CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) today announces our financial and operating results for the three months ended March 31, 2020. PPR’s unaudited condensed interim consolidated financial statements for the three months ended March 31, 2020 (“Interim Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the three months ended March 31, 2020 are available on our website at www.ppr.ca and filed on SEDAR.
PPR’s first-quarter financial results reflect the significant decline in global energy demand and resultant impact on crude oil pricing caused by the COVID-19 pandemic, which were further intensified by the price war between Saudi Arabia and Russia that caused a global oil supply glut. The Company has taken proactive steps to maintain our liquidity and financial resilience during this unprecedented time, including suspending the capital program; conducting a bottom-up review of our operating expenses to identify immediate and targeted cost reduction opportunities; reducing compensation expenses across the organization; and reaching an agreement with our lenders to defer the Company’s borrowing base re-determination and to suspend cash interest payments on our 15% subordinated unsecured notes due October 31, 2021 (“Senior Notes”). As a result of these initiatives, the Company expects to achieve adjusted funds flow savings of approximately $8.0 million – $11.0 million for 2020. In addition, PPR has WTI hedges on over 80% of our 2020 forecast base oil production (net of royalties), which protect our operating cash flows and provide further resiliency amid continued volatility. At March 31, 2020, our hedges were fair valued at over $22 million.
Q1 2020 HIGHLIGHTS
- Production averaged 5,281 boe/d1 (68% liquids) in the quarter, which was 11% or 681 boe/d lower than Q1 2019, with the decrease mainly due to natural declines and the shut-in of certain non-core gas production, partially offset by new production coming on-stream from our 2019/2020 drilling program. Further, in light of the oil price downturns that have continued since early March 2020, uneconomic workovers have been deferred to preserve reserves value and liquidity.
- Operating netback in Q1 2020 was $3.2 million ($6.66/boe) before the impact of derivatives, and $5.2 million ($10.81/boe) after the realized gain on derivatives, a 62% and 38% decrease, respectively, relative to Q1 2019. Operating netback decreased in Q1 2020 compared to the same quarter of last year, reflecting lower production and lower realized oil and natural gas prices, partially offset by lower royalties and operating expenses and higher realized gains on derivatives.
- Adjusted funds flow (“AFF”)2 totaled $0.9 million ($0.01 per basic and diluted share), excluding $0.7 million of decommissioning settlements, reflecting the lower production and operating netback.
- Net loss totaled $68.1 million in Q1 2020, compared to a net loss of $21.3 million in Q1 2019, driven primarily by a non-cash impairment charge of $77.3 million related to the sharp decline in forward crude oil and natural gas prices.
- Net debt2 at March 31, 2020 totaled $124.0 million, up $12.6 million from December 31, 2019. The increase was largely due to $7.0 million of unrealized foreign exchange impact, driven by a weaker Canadian dollar relative to the US dollar on the Company’s US-dollar denominated debt, as well as capital expenditures in the quarter that exceeded AFF2.
- During the quarter, PPR’s capital spending was directed to the drilling and completion of one development well in our Michichi area which came on production in late March 2020. The well averaged 242 boe/d (weighted 84% to liquids) in initial production.3
- Subsequent to Q1 2020, a lender redetermination of the Revolving Facility borrowing base, originally scheduled for the Spring of 2020, has been temporarily deferred. The Company agreed to direct excess funds, after payment of all operating, G&A and other costs of conducting our business, to the repayment of borrowings on our senior secured revolving note facility (“Revolving Facility”) and to not make any requests for further advances under that facility.
- In addition, the holders of our outstanding USD$28,500,000 original principal amount of Senior Notes, on which a portion of quarterly interest payments were previously paid in cash, have agreed to payment-in-kind of all interest for the next payment date of April 30, 2020 and thereafter.
1 Q1 2020 average production is comprised of 3,456 bbls/d of oil, 10,186 Mcf/d of natural gas, and 127 bbls/d of natural gas liquids. Q1 2019 average production included 3,892 bbls/d oil, 11,568 Mcf/d of natural gas, and 142 bbls/d of natural gas liquids.
2 Non-IFRS measure – see below under “Non-IFRS Measures”
3 The initial production rate for our Michichi development well is preliminary in nature and may not be indicative of stabilized on-stream production rates, future product types, long-term well or reservoir performance, or ultimate recovery. Actual future results will differ from those realized during an initial short-term production period, and the difference may be material.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended
|($000s except per unit amounts)||2020||2019|
|Crude oil (bbls/d)||3,456||3,892|
|Natural gas (Mcf/d)||10,186||11,568|
|Natural gas liquids (bbls/d)||127||142|
|Average Realized Prices|
|Crude oil ($/bbl)||41.35||56.70|
|Natural gas ($/Mcf)||2.10||2.44|
|Natural gas liquids ($/bbl)||27.52||38.65|
|Operating Netback ($/boe)1|
|Realized gains (losses) on derivative instruments||4.15||(0.24||)|
|Operating netback, after realized gains (losses) on derivative instruments||10.81||15.60|
1 Operating netback is a Non-IFRS measure (see “Non-IFRS Measures” below).
March 31, 2020
December 31, 2019
|Working capital (deficit)1||(3.3||)||2.2|
|Total net debt2||(124.0||)||(111.4||)|
|Common shares outstanding (in millions)||172.1||171.4|
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 March 31, 2020 and USD$60 million at December 31, 2019, converted at an exchange rate of $1.0000 USD to $1.4187 CAD on March 31, 2020 and $1.0000 USD to $1.2988 CAD on December 31, 2019.
|Three Months Ended
|Net (working interest) wells||1.0||n/a|
|Success rate, net wells (%)1||100%||n/a|
1 For the three months ended March 31, 2020, the company drilled one development well with a 100% success rate.
The COVID-19 pandemic has resulted in a sharp decline in global economic activity, and consequently, a significant drop in energy demand. As countries around the world start easing physical distancing and reopening their economies, it is anticipated that a corresponding increase in energy demand will be experienced, though the timing and extent of such economic recovery remains highly uncertain.
The downturn in oil prices has adversely affected PPR’s operating results and financial position, although the impact has been somewhat buffered given that 80% of our 2020 forecast base oil production (net of royalties) is protected by near-term hedges. Our hedges have mitigated the Company’s exposure to the severe price deterioration that has occurred during these unprecedented times, underpinning the importance of maintaining liquidity and financial resilience. After completing the Michichi well in March 2020, PPR has suspended our capital program to preserve liquidity and protect development economics.
Operationally, we have conducted a bottom-up review of of our operating expenses and identified immediate reduction opportunities totaling $2.2 million with an additional $2.8 million of target reduction over the balance of 2020. Cost reductions are expected to be realized through rate negotiations, workforce optimizations, shutting-in of uneconomic production and the deferral of activities.
In addition, effective April 2020, annual salaries for all executives and non-executives have been reduced by 20% and 10%, respectively, while the Board of Directors’ annual remuneration has also been reduced by 25%. Certain employee benefit programs have also been suspended. These measures are expected to result in $2.0 million of expense reductions for 2020.
PPR is actively pursuing various COVID-19 relief programs announced by the Government of Canada and the Government of Alberta. PPR will assess the still-emerging details of the Business Development Bank of Canada (“BDC”) oil and gas sector financing program announced in April 2020, which contemplates loans of between $15 million and $60 million at commercial rates for operating cash flow and business continuity purposes, repayable within 4 years. In late April, the Government of Alberta also announced its Site Rehabilitation Program aimed at incenting abandonment and reclamation activity. PPR will assess the cost and benefits of directing spending towards decommissioning activities, with our participation decision dependent upon the incentives available and capital requirements from PPR.
As a result of the continuing and far-reaching impacts of COVID-19, the Company expects the remainder of 2020 to be a challenging time for our industry and for the global economy in general. While PPR cannot control or influence the macro environment, we are committed to maintaining our balance sheet and liquidity through active cost reduction efforts and will continue to work closely with our lenders.
Annual Shareholders’ Meeting
PPR has been monitoring public health directives and recommendations relating to the COVID-19 pandemic, including continued restrictions on in-person gatherings, and looks forward to being able to hold its annual meeting of shareholders without having to limit physical attendance by shareholders and guests. In the circumstances, the Company has determined to defer its annual meeting until the second half of the year and, in connection therewith, the filing of proxy materials containing disclosure on director nominees, the Company’s auditor, executive compensation and corporate governance, in reliance on temporary relief issued by the Toronto Stock Exchange and the Canadian Securities Administrators as a result of the pandemic.1 The requisite shareholder communications and other actions necessary to call the meeting will be undertaken when the meeting date is decided.
1 In particular, the Company relies on the exemption in Alberta Securities Commission Blanket Order 51-518 and equivalent exemptions in other Canadian jurisdictions with respect to the filing of executive compensation disclosure, which is included in the information circular for annual shareholders’ meetings.
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.