Painted Pony Announces Reconfirmed $325 Million Credit Facility, Townsend Facility Update, and First Quarter 2016 Financial and Operating Results

May 11, 2016 3:17 PM

CALGARY, May 11, 2016 /CNW/ – Painted Pony Petroleum Ltd. (“Painted Pony” or the “Corporation“) (TSX: PPY) is pleased to announce the syndicated group of lenders have reconfirmed the Corporation’s credit facility at $325 million, an update on construction by AltaGas Ltd. (“AltaGas“) at the AltaGas Townsend Facility (the “Townsend Facility“), updated hedging, and first quarter 2016 financial and operating results.

HIGHLIGHTS:

Credit facilities have been reconfirmed at $325 million;
The Townsend Facility is over 90% complete;
Capital spending of $67.1 million was approximately $13 million (16%) below budget expectations in November 2015 due to efficiency gains;
Financial hedges currently cover 63% of remaining 2016 forecast average production (89.5 MMcf/d) at an average price of $3.31/Mcf at AECO and $2.09/Mcf at Station 2;
First quarter 2016 operating costs decreased 18% to $0.88/Mcfe from $1.07/Mcfe during the first quarter of 2015;
Transportation costs during the first quarter of 2016 decreased 30% to $0.30/Mcfe from $0.43/Mcfe during the first quarter of 2015;

CONFIRMED CREDIT FACILITIES

Painted Pony’s syndicated credit facilities of $325 million, which includes current availability under the borrowing base of $225 million, was confirmed following a regularly scheduled, semi-annual review conducted in April 2016. As at March 31, 2016 Painted Pony had $87.6 million in bank debt, leaving the Corporation well positioned to execute on the remainder of the 2016 capital development plan.

ALTAGAS TOWNSEND FACILITY

Completion of the 198 MMcf/d AltaGas Townsend facility remains on schedule for a mid-2016 commissioning. AltaGas confirms that the Townsend Facility is over 90% complete with construction progress continuing ahead of schedule. The associated gas gathering line that connects Painted Pony’s Blair Creek area to the Townsend Facility, also being constructed by AltaGas, is substantially complete. To accommodate the potential early Townsend Facility commissioning and to mitigate any potential delays of firm transportation, Painted Pony has secured additional interim firm transportation to meet all take-or-pay and contracted natural gas volume commitments for the Townsend Facility. Painted Pony expects to begin delivering volumes to the Townsend Facility during the third quarter of 2016 and is targeting 2016 exit production volumes of approximately 240 MMcfe/d (40,000 boe/d).

FINANCIAL HEDGING UPDATE

Painted Pony has hedged approximately 63% of forecast second quarter through fourth quarter 2016 production at an average price of $3.31/Mcf on AECO swaps (74% of hedged volumes) and an average price of $2.09/Mcf on Station 2 swaps (26% of hedged volumes). Painted Pony’s average hedge prices are considerably above current spot pricing at AECO and at Station 2 natural gas sales points. As a result of these hedges, Painted Pony has mitigated exposure to near-term natural gas pricing weakness, strengthening operating netbacks and reducing overall corporate risk.

The current 2016 quarterly hedging position is summarized below. Additional information about Painted Pony’s financial hedging can be found in the current Investor Presentation located at: http://paintedpony.ca/investors/presentations/default.aspx

Term	AECO Financial Swaps		Station 2 Financial Swaps		Total
Term	Volume (MMcf/d)	Average Price ($/Mcf)	Volume (MMcf/d)	Average Price ($Mcf)	Volume (MMcf/d)	Percentage of Forecast Production
Q2 2016	60.9	$3.31	–	–	60.9	70%
Q3 2016	60.9	$3.31	9.2	$2.08	70.1	55%
Q4 2016	78.3	$3.30	59.4	$2.09	137.6	65%

COMMODITY PRICING

Pricing differentials at British Columbia’s Station 2 sales hub narrowed 57% against AECO-based prices during the first quarter of 2016 compared to the fourth quarter of 2015. This resulted in Painted Pony’s realized commodity pricing moving up slightly to $1.83/Mcfe during the first quarter of 2016 compared to $1.81/Mcfe during the fourth quarter of 2015 despite significant weakening of AECO spot prices in the first quarter of 2016.

FIRST QUARTER 2016 FINANCIAL & OPERATING RESULTS

Production

Production averaged 99.6 MMcfe/d (16,601 boe/d) in the first quarter of 2016 and was impacted by approximately 3 MMcfe/d (500 boe/d) of low spot price-driven, shut-in production volumes. Average daily production volumes during the first quarter of 2016 represent a 2% increase over first quarter 2015 production volumes of 97.5 MMcfe/d (16,243 boe/d). Production guidance for 2016 remains unchanged, with anticipated annual average daily production of approximately 138 MMcfe/d (23,000 boe/d). Painted Pony expects production volumes to average approximately 90 – 96 MMcfe/d (15,000 – 16,000 boe/d) in the second quarter, with volumes rising in the fourth quarter to exit 2016 at 240 MMcfe/d (40,000 boe/d).

Capital Expenditures and Operations

During the first quarter of 2016 Painted Pony invested $66.7 million in capital expenditures, 13% below budget due to additional capital efficiencies and cost savings. These savings have allowed a reduction to Painted Pony’s anticipated 2016 capital program from a budget level of $215 million announced in November 2015 to $179 million, while preserving the same production profile. Painted Pony continues to execute on its capital program in preparation for the start-up of the Townsend Facility in mid-2016. The Corporation drilled 12 (12.0 net) wells and completed 9 (9.0 net) wells during the first quarter of 2016.

Operating Costs

Due to efficiencies, 2016 first quarter operating costs were reduced by $0.19/Mcfe or 18% to $0.88/Mcfe compared to the first quarter of 2015 at $1.07/Mcfe. The Corporation has reduced third party service costs associated with a recent decrease in industry activity.

Transportation

Transportation costs during the first quarter of 2016 decreased by $0.13/Mcfe (30%) to $0.30/Mcfe when compared to the first quarter of 2015. These costs decreased due to reduced trucking of NGLs and Painted pony’s success in negotiating access to alternate delivery points with lower costs for NGL trucking. Transportation costs for the remainder of the year are expected to average approximately $0.40/Mcfe as NGL production volumes increase from approximately 5% in early 2016 to over 10% of forecast production volumes by year-end 2016.

FINANCIAL AND OPERATING HIGHLIGHTS


			Three months ended March 31,
			2016	2015	Change
Financial ($ millions, except per share and shares outstanding)
Petroleum and natural gas revenue⁽¹⁾			16.6	23.6	(30%)
Funds flow from operations⁽²⁾			8.6	10.2	(16%)
	Per share – basic⁽³⁾and diluted⁽⁴⁾		0.09	0.10	(10%)
Net loss			(2.2)	(3.5)	(37%)
	Per share – basic⁽³⁾and diluted⁽⁴⁾		(0.02)	(0.04)	(50%)
Capital expenditures			67.1	48.4	39%
Working capital (deficiency)⁽⁵⁾			(26.0)	(29.1)	(11%)
Bank debt			87.6	7.7	N/A
Total assets			857.9	740.1	16%
Shares outstanding (millions)			100.0	99.7	N/A
Basic weighted-average shares (millions)			100.0	99.6	N/A
Fully diluted weighted-average shares (millions)			100.0	99.6	N/A
Operational
Daily production volumes
	Natural gas (MMcf/d)		94.5	91.1	4%
	Natural gas liquids (bbls/d)		852	1,068	(20%)

	Total (boe/d)	16,601		16,243	2%
	Total (MMcfe/d)		99.6	97.5	2%
Realized prices
	Natural gas ($/Mcf)		1.60	2.38	(33%)
	Natural gas liquids ($/bbl)		36.26	41.35	(12%)
	Total ($/Mcfe)		1.83	2.69	(32%)
Operating netbacks before commodity risk management ($/Mcfe)⁽⁶⁾			0.59	1.12	(47%)
Operating netbacks ($/Mcfe)⁽⁶⁾			1.21	1.38	(12%)

1.	Before royalties.
2.	Funds flow from operations and funds flow from operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from operating activities before the effects of changes in non-cash working capital, deferred share unit expense and decommissioning expenditures. Funds flow from operations per share is calculated by dividing funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.
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 dilutive effect of stock options.
5.	Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. See “Non-GAAP Measures”.
6.	Operating netbacks before commodity risk management is a non-GAAP measure calculated on a per unit basis as natural gas, crude oil and natural gas liquids revenues less royalties, operating and transportation costs. Operating netbacks is a non-GAAP measure calculated by adjusting operating netbacks before commodity risk management for realized gains or losses on commodity risk management. See “Non-GAAP Measures” and “Operating Netbacks”.

[expand title=”Advisories & Contact”]ADVISORIES

Currency: All amounts referred to in this press release are stated in Canadian dollars unless otherwise specified.

Boe Conversions: Barrel of oil equivalent (“boe“) amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel of oil (1 bbl). Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Mcfe Conversions: Thousands of cubic feet of gas equivalent (“Mcfe“) amounts have been calculated by using the conversion ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural gas. Mcfe amounts may be misleading, particularly if used in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of natural gas as compared to oil is significantly different from the energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may be misleading as an indication of value.

Forward-Looking Information: This press release contains certain forward-looking information within the meaning of Canadian securities laws. Forward-looking information relates to future events or future performance and is based upon the Corporation’s current internal expectations, estimates, projections, assumptions and beliefs. All information other than historical fact is forward-looking information. Words such as “plan“, “expect“, “intend“, “believe“, “anticipate“, “estimate“, “may“, “will“, “potential“, “proposed” and other similar words that indicate events or conditions may occur are intended to identify forward-looking information. In particular, this press release contains forward looking information relating to an expectation that the AltaGas Townsend Facility will be operational in the time frame anticipated; the timeframe for commissioning of the AltaGas Townsend Facility; 2016 exit production; average production volumes during the second quarter and the fourth quarter of 2016; capital spending in 2016; average transportation costs for the remainder of 2016; and an increase in NGL production volumes throughout 2016.

Forward-looking information is based on certain expectations and assumptions including but not limited to future commodity prices, currency exchange rates interest rates, royalty rates and tax rates; the state of the economy and the exploration and production business; the economic and political environment in which the Corporation operates; the regulatory framework; anticipate timing and results of capital expenditures; the sufficiency of budgeted capital expenditures to carry out planned operations; operating, transportation, marketing and general and administrative costs; drilling success, production rates, future capital expenditures and the availability of labor and services. With respect to future wells, a key assumption is the validity of geological and technical interpretations performed by the Corporation’s technical staff, which indicate that commercially economic volumes can be recovered from the Corporation’s lands. Estimates as to average annual and exit production assume that no material unexpected outages occur in the infrastructure the Corporation relies upon to produce its wells, that existing wells continue to meet production expectations and that future wells scheduled to come on production in 2016 meet timing and production rate expectations.

Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations on which they are based will occur. Although the Corporation’s management believes that the expectations in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. As a consequence, actual results may differ materially from those anticipated.

Forward-looking information necessarily involves both known and unknown risks associated with oil and gas exploration, production, transportation and marketing. There are risks associated with the uncertainty of geological and technical data, operational risks, risks associated with drilling and completions, environmental risks, risks of the change in government regulation of the oil and gas industry, risks associated with competition from others for scarce resources and risks associated with general economic conditions affecting the Corporation’s ability to access sufficient capital. Additional information on these and other risk factors that could affect operational or financial results are included in the Corporation’s most recent Annual Information Form and in other reports filed with Canadian securities regulatory authorities.

Forward-looking information is based on estimates and opinions of management at the time the information is presented. The Corporation is not under any duty to update the forward-looking information after the date of this press release to revise such information to actual results or to changes in the Corporation’s plans or expectations, except as required by applicable securities laws.

Any “financial outlook” contained in this press release, as such term is defined by applicable securities laws, is provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.

ABOUT PAINTED PONY

Painted Pony is a publicly-traded natural gas corporation based in Western Canada. The Corporation is primarily focused on the development of natural gas and natural gas liquids from the Montney formation in northeast British Columbia. Painted Pony’s common shares trade on the Toronto Stock Exchange under the symbol “PPY”.

SOURCE Painted Pony Petroleum Ltd.

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Painted Pony Announces Reconfirmed $325 Million Credit Facility, Townsend Facility Update, and First Quarter 2016 Financial and Operating Results

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