CALGARY, Alberta- Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX: PRQ) is pleased to report financial and operating results as at and for the three months ended March 31, 2020. Petrus is focused on generating free cash flow for debt repayment and further development of its Ferrier Cardium asset.
The severe impact of the oil demand destruction caused by the COVID-19 pandemic combined with excess oil supplies, has led to extreme volatility in global oil markets, including the first ever negative West Texas Intermediate (“WTI”) oil pricing, as storage levels approach capacity. Over the past four years, Petrus has made significant efforts to reduce debt levels, decrease costs through ownership of key infrastructure and balance the production base between natural gas and light oil and liquids. These measures, combined with a consistent commodity price risk mitigation program, allow the Company to manage the current volatile commodity price environment. To prioritize the protection of its balance sheet, Petrus continues a flexible approach to planned capital expenditures. Petrus’ Board of Directors approved a second quarter 2020 capital budget of $0.5 million, which allows for non-discretionary maintenance capital only. No drilling activity is currently planned for the second or third quarters of 2020, as the Company focuses on debt repayment and balance sheet preservation at a time of extreme volatility in commodity prices(2).
While oil prices have recently experienced all-time lows, natural gas futures pricing has been relatively constructive and many analysts believe the outlook is improving due to lower volumes of associated gas from shut-in oil wells alongside reduced drilling activity. Petrus received an average price of $2.40/mcf in the first quarter of 2020(2). Since late January 2020, AECO natural gas futures contracts for the balance of 2020 increased by approximately 35%. As part of the Company’s ongoing risk mitigation strategy, Petrus continues to enter into additional financial derivatives contracts on a portion of forecast production volumes through to 2022(2).
During the first quarter of 2020, Petrus executed an operated capital program with the drilling and completion of two gross wells (2.0 net) in its core area of Ferrier. Both wells are tied in, though one is currently shut in to best manage value considering the current pricing environment; the second well is on production at a significantly reduced rate. Since the completion operations of the two wells took place near the end of the first quarter, the two wells only contributed approximately 185 boe/d to the average quarterly production. Before being restricted, the wells combined produced approximately 1,500 boe/d, including approximately 900 bbl/d of light oil during the week ended March 20, 2020(2).
Reduction of debt remains the Company’s top priority. Since December 31, 2015 Petrus has repaid 45% or $101 million of its net debt(1). This includes a $55 million reduction of the Company’s second lien term loan (“Term Loan”), which was $90 million in 2014 and currently has $35 million outstanding. The Company’s revolving credit facility (“RCF”) and Term Loan are due in 2020 and therefore, were reclassified to current liabilities in the December 31, 2019 consolidated financial statements. The RCF maturity date is May 31, 2020, which was set prior to the Term Loan maturity of October 8, 2020 due to the inter-creditor relationship between the RCF and the Term Loan. The Company requires an extension of the Term Loan before its syndicate of lenders will contemplate an extension to the RCF. Management is currently in discussion with the RCF lending syndicate and Term Loan lender and continues to focus on its disciplined debt reduction strategy.
- Funds flow – Generated funds flow(1) of $6.6 million ($0.13 per share) for the first three months of 2020 with net capital expenditures of $8.7 million.
- Low operating costs – Operating expense for the three months ended March 31, 2020 was $4.55/boe. The Company continues to focus on optimizing its cost structure, particularly in the Ferrier area, through facility ownership and control.
- Credit facility – The Company continues discussions on an extension with the syndicate of lenders in the RCF and the lender of the Term Loan.
- Commodity price risk mitigation – Petrus utilizes financial derivative contracts to mitigate commodity price risk and provide stability and sustainability. Petrus achieved a gain of $1.76/boe in the first quarter as a result of these contracts. For the balance of 2020, as a percentage of first quarter 2020 oil production, the Company has hedges in place for 84% of net oil volume at an average price of $76 CAD/bbl.
Petrus intends to determine and provide guidance around its quarterly capital spending as the year progresses. The Company anticipates that the 2020 capital plan will be funded by funds flow, and will continue to systematically reduce debt with excess cash flow. For the balance of the year, the Company continues to target debt repayment of approximately $2 million per quarter(2). Despite the recent fall in oil pricing, the Company forecasts it will continue to have positive corporate netback(1) due to its low cost structure, higher natural gas weighting and strong hedging position. Petrus continues its discussions with its lenders in order to extend the upcoming 2020 debt maturity dates. The Company will pursue programs recently announced by the Federal and Provincial Governments to support Canadian businesses, and the oil and gas industry specifically, through the COVID-19 pandemic(2).
(1) Refer to “Non-GAAP Financial Measures” .
(2) Refer to “Advisories – Forward-Looking Statements”.
SELECTED FINANCIAL INFORMATION
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Sept. 30, 2019
Jun. 30, 2019
|Natural gas (mcf/d)||30,604||32,145||32,641||30,998||32,350|
|Light oil weighting||15||%||20||%||22||%||16||%||19||%|
|Natural gas ($/mcf)||2.40||2.44||2.65||1.12||1.30|
|Total realized price ($/boe)||21.23||26.36||27.39||16.99||22.29|
|Net oil and natural gas revenue ($/boe)||18.68||23.34||24.61||15.82||20.72|
|Operating netback(1) ($/boe)||13.08||18.31||18.84||10.13||15.17|
|Realized gain (loss) on derivatives ($/boe)||1.76||0.67||(1.86||)||0.50||(1.02||)|
|General & administrative expense||(1.35||)||(1.15||)||(1.91||)||(1.08||)||(0.67||)|
|Cash finance expense||(3.13||)||(2.54||)||(2.54||)||(3.11||)||(2.70||)|
|Funds flow & corporate netback(1)(2) ($/boe)||9.87||15.11||12.12||6.18||10.64|
|FINANCIAL (000s except $ per share)||Three months
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Sept. 30, 2019
Jun. 30, 2019
|Oil and natural gas revenue||14,344||20,231||20,998||12,517||17,652|
|Net income (loss)||(87,444||)||(12,138||)||(3,332||)||(29,569||)||2,863|
|Net income (loss) per share|
|Funds flow per share|
|Weighted average shares outstanding|
|As at year end|
|Common shares outstanding|
(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.
First quarter average production by area was as follows:
|For the three months ended March 31, 2020||Ferrier||Foothills||Central Alberta||Total|
|Natural gas (mcf/d)||23,631||1,412||5,561||30,604|
First quarter average production was 7,323 boe/d in 2020 compared to 8,505 boe/d in 2019. The decrease in production can be attributed to natural declines due to lower capital activities in the second half of 2019 as the Company focused on debt reduction.
In the first quarter of 2020, the Company invested capital of $8.7 million to fund the drilling of two operated wells (2.0 net) and one non- operated well (0.015 net). The two operated wells have been tied in but are currently producing at restricted rates in order to conserve value in light of low oil prices. One well is shut in and the second has been significantly restricted. Since the completion operations of the two wells took place near the end of the first quarter, the two wells only contributed approximately 185 boe/d to the average quarterly production. Before being restricted, the wells combined produced approximately 1,500 boe/d, including approximately 900 bbl/d of light oil during the week ended March 20, 2020
Petrus’ Board of Directors approved a second quarter 2020 capital budget of $0.5 million, which allows for non-discretionary maintenance capital only. No drilling activity is currently planned for the second or third quarters of 2020, as the Company focuses on debt repayment and balance sheet preservation at a time of extreme volatility in commodity prices. Management continues to review pricing on a daily basis to adjust production levels to maximize value of the reserve base. With the high level of control afforded by operated assets and ownership of key infrastructure, the Company can adjust liquids content in the natural gas stream to maximize profitability of all products as well as adjust production rates quickly to respond to changing market conditions(1).
Subsequent to the first quarter, the Company announced the termination of its previously announced disposition of oil and gas assets in the Foothills area. Petrus will continue to pursue non-core asset dispositions to further reduce debt when market conditions allow(1).
CREDIT FACILITY UPDATE
During the fourth quarter of 2019, Petrus completed its semi-annual review of the RCF where its $100 million facility was reconfirmed with reductions to $98 million as of December 31, 2019 and $96 million as of March 31, 2020. During the first quarter of 2020, Petrus reduced its outstanding balance under the RCF by $4.0 million, from $93 million to $89 million. The Company’s RCF maturity date is May 31, 2020, which was set prior to the Term Loan maturity date of October 8, 2020, due to the inter-creditor relationship between the RCF and the Term Loan. The Company requires an extension of the Term Loan before the syndicate of lenders will contemplate an extension to the RCF. Management is actively engaged in discussions with its lenders in order to extend the upcoming 2020 maturity dates.
(1) Refer to “Advisories – Forward-Looking Statements”.