Perpetual is also pleased to announce that it is enhancing its area development plans in the West Edson area to include the construction of sales gas facilities and a pipeline. Further to this, Perpetual has entered into agreements with Aux Sable Canada and Alliance Pipeline Limited Partnership (“Alliance Canada”) that provide access to premium markets in the midwest United States for its natural gas and natural gas liquids (“NGL or liquids”) from the West Edson area.
2012 ANNUAL HIGHLIGHTS
Perpetual focused on four key strategic objectives in 2012:
Significant progress was made towards these strategic priorities, the results of which are highlighted below.
Corporate Activity
Production
Commodity Prices
Financial
Exploration and Development Capital Activity
Warwick Gas Storage
Acquisitions and Dispositions
Reserves and Resource Estimates
2013 OUTLOOK AND SENSITIVITIES
Perpetual is focused on five key strategic priorities for 2013:
The Corporation’s Board of Directors has approved a capital spending plan of up to $75 million which will be highly focused on its commodity diversification strategy. The capital spending plan incorporates a two rig development drilling program for Mannville heavy oil in the first quarter, but allows flexibility to manage spending in the second half of the year by focusing on either Mannville heavy oil or liquids-rich gas at Edson depending on commodity prices.
Mannville heavy oil
Through the first quarter of 2013, 19 (18.7 net) heavy oil wells have been drilled in the Mannville area with an additional 6 to 8 (5.3 to 7.0 net) wells planned prior to spring break up. Depending on commodity prices, up to 12 (11.3 net) additional Mannville heavy oil wells are planned in the second half of 2013, including infill drilling in the Mannville I2I pool to prepare for the potential implementation of an enhanced recovery scheme in this Sparky pool in 2014.
Edson Wilrich liquids-rich gas
First quarter 2013 activity has been focused on completion and tie in of the fourth quarter 2012 drilling program. Perpetual and its partner are continuing to expand the production capability of the West Edson area. Expansion of the West Edson compressor station from its current 10 MMcf/d to 30 MMcf/d of gross capacity (50 percent net to Perpetual) is underway as planned. Construction is in progress on a trunk pipeline system through the West Edson acreage to bring on production from new wells in the first quarter of 2013. Two of the three new wells have commenced production at restricted rates, with the third well scheduled to be tied in prior to the start-up of the expanded compressor station in mid-March.
In early March, Perpetual entered into rich gas premium agreements with Aux Sable Canada and an interconnection agreement with Alliance Canada to allow access to a premium market in the mid-west United States. Further to these arrangements, Perpetual and its partner will enhance the West Edson compressor station with the installation of refrigeration and other related components to produce sales quality gas. In addition, a sales pipeline will be constructed beginning in the second quarter of 2013 to tie-in to the Alliance pipeline system. Start-up of the gas plant and sales pipeline is expected to commence prior to November 1, 2013. These actions are expected to alleviate uncertainty with respect to natural gas processing and NGL transportation and extraction capacity for development of the West Edson reserves, reduce operating costs, improve run times and provide competitive netbacks for NGL.
Depending on commodity prices and West Edson plant and sales gas pipeline construction timelines, Perpetual has plans in place to drill 2 to 6 (1.0 to 3.5 net) wells in the deep basin during the second half of 2013, primarily targeting the Wilrich formation at West Edson.
2013 Dispositions
Perpetual will continue to pursue dispositions in addition to the previously announced divestiture of its Elmworth Montney assets for $77.5 million scheduled to close on or prior to March 15, 2013. Proceeds from any potential divestitures will be utilized to strengthen the balance sheet and to enhance the Corporation’s ability to pursue further investment opportunities, depending upon the outlook for commodity prices at that time.
Warwick Gas Storage
Perpetual is in the process of evaluating alternatives for the WGS LP Call Option which will expire on April 25, 2013. The exercise of the WGS LP Call Option is predicated on the impact of recent drilling and plans for delta pressuring that will increase storage capacity, and a view to improving seasonal spreads translating into increased future cash flows from the facility.
Sensitivities
The following table reflects Perpetual’s projected funds flow for 2013 at various commodity price levels. These sensitivities incorporate monthly settlement of existing derivatives, average daily production of 4,100 bbl/d of oil & NGL, 82.8 MMcf/d of natural gas, operating expense of $86 million, cash G&A expense of $24.0 million and an interest rate on long-term bank debt of 5.4 percent.
2013 Projected Funds Flow (1)(2) ($ millions) | AECO Gas Price ($/GJ) | |||||||
$3.00 | $3.25 | $3.50 | $3.75 | $4.00 | ||||
WCS oil price ($/bbl) |
$55.00 | 25 | 32 | 41 | 47 | 55 | ||
$65.00 | 40 | 47 | 55 | 62 | 70 | |||
$75.00 | 55 | 62 | 70 | 77 | 85 | |||
$85.00 | 70 | 77 | 85 | 92 | 100 |
(1) | The current settled and forward average AECO, WTI and WCS differential prices for 2013 as of March 11, 2013 were $3.28 per GJ, $US92.55 per bbl and $US23.23, respectively. $US to $CDN exchange rate assumed at par. |
(2) | These are non-GAAP measures; see “Other non-GAAP measures” in this MD&A. |
Below is a table that shows sensitivities of Perpetual’s 2013 estimated funds flow to operational changes and changes in the business environment:
Impact on funds flow | |||
Funds flow sensitivity analysis ($ thousands) | Change | Annual | Monthly |
Business Environment | |||
Natural gas price at AECO | $0.25 per Mcf | 7,560 | 630 |
Oil price at WTI | $5.00 per bbl | 7,213 | 601 |
Interest rate on long-term bank debt | 1% | 372 | 31 |
Operational | |||
Natural gas production | 5 MMcf/d | 5,767 | 481 |
Oil and NGL production | 100 bbl/d | 2,170 | 181 |
Operating expense | $0.10 per Mcfe | 3,890 | 324 |
Cash G&A expenses | $0.10 per Mcfe | 3,890 | 324 |
FINANCIAL AND OPERATING HIGHLIGHTS
Financial and Operating Highlights | Three months ended December 31 | Year ended December 31 | ||||||
($CDN thousands, except volume and per Share amounts) | 2012 | 2011 | % change | 2012 | 2011 | % change | ||
Financial | ||||||||
Revenue (1) (2) | 52,156 | 62,431 | (16) | 207,619 | 251,591 | (17) | ||
Funds flow (2) | 11,158 | 11,586 | (4) | 49,087 | 72,679 | (32) | ||
Per Common Share (2) (3) | 0.08 | 0.08 | – | 0.33 | 0.49 | (33) | ||
Cash flow provided by operating activities | 17,375 | 5,902 | 194 | 48,599 | 56,580 | (14) | ||
Per Common Share (2) (3) | 0.12 | 0.04 | 200 | 0.33 | 0.38 | (13) | ||
Net loss | (52,879) | (42,998) | 23 | (46,178) | (100,227) | (54) | ||
Per Common Share (3) | (0.36) | (0.29) | 24 | (0.31) | (0.68) | (54) | ||
Dividends declared | – | – | – | – | 28,865 | (100) | ||
Per Common Share (4) | – | – | – | – | 0.195 | (100) | ||
Payout ratio (%) (2) | – | – | – | – | 37.2 | (100) | ||
Total assets | 721,104 | 1,016,694 | (29) | 721,104 | 1,016,694 | (29) | ||
Net bank debt outstanding (2) (5) | 86,611 | 141,996 | (39) | 86,611 | 141,996 | (39) | ||
Senior notes, measured at principal amount | 150,000 | 150,000 | – | 150,000 | 150,000 | – | ||
Convertible debentures, measured at principal amount | 159,972 | 234,897 | (32) | 159,972 | 234,897 | (32) | ||
Total net debt (2) | 396,583 | 526,893 | (25) | 396,583 | 526,893 | (25) | ||
Total equity | 36,062 | 77,251 | (53) | 36,062 | 77,251 | (53) | ||
Capital expenditures | ||||||||
Exploration and development | 21,185 | 38,269 | (45) | 79,724 | 139,214 | (43) | ||
Gas storage | – | 327 | (100) | 51 | 11,207 | (100) | ||
Acquisitions, net of dispositions | (6,923) | (2,746) | 152 | (164,763) | (33,953) | 385 | ||
Other | 23 | 97 | (76) | 220 | 588 | (63) | ||
Net capital expenditures | 14,285 | 35,947 | (60) | (84,814) | 117,056 | (172) | ||
Common Shares Outstanding (thousands) | ||||||||
End of year | 147,455 | 146,966 | – | 147,455 | 146,966 | – | ||
Weighted average | 147,184 | 146,905 | – | 147,085 | 147,694 | – | ||
March 11, 2013 | ||||||||
Operating | ||||||||
Production | ||||||||
Natural gas (MMcf/d) (6) | 88.3 | 126.8 | (30) | 100.2 | 130.2 | (23) | ||
Oil and NGL (bbl/d) (6) | 3,536 | 2,481 | 43 | 3,448 | 1,976 | 74 | ||
Total (MMcfe/d) (6) | 109.5 | 141.7 | (23) | 120.9 | 142.0 | (15) | ||
Gas over bitumen deemed production (MMcf/d) (7) | 25.1 | 27.4 | (8) | 26.7 | 26.4 | 1 | ||
Average daily (actual and deemed – MMcfe/d) (6) (7) | 134.6 | 169.1 | (20) | 147.6 | 168.4 | (12) | ||
Per Common Share (cubic feet | ||||||||
equivalent/d/Common Share) (3) | 0.91 | 1.15 | (21) | 1.00 | 1.15 | (13) | ||
Average prices | ||||||||
Natural gas – before derivatives ($/Mcf) (8) | 2.99 | 3.35 | (11) | 2.48 | 3.77 | (34) | ||
Natural gas – including derivatives ($/Mcf) (8) | 3.56 | 3.30 | 8 | 3.34 | 3.82 | (13) | ||
Oil and NGL – before derivatives ($/bbl) (8) | 62.02 | 78.84 | (21) | 64.26 | 73.67 | (13) | ||
Oil and NGL – including derivatives ($/bbl) (8) | 71.29 | 92.52 | (23) | 64.13 | 78.00 | (18) |
FINANCIAL AND OPERATING HIGHLIGHTS CONTINUED | |||||||
Three Months Ended December 31 | Year Ended December 31 | ||||||
($CDN thousands, except volume and per Share amounts) | 2012 | 2011 | % change | 2012 | 2011 | % change | |
Reserves (Mboe) | |||||||
Company interest – proved (9) (10) | 36,278 | 39,175 | (7) | 36,278 | 39,175 | (7) | |
Company interest – proved and probable (9) (10) | 75,048 | 80,784 | (7) | 75,048 | 80,784 | (7) | |
Per Common Share (Mboe/Common Share) (12) | 0.51 | 0.55 | (7) | 0.51 | 0.55 | (7) | |
Estimated present value before tax ($ millions) (11) | |||||||
Proved | 264.0 | 431.6 | (39) | 264.0 | 431.6 | (39) | |
Proved and probable | 493.0 | 722.4 | (32) | 493.0 | 722.4 | (32) | |
Land (thousands of net acres) | |||||||
Total land holdings | 2,911 | 3,313 | (12) | 2,911 | 3,313 | (12) | |
Undeveloped land holdings | 1,590 | 1,849 | (14) | 1,590 | 1,849 | (14) | |
Drilling (wells drilled gross/net) | |||||||
Gas | 4/2.5 | 5/5.0 | (20)/(50) | 8/5.5 | 16/15.5 | (50)/(65) | |
Oil | 1/1.0 | 10/10.0 | (90)/(90) | 36/34.6 | 35/34.0 | 3/2 | |
Gas storage | 2/0.2 | -/- | 200/20 | 2/0.2 | 3/3.0 | (33)/(93) | |
Service | -/- | -/- | -/- | -/- | 1/1.0 | (100)/(100) | |
Oil sands evaluation | -/- | -/- | -/- | -/- | 7/7.0 | (100)/(100) | |
Dry | -/- | -/- | -/- | -/- | -/- | -/- | |
Total (excluding gas storage) | 5/3.5 | 15/15.0 | (67)/(77) | 44/40.1 | 62/60.5 | (29)/(34) | |
Success rate | 100/100 | 100/100 | –/– | 100/100 | 100/100 | –/– |
(1) | Revenue includes realized gains and losses on derivatives and call option premiums received. |
(2) | This is a non-GAAP measure; please refer to “non-GAAP measures” included in the MD&A. |
(3) | Based on weighted average Common Shares outstanding for the period. |
(4) | Based on Common Shares outstanding at each dividend payment date. |
(5) | Net bank debt is measured as at the end of the period and includes net working capital (deficiency), excluding short-term derivative assets and liabilities related to the Corporation’s hedging activities, the current portion of convertible debentures, assets and liabilities held for sale and the share based payment liability. Total net debt includes senior notes and convertible debentures, measured at principal amount. |
(6) | Production amounts are based on the Corporation’s interest before deduction of royalties. |
(7) | Deemed production describes all gas shut-in or denied production pursuant to a decision report, corresponding order or general bulletin of the Alberta Energy and Utilities Board (“AEUB”), or through correspondence in relation to an AEUB ID 99-1 application. This deemed production is not actual gas sales but represents shut-in gas that is the basis of the gas over bitumen financial solution received monthly from the Alberta Crown as a reduction of other royalties payable. See “Gas over bitumen royalty adjustments” in the MD&A. |
(8) | Perpetual’s commodity hedging strategy employs both financial forward contracts and physical commodity delivery contracts at fixed prices or price collars. |
(9) | As evaluated by McDaniel in accordance with National Instrument 51-101. See “Reserves” included in the MD&A. |
(10) | Reserves are presented on a company interest basis, including working interest and royalty interest volumes but before royalty burdens. |
(11) | Discounted at ten percent using McDaniel’s forecast pricing. Reserves at various other discount rates are located in the “Reserves” section of the MD&A. Estimated present value amounts should not be taken to represent an estimate of fair market value. |
(12) | Based on Common Shares outstanding at period end. |
Forward-Looking Information
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 “2013 Outlook and Sensitivities” above may constitute forward-looking statements under applicable securities laws. The forward looking information includes, without limitation, statements regarding expected access to capital markets; forecast production, production capability, operations, funds flows, and timing thereof; expected future funds flows generated by the gas storage facility; forecast and realized commodity prices; forecast, funding and allocation of capital expenditures; anticipated operating cost sustainability; projected use of funds flow; planned drilling and development and the results thereof; expected levels of indebtedness under the credit facility; marketing and transportation; reserve estimates; and estimated funds flow sensitivity. 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 Energy Inc.’s MD&A for the year ended December 31, 2012 and those included in 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.
In accordance with NI 51-101, an Mcfe and boe conversion ratio for crude oil and natural gas of 1 bbl: 6 Mcf 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. Given that the value ratio based on the current price of crude oil as compared to natural gas 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.
Under NI 51-101, the methodology to be used to calculate F&D and FD&A costs includes incorporating changes in FDC required to bring the proved undeveloped and probable reserves to production. For continuity, Perpetual has presented herein and/or in the MD&A F&D and FD&A costs calculated both excluding and including FDC. 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.
Non-GAAP Measures
This news release contains financial measures that may not be calculated in accordance with generally accepted accounting principles (“GAAP”). Readers are referred to advisories and further discussion on non-GAAP measures contained in the “Non-GAAP Measures” section of the MD&A.
Perpetual Energy Inc. is a natural gas-focused Canadian energy company. 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.
Conference Call and Webcast
Perpetual will be hosting a conference call and webcast at 9:30 a.m., Mountain Time, Tuesday, March 12, 2013 to review this information. Interested parties are invited to take part in the conference call by dialing one of the following telephone numbers 10 minutes before the start time: Toronto and area – (647) 427-7451; outside Toronto – (888) 231-8192. For a replay of this call please dial: (855) 859-2056, passcode: 93528537 until Tuesday, March 19, 2013.
To participate in the live webcast please visit www.perpetualenergyinc.com or http://event.on24.com/r.htm?e=578903&s=1&k=97C5FB900DCC228D56105530CA184483. The webcast will be archived and the webcast presentation will be posted on Perpetual’s website shortly following the presentation. The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
SOURCE: Perpetual Energy Inc.
Perpetual Energy Inc.
Suite 3200, 605 – 5 Avenue SW Calgary, Alberta, Canada T2P 3H5
Telephone: 403 269-4400
Fax: 403 269-4444
Email: info@perpetualenergyinc.com
Susan L. Riddell Rose
President and Chief Executive Officer
Cameron R. Sebastian
Vice President, Finance and Chief Financial Officer
Claire A. Rosehill
Investor Relations and Business Analyst