CALGARY, Nov. 8, 2017 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) is pleased to announce current production of approximately 360 MMcfe/d (60,000 boe/d), based on field estimates, the signing of a long-term natural gas supply agreement (the “Agreement“) with Methanex Corporation (“Methanex“), an increase to syndicated credit facilities, and third quarter 2017 financial and operating results.
Post Third Quarter 2017
- Achieved current production of over 360 MMcfe/d (60,000 boe/d), including over 4,700 bbls/d of liquids of which approximately 50% was condensate, based on field estimates, from October 30 to November 7, 2017;
- Signed the Agreement with Methanex for the fixed price delivery of natural gas volumes, escalating over time, to the Methanex methanol plant in Medicine Hat, Alberta;
- Increased syndicated credit facilities to $450 million from $400 million;
- Drilled the Corporation’s first sequential 6-well pad for $3.7 million per well (drill, complete, equip, tie-in) which is now producing over 60 MMcf/d of natural gas and over 1,300 bbls/d of liquids (50% condensate) based on field estimates;
- Increased 2018 average fixed-price hedged volumes to 196 MMcfe/d, approximately 48% of 2018 forecast production volumes, at a volume weighted-average price of $3.44/Mcfe, including the impact of liquids contracts;
Third Quarter 2017
- Generated funds flow from operations(2) of $29.5 million ($0.18 per share) during the third quarter of 2017, an increase of 134% compared to the third quarter of 2016;
- Recorded net income of $14.6 million ($0.09 per share) during the third quarter of 2017, an increase of 26% over the third quarter of 2016 and the third consecutive quarter of earnings.
- Increased average daily production volumes to 254 MMcfe/d (42,353 boe/d) during the third quarter of 2017, after voluntarily shutting in approximately 50 MMcfe/d (8,500 boe/d) due to low natural gas prices, an increase of 86% compared to total production volumes during the third quarter of 2016;
- Increased liquids production by 222% to 3,826 bbls/d, which included 1,910 bbls/d of condensate, during the third quarter of 2017 compared to the third quarter of 2016;
- Realized natural gas prices at a premium to reference prices, through market diversification (a 10% premium to daily AECO and an 81% premium to Station 2), and;
- Reduced operating expenses to $0.59/Mcfe during the third quarter of 2017, an 18% reduction from second quarter of 2017 operating expenses of $0.72/Mcfe.
Current Productive Capacity
Based on field estimates, production during the period October 30 to November 7, 2017 averaged approximately 360 MMcfe/d (60,000 boe/d), including approximately 4,700 bbls/d of liquids (2,350 bbls/d of condensate and 2,350 bbls/d of NGLs; 50% propane and 50% butane). These volumes were the result of capital spent during the first half of 2017 to bring on production volumes in anticipation of the AltaGas Townsend Facility (the “Townsend Facility“) 99 MMcf/d expansion (the “Expansion“). The Expansion was completed in September 2017 and began receiving Painted Pony natural gas volumes in October 2017. The Expansion brings the total processing capacity at the Townsend Facility to 297 MMcf/d of which Painted Pony has current committed take-or-pay volumes of 178 MMcf/d increasing to 267 MMcf/d beginning January 1, 2018. Painted Pony has been balancing new production volumes and optimizing facility utilization with periodic production shut-ins due to commodity price weakness. Production volumes shut-in during the third quarter averaged approximately 50 MMcfe/d (8,500 boe/d). Due to weak prices at some delivery points, Painted Pony chose to shut in approximately 130 MMcfe/d (22,000 boe/d) during the month of October 2017, but began ramping up production in late October with higher prices.
Subsequent to the end of the third quarter, Painted Pony entered into a long-term agreement to deliver natural gas to Methanex. The structure of this transaction provides return certainty and price diversification for Painted Pony while providing price stability for Methanex. Painted Pony will supply the majority of the natural gas required for Methanex’s existing 600,000 tonne methanol plant in Medicine Hat, Alberta for a term of 14 years. Deliveries under the Agreement will commence in 2018 and contracted quantities will be approximately 10 MMcf/d (10,000 MMbtu/d) in 2018, increasing to approximately 50 MMcf/d (50,000 MMbtu/d) beginning in 2023. Methanex is the world’s largest producer and supplier of methanol to major international markets.
In response to the signing of the Agreement, Pat Ward, President and CEO of Painted Pony remarked, “The Agreement with Methanex will yield a stable stream of cash flow to Painted Pony while providing additional market diversification for us, which will help mitigate the impact of market volatility on our realized prices. By providing Methanex with a long-term, secure and reliable supply of natural gas volumes to their Medicine Hat plant, we believe this is truly a “win-win” arrangement for both companies.”
Credit Facilities Increased
Painted Pony has secured commitments to increase the Corporation’s syndicated credit facilities to $450 million from $400 million following a recent, regularly scheduled, semi-annual review. As at September 30, 2017 Painted Pony had bank debt and a working capital deficiency of $115.2 million.
THIRD QUARTER 2017 FINANCIAL & OPERATING RESULTS
Funds Flow from Operations
Painted Pony generated funds flow from operations of $29.5 million ($0.18 per share) during the third quarter of 2017, an increase of 134% from the $12.6 million ($0.13 per share) recorded during the third quarter of 2016.
The increase in funds flow from operations was the result of an increase in average production of 86%, combined with increased per unit realized gains on commodity risk management contracts of 141%, and decreased per unit operating expenses, offset by a 4% per unit reduction in average realized commodity pricing in the quarter and increased per unit transportation costs incurred in accessing higher priced sales markets.
For the third quarter of 2017, the Corporation generated net income and comprehensive income of $14.6 million, increased by realized and unrealized gains on commodity risk management contracts and higher revenue due to increased production. This compares to a net income and comprehensive income of $11.6 million for the quarter ended September 30, 2016. Excluding unrealized gains on commodity risk management contracts, income before taxes was $6.6 million for the quarter ended September 30, 2017, compared to income before taxes of $0.1 million for the quarter ended September 30, 2016.
Third quarter 2017 average daily production volumes of 254 MMcfe/d (42,353 boe/d) represents an 86% increase over third quarter 2016 production volumes of 136 MMcfe/d (22,741 boe/d). These volumes were approximately 50 MMcfe/d (8,500 boe/d) lower than Painted Pony’s productive capacity due to voluntary, pricing-related shut-ins. During the third quarter of 2017, the entire western Canadian natural gas system experienced significant transportation bottlenecks as a result of outages caused by a combination of expansion projects and ongoing maintenance. These outages, which led to significant pricing volatility, are largely resolved and Painted Pony expects less pricing volatility during the months of November and December 2017 and in 2018.
Painted Pony continues to expect annual production volumes for 2017 to average between 261 MMcfe/d (43,500 boe/d) and 276 MMcfe/d (46,000 boe/d), representing a significant increase over 2016 annual average daily production volumes of 139.2 Mcfe/d (23,204 boe/d).
During the third quarter of 2017, Painted Pony drilled 16 (16.0 net) and completed 16 (16.0 net) Montney natural gas wells.
As part of the third quarter operations, Painted Pony was active in the Company’s high-productivity Montney sweet spot at Blair. Six new Upper Montney wells situated in the liquids-rich fairway of the Blair core area were completed on the 17-G pad. This was the first time Painted Pony has completed six wells sequentially in a continuous operation on a single pad. These six wells were tied in during October after being cleaned up and flow-tested earlier in the third quarter. They are currently producing, based on field estimates, through permanent facilities at a rate of over 60 MMcf/d and over 1,300 bbls/d of liquids, of which approximately 50% is condensate. The total drill, complete, equip and tie-in cost for the six wells was $22.4 million ($3.7 million per well). Painted Pony realized significant capital cost savings on this pad, by moving to lower intensity completions, combined with overall efficiencies associated with a sequential 6-well operation. The lower intensity completions incorporated shorter average lateral well lengths, reduced proppant load and lower water usage, but are delivering initial production volumes which are consistent with established type curves for the area.
Market Diversification and Risk Management
Painted Pony has continued in the third quarter of 2017, and subsequent to the end of the third quarter, to lever its significant portfolio of firm transportation into financial and physical contracts in order to mitigate the risks associated with potential commodity price volatility. During the third quarter of 2017 and subsequent to quarter-end, Painted Pony increased average quarterly 2018 hedged production volumes to 196 MMcfe/d at a volume weighted-average price of $3.44/MMcfe, including the impact of liquids hedges. Consequently, a large component of Painted Pony’s exposure to volatility in commodity pricing for the balance of 2017 and in 2018 has been mitigated by these contracts.
As a result of Painted Pony’s long-term market diversification strategy, Painted Pony has reduced exposure to western Canadian pricing hubs for the remainder of 2017 and in 2018. This is reflected in the 81% price premium that Painted Pony realized relative to Station 2 and a 10% premium relative to daily AECO during the third quarter of 2017. In 2018, the firm transportation portfolio, including firm transportation to Dawn and Sumas, are expected to continue these significant price premiums. In addition to contracting for long term transportation which provides physical access to markets outside of British Columbia and Alberta, Painted Pony strives to contract supply directly to end users in order to build long term stable markets for its production. Taking advantage of Painted Pony’s growing firm transportation portfolio to optimize revenue and to develop secure markets are key components of Painted Pony’s market strategy to support production growth.
Painted Pony’s capital expenditures for the third quarter of 2017 totaled $85.6 million, consistent with the Corporation’s budget expectations. Capital expenditures during the fourth quarter of 2017 are expected to total approximately $74 million. Painted Pony continues to expect full-year 2017 spending will total approximately $314 million.
Term Debt Financing
On August 23, 2017 Painted Pony closed the previously announced transaction with Magnetar Capital to issue a total of $200 million of term debt consisting of $150 million of senior unsecured notes and $50 million of unsecured subordinated convertible debentures. Painted Pony received $188.8 million of cash, net of financin