CALGARY, AB, Nov. 10, 2020 /CNW/ - (TSX: PMT) –
Perpetual Energy Inc. ("Perpetual" or the "Company") herein
releases its third quarter 2020 financial and operating results. 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, 2020 can be
obtained through the Company's website at
www.perpetualenergyinc.com and SEDAR at www.sedar.com.
THIRD QUARTER 2020 HIGHLIGHTS
Capital Spending, Production and Operations
- Third quarter production averaged 4,188 boe/d, down 50% from
8,383 boe/d in the comparative period of 2019, due primarily to the
sale of a 50% working interest in the East Edson property in West Central Alberta to
a third-party (the "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 (the "East Edson
Transaction").
- Compared to the second quarter of 2020, total production
increased by 14% or 526 boe/d, due to the restart of heavy oil
production which was suspended late in the first quarter in
response to low oil prices. As Western Canadian Select ("WCS")
prices improved from their April lows, the Company began
reactivating certain low-cost heavy oil production in mid-May 2020 and has continued to ramp up
production as oil prices recover. As of September 30, 2020, Perpetual had restarted all
heavy oil production with the exception of approximately 175 bbl/d
of higher cost production in certain pools at Mannville. Additionally, production at
East Edson was shut-in during the
five-day scheduled turnaround at the West Wolf gas plant which is
anticipated to support continued efficient and reliable operations
going forward.
- Two wells (1.0 net) of the eight-well carried interest drilling
commitment were drilled, completed and tied-in to production in
mid-September by the operator at the 50% owned East Edson property. Three wells (1.5 net) are
currently drilling and are expected to be tied-in to production
later in the fourth quarter with a further two wells (1.0 net)
scheduled to be drilled and tied-in to production during the first
quarter of 2021. Capital cost reductions per well are exceeding
Perpetual's 25% cost reduction expectations. As production is
tied-in from these new wells, unit production and operating costs
are anticipated to decrease due to the largely fixed cost nature of
the East Edson operations.
- Perpetual's operated exploration and development spending in
the third quarter of 2020 was nominal, consistent with guidance
released on July 31, 2020 with the
Company's second quarter results.
- On an absolute dollar basis, production and operating costs
were down by $1.6 million (39%) from
the prior year period. This decrease reflects the impact of the
East Edson Transaction, the elimination of variable costs related
to the ongoing shut-in of 175 bbl/d of higher cost heavy oil
production at Mannville, and other
cost mitigation initiatives. Perpetual's 50% share of the West Wolf
plant turnaround costs during the third quarter were $0.3 million. Total production and operating
expenses were up 23% on a unit-of-production basis to $6.79/boe for the third quarter of 2020, compared
to $5.53/boe for the comparable
period of 2019.
Financial Highlights
- Realized revenue was $17.93/boe
in the third quarter of 2020, 26% lower than the comparative period
of 2019 ($24.34/boe).
-
- Perpetual's realized natural gas price, including derivatives,
decreased 98% to $0.06/Mcf for the
third quarter of 2020 from $3.13/Mcf
in the comparative period of 2019, and represented only 3% of the
AECO Daily Index price compared to 344% in the prior year period.
Compared to the AECO Daily Index, lower realized natural gas prices
were the result of AECO-NYMEX basis hedging losses of $2.6 million ($1.75/Mcf) which occurred as Western Canadian gas
storage filled rapidly. The basis positions were put in place prior
to the implementation of the Temporary Service Protocol by TC
Energy which established access for storage operators. The Company
has closed out its remaining AECO-NYMEX basis hedge positions by
entering into offsetting hedge arrangements for the remainder of
2020 ($2.4 million unrealized loss)
and 2021 ($3.4 million unrealized
loss). Realized losses on financial and physical gas derivatives
decreased the realized price in the third quarter of 2020 by
$2.42/Mcf compared to the AECO Daily
Index (Q3 2019 – increased the realized price by $1.20/Mcf).
- In the third quarter of 2020, the Company reduced its fixed
volume obligations under the market diversification contract by
30,000 MMBtu/d to 10,000 MMBtu/d for the period commencing
November 1, 2020 and ending on
October 31, 2021 to align natural gas
sales obligations with lower forecast production volumes following
the East Edson Transaction. The modification resulted in a realized
loss on derivatives of $1.0 million
($2.53/boe) and reduced the Company's
realized natural gas price by $0.65/Mcf in the third quarter of 2020.
Subsequent to September 30, 2020, the
Company reduced its fixed volume obligations under the market
diversification contract by 14,600 MMBtu/d to 25,400 MMBtu/d for
the period commencing November 1,
2021 to October 31, 2022,
realizing a gain of $0.5 million.
Market diversification contract pricing is based on daily index
natural gas prices at pricing hubs outside of Alberta that generally track North American
NYMEX prices.
- Perpetual's realized oil price of $55.71/bbl was 26% higher than the third quarter
of 2019, and included realized hedging gains on crude oil
derivative contracts of $2.2 million
or $19.83/bbl (Q3 2019 – realized
hedging losses of $1.1 million or
$8.83/bbl). Excluding realized
hedging gains, Perpetual's realized oil price was $35.88/bbl in the third quarter of 2020, down 32%
from $53.14/bbl in the prior year
period. Compared to the second quarter of 2020, Perpetual's
realized oil price excluding hedging gains increased by 54%
($12.64/bbl), attributable to a
similar increase in WTI prices. WTI fixed price hedges have been
substantially offset for the remainder of 2020 by similar
arrangements having unrealized gains of $3.3
million. WTI-WCS differential hedges remain in place for the
remainder of 2020 on an average of 200 bbl/d at a fixed
differential of US$19.75/bbl. For
2021, the Company has fixed the WTI-WCS differential on 300 bbl/d
at US$13.25/bbl.
- Perpetual's realized NGL price for the third quarter of 2020
was $28.09/bbl, down 25% from the
third quarter of 2019, reflecting a decrease in all NGL component
prices which moved lower commensurate with lower WTI light oil
prices.
- Royalty expenses for the third quarter of 2020 were
$1.6 million, 30% lower than the
comparative period of 2019 due to both lower production and oil and
natural gas revenue, partially offset by higher Alberta Gas
Reference prices and AECO Daily Index prices which are used to
calculate crown and freehold natural gas royalties,
respectively.
- Transportation costs in the third quarter of 2020 were
$0.8 million, down 51% from the prior
year period of $1.5 million. On a
unit-of-production basis, company-wide transportation costs were
largely unchanged, decreasing from $2.00/boe in the third quarter of 2019 to
$1.98/boe in the same period of 2020.
Effective July 31, 2020, Perpetual's
natural gas firm transportation capacity was reduced from 25.5
MMcf/d to 15.4 MMcf/d, reducing unutilized demand charges at
East Edson.
- Cash costs were down 34% to $8.6
million (Q3 2019 – $13.0
million), but up 32% on a unit-of-production basis to
$22.21/boe (Q3 2019 – $16.84/boe). Cash costs decreased by $4.4 million from the prior year period due to
the East Edson Transaction, the continued shut-in of approximately
175 bbl/d of higher cost heavy oil production, the reduction in
work hours and corresponding compensation to 80% effective
April 1, 2020, and payments received
from the Canada Emergency Wage
Subsidy ("CEWS") program. Cash costs on a unit-of-production basis
increased by 32%, due to the 50% decrease in production.
- Net loss for the third quarter of 2020 was $7.5 million ($0.12/share), compared to a net loss of
$20.3 million ($0.34/share) in the comparative period of
2019.
- Cash flow used in operating activities in the third quarter of
2020 was $2.5 million ($0.04/share), down $8.0
million from the prior year period (Q3 2019 – cash flow from
operating activities of $5.5 million
and $0.09/share).
- Adjusted funds flow in the third quarter of 2020 was negative
$2.1 million (negative $0.03/share), down $6.3
million (150%) from the prior year period of $4.2 million ($0.07/share) due primarily to the 50% decrease in
production in the third quarter of 2020 caused by the sale of
East Edson production and natural
gas hedging losses. Compared to the second quarter of 2020,
adjusted funds flow improved by $1.2
million, due to higher third quarter oil production
following the restart of production in mid-May and higher selling
prices for all commodities.
- At September 30, 2020, Perpetual
had total net debt of $102.1 million,
down $16.0 million (14%) from
December 31, 2019. The improvement
reflected the $34.8 million of net
cash consideration received from the East Edson Transaction.
Compared to June 30, 2020, net debt
increased by $3.5 million (4%) due to
increased draws on the reserve-based Credit Facility to fund net
working capital payments and cash flows used in operating
activities.
- Perpetual had available liquidity at September 30, 2020 of $3.6
million, comprised of the $20
million Credit Facility Borrowing Limit, less current
borrowings and letters of credit of $15.1
million and $1.3 million,
respectively. Subsequent to quarter end, Perpetual has reduced its
outstanding letters of credit to $0.9
million. On October 30, 2020,
the $20 million Borrowing Limit was
confirmed and the revolving credit period was extended until
November 30, 2020. If not extended by
November 30, 2020, the credit
facility will cease to revolve, and all outstanding advances will
be repayable.
SEQUOIA LITIGATION UPDATE
On January 13, 2020, the Court of
Queen's Bench (the "Court") issued its written decision related to
the Statement of Claim filed on August 3,
2018 against Perpetual and its President and Chief Executive
Officer ("CEO") 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
decision dismissed and struck all claims against the Company's CEO
and all but one of the claims filed by PricewaterhouseCoopers Inc.
("PwC") LIT in its capacity as trustee in bankruptcy (the
"Trustee") against Perpetual. The Court did not find that the test
for summary dismissal relating to whether the asset 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.
The Trustee filed a notice of appeal with the Court of Appeal of
Alberta, challenging the entire
decision, and Perpetual filed a similar notice of appeal contesting
the BIA claim portion of the decision. The appeal proceedings are
scheduled to be heard in December
2020. On September 24, 2019,
Perpetual filed an application for security for costs of the
appeal. On January 28, 2020, the
Court of Appeal issued its decision, requiring the Trustee to post
security with the Court of Appeal in the amount of $0.2 million. Applications filed by the Trustee
to appeal the security for costs decision and alter the reasons for
the decision were dismissed at a hearing held on June 18, 2020. Costs of $0.1 million were awarded by the Court of Appeal
against the Trustee on July 21,
2020.
On August 26, 2020, costs of
$0.6 million were awarded by the
Court against PwC in their personal capacity, related to the claims
against Perpetual's CEO which were dismissed and struck in the
January 13, 2020 decision.
Additionally, the Court ordered PwC to post security of
$1.7 million as a condition to
continuing the Trustee's Statement of Claim action. PwC has since
posted the required security with the Court and has filed a notice
of appeal with the Court of Appeal of Alberta with respect to the cost award
decision.
On February 25, 2020, Perpetual
filed a second application to strike and summarily dismiss the BIA
claim on the basis that there was no transfer at undervalue, and
Sequoia was not insolvent at the time of the asset transaction nor
caused to be insolvent by the asset transaction. In July 2020, the Orphan Well Association ("OWA"),
certain oil and gas companies, and six municipalities applied to
intervene in the second BIA dismissal application proceedings. The
OWA and certain oil and gas companies were permitted to intervene
(the "Intervenors") in the proceedings which took place on
October 1st and
2nd, 2020. The Court's decision is pending. In late
October, the Intervenors also filed applications with the Court of
Appeal of Alberta to be permitted
to intervene in the Trustee's appeal of the January 13, 2020 Court decision scheduled for
December 2020.
Management expects that the Company is more likely than not to
be completely successful in defending against the Sequoia
Litigation such that no damages will be awarded against it, and
therefore, no amounts have been accrued as a liability in
Perpetual's financial statements.
OUTLOOK
Perpetual currently anticipates that five of the eight carried
interest wells at the 50% owned East
Edson property will be drilled, completed and tied-in before
the end of the fourth quarter of 2020. Two horizontal Wilrich wells
were tied-in to production in mid-September, with drilling
operations underway on the next three well pad which is scheduled
to be on production in the fourth quarter. A two well pad is
planned for the first quarter of 2021 and the final carried
interest well is scheduled to be drilled, completed and tied-in
during the second half of 2021. While oil prices have begun to
recover from their second quarter lows, capital expenditures for
the remainder of 2020 in Eastern
Alberta have been deferred, pending a sustained recovery of
WTI oil prices to the US$45.00/bbl
level.
With the reactivation of shut-in heavy oil production and the
contribution from the first two carried interest wells at
East Edson in late-September,
production is forecast to increase 24% in the fourth quarter to
5,100 to 5,300 boe/d (29% liquids). First quarter 2021 production
is anticipated to increase a further 12% to 5,700 to 6,000 boe/d
(26% liquids) with the full impact of the first five carried
interest East Edson wells. An
additional 175 bbl/d of heavy oil production could be re-started if
WTI oil prices increase above the US$45.00/bbl level.
The Company has been approved for funding of $1.5 million from the Alberta Site Rehabilitation
program. Work on these funded abandonment and reclamation projects
will be ongoing throughout the fourth quarter of 2020 and into
2021.
Minimization of operating and corporate costs will remain a
priority, as will ensuring employees remain safe and healthy amid
the COVID-19 pandemic.
Financial and
Operating Highlights
|
Three months
ended
September
30
|
Nine months
ended
September
30
|
(Cdn$
thousands,
except
volume and per share amounts)
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
Financial
|
|
|
|
|
|
|
Oil and natural gas
revenue
|
7,089
|
17,097
|
(59%)
|
21,308
|
58,531
|
(64%)
|
Net loss
|
(7,491)
|
(20,349)
|
63%
|
(76,040)
|
(61,517)
|
(24%)
|
Per share – basic and
diluted(2)
|
(0.12)
|
(0.34)
|
65%
|
(1.25)
|
(1.02)
|
(23%)
|
Cash flow from (used
in) operating activities
|
(2,538)
|
5,509
|
(146%)
|
(8,429)
|
19,096
|
(144%)
|
Adjusted funds
flow(1)
|
(2,098)
|
4,183
|
(150%)
|
(9,027)
|
14,194
|
(164%)
|
Per share – basic and
diluted(2)
|
(0.03)
|
0.07
|
(143%)
|
(0.15)
|
0.24
|
(163%)
|
Total
assets
|
129,959
|
283,923
|
(54%)
|
129,959
|
283,923
|
(54%)
|
Revolving bank
debt
|
15,089
|
40,856
|
(63%)
|
15,089
|
40,856
|
(63%)
|
Term loan, principal
amount
|
45,000
|
45,000
|
–
|
45,000
|
45,000
|
–
|
TOU share margin
demand loan, principal amount
|
–
|
10,416
|
(100%)
|
–
|
10,416
|
(100%)
|
Senior notes,
principal amount
|
33,580
|
33,580
|
–
|
33,580
|
33,580
|
–
|
TOU share
investment
|
–
|
(21,720)
|
(100%)
|
–
|
(21,720)
|
(100%)
|
Net working capital
deficiency(1)
|
8,383
|
10,191
|
(18%)
|
8,383
|
10,191
|
(18%)
|
Net
debt(1)
|
102,052
|
118,323
|
(14%)
|
102,052
|
118,323
|
(14%)
|
Capital
expenditures
|
251
|
4,506
|
(94%)
|
5,473
|
10,944
|
(50%)
|
Net payments
(proceeds) on acquisitions and dispositions
|
133
|
–
|
100%
|
(34,528)
|
–
|
(100%)
|
Net capital
expenditures
|
384
|
4,506
|
(91%)
|
(29,055)
|
10,944
|
(365%)
|
Common shares
outstanding (thousands)(3)
|
|
|
|
|
|
|
End of
period
|
61,253
|
60,425
|
1%
|
61,253
|
60,425
|
1%
|
Weighted average –
basic and diluted
|
61,200
|
60,317
|
1%
|
60,896
|
60,195
|
1%
|
Operating
|
|
|
|
|
|
|
Daily average
production
|
|
|
|
|
|
|
Natural gas
(MMcf/d)
|
16.3
|
38.2
|
(57%)
|
22.2
|
44.1
|
(50%)
|
Oil
(bbl/d)
|
1,193
|
1,292
|
(8%)
|
1,029
|
1,207
|
(15%)
|
NGL
(bbl/d)
|
273
|
731
|
(63%)
|
382
|
757
|
(50%)
|
Total
(boe/d)
|
4,188
|
8,383
|
(50%)
|
5,106
|
9,324
|
(45%)
|
Average
prices
|
|
|
|
|
|
|
Realized natural gas
price ($/Mcf) (4)(5)
|
0.06
|
3.13
|
(98%)
|
0.67
|
2.99
|
(78%)
|
Realized oil price
($/bbl)(4)
|
55.71
|
44.31
|
26%
|
48.06
|
45.23
|
6%
|
Realized NGL price
($/bbl)(4)
|
28.09
|
37.34
|
(25%)
|
30.01
|
40.22
|
(25%)
|
Wells drilled –
gross (net)
|
|
|
|
|
|
|
Natural gas
|
2
(1.0)
|
– (–)
|
|
2
(1.0)
|
– (–)
|
|
Oil
|
–
(–)
|
2 (2.0)
|
|
4
(4.0)
|
5 (5.0)
|
|
Total
|
2
(1.0)
|
2 (2.0)
|
|
6
(5.0)
|
5 (5.0)
|
|
(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, 2020 – 0.6 million;
September 30, 2019 – 0.9 million). See "Note 14 to the condensed
interim consolidated financial statements"
|
(4)
|
Realized natural gas,
oil and NGL prices include physical forward sales contracts for
which delivery was made during the reporting period, along with
realized gains and losses on financial derivatives and foreign
exchange contracts
|
(5)
|
Realized losses in
the third quarter of 2020 include $1.0 million ($0.65/Mcf) from the
modification of the market diversification contract for the
November 1, 2020 to October 31, 2021 period. Realized gains in the
third quarter of 2019 include $2.7 million ($0.77/Mcf) from the
elimination of the Company's 40,000 MMBtu/d market diversification
contract obligations for the period of December 1, 2019 to October
31, 2020
|
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and
marketing company headquartered in Calgary, Alberta. Perpetual owns 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, 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
potential outcome of the Sequoia Litigation, the ability to extend
the Credit Facility or to refinance its term debt on favorable
terms, 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 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 "adjusted funds flow",
"adjusted funds flow per share", "adjusted funds flow per boe",
"available liquidity", "cash costs", "net working capital
deficiency", "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 (used in) 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 (used in)
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: 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 added back
non-cash oil and natural gas revenues in-kind, equal to retained
East Edson royalty obligation
payments taken in-kind, to present the equivalent amount of cash
revenue generated. The Company has also deducted payments of the
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 employee downsizing costs, which management
considers to not be related to cash flow from operating activities.
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 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 (the "Credit Facility")
borrowing limit (the "Borrowing Limit"), less borrowings and
letters of credit issued under 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.
Cash costs: 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. Management believes
that cash costs assist management and investors in assessing
Perpetual's efficiency and overall cost structure.
Realized revenue: 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. Management believes that cash costs assist management and
investors in assessing Perpetual's efficiency and overall cost
structure.
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 in 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.
Net working capital deficiency: Net working capital
deficiency includes total current assets and current liabilities
excluding short-term derivative assets and liabilities related to
the Corporation's risk management activities, Tourmaline Oil Corp.
("TOU") share investment, TOU share margin demand loan, revolving
bank debt, term loan, current portion of royalty obligations,
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. 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.
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
|
SOURCE Perpetual Energy Inc.