PR Newswire
CALGARY, Feb. 23, 2018
CALGARY, Feb. 23, 2018 /PRNewswire/ - (TSX:PMT) – Perpetual Energy Inc. ("Perpetual", the "Corporation" or the "Company") is pleased to release its fourth quarter and year-end 2017 financial and operating results. A complete copy of Perpetual's audited consolidated financial statements, Management's Discussion and Analysis ("MD&A") and Annual Information Form for the year ended December 31, 2017 will be available through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
The strategic focusing of our asset base, continued diligence to drive down costs, strengthening of our balance sheet, and steady execution of our growth-oriented capital program delivered attractive results in the fourth quarter and year ended December 31, 2017 as highlighted below:
Fourth Quarter 2017
Annual 2017
FOURTH QUARTER 2017 OPERATING AND FINANCIAL HIGHLIGHTS
Capital Spending, Production and Operations
Financial Highlights
2017 ANNUAL FINANCIAL AND OPERATING HIGHLIGHTS
Capital Spending, Production and Operations
Financial Highlights
2018 OUTLOOK
In response to recent commodity market changes, Perpetual revised its 2018 capital plan to preserve the value of its East Edson natural gas reserves by deferring 2018 development drilling at East Edson and accelerating spending on highly economic heavy oil projects at Mannville, for a net 32% reduction to the 2018 capital budget to $23 to $27 million from $37 million initially set in November 2017. The revised capital plan is expected to result in the drilling of one (1.0 net) ERH liquids-rich natural gas well in 2018 along with three (3.0 net) completion and fracs at East Edson and up to 13 gross (12.3 net) horizontal heavy oil wells in the Mannville area. The resultant investment split is expected to be evenly distributed between the two core operating areas and natural gas and oil commodities.
With the capital re-allocation strategy to heavy oil, first quarter 2018 continues to expect production to average close to 13,300 boe/d. Natural base production declines are anticipated to reverse in the fourth quarter with the planned late third quarter frac of the ERH well to coincide with expected higher seasonal natural gas prices. Perpetual forecasts year-over-year average annual production growth of 17% to approximately 11,500 boe/d for 2018 and anticipates to exit the year at approximately 10,700 boe/d (17% oil and NGL).
Based on the capital spending plan and production assumptions outlined above, and the current forward market for oil and natural gas prices at market pricing points, Perpetual forecasts 2018 adjusted funds flow of $33 to $37 million ($0.56/share to $0.62/share). Further detailed information regarding the Company's 2018 outlook, including adjusted funds flow guidance assumptions and sensitivities, was released on February 7, 2018 and is available in Perpetual's MD&A for the year ended December 31, 2017.
Changes to Board of Directors
Perpetual also announces the retirement of Mr. Randall E. Johnson from its board of directors effective February 22, 2018. Mr. Johnson has been a valued member of the board of directors since his appointment in 2006. Among his other responsibilities, Mr. Johnson served as the Chair of Perpetual's Compensation and Corporate Governance Committee and as a member of the Audit Committee. In addition, he has provided the board and management with insightful guidance gained through his long career in the oil and gas corporate banking industry. Perpetual wishes to acknowledge and thank Mr. Johnson for his many contributions and dedicated service to the Company and shareholders.
Financial and Operating Highlights
|
Three Months ended December 31 |
Year ended December 31 | |||||
($Cdn thousands, except volume and per share amounts) |
2017 |
2016 |
Change |
2017 |
2016 |
Change | |
Financial |
|||||||
Oil and natural gas revenue |
23,810 |
17,940 |
33% |
81,722 |
81,403 |
0% | |
Net earnings (loss) |
(6,498) |
20,379 |
(132%) |
(35,971) |
107,149 |
(134%) | |
Per share - basic(2) |
(0.11) |
0.39 |
(128%) |
(0.62) |
2.11 |
(129%) | |
Per share - diluted |
(0.11) |
0.37 |
(130%) |
(0.62) |
1.98 |
(131%) | |
Cash flow from (used in) operating activities |
10,953 |
4,740 |
131% |
19,170 |
(7,136) |
369% | |
Per share(1)(2) |
0.18 |
0.09 |
106% |
0.33 |
(0.14) |
335% | |
Adjusted funds flow(1) |
12,541 |
3,326 |
277% |
31,093 |
920 |
3280% | |
Per share(2) |
0.21 |
0.06 |
250% |
0.54 |
0.02 |
2600% | |
Revolving bank debt |
31,581 |
– |
100% |
31,581 |
– |
100% | |
Senior Notes, at principal amount |
32,490 |
60,573 |
(46%) |
32,490 |
60,573 |
(46%) | |
Term Loan, at principal amount |
45,000 |
– |
100% |
45,000 |
– |
100% | |
TOU share margin loans, at principal amount |
18,490 |
39,953 |
(54%) |
18,490 |
39,953 |
(54%) | |
TOU share investment |
(37,985) |
(66,343) |
(43%) |
(37,985) |
(66,343) |
(43%) | |
Net working capital deficiency(1) |
16,404 |
3,917 |
319% |
16,404 |
3,917 |
319% | |
Total net debt(1) |
105,980 |
38,100 |
178% |
105,980 |
38,100 |
178% | |
Net capital expenditures |
|||||||
Capital expenditures |
19,047 |
7,069 |
169% |
73,035 |
14,580 |
401% | |
Geological and geophysical costs |
– |
(3) |
(100%) |
(22) |
23 |
(196%) | |
Net payments (proceeds) on acquisitions and |
970 |
1,785 |
(46%) |
2,422 |
(5,972) |
(141%) | |
Net capital expenditures |
20,017 |
8,851 |
126% |
75,435 |
8,631 |
774% | |
Common shares outstanding (thousands)(3) |
|||||||
End of period(4) |
59,263 |
53,421 |
11% |
59,263 |
53,421 |
11% | |
Weighted average - basic |
59,338 |
52,924 |
12% |
58,017 |
50,733 |
14% | |
Weighted average - diluted |
59,338 |
54,678 |
9% |
58,017 |
54,038 |
7% | |
Operating |
|||||||
Average production |
|||||||
Natural gas (MMcf/d) |
60.8 |
40.3 |
51% |
49.6 |
74.7 |
(34%) | |
Oil (bbl/d) |
888 |
936 |
(5%) |
948 |
1,058 |
(10%) | |
NGL (bbl/d) |
738 |
467 |
58% |
655 |
614 |
7% | |
Total (boe/d) |
11,765 |
8,118 |
45% |
9,876 |
14,128 |
(30%) | |
Average prices |
|||||||
Realized natural gas price ($/Mcf) |
3.22 |
2.41 |
34% |
3.51 |
2.42 |
45% | |
Realized oil price ($/bbl) |
47.30 |
38.95 |
21% |
41.62 |
37.60 |
11% | |
Realized NGL price ($/bbl) |
54.17 |
46.99 |
15% |
46.60 |
35.45 |
31% | |
Wells drilled |
|||||||
Natural gas – gross (net) |
3 (3.0) |
3 (3.0) |
15 (14.4) |
4 (4.0) |
|||
Oil – gross (net) |
– |
– |
4 (3.3) |
– |
|||
Total – gross (net) |
3 (3.0) |
3 (3.0) |
19 (17.7) |
4 (4.0) |
(1) |
These are non-GAAP measures. Please refer to "Non-GAAP Measures" below. |
(2) |
Based on weighted average basic common shares outstanding for the period. |
(3) |
Common shares and per share amounts have been retroactively adjusted to reflect the consolidation of outstanding common shares on the basis of 20 common shares to one common share on March 24, 2016. All common shares are net of shares held in trust. |
(4) |
Reduced by shares held in trust (2017 – 447; 2016 – 260). See "Note 15 to the Audited Consolidated Financial Statements". |
Oil and Gas Advisories
The reserves estimates contained in this news release represent gross reserves as at December 31, 2017 as estimated by McDaniel and Associates Consultants Ltd. ("McDaniel") and are defined under National Instrument 51-101 as interest before deduction of royalties and without including any of royalty interests. The recovery and reserves estimates of crude oil, NGL and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and NGL reserves may be greater than or less than the estimates provided herein.
To provide a single unit-of-production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (boe), using the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.
This news release contains metrics commonly used in the oil and natural gas industry, such as "F&D" costs and "pre-municipal tax operating netbacks" These oil and gas metrics have been prepared by management and do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included in this news release to provide readers with additional measures to evaluate Perpetual's performance, however, such measures are not reliable indicators of Perpetual's future performance and future performance may not compare to Perpetual's performance in previous periods and therefore such metrics should not be unduly relied upon. Management uses these oil and gas metrics for its own performance measurements and to provide shareholders and investors with measures to compare Perpetual's operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this news release, should not be relied upon for investment or other purposes.
F&D costs are calculated on a per boe basis by dividing the aggregate of the change in future development capital ("FDC") from the prior year for the particular reserve category and the costs incurred on development and exploration activities in the year by the change in reserves from the prior year for the reserve category, including reserves revisions during the year on a per boe basis. The aggregate of the F&D costs incurred in the financial year and changes during that year in estimated FDC generally will not reflect total F&D costs related to reserves additions for that year.
F&D recycle ratio is calculated by dividing the operating netback for the period by the F&D costs per boe for the particular reserve category.
Any references in this news release to IP30 rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.
The length-adjusted type curve information included in this news release, including IP 30, represents estimates of the production decline and ultimate volumes expected to be recovered from wells over the life of the well. This information is based on McDaniel type curves based on a combination of historical performance of older wells and management's expectation of what might be achieved from future wells. The information represents what McDaniel thinks an average well will achieve. Individual wells may be higher or lower but over a larger number of wells McDaniel expects the average to come out to the type curve. Over time type curves can and will change based on achieving more production history on older wells or more recent completion information on newer wells. There is no certainty that future wells will generate results to match historic type curves presented herein.
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, anticipated amounts and allocation of capital spending; statements pertaining to adjusted funds flow levels, statements regarding estimated production and timing thereof; statements pertaining to type curves being exceeded, forecast average production; completions and development activities; infrastructure expansion and construction; estimated FDC required to convert proved plus probable non-producing and undeveloped reserves to proved producing reserves; prospective oil and natural gas liquids production capability; projected realized natural gas prices and adjusted funds flow; estimated decommissioning obligations; commodity prices and foreign exchange rates; and commodity price management. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this news release, which assumptions are based on management's analysis of historical trends, experience, current conditions and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of 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 news 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 Annual Information Form and MD&A for the year ended December 31, 2017 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.
Financial Outlook
Also included in this news release are estimates of Perpetual's 2018 adjusted funds flow, which is based on, among other things, the various assumptions as to production levels, capital expenditures, and other assumptions disclosed in this news release and Perpetual's February 7, 2018 news release. To the extent such estimate constitutes a financial outlook, it was approved by management and the Board of Directors of Perpetual on February 22, 2018 and is included to provide readers with an understanding of Perpetual's anticipated adjusted funds flow and sensitivities based on the capital expenditure, production and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.
Non-GAAP Measures
This news release contains the terms "adjusted funds flow", "adjusted funds flow per share", "adjusted funds flow per boe", "annualized adjusted funds flow", "cash costs", "net working capital deficiency (surplus)", "net debt and net bank debt", "operating netback", "proved developed producing recycle ratio" and "realized revenue" which do not have standardized meanings prescribed by GAAP. Management believes that in addition to net income (loss) and net cash flows from operating activities as defined by GAAP, these terms are useful supplemental measures to evaluate operating performance. Users are cautioned however that these measures should not be construed as an alternative to net income (loss) or net cash flows from operating activities determined in accordance with GAAP as an indication of Perpetual's performance and may not be comparable with the calculation of similar measurements by other entities.
Management uses adjusted funds flow as a key measure to assess the ability of the Company to generate the funds necessary to finance operating activities and capital expenditures. Adjusted funds flow excludes the change in non-cash working capital and expenditures on decommissioning obligations since Perpetual believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such, may not be useful for evaluating Perpetual's operating performance. To make reported adjusted funds flow more comparable to industry practice, the Company reclassifies certain exploration and evaluation costs from operating to investing activities in the adjusted funds flow reconciliation. These exploration and evaluation costs include dry hole costs in addition to geological and geophysical costs, which are expensed in the period incurred. The Company has also reclassified the change in gas over bitumen royalty financing from financing to operating activities in the calculation of adjusted funds flow, in order to present these payments net of gas over bitumen royalty credits. These payments are indexed to gas over bitumen royalty credits and are recorded as a reduction to the Corporation's gas over bitumen royalty financing obligation in accordance with IFRS. Additionally, the Company has excluded payments of restructuring costs associated with the disposition of the Shallow Gas Properties, which management considers to not be related to cash flow from operating activities. Restructuring costs include employee downsizing costs and surplus office lease obligations. Adjusted funds flow per share is calculated using the same weighted average number of shares outstanding used in calculating earnings per share. "Net debt to fourth quarter 2017 annualized adjusted funds flow ratio" is fourth quarter adjusted funds flow times four to derive an annualized equivalent net debt to adjusted funds flow ratio. Adjusted funds flow is not intended to represent net cash flows from (used in) operating activities calculated in accordance with IFRS.
Cash costs: Management believes that cash costs assist management and investors in assessing Perpetual's efficiency and overall cost structure. Cash costs are comprised of royalties, production and operating, transportation, general and administrative and cash finance expenses.
Net debt and net bank debt: Net bank debt is measured as current and long-term bank indebtedness including net working capital deficiency (surplus). Net debt includes the carrying value of net bank debt, the principal amount of the Term Loan, the principal amount of TOU share margin loans and the principal amount of Senior Notes reduced for the mark-to-market value of the TOU share investment. Net bank debt and net debt are used by management to analyze borrowing capacity.
Net working capital deficiency (surplus): Net working capital deficiency (surplus) includes total current assets and current liabilities excluding short-term derivative assets and liabilities related to the Corporation's risk management activities, current portion of gas over bitumen royalty financing, TOU (described below) share investment, TOU share margin loans and current portion of provisions.
Operating netback: Perpetual considers operating netback an important performance measure as it demonstrates its profitability relative to current commodity prices. Operating netback is calculated by deducting royalties, operating costs, and transportation from realized revenue. Operating netback is also calculated on a per boe basis using average boe production for the period. Operating netback on a per boe basis can vary significantly for each of the Company's operating areas. Pre-municipal tax operating netback at the Eastern Alberta shallow gas property level is calculated using production revenues assuming AECO Daily Index pricing less royalties, transportation and operating expenditures excluding municipal taxes.
Realized revenue: Realized revenue is the sum of realized natural gas revenue, realized oil revenue and realized NGL revenue which includes realized gains (losses) on financial natural gas, crude oil and foreign exchange contracts but excludes any realized gains (losses) resulting from contracts related to the disposition of the Shallow Gas Properties. Realized revenue, excluding foreign exchange contracts is used by management to calculate the Corporation's net realized commodity prices taking into account monthly settlements on financial crude oil and natural gas forward sales, collars and basis differentials. These contracts are put in place to protect Perpetual's adjusted funds flow from potential volatility in commodity prices, and as such, any related realized gains or losses are considered part of the Corporation's realized price.
For additional reader advisories in regards to non-GAAP financial measures, including Perpetual's method of calculation and reconciliation of these terms to their corresponding GAAP measures, see the section entitled "Non-GAAP Measures" within the Company's MD&A filed on SEDAR.
SOURCE Perpetual Energy Inc.