- Announced an agreement to be acquired by Canadian Natural Resources Limited for $0.69 per share, representing a 30% premium to the 20-day volume weighted average price of $0.53 per share at the time of the announcement on Monday, August 10, 2020;
- Averaged daily production of 305,058 Mcfe/d (50,843 boe/d) during the second quarter of 2020 compared to 293,868 Mcfe/d (48,978 boe/d) during the second quarter of 2019, and;
- Produced average daily liquids of 4,396 bbls/d during the second quarter of 2020, which was 22% higher than liquids production of 3,594 bbls/d during the first quarter of 2020, and compares to second quarter 2019 liquids production of 4,508 bbls/d.
SECOND QUARTER 2020 FINANCIAL & OPERATING RESULTS
Painted Pony’s average daily production increased 4% to 305,058 Mcfe/d (50,843 boe/d) during the second quarter of 2020, compared to 293,868 Mcfe/d (48,978 boe/d) during the second quarter of 2019. Second quarter 2020 average daily production volumes consisted of 91% natural gas and 9% NGLs compared to the same levels during the second quarter of 2019. During the second quarter of 2020, Painted Pony’s NGLs production increased 22% to 4,396 boe/d, from 3,594 boe/d during the first quarter of 2020, with the increase due to the recently commissioned third-party deep-cut facility at Townsend to which Painted Pony received access.
Painted Pony’s capital program for the second quarter of 2020 was approximately $5 million, including approximately $4 million for drilling and completion costs. Painted Pony drilled 7 (1.75 net) Montney wells during the second quarter of 2020.
Pricing and Adjusted Funds Flow from Operations
Painted Pony’s realized commodity price of $2.12 per Mcf represents a 7% premium to the AECO daily (5A) benchmark price of $1.99 per Mcf during the second quarter of 2020. Painted Pony’s operating netback of ($0.09) per Mcfe during the second quarter of 2020 declined in comparison to the operating netback of $1.26 per Mcfe during the second quarter of 2019. Painted Pony’s adjusted funds flow from (used in) operations during the second quarter of 2020 was $(14) million, compared to $9 million during the second quarter of 2019. This decline was the result of a 55% reduction in realized NGL pricing to $20.48 per bbl during the second quarter of 2020 compared to $45.57 per bbl during the second quarter of 2019, realized losses on risk management contracts, increased capital facility fees and higher transportation costs resulting from contracted capacity on the recently constructed North Montney Mainline. Stronger natural gas pricing at Station 2 and AECO were offset by lower NYMEX prices which reached a 31 year low of US$1.63/MMBtu during June of 2020. The risk management contracts were impacted by the reduced basis between NYMEX natural gas pricing and domestic natural gas hubs. The change in capital facility fees was the result of modifications to finance lease obligations, with a corresponding decrease in finance lease expense.
Liquidity, Future Operations and Arrangement Agreement
As at June 30, 2020, the Corporation had a working capital deficiency of $180.7 million. During the three months ended June 30, 2020, the Corporation had incurred a net loss of $33.5 million and cash flows used in operations were $8.3 million. Included in the working capital deficiency is bank debt of $148.4 million due on May 11, 2021 and in addition, the Corporation has convertible debentures of $50 million which mature on August 23, 2021. The Corporation’s syndicated credit facilities consist of available credit facilities of $325 million. The available facilities are provided by a syndicate of financial institutions and include a $275 million extendable revolving facility and a $50 million operating facility. The Corporation also has a $22 million unsecured letter of credit facility backstopped by Export Development Canada (“EDC“). As the current maturity date of the credit facilities is May 11, 2021, the bank debt has been classified as a current liability at June 30, 2020.
On July 31, 2020, subject to certain reporting requirements and spending limits, the Corporation’s banking syndicate agreed to extend the date for completion of the annual borrowing base redetermination to August 31, 2020. Any redetermination of the borrowing base is effective immediately, and if the borrowing base is reduced, any shortfall is due immediately. The available lending limits are based on the syndicate’s sole interpretation of the Company’s reserves, future commodity prices and costs. No assurance can be provided that the amount of the facilities will not be adjusted on August 31, 2020, or that the Company will be able to further renew or extend or replace the current facilities on terms that are favorable to the Corporation. Should the Corporation be unable to extend the maturity date of the credit facilities, it could result in a default under the terms of the credit agreement and lenders would have the right, but not the obligation, to demand immediate repayment of all amounts drawn on the credit facilities and would result in defaults under both the Convertible Debenture Indenture and the Senior Note Trust Indenture. The Corporation’s ability to continue as a going concern is dependent upon the Corporation’s ability to maintain the credit facilities at or above amounts currently drawn and its ability to renew the credit facilities prior to the repayment/maturity date. There can be no assurances that the facilities will be renewed, or additional sources of funding will be available for the Corporation. These matters cause material uncertainty which may cast significant doubt on the Corporation’s ability to continue as a going concern.
The Corporation and its lenders continue to work towards a long-term solution on the facilities and the overall liquidity of the Corporation. In this regard, after reviewing the Corporation’s current circumstances and all available proposals, on August 10, 2020, the Corporation entered into a definitive arrangement agreement (the “Arrangement Agreement“) pursuant to which Canadian Natural Resources Limited (the “Purchaser“) has agreed to acquire all of the issued and outstanding common shares of the Corporation for cash consideration of $0.69 per share (the “Transaction“). The Purchaser will assume the Corporation’s net debt as estimated upon closing. The Transaction is subject to various closing conditions, including court approval, the required approval by the Corporation’s securityholders and certain regulatory approvals, including approval under the Competition Act (Canada). Closing of the Transaction is anticipated to occur in early October 2020 upon satisfaction of all conditions precedent, including approval under the Competition Act (Canada). The Arrangement Agreement provides for a non-completion fee of $20.0 million payable by the Corporation if the transaction is terminated under certain circumstances.
For additional information concerning Painted Pony’s second quarter 2020 financial and operating results, including Financial Statements and the full Management Discussion and Analysis, please visit https://paintedpony.ca/investors/financial-reports/default.aspx or www.sedar.com.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
|Three months ended June 30,
||Six months ended June 30,|
|($ millions, except per share and shares outstanding)||2020||2019||2020||2019|
|Natural gas and natural gas liquids revenue(1)||61.9||59.1||135.9||166.8|
|Cash flows from (used in) operating activities||(8.3||)||22.3||12.6||76.0|
|Per share – basic(2)(4)||(0.05||)||0.14||0.08||0.47|
|Per share – diluted(3)(4)||(0.05||)||0.13||0.07||0.45|
|Adjusted funds flow from (used in) operations(5)||(13.6||)||9.1||(8.3||)||55.6|
|Per share – basic(2)(5)||(0.08||)||0.06||(0.05||)||0.35|
|Per share – diluted(3)(5)||(0.08||)||0.05||(0.05||)||0.33|
|Net loss and comprehensive loss – basic and diluted||(33.5||)||(14.7||)||(315.6||)||(17.3||)|
|Per share – basic and diluted(2)(3)||(0.21||)||(0.09||)||(1.96||)||(0.11||)|
|Cash capital expenditures||5.3||15.3||26.2||52.2|
|Working capital (deficiency)(6)||(180.7||)||(20.5||)||(180.7||)||(20.5||)|
|Convertible debentures – liability||48.2||46.8||48.2||46.8|
|Shares outstanding (millions)||161.0||161.0||161.0||161.0|
|Basic weighted-average shares (millions)||161.0||161.0||161.0||161.0|
|Fully diluted weighted-average shares (millions)||169.9||169.9||169.9||169.9|
|Daily production volumes|
|Natural gas (MMcf/d)||278.7||266.8||288.0||283.4|
|Natural gas liquids (bbls/d)||4,396||4,508||3,995||4,430|
|Realized commodity prices before financial risk management contracts|
|Natural gas ($/Mcf)||2.12||1.66||2.21||2.50|
|Natural gas liquids ($/bbl)||20.48||45.57||27.46||48.31|
|Operating netbacks ($/Mcfe)(8)||(0.09||)||1.26||0.38||1.88|
|Corporate netbacks ($/Mcfe)(8)||(0.14||)||0.72||0.18||1.36|
1. Before royalties.
2. Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.
3. Diluted per share information reflects the potential dilutive effect of stock options and convertible debentures.
4. Cash flows from (used in) operating activities per share (basic and diluted), are non-GAAP measures calculated by dividing cash flows from (used in) operating activities by the weighted average of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.
5. Adjusted funds flow from (used in) operations and adjusted funds flow from (used in) operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from (used in) operating activities before the effects of changes in non-cash working capital and decommissioning expenditures. Adjusted funds flow from (used in) operations per share is calculated by dividing adjusted funds flow from (used in) operations by the weighted average number of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.
6. Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. See “Non-GAAP Measures”.
7. Net debt is a non-GAAP measure calculated as bank debt, senior notes, the liability portion of convertible debentures, and working capital deficiency, adjusted for the net current portion of fair value of risk management contracts and current portion of the finance lease obligation. See “Non-GAAP Measures”.
8. Operating netbacks and corporate netbacks are non-GAAP measures. Operating netbacks are calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management contracts, less royalties, operating expenses and transportation expenses. Corporate netbacks are calculated as operating netbacks less finance lease expense per unit. See “Non-GAAP Measures” and “Operating Netbacks and Corporate Netbacks”.