CALGARY, Alberta , Nov. 07, 2018 (GLOBE NEWSWIRE) — 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 nine months ended September 30, 2018, and to provide an operational update. PPR’s consolidated interim financial statements (“Financial Statements”) and related management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2018 are available on its website and filed on SEDAR.
Q3 2018 HIGHLIGHTS
On September 13, 2018, PPR and Marquee Energy Ltd. (“Marquee”) entered into a definitive agreement to effect a business combination (the “Arrangement”) pursuant to which Prairie Provident will acquire Marquee and the Marquee shareholders will receive, in exchange for their Marquee shares, 0.0886 PPR common shares for each Marquee share held. The Arrangement is expected to close around November 20, 2018 subject to approval by Marquee shareholders at a meeting called for November 19, 2018, regulatory (including TSX) and court approvals, and satisfaction of certain closing conditions. The acquisition is expected to enhance Prairie Provident’s size with a combined land base of approximately 715,000 net undeveloped acres and over 114 proved drilling locations1, high-grade its competitive position through economies of scale, result in operatorship of over 90% of production with an average working interest of greater than 98% and a corporate decline rate of 18%, an expanded credit facility and enhance capital investment efficiency.
- Production averaged 5,776 boe/day (72% liquids), a 5% increase compared to Q3 2017, primarily due to the successful 2018 drilling program which increased Q3 2018 production by approximately 1,930 boe/d, including an increase of approximately 1,500 boe/d from the top three producers of the 2018 program (102/13-24-020-11W4 (“Princess-1”), 102/13-26-020-11W4 (“Princess-4’) and 103/14-12-019-11W4 (“Princess-5”), collectively “Princess 1, 4 and 5”).
- Adjusted EBITDAX (before pro-forma adjustments) was $7.4 million, a $2.6 million increase from Q3 2017 primarily due to higher operating netbacks, partially offset by a $5.8 million decrease in realized hedging gains.
- Adjusted funds from operations were $6.1 million, a $1.6 million increase as compared to Q3 2017 primarily due to higher adjusted EBITDAX, partially offset by higher finance costs.
- Operating netback before realized hedging gains was $24.48/boe Q3 2018, an increase of $14.92/boe from Q3 2017. The increase was primarily due to higher realized prices and lower operating costs, partially offset by higher royalties.
- PPR’s higher oil and NGL weighting have benefited the Company in Q3 2018 and the first nine months of 2018 as oil and NGL prices strengthened. The Company’s Q3 2018 average realized oil price of $69.83 per bbl and realized NGL price of $52.61 per bbl were 38% and 50% higher, respectively, over Q3 2017.
- At September 30, 2018, PPR had borrowings of US$34.5 million drawn against its US$45 million secured Revolving Facility and US$16.7 million of unsecured Subordinated Notes plus a working capital deficit of CDN$5.1 million (US$3.9 million equivalent using the September 30, 2018 exchange rate of $1.00 USD to $1.2945 CAD).
- Net loss for Q3 2018 was $2.6 million, compared to $12.0 million in the same quarter of 2017. The $9.4 million variance was primarily the result of certain non-cash items including a decrease of $3.4 million of impairment losses, an increase of $2.9 million of gains on property dispositions and a $0.7 million decrease in unrealized losses on derivative financial instruments.
1 Based on the respective reserves evaluation reports of Prairie Provident and Marquee, prepared by Sproule Associates Ltd., evaluating the reserves data of each company as of December 31, 2017 in accordance with the requirements of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.
- On October 11, 2018, PPR closed a $5.5 million equity financing, which included the issuance of 3,750,150 CEE flow-through common shares at $0.46 per share and 9,590,200 subscription receipts at $0.39 per unit. The proceeds from the sale of the subscription receipts are held in escrow until the closing of the Arrangement, upon which the holders of the subscription receipts will automatically receive, for each subscription receipt held, one PPR common share and one half of one warrant. Each whole warrant will entitle the holder to acquire one common share at a purchase price of $0.50 until October 11, 2020. If the Arrangement is not completed, the gross subscription receipt proceeds will be refunded to purchasers.
FINANCIAL AND OPERATING HIGHLIGHTS
|Three Months Ended
|Nine Months Ended
|($000s except per unit amounts)||2018||2017||2018||2017|
|Oil and natural gas revenue||27,810||17,611||71,280||58,501|
|Per share – basic & diluted||(0.02||)||(0.10||)||(0.25||)||(0.03||)|
|Adjusted Funds from Operations1||6,112||4,536||14,786||17,530|
|Per share – basic & diluted||0.05||0.04||0.13||0.16|
|Capital expenditures and acquisitions (net of proceeds from dispositions)||109||4,794||19,815||57,947|
|Crude oil (bbls/d)||4,044||3,185||3,552||3,160|
|Natural gas (Mcf/d)||9,607||12,799||9,056||13,661|
|Natural gas liquids (bbls/d)||131||188||120||235|
|Average Realized Prices|
|Crude oil ($/bbl)||69.83||50.63||67.84||53.93|
|Natural gas ($/Mcf)||1.35||1.84||1.53||2.62|
|Natural gas liquids ($/bbl)||52.61||34.98||52.66||34.28|
|Operating Netback ($/boe)2|
|Realized (losses) gain on derivative instruments||(6.77||)||4.39||(5.48||)||2.63|
|Operating netback, after realized gains on derivative instruments||17.71||13.95||17.56||16.16|
(1) (2) Adjusted EBITDAX (before pro-forma adjustments), adjusted funds from operations and operating netback are non-IFRS measures. See “Other Advisories” below.
September 30, 2018
December 31, 2017
|Working capital deficit(1)||5,099||2,201|
|Total net debt(2)||68,496||57,961|
|Common shares outstanding (in millions)||115.8||115.9|
(1) & (2) Working capital deficit and Net Debt are non-IFRS measures. See “Other Advisories” below.
(3) Debt capacity reflects the Revolving Facility of USD$45 million at September 30, 2018 and USD$40 million on December 31, 2017, net of amounts drawn thereunder at such dates and converted at an exchange rate of $1.00 USD to $1.2945 CAD on September 30, 2018 and of $1.00 USD to $1.2545 CAD on December 31, 2017.
|Three months ended
|Nine months ended
|Net (working interest) wells||—||1.7||8.0||5.7|
|Success rate, net wells (%)||N/A||50||100||82|
Wayne (Wheatland), AB
During the first nine months 2018, the Company drilled and tied-in three gross (3.0 net) wells in the Wayne (Wheatland) area and incurred capital expenditures of approximately $7.2 million in the area. Based on field estimates, the three wells drilled at Wayne in 2018 are in aggregate producing at approximately 190 boe/d (53% liquids).
During the first nine months 2018, the Company drilled and tied-in five gross (5.0 net) wells in the Princess area and incurred capital expenditures of approximately $10.6 million in the area. As previously announced, Princess-5, which targeted a new Glauc channel (100% WI) in a southern block of prospective lands, commenced production on September 4, 2018. The five wells drilled at Princess in 2018 are currently producing at approximately 1,642 boe/d (67% liquids) in total, based on field estimates.
Prairie Provident’s 2018 Princess capital program has demonstrated the Company’s ability to target higher-value oil and liquids-weighted drilling locations, supported by its sizeable asset base. PPR currently has 33,000 acres of undeveloped lands in the Princess area and plans to resume drilling operations there in 2019.
Prairie Provident is currently undertaking a light-oil Granite Wash drilling program at Evi, as part of its flow through share commitment. The Company plans to drill four exploration wells (4.0 net) during the fourth quarter of 2018 at an estimated cost of approximately $1.0 million per well to drill and complete.
In addition to its exploration program, Prairie Provident also plans to drill two lower-risk Slave Point light-oil development wells in the area following the completion of its exploration program. These wells are expected to come on stream in February and contribute to first quarter 2019 production.
For the first nine months of 2018, the Company has directed $3.1 million in capital to continue the advancement of its waterflood project at Evi, which was allocated to pipeline construction and three injector conversions. Early response to the waterflood at Evi are in-line with the Company’s expectations. Operations in the Evi area currently provide approximately one third of corporate production with operating netbacks averaging $38.10/boe in Q3 2018.
OUTLOOK AND GUIDANCE
Prairie Provident’s business strategy has been built on a balanced approach, utilizing predictable funds flow from our low-decline oil assets to fuel growth developments. Completion of the Arrangement with Marquee will result in the combined enterprise having three core areas (Michichi/Wayne, Princess and Evi) offering light oil exposure and greater capital allocation alternatives over an enlarged asset base, with low base decline rate of 18%, better economies of scale, operational synergies, lower risk development drilling opportunities, a proven water flood program, potentially improved marketplace liquidity and future consolidation prospects. The combined company will operate over 90% of its production and have an average working interest greater than 98% in its core areas. The Arrangement is expected to close around November 20, 2018, after which Prairie Provident will incorporate Marquee’s financial results in its consolidated financial statements.
In addition to implementing the Arrangement, PPR remains focused with its exploration and development efforts. In light of $1.7 million of incremental CEE expenditure commitments from its recently completed flow-through share issuance, PPR has expanded its fourth quarter exploration program at Evi by one additional light-oil Granite Wash exploration well. A total of four Granite Wash exploration wells will be drilled, which are expected to be completed in December 2018. To reduce rig moving costs, Prairie Provident plans to advance its 2019 drilling of two lower-risk Slave Point light-oil development wells in Evi, immediately following the completion of its Granite Wash exploration wells. The Slave Point wells are expected to be brought on production in the first quarter of 2019. As a result of drilling one additional Granite Wash well and advancing Slave Point drilling in 2018, full-year capital expenditures (excluding asset retirement obligations and capitalized G&A amounts) are estimated to be approximately $29 million, a $3 million increase from our original guidance. Prairie Provident maintains its 2018 average production guidance of 5,200 to 5,600 boe/d.
Transportation bottlenecks continue stranding Canadian crude oil from global markets, creating deep discounts from global benchmark prices. Softer demand due to recent US refinery turnarounds has intensified the price discounts applied on Canadian crude. The widening differentials towards the end of the third quarter 2018 had a modestly negative impact on the Company’s realized pricing for the period. Subsequent to September 30, 2018, differentials have widened further for all oil grades, especially in heavy oil (Western Canadian Select or “WCS”). The industry generally anticipates Canadian crude prices to gain back some grounds in the first quarter of 2019 as the US refineries are back online and more crude oil gets shipped by rail.
Most of PPR’s oil production is in light/medium grade, however, 39% of its crude oil receives prices correlated with WCS due to their proximity to heavy oil sales points. The remaining 61% of oil production receive prices referenced to Edmonton Light Sweet, which are not as heavily discounted to benchmark prices as WCS. Prairie Provident is exploring several options to improve its realized oil prices, including transporting oil to other sales points with lesser oil differentials. The Company expects the widened differentials to negatively impact its Q4 financial results. For each $1/bbl change in Edmonton Light Sweet differential and WCS differential, quarterly funds flow is expected to change by approximately $0.3 million and $0.1 million, respectively. Prairie Provident will continue to monitor Canadian crude oil prices and remain cautious with its capital spending. After completing the fourth quarter capital program that focuses on bringing on production additional Edmonton Light Sweet priced oil, the Company may defer further development until there is more clarity on the oil differentials.
Additional details on the Arrangement, Prairie Provident’s 2018 capital program and guidance can be found on the Company’s website at www.ppr.ca.
APPOINTMENT OF BRAD LIKUSKI AS VP OPERATIONS
Prairie Provident is pleased to announce the appointment of Brad Likuski as Vice President, Operations effective October 2018. Previously, Brad held the position of Manager of Exploitation with the Company since May 2016. Before joining PPR, Mr. Likuski held the position of Vice President, Production at Spyglass Resources Corp. from April 2013 to April 2016, and the position of Vice President, Engineering at AvenEx Energy Corp. from July 2010 to March 2013. Mr. Likuski has over 25 years of industry experience, and graduated from the University of Calgary with a B.Sc. in Chemical Engineering in 1990.
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 Glauconite 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.