CALGARY, Alberta, Nov. 13, 2019 (GLOBE NEWSWIRE) — Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX: PRQ) is pleased to report financial and operating results as at and for the three and nine months ended September 30, 2019. Petrus is focused on generating free funds flow for debt repayment and further development of its Ferrier Cardium asset to increase light oil and total liquids weighting. The Company’s Management’s Discussion and Analysis (“MD&A”) and interim consolidated financial statements dated as at and for the period ended September, 2019 are available on SEDAR (the System for Electronic Document Analysis and Retrieval) at www.sedar.com.
Throughout the third quarter of 2019, Petrus continued to execute its business plan. In the first nine months of 2019 we have generated funds flow of $24.4 million ($0.49 per share) with net capital expenditures of $13.1 million. This resulted in net debt(1) reduction of $10.7 million (8%) to date in 2019. During the third quarter of 2019, Petrus generated funds flow of $4.4 million; $2.1 million of which was directed to net debt reduction. Third quarter development activity was postponed to prioritize debt repayment and the Company has not brought on new production since the first quarter of 2019. The Company’s drilling activity resumed late in the third quarter of 2019 with 4 gross (1.6 net) Cardium light oil wells drilled. The completion, tie-in and production attributed to these wells commenced early in the fourth quarter. Estimated production from the first 3 (1.2 net) wells over the first few weeks, net to Petrus, was approximately 800 bbl/d of light oil and approximately 1,000 mcf/d of natural gas.
The average benchmark natural gas price in Canada (AECO 5A monthly index) was $0.91/mcf in the third quarter of 2019. This was the lowest quarterly average benchmark natural gas price since the Company’s inception in 2011. In late September, TC Energy announced implementation of a revised operating protocol for balancing the NGTL pipeline during periods of planned system maintenance. This Temporary Service Protocol (“TSP”) came into effect September 30, 2019 and applies to April to October maintenance periods. Following the announcement, AECO prices increased to average over $2.60/mcf for the second half of October, with the average monthly price settling at $2.21/mcf. Forward AECO strip pricing for calendar 2020 has been improving and is currently approximately $2.00/mcf. Petrus anticipates the impacts of the TSP, continued expansion of the NGTL system in 2020 and 2021 and low Alberta natural gas storage levels will all aid in reducing price volatility and improving support for Canadian natural gas.(2)
Natural gas liquids (“NGLs”) have also been subject to pricing pressure in 2019. Spot market pricing for propane and butane was approximately 35% lower than the prior year for the first nine months of 2019. Petrus’ ownership and control of critical processing facilities enables the Company to respond and continually optimize its production revenue streams. To improve operating netback, during the third quarter, Petrus ceased sending certain natural gas for additional third party deep-cut processing to extract additional NGLs. This resulted in lower NGL production volume, however, the heating value of natural gas sales increased and processing fees decreased. Petrus continues to monitor NGL market pricing and is able to modify its operations accordingly.
Highlights for the first nine months and third quarter of 2019
- Free funds flow – Generated funds flow of $24.4 million ($0.49 per share) for the first nine months of 2019 with net capital expenditures of $13.1 million, resulting in net debt(1) reduction of $10.7 million. During the third quarter of 2019, Petrus generated funds flow of $4.4 million; $2.1 million of which was directed to net debt(1) reduction.
- Increased light oil weighting – Delivered total light oil production of 1,544 boe/d for the first nine months of 2019 (increased its light oil weighting 23% from the beginning of 2018) with third quarter 2019 light oil production of 1,247 boe/d.
- Low operating costs – Operating expense for the nine months ended September 30, 2019 was $4.17/boe and for the third quarter was $4.44/boe. The Company continues to focus on optimizing its cost structure, particularly in the Ferrier area, through facility ownership and control.
- Reconfirmed credit facility – Subsequent to September 30, 2019, Petrus completed its semi-annual credit facility review where its $100 million facility was reconfirmed. Lender consent is still required for borrowings above $95 million.
- Commodity price risk mitigation – Petrus utilizes financial derivative contracts to mitigate commodity price risk and provide stability and sustainability. As a percentage of third quarter 2019 production, we have derivative contracts in place for 50%, at an average price of $1.85/mcf and 63% at an average price of $70.45 (C$/bbl) of natural gas and oil and natural gas liquids production, respectively, for the balance of 2019.
Fourth Quarter Outlook
In the fourth quarter we plan to continue the execution of our 2019 business plan and estimate capital investment of approximately $5.5 million and further net debt(1) reduction of $2 to $4 million.
(1)Refer to “Non-GAAP Financial Measures”.
(2)Refer to “Advisories – Forward-Looking Statements”.
(3)Refer to “Oil and Gas Disclosures”.
SELECTED FINANCIAL INFORMATION
OPERATIONS | Three months ended Sept. 30, 2019 |
Three months ended Sept. 30, 2018 |
Three months ended Jun. 30, 2019 |
Three months ended Mar. 31, 2019 |
Three months ended Dec. 31, 2018 |
|||||
Average Production | ||||||||||
Natural gas (mcf/d) | 30,998 | 33,461 | 32,350 | 32,145 | 30,480 | |||||
Oil (bbl/d) | 1,247 | 1,243 | 1,679 | 1,704 | 1,358 | |||||
NGLs (bbl/d) | 1,372 | 1,519 | 1,576 | 1,444 | 1,496 | |||||
Total (boe/d) | 7,785 | 8,338 | 8,647 | 8,505 | 7,934 | |||||
Total (boe) | 716,220 | 767,095 | 786,819 | 765,488 | 730,819 | |||||
Light oil weighting | 16 | % | 15 | % | 19 | % | 20 | % | 17 | % |
Realized Prices | ||||||||||
Natural gas ($/mcf) | 1.12 | 1.50 | 1.30 | 2.44 | 1.95 | |||||
Oil ($/bbl) | 65.64 | 77.24 | 70.96 | 55.10 | 52.26 | |||||
NGLs ($/bbl) | 11.49 | 45.27 | 19.91 | 36.02 | 29.01 | |||||
Total realized price ($/boe) | 16.99 | 25.79 | 22.29 | 26.36 | 21.91 | |||||
Royalty income | 0.48 | 0.32 | 0.15 | 0.06 | 0.10 | |||||
Royalty expense | (1.65 | ) | (3.12 | ) | (1.72 | ) | (3.08 | ) | (3.34 | ) |
Net oil and natural gas revenue ($/boe) | 15.82 | 22.99 | 20.72 | 23.34 | 18.67 | |||||
Operating expense | (4.44 | ) | (4.95 | ) | (4.33 | ) | (3.76 | ) | (5.28 | ) |
Transportation expense | (1.25 | ) | (0.98 | ) | (1.22 | ) | (1.27 | ) | (1.17 | ) |
Operating netback(1) ($/boe) | 10.13 | 17.06 | 15.17 | 18.31 | 12.22 | |||||
Realized gain (loss) on derivatives ($/boe) | 0.50 | (2.69 | ) | (1.02 | ) | 0.67 | (0.79 | ) | ||
Other income | 0.03 | 0.08 | 0.10 | — | 0.37 | |||||
General & administrative expense | (1.08 | ) | (1.72 | ) | (0.67 | ) | (1.15 | ) | (1.46 | ) |
Cash finance expense | (3.11 | ) | (2.53 | ) | (2.70 | ) | (2.54 | ) | (3.25 | ) |
Decommissioning expenditures | (0.29 | ) | (0.20 | ) | (0.24 | ) | (0.18 | ) | (0.21 | ) |
Funds flow & corporate netback(1)(2) ($/boe) |
6.18 | 10.00 | 10.64 | 15.11 | 6.88 | |||||
FINANCIAL (000s except $ per share) | Three months ended Sept. 30, 2019 |
Three months ended Sept. 30, 2018 |
Three months ended Jun. 30, 2019 |
Three months ended Mar. 31, 2019 |
Three months ended Dec. 31, 2018 |
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Oil and natural gas revenue | 12,517 | 20,030 | 17,652 | 20,231 | 16,064 | |||||
Net income (loss) | (29,569 | ) | (8,048 | ) | 2,863 | (12,138 | ) | 21,063 | ||
Net income (loss) per share | ||||||||||
Basic | (0.60 | ) | (0.16 | ) | 0.06 | (0.25 | ) | 0.43 | ||
Fully diluted | (0.60 | ) | (0.16 | ) | 0.06 | (0.25 | ) | 0.43 | ||
Funds flow | 4,427 | 7,685 | 8,366 | 11,573 | 5,030 | |||||
Funds flow per share | ||||||||||
Basic | 0.09 | 0.16 | 0.17 | 0.23 | 0.10 | |||||
Fully diluted | 0.09 | 0.16 | 0.17 | 0.23 | 0.10 | |||||
Capital expenditures | 2,734 | 3,637 | 2,505 | 8,483 | 12,660 | |||||
Net dispositions | 651 | 50 | — | — | 6 | |||||
Weighted average shares outstanding | ||||||||||
Basic | 49,469 | 49,492 | 49,469 | 49,483 | 49,492 | |||||
Fully diluted | 49,469 | 49,492 | 49,469 | 49,483 | 49,492 | |||||
As at period end | ||||||||||
Common shares outstanding | ||||||||||
Basic | 49,469 | 49,492 | 49,469 | 49,469 | 49,492 | |||||
Fully diluted | 49,469 | 49,492 | 49,469 | 49,469 | 49,492 | |||||
Total assets | 296,367 | 322,335 | 328,912 | 336,974 | 341,820 | |||||
Non-current liabilities | 82,650 | 170,908 | 81,249 | 176,093 | 171,646 | |||||
Net debt(1) | 128,553 | 131,603 | 130,619 | 136,382 | 139,214 |
(1)Refer to “Non-GAAP Financial Measures”.
(2)Corporate netback is equal to funds flow which is a directly comparable GAAP measure. Petrus analyzes these measures on an absolute value and per unit basis.
CREDIT FACILITY UPDATE
Subsequent to September 30, 2019 Petrus completed its semi-annual credit facility review where the $100 million facility was reconfirmed. Lender consent is still required for borrowings above $95 million.
The Company’s revolving credit facility’s (“RCF”) maturity date is May 31, 2020 which was set prior to the Company’s term loan maturity of October 8, 2020 (“Term Loan”), due to the inter-creditor relationship between the RCF and the Term Loan. The Company requires an extension or refinancing of its Term Loan before the syndicate of lenders will contemplate an extension to the RCF. The borrowings under the RCF are classified as a current liability in the September 30, 2019 interim consolidated financial statements which has no impact on the debt covenants and the Company remains, and expects to continue to be, in compliance with each of its covenants. Management is actively engaged with the RCF syndicate of lenders and the Term Loan lender and we believe that the RCF and Term Loan will each be extended prior to May 31, 2020. The Company continues its efforts to divest certain non-core assets to improve its balance sheet.
During the third quarter the Company determined there were indicators of impairment of its non-core assets through information obtained through the divestiture process to date. Petrus recognized an impairment loss of $24.7 million for the three and nine months ended September 30, 2019.
OPERATIONS UPDATE
Production
Third quarter average production by area was as follows:
For the three months ended September 30, 2019 | Ferrier | Foothills | Central Alberta | Total | ||||
Natural gas (mcf/d) | 23,488 | 1,513 | 5,997 | 30,998 | ||||
Oil (bbl/d) | 729 | 133 | 385 | 1,247 | ||||
NGLs (bbl/d) | 1,200 | 6 | 166 | 1,372 | ||||
Total (boe/d) | 5,844 | 391 | 1,550 | 7,785 |
Third quarter average production was 7,785 boe/d in 2019 compared to 8,647 boe/d in the second quarter of 2019. Third quarter development activity was postponed to prioritize debt repayment and the Company has not brought on new production since the first quarter of 2019. The Company’s drilling activity resumed late in the third quarter of 2019 with 4 gross (1.6 net) Cardium light oil wells drilled. The completion, tie-in and production attributed to these wells commenced early in the fourth quarter. Estimated production from the first 3 (1.2 net) wells over the first few weeks, net to Petrus, was approximately 800 bbl/d of light oil and approximately 1,000 mcf/d of natural gas. The Company’s development plan is strategically balanced between increasing its Cardium light oil weighting in the Ferrier area and continuing to improve its balance sheet. To date in 2019, Petrus drilled 7 gross (3.1 net) Cardium light oil wells, increased its light oil weighting 23% from the beginning of 2018 and reduced net debt $10.7 million or 8% since December 31, 2018.
The average benchmark natural gas price in Canada (AECO 5A monthly index) was $0.91/mcf in the third quarter of 2019. This was the lowest quarterly average benchmark natural gas price since the Company’s inception in 2011. In late September, TC Energy announced implementation of a revised operating protocol for balancing the NGTL pipeline during periods of planned system maintenance. This Temporary Service Protocol (“TSP”) came into effect September 30, 2019 and applies to April to October maintenance periods. Following the announcement, AECO prices increased to average over $2.60/mcf for the second half of October, with the average monthly price settling at $2.21/mcf. Forward AECO strip pricing for calendar 2020 has been improving and is currently approximately $2.00/mcf. Petrus anticipates the impacts of the TSP, continued expansion of the NGTL system in 2020 and 2021 and low Alberta natural gas storage levels will all aid in reducing price volatility and improving support for Canadian natural gas.
Natural gas liquids (“NGLs”) have also been subject to pricing pressure in 2019. Spot market pricing for propane and butane was approximately 35% lower than the prior year for the first nine months of 2019. Petrus’ ownership and control of critical processing facilities enables the Company to respond and continually optimize its production revenue streams. To improve operating netback, during the third quarter, Petrus ceased sending certain natural gas for additional third party deep-cut processing to extract additional NGLs. This resulted in lower NGL production volume, however the heating value of natural gas sales increased and processing fees decreased. Petrus continues to monitor NGL market pricing and is able to modify its operations accordingly.
Petrus’ Board of Directors has approved a fourth quarter 2019 capital budget of $5.5 million, based on a current forecast for commodity futures pricing, anticipated service costs and current activity levels. The fourth quarter budget is expected to include the drilling and completion activities for 3 gross (0.1 net) Cardium light oil wells as well as the completion and tie-in activities for the 1.6 net wells drilled in the third quarter. Excess cash flow of $2 to $3 million will be directed toward debt repayment.
Petrus estimates the 2019 capital plan will maintain production year over year, increase its light oil and liquids weighting, and reduce debt. Approximately 90% of the capital plan will be directed to development of Cardium light oil wells in the Ferrier area of Alberta, which we estimate will have payouts of less than one year and achieve the objective of increasing the Company’s light oil weighting and funds flow.
Petrus believes that it is unique in the junior E&P company space, as few gas-weighted companies are able to repay debt and grow production and cash flow all within cash from operations. Over the past four years, Petrus has dramatically improved its business in order to increase its sustainability as well as mitigate commodity price risk. Operating costs have been reduced by 50% since 2015 and Petrus’ total cash costs of $9.85/boe are consistently one of the lowest amongst its peers. The Company intends to continue its disciplined focus on balance sheet improvement and capital deployment in 2020. The capital plan targets modest cash flow and production growth while directing in excess of $10 million toward debt reduction in 2020.
(1)Refer to “Non-GAAP Financial Measures”.
(2)Refer to “Advisories – Forward-Looking Statements”.