
|
Eastern
Alberta
|
5.3
|
3/3.0(2)
|
2.9
|
2/2.0
|
Total(1)
|
6.4
|
3/3.0(2)
|
11.3
|
4/4.0
|
(1)
Excludes budgeted abandonment and reclamation spending of $1.5 to
$2.0 million in 2019 (2019 year to date - $0.7 million).
|
(2)
Excludes the re-entry of one existing well bore in
Mannville.
|
Perpetual is managing the 2019 capital program to be funded by
adjusted funds flow. Average production of 9,200 to 9,500 boe/d in
2019 is close to Previous Guidance, with oil and NGL production
growing to represent approximately 20% to 24% of the production
mix. Natural declines and heavy oil focused investment is
anticipated to result in an 11% year-over-year reduction in average
daily production relative to 2018, but includes a 27% increase in
heavy oil production. The Company expects to exit the year at
approximately 10,500 boe/d as natural gas and NGL production ramps
up again driven by fourth quarter capital spending targeting
seasonal natural gas price optimization. The Company may continue
to voluntarily shut-in natural gas production in response to weak
AECO daily price conditions that may arise during the second half
of 2019 to preserve reserves and purchase natural gas to satisfy
existing sales obligations at attractive cash margins.
Cash costs of $17.00 to
$18.00/boe continue to be forecast
for 2019, up approximately 13% to 16% from 2018 due to the impact
of lower forecast 2019 production on a substantially fixed
operating cost base. Increased heavy oil production in the second
half of 2019, which is higher cost compared to the West Central
deep basin liquids-rich gas operation, is expected to contribute to
increased cash costs per boe in the second half of 2019.
Perpetual has diversified its commodity and natural gas pricing
point exposure (net of royalties) away from AECO as detailed
below:
Market/Pricing Point
Natural
gas
|
Estimated 2019
Exposure
|
AECO(1)
|
–
|
AECO - fixed
price(2)
|
9%
|
Empress
|
7%
|
Dawn
|
14%
|
Michcon
|
9%
|
Chicago
|
21%
|
Malin
|
19%
|
Total natural
gas
|
79%
|
NGL -
Condensate(1)
|
3%
|
NGL -
Other(1)
|
2%
|
Crude
oil(1)(2)
|
16%
|
Total forecast
production, net of royalties
|
100%
|
(1)
Net of royalties.
|
(2)
See "Commodity price risk management and sales obligations" section
of the Q2 2019 MD&A for details.
|
The market diversification contract is expected to continue to
provide higher natural gas pricing and enhanced risk management
through future periods of volatile natural gas prices in
Western Canada related to market
access constraints.
2019 annual guidance assumptions are as follows:
|
Current
Guidance
|
Previous
Guidance
|
2019 exploration and
development expenditures ($ millions)
|
$18 -
$21
|
$21 - $25
|
2019 cash costs
($/boe)
|
$17.00 -
$18.00
|
$17.00 -
$18.00
|
2019 average daily
production (boe/d)
|
9,200 -
9,500
|
9,200 -
9,600
|
2019 average
production mix (% oil and NGL)
|
20% -
24%
|
20% - 24%
|
2019 adjusted funds
flow ($ millions)
|
$18 -
$21
|
$22 - $27
|
2019 adjusted funds
flow ($/share)
|
$0.30 -
$0.34
|
$0.36 -
$0.44
|
Commodity price assumptions reflect forward market price levels
as follows:
Market
Prices(1)
|
Current
Guidance
|
Previous
Guidance
|
2019 average NYMEX
natural gas price (US$/MMBtu)
|
$2.68
|
$2.91
|
2019 average West
Texas Intermediate ("WTI") oil price (US$/bbl)
|
$58.67
|
$60.65
|
2019 average Western
Canadian Select ("WCS") differential (US$/bbl)
|
($14.18)
|
($14.26)
|
2019 average exchange
rate (US$1.00 = Cdn$)
|
1.32
|
1.33
|
(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 $28 million), is forecast at $114 - $119
million, up $7 million from
Previous Guidance due to the decrease in the TOU share price during
the second quarter. Current guidance is based on the following
assumptions:
- Net debt at June 30, 2019 of
$112.5 million;
- Forecast adjusted funds flow for the remainder of 2019 of
$7 to $10
million;
- Forecast capital spending for the remainder of 2019 of
$10 to $13
million; and
- Forecast decommissioning expenditures for the remainder of 2019
of $0.8 to $1.3 million.
The following sensitivities can be applied to estimate changes
to 2019 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 2019 average 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 2019 average 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 2019 average
natural gas production, annualized adjusted funds flow increases or
decreases by $1.5 million;
- For every 100 bbl/d increase or decrease in 2019 average
crude oil and NGL production, annualized adjusted funds flow
increases or decreases by $1.6
million; and
- For every $0.05 increase or
decrease in the 2019 average Cdn$/US$ exchange rate,
annualized adjusted funds flow increases or decreases by
$1.5 million.
Financial and
Operating Highlights
|
Three months
ended
June
30
|
Six months
ended
June
30
|
(Cdn$
thousands,
except
volume and per share amounts)
|
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
Financial
|
|
|
|
|
|
|
Oil and natural gas
revenue
|
19,235
|
20,774
|
(7%)
|
41,434
|
44,114
|
(6%)
|
Net loss
|
(36,276)
|
(1,325)
|
2,638%
|
(41,168)
|
(7,790)
|
428%
|
Per share – basic and
diluted(2)
|
(0.60)
|
(0.02)
|
2,900%
|
(0.68)
|
(0.13)
|
423%
|
Cash flow from
operating activities
|
4,295
|
8,435
|
(49%)
|
13,587
|
19,633
|
(31%)
|
Adjusted funds
flow(1)
|
3,649
|
7,847
|
(53%)
|
10,011
|
16,948
|
(41%)
|
Per share – basic and
diluted (2)
|
0.06
|
0.13
|
(54%)
|
0.17
|
0.28
|
(39%)
|
Total
assets
|
292,827
|
344,556
|
(15%)
|
292,827
|
344,556
|
(15%)
|
Revolving bank
debt
|
37,806
|
42,752
|
(12%)
|
37,806
|
42,752
|
(12%)
|
Term loan, principal
amount
|
45,000
|
45,000
|
–
|
45,000
|
45,000
|
–
|
TOU share margin
demand loan, principal amount
|
13,515
|
15,714
|
(14%)
|
13,515
|
15,714
|
(14%)
|
Senior notes,
principal amount
|
33,580
|
32,490
|
3%
|
33,580
|
32,490
|
3%
|
TOU share
investment
|
(27,635)
|
(38,917)
|
(29%)
|
(27,635)
|
(38,917)0
|
(29%)
|
Net working capital
deficiency(1)
|
10,251
|
3,123
|
228%
|
10,251
|
3,123
|
228%
|
Net
debt(1)
|
112,517
|
100,162
|
12%
|
112,517
|
100,162
|
12%
|
Capital
expenditures
|
5,200
|
2,031
|
156%
|
6,438
|
16,928
|
(62%)
|
Net proceeds on
acquisitions and dispositions
|
–
|
(7,012)
|
(100%)
|
–
|
(6,086)
|
(100%)
|
Net capital
expenditures
|
5,200
|
(4,981)
|
(204%)
|
6,438
|
10,842
|
(41%)
|
Common shares
outstanding (thousands)(3)
|
|
|
|
|
|
|
End of
period
|
60,337
|
60,369
|
–
|
60,337
|
60,369
|
–
|
Weighted average –
basic and diluted
|
60,154
|
59,876
|
–
|
60,133
|
59,612
|
1%
|
Operating
|
|
|
|
|
|
|
Daily average
production
|
|
|
|
|
|
|
Natural gas
(MMcf/d)
|
44.5
|
53.1
|
(16%)
|
47.2
|
59.4
|
(21%)
|
Oil
(bbl/d)
|
1,207
|
971
|
24%
|
1,164
|
936
|
24%
|
NGL
(bbl/d)
|
754
|
806
|
(6%)
|
770
|
827
|
(7%)
|
Total
(boe/d)
|
9,370
|
10,620
|
(12%)
|
9,803
|
11,675
|
(16%)
|
Average
prices
|
|
|
|
|
|
|
Realized natural gas
price ($/Mcf)
|
2.25
|
2.62
|
(14%)
|
2.93
|
2.64
|
11%
|
Realized oil price
($/bbl)
|
50.01
|
53.26
|
(6%)
|
45.76
|
50.89
|
(10%)
|
Realized NGL price
($/bbl)
|
51.34
|
60.77
|
(16%)
|
41.61
|
59.16
|
(30%)
|
Wells drilled –
gross (net)
|
|
|
|
|
|
|
Natural gas
|
–
(–)
|
– (–)
|
|
–
(–)
|
1 (1.0)
|
|
Oil
|
3
(3.0)
|
– (–)
|
|
3
(3.0)
|
3 (3.0)
|
|
Total
|
3
(3.0)
|
– (–)
|
|
3
(3.0)
|
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 (June 30, 2019 –
0.8 million; June 30, 2018 – 0.5 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.
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 July
31, 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.
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 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
net 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 reserve-based credit facility borrowing limit (the
"Borrowing Limit"), plus the fair value of the Tourmaline Oil Corp.
("TOU") share investment, less borrowings and letters of credit
issued under the reserve-based credit facility (the "Credit
Facility") and the TOU share margin demand loan. Management uses
available liquidity to assess the ability of the Company to finance
capital expenditures and expenditures on decommissioning
obligations, and to meet its 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 finance expense. 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 natural gas
liquids ("NGL") revenue which includes realized gains (losses) on
financial natural gas, crude oil, NGL and foreign exchange
contracts but excludes any realized gains (losses) resulting from
marketing contracts associated with the disposition of the shallow
gas assets on October 1, 2016 (the
"Shallow Gas Disposition") to Sequoia Resources Corp. ("Sequoia").
Realized revenue, including foreign exchange and the market
diversification contract, is used by management to calculate the
Corporation's net realized commodity prices, taking into account
monthly settlements of 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. Any related realized gains or losses
are considered part of the Corporation's realized commodity
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 expenses, 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 lease
liabilities, 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 fair 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
|
SOURCE Perpetual Energy Inc.