CALGARY, April 1, 2020 /CNW/ - (TSX: PMT) Perpetual
Energy Inc. ("Perpetual" or the "Company") is pleased to announce
that it has sold a 50% working interest in its East Edson property for consideration
consisting of $35 million in cash and
the carried interest funding of the Company's remaining 50% working
interest share in an eight-well drilling program (the "East Edson
Transaction").
Concurrent with the signing and closing of the East Edson
Transaction on April 1, 2020, the
borrowing limit on Perpetual's credit facility was set at
$20 million by the Company's bank
lending syndicate, with the next borrowing limit redetermination
scheduled on or prior to July 31,
2020.
EAST EDSON
TRANSACTION
On April 1, 2020, the Company sold
a 50% working interest in its East
Edson property in West Central Alberta to a third party
purchaser for consideration including a cash payment of
$35 million and the carried interest
funding of the drill, complete and tie-in costs for an eight-well
drilling program. A minimum of two horizontal wells targeting
development of the Wilrich formation are required to be drilled,
completed and tied-in following spring break-up 2020. The purchaser
is required to complete the eight-well horizontal drilling program
by April 1, 2022.
The cash proceeds from the East Edson Transaction will be used
to repay bank debt and fund profitable investment in the
Clearwater play in Eastern Alberta as oil prices recover and
stabilize. The eight-well development capital carry at East Edson is anticipated to restore gross
production levels to more fully utilize the existing processing
capacity, improve operating netbacks given the largely fixed
operating cost base, and result in improved capital spending
efficiency.
The East Edson property
comprises substantially all of Perpetual's West Central core area.
As at December 31, 2019, the
East Edson property had proved and
probable reserves of 60.0 million boe. Fourth quarter 2019
production and operating netback from the East Edson property was 6,253 boe/d and
$7.20/boe, respectively.
CREDIT FACILITY
Perpetual's syndicate of lenders have completed their borrowing
base redetermination, incorporating the impact of the East Edson
Transaction. The revolving bank debt borrowing limit ("Borrowing
Limit") is now set at $20 million,
with the next Borrowing Limit redetermination scheduled on or prior
to July 31, 2020. The credit facility
will continue to revolve until July 31,
2020 and may be extended for a further period of up to 364
days subject to approval by the Company's lenders. If not extended,
the credit facility will cease to revolve, and all outstanding
advances will be repayable on November 30,
2020.
After giving effect to the $35
million of cash proceeds received from the East Edson
Transaction and the $20 million
Borrowing Limit, Perpetual currently has available liquidity of
$12 million.
2020 OUTLOOK
Capital spending in the first quarter of 2020 included a four
well (4.0 net) heavy oil drilling program targeting the
Clearwater formation in the Ukalta
area of Eastern Alberta at a cost
of $5.5 million. In response to the
recent significant decline in global oil prices, all further
capital expenditures in 2020 in Eastern
Alberta will be deferred and substantially all of the
Company's heavy oil production will be temporarily suspended,
pending a recovery to oil prices. Capital activity in 2020 at the
50% owned East Edson property will
consist of the carried interest drilling program forming part of
the East Edson Transaction consideration.
Assuming a mid-year recovery of oil prices sufficient to support
the restart of oil production, Perpetual anticipates average 2020
sales volumes of 5,000 to 6,000 boe/d (34% liquids). Actions have
been implemented to minimize operating and corporate costs.
Abandonment and reclamation expenditures of up to $1.5 million are forecast for 2020, primarily at
Mannville, as required to comply
with the minimum expenditure level directed by the Alberta Energy
Regulator's area-based closure program, addressing decommissioning
obligations and thereby decreasing fixed operating costs associated
with non-producing wells.
ADDITIONAL INFORMATION
Oil and Gas Advisories
The reserves estimates contained in this news release
represent gross reserves as at December 31,
2019 as estimated by McDaniel and Associates Consultants
Ltd. ("McDaniel") and are defined under National Instrument 51-101
as interest before deduction of royalties and without including any
royalty interests. The recovery and reserves estimates of crude
oil, NGL and natural gas reserves provided herein are estimates
only and there is no guarantee that the estimated reserves will be
recovered. Actual crude oil, natural gas and NGL reserves may be
greater than or less than the estimates provided herein.
To provide a single unit-of-production for analytical
purposes, natural gas production and reserves volumes are converted
mathematically to equivalent barrels of oil (boe), using the
industry-accepted standard conversion of six thousand cubic feet of
natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio
is based on an energy equivalency conversion method primarily
applicable at the burner tip. It does not represent a value
equivalency at the wellhead and is not based on either energy
content or current prices. While the boe ratio is useful for
comparative measures and observing trends, it does not accurately
reflect individual product values and might be misleading,
particularly if used in isolation. As well, given that the value
ratio, based on the current price of crude oil to natural gas, is
significantly different from the 6:1 energy equivalency ratio,
using a 6:1 conversion ratio 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
|
Forward-Looking Information
Certain information regarding Perpetual in this news release
including management's assessment of future plans, operations, and
certain of the information contained under the heading "2020
Outlook" in this news release, may constitute forward-looking
information or statements under applicable securities laws. The
forward looking information includes, without limitation, the use
of cash proceeds from the East Edson Transaction including the
repayment of bank debt and the funding of profitable investment in
the Clearwater play in
Eastern Alberta, the future
recovery and stabilization of oil prices, any benefits to be
derived from the East Edson Transaction including that the
eight-well capital carry at East
Edson will restore gross production levels to more fully
utilize the existing processing capacity, improve operating
netbacks and result in improved capital spending efficiency, the
timing for the next Borrowing Limit review and any future extension
of the credit facility, the nature of the capital spending in 2020
at the 50% owned East Edson
property, the deferral and suspension of oil capital expenditures
in 2020 including heavy oil production and the anticipated timing
of an oil price recovery and production restart, anticipated
average 2020 sales volumes, the ability to minimize operating and
corporate costs, abandonment and reclamation expenditure forecasts
for 2020 and ability to decrease fixed operating costs associated
with non-producing wells, anticipated amounts and allocation of
capital spending; statements regarding estimated production and
timing thereof; forecast average production; completions and
development activities; 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 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
known and unknown risks, including, without limitation, the impact
of the ongoing oil price war between Russia and Saudi
Arabia and COVID-19 as further described below, 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. In
particular and without limitation of the foregoing, the recent
outbreak of COVID-19 has had a negative impact on global financial
conditions. Perpetual cannot accurately predict the impact COVID-19
will have on its ability to execute its business plans in response
to government public health efforts to contain COVID-19 and to
obtain financing or third parties' ability to meet their
contractual obligations with Perpetual including due to
uncertainties relating to the ultimate geographic spread of the
virus, the severity of the disease, the duration of the outbreak,
and the length of travel and quarantine restrictions imposed by
governments of affected jurisdictions; and the current and future
demand for oil and gas. In the event that the prevalence of
COVID-19 continues to increase (or fears in respect of COVID-19
continue to increase), governments may increase regulations and
restrictions regarding the flow of labour or products, and travel
bans, and Perpetual's operations, service providers and customers,
and ability to advance its business plan or carry out its top
strategic priorities, could be adversely affected. In particular,
should any employees, consultants or other service providers of
Perpetual become infected with COVID-19 or similar pathogens, it
could have a material negative impact on Perpetual's operations,
prospects, business, financial condition and results of operations.
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 herein and under "Risk Factors" in Perpetual's Annual
Information Form and MD&A for the year ended December 31, 2019 and 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 "available liquidity"
and "operating netback" which do not have standardized meanings as
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.
Available Liquidity: Available Liquidity is defined as
Perpetual's reserve-based credit facility borrowing limit (the
"Borrowing Limit"), less borrowings and letters of credit issued
under the reserve-based credit facility (the "Credit Facility").
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.
Operating netback: 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. Perpetual considers
operating netback to be an important performance measure as it
demonstrates its profitability relative to current commodity
prices.
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.
SOURCE Perpetual Energy Inc.