CALGARY, March 6, 2019 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) is pleased to announce year-end 2018 financial and operating results and reserves as of December 31, 2018.
HIGHLIGHTS
Financial
- Achieved record annual adjusted funds flow for Painted Pony of $175 million ($1.08 per share) in 2018 compared to $109 million ($0.78 per share) during 2017, an increase of 38% per share;
- Increased adjusted funds flow during the fourth quarter of 2018 by 65% to $59 million ($0.36 per share) compared to $36 million ($0.22 per share) during the fourth quarter of 2017;
- Reduced 2018 year-end net debt by 10% or $37 million when compared to the third quarter of 2018; and
- Increased fourth quarter 2018 net income and comprehensive income by 70% to $63 million ($0.39 per share) compared to $37 million ($0.23 per share) during the fourth quarter of 2017.
Reserves
- Increased Proved Developed Producing (“PDP“) reserves by over 19% to 951 Bcfe at year-end 2018, from 797 Bcfe at year-end 2017;
- Recorded a 31% increase in PDP natural gas liquids (“NGL“) to 14 MMbbls at the end of 2018 compared to the end of 2017;
- Increased PDP net present value at the end of 2018 by 23% to $1.1 billion ($6.94 per share) at a 10% discount rate and using pricing from independent qualified reserves evaluators, GLJ Petroleum Consultants Ltd. (“GLJ“) as compared to the end of 2017;
- Generated a finding, development and acquisition (“FD&A“) PDP recycle ratio of 3.1 times, using an FD&A cost of $0.55 per Mcfe, and a corporate netback of $1.71 per Mcfe;
- Replaced 222% of 2018 production volumes through PDP reserve additions of 282 Bcfe; and
- Reduced Total Proved (“1P“) and Total Proved Plus Probable (“2P“) future development capital (“FDC“) by 17% or $308 million and 16% or $657 million, respectively; and
- Increased 1P NGLs to 38 MMbbls (23% annual increase) and increased 2P NGLs to 83 MMbbls (14% annual increase) compared to year-end 2017.
Production
- Increased average daily production volumes during 2018 by 35% to 347 MMcfe/d (57,879 boe/d) compared to 2017, which was at the upper-end of production guidance of 339 MMcfe/d (56,500 boe/d) to 348 MMcfe/d (58,000 boe/d); and
- NGL annual average daily production volumes increased by 43% to 5,128 bbls/d during 2018 compared to 3,587 bbls/d during 2017.
Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, “Despite the ongoing low natural gas prices in western Canada, Painted Pony generated free cash flow during 2018 allowing us to reduce net debt in Q4 2018 by $37 million compared to Q3 2018 while delivering annual average daily production volume growth of 35%. Painted Pony’s market diversification strategy allowed us to realize natural gas prices that exceeded the average AECO 5A daily spot price during 2018 by 69%. Our focus on growing PDP reserves in 2018 yielded positive results with year-end PDP reserves up 19% compared to year-end 2017, including PDP natural gas liquids reserves growth of more than 30%. Our 2P FDC fell by 16% or $657 million due to fewer undeveloped locations. There is an increased 1P average recovery of 2.0 Bcfe per well, driving stronger capital efficiencies and lowering the per Mcfe cost of future reserve additions. Our track record of low-cost reserve additions continued with a 2018 PDP FD&A cost of $0.55 per Mcfe that generated an industry leading PDP recycle ratio of 3.1 times.”
SUMMARY OF 2018 RESERVES AS PREPARED BY GLJ PETROLEUM CONSULTANTS
2018 Summary of Reserves
GLJ prepared an evaluation of Painted Pony’s properties effective December 31, 2018, which is contained in a report dated March 5, 2019.
Proved Developed Producing (PDP)
During 2018, Painted Pony increased PDP reserves by 19% to 951 Bcfe (159 MMboe) at an FD&A cost of $0.55 per Mcfe. NGLs made up approximately 9% of PDP reserves at December 31, 2018. Painted Pony’s PDP reserve additions replaced 222% of 2018 average daily production volumes.
Total Proved (1P)
As at December 31, 2018, Painted Pony’s 1P reserves were maintained at approximately 3.1 Tcfe (511 MMboe), which included a 23% increase in NGLs to 38 MMbbls compared to 2017 year-end NGLs of 31 MMbbls. Painted Pony realized 1P FDC cost reductions of 17% or $308 million from a reduced number of wells. Recoverable reserves per proved undeveloped location increased by an average of 2.0 Bcfe per well. FDC cost reductions exceeded total 2018 capital spending of $154 million.
Total Proved Plus Probable (2P)
As at December 31, 2018, Painted Pony maintained 2P reserves at approximately 6.9 Tcfe (1,147 MMboe), which included a 14% increase in NGLs to 83 MMbbls compared to 2017 year-end NGLs of 73 MMbbls. Painted Pony realized 2P FDC cost reductions of 16% or $657 million from a reduced number of wells. Recoverable reserves per proved plus probable undeveloped location increased by an average of 1.3 Bcfe per well. FDC cost reductions of $657 million exceeded total 2018 capital spending of $154 million.
2018 FINDING, DEVELOPMENT & ACQUISITION COSTS
In 2018, the Corporation generated a PDP FD&A recycle ratio of 3.1 times, as illustrated below. The corporate netback of $1.71 per Mcfe, which has been adjusted to include the cost of the finance lease expense related to the Townsend Facility, is divided by the FD&A costs of $0.55 per Mcfe on a PDP basis.
Operating and Corporate Netbacks
($/Mcfe) |
2018 |
Revenue |
3.19 |
Realized Gain on Risk Management Contracts |
0.30 |
Revenue including Realized Gain on Risk Management Contracts |
3.49 |
Royalties |
(0.05) |
Operating Expenses |
(0.57) |
Transportation Expenses |
(0.71) |
Operating Netbark |
2.16 |
Finance Lease Expense (Townsend Facility) |
(0.45) |
Corporate Netback |
1.71 |
Note: See Non-GAAP disclosure in Advisory section |
The tables below outline GLJ’s estimates of Painted Pony’s reserves at December 31, 2018 and December 31, 2017:
Summary of Company Working Interest Reserves (gross of royalties)
December 31, 2018 |
December 31, 2017 |
||||||||
Natural Gas |
NGLs |
Natural Gas |
Oil |
Natural Gas Equivalent |
|||||
Proved Developed Producing |
869.1 |
13.7 |
951.4 |
158.6 |
796.6 |
||||
Proved Developed Non-Producing |
7.8 |
0.2 |
8.9 |
1.5 |
14.8 |
||||
Proved Undeveloped |
1,961.7 |
24.3 |
2,107.5 |
351.2 |
2,298.9 |
||||
Total Proved |
2,838.5 |
38.2 |
3,067.8 |
511.3 |
3,110.2 |
||||
Total Probable |
3,545.4 |
44.9 |
3,814.8 |
635.8 |
3,782.8 |
||||
Total Proved Plus Probable |
6,383.9 |
83.1 |
6,882.5 |
1,147.1 |
6,893.0 |
See the advisories with respect to resource definitions. |
Numbers in this table may not add due to rounding. |
The tables below outline GLJ’s estimates of Painted Pony’s associated net present values of reserves at December 31, 2018:
Net Present Values of Future Net Revenue (1)(2)
(Forecast Prices and Costs) ($Millions)
As at December 31, 2018 |
||||||||||
Annual Discount Rate |
0% |
5% |
10% |
15% |
||||||
BEFORE INCOME TAXES |
||||||||||
Proved |
||||||||||
Developed Producing |
1,983 |
$ |
1,430 |
$ |
1,116 |
$ |
920 |
|||
Developed Non-Producing |
20 |
$ |
13 |
$ |
10 |
$ |
7 |
|||
Undeveloped |
3,570 |
$ |
2,007 |
$ |
1,219 |
$ |
776 |
|||
Total Proved |
5,574 |
$ |
3,450 |
$ |
2,344 |
$ |
1,704 |
|||
Probable |
7,997 |
$ |
3,476 |
$ |
1,784 |
$ |
1,017 |
|||
Total Proved Plus Probable |
13,570 |
$ |
6,926 |
$ |
4,128 |
$ |
2,721 |
Numbers in this table may not add due to rounding. |
1. Estimates of future net revenue, whether discounted or not, do not represent fair market value. |
2. Future net revenue is after deduction of estimated costs of abandonment and reclamation of existing and future reserve wells that were evaluated by GLJ in the 2018 Reserves Evaluation and does not include costs of abandonment and reclamation of facilities and pipelines. |
Reconciliation of Company Gross Reserves
(Forecast Prices and Costs)
Natural Gas |
||||||||
(Shale Gas) |
NGLs (MMbbl) |
Total |
Total |
|||||
Total Proved Reserves |
||||||||
Opening Balance December 31, 2017 |
2,924.2 |
31.0 |
518.4 |
3,110.2 |
||||
Discoveries |
— |
— |
— |
— |
||||
Extensions and Improved Recovery |
— |
— |
— |
— |
||||
Technical Revisions (2) |
29.7 |
9.1 |
14.0 |
84.2 |
||||
Economic Factors |
0.2 |
— |
— |
0.2 |
||||
Dispositions |
— |
— |
— |
— |
||||
Acquisitions |
— |
— |
— |
— |
||||
Production (1) |
(115.5) |
(1.9) |
(21.1) |
(126.8) |
||||
Closing Balance December 31, 2018 |
2,838.5 |
38.2 |
511.3 |
3,067.8 |
||||
Total Proved Plus Probable Reserves |
||||||||
Opening Balance December 31, 2017 |
6,454.9 |
73.0 |
1,148.8 |
6,893.0 |
||||
Discoveries |
— |
— |
— |
— |
||||
Extensions and Improved Recovery |
— |
— |
— |
— |
||||
Technical Revisions (2) |
44.2 |
12.0 |
19.3 |
116.1 |
||||
Economic Factors |
0.2 |
— |
— |
0.2 |
||||
Dispositions |
— |
— |
— |
— |
||||
Acquisitions |
— |
— |
— |
— |
||||
Production (1) |
(115.5) |
(1.9) |
(21.1) |
(126.8) |
||||
Closing Balance December 31, 2018 |
6,383.9 |
83.1 |
1,147.1 |
6,882.5 |
Numbers in this table may not add due to rounding. |
(1) Represents the Corporation’s actual production for the year ended December 31, 2018. |
(2) Technical revisions are the result of improved performance in well results, natural gas liquids yields, and type curves. |
Industry uses recycle ratios as a measure of a Corporation’s ability to grow reserves profitably and invest capital efficiently. The recycle ratio is calculated by dividing the annual corporate netback by the annual finding, development and acquisition cost, both on a per unit basis. The higher the recycle ratio, the more efficient Painted Pony has been in deploying capital to grow reserves and therefore value for shareholders. Painted Pony also uses the 3-year weighted average recycle ratio, which smooths out yearly fluctuations by dividing the 3-year weighted average corporate netback by the 3-year weighted average finding, development and acquisition cost, both on a per unit basis. The following table highlights Painted Pony’s capital program efficiency and the resulting recycle ratios.
Capital Efficiencies
Proved Developed Producing |
2018 |
3-Year Weighted Avg. |
|
Finding, Development & Acquisition Cost ($/Mcfe) |
0.55 |
0.95 |
|
Recycle Ratio |
3.1x |
1.7x |
|
Total Proved |
|||
Finding, Development & Acquisition Cost ($/Mcfe) |
n/a |
0.58 |
|
Recycle Ratio |
nmf* |
2.8x |
|
Total Proved Plus Probable |
|||
Finding, Development & Acquisition Cost ($/Mcfe) |
n/a |
0.43 |
|
Recycle Ratio |
nmf* |
3.7x |
See advisories with respect to finding, development & acquisition costs. |
|||
*Reduction in FDC exceeds capital spending in 2018, resulting in a ‘not meaningful figure’ (nmf) |
Future Development Costs of Undeveloped Reserves
(Forecast Prices and Costs) |
|||
Total Proved Undeveloped |
|||
As at December 31 |
2018 |
2017 |
|
Net Total Proved Undeveloped Wells |
257 |
368 |
|
Total Proved Future Development Capital ($Millions) (undiscounted) |
1,539 |
1,847 |
|
Total Proved Reserves (Bcfe) |
3,068 |
3,110 |
|
Total Proved Future Development Capital ($ per Mcfe) |
0.50 |
0.59 |
|
(Forecast Prices and Costs) |
|||
Proved Plus Probable Undeveloped |
|||
As at December 31 |
2018 |
2017 |
|
Net Proved Plus Probable Undeveloped Wells |
618 |
759 |
|
Proved Plus Probable Future Development Capital ($Millions) |
3,476 |
4,133 |
|
Total Proved Plus Probable Reserves (Bcfe) |
6,883 |
6,893 |
|
Proved Plus Probable Future Development Capital ($ per Mcfe) |
0.51 |
0.60 |
2018 FINANCIAL AND OPERATING RESULTS
Capital Expenditures
Capital spending during 2018 totaled approximately $154 million compared to adjusted funds flow for 2018 of $175 million. This capital spending profile is consistent with Painted Pony’s 2018 capital spending strategy of delivering annual average daily production volume growth through capital investments which did not exceed 2018 adjusted funds flow.
Activities included the drilling of 22 (22.0 net) wells, the completion of 28 (28.0 net) and investments into associated facilities and infrastructure.
During the fourth quarter of 2018, Painted Pony drilled 1 (1.0 net) and completed 5 (5.0 net) wells, and executed a capital program of $19 million, which included spending approximately $17 million on drilling and completions, $1 million on facilities and equipment and $1 million on capitalized G&A.
Production
Painted Pony’s 2018 annual average daily production increased by 35% to 347 MMcfe/d (57,879 boe/d), including 9% or 5,128 bbls/d of NGLs, over 2017 annual average daily production volumes of 257 MMcfe/d (42,882 boe/d), including 8% or 3,587 bbls/d of NGLs.
During the fourth quarter of 2018 temporary production volume shut-ins totaling approximately 32 MMcfe/d (5,300 boe/d) occurred. The majority of these shut-ins were due to third-party interruptions and voluntary shut-ins due to price weakness created by these third-party restrictions and outages.
NGL production for the fourth quarter of 2018 was affected by approximately 9% compared to the fourth quarter of 2017 due to issues at the Townsend Facility. Painted Pony is working with the facility operator to ensure the issues are resolved.
During the fourth quarter of 2018 Painted Pony maintained average daily production volumes of 315 MMcfe/d (52,453 boe/d) compared to fourth quarter 2017 production volumes of 315 MMcfe/d (52,544 boe/d).
Adjusted Funds Flow from Operations
Adjusted funds flow from operations increased to $175 million during 2018, compared to 2017 adjusted funds flow from operations of $109 million. The increase in adjusted funds flow from operations is the result of a 35% increase in production volumes, a 12% increase in realized prices including risk management contracts, offset by a 20% increase in costs per Mcfe.
Painted Pony’s fourth quarter 2018 adjusted funds flow from operations increased 65% to $59 million, compared to adjusted funds flow from operations of $36 million during the fourth quarter of 2017.
The increase in adjusted funds flow in 2018 was positively influenced by Painted Pony’s diversified marketing strategy which captured strong pricing at both the Dawn hub in southern Ontario and the Sumas sales hub in southern BC during the fourth quarter of 2018.
2019 CAPITAL PROGRAM
Painted Pony remains well-positioned to deliver a 2019 capital program based on expected adjusted funds flow delivering between 3% and 7% 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 annual average daily production volumes of 347 MMcfe/d (57,879 boe/d).
At the time of Painted Pony’s December 17, 2018 press release detailing the 2019 capital program, the forward strip price for spot AECO daily 5A natural gas averaged approximately $1.75 per Mcf for the months of January and February 2019. Actual forward strip price for spot AECO daily 5A natural gas averaged approximately $2.57 per Mcf during January and February 2019, an increase of 47% over the December 2018 forward strip price.
Painted Pony’s strategy continues to focus on the creation of long-term shareholder value through the deep inventory of drilling locations for natural gas and natural gas liquids across more than 300 net sections of Montney rights, continued focus on long-term opportunities for market diversification, and corporate-wide cost structure optimization.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Years ended December 31, |
||||||
($ millions, except per share and shares outstanding) |
2018 |
2017 |
Change |
|||
Financial |
||||||
Petroleum and natural gas revenue(1) |
404.4 |
249.2 |
62% |
|||
Cash flows from operating activities |
169.0 |
106.9 |
58% |
|||
Per share – basic (3)(8) |
1.05 |
0.76 |
38% |
|||
Per share – diluted (4)(8) |
0.99 |
0.74 |
34% |
|||
Adjusted funds flow from operations(2) |
174.6 |
109.2 |
60% |
|||
Per share – basic (3) |
1.08 |
0.78 |
38% |
|||
Per share – diluted(4) |
1.03 |
0.76 |
36% |
|||
Net income and comprehensive income |
7.1 |
122.4 |
(94)% |
|||
Per share – basic (3) |
0.04 |
0.87 |
(95)% |
|||
Net income and comprehensive income – diluted |
7.1 |
123.2 |
(94)% |
|||
Per share – diluted(4) |
0.04 |
0.85 |
(95)% |
|||
Capital expenditures |
154.4 |
302.6 |
(49)% |
|||
Working capital (5) |
32.9 |
33.0 |
—% |
|||
Bank debt |
163.1 |
149.2 |
9% |
|||
Senior notes |
143.1 |
141.6 |
1% |
|||
Convertible debentures – liability |
46.1 |
44.9 |
3% |
|||
Net debt (6) |
348.5 |
363.9 |
(4)% |
|||
Total assets |
2,055.4 |
2,031.6 |
1% |
|||
Shares outstanding (millions) |
161.0 |
161.0 |
—% |
|||
Basic weighted-average shares (millions) |
161.0 |
140.7 |
14% |
|||
Fully diluted weighted-average shares (millions) |
169.9 |
144.1 |
18% |
|||
Operational |
||||||
Daily production volumes |
||||||
Natural gas (MMcf/d) |
316.5 |
235.8 |
34% |
|||
Natural gas liquids (bbls/d) |
5,128 |
3,587 |
43% |
|||
Total (MMcfe/d) |
347.3 |
257.3 |
35% |
|||
Total (boe/d) |
57,879 |
42,882 |
35% |
|||
Realized commodity prices before financial risk |
||||||
management contracts |
||||||
Natural gas ($/Mcf) |
2.54 |
2.13 |
19% |
|||
Natural gas liquids ($/bbl) |
59.43 |
50.53 |
18% |
|||
Total ($/Mcfe) |
3.19 |
2.65 |
20% |
|||
Operating netbacks ($/Mcfe)(7) |
2.16 |
2.01 |
7% |
|||
Corporate netbacks ($/Mcfe)(7) |
1.71 |
1.54 |
11% |
(1) |
Before royalties. |
(2) |
Adjusted funds flow from operations and adjusted funds flow from operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from operating activities before the effects of changes in non-cash working capital and decommissioning expenditures. Adjusted funds flow from operations per share is calculated by dividing adjusted funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period. See “Non-GAAP Measures” in Management Discussion and Analysis for the year ended December 31, 2018. |
(3) |
Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period. |
(4) |
Diluted per share information reflects the potential dilutive effect of stock options and convertible debentures. |
(5) |
Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. See “Non-GAAP Measures” in Management Discussion and Analysis for the year ended December 31, 2018. |
(6) |
Net debt is a non-GAAP measure calculated as bank debt, senior notes, liability portion of convertible debentures, and working capital (deficiency), adjusted for the net current portion of fair value of risk management contracts and current portion of finance lease obligation. See “Non-GAAP Measures” in Management Discussion and Analysis for the year ended December 31, 2018. |
(7) |
Operating netbacks is a non-GAAP measure calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management, less royalties, operating expenses and transportation costs. Corporate netback is calculated as operating netback less finance lease expense per unit. See “Non-GAAP Measures” and “Operating and Corporate Netbacks” in Management Discussion and Analysis for the year ended December 31, 2018. |
(8) |
Cash flows from operating activities per share – basic and diluted are non-GAAP measures calculated by dividing cash flows from operating activities by the weighted average of basic or diluted shares outstanding in the period. |