CALGARY, Oct. 27, 2014 /CNW/ – (TSX:PMT) – Perpetual Energy Inc. (“Perpetual”, the “Corporation” or the “Company”) is pleased to announce the signing of a definitive purchase and sale agreement to divest of several non-core heavy oil properties in eastern Alberta for gross proceeds of $21.6 million, excluding certain closing adjustments and transaction costs. A deposit of $3.24 million has been paid to Perpetual, with the remaining disposition proceeds due at closing which is expected to occur on or prior to November 7, 2014.
Integrating the McDaniel year end 2013 reserve estimates for these assets, adjusted for 2014 production, and internal estimates for reserve additions driven by Perpetual’s 2014 capital spending program, the disposition includes an estimated 870 Mboe of heavy oil reserves and 4,026 net acres of undeveloped Mannville heavy oil rights. Production from the divestiture package is expected to average approximately 400 to 415 boe/d of primarily heavy oil for the fourth quarter of 2014.
Proceeds from this disposition will initially establish a bank and working capital surplus, providing for interest savings and added optionality for managing the Corporation’s convertible debentures series (PMT.DB.E) which mature onDecember 31, 2015. As at September 30, 2014, the Corporation is undrawn on its $100 million credit facility, with an estimated working capital deficit of $6 million, including $24.9 million of restricted funds from proceeds received from the sale of the East Edson gross overriding royalty in July 2014, but excluding cash remaining in escrow funded by the joint venture partner for their capital spending commitments under the East Edson farm-in. The semi-annual borrowing base review on the Company’s credit facility is expected to be completed by the end of October.
This disposition drives further positive progress on the Company’s 2014 strategic priority to reduce debt and manage downside risk. The proceeds will bolster Perpetual’s financial flexibility to continue to deploy capital to its chosen key diversifying growth strategies both in the Mannville area, where capital spending is concentrating on waterflood implementation in several larger heavy oil pools, and at Edson for development of the economically attractive Wilrich liquids-rich gas trend.
EAST EDSON OPERATIONS UPDATE
Since closing the East Edson joint venture in July 2014, Perpetual has been actively executing its planned drilling program, primarily drawing on the $70 million of farm-in funds established in the joint venture partner escrow account. Nine wells have been rig released thus far, with seven (7.0 net) horizontal wells drilled within the Northeast development area and two (2.0 net) wells terminating within the Southwest development area as defined by McDaniel and Associates Consultants Ltd. (“McDaniel”) in the updated reserve report for the East Edson area dated July 14, 2014. Thus far, four of the nine wells have been completed and tied in through the existing compressor station, two of which have been flowing through the Rosevear gas plant since August. Both of these new wells are producing significantly above their respective type curves at IP rates of over 10 MMcf/d plus associated natural gas liquids (“NGL” or “liquids”), as depicted in the production plot. The additional two completed wells are currently beginning initial flow back, clean up and testing operations. Completion, frac and testing operations are to be performed in the remaining five standing wells prior to year end.
Operations are on track for 6 gross (6.0 net) additional wells to be drilled prior to year end with three drilling rigs currently active. Two (2.0 net) wells will be drilled within the same Northeast development area on previously drilled pads. Four (4.0 net) wells are scheduled within the Southwest development area as defined by McDaniel. Perpetual estimates the majority of the $70 million of joint venture partner escrow funds will be spent in the second half of 2014 on drilling, completion and tie-in operations as well as seismic activities related to the East Edson joint venture commitments.
Including the start-up of the first two new wells, production at East Edson is currently averaging over 25 MMcf/d, plus associated liquids estimated at approximately 20 to 25 bbl per MMcf. As part of the joint venture, a gross overriding royalty of 5.6 MMcf/d, plus associated liquids, is payable to the joint venture partner on a monthly basis.
Perpetual is also pleased to advise that all required regulatory approvals for the new East Edson gas plant at 10-3-52-17W5 have been received and site preparation operations have commenced. Perpetual committed to construct the new 30 MMcf/d gas plant prior to September 2015 as part of the joint venture arrangement. All equipment has been ordered and construction costs are expected to be on budget, incorporating an enhanced design for the refrigeration plant and several pipeline components to accommodate 60 MMcf/d to facilitate future expansion. Lease construction for the gas plant will begin as planned during the fourth quarter of 2014.
WEST EDSON OPERATIONAL UPDATE
Drilling operations have been extremely active at West Edson post spring break-up. Since the end of the second quarter nine gross (3.6 net) wells have been drilled at West Edson. Six wells (3.0 net) were completed, tested and tied-in during the third quarter, including the 16-2-51-18W5 well drilled in the second quarter. Early production from each of the six wells has met or exceeded the West Edson type curve, including three wells (1.5 net) which targeted areas of potential reservoir pressure depletion to help assess the optimal spacing and development plan for the Wilrich resource at West Edson. Completion and tie-in operations are currently in progress for the remaining two (1.0 net) operated standing wells to maintain high heat content gas sales production at full capacity at current average levels of 63.5 MMcf/d (31.75 MMcf/d net), plus associated C5+, for the remainder of 2014. Drilling operations will also resume prior to year end.
Image with caption: “Early drilling results at East Edson exceed type curve expectations. (CNW Group/Perpetual Energy Inc.)”. Image available at:http://photos.newswire.ca/images/download/20141027_C9134_PHOTO_EN_43107.jpg
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 the expected timing for the closing of the sale of non-core heavy oil properties and the anticipated use of proceeds and benefits from the sale, prospective drilling and operational activities and capital expenditures at East and West Edson, ; forecast production and production type; forecast and realized commodity prices; expected funding, allocation and timing of capital expenditures; 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 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, 2013 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.
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.
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” 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.