Prairie Provident Resources Inc. ("Prairie Provident", "PPR" or the
"Company") today announces our financial and operating results for
the three months ended March 31, 2020. PPR’s unaudited
condensed interim consolidated financial statements for the three
months ended March 31, 2020 (“Interim Financial Statements”)
and related Management’s Discussion and Analysis (“MD&A”) for
the three months ended March 31, 2020 are available on our
website at www.ppr.ca and filed on SEDAR.
PPR’s first-quarter financial results reflect
the significant decline in global energy demand and resultant
impact on crude oil pricing caused by the COVID-19 pandemic, which
were further intensified by the price war between Saudi Arabia and
Russia that caused a global oil supply glut. The Company has
taken proactive steps to maintain our liquidity and financial
resilience during this unprecedented time, including suspending the
capital program; conducting a bottom-up review of our operating
expenses to identify immediate and targeted cost reduction
opportunities; reducing compensation expenses across the
organization; and reaching an agreement with our lenders to defer
the Company's borrowing base re-determination and to suspend cash
interest payments on our 15% subordinated unsecured notes due
October 31, 2021 ("Senior Notes"). As a result of these
initiatives, the Company expects to achieve adjusted funds flow
savings of approximately $8.0 million - $11.0 million for 2020. In
addition, PPR has WTI hedges on over 80% of our 2020 forecast base
oil production (net of royalties), which protect our operating cash
flows and provide further resiliency amid continued
volatility. At March 31, 2020, our hedges were fair
valued at over $22 million.
Q1 2020 HIGHLIGHTS
- Production averaged 5,281 boe/d1 (68% liquids) in the quarter,
which was 11% or 681 boe/d lower than Q1 2019, with the decrease
mainly due to natural declines and the shut-in of certain non-core
gas production, partially offset by new production coming on-stream
from our 2019/2020 drilling program. Further, in light of the
oil price downturns that have continued since early March 2020,
uneconomic workovers have been deferred to preserve reserves value
and liquidity.
- Operating netback in Q1 2020 was $3.2 million ($6.66/boe)
before the impact of derivatives, and $5.2 million ($10.81/boe)
after the realized gain on derivatives, a 62% and 38% decrease,
respectively, relative to Q1 2019. Operating netback decreased in
Q1 2020 compared to the same quarter of last year, reflecting lower
production and lower realized oil and natural gas prices, partially
offset by lower royalties and operating expenses and higher
realized gains on derivatives.
- Adjusted funds flow ("AFF")2 totaled $0.9 million ($0.01 per
basic and diluted share), excluding $0.7 million of decommissioning
settlements, reflecting the lower production and operating
netback.
- Net loss totaled $68.1 million in Q1 2020, compared to a net
loss of $21.3 million in Q1 2019, driven primarily by a non-cash
impairment charge of $77.3 million related to the sharp decline in
forward crude oil and natural gas prices.
- Net debt2 at March 31, 2020 totaled $124.0 million, up
$12.6 million from December 31, 2019. The increase was
largely due to $7.0 million of unrealized foreign exchange impact,
driven by a weaker Canadian dollar relative to the US dollar on the
Company's US-dollar denominated debt, as well as capital
expenditures in the quarter that exceeded AFF2.
- During the quarter, PPR's capital spending was directed to the
drilling and completion of one development well in our Michichi
area which came on production in late March 2020. The well averaged
242 boe/d (weighted 84% to liquids) in initial production.3
- Subsequent to Q1 2020, a lender redetermination of the
Revolving Facility borrowing base, originally scheduled for the
Spring of 2020, has been temporarily deferred. The Company
agreed to direct excess funds, after payment of all operating,
G&A and other costs of conducting our business, to the
repayment of borrowings on our senior secured revolving note
facility (“Revolving Facility”) and to not make any requests for
further advances under that facility.
- In addition, the holders of our outstanding USD$28,500,000
original principal amount of Senior Notes, on which a portion of
quarterly interest payments were previously paid in cash, have
agreed to payment-in-kind of all interest for the next payment date
of April 30, 2020 and thereafter.
1 Q1 2020 average production is comprised of
3,456 bbls/d of oil, 10,186 Mcf/d of natural gas, and
127 bbls/d of natural gas liquids. Q1 2019 average production
included 3,892 bbls/d oil, 11,568 Mcf/d of natural gas, and 142
bbls/d of natural gas liquids.2 Non-IFRS measure – see below under
“Non-IFRS Measures”3 The initial production rate for our Michichi
development well is preliminary in nature and may not be indicative
of stabilized on-stream production rates, future product types,
long-term well or reservoir performance, or ultimate
recovery. Actual future results will differ from those
realized during an initial short-term production period, and the
difference may be material.
FINANCIAL AND OPERATING
SUMMARY
|
Three Months Ended March 31, |
($000s except per unit amounts) |
2020 |
2019 |
Production Volumes |
|
|
Crude oil (bbls/d) |
3,456 |
|
|
3,892 |
|
|
Natural gas (Mcf/d) |
10,186 |
|
|
11,568 |
|
|
Natural gas liquids (bbls/d) |
127 |
|
|
142 |
|
|
Total (boe/d) |
5,281 |
|
|
5,962 |
|
|
%
Liquids |
68 |
|
% |
68 |
|
% |
Average Realized Prices |
|
|
Crude oil ($/bbl) |
41.35 |
|
|
56.70 |
|
|
Natural gas ($/Mcf) |
2.10 |
|
|
2.44 |
|
|
Natural gas liquids ($/bbl) |
27.52 |
|
|
38.65 |
|
|
Total ($/boe) |
31.78 |
|
|
42.67 |
|
|
Operating Netback ($/boe)1 |
|
|
Realized price |
31.78 |
|
|
42.67 |
|
|
Royalties |
(2.67 |
) |
|
(3.36 |
) |
|
Operating costs |
(22.45 |
) |
|
(23.47 |
) |
|
Operating netback |
6.66 |
|
|
15.84 |
|
|
Realized gains (losses) on
derivative instruments |
4.15 |
|
|
(0.24 |
) |
|
Operating netback, after realized gains (losses) on derivative
instruments |
10.81 |
|
|
15.60 |
|
|
1
Operating netback is a Non-IFRS measure (see “Non-IFRS Measures”
below).
Capital Structure($000s) |
As atMarch 31, 2020 |
As atDecember 31, 2019 |
Working capital (deficit)1 |
(3.3 |
) |
|
2.2 |
|
|
Long-term debt |
(120.7 |
) |
|
(113.6 |
) |
|
Total net debt2 |
(124.0 |
) |
|
(111.4 |
) |
|
Debt capacity3 |
4.3 |
|
|
3.1 |
|
|
Common shares outstanding (in millions) |
172.1 |
|
|
171.4 |
|
|
1 Working capital (deficit) is a non-IFRS
measure (see "Non-IFRS Measures" below) calculated as current
assets less current portion of derivative instruments, minus
accounts payable and accrued liabilities. 2 Net debt is a non-IFRS
measure (see "Non-IFRS Measures" below), calculated by adding
working capital (deficit) and long-term debt. 3 Debt capacity
reflects the undrawn capacity of the Company's revolving facility
of USD$60 million at March 31, 2020 and USD$60 million at
December 31, 2019, converted at an exchange rate of $1.0000
USD to $1.4187 CAD on March 31, 2020 and $1.0000 USD to
$1.2988 CAD on December 31, 2019.
|
Three Months Ended March 31, |
Drilling Activity |
2020 |
2019 |
Gross wells |
1.0 |
0.0 |
Net (working interest) wells |
1.0 |
n/a |
Success rate, net wells (%)1 |
100% |
n/a |
1 For the three months ended March 31,
2020, the company drilled one development well with a 100% success
rate.
OUTLOOK
The COVID-19 pandemic has resulted in a sharp
decline in global economic activity, and consequently, a
significant drop in energy demand. As countries around the
world start easing physical distancing and reopening their
economies, it is anticipated that a corresponding increase in
energy demand will be experienced, though the timing and extent of
such economic recovery remains highly uncertain.
The downturn in oil prices has adversely
affected PPR's operating results and financial position, although
the impact has been somewhat buffered given that 80% of our 2020
forecast base oil production (net of royalties) is protected by
near-term hedges. Our hedges have mitigated the Company's exposure
to the severe price deterioration that has occurred during these
unprecedented times, underpinning the importance of maintaining
liquidity and financial resilience. After completing the Michichi
well in March 2020, PPR has suspended our capital program to
preserve liquidity and protect development economics.
Operationally, we have conducted a bottom-up
review of of our operating expenses and identified immediate
reduction opportunities totaling $2.2 million with an additional
$2.8 million of target reduction over the balance of 2020. Cost
reductions are expected to be realized through rate negotiations,
workforce optimizations, shutting-in of uneconomic production and
the deferral of activities.
In addition, effective April 2020, annual
salaries for all executives and non-executives have been reduced by
20% and 10%, respectively, while the Board of Directors' annual
remuneration has also been reduced by 25%. Certain employee
benefit programs have also been suspended. These measures are
expected to result in $2.0 million of expense reductions for
2020.
PPR is actively pursuing various COVID-19 relief
programs announced by the Government of Canada and the Government
of Alberta. PPR will assess the still-emerging details of the
Business Development Bank of Canada (“BDC”) oil and gas sector
financing program announced in April 2020, which contemplates loans
of between $15 million and $60 million at commercial rates for
operating cash flow and business continuity purposes, repayable
within 4 years. In late April, the Government of Alberta also
announced its Site Rehabilitation Program aimed at incenting
abandonment and reclamation activity. PPR will assess the
cost and benefits of directing spending towards decommissioning
activities, with our participation decision dependent upon the
incentives available and capital requirements from
PPR.
As a result of the continuing and far-reaching
impacts of COVID-19, the Company expects the remainder of 2020 to
be a challenging time for our industry and for the global economy
in general. While PPR cannot control or influence the macro
environment, we are committed to maintaining our balance sheet and
liquidity through active cost reduction efforts and will continue
to work closely with our lenders.
Annual Shareholders'
Meeting
PPR has been monitoring public health directives
and recommendations relating to the COVID-19 pandemic, including
continued restrictions on in-person gatherings, and looks forward
to being able to hold its annual meeting of shareholders without
having to limit physical attendance by shareholders and
guests. In the circumstances, the Company has determined to
defer its annual meeting until the second half of the year and, in
connection therewith, the filing of proxy materials containing
disclosure on director nominees, the Company's auditor, executive
compensation and corporate governance, in reliance on temporary
relief issued by the Toronto Stock Exchange and the Canadian
Securities Administrators as a result of the pandemic.1 The
requisite shareholder communications and other actions necessary to
call the meeting will be undertaken when the meeting date is
decided.
1 In particular, the Company relies on the
exemption in Alberta Securities Commission Blanket Order 51-518 and
equivalent exemptions in other Canadian jurisdictions with respect
to the filing of executive compensation disclosure, which is
included in the information circular for annual shareholders'
meetings.
ABOUT PRAIRIE PROVIDENT
Prairie Provident is a Calgary-based company
engaged in the exploration and development of oil and natural gas
properties in Alberta. The Company's strategy is to grow
organically in combination with accretive acquisitions of
conventional oil prospects, which can be efficiently developed.
Prairie Provident's operations are primarily focused at the
Michichi and Princess areas in Southern Alberta targeting the
Banff, the Ellerslie and the Lithic Glauconite formations, along
with an established and proven waterflood project at our Evi area
in the Peace River Arch. Prairie Provident protects its balance
sheet through an active hedging program and manages risk by
allocating capital to opportunities offering maximum shareholder
returns.
For further information, please contact:
Prairie Provident Resources Inc. Tim Granger President and Chief
Executive Officer Tel: (403) 292-8110 Email: tgranger@ppr.ca
Forward-Looking Statements
This news release contains certain statements
("forward-looking statements") that constitute forward-looking
information within the meaning of applicable Canadian securities
laws. Forward-looking statements relate to future performance,
events or circumstances, are based upon internal assumptions,
plans, intentions, expectations and beliefs, and are subject to
risks and uncertainties that may cause actual results or events to
differ materially from those indicated or suggested therein.
All statements other than statements of current or historical fact
constitute forward-looking statements. Forward-looking statements
are typically, but not always, identified by words such as
“anticipate”, “believe”, “expect”, “intend”, “plan”, “budget”,
“forecast”, “target”, “estimate”, “propose”, “potential”,
“project”, “continue”, “may”, “will”, “should” or similar words
suggesting future outcomes or events or statements regarding an
outlook.
Without limiting the foregoing, this news
release contains forward-looking statements pertaining to: the
Company's liquidity and financial resilience going-forward; cost
reduction opportunities and the Company's ability to achieve them;
and future improvements in economic activity and energy demand.
Forward-looking statements are based on a number
of material factors, expectations or assumptions of Prairie
Provident which have been used to develop such statements but which
may prove to be incorrect. Although the Company believes that the
expectations and assumptions reflected in such forward-looking
statements are reasonable, undue reliance should not be placed on
forward-looking statements, which are inherently uncertain and
depend upon the accuracy of such expectations and
assumptions. Prairie Provident can give no assurance that the
forward-looking statements contained herein will prove to be
correct or that the expectations and assumptions upon which they
are based will occur or be realized. Actual results or events
will differ, and the differences may be material and adverse to the
Company. In addition to other factors and assumptions which may be
identified herein, assumptions have been made regarding, among
other things: future commodity prices and currency exchange rates,
including consistency of future prices with current price
forecasts; the economic impacts of the COVID-19 pandemic, including
the adverse effect on global energy demand, and the oversupply of
oil production; results from development activities, and their
consistency with past operations; the quality of the reservoirs in
which Prairie Provident operates and continued performance from
existing wells, including production profile, decline rate and
product mix; the accuracy of the estimates of Prairie Provident's
reserves volumes; operating and other costs, including the ability
to achieve and maintain cost improvements; continued availability
of external financing and cash flow to fund Prairie Provident's
current and future plans and expenditures, with external financing
on acceptable terms; the impact of competition; the general
stability of the economic and political environment in which
Prairie Provident operates; the general continuance of current
industry conditions; the timely receipt of any required regulatory
approvals; the ability of Prairie Provident to obtain qualified
staff, equipment and services in a timely and cost efficient
manner; drilling results; the ability of the operator of the
projects in which Prairie Provident has an interest in to operate
the field in a safe, efficient and effective manner; field
production rates and decline rates; the ability to replace and
expand oil and natural gas reserves through acquisition,
development and exploration; the timing and cost of pipeline,
storage and facility construction and expansion and the ability of
Prairie Provident to secure adequate product transportation;
regulatory framework regarding royalties, taxes and environmental
matters in the jurisdictions in which Prairie Provident operates;
and the ability of Prairie Provident to successfully market its oil
and natural gas products.
Forward-looking statements are not guarantees of
future performance or promises of future outcomes, and should not
be relied upon. Such statements, including the assumptions made in
respect thereof, involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements including, without limitation: changes in realized
commodity prices; changes in the demand for or supply of Prairie
Provident's products; the early stage of development of some of the
evaluated areas and zones; the potential for variation in the
quality of the geologic formations targeted by Prairie Provident’s
operations; unanticipated operating results or production declines;
changes in tax or environmental laws, royalty rates or other
regulatory matters; changes in development plans of Prairie
Provident or by third party operators; increased debt levels or
debt service requirements; inaccurate estimation of Prairie
Provident's oil and gas reserves volumes; limited, unfavourable or
a lack of access to capital markets; increased costs; a lack of
adequate insurance coverage; the impact of competitors; and such
other risks as may be detailed from time-to-time in Prairie
Provident's public disclosure documents, (including, without
limitation, those risks identified in this news release and Prairie
Provident's current Annual Information Form).
The forward-looking statements contained in this
news release speak only as of the date of this news release, and
Prairie Provident assumes no obligation to publicly update or
revise them to reflect new events or circumstances, or otherwise,
except as may be required pursuant to applicable laws. All
forward-looking statements contained in this news release are
expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
The oil and gas industry commonly expresses
production volumes and reserves on a “barrel of oil equivalent”
basis (“boe”) whereby natural gas volumes are converted at the
ratio of six thousand cubic feet to one barrel of oil. The
intention is to sum oil and natural gas measurement units into one
basis for improved analysis of results and comparisons with other
industry participants. A boe conversion ratio of six thousand
cubic feet to one barrel of oil is based on an energy equivalency
conversion method primarily applicable at the burner tip. It does
not represent a value equivalency at the wellhead nor at the plant
gate, which is where Prairie Provident sells its production
volumes. Boes may therefore be a misleading measure,
particularly if used in isolation. Given that the value ratio based
on the current price of crude oil as compared to natural gas is
significantly different from the energy equivalency ratio of 6:1,
utilizing a 6:1 conversion ratio may be misleading as an indication
of value.
Non-IFRS Measures
The Company uses certain terms in this news
release and within the MD&A that do not have a standardized or
prescribed meaning under International Financial Reporting
Standards (IFRS), and, accordingly these measurements may not be
comparable with the calculation of similar measurements used by
other companies. For a reconciliation of each non-IFRS measure to
its nearest IFRS measure, please refer to the “Non-IFRS Measures”
section in the MD&A. Non-IFRS measures are provided as
supplementary information by which readers may wish to consider the
Company's performance but should not be relied upon for comparative
or investment purposes. The non-IFRS measures used in this
news release are summarized as follows:
Working Capital – Working capital (deficit) is
calculated as current assets excluding the current portion of
derivative instruments, less accounts payable and accrued
liabilities. This measure is used to assist management and
investors in understanding liquidity at a specific point in
time. The current portion of derivatives instruments is
excluded as management intends to hold derivative contracts through
to maturity rather than realizing the value at a point in time
through liquidation. The current portion of decommissioning
expenditures is excluded as these costs are discretionary and the
current portion of flow-through share premium and warrant
liabilities are excluded as it is a non-monetary liability.
Lease liabilities have historically been excluded as they were not
recorded on the balance sheet until the adoption of IFRS 16 –
Leases on January 1, 2019.
Net Debt – Net debt is defined as long-term debt
plus working capital surplus or deficit. Net debt is commonly
used in the oil and gas industry for assessing the liquidity of a
company.
Operating Netback – Operating netback is a
non-IFRS measure commonly used in the oil and gas industry. This
measurement assists management and investors to evaluate the
specific operating performance at the oil and gas lease level.
Operating netbacks included in this news release were determined by
taking (oil and gas revenues less royalties less operating
costs). Operating netback may be expressed in absolute dollar
basis or per unit basis. Per unit amounts are determined by
dividing the absolute value by gross working interest production.
Operating netback, including realized commodity (loss) and gain,
adjusts the operating netback for only realized gains and losses on
derivative instruments.
Adjusted Funds Flow – Adjusted funds flow is
calculated based on cash flow from operating activities before
changes in non-cash working capital, transaction costs,
restructuring costs, and other non-recurring items. Management
believes that such a measure provides an insightful assessment of
PPR’s operational performance on a continuing basis by eliminating
certain non-cash charges and charges that are non-recurring or
discretionary and utilizes the measure to assess its ability to
finance capital expenditures and debt repayments. Adjusted funds
flow as presented is not intended to represent cash flow from
operating activities, net earnings or other measures of financial
performance calculated in accordance with IFRS. Adjusted
funds flow per share is calculated based on the weighted average
number of common shares outstanding consistent with the calculation
of earnings per share.
Net Capital Expenditures – Net capital
expenditures is a non-IFRS measure commonly used in the oil and gas
industry. The measurement assists management and investors to
measure PPR’s investment in the Company’s existing asset base. Net
capital expenditures is calculated by taking total capital
expenditures, which is the sum of property and equipment and
exploration and evaluation expenditures from the consolidated
statement of cash flows, plus capitalized stock-based compensation,
plus acquisitions from business combinations, which is the outflow
cash consideration paid to acquire oil and gas properties, less
asset dispositions (net of acquisitions), which is the cash
proceeds from the disposition of producing properties and
undeveloped lands.
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