CALGARY, ALBERTA–(Marketwired – Nov. 8, 2016) – Prairie Provident Resources Inc. (TSX:PPR) (“Prairie Provident” or the “Company”) is pleased to announce its operating and financial results for the three and nine month periods ended September 30, 2016, and an update on the Company’s continued progress advancing the development of its Mannville focused assets in southern Alberta. Prairie Provident’s consolidated interim financial statements (“Interim Financial Statements”) and management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2016 are available on the Prairie Provident website (www.ppr.ca) and filed on SEDAR (www.sedar.com).
Prairie Provident was formed through the business combination of Lone Pine Resources Inc. (“Lone Pine Resources”) and Lone Pine Resources Canada Ltd. (“LPR Canada”, collectively, “Lone Pine”) and Arsenal Energy Inc. (“Arsenal”) which took effect on September 12, 2016, and created a light and medium oil-weighted growth company with a very strong balance sheet. Prairie Provident’s asset base is focused on three core areas in Alberta at Wheatland, Princess, and Evi, the latter of which features a proven waterflood program that can help lower corporate decline rates and stabilize production levels. With significant financial liquidity and the compelling potential returns which can be generated from its asset base, Prairie Provident is well positioned to execute an organic growth program that can be opportunistically supplemented with accretive consolidation acquisitions within its core areas.
Prairie Provident’s Interim Financial Statements present the results for the historical Lone Pine properties for the period up to September 12, 2016 and for the combination of Lone Pine and Arsenal after September 12, 2016. This is a significant factor in understanding the year-over-year and quarter-over-quarter financial results of Prairie Provident. This news release contains forward-looking statements and non-IFRS measures. Readers are cautioned that the news release should be read in conjunction with the Company’s disclosures under the headings “Forward-Looking Statements” and “Non-IFRS Measures” included at the end of this news release.
Q3 2016 HIGHLIGHTS
- Achieved average third quarter production of 3,038 boe/d (60% liquids), a 22% increase over the same period of 2015 primarily due to new production from 8 Wheatland wells since December 31, 2015. Subsequent to the third quarter, Prairie Provident brought on-stream another 4 Wheatland wells. Current production is approximately 4,900 boe/d reflecting the production from the acquired Arsenal properties and approximately 1,100 boe/d of incremental volumes from 5 of the 8 new wells drilled during the third quarter. Prairie Provident expects to bring 4 additional wells on production by the end of the year and is on track to exit 2016 with over 5,000 boe/d of production;
- Third quarter 2016 capital expenditures totaled $11.0 million, focusing on the advancement of the 2016 14-well drilling program at Wheatland, of which 8 wells were drilled during the third quarter with a 100% success rate, with 3 wells remaining to be drilled in the fourth quarter;
- Reported operating netbacks after realized hedging gains of $17.12/boe;
- Generated funds from operations of $1.8 million ($0.02 per diluted share). With the incremental production from the Wheatland new wells and full quarter of production from Arsenal, Prairie Provident expects to generate $4.5 million to $5.5 million of funds from operations in the fourth quarter of 2016;
- Continued to enhance drilling and completion techniques, achieving all-in per well costs of approximately $1.5 million to drill, complete, equip and tie-in, driving attractive on-stream costs of $5,000 to $7,000 per boe/d;
- Maintained ongoing financial flexibility and a strong balance sheet with quarter-end bank debt of $2.1 million or 3.8% drawn on the Company’s $55 million credit facility (together with outstanding letters of credit, $7.4 million or 13% of the credit facility was utilized); and
- Listed Prairie Provident’s shares on TSX under the symbol ‘PPR’ with trading effective September 16, 2016.
FINANCIAL AND OPERATING HIGHLIGHTS
|Three Months Ended
|Nine Months Ended
|($000s except per unit amounts)||2016||2015||2016||2015|
|Oil and natural gas revenue||9,334||9,191||25,688||30,552|
|Funds from operations1||1,810||5,925||6,152||19,375|
|Per share – basic2||0.02||0.06||0.06||0.20|
|Per share – diluted3||0.02||0.06||0.06||0.20|
|Per share – basic4||(0.12||)||(0.13||)||(0.53||)||(0.46||)|
|Per share – diluted5||(0.12||)||(0.13||)||(0.33||)||(0.46||)|
|Net capital expenditures||11,024||3,649||22,957||14,818|
|Crude oil (bbls/d)||1,722||1,701||1,796||1,827|
|Natural gas (Mcf/d)||7,269||4,336||8,230||4,728|
|Natural gas liquids (bbls/d)||104||64||120||70|
|Average Realized Prices|
|Crude oil ($/bbl)||48.50||50.76||43.04||52.80|
|Natural gas ($/Mcf)||2.23||3.05||1.77||3.14|
|Natural gas liquids ($/bbl)||16.51||5.69||15.39||8.97|
|Operating Netback ($/boe)6|
|Realized gains on derivative instruments||8.08||19.32||9.30||16.18|
|Operating netback, after realized gains on derivative instruments||17.12||39.11||15.79||39.21|
|1,6.||Funds from operations and operating netback are non-IFRS measures and are defined in below under “Other Advisories”.|
|2,3,4,5.||Per share amounts for the current and historical periods assume that the common shares issued upon the closing of the Arrangement at September 12, 2016 were outstanding since the beginning of the period.|
|Capital Structure($ thousands)||As at
Sept. 30, 2016
Dec. 31, 2015
|Working capital (deficit)(1)||(14,380||)||12,268|
|Total net debt(2)||(17,759||)||12,268|
|Current debt capacity(3)||47,589||45,529|
|Common shares outstanding (in thousands) (4)||19,409||N/A|
|(1)||Working capital (deficit) is a non-IFRS measure (see Other Advisories) calculated as current assets less current liabilities excluding the current portion of derivative instruments and the current portion of decommissioning liabilities.|
|(2)||Net debt is a non-IFRS measure (see Other Advisories), calculated by adding working capital (deficit) and the bank loan.|
|(3)||Current debt capacity reflects the credit facility of $55 million at September 30, 2016 and of $50 million at December 31, 2015.|
|(4)||As historical financial statements were prepared on a combined and consolidated basis common shares outstanding is not a relevant measure until subsequent to the closing of the Arrangement on September 12, 2016 when the entities were brought under a common parent entity.|
Sept. 30, 2016
Sept. 30, 2015
Sept. 30, 2016
Sept. 30, 2015
|Working interest wells||6.7||1.0||13.6||1.0|
|Success rate, net wells (%)||100||100||100||100|
Prairie Provident is well underway with its active fourth quarter capital program, with a capital budget of $9.4 million. Since the end of the third quarter of 2016, the Company has brought on-stream an additional 4 wells, bringing the total number of producing wells to 12 in the area. As of the date of this press release, the Company has completed drilling the remaining 3 wells from the 2016 drilling program. The Company now has 6 wells to be brought on production and expects 4 of which to be tied in by the end of the year, leaving the last 2 to be tied in the first two months of 2017. The second half 2016 program included 7 Ellerslie locations and 4 Lithic Glauc wells.
Prairie Provident continues to improve its drilling cycle times and overall costs at Wheatland by pad drilling and utilizing a mono-bore drilling design, which has significantly reduced surface costs, lowered the environmental footprint and increased the anticipated return on capital. These design optimizations combined with lower service costs have reduced drilling times from an average of 13 days down to 8.5 days, while all-in costs have been reduced by over 40% to $1.5 million per well from $2.7 million per well one year ago.
The integration of the Arsenal and Lone Pine assets following the completion of the business combination has progressed smoothly, and the Company anticipates adding approximately 350 boe/d of production from Arsenal’s Princess area in 2017. Princess adds an attractive opportunity for Prairie Provident with 15 additional locations identified in the Detrital and Glauconite formations.
During the first quarter of 2016, Prairie Provident spent $2.3 million to advance its waterflood project at Evi by converting four producing wells to water injectors. With the new injectors, the Company currently has four two-well lateral injectors that have been online for approximately 27 and 6 months respectively. Initial results from the program correspond with an independent study conducted in 2015 on the feasibility of a full-field waterflood program. Management believes that the waterflood program will help to stabilize production from this play and to enhance recoveries in the long-run. The Evi properties provide the Company with a stable cash flow base that complements its development programs.
Prairie Provident continues to advance its drilling program to maximize economic returns from its large inventory of shallow Mannville oil locations. This inventory of conventional horizontal and vertical wells provides the Company with over five years of drilling to underpin profitable per share growth. The depth of inventory accumulated to date allows the Company to focus on further increasing organic production through 2017 and beyond.
The Company’s robust three-year hedge book provides downside price protection and supports funds from operations through 2018. An active drilling program during the second half of 2016 and into 2017 is expected to position the Company to deliver strong per share production growth and generate strong rates of return on its assets in the current commodity price environment.
Fourth Quarter 2016 Expectations
The Company remains on track to meet its 2016 target exit production of over 5,000 boe/d following the execution of its full year capital program, which has been expanded to $37.3 million. The $4.6 million increase in capital expenditures was due to the acquisition of additional lands at the Wheatland area in the third quarter of 2016, higher than budgeted working interests in certain Wheatland wells, and incremental investment in infrastructure at the Wheatland area to benefit future development. Fourth quarter 2016 funds from operations are expected to be approximately $4.5 million to $5.5 million, assuming a flat US$45.00/bbl WTI for the balance of 2016.
In June 2016, the Alberta Energy Regulator increased the Liability Management Ratio (“LMR”) threshold for license transfers to 2.0. In Alberta, Prairie Provident had an LMR of 1.7 as of September 30, 2016 and expects improvement to its LMR as more Wheatland production comes on-stream and the Company completes certain reclamation projects. As such, Prairie Provident does not anticipate there will be any impediments to future acquisition opportunities.
2017 Capital Program
In light of the continuing fluctuations in commodity prices, Prairie Provident anticipates a 2017 capital program that it is scalable to accommodate the changing price environment. The Company plans to maintain a prudent financial position by actively managing its capital program with careful consideration of the commodity pricing environment in order to optimize leverage, liquidity and cash flows.
The base case aims at funding the development program with funds from operations at the current commodity price environment. The accelerated case aims to take advantage of improved commodity prices and incorporates an expanded capital program that promotes further value accretion while maintaining a sensible balance sheet. Aside from organic growth, Prairie Provident’s strong balance sheet, ample borrowing capacity and robust capital program equip the Company with financial flexibility to explore a variety of growth opportunities.
The 2017 program assumes 2017 estimated WTI US$53.30, FX rate of $0.75 per US$1.00, a differential to WCS of $21.00 and AECO $3.00/Mcf, and anticipates the following (1):
|Average production (boe/d)||5,300 – 5,800|
|% of liquids||50%|
|Exit production (boe/d)||5,500 – 6,000|
|Operating netback ($/boe)||14.00 – 15.00|
|Operating netback, after realized gains from derivative instruments ($/boe)||15.00 – 16.00|
|Operating expenses ($/boe)||16.50 – 17.50|
|G&A, excluding stock-based compensation ($/boe)||4.10 – 4.50|
|Capital expenditures ($millions)||25 – 35|
(1) Operating netback is a non-IFRS measure (see Other Advisories).
See “Forward-Looking Statements” below.
ABOUT PRAIRIE PROVIDENT:
Prairie Provident is a Calgary-based company engaged in the exploration and development of oil and natural gas properties in Alberta. The Company’s strategy is to grow organically in combination with accretive acquisitions of conventional oil prospects, which can be efficiently developed. Prairie Provident’s operations are primarily focused at Wheatland and Princess in Southern Alberta targeting the Lithic Glauc formation, along with an early stage waterflood project at Evi in the Peace River Arch. Prairie Provident protects its balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.