CALGARY, Aug. 30, 2017 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) announces updated 2017 capital budget and 2018 development plan details. Consistent with Painted Pony’s focus on capital discipline, the Corporation has reduced planned capital spending levels for 2017 and 2018 to ensure Painted Pony maintains its current financial flexibility in a lower than anticipated commodity price environment.
Highlights:
- Combined $72 million reduction to the 2017 capital budget and 2018 development plan comprised of a $33 million reduction in 2017 and a $39 million reduction in 2018;
- Expected 2017 annual average daily production to be between 261 MMcfe/d (43,500 boe/d) and 276 MMcfe/d (46,000 boe/d), which is a 93% increase, using the mid-point, over 2016 annual average daily production volumes, and;
- Anticipated 2018 annual average daily production to be between 411 MMcfe/d (68,500 boe/d) and 432 MMcfe/d (72,000 boe/d), which is a 57% increase over the expected mid-point of 2017 annual average daily production volumes.
Rationale
Painted Pony believes that this reduction to the 2017 capital budget and the 2018 development plan is financially prudent based on the current commodity price outlook and will help preserve the Corporation’s strong financial position.
Referring to this change in capital spending, Mr. Patrick Ward, President and CEO of Painted Pony said, “The reduced capital budget for 2017 and development plan for 2018 will help us to maintain our financial flexibility and still result in top-decile production growth.”
Production
The revised 2017 capital budget of $314 million is approximately 10% or $33 million lower than the $347 million capital budget disclosed by Painted Pony on March 15, 2017.
In addition to the impact of reduced capital spending, 2017 annual production guidance is being influenced by approximately 6 MMcfe/d (1,000 boe/d) of voluntary production shut-ins due to low natural gas prices as a result of pipeline maintenance, expansion projects, and unscheduled outages resulting in temporary service interruptions on major pipeline systems. While some of these expansion projects will result in increased firm transportation capacity for Painted Pony once completed, short-term interruptions have caused volatility in natural gas pricing. Painted Pony expects to shut-in production volumes sold at low spot prices on a short-term basis. Annual cash flow sensitivities to these interruptions are mitigated by Painted Pony’s diversified pricing strategies.
The combined impact of a reduced 2017 capital budget and pricing induced shut-ins is expected to deliver annual average daily production for 2017 of between 261 MMcfe/d (43,500 boe/d) and 276 MMcfe/d (46,000 boe/d), including approximately 7% liquids, representing a production increase to the mid-point of guidance of approximately 93% over 2016 annual average daily production of 139.2 Mcfe/d (23,204 boe/d). Production volumes during the fourth quarter of 2017 are expected to average between 348 MMcfe/d (58,000 boe/d) and 360 MMcfe/d (60,500 boe/d) including an estimated 7% liquids.
The 2018 revised development plan of $262 million is 13% or $39 million less than the $301 million capital program outlined on March 15, 2017. The 2018 capital plan is expected to deliver annual average daily production of between 411 MMcfe/d (68,500 boe/d) and 432 MMcfe/d (72,000 boe/d), which represents a year-over-year production increase of approximately 57% based on the mid-point of guidance for each year. Production volumes during the fourth quarter of 2018 are expected to average between 462 MMcfe/d (77,000 boe/d) and 480 MMcfe/d (80,000 boe/d), including an estimated 7% liquids.
Operations Update
Painted Pony has four rigs currently running with an expectation to drill a total of 50 net wells in 2017, a reduction of 26% from previous estimates of drilling 68 net wells in 2017. Completion operations are expected to deliver 55 net completions in 2017, an 11% reduction from previous estimates of 62 completions. Included within the updated 2017 capital budget of $314 million is $7.5 million of infrastructure expenditures which include pipeline construction, lease repairs, and land.
Hedging
The Corporation is in a strong financial position with hedged volumes of approximately 218 MMcf/d or 72% of remaining 2017 natural gas production volumes and approximately 167 MMcf/d or 43% of 2018 natural gas volumes at prices well-above future strip prices. These hedges, combined with physical contracts create a broad, diversified pricing strategy, which protects Painted Pony’s cash flow during periods of low natural gas prices.
Commitments
Production levels from the reduced 2017 capital budget and 2018 development plan are expected to fulfill all of Painted Pony’s take-or-pay processing commitments, which total approximately 216.5 MMcfe/d (36,083 boe/d) currently and will total 302.5 MMcfe/d (50,417 boe/d) as of the first quarter of 2018. Painted Pony has secured firm transportation for all expected natural gas production volumes through the end of 2019 with exposure to several markets, including an incremental 130 MMcf/d of firm transportation into AECO by April 2018.
Summary
The Corporation anticipates releasing a 2018 capital budget in November of 2017. Painted Pony is well-positioned to deliver significant growth from the Corporation’s Montney assets this year and next. The Corporation will continue to execute the 2017 and 2018 capital programs with a focus on capital efficiency and cost discipline.
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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 the expected 2017 annual average daily production; the anticipated 2018 annual average daily production, the revised 2017 capital budget; the expected production shut-ins; the expected increase in firm transportation capacity and that pricing strategies will mitigate cash flow sensitivities; the expected 2017 and 2018 fourth quarter average production volumes, the 2018 revised development plan; the number of wells expected to be drilled and completed in 2017; the expected infrastructure expenditures in 2017; the expected fulfillment of take-or-pay processing commitments in 2017 and first quarter of 2018; the expected firm transportation commitments for all production volumes through to the end of 2019; and the expected release of the 2018 capital budget.
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 fourth quarter 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 the remainder of 2017, in 2018 and 2019 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 “PONY”.
SOURCE Painted Pony Energy Ltd.
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