Key Development: Transformational Change Following Close of Shell Alberta Foothills Assets Acquisition
- Completed the transformational Shell asset acquisition which is immediately accretive to the Company
- Shell assets give Pieridae majority of the gas resource to supply Train 1 (or facility) at Goldboro LNG facility
- Third quarter production averaged 14,657 barrels of oil equivalent per day (“Boe/d”), resulting in $12.7 million in revenues, three per cent higher than Q2 2019
- Natural gas physical hedging resulted in a 41 per cent premium price to AECO
- Upstream year to date net operating income (“NOI”)1 is positive despite two successive quarters of a low-priced environment
CALGARY, Alberta, Nov. 06, 2019 (GLOBE NEWSWIRE) — Pieridae Energy Limited (“Pieridae” or the “Company”) (PEA – TSXV) has filed its third quarter (“Q3”) unaudited condensed interim financial statements and related management’s discussion and analysis (“MD&A”) for the three and nine month periods ending September 30, 2019. Pieridae’s unaudited condensed interim financial statements and MD&A are available on our website at www.pieridaeenergy.com and are filed on SEDAR at www.sedar.com.
“Closing the Shell asset acquisition means we have secured the majority of the gas needed to supply the first train at our Goldboro LNG facility for at least twenty years. Now, we can focus on completing negotiations with Kellogg Brown & Root Limited for a fixed price contract to build the Goldboro LNG facility in order to complete the project financing and make the final investment decision in 2020,” said Pieridae’s Chief Executive Officer Alfred Sorensen.
“Focusing on our Q3 results, while average daily production of our natural gas assets was down, we did increase overall revenues. And our hedging program helped partially offset low AECO prices that, at times, were at decade lows. We saw an average price of $1.22 per gigajoule in the quarter,” concluded Sorensen.
Q3 2019 Financial & Operations Highlights
Coming into the quarter, the Company’s upstream business had year to date NOI of $3.2 million. The expected low seasonal gas price cycle and shut in production due to the lows that are traditionally experienced in summer contributed to the loss in Q3 of $2.7 million. Despite two successive quarters of this low pricing environment, the upstream business continues to have year to date positive NOI.
Petroleum and natural gas revenues, net of royalties, in Q3 were $12.6 million, a $.7 million increase from Q2 2019. An increase in natural gas revenues from $10.0 million in Q2 2019 to $10.4 million in Q3 2019 accounted for much of the improvement. A higher realized average natural gas price for Pieridae of $1.22 per gigajoule (“GJ”) was 41 per cent higher than the average AECO price, which speaks to the value of the Company’s recently implemented physician hedging program.
Net Operating Income & Operating Netbacks
Net Operating Income
|Upstream segment||For the three months ended||For the nine-months ended
|($000s, except where otherwise stated)|| September
|Revenue (net of royalties)||$||12,638||$||–||$||46,929||$||–|
|Realized loss on risk management contracts||$||–||$||–||$||(656||)||$||–|
|Net operating expenses||$||(13,906||)||$||(103||)||$||(40,924||)||$||(427||)|
|Net operating (loss) income||$||(2,732||)||$||(103||)||$||469||$||(427||)|
As mentioned, Q3 production averaged 14,657 Boe/d, comprised of 99 per cent natural gas and one per cent natural gas liquids (“NGL’s”) and condensate. Year to date production averaged 15,744 Boe/d. This production is below estimated combined field capacity and is related to voluntary well shut-ins due to low gas prices.
NGL pricing was flat in Q3 2019. Pieridae realized an average price of $42.45 per barrel (“bbl”) versus $41.83 per bbl in Q2 2019. The year to date average price for NGL sales was $43.22 per bbl.
The poor pricing environment continues to force the Company to limit its capital investment to sustaining production, as opposed to growing it. Consequently, exploration and development expenditures in the quarter were $1.8 million. Year to date expenditures totalled $3.3 million.
Finally, there was a deliberate reduction in spending on the proposed Goldboro LNG facility and this was responsible for much of the improvement in the Company’s overall loss in Q3 2019 of $13.2 million down 33 per cent from Q2 2019. Instead, the Company focused its efforts on closing the Shell acquisition.
Q3 2019 Developments
Uniper Deadlines Extensions
On July 11, 2019, Pieridae negotiated extensions of the key deadlines under its 20-year agreement with Germany’s largest utility Uniper. These included expected commercial deliveries of gas to Uniper to start between November 30th, 2024 and May 31st, 2025; and the extension to September 30, 2020 of the deadline to make a positive financial investment decision for the Company’s proposed Goldboro LNG facility. The 20-year agreement with Uniper is for all of Train 1 at Goldboro or 5 million tonnes per annum.
Shell Assets Acquisition Close
On October 17, 2019, Pieridae announced it had completed a transformational milestone for the Company by closing the transaction to purchase all of Shell Canada Energy’s midstream and upstream assets in the Southern Alberta Foothills for $190 million. The acquisition includes approximately 28,634 Boe/d, three deep cut sour gas processing plants: Jumping Pound, Caroline and Waterton, a 14 per cent working interest in the Shantz sulphur forming plant, and approximately 1,700 kilometres of pipelines.
The acquisition gives Pieridae a better product mix, creating a stronger business platform which will help protect the Company from overall price volatility. The acquisition is immediately accretive and contributes positive operating cash flow to Pieridae, is a major step forward for the supply for Train 1 of the Goldboro LNG facility, makes the Company a major player in the Alberta midstream and conventional upstream natural gas industries, and sees Shell take an equity interest in Pieridae.
Pieridae now has an extensive drilling inventory that includes multiple dry gas and liquids-rich gas reservoirs within the Foothills area. The new employees coming from Shell have strong experience managing the four major processing facilities and associated midstream assets. Together with existing Foothills drilling and development experience within the Company, Pieridae is well positioned to leverage the US$1.5 billion of the government-backed loan guarantees for conventional gas supply development which the German government approved in principle. This amount is in addition to the US$3.0 billion of government-backed loan guarantees for the construction of the Goldboro LNG facility which the German government has also approved in principle.
Certain aspects of the asset retirement obligation with respect to the Jumping Pound and Waterton gas plants remain with Shell.
There will be no significant capital expenditures in Q4 2019. Consistent with prior guidance, with the closing of the Shell acquisition, management is expecting an increase in production to between 40,000 and 50,000 Boe/d in the latter part of the year. This represents an increase of between 230 to 290 per cent over Q3 2019 exit production of 17,300 Boe/d. Pieridae has approved a pre Final Investment Decision (“FID”) Capital budget of $32 million and LNG Development expense budget of $16 million in 2020. A further update on 2020 operational guidance will be provided prior to year end.
Founded in 2011, Pieridae, a majority Canadian owned corporation based in Calgary, is focused on the development of integrated energy-related activities, from the exploration and extraction of natural gas to the development, construction and operation of the Goldboro LNG facility and the production of LNG for sale to Europe and other markets. Pieridae is on the leading edge of the re-integration of the LNG value chain in North America. After completion of all the transactions disclosed in this news release, Pieridae has 157,459,584 common shares issued and outstanding which trade on the TSX Venture Exchange (PEA).