CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) is pleased to announce our operating and financial results for the three months and year ended December 31, 2019. PPR’s audited consolidated financial statements and related Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 2019 and annual information form dated March 26, 2020 (“AIF”) are available on our website at www.ppr.ca and filed on SEDAR.
Prairie Provident continued to successfully execute our strategic plan throughout the year, delivering strong operational performance and responsibly maintaining stable production volumes while generating positive adjusted funds flow1 and solid operating netbacks1 despite continued uncertain market conditions.
- Annual production 13% higher than 2018: Production for 2019 averaged 6,071 boe/d2 (68% liquids), which was 13% or 699 boe/d higher than 2018, reflecting the impact of a full year of results from the Marquee acquisition completed in November 2018 and PPR’s successful 2019 development program. The drilling of a Lithic Glauconite well was deferred from Q4 2019 into 2020 to preserve liquidity and development economics in light of widening WCS differentials in Q3 2019, which led to annual production averaging nominally below 2019 guidance. Q4 2019 production averaged 5,725 boe/d2 (67% liquids), 4% lower than the same period in 2018.
- Operating netback1 after realized derivative loss 57% higher than 2018: Operating netback was $41.2 million ($18.59/boe) before the impact of derivatives in 2019, and $39.0 million ($17.61/boe) after realized loss on derivatives, a 22% and 57% increase from 2018, respectively. Operating netback in 2019 reflects higher production, and improvements per boe in realized oil and natural gas prices, royalties and realized losses on derivatives, partially offset by increased operating expenses from 2018. Q4 2019 operating netback was $9.3 million ($17.70/boe) before the impact of derivatives, and $8.9 million ($16.85/boe) after realized loss on derivatives, a $8.1 million and $8.9 million increase from Q4 2018 primarily due to higher realized commodity prices.
- Adjusted funds flow1 increased 120% over 2018: Adjusted funds flow for 2019 totaled $22.3 million ($0.13 per basic and diluted share), excluding $3.8 million of decommissioning settlements, due to higher production and improved operating netback. Strong 2019 adjusted funds flow helped strengthen the balance sheet, positioning PPR to internally fund our 2019 capital program. Adjusted funds flow, excluding $0.1 million of decommissioning settlements, was $4.8 million ($0.03 per basic and diluted share) for Q4 2019, a 203% increase from the same quarter in 2018 due to higher production and an improved operating netback.
1 Non-IFRS measure – see below under “Non-IFRS Measures”
2 2019 average production is comprised of 3,716 bbl/d of light/medium oil, 251 bbl/d of heavy oil, 11,506 Mcf/d of conventional natural gas, 128 Mcf/d of coal bed methane and 166 bbl/d of natural gas liquids. Q4 2019 average production included 3,436 bbl/d of light/medium oil, 278 bbl/d of heavy oil, 11,049 Mcf/d of conventional natural gas, 120 Mcf/d of coal bed methane and 149 bbl/d of natural gas liquids.
- Net loss: Net loss totaled $33.1 million in 2019, compared to a net loss of $33.0 million in 2018, driven primarily by non-cash items such as depletion and amortization.
- Exited 2019 with positive working capital1: Working capital at year end 2019 of $2.2 million (December 31, 2018 – deficit of $16.1 million), including cash and restricted cash of $7.8 million, improved significantly from 2018 due to repayment of accounts payable and accrued liabilities using adjusted funds flow and long-term debt, combined with an increase in accrued revenue given higher oil prices.
- Net debt1 reduced year over year: Overall net debt was lower at year end 2019 than at year end 2018, as adjusted funds flow1 exceeded net capital expenditures1, and also reflecting the positive impact of a stronger Canadian dollar on US dollar-denominated debt. Net debt1 at December 31, 2019 totaled $111.4 million, which was $0.7 million and $5.9 million lower than at September 30, 2019 and December 31, 2018, respectively, reflecting PPR’s ongoing commitment to net debt reduction and balance sheet improvement.
- 2019 capital expenditures budget fully funded: Our net capital expenditures1 in 2019 came in at $11.9 million while adjusted funds flow1 totaled $18.4 million. Despite the modest capital program, the Company successfully replaced its proved and probable reserves2 and maintained production levels.
- Net capital expenditures1 in 2019 totaled $11.9 million: During the year, PPR directed capital and resources primarily to our Evi and Princess areas. In Evi, two gross (2.0 net) Slave Point wells drilled in Q4 2018 were completed, equipped, tied-in and came on production in late February 2019. In Princess, PPR drilled, completed, equipped, tied-in and brought two wells on production, one in June 2019 and one in December 2019, while one stratigraphic well was drilled and abandoned during Q4 2019. A 3D seismic program was undertaken in Princess and PPR acquired undeveloped lands and mineral rights in Princess and Wayne. The most recent well in Princess averaged 464 boe/d (weighted 73% to liquids) of production for the last 19 days of December 2019.
- Revolving facility extended: In Q4 2019, PPR’s lenders also extended the maturity date of our senior secured revolving note facility (“Revolving Facility”) from October 31, 2020 to April 30, 2021, while removing the “term-out” feature which keeps the facility’s revolving feature for the balance of the term. Financial covenants were not changed. The next borrowing base re-determination for the Revolving Facility is anticipated to be on or about April 30, 2020.
- Financial flexibility remains a priority: At year end 2019, PPR had US$57.6 million of borrowings drawn against our US$60.0 million Revolving Facility, comprised of US$30.0 million (CAN$40.5 million equivalent using exchange rate at the time of borrowing) of CAD-denominated borrowing and US$27.6 million of USD-denominated borrowing (CAN$35.8 million equivalent using December 31, 2019 exchange rate of $1.00 USD to $1.30 CAD). In addition, US$31.0 million (CAN$40.3 million equivalent using the December 31, 2019 exchange rate) of senior subordinated notes due October 31, 2021 were outstanding at year end, resulting in total borrowings of US$88.6 million (CAN$116.7 million based on the December 31, 2019 exchange rate). The increase in borrowings from year-end 2018 was largely used to reduce working capital deficit.
1 Non-IFRS measure – see below under “Non-IFRS Measures”
2 For additional details, please refer to the Company’s news release dated February 3, 2020, available at www.ppr.ca (filed on SEDAR and available under PPR’s issuer profile at www.sedar.com).
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended December 31,||Year Ended December 31,|
|($000s except per unit amounts)||2019||2018||2019||2018|
|Crude oil (bbls/d)||3,715||4,042||3,966||3,676|
|Natural gas (Mcf/d)||11,169||10,523||11,635||9,426|
|Natural gas liquids (bbls/d)||149||141||166||125|
|Average Realized Prices|
|Crude oil ($/bbl)||59.62||30.47||61.30||57.47|
|Natural gas ($/Mcf)||2.21||1.74||1.72||1.59|
|Natural gas liquids ($/bbl)||31.08||40.70||30.48||49.38|
|Operating Netback ($/boe)1|
|Realized losses on derivative instruments||(0.85||)||(2.32||)||(0.98||)||(4.60||)|
|Operating netback, after realized losses on derivative instruments||16.85||(0.02||)||17.61||12.66|
1 Operating netback is a Non-IFRS measure (see “Non-IFRS Measures” below).
December 31, 2019
December 31, 2018
|Working capital (deficit)1||2.2||(16.1||)|
|Total net debt2||(111.4||)||(117.3||)|
|Common shares outstanding (in millions)||171.4||171.9|
1 Working capital (deficit) is a non-IFRS measure (see “Non-IFRS Measures” below) calculated as current assets less current portion of derivative instruments, minus accounts payable and accrued liabilities.
2 Net debt is a non-IFRS measure (see “Non-IFRS Measures” below), calculated by adding working capital (deficit) and long-term debt.
3 Debt capacity reflects the undrawn capacity of the Company’s revolving facility of USD$60 million at December 31, 2019 and USD$65 million at December 31, 2018, converted at an exchange rate of $1.0000 USD to $1.2988 CAD on December 31, 2019 and $1.0000 USD to $1.3642 CAD on December 31, 2018.
|Three Months Ended
|Net (working interest) wells||2.0||5.9||3.0||13.9|
|Success rate, net wells (%)1||100||67||100||86|
|1.For the three months ended December 31, 2019, the company drilled one development well with a 100% success rate and one stratigraphic well. For the year ended December 31, 2019, the company drilled two development wells with a 100% success rate and one stratigraphic well.|
Throughout 2019, PPR continued to execute our business strategy and posted numerous key achievements. In addition to integrating a corporate acquisition, we successfully invested $12.1 million in development and exploration effort focused on generating robust capital efficiencies; prudently and swiftly responded to volatile and unexpected changes in commodity prices; and posted solid reserves and production.
In March 2020, the COVID19 pandemic coupled with the price war between Saudi Arabia and Russia resulted in significant downfall in global oil prices. PPR is cautious with its capital spending in light of uncertainties around worldwide energy consumption and supplies and the duration of this turmoil. The Company initiated the drilling of one Michichi well in February and plans to complete the well in late March. After completing the Michichi well, PPR plans to suspend its capital program to preserve future development economics unless oil prices recover in due course. Over 80% of PPR’s 2020 forecast base oil production (net of royalties) is hedged, which is expected to help PPR weather the depressed pricing environment. In addition, PPR is reviewing its 2020 budget, including exploring all avenues to reduce debt, G&A and operating expenses.
The Company has reviewed its compensation program in light of the current commodity volatility. Effective April 2020, all executives’ annual salary will be reduced by 20% while the Board of Directors has also agreed to reduce their annual remuneration by 25%.
At forward prices for crude oil being traded in the futures market and with the oil hedges PPR has in place, PPR forecasts that it continues to meet its obligations with its internally generated cash flows and available borrowing capacity, however, there are no assurances that the lenders will maintain the borrowing base of the Revolving Facility at current levels or that the Company will be able to comply with its financial covenants in the future.
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.