CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) is pleased to announce our operating and financial results for the three months and year ended December 31, 2020. PPR’s audited consolidated financial statements and related Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 2020 and annual information form dated March 25, 2021 (“AIF”) are available on our website at www.ppr.ca and filed on SEDAR.
In the spring of 2020, the world was struck by the COVID-19 pandemic. Prices for crude oil and natural gas dropped precipitously. In response, the Company took steps to maintain our liquidity and financial position. Initiatives undertaken include suspending the capital program; identifying immediate and targeted operating cost reductions; reducing compensation across the organization; and reaching agreements with our lenders to renew and extend our credit facilities. Our decisive actions allowed us to strengthen our liquidity, protect stakeholders’ capital and deliver positive financial results while positioning PPR to take advantage of the rebound in commodity markets.
- Annual production: Production for 2020 averaged 4,781 boe/d (67% liquids), which was 21% lower than 2019. The decrease was primarily driven by natural declines and production shut-ins. In response to weak oil prices, beginning Q2 2020, PPR permanently shut-in approximately 130 boe/d of uneconomic oil production, suspended our capital program, and deferred our workover activities to preserve reserves value and liquidity. As oil prices have partially recovered, PPR resumed select workover activities in the second half of 2020 that met our economic thresholds. A number of projects remained uneconomic at the end of 2020, which continued contributing to temporary production loss. Q4 2020 production averaged 4,455 boe/d (66% liquids), 22% lower than the same period in 2019.
- Adjusted funds flow (“AFF”)1: Despite the depressed commodity price environment through most of 2020, PPR generated positive AFF of $12.3 million for 2020 ($0.07 per basic and diluted share), excluding $1.9 million of decommissioning settlements. AFF decreased by 45% from 2019 due to lower production and lower operating netbacks, partially offset by increased realized hedging gains and a reduction in G&A expenses and cash interest expenses. AFF, excluding $0.4 million of decommissioning settlements, was $2.3 million ($0.01 per basic and diluted share) for Q4 2020, a 53% decrease from Q4 2019 due to the same factors that contributed to the annual decrease.
- Reduced cost structure: Annual and Q4 2020 operating expenses reduced by $9.4 million and $2.0 million (20% and 17%) from the same periods in 2019, while annual and Q4 2020 gross cash G&A expenses decreased by $3.4 million and $1.2 million (37% and 56%).
- Operating netback1: Operating netback for 2020 was $24.7 million ($14.10/boe) after realized gains on derivatives and $9.4 million ($5.39/boe) before the impact of derivatives in 2020, a 37% and 77% decrease from 2019, respectively. Our hedging program provided $15.2 million of realized gains in 2020 which partially mitigated a 38% and 34% drop in realized light & medium and heavy crude oil prices, respectively, from 2019. Q4 2020 operating netback was $5.8 million ($14.20/boe) after realized gains on derivatives and $3.5 million ($8.56/boe) before the impact of derivatives, a 34% and 62% decrease from Q4 2019, respectively, primarily due to lower realized commodity prices.
- Net loss: Net loss totaled $90.8 million in 2020, compared to a net loss of $33.1 million in 2019, driven primarily by non-cash items such as impairment loss, depletion and amortization, partially offset by gains on the modification of debt related to the refinancing transaction described below. For Q4 2020, net income totaled $3.1 million driven by Adjusted Fund Flow1 of $2.3 million.
- Exited 2020 with positive working capital1: Working capital at year end 2020 was $5.3 million (December 31, 2019 – $2.2 million), including cash and restricted cash of $8.9 million. The increase in working capital was primarily due to lower accounts payable and accrued liabilities as a result of cost savings initiatives, the suspension of the capital program and the deferral and reduction of interest payments on bank debt.
- 2020 capital expenditures fully funded: Our net capital expenditures1 in 2020 came in at $3.8 million while Adjusted Funds Flow1 net of decommissioning settlements totaled $10.5 million. During 2020, PPR directed capital resources primarily in the Michichi area where the Company drilled, completed and brought on production one gross (1.0 net) development well prior to the suspension of the capital program in Q2 2020 as a result of global economic conditions.
- Net debt1: As at December 31, 2020, net debt1 totaled $115.9 million which was up $1.5 million from December 31, 2019 primarily due to deferred interest accumulated to the balance.
- Credit facility renewal: In December 2020, PPR entered into agreements with our lender providing for the renewal of our credit facilities, an issuance of US$11.4 million 6-year senior subordinated notes with proceeds applied against our revolving note facility (“Revolving Facility”), amendments to its existing credit agreements to reduce overall cash interest costs and reset financial covenants, and an issuance of warrants to purchase up to 34,292,360 common shares (representing 19.9% of the total number of shares then outstanding) at a price of $0.0192 per share. Overall, the agreements extended the term of the Company’s debt instruments, provided additional liquidity, and reduced annual cash interest expenses.
- Financial flexibility remains a priority: At year-end 2020, PPR had US$11.2 million (CAN$14.3 million equivalent2) of borrowing capacity under the Revolving Facility. Borrowings under the Revolving Facility totaled US$46.5 million at December 31, 2020, comprised of US$30.5 million of CAD-denominated borrowing (equivalent to CAN$41.1 million3) and US$16.0 million of USD-denominated borrowing (equivalent to CAN$20.4 million of principal2). In addition, US$47.0 million of senior subordinated notes (equivalent to CAN$50.8 million of principal and CAN$9.0 million of deferred interest2) were outstanding at December 31, 2020, for total borrowings of US$93.4 million (CAN$121.3 million equivalent).
1 Non-IFRS measure – see below under “Non-IFRS Measures”
2 Based on an exchange rate of $1.0000 USD to $1.2732 CAD on December 31, 2020.
3 Converted using an average exchange rate of $1.00 USD to $1.35 CAD.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended December 31,
||Year Ended December 31,
|($000s except per unit amounts)||2020
|Light & medium crude oil (bbl/d)||2,639||3,436||2,881||3,716|
|Heavy crude oil (bbl/d)||163||278||210||251|
|Conventional natural gas (Mcf/d)||9,080||11,169||9,328||11,635|
|Natural gas liquids (bbl/d)||140||149||136||166|
|Average Realized Prices|
|Light & medium crude oil ($/bbl)||45.04||60.04||38.05||61.83|
|Heavy crude oil ($/bbl)||40.91||54.70||35.26||53.33|
|Conventional natural gas ($/Mcf)||2.71||2.21||2.25||1.72|
|Natural gas liquids ($/bbl)||30.98||31.08||24.59||30.48|
|Operating Netback ($/boe)1|
|Realized gains (losses) on derivative instruments||5.64||(0.85||)||8.71||(0.98||)|
|Operating netback, after realized gains (losses) on derivative instruments||14.20||16.85||14.10||17.61|
1 Operating netback is a Non-IFRS measure (see “Non-IFRS Measures” below).
December 31, 2020
December 31, 2019
|Borrowings outstanding (principal plus deferred interest)||(121.3||)||(116.7||)|
|Total net debt2||(115.9||)||(114.5||)|
|Common shares outstanding (in millions)4||172.3||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, which had a borrowing base of USD$57.7 million at December 31, 2020 and USD$60.0 million at December 31, 2019, converted at an exchange rate of $1.0000 USD to $1.2732 CAD on December 31, 2020 and $1.0000 USD to $1.3642 CAD on December 31, 2019.
4 Subsequent to December 31, 2020, PPR cancelled 44,711,330 common shares that were surrendered by a shareholder to the Company for nominal consideration. As of the date of the press release, PPR had 128.0 million common shares outstanding.
|Three Months Ended
|Net (working interest) wells||—||2.0||1.0||3.0|
|Success rate, net wells (%)||N/A||100||100||100|
Subsequent to December 31, 2020, PPR cancelled 44,711,330 common shares, representing approximately 25.9% of the total number of common shares previously outstanding, that were surrendered by a shareholder to the Company for nominal consideration.
PPR enters 2021 with optimism propelled by additional liquidity, rebounding commodity prices and a lower cost structure. Our 2021 business strategy focuses on maintaining production and reserves while prudently investing to meet our abandonment and reclamation obligations (“ARO”). As commodity markets improve, PPR is positioned to upscale our capital program providing torque to stakeholders’ return.
- Forecast average 2021 production is estimated at approximately 4,400 boe/d (65% liquids) through the year and to achieve a target exit rate of approximately 4,370 boe/d (67% liquids). Target average production contemplated is comprised of approximately 2,480 bbl/d of light and medium crude oil, 270 bbl/d of heavy oil, 9,220 Mcf/d of conventional natural gas and 115 bbl/d of natural gas liquids.
- Our 2021 capital budget totals $16.9 million, $11.0 million of which is dedicated to drill, complete and tie-in of four wells at the Princess area and $2.4 million is allocated to capitalized G&A, land, seismic and capital maintenance.
- The remaining $3.5 million of the 2021 capital budget is allocated to abandon and reclaim inactive wells. Gross investment in ARO is expected to be approximately $6.5 million, $3.0 million of which is expected to be covered by grants under the government-sponsored site rehabilitation program (SRP). The scale of our 2021 ARO program is dependent on the ultimate level of SRP funding approved by the regulators.
- Forecast 2021 operating expenses are $34.4 million or $21.42/boe.
- Gross cash general and administrative (“G&A”) expenses (before capitalized G&A and stock-based compensation expense) for 2021 are forecast to be $7.0 million or $4.36/boe.
- The Company continues to proactively hedge volumes in order to protect economics and currently has approximately 59% of 2021 forecast oil production hedged with an average swap and put option strike price of US$47.52 per bbl. To enhance upside participation, 75% of our oil hedges for 2021 are in three-way collars with an average cap of US$61.56/bbl.
- PPR’s 2021 capital program is expected to be funded from cash flows from operations and US$12.7 million of liquidity currently available under the Company’s revolving note facility.