CALGARY, ALBERTA–(Marketwired – Aug. 9, 2017) – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) (TSX:PPR) is pleased to announce its operating and financial results for the three and six months ended June 30, 2017, and to provide an operational update. PPR’s consolidated financial statements (“Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the three and six months ended June 30, 2017 are available on its website and filed on SEDAR.
Prairie Provident was formed through the business combination of Lone Pine Resources Inc. and Lone Pine Resources Canada Ltd. (now Prairie Provident Resources Canada Ltd.) (collectively, “Lone Pine”) and Arsenal Energy Inc. (“Arsenal”) which completed on September 12, 2016 (the “Arsenal Acquisition”). Financial Statements referenced herein 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.
SECOND QUARTER 2017 HIGHLIGHTS
- Second quarter production reached a new corporate record, averaging 5,872 boe/d (63% liquids), a 66% increase over the same period in 2016 due primarily to production additions from a successful Wheatland drilling program, the Arsenal Acquisition, and the high-quality, light oil assets acquired in the Greater Red Earth area of Northern Alberta on March 22, 2017 (the “Red Earth Acquisition”);
- Compared to the first quarter of 2017, PPR’s second quarter production increased 4% driven by a 22% increase in crude oil volumes, but was negatively impacted by third-party facility outages at the Waterton and Wheatland areas that curtailed production by approximately 300 boe/d while extended downtime in Evi due to wet weather conditions and road bans further impacted volumes by approximately 190 boe/d;
- Adjusted funds from operations1 was 117% higher in the second quarter of 2017 than the same period in 2016 at $7.1 million ($0.06 per diluted share) due to increased production and improved operating netbacks;
- Operating netbacks1 (after realized hedging gains) for the quarter were $18.20/boe, a 2% increase over the same period in 2016 largely due to stronger realized prices which were partially offset by lower gains on derivative instruments, higher operating costs and increased royalties due to higher pricing;
- Due to the seasonal impacts of spring break up, delayed scheduling of frac crews, and a conscious decision to defer a portion of our capital spending in response to commodity price uncertainty, second quarter capital expenditures were $4.8 million, 31% lower than the first quarter of 2017, with the majority directed to our Wheatland drilling and completions program;
- Completed four (4.0 net) wells at Wheatland that were drilled in the first quarter, of which two had come on stream by June 30, 2017 and the other two came on-stream in the third quarter;
- Recorded net earnings of $1.1 million, compared to a net loss of $43.2 million in the same period in 2016, due primarily to higher adjusted funds from operations and positive variances in several non-cash items, including decreased impairment losses, increases in unrealized hedging gains and a decrease in accretion expense, partially offset by higher depletion, depreciation and amortization expenses; and
- Exited the second quarter with bank debt of $47 million drawn on the Company’s $65 million credit facility. The Company and its lending syndicate are progressing with new financing arrangements.
(1) Adjusted funds from operations and operating netbacks are non-IFRS measures and are defined in this release under “Other Advisories”.
FINANCIAL AND OPERATING HIGHLIGHTS
|Three Months Ended
June 30, 2017
|Six Months Ended
June 30, 2017
|($000s except per unit amounts)||2017||2016||2017||2016|
|Oil and natural gas revenue||21,682||9,151||40,890||16,354|
|Per share – basic||0.01||(0.44)||0.08||(0.41)|
|Per share – diluted||0.01||(0.44)||0.07||(0.41)|
|Adjusted funds from operations(1)||7,060||3,252||12,994||4,342|
|Per share – basic & diluted||0.06||0.03||0.12||0.04|
|Capital expenditures (net of proceeds from dispositions)||4,767||1,201||53,153||11,933|
|Crude oil (bbls/d)||3,458||1,784||3,147||1,834|
|Natural gas (Mcf/d)||13,136||9,733||14,099||8,715|
|Natural gas liquids (bbls/d)||225||134||259||129|
|Average Realized Prices|
|Crude oil ($/bbl)||55.42||47.62||55.63||40.43|
|Natural gas ($/Mcf)||3.00||1.37||2.98||1.58|
|Natural gas liquids ($/bbl)||32.19||17.22||34.00||14.82|
|Operating Netback ($/boe)(2)|
|Realized gains on derivative instruments||2.15||7.88||1.78||9.85|
|Operating netback, after realized gains on derivative instruments||18.20||17.82||17.25||15.19|
|(1)(2) Adjusted funds from operations and operating netback are non-IFRS measures and are defined below under “Other Advisories”.|
June 30, 2017
December 31, 2016
|Working capital (deficit)(1)||(7,400)||(4,380)|
|Total net debt(2)||(57,829)||(19,427)|
|Current debt capacity(3)||13,288||34,117|
|Common shares outstanding (in millions)||115.9||104.2|
|(1) Working capital (deficit) is a non-IFRS measure calculated as current assets less current liabilities excluding the current portion of derivative instruments, the current portion of decommissioning liabilities and flow-through share premium. See “Other Advisories” below.|
|(2) Net debt is a non-IFRS measure, calculated by adding working capital (deficit) and long-term debt. See “Other Advisories” below.|
|(3) Current debt capacity reflects the credit facility of $65 million at June 30, 2017 and $55 million at December 31, 2016, net of amounts drawn thereunder.|
As at June 30, 2017, total net debt increased by $38.4 million from December 31, 2016 as a result of the Red Earth Acquisition which was funded primarily through bank debt. Total net debt decreased by $1.9 million from March 31, 2017 as we deferred a portion of our original budgeted second quarter capital spending and applied free cash flow towards net debt reduction. The deferral in capital spending was a deliberate measure to preserve liquidity amidst the volatile commodity price environment during the second half of the quarter, as the Company remains intent on scaling the 2017 capital budget to commodity prices as part of a continued focus on prudent capital management.
|Three months ended June 30||Six months ended June 30|
|Working interest wells||–||–||4.0||2.9|
|Success rate, net wells (%)||N/A||N/A||100||100|
Prairie Provident continued to focus on executing our capital program at Wheatland. Our second quarter capital activity levels were reduced due to the seasonal impacts of spring break up, delayed scheduling of frac crews, and a conscious decision to defer a portion of our capital spending in response to commodity price uncertainty. Invested capital was largely directed to the completion, equipping and tie-in of four (4.0 net) wells drilled in the first quarter, of which two were brought on production in the middle May and at the end of June, 2017, respectively, and the other two were brought on-stream in July and August, 2017.
PPR provided an overview of initial test results for each well in our June 7, 2017 operations update release. For the first 30 days of on-stream production, Wayne-1 and Wayne-3 wells had average production of approximately 270 boe/d (76% liquids) and 208 boe/d (18% liquids), respectively. The Wayne-2 produced an average of approximately 111 boe/d (37% liquids) for the first 13 days of on-stream production, while it was also retrieving load fluids. Entice-1 has been on production for 8 days and is currently producing at 272 boe/d (11% liquids). The Company cautions that initial production rates are not necessarily indicative of long-term well or reservoir performance or of ultimate recovery. Actual results will differ from those realized during an initial short-term production period, and the difference may be material.
Area production in the second quarter averaged approximately 2,240 boe/d (26% light / medium oil), which contributed to stronger corporate volumes despite being negatively impacted by third-party facility outages of approximately 130 boe/d. To date, a total number of 22 (20.6 net) wells have been drilled in the area.
PPR’s evolution towards pad drilling and mono-bore drilling design over past periods has helped to maintain reduced drilling cycle times that currently average approximately 8.5 days at Wheatland. This improvement also significantly reduces surface costs, lowers the environmental footprint and increases the anticipated return on capital. While we have seen cost inflation from oilfield service providers and suppliers, we strive to maintain efficiencies through a continued focus on cost control.
Our Princess properties averaged 380 boe per day (84% medium oil) during the second quarter of 2017. We have identified 15 potential drilling locations in the Detrital and Glauconite formations and have conducted pre-drilling activities on four of the locations, including seeking the necessary approvals to commence drilling in the third and fourth quarters. In the third quarter, PPR plans to tie-in two discovery wells, a Detrital well that flow tested at 300 boe/d (90% oil) over a four-day production test period and Glauconite well that flow tested at 900 boe/d (10% oil) over a two-day production test period. We continue to evaluate options to alleviate gas and water handling bottlenecks at Princess which is expected to support expanded drilling.
The Company cautions that test results and initial production rates are not necessarily indicative of long-term well or reservoir performance or of ultimate recovery. Actual results will differ from those realized during testing or an initial short-term production period, and the difference may be material.
At Evi, exploration and development capital expenditures totaled $0.4 million for the second quarter, and were primarily directed to waterflood activities. Average area production for the quarter was 2,375 boe per day (98% light oil) reflecting the first full quarter of production impact from the Red Earth Acquisition that closed on March 22, 2017. Production for the quarter was negatively impacted by extended downtime due to wet weather conditions and road bans. Certain properties acquired through the Red Earth Acquisition were behind their ordinary maintenance schedule, which also resulted in some outages.
In the main Evi area, 8.25 of a total 37 sections are under waterflood with 24 injection wells (22 horizontals and 2 verticals) currently in operation. PPR may elect to accelerate our waterflood program within the 2018 capital budget given the additional expansion potential offered by the Red Earth Acquisition. Our long-term full field waterflood scenario contemplates converting a further 20 producing wells to injection wells at projected total future costs of approximately $20 million, which is anticipated to improve reserves at attractive finding and development costs.
The Evi properties provide the Company with a stable cash flow base that complements our development programs in other areas, lowers decline rates, and generates robust rates of return, payback and recycle ratios, even at current strip pricing. PPR believes that the waterflood program will continue to stabilize production from this play and enhance our long-term recovery potential.
2017 OUTLOOK AND GUIDANCE
PPR remains true to our corporate strategy, and conservatively executed our capital program while seeking to control costs and manage debt levels. During the first half of 2017, we invested approximately $17 million of our projected full-year $25 to $35 million 2017 exploration and development budget, with our current production volumes running close to our expected annual average. We will continue to focus on improving corporate netbacks by targeting higher value product streams (oil and condensate-rich liquids) and taking steps to improve capital efficiencies through pad drilling as well as focusing on those operating areas that have underutilized infrastructure capacity.
During the second quarter, the Company and syndicate of lenders for our existing $65 million credit facility (comprised of a $55 million revolver and a $10 million operating facility) (the “Facility”) extended the term-out date of the Facility until August 18, 2017, with a maturity date of July 3, 2018. As at June 30, 2017, the Facility was drawn approximately 72%. This leverage level is supported by our reserves base and future cash flows, but remains above our target levels.
Despite continued commodity price volatility, PPR remains focused on delivering growth through production and funds from operations while continuing to preserve our financial position. As such, PPR is targeting the lower end of our previously announced 2017 guidance range and are forecasting a capital budget of approximately $25 million. We currently plan to defer a portion of the fourth quarter development to 2018, which will lower our expected exit production to between 6,000 and 6,500 boe/d without significant impact to our annual production guidance. We will continue to monitor the pricing conditions and adjust the pace of our development as warranted to protect our project economics.
PPR’s hedging program provides price protection for approximately 70% of our 2017 estimated base production volumes (net of royalties), and based on our 2017 forecast adjusted funds from operations2; we anticipate adequate liquidity to fund our capital budget without incurring additional debt.
The Company continues to build on our existing asset base and have identified an attractive inventory of potential locations for conventional horizontal or vertical development, and we anticipate this inventory would provide the Company with more than five years of drilling based on our current pace of investment. With the positive impact of our waterflood, we believe that PPR’s corporate decline rates will continue to come down and allow us to stabilize production levels over the medium and longer term.
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 Ellerslie and the Lithic Glauc formations, 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.
(2) Assumed price forecasts of USD$50.00/bbl WTI, CAD$2.50/GJ AECO, and a Canadian/US dollar exchange rate of $0.80.