CALGARY, Nov. 10, 2017 /PRNewswire/ – (TSX:PMT) – Perpetual Energy Inc. (“Perpetual”, the “Corporation” or the “Company”) is pleased to announce a 62.5% increase to its reserve-based credit facility (the “Credit Facility”) and confirm capital spending plans and expected production and adjusted funds flow growth for 2018. Strategic focusing of the Company’s asset base, strengthening of the balance sheet, steady execution of the growth-oriented capital program and the Company’s market diversification strategy implemented over the past year have combined to position Perpetual for continued strong growth in 2018. Based on current forward commodity prices, production growth of 30% in 2018 from 2017 levels is anticipated to drive 23% adjusted funds flow growth to $0.59 to $0.67/share, supported by a capital program substantially funded from adjusted funds flow.
Credit Facility
Perpetual Credit Facility lenders have completed their semi-annual borrowing base redetermination and have agreed to increase the borrowing limit from $40 million to $65 million, subject to execution of usual and customary loan documentation. In support of this increase, Perpetual has expanded its Credit Facility lending syndicate to three banks. The maturity date of the Credit Facility is May 31, 2019 and the next semi-annual borrowing base review is scheduled for May 31, 2018. The increased borrowing limit is expected to provide sufficient liquidity to execute the Company’s 2018 business plan and retain the optionality and incremental liquidity related to the Company’s 1.67 million share investment in Tourmaline Oil Corp. (TSX:”TOU”).
2018 Capital Spending and Production Guidance
The Company’s Board of Directors has approved a total capital spending program of $39 million for 2018, close to 75% concentrated in East Edson, developing liquids-rich natural gas reserves in the Wilrich formation, and 25% in Eastern Alberta, primarily targeting heavy oil development at Mannville along with abandonment and reclamation work to continue to responsibly address decommissioning obligations.
At East Edson, a single rig drilling program is ongoing with four (4.0 net) wells to be drilled during the fourth quarter of 2017, including two extended reach horizontal (“ERH”) wells of varying lateral lengths. One ERH well has been successfully drilled thus far with a 2,460 meter horizontal lateral. The second is currently drilling in the horizontal section and is targeting in excess of 3,400 meters of Wilrich formation. The performance of the two ERH wells is expected to be evaluated following frac operations in late November. The remaining three wells of the 2017 program are budgeted to be frac’d during the first quarter of 2018. Drilling activities are forecast to start up again in the third quarter of 2018 with four (4.0 net) ERH wells planned to reverse forecast declines and ramp up production again to match processing and transportation capacity in time to meet stronger anticipated natural gas demand conditions and pricing in the fourth quarter of 2018. Additional compression is currently being installed at the Company’s 100% working interest and operated West Wolf Lake facility for start-up in early January 2018 to increase total processing capacity in the East Edson area by close to 23% to 80 MMcf/d plus associated liquids, closely matching the Corporation’s 20 MMcf/d increase to firm natural gas transportation capacity to 78 MMcf/d that is scheduled to take effect on or before April 1, 2018.
Based on the 1,700 meter lateral type curve, adjusted for the expected ERH well performance, average 2018 production at East Edson is forecast to grow over 35% year over year to average close to 10,800 boe/d. The positive impact of this higher production base over a substantially fixed cost base is anticipated to translate into further reduction in operating costs per unit of production at East Edson of close to $2.00/boe.
At Mannville, capital spending during the fourth quarter of 2017 is directed at waterflood infrastructure projects which will continue into the first quarter of 2018 to increase waterflood injection capability to provide additional pressure support to enhance heavy oil recovery as well as to reduce field operating costs. In the third quarter of 2018, up to seven (6.3 net) development wells are budgeted to be drilled to increase heavy oil production by close to 10%. Additionally, up to 20 shallow gas recompletions are planned to partially offset natural gas declines in Eastern Alberta. Decommissioning expenditures will be focused in the Mannville area and are expected to provide lease rental and property tax expense reductions while maintaining regulatory compliance.
The table below summarizes anticipated capital spending and drilling activities for the fourth quarter of 2017 and for the first and second half of 2018.
Exploration and Development Forecast Capital Expenditures
Q4 2017 $ millions |
# of wells (gross/net) |
H1 2018 $ millions |
# of wells (gross/net) |
H2 2018 $ millions |
# of wells (gross/net) |
|
West Central liquids-rich gas |
18 |
4/4.0 |
8 |
0/0.0 |
21 |
4/4.0 |
Eastern Alberta |
1 |
0/0.0 |
1 |
0/0.0 |
7 |
7/6.3 |
Total(1) |
19 |
4/4.0 |
9 |
0/0.0 |
28 |
11/10.3 |
(1) |
Excludes budgeted abandonment and reclamation spending of $0.7 million in the fourth quarter of 2017 and up to $2 million in 2018. |
Based on total exploration and development capital spending in 2018 of $37 million, and an April 1, 2018 in-service date for additional firm transportation, Perpetual forecasts production to average close to 13,000 boe/d (85% natural gas) and expects to exit the year at over 14,500 boe/d as production ramps up again driven by the second half capital spending program targeting seasonal natural gas price optimization. This represents growth in average daily production in 2018 of 32% relative to 2017 as well as year over year growth in the average December exit rate of over 15%. Increased production combined with continued diligent cost management in 2018 is anticipated to continue to drive improved per unit cost structure performance with top quartile operating costs forecast of close to $4.00/boe.
Perpetual has taken significant steps to diversify its 2018 commodity and natural gas pricing point exposure (net of royalties) as detailed below:
Market/Pricing Point |
Estimated 2018 Exposure |
|
Natural gas |
||
AECO(1) |
26% |
|
AECO fixed price |
5% |
|
Empress |
5% |
|
Dawn |
11% |
|
Michcon |
7% |
|
Chicago |
17% |
|
Malin |
15% |
|
Total natural gas |
86% |
|
Natural gas liquids – Condensate(1) |
3% |
|
Natural gas liquids – Other(1) |
2% |
|
Crude oil (1) |
9% |
|
Total |
100% |
(1) |
Net of royalties. |
The Company’s market diversification strategy, combined with continued reduction to a forecast all-in cash cost structure, including royalties, of approximately $13.25/boe ($10.40/boe, excluding royalties) is anticipated to deliver further improvements to operating and adjusted funds flow netbacks over 2017, despite the lower current forward market for natural gas prices.
Based on these capital spending and production assumptions and the current forward market for oil and natural gas prices at market pricing points, Perpetual forecasts 2018 adjusted funds flow of $35 to $40 million ($0.59/share to $0.67/share). Year end 2018 debt, net of the current market value of the Company’s TOU share investment of close to $45 million, is forecast at $105 to $110 million, with a corresponding improvement in estimated net debt to trailing twelve months adjusted funds flow to approximately 2.9 times.
Incorporating the assumptions outlined above, and presuming AECO basis differentials remain constant to each of the diversified natural gas pricing points, Perpetual’s estimated 2018 adjusted funds flow annualized sensitivity to various commodity prices is as follows.
Projected 2018 Adjusted funds flow
2018 AECO gas price ($/GJ)(1) |
|||||||
2018 WTI price |
($ millions) |
$1.75 |
$2.00 |
$2.25 |
$2.50 |
$2.75 |
$3.00 |
$47.50 |
26 |
32 |
37 |
43 |
49 |
55 |
|
$50.00 |
28 |
33 |
39 |
45 |
51 |
56 |
|
$52.50 |
29 |
35 |
41 |
47 |
52 |
58 |
|
$55.00 |
31 |
37 |
43 |
48 |
54 |
60 |
|
$57.50 |
33 |
39 |
44 |
50 |
56 |
62 |
|
$60.00 |
35 |
40 |
46 |
52 |
58 |
63 |
(1) |
The current settled and forward average AECO and WTI prices for calendar 2018 as of November 9, 2017 were $2.01 per GJ and US$56.91 per bbl, respectively. Sensitivities assume all market price points adjust commensurately. |
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual operates a diversified asset portfolio, including liquids-rich natural gas assets in the deep basin of west central Alberta, heavy oil and shallow natural gas in eastern Alberta, with longer term opportunities through undeveloped oil sands leases in northern Alberta. Additional information on Perpetual can be accessed at www.sedar.com or from the Corporation’s website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.