MONTNEY GAS OPERATIONS
During the first quarter of 2013, Painted Pony continued the development and expansion of its Montney gas assets in northeastern British Columbia. The Company participated in the drilling of 5 (2.6 net) Montney wells, including 1 (1.0 net) well at Townsend, 3 (0.6 net) wells at Cameron and 1 (1.0 net) well at Blair. For the balance of 2013, the Company plans to drill an additional 7 (6.0 net) Montney horizontal wells.
At Townsend, Painted Pony drilled 1 (1.0 net) horizontal Montney well and completed 2 (2.0 net) horizontal Montney wells on the A-11-J/94-B-09 pad, targeting the upper and lower Montney zones. As reported in the Company’s press release dated March 27, 2013, these two wells flowed at a combined peak and final test rate of 14.9 MMcf/d plus liquids, which equates to 3,914 boe/d. Gas analyses indicate an average total liquids content of 128 bbl/MMcf, including ethane. Both wells were equipped for production, but have contributed nominal volumes to-date due to production issues arising from infrastructure restrictions.
Painted Pony is encouraged by the test and early production results at Townsend. The recent wells on the 11-J pad represent the first two wells completed by Painted Pony using a ball-drop system rather than the conventional perf-and-plug system commonly employed elsewhere on the north Montney trend. This alternate completion technique shows initial promise of providing excellent reservoir stimulation, while delivering operational cost savings estimated to be $400,000 per well.
At Gundy/Cameron, Painted Pony participated in the completion and production testing of 2 (0.4 net) non-operated horizontal Montney wells on the 68-J pad. As reported in the Company’s press release dated March 27, 2013, these wells flowed at a combined peak test rate of 20.1 MMcf/d. The Middle Montney well on this pad represents Painted Pony’s first Middle Montney horizontal well drilled on this block. It flowed at a peak and final 24-hour test rate of 13.9 MMcf/d at an average flowing tubing pressure of 1,413 psi. This well is the best Middle Montney test to date within the Company’s British Columbia Montney project.
During the first quarter of 2013, 2 (0.4 net) additional wells were drilled on the Gundy 75-J pad and are scheduled to be completed in the second quarter of 2013.
At Blair, Painted Pony drilled 1 (1.0 net) horizontal well on the 91-F pad targeting the upper Montney zone. A second well on this pad is currently being drilled. Completion activities on these wells are expected to occur in the second quarter of 2013.
At Cypress, production resumed in May on previously shut-in volumes of approximately 3.5 MMcf/d, following the completion of repairs to an area pipeline.
LIGHT OIL OPERATIONS
In Saskatchewan, Painted Pony participated in the drilling of 2 (1.1 net) wells during the first quarter of 2013, including the Company’s first 2-mile horizontal well at Flat Lake. This 30% working interest well has been successfully completed and placed on production. For the balance of 2013, Saskatchewan drilling will continue to focus on the Bakken light oil project at Flat Lake, where the Company plans to participate in drilling an additional 6 (2.5 net) wells.
At Midale, Saskatchewan, the Company has received all necessary approvals to implement a pressure maintenance (water injection) program on the Bakken project. This scheme is expected to improve overall oil recovery by up to 50 percent from current levels. Injection is expected to begin during the third quarter of 2013.
In Alberta, Painted Pony has completed and production tested its first exploratory location in the Corbett area targeting the Viking Formation. The initial test results from this well have proved the presence of producible light oil along a new play fairway.
PRODUCTION
During the first quarter of 2013, Painted Pony’s production averaged 8,596 boe/d (weighted 79% gas), representing an increase of 18% over the prior quarter and a 23% increase over the same period in 2012. The first quarter of 2013 also marks the first quarter in which the Company’s sales revenues from natural gas exceeded those from oil and the first quarter where sales revenues from British Columbia exceeded those from Saskatchewan.
As reported in the Company’s press release dated March 27, 2013, the recently-drilled Townsend wells have an indicated gas liquids content (ethane-plus) ranging from 109 to 147 bbl/MMcf. The current Townsend processing infrastructure has been unable to adequately handle the combined high gas flow rates and robust liquid yields from these new wells on a sustained basis. Accordingly, Painted Pony’s Townsend wells are subject to interim production curtailment until the Company completes an infrastructure upgrade. The Company plans to have the necessary upgrades finished and all of the area wells fully on-stream during the fourth quarter of 2013.
FINANCIAL RESOURCES
In the first quarter of 2013, Painted Pony generated funds flow from operations of $14.1 million, equating to $0.16 per basic and diluted share. The Company exited the first quarter with a positive working capital position of $9.3 million and an undrawn demand credit facility of $100 million. The Company’s credit facility remains undrawn.
OUTLOOK
Painted Pony continues to focus on developing its Montney gas assets. The Company has developed a five year model for the Montney project, which contemplates an acceleration of development and appraisal drilling in 2014 and beyond. The proposed drilling program is designed to build base production volumes and prove up additional resource and reserve bookings across the Company’s acreage. In 2014, Painted Pony’s proposed model contemplates the drilling of up to 30 net Montney horizontal wells. Painted Pony is also looking forward to pending completion tests targeting the Buckinghorse formation, which may host a second large gas resource overlying the Company’s Montney play.
OFFICER RETIREMENT
Painted Pony announces the planned retirement of its Vice President, Finance and Chief Financial Officer, Joan E. Dunne. Ms. Dunne’s retirement is effective on the earlier of October 1, 2013 or upon the appointment of a successor to the position. In addition, she has agreed to assist with the transition until December 31, 2013. Ms. Dunne was a founder of the Company and has played a key role in its success to date. The Company and Board wishes to sincerely thank her for all her contributions and wish her all the best in her retirement. An executive search firm has been engaged to find a suitable replacement.
Painted Pony is a Canadian oil and gas exploration company that trades on the TSX Venture Exchange under the symbol “PPY”.
Financial and Operating Highlights
| (unaudited) | |||
| Three months ended March 31, | 2013 | 2012 | |
| Financial ($ millions, except per share and shares outstanding) | |||
| Petroleum and natural gas revenue(1) | 25.0 | 19.5 | |
| Funds flow from operations(2) | 14.1 | 10.8 | |
| Per share – basic(3) and diluted(4) | 0.16 | 0.15 | |
| Cash flows from operating activities | 11.6 | 11.8 | |
| Comprehensive loss | (1.8) | (1.3) | |
| Per share – basic(3) and diluted(4) | (0.02) | (0.02) | |
| Capital expenditures(5) | 52.5 | 37.5 | |
| Working capital | 9.3 | 42.7 | |
| Total assets | 614.7 | 468.7 | |
| Shares outstanding(6) | 88,400,660 | 69,743,027 | |
| Diluted weighted-average shares | 88,342,613 | 69,740,829 | |
| Operational | |||
| Daily sales volumes | |||
| Gas (mmcf per day) | 40.7 | 32.3 | |
| Oil (bbls per day) | 1,406 | 1,413 | |
| NGL’s (bbls per day) | 401 | 198 | |
| Total (boe per day) | 8,596 | 6,993 | |
| Realized prices | |||
| Gas ($ per mcf) | 3.34 | 2.29 | |
| Oil ($ per bbl) | 87.70 | 90.59 | |
| Field operating netbacks ($ per boe) | |||
| British Columbia | 13.99 | 7.86 | |
| Saskatchewan | 47.37 | 55.04 | |
| Company combined | 20.18 | 18.83 | |
| 1. | Before royalties |
| 2. | This table contains the term “funds flow from operations”, which should not be considered an alternative to, or more meaningful than “cash flows from operating activities” as determined in accordance with International Financial Reporting Standards (“IFRS”) as an indicator of the Company’s performance. Funds flow from operations and funds flow from operations per share (basic and diluted) does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate the cash necessary to fund future capital investment. The reconciliation between funds flow from operations and cash flows from operating activities can be found in “Management’s Discussion and Analysis”. Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, consistent with the calculations of earnings per share. |
| 3. | Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period. |
| 4. | Diluted per share information reflects the potential dilution effect of options, which may be anti-dilutive. |
| 5. | Including decommissioning expenditures and share-based payments. |
| 6. | Class A shares at December 31, 2011 were re-designated as Common shares effective June 7, 2012. |
Advisory
This news release also contains other industry benchmarks and terms, such as net working capital position (calculated as current assets less current liabilities), funds flow from operations and operating netbacks (calculated on a per unit basis as oil, gas and natural gas liquids revenues less royalties and transportation and operating costs), which are not recognized measures under IFRS. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Painted Pony’s method of calculating operating netbacks may not be comparable to that used by other companies. Operating netbacks should not be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Per unit operating netbacks reflect revenues less royalties, transportation and operating costs divided by production for the period. Painted Pony’s method of calculating operating netbacks may not be comparable to the method used by other companies.
Special Note Regarding Forward-Looking Information
This news release contains certain forward-looking statements, which are based on numerous assumptions including but not limited to: (i) drilling success; (ii) production; (iii) future capital expenditures; and (iv) cash flows from operating activities. In addition, and without limiting the generality of the foregoing, the key assumptions underlying the forward-looking statements contained herein include the following: (i) commodity prices will be volatile, and natural gas prices will remain low, throughout 2013; (ii) capital, undeveloped lands and skilled personnel will continue to be available at the level Painted Pony has enjoyed to date; (iii) Painted Pony will be able to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; (iv) production rates in 2013 are expected to show growth from 2012; (v) Painted Pony will have sufficient financial resources with which to conduct the capital program; and (vi) the current tax and regulatory regime will remain substantially unchanged. The reader is cautioned that certain or all of the forgoing assumptions may prove to be incorrect.
Certain information regarding Painted Pony set forth in this news release, including its future plans and operations, anticipated well results, and the planning and development of certain prospects, may constitute forward-looking statements and forward-looking information (collectively the “forward-looking statements”) under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony’s control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, environmental risks, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, and stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Readers are cautioned that the foregoing list of factors is not exhaustive. Painted Pony’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive therefrom. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.
Additional information on these and other factors that could affect Painted Pony’s operations and financial results are included in the Company’s Management’s Discussion and Analysis for the year ended December 31, 2012 and the Company’s Annual Information Form for the year ended December 31, 2012 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony’s website (www.paintedpony.ca).
The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of gas (“mcf”) to one barrel of oil (“bbl”) (6 mcf:1 bbl) is used as an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived by converting natural gas to oil in the ratio of six mcf of gas to one barrel of oil. 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 ratio of 6:1 may be misleading as an indication of value.