Concurrent with the signing and closing of the East Edson Transaction on April 1, 2020, the borrowing limit on Perpetual’s credit facility was set at $20 million by the Company’s bank lending syndicate, with the next borrowing limit redetermination scheduled on or prior to July 31, 2020.
EAST EDSON TRANSACTION
On April 1, 2020, the Company sold a 50% working interest in its East Edson property in West Central Alberta to a third party purchaser for consideration including a cash payment of $35 million and the carried interest funding of the drill, complete and tie-in costs for an eight-well drilling program. A minimum of two horizontal wells targeting development of the Wilrich formation are required to be drilled, completed and tied-in following spring break-up 2020. The purchaser is required to complete the eight-well horizontal drilling program by April 1, 2022.
The cash proceeds from the East Edson Transaction will be used to repay bank debt and fund profitable investment in the Clearwater play in Eastern Alberta as oil prices recover and stabilize. The eight-well development capital carry at East Edson is anticipated to restore gross production levels to more fully utilize the existing processing capacity, improve operating netbacks given the largely fixed operating cost base, and result in improved capital spending efficiency.
The East Edson property comprises substantially all of Perpetual’s West Central core area. As at December 31, 2019, the East Edson property had proved and probable reserves of 60.0 million boe. Fourth quarter 2019 production and operating netback from the East Edson property was 6,253 boe/d and $7.20/boe, respectively.
Perpetual’s syndicate of lenders have completed their borrowing base redetermination, incorporating the impact of the East Edson Transaction. The revolving bank debt borrowing limit (“Borrowing Limit”) is now set at $20 million, with the next Borrowing Limit redetermination scheduled on or prior to July 31, 2020. The credit facility will continue to revolve until July 31, 2020 and may be extended for a further period of up to 364 days subject to approval by the Company’s lenders. If not extended, the credit facility will cease to revolve, and all outstanding advances will be repayable on November 30, 2020.
After giving effect to the $35 million of cash proceeds received from the East Edson Transaction and the $20 million Borrowing Limit, Perpetual currently has available liquidity of $12 million.
Capital spending in the first quarter of 2020 included a four well (4.0 net) heavy oil drilling program targeting the Clearwater formation in the Ukalta area of Eastern Alberta at a cost of $5.5 million. In response to the recent significant decline in global oil prices, all further capital expenditures in 2020 in Eastern Alberta will be deferred and substantially all of the Company’s heavy oil production will be temporarily suspended, pending a recovery to oil prices. Capital activity in 2020 at the 50% owned East Edson property will consist of the carried interest drilling program forming part of the East Edson Transaction consideration.
Assuming a mid-year recovery of oil prices sufficient to support the restart of oil production, Perpetual anticipates average 2020 sales volumes of 5,000 to 6,000 boe/d (34% liquids). Actions have been implemented to minimize operating and corporate costs.
Abandonment and reclamation expenditures of up to $1.5 million are forecast for 2020, primarily at Mannville, as required to comply with the minimum expenditure level directed by the Alberta Energy Regulator’s area-based closure program, addressing decommissioning obligations and thereby decreasing fixed operating costs associated with non-producing wells.