PR Newswire
CALGARY, March 2, 2016
CALGARY, March 2, 2016 /PRNewswire/ - (TSX:PMT) – Perpetual Energy Inc. ("Perpetual", the "Corporation" or the "Company") herein reports its fourth quarter and year end 2015 financial and operating results together with a summary of the Company's year-end 2015 reserves as reported by the independent engineering firm McDaniel and Associates Consultants Ltd. ("McDaniel").
A complete copy of Perpetual's audited consolidated financial statements, Management's Discussion and Analysis ("MD&A") and Annual Information Form ("AIF") for the year ended December 31, 2015 can be obtained through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
FOURTH QUARTER 2015 HIGHLIGHTS
2015 ANNUAL FINANCIAL AND OPERATING HIGHLIGHTS
Capital Spending and Property Dispositions/Asset Swaps
Production and Operations Highlights
Financial Highlights
YEAR-END 2015 RESERVES
2015 Year-End Reserve Highlights
Reserves Disclosure
Working interest reserves included herein refer to working interest reserves before royalty deductions. Reserves information is based on an independent reserves evaluation report prepared by McDaniel with an effective date of December 31, 2015 (the "McDaniel Report"), and has been prepared in accordance with National Instrument 51-101 ("NI 51-101") using McDaniel's forecast prices and costs. Complete NI 51-101 reserves disclosure including after-tax reserve values, reserves by major property and abandonment costs will be included in Perpetual's Annual Information Form ("AIF"), available on the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com. Perpetual's reserves at December 31, 2015 are summarized below.
Working Interest Reserves at December 31, 2015(1) | |||||
Light and |
Heavy Oil |
Conventional |
Natural (Mbbl) |
Oil Equivalent | |
Proved Producing |
60 |
1,227 |
94,819 |
550 |
17,641 |
Proved Non-Producing |
- |
53 |
9,375 |
5 |
1,621 |
Proved Undeveloped |
10 |
355 |
138,410 |
1,688 |
25,122 |
Total Proved |
70 |
1,636 |
242,604 |
2,243 |
44,383 |
Probable Producing |
29 |
633 |
31,072 |
174 |
6,015 |
Probable Non-Producing |
- |
89 |
17,528 |
3 |
3,014 |
Probable Undeveloped |
4 |
358 |
130,588 |
2,251 |
24,378 |
Total Probable |
33 |
1,081 |
179,188 |
2,428 |
33,407 |
Total Proved and Probable |
103 |
2,716 |
421,792 |
4,671 |
77,790 |
(1) |
May not add due to rounding |
Total proved reserves account for 57 percent (2014 – 54 percent) of total proved and probable reserves. Proved producing reserves of 17.6 MMboe comprise 40 percent (2014 – 39 percent) of total proved reserves. Proved and probable developed reserves of 28.3 MMboe represent 36 percent (2014 – 38 percent) of total proved and probable reserves.
Reserves Reconciliation
Working Interest Reserves(1) |
|||
Barrels of Oil Equivalent (Mboe) |
Proved |
Probable |
Proved |
Opening Balance, December 31, 2014 |
56,488 |
48,702 |
105,190 |
Discoveries |
- |
- |
- |
Extensions and Improved Recovery |
- |
- |
- |
Technical Revisions |
9,962 |
(4,428) |
5,534 |
Acquisitions |
- |
1,579 |
1,579 |
Dispositions |
(12,380) |
(11,295) |
(23,675) |
Production |
(7,148) |
- |
(7,148) |
Economic Factors |
(2,540) |
(1,151) |
(3,691) |
Closing Balance, December 31, 2015 |
44,383 |
33,407 |
77,790 |
(1) |
May not add due to rounding |
McDaniel recorded net positive technical revisions of 5.5 MMboe related to performance on a proved and probable basis in 2015. Positive technical revisions were primarily attributed to well performance on East Edson wells drilled in 2014 and 2015 which outperformed the proved and probable type curves used in the McDaniel 2014 reserve evaluation. Additionally, positive technical revisions related to continued reliable performance of the Company's eastern Alberta shallow gas assets were largely offset by reductions due to materially lower future commodity price forecasts. Offsetting positive East Edson technical revisions were 3.3 MMboe of negative revisions related to the discontinuation of probable shut-in GOB reserves, which were removed on the basis that no significant progress has been made on finding a mutually-acceptable technical solution to re-establish production of these reserves within a relevant timeline.
Dispositions of 23.7 MMboe of proved plus probable reserves represented reserves associated with the April 2015 asset swap of the West Edson property for TOU Shares as well as the disposition of fee simple lands in 2015. Reduced commodity prices resulted in a decrease of 3.7 MMboe of proved plus probable reserves due to economic factors with certain shallow gas reserves being truncated or written off as uneconomic based on the January 1, 2016 price forecast used to prepare the 2015 year end reserves.
Reserves from Perpetual's liquids-rich gas and NGL's in East Edson area grew 14 percent, offsetting production of 2.9 MMboe to represent 73 percent of Perpetual's total proved and probable reserves at year end 2015. On a commodity basis, oil and NGL represent ten percent of Perpetual's total proved and probable reserves (nine percent of proved), compared to nine percent (nine percent of proved) at year-end 2014.
The table below summarizes the FDC estimated by McDaniel by play type to bring non-producing and undeveloped reserves to production.
Future Development Capital(1) |
||||||||
($ millions) |
2016 |
2017 |
2018 |
2019 |
2020 |
Remainder |
Total | |
Eastern Alberta Shallow Gas |
0.2 |
2.0 |
1.6 |
4.4 |
0.4 |
0.6 |
9.2 | |
Mannville Heavy Oil |
- |
6.0 |
3.8 |
- |
- |
- |
9.8 | |
Greater Edson Wilrich |
36.3 |
48.4 |
61.2 |
47.9 |
46.1 |
199.7 |
439.6 | |
Total |
36.5 |
56.4 |
66.6 |
52.3 |
46.5 |
200.3 |
458.7 |
(1) |
May not add due to rounding |
McDaniel estimates the FDC required to convert proved and probable non-producing and undeveloped reserves to proved producing reserves to be $458.7 million at December 31, 2015. Including changes related to the West Edson Property swap, estimated FDC decreased by $219.6 million, down from $678.2 million at year-end 2014. On a proved and probable basis, FDC decreased by $127.9 million as a result of swaps and dispositions and a further $85.7 million related to the future development of reserves at East Edson, adjusted for 2015 spending as well as revised future costs to reflect reduced labor costs and improved drilling efficiencies due to changes to well design and drilling programs. East Edson projects are forecast by McDaniel to generate annual operating cash flow in excess of the annual FDC, making the projects self-funding.
RESERVE LIFE INDEX ("RLI")
Perpetual's proved and probable reserves to production ratio, also referred to as reserve life index, was 11.9 years at year-end 2015 while the proved RLI was 7.3 years, based upon the 2016 production estimates in the McDaniel Report. The 2015 RLI was unchanged from the prior year. The following table summarizes Perpetual's historical calculated RLI.
Reserve Life Index(1) |
|||||
2015 |
2014 |
2013 |
2012 |
2011 | |
Total Proved |
7.3 |
7.3 |
5.2 |
6.1 |
5.3 |
Proved and Probable |
11.9 |
11.9 |
8.6 |
11.0 |
9.7 |
(1) |
Calculated as year-end reserves divided by year one |
NET PRESENT VALUE ("NPV") OF RESERVES SUMMARY
Perpetual's oil, natural gas and NGL reserves were evaluated by McDaniel using McDaniel's product price forecasts effective January 1, 2016 prior to provision for financial oil and natural gas price hedges, income taxes, interest, debt service charges and general and administrative expenses. The following table summarizes the NPV of funds flows from recognized reserves at January 1, 2016, assuming various discount rates. It should not be assumed that the discounted future net funds flows estimated by McDaniel represent the fair market value of the potential future production revenue of the company.
NPV of Reserves, before income tax(1)(2) | |||||||
Discounted at | |||||||
($millions except as noted) |
Undiscounted |
5% |
8% |
10% |
15% |
20% |
Unit Value ($/boe) |
Proved Producing |
49.2 |
57.6 |
59.4 |
59.9 |
59.6 |
58.2 |
4.19 |
Proved Non-Producing |
6.8 |
6.2 |
5.8 |
5.4 |
4.7 |
4.1 |
3.69 |
Proved Undeveloped |
157.5 |
101.3 |
76.6 |
63.0 |
37.2 |
19.7 |
3.30 |
Total Proved |
213.5 |
165.1 |
141.7 |
128.4 |
101.5 |
81.9 |
3.68 |
Probable Producing |
52.5 |
43.1 |
38.3 |
35.5 |
29.7 |
25.3 |
7.45 |
Probable Non-Producing |
14.0 |
12.9 |
12.0 |
11.4 |
9.9 |
8.6 |
4.08 |
Probable Undeveloped |
459.4 |
264.7 |
196.6 |
163.4 |
107.4 |
74.5 |
7.26 |
Total Probable |
525.9 |
320.6 |
246.9 |
210.3 |
147.0 |
108.4 |
6.99 |
Total Proved and Probable |
739.4 |
485.8 |
388.6 |
338.6 |
248.5 |
190.3 |
5.21 |
(1) |
January 1, 2016 McDaniel Forecast Prices and Costs |
(2) |
May not add due to rounding |
McDaniel's estimate of net present value (NPV8%) of Perpetual's reserves at year-end 2015 was $388.6 million, down 50 percent from $781.7 million at year-end 2014. The decrease in net present value reflected the West Edson Property swap for TOU Shares to which no reserves are assigned, other asset dispositions and lower commodity price forecasts, which were partially offset by lower future development costs ("FDC") in 2015. At an eight percent discount factor, total proved reserves account for 36 percent (2014 – 39 percent) of the proved and probable value. Proved and probable producing reserves represent 25 percent (2014 – 33 percent) of the total proved and probable value discounted at eight percent.
FAIR MARKET VALUE OF UNDEVELOPED LAND
Perpetual's independent third party estimate of the fair market value of its undeveloped acreage by region for purposes of the net asset value calculation is based on past Crown land sale activity, adjusted for tenure and other considerations. In West Central Alberta, no undeveloped land value was assigned where proved and/or probable undeveloped reserves have been booked.
Fair Market Value of Undeveloped Land | |||
Net Acres |
Value ($ millions) |
$/Acre | |
North |
578,426 |
4.5 |
7.88 |
South |
99,012 |
5.8 |
58.18 |
West Central |
71,911 |
33.9 |
472.02 |
Oil Sands |
272,299 |
38.8 |
142.35 |
Totals |
1,021,648 |
83.0 |
81.26 |
The fair market value of Perpetual's undeveloped land at year-end 2015, adjusted to remove the value of undeveloped lands with reserves assigned in West Central Alberta, is estimated by an external land consultant at $83.0 million, a decrease of 50 percent from $164.4 million relative to year-end 2014.
ABANDONMENT AND RECLAMATION COSTS
In addition to the abandonment cost estimates provided by McDaniel inclusive in their reserve assessment, Perpetual compiles annually a detailed internal estimate of the Corporation's total future asset retirement obligation based on net ownership interest in all wells, facilities and pipelines, including estimated costs to abandon the wells, facilities and pipelines and reclaim the sites, and the estimated timing of the costs to be incurred in future periods. Pursuant to this evaluation, the estimated cost of future asset retirement obligations related to Perpetual's proved and probable reserves and other liabilities, net of the estimated salvage value of facilities and equipment and discounted at eight percent, was reduced by $38.1 million to $41.0 million as at December 31, 2015.
The McDaniel Report includes an undiscounted amount of $71.5 million, including $51.9 million related to developed reserves and $19.6 million for undeveloped reserves, with respect to expected future well abandonment and reclamation costs related specifically to proved and probable reserves and such amount is included in the values captioned "Total Proved and Probable Reserves" in the NPV of Reserves table (see "NPV OF RESERVES SUMMARY"). These values are consistent with changes to NI 51-101 amendments effective July 1, 2015 and reflect both well abandonment and reclamation costs.
The following table presents the estimated future asset retirement obligations and estimated net salvage values at various discount rates:
Abandonment and Reclamation Costs |
||||
Discounted at | ||||
($ millions, net to Perpetual) |
Undiscounted |
5% |
8% |
10% |
Total Estimated Future Abandonment and |
179.2 |
108.0 |
71.0 |
54.0 |
Salvage Value |
(90.3) |
(45.0) |
(30.0) |
(24.0) |
Abandonment and Reclamation Costs, net of Salvage |
88.9 |
63.0 |
41.0 |
30.0 |
Well Abandonment Costs for Developed |
(51.9) |
(26.5) |
(18.2) |
(14.3) |
Estimate of Additional Future Abandonment |
37.0 |
36.5 |
22.8 |
15.7 |
(1) |
Estimated internally in accordance with NI 51-101 for existing wells, pipelines and facilities. |
(2) |
Future abandonment and reclamation costs not included in the McDaniel Report, net of salvage value. |
NET ASSET VALUE ("NAV")
The following net asset value table shows what is normally referred to as a "produce-out" NAV calculation under which the Corporation's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of Perpetual's shares. The calculations below do not reflect the value of the Corporation's prospect inventory to the extent that the prospects are not recognized within the NI 51-101 compliant reserve assessment, except as they are valued through the estimate of the fair market value of undeveloped land.
Pre-tax NAV at December 31, 2015(1) | |||||
Discounted at | |||||
($ millions, except as noted) |
Undiscounted |
5% |
8% |
10% |
15% |
Total Proved and Probable Reserves(2) |
739.4 |
485.8 |
388.6 |
338.6 |
248.5 |
TOU Shares(3) |
145.3 |
145.3 |
145.3 |
145.3 |
145.3 |
Fair Market Value of Undeveloped Land(4) |
83.0 |
83.0 |
83.0 |
83.0 |
83.0 |
Warwick Gas Storage(5) |
25.3 |
25.3 |
25.3 |
25.3 |
25.3 |
Net Bank Debt(1,6) |
(55.8) |
(55.8) |
(55.8) |
(55.8) |
(55.8) |
Financing Arrangement(7) |
(21.3) |
(21.3) |
(21.3) |
(21.3) |
(21.3) |
Senior Notes |
(275.0) |
(275.0) |
(275.0) |
(275.0) |
(275.0) |
Estimate of Additional Future Abandonment and Reclamation Costs(8) |
(37.0) |
(36.5) |
(22.8) |
(15.7) |
(6.9) |
Hedge Book(9) |
(20.1) |
(20.1) |
(20.1) |
(20.1) |
(20.1) |
NAV |
593.8 |
330.7 |
247.2 |
204.3 |
123.0 |
Shares Outstanding (million) – basic |
382.3 |
382.3 |
382.3 |
382.3 |
382.3 |
NAV per Share ($/Share) |
1.55 |
0.87 |
0.65 |
0.53 |
0.32 |
(1) |
Financial information is per Perpetual's 2015 consolidated financial statements. |
(2) |
Reserve values per McDaniel Report as at December 31, 2015. |
(3) |
TOU Share value based on 6.5 million shares at December 31, 2015 closing price ($22.35/share) |
(4) |
Independent third party estimate, excludes undeveloped land in West Central Alberta with |
(5) |
Reflects 30% interest in Warwick Gas Storage at carrying amount on December 31, 2015. |
(6) |
Includes bank debt, net of working capital. |
(7) |
Reflects notional amount of financing arrangement. |
(8) |
Amounts are in addition to amounts in the McDaniel report for future well abandonment costs, |
(9) |
Hedging adjustments as at December 31, 2015 relative to McDaniel price forecast. |
The above evaluation includes future capital expenditure expectations required to bring undeveloped reserves recognized by McDaniel that meet the criteria for booking under NI 51-101 on production. The fair market value of undeveloped land does not reflect the value of the Company's extensive prospect inventory which is anticipated to be converted into reserves and production over time through future capital investment. Additionally, no value has been assigned to reflect the investment to date in the ongoing bitumen extraction pilot project at Panny.
The NAV calculated at December 31, 2015 does not include the impact of the Rights Offering, which closed on January 18, 2016, or the proposed share consolidation on a twenty for one basis, which is expected to be effective on or about March 24, 2016. As such, the following pro forma NAV is presented to illustrate the effect of these two items at December 31, 2015.
Pre-tax NAV at December 31, 2015, pro forma Rights Offering and Share Consolidation | ||||||
Discounted at | ||||||
($ millions, except as noted) |
Undiscounted |
5% |
8% |
10% |
15% | |
NAV at December 31, 2015 |
593.8 |
330.7 |
247.2 |
204.3 |
123.0 | |
Rights Offering proceeds(1) |
22.9 |
22.9 |
22.9 |
22.9 |
22.9 | |
Pro Forma NAV |
616.7 |
353.6 |
270.1 |
227.2 |
145.9 | |
Shares Outstanding (million) – basic(2) |
52.4 |
52.4 |
52.4 |
52.4 |
52.4 | |
NAV per Share ($/Share) |
11.77 |
6.75 |
5.15 |
4.34 |
2.78 | |
(1) |
Based on the estimated net proceeds of $22.9 million received by the Company on closing |
(2) |
Based on 382.1 million common shares at December 31, 2015 with an additional 665.4 million |
FINDING AND DEVELOPMENT COSTS
Under NI 51-101, the methodology to be used to calculate Finding and Development ("F&D") costs includes incorporating changes in FDC required to bring the proved undeveloped and probable reserves to production. Changes in forecast FDC occur annually as a result of development activities, acquisitions and disposition activities, undeveloped reserve revisions and capital cost estimates that reflect the independent evaluator's best estimate of what it will cost to bring the proved and probable undeveloped reserves on production. In 2015, F&D costs including changes in FDC cannot be calculated as the change in FDC more than offsets 2015 exploration and development spending. Similarly, Perpetual's Finding, Development and Acquisition ("FD&A") costs cannot be calculated as the change in FDC and impact of dispositions more than offsets exploration and development spending.
2016 OUTLOOK
In 2016, Perpetual's has identified its top four strategic priorities which include:
With projected further low commodity prices in 2016, Perpetual will prioritize liquidity management and preservation of its balance sheet through restricted spending and a focus on reducing costs and maximizing efficiencies in administration and operations. A diligent focus on reductions in all areas of spending, including operating, financing and administrative costs, will continue in order to establish a sustainable cost structure in this low commodity price environment.
In order to protect a base level of funds flow, Perpetual has commodity price contracts in place in 2016 on an estimated 70 percent of forecast production from the remainder of the year. These include both AECO and NYMEX natural gas contracts from April to December 2016 on close to 70,000 GJ/d at an estimated price of $2.19/GJ; and oil sales arrangements on 1,000 bbl/d protecting a floor price at WTI of $USD43.50/bbl.
In light of the continued deterioration of commodity prices since December 2015, Perpetual has reduced its capital spending program for 2016 and Perpetual's Board of Directors has restricted its approval to a first quarter capital expenditure budget of $6 million. Approved first quarter spending is limited to drilling one (1.0 net) well at East Edson with minimal additional capital allocated to continue strategic production testing at Panny and Waskahigan, critical facility maintenance and overhauls, and third party abandonment and reclamation activity. Completion and tie in of the new East Edson well along with additional capital activity for the remainder of the year will be deferred and assessed on a project economics basis as the year progresses.
Perpetual continues to target strategic asset sales in 2016. In late February, the Company entered into a purchase and sale agreement for the disposition of 37 sections of its 425 net sections of oil sands leases in northeast Alberta in exchange for gross proceeds of $6.1 million and a one percent gross overriding royalty. Closing is scheduled prior to March 15, 2016. Proceeds from the disposition will be initially applied against outstanding debt.
Financial and Operating Highlights |
THREE MONTHS Ended December 31 |
YEAR ENDED December 31, | |||||
($Cdn thousands except volume and per share amounts) |
2015 |
2014 |
Change |
2015 |
2014 |
Change | |
Financial |
|||||||
Oil and natural gas revenue |
33,044 |
62,562 |
(47%) |
142,437 |
262,790 |
(46%) | |
Funds flow (1) |
362 |
17,316 |
(98%) |
2,004 |
81,395 |
(98%) | |
Per share (1) (2) |
- |
0.12 |
(100%) |
0.01 |
0.55 |
(98%) | |
Net earnings (loss) |
(93,539) |
(18,273) |
(412%) |
(89,274) |
3,366 |
(2752%) | |
Per share (2) |
(0.61) |
(0.12) |
(417%) |
(0.59) |
0.02 |
(3050%) | |
Total assets |
603,450 |
750,602 |
(20%) |
603,450 |
750,602 |
(20%) | |
Net bank debt outstanding (1) |
55,832 |
21,867 |
155% |
55,832 |
21,867 |
155% | |
Senior notes, at principal amount |
275,000 |
275,000 |
- |
275,000 |
275,000 |
- | |
Share forward financial obligation, at carrying amount |
18,059 |
- |
100% |
18,059 |
100% | ||
Carrying value of marketable securities |
(145,275) |
- |
- |
(145,275) |
- | ||
Convertible debentures, at principal amount |
- |
34,878 |
(100%) |
- |
34,878 |
(100%) | |
Total net debt (1) |
203,616 |
331,745 |
(39%) |
203,616 |
331,745 |
(39%) | |
Capital expenditures |
|||||||
Exploration and development (3) |
715 |
26,018 |
(97%) |
76,957 |
116,457 |
(34%) | |
Dispositions, net of Acquisitions |
- |
(20,595) |
(100%) |
(23,710) |
(70,351) |
(66%) | |
Other |
25 |
84 |
(70%) |
910 |
614 |
48% | |
Net capital expenditures |
740 |
5,507 |
(87%) |
54,157 |
46,720 |
16% | |
Common shares outstanding (thousands) |
|||||||
End of period |
382,288 |
150,077 |
155% |
382,288 |
150,077 |
155% | |
Weighted average |
151,638 |
149,084 |
2% |
150,140 |
149,084 |
1% | |
Operating |
|||||||
Average production |
|||||||
Natural gas (MMcf/d) (4) |
105.1 |
122.5 |
(14%) |
104.2 |
102.7 |
1% | |
Oil and NGL (bbl/d) (4) |
2,144 |
3,262 |
(34%) |
2,337 |
3,443 |
(32%) | |
Total (boe/d) |
19,661 |
23,685 |
(17%) |
19,706 |
20,554 |
(4%) | |
Average prices |
|||||||
Natural gas, before derivatives ($/Mcf) |
2.74 |
3.96 |
(31%) |
2.87 |
4.50 |
(36%) | |
Natural gas, including derivatives ($/Mcf) |
2.92 |
4.16 |
(30%) |
3.01 |
4.36 |
(31%) | |
Oil, before derivatives ($/bbl) |
33.04 |
59.80 |
(45%) |
41.27 |
75.21 |
(45%) | |
Oil, including derivatives ($/bbl) |
39.81 |
67.05 |
(41%) |
52.48 |
71.55 |
(27%) | |
NGL ($/boe) |
33.68 |
59.63 |
(44%) |
33.72 |
73.97 |
(54%) | |
Drilling (wells drilled gross/net) |
|||||||
Gas |
- |
11/10.0 |
6/4.5 |
29/20.9 |
|||
Oil |
- |
- |
- |
20/17.8 |
|||
Observation/Service |
- |
- |
2/2.0 |
- |
|||
Total |
- |
11/10.0 |
8/6.5 |
49/38.7 |
|||
Success rate (%) |
- |
100/100 |
100/100 |
100/100 |
(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) |
Exploration and development costs include geological and geophysical expenditures. |
(4) |
Production amounts are based on the Corporation's interest before royalty expense. |
Forward-Looking Information
Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking information or statements under applicable securities laws. The forward looking information includes, without limitation, statements made under the heading "2016 Outlook"; anticipated amounts and allocation of capital spending; statements pertaining to funds flow levels, self-funding, future development and capital efficiencies; statements regarding estimated production and timing thereof; prospective drilling locations, forecast average production; completions and development activities; infrastructure expansion and construction; anticipated effect of commodity prices on reserves; estimates of gross recoverable gas sales; estimated net asset value as at December 31, 2015 and on a pro forma basis; prospective oil and natural gas liquids production capability; projected realized natural gas prices and funds flow; estimated asset retirement obligations; anticipated effect of commodity prices on future development capital and reserves; commodity prices and foreign exchange rates; and gas price management. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press 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 risks, 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 press release. 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 under "Risk Factors" in Perpetual's MD&A for the year-ended December 31, 2015 and those included 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.
Uncertainties in Estimating Reserves
There are numerous uncertainties inherent in estimating quantities of crude oil, natural gas and NGL reserves and the future funds flows attributed to such reserves. The reserve and associated funds flow information set forth above are estimates only. In general, estimates of economically recoverable crude oil, natural gas and NGL reserves and the future net funds flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For those reasons, estimates of the economically recoverable crude oil, NGL and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may vary. The Company's actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.
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.
Non-GAAP Financial Measures
This press release includes references to financial measures commonly used in the oil and gas industry of funds flow, operating netback and net debt, which do not have a standardized meaning prescribed by International Financial Reporting Standards ("GAAP"). Accordingly, the Company's use of these terms may not be comparable to similarly defined measures presented by other companies. Management uses the term "funds flow" for its own performance measures and to provide shareholders and potential investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund a portion of its future growth expenditures or to repay debt. Perpetual considers operating netback an important performance measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by deducting royalties, operating costs, and transportation from realized revenue. Operating netbacks are also calculated on a per boe basis using average boe production for the period. Operating netbacks on a per boe basis can vary significantly for each of the Company's operating areas. Net bank debt is measured as current and long term bank indebtedness including adjusted working capital deficiency (surplus). Net debt includes the carrying value of net bank debt and the TOU Share financial arrangement and the principal amount of senior notes and convertible debentures reduced for the mark-to-market value of TOU Shares held. Net bank debt and net debt are used by management to analyze leverage. Investors are cautioned that non-GAAP measures should not be construed as alternatives to measures of financial performance determined in accordance with GAAP as an indication of the Company's performance. See Non-GAAP Financial Measures" in the Management's Discussion and Analysis for the definition and description of these terms.
Industry Metrics
The terms F&D, FDC, FD&A, operating netbacks, production ratio, NAV and RLI, while commonly used in the oil and gas industry, do not have standardized meanings and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.
SOURCE Perpetual Energy Inc.