CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) today announces our financial and operating results for the three and nine months ended September 30, 2020. PPR’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 (“Interim Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2020 are available on our website at www.ppr.ca and filed on SEDAR.
PPR’s third quarter financial results continue to reflect the significant decline in global energy demand and resultant impact on crude oil pricing caused by the COVID-19 pandemic since early 2020. While the health and safety of our employees, partners and communities remains a priority, the Company has proactively taken steps to maintain our liquidity and financial position during this unprecedented time.
Initiatives undertaken include suspending the capital program; identifying immediate and targeted operating cost reductions; reducing compensation 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 realize adjusted funds flow (“AFF”)1 savings of approximately $8.0 million to $10.0 million for 2020. In addition, PPR has WTI hedges on over 80% of our 2020 and 30% of our 2021 forecast base oil production (net of royalties), respectively, which protect our operating cash flows and provide further resiliency amid continued volatility. At September 30, 2020, our hedges were fair valued at over $4.7 million.
Q3 2020 HIGHLIGHTS
- Due to the ongoing adverse effects of the COVID-19 pandemic and OPEC+ supply issues, oil prices were significantly depressed throughout the second quarter of 2020, and despite moderate improvement in the third quarter of 2020 remain significantly lower year-over-year from 2019 levels. PPR’s Q3 2020 cash flows were partially protected by our hedging program, which brought in $2.8 million of realized gains for the quarter.
- Production averaged 4,516 boe/d (68% liquids) in the third quarter of 2020, a 27% or 1,698 boe/d decrease from the same period in 2019, primarily driven by natural declines and production shut-ins, partially offset by production from our 2019/2020 drilling program. In response to weak oil prices, PPR permanently shut-in approximately 130 boe/d of uneconomic oil production and suspended our capital program during the second quarter of 2020, and also deferred workover activities to preserve reserves value and liquidity, which resulted in temporary production loss over the quarter. As oil prices have partially recovered, PPR resumed workover activities in the third quarter of 2020 on select projects that meet our current economic thresholds of less than one-year payout.
- In addition to shutting in uneconomic production, PPR implemented various other cost reduction initiatives including the realignment of field structure, negotiating rate reductions with vendors and suspending workover activities. These cost savings initiatives together with lower production, resulted in a decrease in operating expenses of $1.1 million compared to the third quarter of 2019, partially offset by a higher level of workover activities.
- Operating netback1 after the impact of realized gains on derivatives was $6.3 million ($15.15/boe) for the third quarter of 2020, reflecting a decrease of $4.5 million or 42% from the same period in 2019. Our hedging program provided $2.8 million of realized gains in the third quarter of 2020 which partially mitigated a 29% drop in realized oil prices from the corresponding period in 2019.
- Net capital expenditures1 during the second quarter of 2020 were nominal, as a result of the suspension of the capital program.
- Adjusted funds flow1, excluding $0.1 million of decommissioning settlements, was $3.9 million ($0.02 per basic and diluted share) for the third quarter of 2020, a 40% or $2.7 million decrease from the same quarter in 2019. Primary contributors to the decrease were lower production volumes and lower realized oil prices, which were partially offset by a reduction in operating expenses, royalties, general and administrative (“G&A”) expenses and cash interest expenses.
- Net loss totaled $8.3 million in the third quarter of 2020 compared to a net loss of $2.3 million in the same period of 2019, driven primarily by a non-cash unrealized loss on derivative instruments of $3.9 million in the third quarter of 2020 versus an unrealized gain of $5.2 million in the third quarter of 2019. The unrealized loss on derivative instruments was due to a decrease in derivative asset value between June 30, 2020 and September 30, 2020. The decrease in derivative asset value during the third quarter of 2020 was largely due to realizing $2.8 million of gains from contracts settled in the period.
- Net debt1 at September 30, 2020 totaled $117.6 million, up $6.2 million from December 31, 2019. The increase is attributed to an unrealized foreign exchange loss of $2.0 million, which was driven by a weaker Canadian dollar relative to the US dollar on the Company’s US-dollar denominated debt, amortization of deferred financing costs and an increase of $5.3 million in deferred interest on the Company’s bank debt, partially offset by a year-to-date AFF1 that exceeds capital expenditures, finance lease payments and decommissioning settlements.
- A lender redetermination of the senior secured revolving note facility (“Revolving Facility”) borrowing base, originally scheduled for the spring of 2020, continues to be temporarily deferred. Until the redetermination is concluded, 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 the Revolving Facility and to not make further advances under that facility. PPR also agreed to a 200 basis point payment-in-kind margin increase on outstanding advances, payable on maturity of the Revolving Facility.
- The maturity date of the Revolving Facility is April 30, 2021. As the maturity date is within 12 months from September 30, 2020, the total outstanding amount under the Revolving Facility is classified under current liabilities as at September 30, 2020. The Company and our lenders continue to work towards a long‐term solution on the credit facilities. The lenders under both the Revolving Facility and the Senior Notes agreed to waive the application of all financial covenants for September 30, 2020.
- At September 30, 2020, PPR had US$57.3 million of borrowings drawn against the US$60.0 million Revolving Facility, comprised of US$30.3 million (C$40.5 million equivalent using the exchange rate at the time of borrowing, plus C$0.4 million equivalent of deferred interest, using the September 30, 2020 exchange rate of $1.00 USD to $1.33 CAD) of CAD-denominated borrowing and US$27.0 million of USD-denominated borrowing (C$35.7 million, plus C$0.4 million of deferred interest equivalent using the September 30, 2020 exchange rate). In addition, US$34.4 million (C$38.0 million, plus C$7.8 million of deferred interest equivalent using the September 30, 2020 exchange rate) of Senior Notes were outstanding at September 30, 2020, for total borrowings of US$91.7 million (C$122.9 million using the September 30, 2020 exchange rate).
1 Non-IFRS measure – see below under “Non-IFRS Measures”
Prairie Provident also announces that Tim Granger, Chief Executive Officer and a director of the Company, has decided to retire after almost eight years of service to PPR and its predecessor, Lone Pine Resources, and that Tony van Winkoop will be appointed Chief Executive Officer.
“The board of directors, shareholders and employees of Prairie Provident wish to thank Tim for his years of loyal service, sound leadership and stewardship. We wish him well in his future endeavors,” said Patrick McDonald, Chair of the Board of Directors. “On behalf of the Board, I would also like to congratulate Tony on his appointment as CEO, a well-deserved recognition of his contribution to the Company and moreover demonstration of our confidence in his abilities to lead the Company,” said McDonald.
Mr. van Winkoop, who has served as Vice President, Exploration for over 5 years and now President, was Chief Executive Officer of Arsenal Energy until its combination with Lone Pine Resources to form Prairie Provident in September 2016, and has been an integral member of the executive leadership team ever since.
The changes will be effective at the annual meeting of PPR shareholders to be held on December 18, 2020, at which Mr. van Winkoop will also stand for election to the board of directors together with Patrick McDonald (Chairman), Derek Petrie, William Roach, Ajay Sabherwal and Rob Wonnacott. Mr. Granger and Terence (Tad) Flynn are not standing for re-election.
A notice of meeting and information circular for the 2020 shareholders’ meeting has been filed on SEDAR under the Company’s issuer profile at www.sedar.com, and will be disseminated to shareholders in the coming days.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended
|Nine Months Ended
|($000s except per unit amounts)||2020||2019||2020||2019|
|Crude oil (bbls/d)||2,931||4,029||3,188||4,051|
|Natural gas (Mcf/d)||8,704||12,092||9,411||11,792|
|Natural gas liquids (bbls/d)||135||169||134||172|
|Average Realized Prices|
|Crude oil ($/bbl)||43.70||61.83||35.81||61.81|
|Natural gas ($/Mcf)||2.26||1.14||2.09||1.57|
|Natural gas liquids ($/bbl)||24.96||25.53||22.47||30.26|
|Operating Netback ($/boe)1|
|Realized gains (losses) on derivatives||6.85||(0.29||)||9.65||(1.02||)|
|Operating netback, after realized gains (losses) on
- Operating netback is a Non-IFRS measure (see “Non-IFRS Measures” below).
|September 30, 2020||December 31, 2019|
|Total net debt3||(117.6||)||(111.4||)|
|Common shares outstanding (in millions)||172.1||171.4|
- 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.
- Bank debt includes the Revolving Facility and the Senior Notes.
- Net debt is a Non-IFRS measure (see “Non-IFRS Measures” below), calculated by adding working capital (deficit) and bank debt.
|Three Months Ended
|Nine Months Ended
|Net (working interest) wells||n/a||n/a||1.0||1.0|
|Success rate, net wells (%)1||n/a||n/a||100%||100%|
- For the nine months ended September 30, 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. There has been a recent resurgence of COVID-19 cases in certain areas and the timing and extent of an eventual 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 muted given that 80% of our 2020 forecast base oil production (net of royalties) is protected by hedges. Our hedging program has shielded the Company against the severe price deterioration that has occurred during these unprecedented times, underpinning the importance of maintaining liquidity and financial position. After completing the Michichi well in March 2020, PPR has suspended our capital program to preserve liquidity and protect development economics.
Operationally, PPR conducted a bottom-up review of all of our operating expenses and identified and moved forward with immediate reduction opportunities. Operating cost reductions are being realized through rate negotiations, workforce optimizations, shutting-in uneconomic production and the deferral of activities, and are expected to total approximately $2.9 million for the year or $4.0 million on an annualized basis.
In addition, effective April 2020, executive and non-executive salaries and director annual remuneration were reduced. Certain employee benefit programs have also been suspended. These measures are expected to result in approximately $2.0 million of gross G&A reductions for 2020 or $2.2 million on an annualized basis.
PPR continues to actively monitor and pursue available COVID-19 relief programs and has to date realized some benefit under the Canada Emergency Wage Subsidy and the Site Rehabilitation Program for federal funding of abandonment and reclamation work.
As a result of the ongoing impacts caused by COVID-19, the Company expects the remainder of 2020 and first half of 2021 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.
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 our balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.
For further information, please contact:
Prairie Provident Resources Inc.
Tim Granger – Chief Executive Officer
Tel: (403) 292-8110
Tony van Winkoop – President
Tel: (403) 292-8071