CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) is pleased to announce the results of our independent 2019 year-end reserves evaluation conducted by Sproule Associates Limited (“Sproule”) with an effective date of December 31, 2019 (the “Sproule Report”).
2019 RESERVES HIGHLIGHTS
- Significant proved plus probable (“2P”) and total proved (“1P”) reserves were added through exploration and development activities in 2019, totaling 4.3 MMboe and 1.7 MMboe, respectively.
- Operating cost reductions at Michichi and improved well performance at Princess resulted in positive technical revisions of 0.5 MMboe for 2P, 1.7 MMboe for 1P and 1.7 MMboe for proved developed producing (“PDP”) reserves. PPR’s continued transition to our Evi waterflood resulted in 1.5 MMboe of 2P and 1.2 MMboe of 1P improved recovery in 2019, but also led to negative technical revisions of 1.2 MMboe for 2P and 0.9 MMboe for 1P due to the removal of undeveloped locations, which offset some of the positive technical revisions realized at Michichi and Princess.
- Replaced 163% and 113% of 2019 production with reserves additions and technical revisions, on a 2P and 1P basis, respectively.
- Reserves totaled 34.5 MMboe, 21.7 MMboe and 10.0 MMboe for 2P, 1P and PDP, respectively. Reserves additions were offset by the impact of Sproule’s lower price deck forecasts, which resulted in reserves reductions of 0.4 MMboe, 0.9 MMboe and 0.8 MMboe for 2P, 1P and PDP, respectively. Excluding the impact of lower pricing, PPR recorded year-over-year growth of 4% and 1% on a 2P and 1P basis, respectively, on a modest $10.6 million exploration and development program.
- Finding, development and acquisition (“FD&A”)(1) costs were $12.48/boe, $1.29/boe and $6.16/boe for 2P, 1P and PDP, respectively, including change in future development costs and technical revisions, resulting in estimated FD&A recycle ratios(1) of 1.5, 14.4 and 3.0 times, respectively, using an estimated 2019 operating netback of $18.58/boe(1)(2).
- 2019 net present values of future net revenue before tax discounted at 10% (“NPV10 BT”) for 2P, 1P and PDP reserves totaled $437.7 million, $257.4 million and $135.4 million, respectively, including asset retirement obligation (“ARO”) deductions of $29.1 million, $28.2 million and $26.8 million, respectively. Based on Sproule’s application of new guidance added to the Canadian Oil and Gas Evaluation Handbook (“COGEH”) in late 2019, PPR’s NPV10 BT includes a larger component of ARO in the reserves. Approximately 79% of PPR’s estimated ARO is now included in the 2019 reserves evaluation compared to only 26% in 2018. Excluding the inclusion of this larger component of ARO and the impact from Sproule’s lower price forecast, PPR’s NPV10 BT in 2019 would have been higher than in 2018.
- Net asset value (“NAV”)(1)(2) per share is $1.92, $0.87 and $0.16 on a 2P, 1P and PDP basis, respectively.
- With a reserve life index(1) of 15.6 years, 9.8 years and 4.5 years on a 2P, 1P and PDP basis, PPR is well positioned for long-term sustainability and to continue the measured development of its oil and liquids-weighted asset base.
|(1)||“Finding, Development & Acquisition Costs”, “Recycle Ratios”, “Operating Netback”, “Net Asset Value” and “Reserve Life Index” do not have standardized meanings. See “Cautionary Statements” below. See also “Capital Efficiencies” and “Net Asset Value” below.|
|(2)||All 2019 financial information is unaudited. See advisories.|
PPR executed a successful 2019 capital development program which added approximately 4.3 MMboe and 1.7 MMboe of incremental 2P and 1P reserves from an exploration and development program that was just over $10 million, and achieved robust recycle ratios due to attractive FD&A costs and netbacks. Significant declines in Sproule’s price forecasts negatively impacted the Company’s overall reserves and NPV10. Before the effects of lower forecast pricing, PPR replaced 163% and 113% of 2019 production on a 2P and 1P basis.
PPR delivered strong operational performance in 2019, successfully, safely and responsibly adding reserves through our capital program. At Evi, PPR has transitioned its development plan from infill drilling to waterflood. As a result, an incremental 1.5 MMboe and 1.2 MMboe of 2P and 1P undeveloped reserves (98% liquids), respectively, have been assigned to future waterflood expansions. PPR’s continued transition to waterflood at Evi also led to the removal of infill locations in the waterflood areas, resulting in 1.2 MMboe and 0.9 MMboe of negative technical revisions on a 2P and 1P basis, respectively. The transition also reduced 1P future capital by $5.3 million, which high-graded the development economics.
At Michichi, meaningful reserves were added as a result of improved operational efficiencies and lower overall operating costs. Improved well economics resulted in the addition of 1.7 MMboe of 2P undeveloped reserves and added positive technical revisions of 1.7 MMboe and 1.6 MMboe of 2P and 1P reserves, respectively.
In our Princess area, we extended 1.0 MMboe and 0.4 MMboe of 2P and 1P undeveloped reserves relating to Glauconite and Ellerslie development. In addition, over 0.4 MMboe of 2P and 0.6 MMboe of 1P positive technical revisions were realized from improved well performance.
Commencing in 2019, Sproule has reflected a larger proportion of the Company’s estimated ARO within our reserves, which resulted in a decrease in value relative to 2018. This change was made based on new guidelines added to the COGEH in late 2019, which recommends as a best practice the inclusion of all abandonment, decommissioning and reclamation (“ADR”) costs associated with active assets in the reserve report. This includes costs for both active and inactive wells, including ADR costs for producing wells, suspended wells, service wells, gathering systems, facilities, and surface land development for all active assets. At year-end 2019, Sproule’s evaluation of our NPV10 BT for ARO related to our 2P, 1P and PDP reserves was $29.1 million, $28.2 million, and $26.8 million, respectively, an increase of $14.3 million, $12.4 million, and $13 million compared to the corresponding ARO measures at the end of 2018, respectively.
We expect to release PPR’s Q4 and full-year 2019 financial and operating results after market on March 25, 2020. We appreciate the ongoing support from our shareholders and your continued confidence in PPR’s strategic direction.
Reserves Summary Highlights
The following presentation summarizes certain information contained in the Sproule Report, which was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook (the “COGE Handbook”). Sproule evaluated 100% of the Company’s reserves. The Sproule Report is based on forecast prices and costs and applies Sproule’s forecast escalated commodity price deck and foreign exchange rate and inflation rate assumptions as at December 31, 2019, as outlined in the table below entitled “Price Forecast”. Estimated future net revenue is stated without any provisions for interest costs, other debt service charges or general and administrative expenses, and after the deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future development costs.
Additional information regarding the Company’s reserves data and other oil and gas information will be included in the Company’s Annual Information Form for the year ended December 31, 2019 (the “AIF”), which will be filed under the Company’s issuer profile on SEDAR at www.sedar.com on or before March 30, 2020.
See also the “Cautionary Statements” below for further explanations and discussions.
Summary of Corporate Reserves(1)(2)(5)
The following table is a summary of the Company’s estimated reserves as at December 31, 2019, as evaluated in the Sproule Report.
|Reserves Category||Light and
|Barrels of Oil
|Total Proved plus Probable||22,115||1,610||11,511||46,754||1,031||34,467|
|(1)||Reserves are presented on a “company gross” basis, which is defined as Prairie Provident’s working interest (operating and non-operating) share before deduction of royalties and without including any royalty interest of the Company.|
|(2)||Based on Sproule’s December 31, 2019 forecast prices and costs. The forecast of commodity prices used in the Sproule Report can be found at www.sproule.com. See also “Price Forecast” below.|
|(3)||Including both non-associated gas and associated gas but excluding solution gas (gas dissolved in crude oil).|
|(4)||Oil equivalent amounts have been calculated using a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil.
See “Cautionary Statements – Barrels of oil equivalent” below.
|(5)||Columns may not add due to rounding of individual items.|
Net Present Values of Future Net Revenue Before Income Taxes Discounted at (%/year) (1)(2)(3)(4)(5)
The following table is a summary of the estimated net present values of future net revenue (before income taxes) associated with Prairie Provident’s reserves as at December 31, 2019, discounted at the indicated percentage rates per year, as evaluated in the Sproule Report.
|Total Proved plus Probable||619.3||545.5||437.7||354.1||291.9|
|(1)||Based on Sproule’s December 31, 2019 forecast prices and costs. The forecast of commodity prices used in the Sproule Report can be found at www.sproule.com. See also “Price Forecast” below.|
|(2)||Estimated future net revenues are stated without any provision for interest costs, other debt service charges or general and administrative expenses, and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future development costs.|
|(3)||Estimated future net revenue, whether discounted or not, does not represent fair market value.|
|(4)||Net present values of future net revenue after income taxes are estimated to approximate the before income tax values based on the estimated future revenues, available tax pools and future deductible expenses.|
|(5)||Columns may not add due to rounding of individual items.|
The following table summarizes Sproule’s commodity price forecast and foreign exchange rate and inflation rate assumptions as at December 31, 2019, as applied in the Sproule Report, for the next five years.
|Year||Exchange Rate||WTI @
Sweet 40º API
|(1)||Inflation is accounted for at 2.0% per year.|
Reconciliation of Company Gross Reserves Based on Forecast Prices and Costs(2)(3)
|December 31, 2018||22,360||11,504||33,863|
|Drilling (Extensions and Improved Recovery(1))||1,724||2,554||4,278|
|Pricing (Economic Factors)||(930||)||129||(802||)|
|December 31, 2019||21,723||12,744||34,467|
|(1)||Reserves additions under Infill Drilling, Improved Recovery and Extensions are combined and reported as “Extensions and Improved Recovery”.|
|(2)||Columns may not add due to rounding.|
|(3)||Company Gross Reserves exclude royalty volumes.|
Future Development Costs (“FDC”)
The following table provides a summary of the estimated FDC required to bring Prairie Provident’s 1P and 2P undeveloped and non-producing reserves to production, as reflected in the Sproule Report, which costs have been deducted in Sproule’s estimation of future net revenue associated with such reserves.
|Future Development Costs (MM$)(1)||Proved||plus Probable|
|Total FDC undiscounted||189.1||303.6|
|Total FDC discounted at 10%||160.0||253.4|
|(1)||FDC as per Sproule Report, based on Sproule’s December 31, 2019 forecast prices and costs.|
The following table sets out our calculation of FD&A costs. See also “Cautionary Statements – Finding, Development and Acquisition costs” below.
|Finding, Development and Acquisition Costs (2019)||Proved Developed Producing||Total Proved||Total Proved plus Probable|
|Exploration and development capital(1) (MM$)||10.3||10.3||10.3|
|Change in FDC(2) (MM$)||0||(7.1||)||34.8|
|Total FD&A costs, including change in FDC (MM$)||10.3||3.2||45.1|
|Total reserves additions, including technical revisions (Mboe)||1,675||2,505||3,616|
|FD&A costs, including change in FDC ($/boe)||6.16||1.29||12.48|
|(1)||Exploration and development capital (unaudited) related to: land acquisition and retention; drilling; completions; tangible well site; tie-ins; and facilities.|
|(2)||FDC as per Sproule Report, based on Sproule’s December 31, 2019 forecast prices and costs.|
|(3)||Columns may not add due to rounding.|
Net Asset Value
The following table sets out a calculation of NAV based on the estimated before-tax estimated net present value of future net revenue (discounted at 10%) (“NPV10 BT”) associated with our PDP, 1P and 2P reserves, as evaluated in the Sproule Report, our estimated long-term debt, and the number of PPR common shares outstanding, all as of December 31, 2019. See also “Cautionary Statements – Net Asset Value” below.
|NPV10 BT (MM$)||135.4||257.4||437.7|
|Estimated long-term debt, less cash collateralized letters of credit (unaudited) (MM$)||(108.7||)||(108.7||)||(108.7||)|
|Net Asset Value (MM$)||26.7||148.7||329.0|
|Basic shares outstanding (MM)||171.4||171.4||171.4|
|Estimated NAV/share ($)||0.16||0.87||1.92|
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 the Michichi and Princess areas in Southern Alberta targeting the Banff, the Ellerslie and the Lithic Glauconite formations, along with an established and proven waterflood project at our Evi area 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.