CALGARY, Aug. 10, 2017 /PRNewswire/
- (TSX:PMT) - Perpetual Energy Inc.
("Perpetual", the "Corporation" or the "Company") is pleased to
release its second quarter 2017 financial and operating results. A
complete copy of Perpetual's unaudited condensed interim
consolidated financial statements and related Management Discussion
and Analysis ("MD&A") for the three and six months ended
June 30, 2017 can be obtained through
the Company's website at www.perpetualenergyinc.com and SEDAR at
www.sedar.com.
Perpetual is on track for profitable growth in 2017. Strategic
focusing of the asset base and active balance sheet management
positioned the Company for the renewal of capital investment
through the first half of 2017 to grow operations in key plays in
East Edson and Mannville. At the same time, attention on cost
reductions in every component of the business is further boosting
returns and translating into an increasingly solid platform for
sustainable value creation.
SECOND QUARTER 2017 HIGHLIGHTS
Production and Operations
- Extremely wet spring break up conditions persisted over much of
the second quarter, limiting capital activity. Perpetual's
exploration and development spending in the second quarter of 2017
totaled just $4.0 million, primarily
for the drilling of one (1.0 net) horizontal gas well and
preparatory work for frac activities for the three standing
horizontal first quarter drills awaiting completion at East Edson.
- Average production of 9,223 boe/d was up 13% compared to the
first quarter as natural declines were more than offset by
increased production driven by the ramp up of capital investment.
Production was down 42% from the second quarter of 2016, almost
entirely related to the disposal of the vast majority of the
Company's shallow gas assets on October 1,
2016 (the "Shallow Gas Disposition").
- Total production and operating expenses were relatively flat at
$4.6 million as compared to the first
quarter of 2017, but were down 51% compared to $9.5 million recorded during the same period in
2016. This decrease reflected the impact of the Shallow Gas
Disposition and continued efficiencies realized through the
Company-owned and operated gas plant at East Edson, offset somewhat by higher costs
incurred for extra road and lease maintenance due to wet weather
conditions throughout the quarter. Production and operating
expenses on a unit-of-production basis were down 15% from the
comparative 2016 quarter to $5.52/boe, (Q2 2016 - $6.53/boe; Q1 2017 - $6.28/boe) due to the strategic high grading of
assets and are expected to continue to decrease through the
remainder of 2017 as production grows through focused capital
investment.
- With the completion of five wells at East Edson since the end of the second
quarter, current production capability has now reached the
Company's forecast exit rate for year end 2017 of close to 13,000
boe/d.
Financial Highlights
- Realized revenue of $19.9 million
was virtually flat as compared to the second quarter of 2016,
despite the 42% decrease in production, due to increased realized
commodity prices. Quarter over quarter in 2017, realized revenue
increased 5% driven by strong production growth, offset by weaker
prices for natural gas and natural gas liquids ("NGL").
- Increased AECO Monthly Index prices were reflected in
Perpetual's natural gas price, including derivatives, of
$3.18/Mcf for the second quarter of
2017, up 72% from $1.85/Mcf for the
same period in 2016 (Q1 2017 - $5.04/Mcf) and 15% higher than the second quarter
AECO Monthly Index price of $2.77/Mcf
(Q2 2016 – $1.25/Mcf; Q1 2017 –
$2.94/Mcf). Higher heat content gas
(1.16 GJ:1 Mcf), as well as price optimization strategies applied
to prompt month physical settlements, contributed to improved
realized prices over the AECO Monthly Index price.
- Perpetual's 2017 second quarter oil price, including
derivatives, of $43.91/bbl increased
12% compared to the same period in 2016, due primarily to the 20%
increase in Western Canadian Select ("WCS") pricing driven by both
higher benchmark West Texas Intermediate ("WTI") prices, lower WCS
differentials and a weaker Canadian dollar.
- Perpetual's realized average NGL price for the second quarter
of 2017 reached $44.28/bbl, up 28%
from the second quarter of 2016, reflecting an increase in all NGL
component prices as excess North American inventory levels began to
stabilize as well as an adjustment for prior period sales.
- Royalty expenses for the quarter were $3.6 million, representing an increase in the
effective combined average royalty rate on revenue to 18.3% (Q2
2016 - 11.3%; Q1 2017 – 17.1%). Average crown royalty rates
increased to 3.8% in the second quarter of 2017 compared to 3.2% in
the second quarter of 2016 (Q1 2017 – 2.6%), due to the completion
of the initial reduced royalty period for several East Edson wells and disposition of lower net
royalty assets sold as part of the Shallow Gas Disposition,
combined with higher Alberta
natural gas reference prices and higher oil prices. Freehold and
overriding royalty rates increased from 8.1% in the second quarter
of 2016 to 14.5% in the 2017 period (Q1 2017 – 14.5%), reflecting
both the increase in natural gas prices and reduced total revenue
following the Shallow Gas Disposition, leaving a larger percentage
of total production sourced from East
Edson wells in the second quarter of 2017. As the
East Edson gross overriding
royalty is a fixed volume of 5.6 MMcf/d plus associated liquids,
royalties as a percentage of revenue are expected to decrease as
production at East Edson grows in
2017 with renewed capital investment.
- Perpetual's operating netback of $12.42/boe in the second quarter of 2017
increased 172% from $4.56/boe in the
comparative period of 2016. This increase was due to the 71%
increase in realized revenue per boe due to higher commodity prices
and higher average heat content gas sales combined with the
positive impact of the 15% reduction in unit production and
operating expenses, offset by higher royalties. Quarter over
quarter, operating netbacks were down slightly from $13.91/boe in the first quarter of 2017.
- Cash interest expense in the quarter decreased 57% to
$1.9 million (Q2 2016 – $4.5 million; Q1 2017 - $1.9 million), primarily driven by the reduction
of $214.4 million principal amount of
8.75% senior notes that were exchanged for 4.4 million of the
Company's shares of Tourmaline Oil Corp. ("TOU") during the second
quarter of 2016, combined with the early cash repayment on
April 17, 2017 of $27.1 million of 8.75% senior notes due to mature
on March 15, 2018 (the "2018 Senior
Notes"). These cash interest expense reductions were partially
offset by the $0.7 million in
interest charged on the 8.1% $35
million term loan that was initially drawn on March 14, 2017 (the "Term Loan").
- Despite the 42% drop in production, adjusted funds flow grew to
$5.2 million, compared to negative
$1.9 million in the second quarter of
2016 (Q1 2017 - $5.1 million).
- The Company recorded a net loss for the second quarter of 2017
of $7.2 million, compared to net
income of $64.9 million in the
comparative period of 2016 (Q1 2017 - $14.2
million loss). The gain in the 2016 period was primarily
driven by the $81.6 million gain on
the exchange of senior notes for TOU shares and a $21.4 million gain in the mark-to-market value of
its TOU share investment.
2017 STRATEGIC PRIORITIES
During the second quarter of 2017, significant progress was made
to advance Perpetual's top four strategic priorities for 2017 which
include:
- Grow value of Greater Edson
liquids-rich gas;
- Optimize value potential of Eastern
Alberta assets;
- Advance high impact opportunities; and
- Optimize balance sheet for growth.
Grow value of Greater
Edson liquids-rich gas
- Despite higher than typical costs for road and site maintenance
created by the excessive rain and wet conditions during the second
quarter, Perpetual's top quartile operating cost structure at
East Edson further improved to
average $3.11/boe (Q2 2016 –
3.29/boe; Q1 2017 3.63/boe). Road upgrades later in 2017 are
budgeted to reduce future road maintenance costs and minimize
access risks for NGL trucking.
- Drilling recommenced in early June, with one (1.0 net) new well
drilled and rig released during the second quarter. The continuous,
single rig drilling program has continued into the third quarter.
Two additional wells on the current four-well pad are now rig
released and drilling operations are ongoing on the fourth well
post breakup.
- Plans are in place to continue the consecutive drilling program
through to the first quarter of 2018, with the drilling of up to
nine Wilrich horizontal development wells during the second half of
2017. Several of the locations will evaluate extended reach
horizontals as well as progressive drilling and frac design
changes, with the goal to continue to improve on capital
efficiencies in the Wilrich play.
- Extremely wet conditions delayed planned completion and frac
operations on three drilled first quarter wells to early July. The
three wells tested inline as expected at an average level
commensurate with the type curve and are now successfully tied-in
and on production.
- Additionally, two of the new wells drilled post spring breakup
were completed in early August and each tested on initial clean up
and flow back at over 15 MMcf/d plus associated liquids,
significantly exceeding the type curve for the Wilrich
formation.
- The completion of the five wells since the end of the quarter
has now established production capability in excess of the capacity
of the Company-owned infrastructure of 60 to 65 MMcf/d plus
associated liquids. With continuation of the drilling program, this
production level is anticipated to be maintained for the remainder
of 2017, subject to reductions related to several firm
transportation outages anticipated in August.
- The Company continues to pursue activities to be positioned to
step up natural gas sales at East
Edson to the higher contracted firm transportation capacity
of 78 MMcf/d in April 2018.
- With the building inventory of drilled wells as the one rig
drilling program continues at East
Edson, timing of completion activities will be managed to
balance the optimization of field activities with availability of
take away transportation.
Optimize value potential of Eastern Alberta assets
- Capital spending in Eastern
Alberta amounted to $0.5
million during the second quarter and consisted of
additional completion and equipping costs on the Q1 heavy oil
drilling program, two oil well reactivations and eight gas
recompletions.
- The development well targeting banked oil from waterflood, as
well as two of the three exploratory oil pool tests in Q1, have
established oil production and performance monitoring is ongoing.
Follow on development drilling originally budgeted for the second
half of 2017 will be deferred until higher commodity prices can be
realized, allowing capital spending to be strategically high-graded
for East Edson growth.
- Crude oil production in eastern Alberta grew 20% quarter over quarter to 1,032
bbl/d, reflecting the full impact from wells drilled in the first
quarter as well as positive waterflood response and diligent
operations reducing operational downtime.
- Waterflood activities to arrest production declines, increase
heavy oil recoveries and improve netbacks continued to be optimized
during the second quarter of 2017. Positive waterflood response is
being observed in several heavy oil pools where producing gas-oil
ratios are declining and oil production decline rates have
stabilized and in some cases production is inclining with pressure
support.
- Gas production in eastern Alberta was effectively flat at 6.4 MMcf/d
quarter over quarter as recompletion and workover activities offset
natural declines. Low variable operating costs in Mannville result in recompletions paying out
within 6 months even at low commodity prices and these will
continue during the second half of 2017 with up to 23 additional
recompletions planned.
- Production and operating expenses in eastern Alberta were $15.74/boe during the second quarter (Q2 2016 -
$10.44/boe; Q1 2017 - $16.18/boe), reflecting the increased downhole
work to replace pumps and rods to restore production from several
heavy oil wells that went down during the quarter. The Company
continues to prioritize cost reductions on its eastern Alberta assets, including a focus on municipal
property taxes which represent a significant portion of fixed
operating costs as the tax base assessment is dramatically
misrepresentative of the actual tangible property value.
- Perpetual spent $0.5 million on
abandonment and reclamation projects during the first half of 2017,
primarily in eastern Alberta.
Plans are in place to execute an internally-managed
asset-retirement program at Mannville in the second half of 2017 targeting
well abandonments, pipeline discontinuations and abandonments, as
well as reclamation work to reduce mineral and surface lease rental
payments, maintenance costs and high municipal taxes associated
with the linear property in the Mannville area. Anticipated expenditures over
the remainder of 2017 are $1.5 million to
$2.0 million.
Advance high impact opportunities
- The two horizontal wells drilled during the fourth quarter of
2016 and the first quarter of 2017 to advance the evaluation of the
shallow shale gas play in the Viking and Colorado formations are on production at low
rates and are being evaluated. Fracture stimulation of the Viking
gas well has not been fully executed to date and additional
spending has been delayed pending further learnings from
performance monitoring and stronger natural gas prices.
- Perpetual turned down its cyclic heat stimulation ("CHS") test
at Panny during the second quarter after its fourth cycle of
production. The CHS test provided high quality data and important
knowledge to advance phase 1 of its low pressure electro-thermally
assisted drive ("LEAD") process pilot project targeting bitumen
recovery from the Bluesky
formation. The CHS test yielded valuable insights regarding
reservoir performance, the functionality of the electrical heating
cable, preliminary solvent opportunities and other operational
considerations. Interpretation of the CHS test data will be refined
over the coming months and learnings will be integrated into next
steps to advance the assessment of the commercial development
potential of this large scope Bluesky resource.
- In the Columbia area of west central Alberta, Perpetual will participate for its
40% working interest in a third-party operated horizontal well
targeting the Notikewin formation. The well is expected to spud
during the third quarter of 2017.
Optimize balance sheet for growth
- On April 17, 2017 Perpetual
exchanged $0.5 million 2018 Senior
Notes for new 8.75% senior notes maturing on January 23, 2022 (the "2022 Senior Notes") and
completed the early cash repayment of the remaining $27.1 million 2018 Senior Notes. In mid-July,
$1.0 million face value of Senior
Notes due to mature on July 23, 2019
("2019 Senior Notes") were purchased at 96.75% of face value and
also retired.
- On July 4, 2017, the Company
announced that it had doubled its borrowing capacity available
under its reserve-based credit facility (the "Credit Facility") to
$40 million and extended its
repayment term to two years, at lower borrowing costs.
- On July 31, 2017, Perpetual
entered into a new $18.7 million
margin loan secured by 1.67 million TOU shares that matures in
July 2018. Proceeds on the new margin
loan along with borrowings under the Credit Facility were used to
repay the TOU share put option margin loans that were scheduled to
mature in August and November of 2017. Proceeds of $1.0 million were realized from the sale of
underlying put options.
- Total net debt at June 30, 2017
stood at $68.3 million, net of the
market value of TOU shares held. Approximately $52.9 million, representing 49% of Perpetual's
debt and 77% of net debt, matures in 2021 or later.
- Incorporating net debt at June 30,
2017, adjusted for the financing transactions completed in
July 2017, Perpetual has access to
draw approximately $24 million under
the Credit Facility and Term Loan. Combined with the current market
value of the Company's TOU share investment, net of the new margin
loan, total current available liquidity is approximately
$48 million.
- In light of the positive financing transactions, in early July,
Moody's Investor Service upgraded Perpetual's corporate credit
rating to Caa1 stable.
- To protect a base level of adjusted funds flow, Perpetual has
commodity price contracts in place for the second half of 2017 on
an estimated 45% of forecast production for the remainder of the
year. These include a combination of forward month physical and
financial natural gas contracts at AECO hub on a net 27,500 GJ/d to
December 2017 at an average price of
$3.15/GJ and 12,500 GJ/d for
November 2017 through March 2018 at an average price of $2.94/GJ. Perpetual also has oil sales
arrangements on 750 bbl/d for the remainder of 2017 securing a WTI
floor price of $USD50.00/bbl.
- The Company has diversified its natural gas price exposure from
AECO by entering into arrangements to sell 25,000 MMBtu/d priced
using a basket of five North American natural gas hub pricing
points (Chicago, Dawn, Empress,
Malin and Mich Con) for a five year period, commencing November 1, 2017.
OUTLOOK
Success in advancing the Company's strategic priorities has
established a foundation for strong growth in production and
adjusted funds flow in 2017. Financing transactions closed during
2017 have ensured sufficient liquidity to execute the planned
growth-oriented capital program. The Company will continue its
diligent focus on capital efficiency improvements and reductions in
operating, financing and administrative costs to improve upon the
sustainable cost structure driven by strategic decisions
implemented over the past two years.
Based on the total capital spending plan in 2017 of $65 to $70 million, Perpetual expects to exit
2017 at a production rate of approximately 13,000 boe/d. This
represents growth in exit rate based on average December production
of approximately 60% compared to the prior year. Full year 2017
production is expected to average 10,000 to 11,000 boe/d (85%
natural gas). Capital spending during the remainder of 2017 will be
funded through adjusted funds flow generation, the final
$10 million drawdown of the Term Loan
and borrowings under the Credit Facility.
The forward market for oil and natural gas prices for the
remainder of 2017 and 2018 has deteriorated over the past several
months, eroding adjusted funds flow forecasts with these commodity
price assumptions and increasing corresponding forecast debt
balances. Based on current operating and financing assumptions,
commodity price hedges in place and the forward market for oil and
natural gas prices, Perpetual forecasts 2017 adjusted funds flow of
approximately $28 to $32 million.
Incorporating the current market value of 1.67 million TOU shares
held, year end 2017 total net debt of approximately $90 to $100 million is forecast, with a
corresponding net debt to trailing twelve months adjusted funds
flow ratio of approximately 3.2 at year end 2017.
The Company will continue to monitor commodity market
fundamentals closely over the coming months and adjust activities
as required, balancing the positive momentum that is translating
into operational excellence in executing our East Edson development program with spending
within our means to maintain adequate liquidity and balance sheet
strength.
About Perpetual
Perpetual is an oil and natural gas exploration, production and
marketing company headquartered in Calgary, Alberta. Perpetual operates a
diversified asset portfolio, including liquids-rich natural gas
assets in the deep basin of west central Alberta, heavy oil and shallow natural gas in
eastern Alberta, with longer term
opportunities through undeveloped oil sands leases in northern
Alberta. Additional information on
Perpetual can be accessed at www.sedar.com or from the
Corporation's website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
FINANCIAL AND OPERATING HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(Cdn$ thousands except volume and per share
amounts)
|
|
2017
|
2016
|
% Change
|
2017
|
2016
|
% Change
|
Financial
|
|
|
|
|
|
|
|
Oil and natural gas
revenue
|
|
19,728
|
16,501
|
20
|
37,886
|
41,195
|
(8)
|
Cash flow from (used
in) operating activities
|
|
4,728
|
(3,396)
|
(239)
|
2,439
|
(10,166)
|
(124)
|
Adjusted funds
flow(1)
|
|
5,243
|
(1,852)
|
(383)
|
10,353
|
(1,804)
|
(674)
|
|
Per
share(1)(2)
|
|
0.09
|
(0.04)
|
(325)
|
0.18
|
(0.04)
|
(550)
|
Net earnings
(loss)
|
|
(7,219)
|
64,925
|
(111)
|
(21,391)
|
97,689
|
(122)
|
|
Per share -
basic(2)
|
|
(0.12)
|
1.25
|
(110)
|
(0.38)
|
2.00
|
(119)
|
|
Per share -
diluted(2)
|
|
(0.12)
|
1.23
|
(110)
|
(0.38)
|
1.91
|
(120)
|
Total
assets
|
|
343,751
|
477,438
|
(28)
|
343,751
|
477,438
|
(28)
|
Credit Facility
outstanding
|
|
4,404
|
–
|
100
|
4,404
|
–
|
100
|
Term Loan, at
principal amount
|
|
35,000
|
–
|
100
|
35,000
|
–
|
100
|
Carrying amount of
TOU share margin loans
|
|
35,543
|
31,794
|
12
|
35,543
|
31,794
|
12
|
Senior notes, at
principal amount
|
|
33,490
|
60,573
|
(45)
|
33,490
|
60,573
|
(45)
|
Carrying value of TOU
share investment
|
|
(46,489)
|
(62,830)
|
(26)
|
(46,489)
|
(62,830)
|
(26)
|
Adjusted working
capital deficiency (surplus)
|
|
6,389
|
(717)
|
(991)
|
6,389
|
(717)
|
(991)
|
Total net
debt(1)
|
|
68,337
|
28,820
|
137
|
68,337
|
28,820
|
137
|
Net capital
expenditures
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
4,006
|
1,286
|
212
|
28,596
|
6,100
|
369
|
|
Geological and
geophysical expenditures
|
|
(22)
|
11
|
(300)
|
(22)
|
26
|
(185)
|
|
Dispositions, net of
acquisitions
|
|
609
|
(302)
|
(302)
|
772
|
(6,768)
|
(111)
|
|
Disposition of gas
storage facility investment
|
|
–
|
(19,750)
|
(100)
|
–
|
(19,750)
|
(100)
|
Net capital
expenditures
|
|
4,593
|
(18,755)
|
(124)
|
29,346
|
(20,392)
|
(244)
|
Common shares outstanding (thousands)(3)
|
|
|
|
|
|
|
|
End of
period
|
|
59,035
|
52,209
|
13
|
59,035
|
52,209
|
13
|
Weighted average –
basic
|
|
59,045
|
52,140
|
13
|
56,769
|
48,856
|
16
|
Weighted average –
diluted
|
|
59,045
|
52,904
|
12
|
56,769
|
51,169
|
11
|
Operating
|
|
|
|
|
|
|
|
Average
production
|
|
|
|
|
|
|
|
|
Natural gas
(MMcf/d)(4)
|
|
45.1
|
85.2
|
(47)
|
42.9
|
91.7
|
(53)
|
|
Oil and NGL
(bbl/d)(4)
|
|
1,714
|
1,755
|
(2)
|
1,535
|
1,883
|
(18)
|
Total
(boe/d)(4)
|
|
9,223
|
15,959
|
(42)
|
8,686
|
17,169
|
(49)
|
Average
prices
|
|
|
|
|
|
|
|
|
Natural gas, before
derivatives ($/Mcf)
|
|
3.09
|
1.37
|
126
|
3.25
|
1.84
|
77
|
|
Natural gas,
including derivatives ($/Mcf)
|
|
3.18
|
1.85
|
72
|
4.05
|
2.55
|
59
|
|
Oil, before
derivatives ($/bbl)
|
|
45.92
|
38.47
|
19
|
44.93
|
29.91
|
50
|
|
Oil, including
derivatives ($/bbl)
|
|
43.91
|
39.17
|
12
|
38.24
|
36.42
|
5
|
|
NGL
($/bbl)
|
|
44.28
|
34.71
|
28
|
46.54
|
31.75
|
47
|
Drilling (wells
drilled gross/net)
|
|
|
|
|
|
|
|
|
Gas
|
|
1/1.0
|
–
|
|
7/7.0
|
1/1.0
|
|
|
Oil
|
|
–
|
–
|
|
4/3.3
|
–
|
|
|
Observation/Service
|
|
–
|
–
|
|
–
|
–
|
|
|
Total
|
|
1/1.0
|
–
|
|
11/10.3
|
1/1.0
|
|
|
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 or diluted common shares outstanding for the
period.
|
(3)
|
Common shares are net
of shares held in trust.
|
(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
"Outlook"; anticipated amounts and allocation of capital spending;
statements pertaining to adjusted funds flow levels, future
development and capital efficiencies; statements regarding
estimated production and timing thereof; forecast year end exit and
average production rates; completions and development activities;
infrastructure expansion and construction; prospective oil and
natural gas liquids production capability; projected realized
natural gas prices and adjusted funds flow; 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, 2016 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.
The forward-looking information and statements
contained in this news release speak only as of the date of this
news release and neither the Corporation nor any of it subsidiaries
assumes any obligation to publicly update or revise them to reflect
new events or circumstances, unless expressly required to do so by
applicable securities laws.
Financial Outlook
Also included in this news release are estimates of
Perpetual's 2017 adjusted funds flow, total net debt and net debt
to trailing twelve months adjusted funds flow ratio, which are
based on, among other things, the various assumptions as to
production levels, capital expenditures, and other assumptions
disclosed in this news release. To the extent such estimates
constitute a financial outlook, they were approved by management
and the Board of Directors of Perpetual on August 10, 2017 and are included to provide
readers with an understanding of Perpetual's anticipated adjusted
funds flow, total net debt and net debt to trailing twelve months
adjusted funds flow ratio 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.
Initial Production Rates
Any references in this news release to initial clean up
and flow back 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.
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 realized
revenue, adjusted 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. Realized revenue 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. Management uses the term
"adjusted 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 debt includes adjusted working capital
deficiency (surplus), the TOU share margin loans and the principal
amount of the term loan and senior notes reduced for the
mark-to-market value of TOU shares held. Net debt is used by
management to analyze borrowing capacity. 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.
SOURCE Perpetual Energy Inc.