CALGARY, Nov. 7, 2019 /CNW/ - (TSX:PMT)
– Perpetual Energy Inc. ("Perpetual" or the "Company")
is pleased to release its third quarter 2019 financial and
operating results. Highlights include:
- Exploration and development spending for the third quarter of
2019 was $4.5 million and was
primarily directed towards the drilling and completion of two (2.0
net) exploratory six-leg multi-lateral heavy oil wells in the
Ukalta area of Eastern Alberta.
The two wells were brought on-stream late in the third quarter and
are currently producing approximately 160 boe/d on clean-up.
- Production averaged 8,383 boe/d in the third quarter of 2019,
down 12% from the comparable period in 2018. Perpetual temporarily
shut-in an average 925 boe/d of East
Edson production (11% of third quarter production) 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
$0.17/Mcf ($0.6 million) while retaining reserves for future
production.
- Perpetual's market diversification contract enabled the Company
to sell over 90% of its natural gas production (adjusted for heat
content) to markets priced at five pricing hubs outside of
Alberta, providing a 101% uplift
over average AECO Daily Index prices during the third quarter (Q3
2018 – 98%).
- Realized revenue was $24.34/boe
in the third quarter of 2019, and included $2.7 million ($3.50/boe or $0.77/Mcf) of realized gains on derivatives
received from the monetization of the market diversification
contract for the December 2019 to
October 2020 period. Excluding the
impact of the market diversification contract monetization,
realized revenue in the third quarter of 2019 was $20.84/boe, down 11% from the prior year period,
due to lower prices for all products despite an increased
proportion of higher value oil and natural gas liquids ("NGL") in
the production mix (Q3 2019 – 24%; Q3 2018 – 19%).
- Cash flow from operating activities in the third quarter of
2019 was $5.5 million ($0.09/share) and adjusted funds flow was
$4.2 million ($0.07/share).
- On August 15, 2019, the Company
received the oral decision related to the Statement of Claim filed
on August 3, 2018 with respect to the
Company's disposition of shallow gas assets in Eastern Alberta to an unrelated third party on
October 1, 2016 (the "Sequoia
Litigation"). The oral decision dismissed and struck all but one of
the claims filed by PwC. The Court did not find that the test for
summary dismissal relating to whether the transaction was an arm's
length transfer for purposes of section 96(1) of the Bankruptcy and
Insolvency Act (the "BIA") was met, on the balance of
probabilities. Accordingly, the BIA claim was not dismissed or
struck and only that part of the claim can continue against
Perpetual. On August 23, 2019, PwC
filed a notice of appeal with the Court of Appeal of Alberta, contesting the entire August 15, 2019 oral decision, and on
August 26, 2019, Perpetual filed a
similar notice of appeal contesting the BIA claim portion of the
decision. The appeal proceedings will be scheduled following
receipt of the written decision and are anticipated to take place
during the first half of 2020. On September
24, 2019, Perpetual filed an application for security for
costs of the appeal. Management expects that the Company is more
likely than not to be successful in defending against the claim
such that no damages will be awarded against it, and therefore, no
amounts have been accrued as a liability in Perpetual's financial
statements.
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 nine months
ended September 30, 2019 can be
obtained through the Company's website at
www.perpetualenergyinc.com and SEDAR at www.sedar.com.
THIRD QUARTER 2019 HIGHLIGHTS
Capital Spending, Production and Operations
- Perpetual's exploration and development spending in the third
quarter of 2019 was $4.5 million,
focused on the drilling and completion of two (2.0 net) exploratory
six-leg multi-lateral heavy oil wells and associated production
facilities in the Ukalta area of Eastern
Alberta. The two wells were brought on-stream late in the
third quarter and are currently producing on clean-up at 160 boe/d,
and will contribute to the recognition of new reserves and
additional drilling locations. Third quarter spending in West
Central Alberta was minimal, as the Company continued to defer
liquids-rich gas drilling in response to low Western Canadian
natural gas prices.
- Perpetual also spent $0.5 million
(Q3 2018 – $0.3 million) on
abandonment and reclamation projects. The Company's aggregate AER
Licensee Liability Rating ("LLR") was 4.4 at September 30, 2019 (September 30, 2018 – 5.1).
- Third quarter production averaged 8,383 boe/d, down 12% from
9,569 boe/d in the comparative period of 2018 and was 11% lower
than the second quarter of 2019. Perpetual temporarily shut-in an
average 925 boe/d of East Edson
production (11% 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
$0.17/Mcf ($0.6 million) while retaining reserves for future
production. The Company also shut-in 1.8 MMcf/d (300 boe/d) of
production at its Panny property in Eastern Alberta during the quarter and expects
this production to remain offline indefinitely, or until property
tax assessments more accurately reflect the value of the
assets.
-
- Third quarter natural gas production averaged 38.2 MMcf/d, down
19% from 46.9 MMcf/d in the comparative period of 2018. While the
base assets have performed well, natural gas production was
impacted by shut-ins of 6.8 MMcf/d as well as limited capital
investment throughout 2018 and 2019 in response to low AECO natural
gas prices.
- Crude oil production in Eastern
Alberta was 28% higher than the third quarter of 2018,
reflecting increased production from the drilling program conducted
during the second and third quarters of 2019 and lower base
declines at Mannville due to
positive waterflood performance. Compared to the second quarter of
2019, Eastern Alberta crude oil
production was 8% higher. Crude oil production in Eastern Alberta is expected to increase in the
final quarter of 2019 as production continues to ramp up from the
two new wells which came onstream at Ukalta late in the third
quarter.
- Production and operating costs were down by $1.0 million (20% decrease), exceeding the 12%
decrease in production from the prior year period due primarily to
the absence of $0.8 million of
remediation costs incurred in the third quarter of 2018 associated
with a produced water spill at Mannville. Total production and operating
expenses were down 8% on a unit-of-production basis to $5.53/boe for the third quarter of 2019, compared
to $6.02/boe for the comparable
period of 2018.
-
- West Central operating costs increased by 2% to $2.49/boe in the third quarter of 2019 (Q3 2018 –
$2.44/boe) due to the impact of
declining natural gas production against a relatively fixed cost
base.
- Eastern Alberta operating
costs decreased 23% to $16.06/boe
over the same period in 2018 (Q3 2018 – $20.75/boe) and declined 3% from $16.49/boe in the second quarter of 2019.
Financial Highlights
- Perpetual's petroleum and natural gas ("P&NG") revenue,
before derivatives, for the three months ended September 30, 2019 of $17.1 million decreased 17% from the third
quarter of 2018, due to the 12% decrease in average daily
production combined with the impact of lower benchmark prices for
all products. This was partially offset by the higher proportion of
oil and NGL in the production mix for 2019.
-
- Natural gas revenue, before derivatives, of $8.2 million in the third quarter of 2019
comprised 48% (Q3 2018 – 55%) of total P&NG revenue while
natural gas production was 76% (Q3 2018 – 81%) of total production.
Natural gas revenue decreased 28% from $11.3
million in the third quarter of 2018, reflecting lower
NYMEX-based prices, lower AECO prices, and tighter average basis
differentials to the five market hubs used to price the market
diversification contract, combined with the impact of the 19%
decrease in natural gas production volumes driven by temporary
shut-ins and natural declines following deferred capital investment
in East Edson during 2018 and
2019. Perpetual's market diversification contract contributed
$3.2 million or $0.92/Mcf of incremental revenue over the AECO
Daily Index price in the quarter (Q3 2018 – $5.0 million or $1.17/Mcf)
- Oil revenue of $6.3 million
represented 37% (Q3 2018 – 26%) of total P&NG revenue while oil
production was 15% (Q3 2018 – 11%) of total production. Oil revenue
was 17% higher than the same period in 2018, due to the 26%
increase in crude oil production offset by the 6% decrease in the
WCS average price to $58.36/bbl. The
19% decrease in the WTI light oil price was partially mitigated by
a tightening of the WCS differential by US$10.01/bbl to US$12.24/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$23.31/bbl on 1,000
bbl/d for the third quarter of 2019.
- NGL revenue for the third quarter of 2019 was $2.6 million, representing 15% (Q3 2018 – 19%) of
total P&NG revenue while NGL production was just 9% (Q3 2018 –
8%) of total Company production. NGL revenue decreased by 32% from
the prior year period while NGL production was flat at 731 bbl/d
(Q3 2018 – 730 bbl/d), reflecting the 33% decrease in Perpetual's
realized NGL price relative to the third quarter of 2018. Compared
to the second quarter of 2019, realized NGL prices decreased 27% to
$37.34/bbl, as prices for propane and
butane moved lower compared to second quarter levels. Propane and
butane prices remain disconnected from WTI light oil prices,
reflecting excess supply produced from Western Canada and the United States.
- Perpetual's operating netback was $10.7
million ($13.91/boe) in the
third quarter of 2019. After adjusting for the $2.7 million ($3.50/boe) received from the monetization of the
market diversification contract, Perpetual's operating netback for
the third quarter of 2019 was $8.0
million ($10.41/boe), down
$3.0 million ($2.08/boe) or 27% from the comparative period of
2018. This decrease was due to lower realized revenue per boe for
all products combined with production declines of 12%, partially
offset by lower costs. The impact of the higher percentage of oil
and NGL in the production mix was muted during the third quarter of
2019, as realized oil prices were 9% lower than the prior year
period due to realized hedging losses on crude oil derivatives of
$1.1 million ($8.83/boe).
- Net loss for the third quarter of 2019 was $20.3 million ($0.34/share), compared to a net loss of
$12.3 million ($0.20/share) in the comparative period of 2018.
The increase in net loss from the prior year period was driven by a
$7.5 million decrease in the fair
value of derivatives, a $5.9 million
decrease in the fair value of the TOU share investment, and a
$1.5 million restructuring provision
associated with the reduction in Perpetual's employee head count
undertaken in the third quarter. Partially offsetting these third
quarter 2019 amounts was the absence of a $7.2 million non-cash impairment charge recorded
in the prior year period associated with the Company's Waskahigan
Duvernay prospect.
- Cash flow from operating activities in the third quarter of
2019 was $5.5 million ($0.09/share), down $1.2
million from the prior year period of $6.7 million ($0.11/share) due to the impact of lower prices
and production, as the change in fair value of derivatives and the
TOU share investment that impacted net loss did not impact cash
flow from operating activities.
- Adjusted funds flow in the third quarter of 2019 was
$4.2 million ($0.07/share), down $1.0
million (19%) from the prior year period of $5.2 million ($0.09/share) and reflective of the lower cash
flow from operating activities. On a unit-of-production basis,
adjusted funds flow was $5.42/boe in
the third quarter of 2019, down 8% from the prior year period of
$5.86/boe.
- At September 30, 2019, Perpetual
had total net debt of $118.3 million,
5% higher than both June 30, 2019 and
December 31, 2018, mainly
attributable to the $5.9 million
decrease in the fair value of TOU shares during the third quarter
of 2019.
- As at September 30, 2019, 66% 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 third quarter increased to 5.3 times (December 31, 2018 – 3.7 times; June 30, 2019 – 4.8 times), due to the impact of
both lower adjusted funds flow and increasing net debt.
- Perpetual had available liquidity at September 30, 2019 of $22.5 million, comprised of an unutilized
revolving bank debt Borrowing Limit of $11.2
million and the market value of its TOU share investment,
net of the principal amount of the associated TOU share margin
demand loan, of $11.3 million.
OUTLOOK
2019 Guidance
Perpetual has reduced its 2019 adjusted funds flow guidance from
a range of $18 to $21 million, provided in a press release dated
July 31, 2019 (the "Previous
Guidance") to $14 to $16 million, due to the impact of lower realized
prices in the third quarter and lower forward market prices for all
products and the market diversification contract for the remainder
of 2019. Capital expenditure guidance for 2019 is forecast at
$12 to $13
million, as compared to Previous Guidance of $18 to $21 million.
Minimal capital expenditures are planned for the fourth quarter in
response to lower price expectations and to improve the Company's
liquidity. The previously planned fourth quarter two well drilling
program at East Edson has been
deferred. With annual abandonment and reclamation activities to
address decommissioning obligations associated with non-producing
wells largely complete, 2019 spending of $2.0 million is expected to provide future
surface lease rental and property tax expense reductions, while
maintaining regulatory compliance.
In late September, Perpetual expected significant continued
tightening in AECO basis relative to other North American markets
to result from proposed changes to TC Energy's NGTL natural gas
maintenance operating protocols that were implemented in early
October. In response, Perpetual modified its 40,000 MMBtu/d market
diversification contract to shift its pricing point back to AECO
for the December 2019 to October 2020 period. The market diversification
contract will continue to provide Perpetual with NYMEX based
pricing from November 2020 to
October 2024.
The table below summarizes actual and anticipated capital
spending and drilling activities for the first three quarters and
fourth quarter of 2019.
2019 Exploration and Development Forecast Capital
Expenditures
|
Q1 to Q3
2019
($
millions)
|
# of
wells
(gross/net)
|
Q4
2019
($
millions)
|
# of
wells
(gross/net)
|
West Central
liquids-rich gas
|
1.2
|
-/-
|
0.2
|
-/-
|
Eastern
Alberta
|
9.7
|
5/5.0(2)
|
1.5
|
-/-
|
Total(1)
|
10.9
|
5/5.0(2)
|
1.7
|
-/-
|
(1)
|
Excludes forecast
abandonment and reclamation spending of $2.0 million in 2019 (2019
year to date - $1.2 million).
|
(2)
|
Excludes the re-entry
of one existing well bore in Mannville.
|
Average 2019 production of 9,000 to 9,200 boe/d is anticipated,
down from Previous Guidance of 9,200 to 9,500 boe/d. Reduced
guidance reflects third quarter production shut-ins at East Edson averaging 925 boe/d in response to
weak AECO natural gas prices, as well as 300 boe/d that was shut-in
at Panny and will remain offline indefinitely or until the property
tax burden is reduced. Production guidance also reflects lower
anticipated fourth quarter production due to the deferral of
drilling at East Edson. Fourth
quarter production is expected to decrease marginally from third
quarter levels as increased heavy oil production from the third
quarter drilling program at Ukalta is anticipated to be more than
offset by natural production declines at East Edson. Oil and NGL production is forecast
to comprise approximately 25% of the production mix in the fourth
quarter.
Cash costs of $17.50 to
$18.50/boe are forecast for 2019, up
3% from the mid-point of Previous Guidance of $17.00 to $18.00/boe as decreased cash cost expenditure
levels are more than offset by the impact of lower production.
Commencing in the fourth quarter, general and administrative costs
have been reduced by approximately $3.5
million annually following a 25% reduction in the Company's
corporate employee head count and a reduction in compensation for
remaining employees.
2019 annual guidance assumptions are as follows:
|
Current
Guidance
|
Previous
Guidance
|
2019 exploration and
development expenditures ($ millions)
|
$12 -
$13
|
$18 - $21
|
2019 cash costs
($/boe)
|
$17.50 -
$18.50
|
$17.00 -
$18.00
|
2019 average daily
production (boe/d)
|
9,000 -
9,200
|
9,200 -
9,500
|
2019 average
production mix (% oil and NGL)
|
21% -
23%
|
20% - 24%
|
2019 adjusted funds
flow ($ millions)
|
$14 -
$16
|
$18 - $21
|
2019 adjusted funds
flow ($/share)
|
$0.23 -
$0.26
|
$0.30 -
$0.34
|
Commodity price assumptions reflect forward market price levels
as follows:
Market
Prices(1)
|
Current
Guidance
|
Previous
Guidance
|
2019 average NYMEX
natural gas price (US$/MMBtu)
|
$2.60
|
$2.68
|
2019 average AECO
natural gas price ($/GJ)
|
$1.49
|
$1.42
|
2019 average
AECO-NYMEX basis differential (US$/MMBtu)
|
($1.42)
|
($1.54)
|
2019 average West
Texas Intermediate ("WTI") oil price (US$/bbl)
|
$56.01
|
$58.67
|
2019 average Western
Canadian Select ("WCS") differential (US$/bbl)
|
($12.48)
|
($14.18)
|
2019 average exchange
rate(2)
|
1.33
|
1.32
|
(1)
|
Reflects settled and
forward market prices.
|
(2)
|
US$1.00 =
Cdn$
|
Year-end 2019 net debt is forecast at $120 - $123
million, up $5 million from
Previous Guidance due to the decrease in the TOU share price during
the third quarter. Current guidance is based on the following
assumptions:
- Net debt at September 30, 2019 of
$118.3 million;
- Reduction in the market value of the TOU share investment by
$2 million;
- Forecast adjusted funds flow for the fourth quarter of 2019 of
$1 to $2
million;
- Forecast capital spending for the fourth quarter of 2019 of
$1 to $2
million;
- Forecast decommissioning expenditures for the fourth quarter of
2019 of $0.8 million; and
- Payment of restructuring costs of $0.6
million.
2020 Guidance
Perpetual's reserve-based credit facility is currently
undergoing its semi-annual borrowing limit redetermination which is
likely to reduce the current $55
million borrowing limit effective November 30, 2019 due to reductions in bank
lending commodity price forecasts. Any reductions in the credit
facility borrowing limit will reduce the Company's available
liquidity. To preserve liquidity, the Company will defer further
capital spending until the credit facility borrowing limit
redetermination has been completed. The Company will issue its 2020
Guidance once the borrowing limit redetermination is known and
capital spending plans have been determined.
Financial and
Operating Highlights
|
Three months
ended
September
30
|
Nine months
ended
September
30
|
(Cdn$
thousands,
except
volume and per share amounts)
|
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
Financial
|
|
|
|
|
|
|
Oil and natural gas
revenue
|
17,097
|
20,504
|
(17%)
|
58,531
|
64,618
|
(9%)
|
Net loss
|
(20,349)
|
(12,259)
|
66%
|
(61,517)
|
(20,049)
|
207%
|
Per share – basic and
diluted(2)
|
(0.34)
|
(0.20)
|
70%
|
(1.02)
|
(0.33)
|
209%
|
Cash flow from
operating activities
|
5,509
|
6,729
|
(18%)
|
19,096
|
26,362
|
(28%)
|
Adjusted funds
flow(1)
|
4,183
|
5,155
|
(19%)
|
14,194
|
22,103
|
(36%)
|
Per share – basic and
diluted (2)
|
0.07
|
0.09
|
(22%)
|
0.24
|
0.37
|
(35%)
|
Total
assets
|
283,923
|
332,677
|
(15%)
|
283,923
|
332,677
|
(15%)
|
Revolving bank
debt
|
40,856
|
42,431
|
(4%)
|
40,856
|
42,431
|
(4%)
|
Term loan, principal
amount
|
45,000
|
45,000
|
–
|
45,000
|
45,000
|
–
|
TOU share margin
demand loan, principal amount
|
10,416
|
15,681
|
(34%)
|
10,416
|
15,681
|
(34%)
|
Senior notes,
principal amount
|
33,580
|
32,490
|
3%
|
33,580
|
32,490
|
3%
|
TOU share
investment
|
(21,720)
|
(37,675)
|
(42%)
|
(21,720)
|
(37,675)0
|
(42%)
|
Net working capital
deficiency(1)
|
10,191
|
7,484
|
36%
|
10,191
|
7,484
|
36%
|
Net
debt(1)
|
118,323
|
105,411
|
12%
|
118,323
|
105,411
|
12%
|
Capital
expenditures
|
4,506
|
4,343
|
4%
|
10,944
|
21,271
|
(49%)
|
Net payments
(proceeds) on acquisitions and dispositions
|
–
|
4,341
|
(100%)
|
–
|
(1,745)
|
(100%)
|
Net capital
expenditures
|
4,506
|
8,684
|
(48%)
|
10,944
|
19,526
|
(44%)
|
Common shares
outstanding (thousands)(3)
|
|
|
|
|
|
|
End of
period
|
60,425
|
60,524
|
–
|
60,425
|
60,524
|
–
|
Weighted average –
basic and diluted
|
60,317
|
60,468
|
–
|
60,195
|
59,900
|
–
|
Operating
|
|
|
|
|
|
|
Daily average
production
|
|
|
|
|
|
|
Natural gas
(MMcf/d)
|
38.2
|
46.9
|
(19%)
|
44.1
|
55.2
|
(20%)
|
Oil
(bbl/d)
|
1,292
|
1,022
|
26%
|
1,207
|
965
|
25%
|
NGL
(bbl/d)
|
731
|
730
|
–
|
757
|
794
|
(5%)
|
Total
(boe/d)
|
8,383
|
9,569
|
(12%)
|
9,324
|
10,965
|
(15%)
|
Average
prices
|
|
|
|
|
|
|
Realized natural gas
price ($/Mcf)
|
3.13
|
2.83
|
11%
|
2.99
|
2.69
|
11%
|
Realized oil price
($/bbl)
|
44.31
|
48.57
|
(9%)
|
45.23
|
50.06
|
(10%)
|
Realized NGL price
($/bbl)
|
37.34
|
56.02
|
(33%)
|
40.22
|
58.19
|
(31%)
|
Wells drilled –
gross (net)
|
|
|
|
|
|
|
Natural gas
|
–
(–)
|
– (–)
|
|
–
(–)
|
1 (1.0)
|
|
Oil
|
2
(2.0)
|
3 (3.0)
|
|
5
(5.0)
|
6 (6.0)
|
|
Total
|
2
(2.0)
|
3 (3.0)
|
|
5
(5.0)
|
7 (7.0)
|
|
(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 (September 30, 2019 – 0.9 million;
September 30, 2018 – 0.4 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 November 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.
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.