CALGARY, Dec. 17, 2018 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) announces a 2019 capital program focused on preserving financial flexibility and maintaining capital discipline. The Corporation’s ongoing risk management program, which includes hedging using both financial and physical contracts, combined with diversified transportation arrangements allows Painted Pony to optimize the 2019 capital program which will be fully funded by internally generated adjusted funds flow from operations.
2019 CAPITAL BUDGET
Painted Pony’s Board of Directors has approved a 2019 development capital budget which consists of:
- Investing between $95 million and $110 million of development capital approximately matching anticipated 2019 adjusted funds flow from operations, and;
- Delivering annual average daily production volume between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d).
Pricing and Transportation Diversification:
- Fixed price contracts on approximately 50% of forecasted 2019 production revenue at a volume-weighted average price of $4.84/Mcfe;
- Market diversification combined with hedging contracts results in approximately 23% of total production volumes expected to be sold on US-based pricing at Sumas, Dawn and NYMEX.
- Consistent with 2018 liquids forecast, natural gas liquids during 2019 are expected to average approximately 9% of total production volumes, and;
- Approximately 61% of 2019 forecasted NGL production has been hedged at an average price of $70.68/bbl.
NGL volumes averaged approximately 9% of average daily production volumes during the nine months ending September 30, 2018 while providing 32% of petroleum and natural gas revenue. Due to strengthening natural gas prices in the Dawn, NYMEX and Sumas markets, and Painted Pony’s access to these markets, NGLs are expected to account for approximately 22% of 2019 total petroleum and natural gas revenue.
Continued focus on operational efficiencies combined with capital spending plans based on consensus pricing assumptions(1) underscores Painted Pony’s commitment to cost discipline and capital efficiency.
Pat Ward, President and CEO of Painted Pony, in commenting on these highlights said, “Current pipeline constraints have caused pricing volatility which has resulted in continued low prices both in the spot market and in the forward natural gas strip in western Canadian markets. We believe that a combination of reduced capital spending by the natural gas industry in 2018 and 2019 and continuing demand growth should create the support for pricing above current western Canadian strip prices. Establishing a range of capital spending in 2019 and a commitment to limit spending to match anticipated internally generated adjusted funds flow from operations provides Painted Pony the flexibility to shift capital spending based on changing market prices. We continue to see the benefits of our successful market diversification strategy in our realized prices and our strong netbacks. Accessing market pricing outside of Alberta and BC as well as securing transportation and pricing to a diversity of markets including Dawn, NYMEX, and Sumas has proven to be effective for us as we continue to work to protect Painted Pony from natural gas price weakness and volatility. It is precisely this sales diversification combined with recent significant natural gas price increases at the Sumas, NYMEX and Dawn markets which are producing cash flows that currently exceed our previous 2018 fourth quarter internal management expectations.”
Consistent with past years Painted Pony has fixed price contracts providing approximately 50% of 2019 expected revenues through sales exposure at Sumas, Dawn, NYMEX, and AECO. A combination of these fixed price contracts and consensus prices (1) at the numerous sales hubs into which Painted Pony sells, are expected to yield revenue for 2019 of $3.22/Mcfe (before the impact of realized risk management gains / losses). At consensus pricing assumptions (1) and cost metrics for 2019, Painted Pony anticipates the following:
2019 Forecasted Metrics (/Mcfe)
Revenue |
$3.22 |
Royalties |
(0.07) |
Operating Costs |
(0.62) |
Transportation Costs |
(0.75) |
Realized Risk Management Gains / (Losses) |
(0.06) |
Operating Netback* |
$1.72 |
Net General & Administrative Costs |
(0.13) |
Interest Expense |
(0.22) |
Capital Lease Finance Expense |
(0.48) |
Adjusted Funds Flow from Operations |
$0.89 |
*Note: |
Operating Netback includes a $0.06/Mcfe provincial carbon tax / levy, which is included in operating and transportation costs. |
2019 Forecasted Adjusted Funds Flow from Operations Sensitivities
Realized Natural Gas Price |
+ / – $0.01/Mcf |
+ / – $1.1 million |
AECO (7A) Price |
+ / – $0.10/Mcf |
+ / – $5.1 million |
WTI |
+ / – USD$5.00/bbl |
+ / – $1.4 million |
Foreign Exchange (USD/ CAD) |
+ / – $0.01 |
– / + $1.8 million |
(1) Consensus pricing – NYMEX USD$3.23/MMBtu; AECO 7A CAD$1.90/Mcf; Station 2 CAD$1.50/Mcf; WTI USD$60.00/bbl; USD/CAD Exchange $0.75
Production
Annual daily production volumes for 2019 are anticipated to average between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d) with capital spending expected to be $95 million – $110 million.
Painted Pony continued to innovate capital operations during 2018 by testing the productive impact of longer lateral lengths, increasing the number of stages per meter in completion operations in addition to increasing sand loading, and testing longer soak times. Well productivity has remained strong and the results, while preliminary, are encouraging.
Consistent with Painted Pony’s third quarter 2018 press release on November 5, 2018, based on field estimates for both October and November and including pricing-related voluntary shut-ins during December due to the impact of ongoing apportionment of the Enbridge T-South pipeline, fourth quarter 2018 daily production volumes are expected to average between 303 MMcfe/d (50,500 boe/d) and 312 MMcfe/d (52,000 boe/d).
OUTLOOK
Painted Pony is well-positioned to deliver a 2019 capital program based on expected adjusted funds flow from operations delivering between 3% and 4% lower forecasted annual average daily production volumes of between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d) compared to 2018 expected annual average daily production volumes of between 339 MMcfe/d (56,500 boe/d) and 348 MMcfe/d (58,000 boe/d). Painted Pony’s strategy continues to focus on the creation of long-term shareholder value through the deep inventory of drilling locations for natural gas and natural gas liquids across more than 300 net sections of Montney rights, continued focus on long-term opportunities for market diversification, and corporate-wide cost structure optimization.
CONFERENCE PARTICIPATION
Painted Pony is pleased to announce that it will be participating in the 2019 TD Securities London Energy Conference taking place on January 14 and 15, 2019 at Grosvenor House Hotel, London, UK. Mr. Pat Ward, President and CEO, will be presenting on Tuesday, January 15, 2019 at 10:40 am (GMT) at the Grosvenor House Hotel. In addition to Mr. Ward’s presentation, the Corporation will be undertaking a series of discussions with institutional investors while at this conference.