CALGARY, Nov. 10, 2017 /PRNewswire/
- (TSX:PMT) - Perpetual Energy Inc. ("Perpetual", the
"Corporation" or the "Company") is pleased to announce a 62.5%
increase to its reserve-based credit facility (the "Credit
Facility") and confirm capital spending plans and expected
production and adjusted funds flow growth for 2018. Strategic
focusing of the Company's asset base, strengthening of the balance
sheet, steady execution of the growth-oriented capital program and
the Company's market diversification strategy implemented over the
past year have combined to position Perpetual for continued strong
growth in 2018. Based on current forward commodity prices,
production growth of 30% in 2018 from 2017 levels is anticipated to
drive 23% adjusted funds flow growth to $0.59 to $0.67/share, supported by a capital
program substantially funded from adjusted funds flow.
Credit Facility
Perpetual Credit Facility lenders have completed their
semi-annual borrowing base redetermination and have agreed to
increase the borrowing limit from $40
million to $65 million,
subject to execution of usual and customary loan documentation. In
support of this increase, Perpetual has expanded its Credit
Facility lending syndicate to three banks. The maturity date of the
Credit Facility is May 31, 2019 and
the next semi-annual borrowing base review is scheduled for
May 31, 2018. The increased borrowing
limit is expected to provide sufficient liquidity to execute the
Company's 2018 business plan and retain the optionality and
incremental liquidity related to the Company's 1.67 million share
investment in Tourmaline Oil Corp. (TSX:"TOU").
2018 Capital Spending and Production Guidance
The Company's Board of Directors has approved a total capital
spending program of $39 million for
2018, close to 75% concentrated in East
Edson, developing liquids-rich natural gas reserves in the
Wilrich formation, and 25% in Eastern
Alberta, primarily targeting heavy oil development at
Mannville along with abandonment
and reclamation work to continue to responsibly address
decommissioning obligations.
At East Edson, a single rig
drilling program is ongoing with four (4.0 net) wells to be drilled
during the fourth quarter of 2017, including two extended reach
horizontal ("ERH") wells of varying lateral lengths. One ERH well
has been successfully drilled thus far with a 2,460 meter
horizontal lateral. The second is currently drilling in the
horizontal section and is targeting in excess of 3,400 meters of
Wilrich formation. The performance of the two ERH wells is expected
to be evaluated following frac operations in late November. The
remaining three wells of the 2017 program are budgeted to be frac'd
during the first quarter of 2018. Drilling activities are forecast
to start up again in the third quarter of 2018 with four (4.0 net)
ERH wells planned to reverse forecast declines and ramp up
production again to match processing and transportation capacity in
time to meet stronger anticipated natural gas demand conditions and
pricing in the fourth quarter of 2018. Additional compression is
currently being installed at the Company's 100% working interest
and operated West Wolf Lake facility for start-up in early
January 2018 to increase total
processing capacity in the East
Edson area by close to 23% to 80 MMcf/d plus associated
liquids, closely matching the Corporation's 20 MMcf/d increase to
firm natural gas transportation capacity to 78 MMcf/d that is
scheduled to take effect on or before April
1, 2018.
Based on the 1,700 meter lateral type curve, adjusted for the
expected ERH well performance, average 2018 production at
East Edson is forecast to grow
over 35% year over year to average close to 10,800 boe/d. The
positive impact of this higher production base over a substantially
fixed cost base is anticipated to translate into further reduction
in operating costs per unit of production at East Edson of close to $2.00/boe.
At Mannville, capital spending
during the fourth quarter of 2017 is directed at waterflood
infrastructure projects which will continue into the first quarter
of 2018 to increase waterflood injection capability to provide
additional pressure support to enhance heavy oil recovery as well
as to reduce field operating costs. In the third quarter of 2018,
up to seven (6.3 net) development wells are budgeted to be drilled
to increase heavy oil production by close to 10%. Additionally, up
to 20 shallow gas recompletions are planned to partially offset
natural gas declines in Eastern
Alberta. Decommissioning expenditures will be focused in the
Mannville area and are expected to
provide lease rental and property tax expense reductions while
maintaining regulatory compliance.
The table below summarizes anticipated capital spending and
drilling activities for the fourth quarter of 2017 and for the
first and second half of 2018.
Exploration and Development Forecast Capital
Expenditures
|
Q4
2017
$
millions
|
# of
wells
(gross/net)
|
H1
2018
$
millions
|
# of
wells
(gross/net)
|
H2
2018
$
millions
|
# of
wells
(gross/net)
|
|
West Central
liquids-rich gas
|
18
|
4/4.0
|
8
|
0/0.0
|
21
|
4/4.0
|
|
Eastern
Alberta
|
1
|
0/0.0
|
1
|
0/0.0
|
7
|
7/6.3
|
|
Total(1)
|
19
|
4/4.0
|
9
|
0/0.0
|
28
|
11/10.3
|
|
(1)
|
Excludes budgeted
abandonment and reclamation spending of $0.7 million in the fourth
quarter of 2017 and up to $2 million in 2018.
|
Based on total exploration and development capital spending in
2018 of $37 million, and an
April 1, 2018 in-service date for
additional firm transportation, Perpetual forecasts production to
average close to 13,000 boe/d (85% natural gas) and expects to exit
the year at over 14,500 boe/d as production ramps up again driven
by the second half capital spending program targeting seasonal
natural gas price optimization. This represents growth in average
daily production in 2018 of 32% relative to 2017 as well as year
over year growth in the average December exit rate of over 15%.
Increased production combined with continued diligent cost
management in 2018 is anticipated to continue to drive improved per
unit cost structure performance with top quartile operating costs
forecast of close to $4.00/boe.
Perpetual has taken significant steps to diversify its 2018
commodity and natural gas pricing point exposure (net of royalties)
as detailed below:
|
Market/Pricing
Point
|
Estimated 2018
Exposure
|
|
|
|
Natural
gas
|
|
|
AECO(1)
|
26%
|
|
AECO fixed
price
|
5%
|
|
Empress
|
5%
|
|
Dawn
|
11%
|
|
Michcon
|
7%
|
|
Chicago
|
17%
|
|
Malin
|
15%
|
|
Total natural
gas
|
86%
|
|
Natural gas liquids -
Condensate(1)
|
3%
|
|
Natural gas liquids -
Other(1)
|
2%
|
|
Crude oil
(1)
|
9%
|
|
Total
|
100%
|
The Company's market diversification strategy, combined with
continued reduction to a forecast all-in cash cost structure,
including royalties, of approximately $13.25/boe ($10.40/boe, excluding royalties) is anticipated
to deliver further improvements to operating and adjusted funds
flow netbacks over 2017, despite the lower current forward market
for natural gas prices.
Based on these capital spending and production assumptions and
the current forward market for oil and natural gas prices at market
pricing points, Perpetual forecasts 2018 adjusted funds flow of
$35 to $40 million ($0.59/share to $0.67/share). Year end 2018 debt, net of the
current market value of the Company's TOU share investment of close
to $45 million, is forecast at
$105 to $110 million, with a
corresponding improvement in estimated net debt to trailing twelve
months adjusted funds flow to approximately 2.9 times.
Incorporating the assumptions outlined above, and presuming AECO
basis differentials remain constant to each of the diversified
natural gas pricing points, Perpetual's estimated 2018 adjusted
funds flow annualized sensitivity to various commodity prices is as
follows.
Projected 2018 Adjusted funds flow
|
2018 AECO gas
price ($/GJ)(1)
|
|
2018
WTI price
(US$/bbl)(1)
|
($
millions)
|
$1.75
|
$2.00
|
$2.25
|
$2.50
|
$2.75
|
$3.00
|
|
$47.50
|
26
|
32
|
37
|
43
|
49
|
55
|
|
$50.00
|
28
|
33
|
39
|
45
|
51
|
56
|
|
$52.50
|
29
|
35
|
41
|
47
|
52
|
58
|
|
$55.00
|
31
|
37
|
43
|
48
|
54
|
60
|
|
$57.50
|
33
|
39
|
44
|
50
|
56
|
62
|
|
$60.00
|
35
|
40
|
46
|
52
|
58
|
63
|
|
(1)
|
The current settled
and forward average AECO and WTI prices for calendar 2018 as of
November 9, 2017 were $2.01 per GJ and US$56.91 per bbl,
respectively. Sensitivities assume all market price points adjust
commensurately.
|
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.
Forward-Looking Information
Certain information regarding Perpetual in this news release
including management's assessment of future plans and operations
may constitute forward-looking statements under applicable
securities laws. The forward-looking information includes, without
limitation, statements regarding capital expenditure levels for the
fourth quarter of 2017 and the full year of 2018 and the funding of
such capital expenditures; prospective drilling activities;
forecast production, forecast levels of debt, production type,
operations, adjusted funds flows, and timing thereof; facility
construction and pilot project plans and timing thereof; forecast
and realized commodity prices; expected cost savings and the impact
of cost savings initiatives, expected funding, allocation and
timing of capital expenditures; projected use of adjusted funds
flow and anticipated adjusted funds flow; planned drilling and
development and the results thereof; and commodity prices. 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 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 Annual
Information Form and 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 laws.
Also included in this press release are estimates of
Perpetual's 2018 adjusted funds flow and adjusted funds flow per
share based on 59.3 million shares issued and outstanding, which is
based on the various assumptions as to production levels, including
estimated average production, capital expenditures, and other
assumptions including current forward commodity price assumptions.
To the extent any such estimate constitutes a financial outlook, it
was approved by management and the Board of Directors of Perpetual
on November 6, 2017 and is included
to provide readers with an understanding of Perpetual's anticipated
adjusted funds flows based on the capital expenditure and other
assumptions described herein and readers are cautioned that the
information may not be appropriate for other purposes.
Volume Conversions
Barrel of oil equivalent ("boe") may be misleading,
particularly if used in isolation. In accordance with National
Instrument 51-101 ("NI 51-101"), a conversion ratio for natural gas
of 6 Mcf:1bbl has been used, which is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead. In
addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be
misleading as an indicator of value as the value ratio between
natural gas and crude oil, based on the current prices of natural
gas and crude oil, differ significantly from the energy equivalency
of 6 Mcf:1 bbl.
Non-GAAP Measures
This news release contains financial measures that may not be
calculated in accordance with generally accepted accounting
principles in Canada
("GAAP"). Readers are referred to advisories and further
discussion on non-GAAP measures contained in the "Significant
Accounting Policies and non-GAAP Measures" section of the most
recent management's discussion and analysis
SOURCE Perpetual Energy Inc.
