Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX: PRQ) is
pleased to report financial and operating results for the second
quarter of 2019. Petrus is focused on organic growth and
infrastructure control in its core area, Ferrier, Alberta. In order
to maximize return on investment, the Company is targeting light
oil and liquids rich natural gas in the Cardium formation as well
as investing in infrastructure in Ferrier to control operations.
The Company's Management's Discussion and Analysis ("MD&A") and
interim consolidated financial statements dated as at and for the
period ended June 30, 2019 are available on SEDAR (the System for
Electronic Document Analysis and Retrieval) at www.sedar.com.
Over the past four years, Petrus has
dramatically improved its business to enhance sustainability and
mitigate commodity price risk. The Company has repaid $96.1 million
or 43% of its net debt since December 31, 2015 and expects to repay
another $2 to $4 million in the second half of 2019(2). The
Company's Ferrier Cardium asset provides optionality between
natural gas and light oil so the Company's development program can
respond to commodity price fluctuations. Due to the natural gas
price environment in Canada, the Company's primary objectives are
to reduce debt and to increase its light oil and total liquids
weighting.
Since January 1, 2018 the Company has drilled 13
gross (6 net) Cardium light oil wells in Ferrier, each with a
significantly higher number of multi-stage fracs than previously
used. The Company’s light oil and total liquids production
weighting have increased 46% and 36%, respectively since the
beginning of 2018. The Company's development plan is strategically
balanced between increasing its Cardium light oil weighting in the
Ferrier area and continuing to improve its balance sheet. Petrus
drilled 3 gross (1.6 net) Cardium light oil wells in the first half
of 2019, increased its light oil weighting 13% from the fourth
quarter of 2018 and reduced net debt(1) $8.6 million or 6%
since December 31, 2018.
- Debt
reduction - Petrus continues to focus on improving
its financial strength and during the second quarter of 2019
reduced net debt by $5.8 million. Combined with the $2.8 million
debt repayment in the first quarter, Petrus has reduced its net
debt by $8.6 million or 6% since December 31, 2018. Petrus plans to
continue a balanced, disciplined approach for the remainder of
2019, targeting debt repayment of $2 to $4 million(2).The Company
intends to continue its disciplined focus on balance sheet
improvement and capital deployment in 2020. The capital plan
targets modest cash flow and production growth while directing in
excess of $10 million toward debt reduction in 2020(2).
- Increased
light oil weighting - The
Company's second quarter 2019 light oil weighting increased 46%
from the beginning of 2018. Second quarter average production was
8,647 boe/d in 2019 compared to 8,505 boe/d in the first quarter of
2019. Petrus drilled or participated in 3 gross (1.6 net) Cardium
light oil wells during the first half of 2019 and these wells were
all brought on production during the first quarter. The Company did
not drill additional wells during the second quarter of 2019 due to
its focus on debt repayment and balance sheet improvement. In the
second half of 2019, Petrus plans to drill or participate in
approximately 1.5 net Cardium light oil wells per
quarter(2).
- Funds flow -
Petrus generated funds flow of $8.4 million in the second quarter
of 2019, which is consistent with the $8.4 million generated in the
second quarter of 2018. The Company's increased liquids weighting
and lower cash costs offset the impact of lower oil and natural gas
liquids pricing relative to the prior year. Funds flow for the
second quarter of 2019 was $0.17 per share or $0.68 on an
annualized basis, which is consistent with the prior year despite
lower light oil pricing.
- Low
operating costs - Second quarter
operating expenses on a per boe basis decreased 5% from $4.57 per
boe in the second quarter of 2018 to $4.33 per boe in the second
quarter of 2019. The Company continues to focus on optimizing its
cost structure, particularly in the Ferrier area, through facility
ownership and control.
- Commodity price risk
mitigation - Petrus utilizes financial derivative
contracts to mitigate commodity price risk and provide stability
and sustainability to the Company's economic returns, funds flow
and capital development plan. As a percentage of second quarter
2019 production, Petrus has derivative contracts in place for 46%,
at an average price of $1.81 per mcf and 47% at an average price of
$69.86 (CAD) per bbl of its natural gas and oil and natural gas
liquids production, respectively, for the balance of 2019.
(1) Refer to "Non-GAAP Financial Measures".(2)
Refer to "Advisories - Forward-Looking Statements".(3) Refer to
"Oil and Gas Disclosures".
SELECTED FINANCIAL
INFORMATION
OPERATIONS |
Three
months endedJun. 30, 2019 |
Three
months endedJun. 30, 2018 |
Three
months endedMar. 31, 2019 |
Three
months endedDec. 31, 2018 |
Three
months endedSept. 30, 2018 |
Average Production |
|
|
|
|
|
|
|
|
|
|
Natural gas (mcf/d) |
32,350 |
39,126 |
32,145 |
30,480 |
33,461 |
Oil (bbl/d) |
1,679 |
|
1,484 |
|
1,704 |
|
1,358 |
|
1,243 |
|
NGLs (bbl/d) |
1,576 |
|
1,241 |
|
1,444 |
|
1,496 |
|
1,519 |
|
Total
(boe/d) |
8,647 |
|
9,246 |
|
8,505 |
|
7,934 |
|
8,338 |
|
Total (boe) |
786,819 |
|
841,316 |
|
765,488 |
|
730,819 |
|
767,095 |
|
Liquids sales weighting |
38 |
% |
29 |
% |
37 |
% |
36 |
% |
33 |
% |
Realized
Prices |
|
|
|
|
|
|
|
|
|
|
Natural gas ($/mcf) |
1.30 |
|
1.24 |
|
2.44 |
|
1.95 |
|
1.50 |
|
Oil ($/bbl) |
70.96 |
|
75.29 |
|
55.10 |
|
52.26 |
|
77.24 |
|
NGLs ($/bbl) |
19.91 |
|
41.53 |
|
36.02 |
|
29.01 |
|
45.27 |
|
Total realized price
($/boe) |
22.29 |
|
22.92 |
|
26.36 |
|
21.91 |
|
25.79 |
|
Royalty income |
0.15 |
|
0.05 |
|
0.06 |
|
0.10 |
|
0.32 |
|
Royalty expense |
(1.72 |
) |
(2.54 |
) |
(3.08 |
) |
(3.34 |
) |
(3.12 |
) |
Net oil and natural gas revenue
($/boe) |
20.72 |
|
20.43 |
|
23.34 |
|
18.67 |
|
22.99 |
|
Operating expense |
(4.33 |
) |
(4.57 |
) |
(3.76 |
) |
(5.28 |
) |
(4.95 |
) |
Transportation expense |
(1.22 |
) |
(1.17 |
) |
(1.27 |
) |
(1.17 |
) |
(0.98 |
) |
Operating
netback(1) ($/boe) |
15.17 |
|
14.69 |
|
18.31 |
|
12.22 |
|
17.06 |
|
Realized gain (loss) on derivatives ($/boe) |
(1.02 |
) |
(0.74 |
) |
0.67 |
|
(0.79 |
) |
(2.69 |
) |
Other income |
0.10 |
|
0.12 |
|
— |
|
0.37 |
|
0.08 |
|
General & administrative expense |
(0.67 |
) |
(1.63 |
) |
(1.15 |
) |
(1.46 |
) |
(1.72 |
) |
Cash finance expense |
(2.70 |
) |
(2.49 |
) |
(2.54 |
) |
(3.25 |
) |
(2.53 |
) |
Decommissioning expenditures |
(0.24 |
) |
— |
|
(0.18 |
) |
(0.21 |
) |
(0.20 |
) |
Funds flow & corporate
netback(1)(2) ($/boe) |
10.64 |
|
9.95 |
|
15.11 |
|
6.88 |
|
10.00 |
|
FINANCIAL (000s except $ per
share) |
Three
months endedJun. 30,
2019 |
Three
months endedJun. 30, 2018 |
Three
months endedMar. 31, 2019 |
Three
months endedDec. 31, 2018 |
Three
months endedSept. 30, 2018 |
Oil and natural gas revenue |
17,652 |
19,321 |
|
20,231 |
|
16,064 |
|
20,030 |
|
Net income (loss) |
2,863 |
(10,615 |
) |
(12,138 |
) |
21,063 |
|
(8,048 |
) |
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
Basic |
0.06 |
(0.21 |
) |
(0.25 |
) |
0.43 |
|
(0.16 |
) |
Fully diluted |
0.06 |
(0.21 |
) |
(0.25 |
) |
0.43 |
|
(0.16 |
) |
Funds flow |
8,366 |
8,364 |
|
11,573 |
|
5,030 |
|
7,685 |
|
Funds flow per share |
|
|
|
|
|
|
|
|
|
Basic |
0.17 |
0.17 |
|
0.23 |
|
0.10 |
|
0.16 |
|
Fully diluted |
0.17 |
0.17 |
|
0.23 |
|
0.10 |
|
0.16 |
|
Capital expenditures |
2,505 |
1,745 |
|
8,483 |
|
12,660 |
|
3,637 |
|
Net dispositions |
— |
(269 |
) |
— |
|
(6 |
) |
(50 |
) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
Basic |
49,469 |
49,492 |
|
49,483 |
|
49,492 |
|
49,492 |
|
Fully diluted |
49,469 |
49,492 |
|
49,483 |
|
49,492 |
|
49,492 |
|
As at period end |
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
|
|
|
|
|
|
|
Basic |
49,469 |
49,492 |
|
49,469 |
|
49,492 |
|
49,492 |
|
Fully diluted |
49,469 |
49,492 |
|
49,469 |
|
49,492 |
|
49,492 |
|
Total assets |
328,912 |
330,359 |
|
336,974 |
|
341,820 |
|
322,335 |
|
Non-current liabilities |
81,249 |
172,757 |
|
176,093 |
|
171,646 |
|
170,908 |
|
Net debt(1) |
130,619 |
135,111 |
|
136,382 |
|
139,214 |
|
131,603 |
|
(1) Refer to "Non-GAAP Financial
Measures".(2) Corporate netback is equal to funds flow which
is a directly comparable GAAP measure. Petrus analyzes these
measures on an absolute value and per unit basis.
OPERATIONS
UPDATE Production |
|
Second quarter average production by area was as follows: |
For the three months ended June 30,
2019 |
Ferrier |
Foothills |
Central Alberta |
Total |
Natural gas (mcf/d) |
24,244 |
|
1,698 |
|
6,408 |
|
32,350 |
|
Oil (bbl/d) |
1,139 |
|
146 |
|
394 |
|
1,679 |
|
NGLs (bbl/d) |
1,401 |
|
3 |
|
172 |
|
1,576 |
|
Total (boe/d) |
6,581 |
|
432 |
|
1,634 |
|
8,647 |
|
Liquids sales weighting |
39 |
% |
35 |
% |
35 |
% |
38 |
% |
Second quarter average production was 8,647
boe/d in 2019 compared to 8,505 boe/d in the first quarter of 2019.
The Company did not drill additional wells during the second
quarter of 2019 due to its focus on debt repayment and balance
sheet improvement. During the second quarter of 2019, the Company
reduced net debt by $5.8 million(1). Combined with the $2.8 million
debt repayment in the first quarter, Petrus has reduced its net
debt by $8.6 million or 6% since December 31, 2018. During the
second quarter, the Company's revolving credit facility ("RCF") was
reclassified to current due to the inter-creditor relationship
between the RCF and the Company's Term Loan which is due October 8,
2020. The reclassification has no impact on its debt covenants and
the Company remains in compliance with each of its covenants.
Management is actively engaged with the RCF syndicate of lenders
and the Term Loan lender and believes that the RCF and Term Loan
will each be extended prior to the respective maturity dates.
Since January 1, 2018 the Company has drilled 13
gross (6 net) Cardium light oil wells in Ferrier, each with a
significantly higher number of multi-stage fracs than previously
used. The Company’s light oil and total liquids production
weighting have increased 46% and 36%, respectively since the
beginning of 2018. The Company's development plan is strategically
balanced between increasing its Cardium light oil weighting in the
Ferrier area and continuing to improve its balance sheet. During
the first half of 2019, Petrus drilled 3 gross (1.6 net) Cardium
light oil wells, increased its light oil weighting 13% from the
fourth quarter of 2018 and reduced net debt(1) $8.6 million or
6% since December 31, 2018.
Petrus’ Board of Directors has approved a third
quarter 2019 capital budget of $7 million, based on a current
forecast for commodity futures pricing, anticipated service costs
and current activity levels(2). The third quarter budget is
expected to include the drilling and completion activities for 3
gross (1.5 net) Cardium light oil wells and excess cash flow of
$1.5 to $2 million will be directed toward debt repayment(2).
Petrus estimates the 2019 capital plan will
maintain production year over year, increase its light oil and
liquids weighting, and reduce debt. Approximately 85% of the
capital plan will be directed to development of Cardium light oil
wells in the Ferrier area of Alberta, which we estimate will have
payouts of less than one year and achieve the objective to increase
the Company's light oil weighting and funds flow(2).
Petrus is unique in the junior E&P company
space, as few gas-weighted companies are able to repay debt and
grow production and cash flow all within cash from operations. Over
the past four years, Petrus has dramatically improved its business
in order to increase its sustainability as well as mitigate
commodity price risk. Operating costs have been reduced by 51%
since 2015 and Petrus’ total cash costs of $8.92 per boe are
consistently one of the lowest amongst its peers. The Company
forecasts that it will continue its disciplined focus on balance
sheet improvement and capital deployment in 2020. The capital
plan targets modest cash flow and production growth while directing
in excess of $10 million toward debt reduction in 2020(2).
(1) Refer to "Non-GAAP Financial
Measures".(2) Refer to "Advisories - Forward-Looking
Statements".
For further information, please
contact:Neil Korchinski, P.Eng.President and Chief
Executive Officer T: (403)
930-0889E: nkorchinski@petrusresources.com
NON-GAAP FINANCIAL MEASURESThis
press release makes reference to the terms "operating netback",
"corporate netback", "net debt" and "net debt to funds flow." These
indicators are not recognized measures under GAAP (IFRS) and do not
have a standardized meaning prescribed by GAAP (IFRS). Accordingly,
the Company's use of these terms may not be comparable to similarly
defined measures presented by other companies. Management uses
these terms for the reasons set forth below. Please see the
Company's March 31, 2019 press release for a reconciliation of such
measures to the most directly comparable GAAP (IFRS) measures.
Operating NetbackOperating
netback is a common non-GAAP financial measure used in the oil and
natural gas industry which is a useful supplemental measure to
evaluate the specific operating performance by product at the oil
and natural gas lease level. The most directly comparable GAAP
measure to operating netback is funds flow. Operating netback is
calculated as oil and natural gas revenue less royalties, operating
and transportation expenses. It is presented on an absolute value
and per unit basis.
Funds Flow and Corporate
NetbackCorporate netback is a common non-GAAP financial
measure used in the oil and natural gas industry which evaluates
the Company’s profitability at the corporate level. Corporate
netback is equal to funds flow which is a directly comparable GAAP
measure. Petrus analyzes these measures on an absolute value and
per unit basis. Management believes that funds flow and corporate
netback provide information to assist a reader in understanding the
Company's profitability relative to current commodity prices. It is
calculated as the operating netback less general and administrative
expense, finance expense, decommissioning expenditures, plus other
income and the net realized gain (loss) on financial
derivatives.
Net DebtNet debt is a non-GAAP
financial measure and is calculated as current assets (excluding
unrealized financial derivative assets) less current liabilities
(excluding unrealized financial derivative liabilities and deferred
share unit liabilities) and long term debt. Petrus uses net debt as
a key indicator of its leverage and strength of its balance sheet.
There is no GAAP measure that is reasonably comparable to net
debt.
ADVISORIESBasis of
PresentationFinancial data presented above has largely
been derived from the Company’s financial statements, prepared in
accordance with GAAP which require publicly accountable enterprises
to prepare their financial statements using IFRS. Accounting
policies adopted by the Company are set out in the notes to the
audited financial statements as at and for the twelve months ended
December 31, 2018. The reporting and the measurement currency is
the Canadian dollar. All financial information is expressed in
Canadian dollars, unless otherwise stated.
Forward-Looking
StatementsCertain information regarding Petrus set forth
in this press release contains forward-looking statements within
the meaning of applicable securities law, that involve substantial
known and unknown risks and uncertainties. The use of any of the
words “anticipate”, “continue”, “estimate”, “expect”, “may”,
“will”, “project”, “should”, “believe” and similar expressions are
intended to identify forward-looking statements. Such statements
represent Petrus’ internal projections, estimates or beliefs
concerning, among other things, an outlook on the estimated amounts
and timing of capital investment, anticipated future debt,
production, revenues or other expectations, beliefs, plans,
objectives, assumptions, intentions or statements about future
events or performance. These statements are only predictions and
actual events or results may differ materially. Although Petrus
believes that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievement since such
expectations are inherently subject to significant business,
economic, competitive, political and social uncertainties and
contingencies. Many factors could cause Petrus’ actual results to
differ materially from those expressed or implied in any
forward-looking statements made by, or on behalf of, Petrus.
In particular, forward-looking statements
included in this press release include, but are not limited to,
statements with respect to: Petrus' expected debt repayment in the
second half of 2019; Petrus' drilling plan; Petrus' business plan
and capital expenditure program for the second half of 2019;
expected market prices and costs and Petrus' expected differential;
expectations regarding the adequacy of Petrus' liquidity and the
funding of its financial liabilities; the impact of the current
economic environment on Petrus and its ability to remain in
compliance with all financial covenants under its credit
facilities; management's expectation that the RCF and Term Loan
will be extended; the performance characteristics of the Company's
crude oil, NGL and natural gas properties; future prospects; the
focus of and timing of capital expenditures; access to debt and
equity markets; Petrus' future operating and financial results;
capital investment programs; supply and demand for crude oil, NGL
and natural gas; future royalty rates; drilling, development and
completion plans and the results therefrom; and treatment under
governmental regulatory regimes and tax laws. In addition,
statements relating to “reserves” are deemed to be forward-looking
statements, as they involve the implied assessment, based on
certain estimates and assumptions, that the reserves described can
be profitably produced in the future.
These forward-looking statements are subject to
numerous risks and uncertainties, most of which are beyond the
Company’s control, including the impact of general economic
conditions; volatility in market prices for crude oil, NGL and
natural gas; industry conditions; currency fluctuation; imprecision
of reserve estimates; liabilities inherent in crude oil and natural
gas operations; environmental risks; incorrect assessments of the
value of acquisitions and exploration and development programs;
competition; the lack of availability of qualified personnel or
management; changes in income tax laws or changes in tax laws and
incentive programs relating to the oil and gas industry; hazards
such as fire, explosion, blowouts, cratering, and spills, each of
which could result in substantial damage to wells, production
facilities, other property and the environment or in personal
injury; stock market volatility; ability to access sufficient
capital from internal and external sources; completion of the
financing on the timing planned and the receipt of applicable
approvals; and the other risks. With respect to forward-looking
statements contained in this press release, Petrus has made
assumptions regarding: future commodity prices and royalty regimes;
availability of skilled labour; timing and amount of capital
expenditures; future exchange rates; the impact of increasing
competition; conditions in general economic and financial markets;
availability of drilling and related equipment and services;
effects of regulation by governmental agencies; and future
operating costs. Management has included the above summary of
assumptions and risks related to forward-looking information
provided in this press release in order to provide shareholders
with a more complete perspective on Petrus’ future operations and
such information may not be appropriate for other purposes. Petrus’
actual results, performance or achievement could differ materially
from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurance can be given that any of
the events anticipated by the forward-looking statements will
transpire or occur, or if any of them do so, what benefits that the
Company will derive therefrom. Readers are cautioned that the
foregoing lists of factors are not exhaustive.
This press release contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about Petrus' prospective results of
operations including, without limitation, its ability to repay
debt, which are subject to the same assumptions, risk factors,
limitations, and qualifications as set forth above. Readers are
cautioned that the assumptions used in the preparation of such
information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on FOFI. Petrus' actual results, performance
or achievement could differ materially from those expressed in, or
implied by, these FOFI, or if any of them do so, what benefits
Petrus will derive therefrom. Petrus has included the FOFI in order
to provide readers with a more complete perspective on Petrus'
future operations and such information may not be appropriate for
other purposes.
These forward-looking statements and FOFI are
made as of the date of this press release and the Company disclaims
any intent or obligation to update any forward-looking statements
and FOFI, whether as a result of new information, future events or
results or otherwise, other than as required by applicable
securities laws.
BOE PresentationThe oil and
natural gas industry commonly expresses production volumes and
reserves on a barrel of oil equivalent (“boe”) basis 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
measurement of results and comparisons with other industry
participants. Petrus uses the 6:1 boe measure which is the
approximate energy equivalence of the two commodities at the burner
tip. Boe’s do not represent an economic value equivalence at the
wellhead and therefore may be a misleading measure if used in
isolation.
Abbreviations |
|
$000’s |
thousand
dollars |
$/bbl |
dollars per
barrel |
$/boe |
dollars per
barrel of oil equivalent |
$/GJ |
dollars per
gigajoule |
$/mcf |
dollars per
thousand cubic feet |
bbl |
barrel |
bbl/d |
barrels per
day |
boe |
barrel of oil
equivalent |
mboe |
barrel of
oil equivalent |
mmboe |
thousand barrel
of oil equivalent |
boe/d |
million
barrel of oil equivalent per day |
GJ |
gigajoule |
GJ/d |
gigajoules per
day |
mcf |
thousand cubic
feet |
mcf/d |
thousand cubic
feet per day |
mmcf/d |
million cubic
feet per day |
NGLs |
natural gas
liquids |
WTI |
West Texas
Intermediate |
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