CALGARY, March 5, 2015 /PRNewswire/
- (TSX:PMT) - Perpetual Energy Inc.
("Perpetual", the "Company" or the "Corporation") is pleased to
report its fourth quarter and year end 2014 financial and operating
results. Perpetual continues to report year-over-year gains in
production, revenue and funds flow, reflecting operational and
financial success on our key diversifying strategies in the
Greater Edson area for
liquids-rich natural gas and at Mannville for heavy oil. A focus on debt
reduction in 2014 was successfully reflected in a 12 percent
decrease in net debt at the end of 2014, as compared to the end of
2013, achieved with the monetization of future gas over bitumen
("GOB") royalty credits, property dispositions and execution of the
East Edson joint venture ("East
Edson JV"). Financial flexibility was further enhanced with
the issuance of senior notes and early redemption of $125 million of convertible debentures in 2014
which extends the term for the majority of Perpetual's debt to 2018
and beyond.
A complete copy of Perpetual's audited consolidated financial
statements and related Management's Discussion and Analysis
("MD&A") for the year ended December 31,
2014 can be obtained through the Corporation's website at
www.perpetualenergyinc.com and SEDAR at www.sedar.com.
FOURTH QUARTER 2014 HIGHLIGHTS
Capital Spending and Property
Dispositions
- Capital expenditures of $26.0
million during the fourth quarter were focused on
liquids-rich natural gas development at East and West Edson, start-up of a waterflood pilot
project at Mannville and spending
to prepare for the cyclic heat stimulation test planned as phase 1
of the LEAD (low pressure electro-thermally-assisted drive) pilot
project for bitumen extraction at Panny. At West Edson, two
(1.0 net) wells were drilled, while at East Edson, fourth quarter development
projects included nine (9.0 net) new wells drilled and on-going
construction costs for the new East
Edson gas plant. Drilling operations at East Edson were primarily funded by the joint
venture partner under the East Edson JV.
- In November 2014, Perpetual
closed the disposition of non-core heavy oil properties in
Eastern Alberta for net proceeds
of $21.4 million, which included
heavy oil Mannville reserves,
undeveloped lands and estimated production of 400 boe/d.
Production Highlights
- Fourth quarter average production of 23,685 boe/d increased 21
percent quarter over quarter (Q3 2014 – 19,640 boe/d) and 28
percent relative to the comparative 2013 quarter (Q4 2013 - 18,559
boe/d), resulting in a 2014 exit rate of approximately 24,150
boe/d, 30 percent higher than the Company's 2013 exit production
rate.
- Natural gas production of 122.5 MMcf/d was 36 percent higher
than the fourth quarter of 2013, reflecting production from new
wells drilled in the Greater Edson
area. At West Edson, increased production from new wells held
the Company-operated West Edson
gas plant at or above full capacity of 60 MMcf/d (30 MMcf/d net)
plus associated C5+ liquids. Continued drilling at
East Edson under the East Edson JV
similarly increased production to fully utilize existing
compression and processing facilities at just over 30 MMcf/d plus
associated liquids of 15 to 20 bbl per MMcf.
- Oil and natural gas liquids ("NGL" or "liquids") production of
3,262 bbl/d was seven percent below the fourth quarter of 2013
(3,509 bbl/d). This reflected lower NGL sales due to a combination
of leaner wells and processing changes at both East and
West Edson as well as the
disposition of non-core heavy oil properties completed during the
fourth quarter of 2014 and natural declines on the Company's
Mannville heavy oil property.
Financial Highlights
- Perpetual recorded funds flow of $17.3
million ($0.12 per share) for
the fourth quarter of 2014, up 33 percent from the same period in
2013 ($13.0 million), reflecting
increased year-over-year production as well as stronger natural gas
prices compared to the fourth quarter of 2013.
- Perpetual's average natural gas price, before derivatives, for
the fourth quarter of 2014 was $3.96/Mcf, up 18 percent from $3.37/Mcf in the fourth quarter of 2013,
consistent with the increase in AECO market prices year over year.
Inclusive of $2.7 million in realized
gains related to natural gas risk management contracts, Perpetual's
realized gas price, including derivatives, for the fourth quarter
was $4.16/Mcf, 15 percent higher than
the prior year's fourth quarter.
- Perpetual's oil and NGL price, before derivatives, of
$59.77/bbl was nine percent lower
than the prior year's fourth quarter ($65.35/bbl), directionally reflecting the severe
drop in West Texas Intermediate ("WTI") crude oil prices to average
US$73.15/bbl (Q4 2013 - US$97.46/bbl) during the fourth quarter of 2014.
The impact of the drop in the WTI benchmark price was diminished
somewhat by the tightening of the Western Canadian Select heavy oil
differential and the drop in the $Cdn/$US dollar exchange rate.
Risk management strategies resulted in hedging gains of
$1.6 million related to crude oil
contracts, which were reflected in an average realized price,
including derivatives, of $64.39/bbl,
two percent lower than the fourth quarter of 2013 ($65.88/bbl).
- Primarily utilizing remaining proceeds from the senior notes
issued during the third quarter of 2014, the Corporation redeemed
$25.0 million of its 7.00%
Convertible Debentures on December
31, 2014. The balance of the 7.00% Convertible
Debentures ($34.9 million) have a
maturity date of December 31,
2015.
- On November 5, 2014, Perpetual's
borrowing base increased to $105
million as a result of reserve additions driven by drilling
activities at East Edson, despite
adjustments related to the monetization of additional GOB royalty
credits and the disposition of non-core heavy oil properties.
- A net loss of $18.3 million
($0.12 per share) was recorded for
the fourth quarter of 2014, including $21.4
million for an estimated net impairment loss on the
Company's Birchwavy assets. The impairment resulted primarily
from the decrease in crude oil and natural gas forecast prices at
year end 2014.
2014 ANNUAL HIGHLIGHTS
Capital Spending and Property
Dispositions
- Exploration and development expenditures of $115.8 million during 2014 included $81.1 million allocated to liquids-rich natural
gas development activities in the Corporation's West Central
district (Greater Edson area),
$24.5 million for heavy oil
development at Mannville and
$10.2 million on shallow gas
optimization projects.
- Drilling operations included 11 (5.5 net) operated wells and
two (0.1 net) non-operated wells drilled in West Edson; 15 (15.0 net) wells drilled in
East Edson, including 13 (13.0
net) wells financed from the partner's escrow account; and 20 (17.8
net) horizontal heavy oil wells on the Company's Mannville property.
- Development activities also included expansion of the
West Edson facility to 60 MMcf/d
gross (30 MMcf/d net); initial construction costs for the new
East Edson gas plant;
recompletion, workover and optimization projects on the Company's
shallow gas assets; the conversion of seven wells to injection and
expenditures for related pipelines and facilities on the startup of
the Mannville waterflood pilot
project; and initial spending for a cyclic heat stimulation test as
phase 1 of the LEAD pilot project for bitumen extraction at
Panny.
- Dispositions, net of acquisitions, of $70.4 million included net proceeds of
$47.0 million under the East Edson JV
on the disposition of an overriding royalty interest; $21.4 million on the disposition of non-core
Mannville heavy oil assets and
$3.0 million received on the sale of
undeveloped land. Offsetting property dispositions were
acquisitions of $1.0 million,
primarily related to additional land purchases in the Greater Edson area.
- Perpetual closed two transactions in 2014 which effectively
monetized the majority of its future GOB royalty credits associated
with certain shut-in properties in northeast Alberta for net proceeds of $21.3 million. In exchange for the
proceeds, Perpetual makes monthly payments to the purchaser, which
are based on the gas over bitumen formula set out in the Alberta
Gas Royalty Regulations, effectively flowing through proceeds which
result from GOB royalty credits.
Production Highlights
- Total production increased ten percent to 20,554 boe/d in 2014
(2013 - 18,696 boe/d) reflecting new production from the 2014
drilling program which continued to be focused on the Company's
liquid-rich properties in West Central and heavy oil properties in
Mannville as well as highly
efficient workover, recompletion and facility optimization projects
mitigating shallow gas production declines in eastern Alberta.
- Natural gas production of 102.7 MMcf/d increased 16 percent
from 88.9 MMcf/d in 2013, primarily due to production growth at
West Edson, which averaged 25.6
MMcf/d (2013 - 10.8 MMcf/d) and East
Edson, which averaged 17.7 MMcf/d (2013 - 14.3
MMcf/d). Increases in higher heat content deep basin gas
production at East and West Edson
more than offset year over year declines in gas production from
Perpetual's eastern Alberta
assets, which was reduced to just five percent by highly profitable
shallow gas optimization projects.
- Oil and NGL production of 3,443 bbl/d was 11 percent lower than
2013 (3,860 bbl/d). Crude oil production of 2,906 bbl/d (2013
– 3,205 bbl/d) reflected a reduced Mannville heavy oil drilling program compared
to 2013 as well as the impact of the non-core heavy oil disposition
completed in the fourth quarter. NGL production of 537 bbl/d
(2013 – 655 bbl/d) reflected lower average NGL yields on wells
drilled at West Edson as well as a
change in processing arrangements at both East and West Edson which results in previously
reported liquids now included as part of higher heat content
natural gas sales.
- Deep basin resource-style assets in West Central Alberta
contributed 7,649 boe/d of natural gas and associated liquids,
representing 37 percent of total production in 2014, up from 26
percent in 2013. High netback Mannville heavy oil production of 2,860 boe/d
comprised 14 percent of total production in 2014.
Financial Highlights
- Revenue of $262.8 million was 31
percent higher than 2013 ($201.3
million) reflecting increased production and higher average
commodity prices in 2014.
- Realized natural gas prices, including derivatives, of
$4.36/Mcf in 2014 increased 24
percent from $3.53/Mcf in 2013,
reflecting a 40% increase in AECO Monthly Index prices
year-over-year, partially offset by losses realized on gas price
hedging contracts during 2014. Due to the higher percentage
of liquids-rich gas production and processing changes in both West
and East Edson, Perpetual's heat
content averaged 1.13 GJ/Mcf in 2014 relative to 1.10 GJ/Mcf in
2013.
- Oil and NGL prices, including derivatives, of $71.82/bbl increased eight percent in 2014 due to
strong WTI prices during the first half of 2014 which, along with a
narrowing of WCS differentials, offset the effect of oil and NGL
price declines realized in the fourth quarter. Perpetual's
realized oil and NGL price, including derivatives, was four percent
lower than the price before derivatives in 2014, primarily due to
hedging losses recorded on financial WTI price contracts during the
first three quarters of 2014, which were not fully overcome by
gains realized during the fourth quarter of 2014 as oil prices
declined.
- Royalty expense of $32.0 million
in 2014 represented a combined royalty rate of 12.2 percent
compared to 9.4 percent in 2013. An increase in freehold and
overriding royalty expense reflected new royalties payable pursuant
to the East Edson JV, which entitle the partner to overriding
royalties based on a maximum of 5.6 MMcf/d of natural gas from the
East Edson property plus oil and
associated NGL on a monthly basis beginning July 1, 2014. Excluding overriding royalty
payments related to the East Edson JV, the combined royalty rate
for 2014 was 10.2 percent, which was still higher than in 2013 due
to higher Alberta gas reference
prices and higher oil royalties related to production on freehold
lands and wells transitioning from incentive periods.
- Operating costs decreased another six percent in 2014 to
$10.41/boe, down from $11.05/boe in 2013, with absolute savings
realized in most areas of operations. Infrastructure expansion and
enhancements at West Edson, and
the re-routing of the majority of East
Edson production from a third-party deep cut facility to
utilize the Company's minority interest in the lower cost Rosevear
plant, resulted in decreased processing fees paid to third parties
and increased efficiency on a unit-of-production basis.
- Operating netbacks increased 15 percent to $17.44/boe (2013 - $15.23/boe) with higher commodity prices and
lower operating costs more than offsetting higher transportation
costs as well as increased royalties.
- Funds flow of $81.4 million
($0.55 per share) in 2014 increased
39 percent from $58.5 million
($0.39 per share) in 2013 as a result
of increased production, stronger crude oil and natural gas prices,
and higher operating netbacks in 2014.
- Perpetual issued $125 million in
8.75 percent senior notes during the third quarter of 2014 with the
proceeds utilized for the early redemption of $100 million of 7.25 percent Convertible
Debentures in August 2014 and
$25 million of 7.00 percent
Convertible Debentures on December
31, 2014. The issue of senior notes bolstered
Perpetual's financial flexibility by extending its long-term debt
beyond 2018.
- Total net debt decreased by 12 percent ($45.2 million) from $377.0
million on December 31, 2013
to $331.7 million at December 31, 2014. The reduction in net debt
resulted from 2014 funds flow, combined with proceeds received on
dispositions, the monetization of GOB royalty credits, and
Perpetual's escrow funds related to the East Edson JV, which, in
total, exceeded 2014 capital expenditures. The ratio of net
debt to trailing 12 months funds flow improved by 36 percent from
year end 2013 to a ratio of 4.1 to 1 at December 31, 2014.
- The Corporation recorded net income of $3.4 million ($0.02
per share) compared to $7.6 million
($0.05 per share) in 2013.
2015 OUTLOOK
In 2015, Perpetual is focused on five strategic priorities:
- Grow greater Edson
liquids-rich gas production, cash flow, inventory, reserves and
value;
- Optimize value of Mannville
heavy oil;
- Refine elements of production growth strategy for 2017 to
2020;
- Maximize value of shallow gas; and
- Reduce debt and improve debt/cash flow ratio.
In light of current weakness and uncertainty in commodity
prices, Perpetual's Board of Directors has approved a first quarter
capital expenditure budget of $45
million. Nearly $42 million
will be directed to the drilling of six wells (4.5 net) in west
central Alberta, with three (1.5
net) at West Edson and three (3.0
net) at East Edson, coupled with
the East Edson plant construction
activities. All heavy oil drilling has been deferred until oil
prices recover, although $1.3 million
will be expended on advancing the Mannville waterflood. Strategic spending at
Panny to advance the LEAD pilot project has been reduced to include
only capital required to drill two (2.0 net) observation wells
associated with the pilot scheme, estimated at $1.2 million.
Capital activity for the remainder of the year will be assessed
as the year progresses with the intention that spending will be
largely funded from funds flow and available bank indebtedness. The
reduction in drilling in first quarter 2015 will not materially
impact 2015 gas production as the wells drilled to date have
generally exceeded the type curves and provide the same production
capability as originally budgeted. Further, variations in capital
spending for the final three quarters of 2015 are not expected to
materially affect average production or annual funds flow.
Perpetual has commodity price contracts in place for both crude
oil and natural gas to protect a base level of cash flow.
Natural gas contracts were entered into to provide downside
protection on revenue, primarily through the summer months, with
physical and financial contracts in place for 2015 on an average of
close to 68,400 GJ/d at an average price of $2.63/GJ. Crude oil contracts for 2015 on 1,000
bbls/d include costless collars protecting a WTI floor price of
Cdn$87.50/bbl with an average ceiling
of Cdn$95.50/bbl, as well as
financial contracts which fix the basis differential between WTI
and Western Canadian Select trading hubs at an average of
US$16.88/bbl.
Incorporating the assumptions and commodity price contracts
outlined above, the following table shows Perpetual's estimated
2015 funds flow using various commodity prices:
Projected 2015 funds flow(2)
($millions)
|
AECO gas price ($/GJ)(1)
|
WTI price (US$/bbl)(1)
|
|
$2.50
|
$3.00
|
$3.50
|
$4.00
|
$4.50
|
$45.00
|
4.7
|
13.8
|
22.9
|
32.1
|
41.2
|
$50.00
|
6.8
|
15.9
|
25.1
|
34.2
|
43.3
|
$55.00
|
8.9
|
18.0
|
27.2
|
36.3
|
45.4
|
$60.00
|
11.0
|
20.1
|
29.3
|
38.4
|
47.5
|
$65.00
|
13.1
|
22.2
|
31.4
|
40.5
|
49.6
|
|
|
|
|
|
|
|
|
(1)
|
The current settled and forward average AECO and WTI
prices for 2015 as of March 4, 2015 were $2.69 per GJ and US$55.69
per bbl, respectively.
|
(2)
|
Funds flow is a non-GAAP measures. Please refer to
"Non-GAAP Measures" below.
|
Amendment to Credit Facility
The Corporation's credit facility is with a syndicate of
Canadian chartered banks. As at December 31,
2014 total availability under the facility was $105 million. The credit facility includes
covenants with respect to debt and trailing funds flow
ratios. The Corporation was in compliance with the lender's
covenants at December 31, 2014. On
March 5, 2015, the Corporation's
lenders agreed to revise financial covenants based on prevailing
low commodity prices at the end of 2014 and uncertainty surrounding
forecast commodity prices into 2016. Based on internal 2015
and 2016 financial and operating forecasts, Perpetual expects to be
in compliance with the lender's new covenants. The next semi-annual
redetermination of the Corporation's borrowing base will occur on
or before April 30, 2015.
Financial and Operating
Highlights
|
THREE MONTHS
Ended December 31
|
YEAR ENDED
December 31,
|
($Cdn thousands except volume and per share
amounts)
|
2014
|
2013
|
Change
|
2014
|
2013
|
Change
|
Financial
|
|
|
|
|
|
|
Oil and natural gas revenue
|
62,562
|
49,075
|
27%
|
262,790
|
201,294
|
31%
|
Funds flow (1)
|
17,316
|
12,998
|
33%
|
81,395
|
58,468
|
39%
|
|
Per share (1) (2)
|
0.12
|
0.09
|
33%
|
0.55
|
0.39
|
41%
|
Net earnings (loss)
|
(18,273)
|
(13,745)
|
(33%)
|
3,366
|
7,620
|
(56%)
|
|
Per share (2)
|
(0.12)
|
(0.09)
|
(33%)
|
0.02
|
0.05
|
(60%)
|
Total assets
|
750,602
|
742,288
|
1%
|
750,602
|
742,288
|
1%
|
Net bank debt outstanding
(1)
|
21,867
|
67,201
|
(67%)
|
21,867
|
67,201
|
(67%)
|
Senior notes, at principal amount
|
275,000
|
150,000
|
83%
|
275,000
|
150,000
|
83%
|
Convertible debentures, at principal
amount
|
34,878
|
159,779
|
(78%)
|
34,878
|
159,779
|
(78%)
|
Total net debt (1)
|
331,745
|
376,980
|
(12%)
|
331,745
|
376,980
|
(12%)
|
Capital expenditures
|
|
|
|
|
|
|
|
Exploration and development
(3)
|
26,018
|
24,518
|
6%
|
116,457
|
96,684
|
20%
|
|
Dispositions, net of Acquisitions
|
(20,595)
|
(483)
|
4164%
|
(70,351)
|
(70,840)
|
(1%)
|
|
Interest in Warwick Gas Storage
|
-
|
-
|
-
|
-
|
19,129
|
(100%)
|
|
Other
|
84
|
2
|
4100%
|
614
|
120
|
412%
|
|
Net capital expenditures
|
5,507
|
24,037
|
(77%)
|
46,720
|
45,093
|
4%
|
Common shares outstanding (thousands)
|
|
|
|
|
|
|
End of period
|
150,077
|
148,490
|
1%
|
150,077
|
148,490
|
1%
|
Weighted average
|
149,084
|
148,144
|
1%
|
149,084
|
148,144
|
1%
|
Operating
|
|
|
|
|
|
|
Average production
|
|
|
|
|
|
|
|
Natural gas (MMcf/d) (4)
|
122.5
|
90.3
|
36%
|
102.7
|
88.9
|
16%
|
|
Oil and NGL (bbl/d) (4)
|
3,262
|
3,509
|
(7%)
|
3,443
|
3,860
|
(11%)
|
|
Total (boe/d)
|
23,685
|
18,559
|
28%
|
20,554
|
18,696
|
10%
|
Average prices
|
|
|
|
|
|
|
|
Natural gas, before derivatives
($/Mcf)
|
3.96
|
3.37
|
18%
|
4.50
|
3.26
|
38%
|
|
Natural gas, including derivatives
($/Mcf)
|
4.16
|
3.62
|
15%
|
4.36
|
3.53
|
24%
|
|
Oil and NGL, before derivatives
($/bbl)
|
59.77
|
65.35
|
(9%)
|
75.01
|
67.65
|
11%
|
|
Oil and NGL, including derivatives
($/bbl)
|
64.39
|
65.88
|
(2%)
|
71.82
|
66.48
|
8%
|
|
Barrel of oil equivalent, including derivatives
($/boe)
|
30.40
|
30.09
|
1%
|
33.81
|
30.56
|
11%
|
Drilling (wells drilled gross/net)
(5)
|
|
|
|
|
|
|
|
Gas
|
11/10.0
|
4/2.0
|
|
29/20.9
|
6/3.0
|
|
|
Oil
|
-
|
5/5.0
|
|
20/17.8
|
37/35.7
|
|
|
Total
|
11/10.0
|
9/7.0
|
|
49/38.7
|
43/38.7
|
|
|
Success rate (%)
|
100/100
|
100/100
|
|
100/100
|
100/100
|
|
(1)
|
These are non-GAAP measure. 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.
|
(5)
|
Wells drilled includes gas wells drilled as part of
the East Edson JV
|
Forward-Looking Information and
Statements
Certain information regarding Perpetual in this news
release including management's assessment of future plans and
operations and including the information contained under the
heading "2015 Outlook" may constitute forward-looking information
and statements under applicable securities laws. The
forward-looking information and statements includes, without
limitation, statements regarding capital expenditure levels for
2015, prospective drilling activities; forecast production,
production type, operations, funds flows, and timing thereof;
forecast and realized commodity prices; expected funding,
allocation and timing of capital expenditures; expected compliance
with credit facility covenants in 2015 and 2016; projected use of
funds flow and anticipated funds flow; planned drilling and
development and the results thereof; expected dispositions,
anticipated proceeds therefrom and the use of proceeds therefrom;
and commodity prices. Various assumptions were used in drawing the
conclusions or making the forecasts and projections contained in
the forward-looking information and statements 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 and
statements contained in this press release. Undue reliance should
not be placed on forward-looking information and statements, 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, 2014 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.
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 management's discussion and
analysis.
About Perpetual
Perpetual Energy Inc. is a Canadian energy company with a
spectrum of resource-style opportunities spanning heavy oil, NGL
and bitumen along with a large base of shallow gas assets.
Perpetual's shares and convertible debentures are listed on the
Toronto Stock Exchange under the symbol "PMT", "PMT.DB.D" and
"PMT.DB.E", respectively. Further information with respect to
Perpetual can be found at its website at
www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
SOURCE Perpetual Energy Inc.