Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX: PRQ) is
pleased to report financial and operating results as at and for the
three months ended March 31, 2020. Petrus is focused on generating
free cash flow for debt repayment and further development of its
Ferrier Cardium asset.
The severe impact of the oil demand destruction
caused by the COVID-19 pandemic combined with excess oil supplies,
has led to extreme volatility in global oil markets, including the
first ever negative West Texas Intermediate ("WTI") oil pricing, as
storage levels approach capacity. Over the past four years, Petrus
has made significant efforts to reduce debt levels, decrease costs
through ownership of key infrastructure and balance the production
base between natural gas and light oil and liquids. These measures,
combined with a consistent commodity price risk mitigation program,
allow the Company to manage the current volatile commodity price
environment. To prioritize the protection of its balance sheet,
Petrus continues a flexible approach to planned capital
expenditures. Petrus’ Board of Directors approved a second quarter
2020 capital budget of $0.5 million, which allows for
non-discretionary maintenance capital only. No drilling activity is
currently planned for the second or third quarters of 2020, as the
Company focuses on debt repayment and balance sheet preservation at
a time of extreme volatility in commodity prices(2).
While oil prices have recently experienced
all-time lows, natural gas futures pricing has been relatively
constructive and many analysts believe the outlook is improving due
to lower volumes of associated gas from shut-in oil wells alongside
reduced drilling activity. Petrus received an average price of
$2.40/mcf in the first quarter of 2020(2). Since late January 2020,
AECO natural gas futures contracts for the balance of 2020
increased by approximately 35%. As part of the Company's ongoing
risk mitigation strategy, Petrus continues to enter into additional
financial derivatives contracts on a portion of forecast production
volumes through to 2022(2).
During the first quarter of 2020, Petrus
executed an operated capital program with the drilling and
completion of two gross wells (2.0 net) in its core area of
Ferrier. Both wells are tied in, though one is currently shut in to
best manage value considering the current pricing environment; the
second well is on production at a significantly reduced rate. Since
the completion operations of the two wells took place near the end
of the first quarter, the two wells only contributed approximately
185 boe/d to the average quarterly production. Before being
restricted, the wells combined produced approximately 1,500 boe/d,
including approximately 900 bbl/d of light oil during the week
ended March 20, 2020(2).
Reduction of debt remains the Company's top
priority. Since December 31, 2015 Petrus has repaid 45% or $101
million of its net debt(1). This includes a $55 million reduction
of the Company's second lien term loan ("Term Loan"), which was $90
million in 2014 and currently has $35 million outstanding. The
Company's revolving credit facility ("RCF") and Term Loan are due
in 2020 and therefore, were reclassified to current liabilities in
the December 31, 2019 consolidated financial statements. The RCF
maturity date is May 31, 2020, which was set prior to the Term Loan
maturity of October 8, 2020 due to the inter-creditor relationship
between the RCF and the Term Loan. The Company requires an
extension of the Term Loan before its syndicate of lenders will
contemplate an extension to the RCF. Management is currently in
discussion with the RCF lending syndicate and Term Loan lender and
continues to focus on its disciplined debt reduction strategy.
HIGHLIGHTS:
- Funds flow -
Generated funds flow(1) of $6.6 million ($0.13 per share) for the
first three months of 2020 with net capital expenditures of $8.7
million.
- Low operating
costs - Operating expense for the three months ended March
31, 2020 was $4.55/boe. The Company continues to focus on
optimizing its cost structure, particularly in the Ferrier area,
through facility ownership and control.
- Credit facility -
The Company continues discussions on an extension with the
syndicate of lenders in the RCF and the lender of the Term
Loan.
- Commodity price risk
mitigation - Petrus utilizes financial derivative
contracts to mitigate commodity price risk and provide stability
and sustainability. Petrus achieved a gain of $1.76/boe in the
first quarter as a result of these contracts. For the balance of
2020, as a percentage of first quarter 2020 oil production, the
Company has hedges in place for 84% of net oil volume at an average
price of $76 CAD/bbl.
2020 Outlook
Petrus intends to determine and provide guidance
around its quarterly capital spending as the year progresses. The
Company anticipates that the 2020 capital plan will be funded by
funds flow, and will continue to systematically reduce debt with
excess cash flow. For the balance of the year, the Company
continues to target debt repayment of approximately $2 million per
quarter(2). Despite the recent fall in oil pricing, the Company
forecasts it will continue to have positive corporate netback(1)
due to its low cost structure, higher natural gas weighting and
strong hedging position. Petrus continues its discussions with its
lenders in order to extend the upcoming 2020 debt maturity dates.
The Company will pursue programs recently announced by the Federal
and Provincial Governments to support Canadian businesses, and the
oil and gas industry specifically, through the COVID-19
pandemic(2).
(1) Refer to "Non-GAAP Financial Measures" .(2)
Refer to "Advisories - Forward-Looking Statements".
SELECTED FINANCIAL INFORMATION
OPERATIONS |
|
Three monthsendedMar. 31, 2020 |
|
Three monthsendedMar. 31, 2019 |
|
Three monthsendedDec. 31, 2019 |
|
Three monthsendedSept. 30, 2019 |
|
Three monthsendedJun. 30, 2019 |
|
Average Production |
|
|
|
|
|
|
|
|
|
|
|
Natural gas (mcf/d) |
|
30,604 |
|
32,145 |
|
32,641 |
|
30,998 |
|
32,350 |
|
Oil (bbl/d) |
|
1,134 |
|
1,704 |
|
1,834 |
|
1,247 |
|
1,679 |
|
NGLs (bbl/d) |
|
1,088 |
|
1,444 |
|
1,018 |
|
1,372 |
|
1,576 |
|
Total (boe/d) |
|
7,323 |
|
8,505 |
|
8,292 |
|
7,785 |
|
8,647 |
|
Total (boe) |
|
666,361 |
|
765,488 |
|
762,874 |
|
716,220 |
|
786,819 |
|
Light oil weighting |
|
15 |
% |
20 |
% |
22 |
% |
16 |
% |
19 |
% |
Realized Prices |
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/mcf) |
|
2.40 |
|
2.44 |
|
2.65 |
|
1.12 |
|
1.30 |
|
Oil ($/bbl) |
|
50.02 |
|
55.10 |
|
65.16 |
|
65.64 |
|
70.96 |
|
NGLs ($/bbl) |
|
23.19 |
|
36.02 |
|
20.62 |
|
11.49 |
|
19.91 |
|
Total realized price ($/boe) |
|
21.23 |
|
26.36 |
|
27.39 |
|
16.99 |
|
22.29 |
|
Royalty income |
|
0.30 |
|
0.06 |
|
0.13 |
|
0.48 |
|
0.15 |
|
Royalty expense |
|
(2.85 |
) |
(3.08 |
) |
(2.91 |
) |
(1.65 |
) |
(1.72 |
) |
Net oil and natural gas revenue ($/boe) |
|
18.68 |
|
23.34 |
|
24.61 |
|
15.82 |
|
20.72 |
|
Operating expense |
|
(4.55 |
) |
(3.76 |
) |
(4.47 |
) |
(4.44 |
) |
(4.33 |
) |
Transportation expense |
|
(1.05 |
) |
(1.27 |
) |
(1.30 |
) |
(1.25 |
) |
(1.22 |
) |
Operating netback(1) ($/boe) |
|
13.08 |
|
18.31 |
|
18.84 |
|
10.13 |
|
15.17 |
|
Realized gain (loss) on derivatives ($/boe) |
|
1.76 |
|
0.67 |
|
(1.86 |
) |
0.50 |
|
(1.02 |
) |
Other income |
|
0.07 |
|
— |
|
— |
|
0.03 |
|
0.10 |
|
General & administrative expense |
|
(1.35 |
) |
(1.15 |
) |
(1.91 |
) |
(1.08 |
) |
(0.67 |
) |
Cash finance expense |
|
(3.13 |
) |
(2.54 |
) |
(2.54 |
) |
(3.11 |
) |
(2.70 |
) |
Decommissioning expenditures |
|
(0.56 |
) |
(0.18 |
) |
(0.41 |
) |
(0.29 |
) |
(0.24 |
) |
Funds flow & corporate netback(1)(2)
($/boe) |
|
9.87 |
|
15.11 |
|
12.12 |
|
6.18 |
|
10.64 |
|
FINANCIAL (000s except $ per share) |
|
Three monthsendedMar. 31, 2020 |
|
Three monthsendedMar. 31, 2019 |
|
Three monthsendedDec. 31, 2019 |
|
Three monthsendedSept. 30, 2019 |
|
Three monthsendedJun. 30, 2019 |
|
Oil and natural gas revenue |
|
14,344 |
|
20,231 |
|
20,998 |
|
12,517 |
|
17,652 |
|
Net income (loss) |
|
(87,444 |
) |
(12,138 |
) |
(3,332 |
) |
(29,569 |
) |
2,863 |
|
Net income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(1.77 |
) |
(0.25 |
) |
(0.06 |
) |
(0.60 |
) |
0.06 |
|
Fully diluted |
|
(1.77 |
) |
(0.25 |
) |
(0.06 |
) |
(0.60 |
) |
0.06 |
|
Funds flow |
|
6,566 |
|
11,573 |
|
9,260 |
|
4,427 |
|
8,366 |
|
Funds flow per share |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
0.13 |
|
0.23 |
|
0.19 |
|
0.09 |
|
0.17 |
|
Fully diluted |
|
0.13 |
|
0.23 |
|
0.19 |
|
0.09 |
|
0.17 |
|
Capital expenditures |
|
8,655 |
|
8,483 |
|
4,351 |
|
2,734 |
|
2,505 |
|
Net dispositions |
|
— |
|
— |
|
— |
|
651 |
|
— |
|
Weighted average shares
outstanding |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
49,469 |
|
49,483 |
|
49,469 |
|
49,469 |
|
49,469 |
|
Fully diluted |
|
49,469 |
|
49,483 |
|
49,469 |
|
49,469 |
|
49,469 |
|
As at year
end |
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
49,469 |
|
49,469 |
|
49,469 |
|
49,469 |
|
49,469 |
|
Fully diluted |
|
49,469 |
|
49,469 |
|
49,469 |
|
49,469 |
|
49,469 |
|
Total assets |
|
193,679 |
|
336,974 |
|
289,225 |
|
296,367 |
|
328,912 |
|
Non-current liabilities |
|
38,533 |
|
176,093 |
|
42,346 |
|
82,650 |
|
81,249 |
|
Net
debt(1) |
|
125,974 |
|
136,382 |
|
123,744 |
|
128,553 |
|
130,619 |
|
(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
First quarter average production by area was as follows:
For the three months ended March 31, 2020 |
|
Ferrier |
|
Foothills |
|
Central Alberta |
|
Total |
|
Natural gas (mcf/d) |
|
23,631 |
|
1,412 |
|
5,561 |
|
30,604 |
|
Oil (bbl/d) |
|
716 |
|
111 |
|
307 |
|
1,134 |
|
NGLs (bbl/d) |
|
923 |
|
5 |
|
159 |
|
1,087 |
|
Total (boe/d) |
|
5,579 |
|
352 |
|
1,392 |
|
7,323 |
|
First quarter average production was 7,323 boe/d
in 2020 compared to 8,505 boe/d in 2019. The decrease in production
can be attributed to natural declines due to lower capital
activities in the second half of 2019 as the Company focused on
debt reduction.
In the first quarter of 2020, the Company
invested capital of $8.7 million to fund the drilling of two
operated wells (2.0 net) and one non- operated well (0.015 net).
The two operated wells have been tied in but are currently
producing at restricted rates in order to conserve value in light
of low oil prices. One well is shut in and the second has been
significantly restricted. Since the completion operations of the
two wells took place near the end of the first quarter, the two
wells only contributed approximately 185 boe/d to the average
quarterly production. Before being restricted, the wells combined
produced approximately 1,500 boe/d, including approximately 900
bbl/d of light oil during the week ended March 20, 2020
Petrus’ Board of Directors approved a second
quarter 2020 capital budget of $0.5 million, which allows for
non-discretionary maintenance capital only. No drilling activity is
currently planned for the second or third quarters of 2020, as the
Company focuses on debt repayment and balance sheet preservation at
a time of extreme volatility in commodity prices. Management
continues to review pricing on a daily basis to adjust production
levels to maximize value of the reserve base. With the high level
of control afforded by operated assets and ownership of key
infrastructure, the Company can adjust liquids content in the
natural gas stream to maximize profitability of all products as
well as adjust production rates quickly to respond to changing
market conditions(1).
Subsequent to the first quarter, the Company
announced the termination of its previously announced disposition
of oil and gas assets in the Foothills area. Petrus will continue
to pursue non-core asset dispositions to further reduce debt when
market conditions allow(1).
CREDIT FACILITY UPDATEDuring
the fourth quarter of 2019, Petrus completed its semi-annual review
of the RCF where its $100 million facility was reconfirmed with
reductions to $98 million as of December 31, 2019 and $96 million
as of March 31, 2020. During the first quarter of 2020, Petrus
reduced its outstanding balance under the RCF by $4.0 million, from
$93 million to $89 million. The Company's RCF maturity date is May
31, 2020, which was set prior to the Term Loan maturity date of
October 8, 2020, due to the inter-creditor relationship between the
RCF and the Term Loan. The Company requires an extension of the
Term Loan before the syndicate of lenders will contemplate an
extension to the RCF. Management is actively engaged in discussions
with its lenders in order to extend the upcoming 2020 maturity
dates.
(1) Refer to "Advisories - Forward-Looking
Statements".
NON-GAAP FINANCIAL MEASURES
This press release makes reference to the terms
"operating netback", "corporate netback" and "net debt". 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.
Operating Netback
Operating 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
Netback
Corporate 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, in the following table, 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 Debt
Net 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, right-of-use lease obligations,
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.
ADVISORIES
Basis of Presentation
Financial 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
consolidated financial statements as at and for the twelve months
ended December 31, 2019. The reporting and the measurement currency
is the Canadian dollar. All financial information is expressed in
Canadian dollars, unless otherwise stated.
Forward-Looking Statements
Certain 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: the anticipated impacts of TSP;
continued expansion of the NGTL system and low Alberta natural gas
storage levels; Petrus' ability to modify its operations; Petrus'
business plan and expected debt repayment in 2020 and the
anticipated results thereof; the Closing of the Disposition,
including the timing and results thereof; Petrus' expected drilling
and operations activities in 2020; Petrus' 2020 capital plan and
the expected results thereof; expectations regarding the adequacy
of Petrus' liquidity and the funding of its financial liabilities;
Petrus' ability to extend the RCF and Term Loan and the timing
thereof; the impact of the current economic environment on Petrus;
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; impact of the economic crisis on the Company's
lenders; willingness of the company's lenders to negotiate;
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; willingness of its lenders to negotiate; the impact
of the current financial crisis; 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 Presentation
The 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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