CALGARY, AB, Aug. 12, 2021 /CNW/ – (TSX: PMT) – Perpetual Energy Inc. (“Perpetual”, or the “Company”) is pleased to release its second quarter 2021 financial and operating results. Select financial and operational information is outlined below, and should be read in conjunction with Perpetual’s unaudited condensed interim consolidated financial statements and related Management’s Discussion and Analysis (“MD&A”) for the three and six months ended June 30, 2021, which are available through the Company’s website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
SECOND QUARTER 2021 HIGHLIGHTS
- Production of 5,099 boe/d (73% conventional natural gas), at the high end of second quarter guidance and down 2% from the first quarter of 2021 as no new wells were placed on production during the quarter. Perpetual had previously disposed of a 50% working interest in the East Edson liquids-rich natural gas property in West Central Alberta, effective April 1, 2020 for consideration which included a 50% working interest carry to drill, complete and tie-in eight wells. Production averaged 3,662 boe/d in the second quarter of 2020, representing the starting point from which Perpetual has grown production. Relative to Q2 2020, second quarter 2021 production is up 39% year over year, reflecting the commencement of production from seven (3.5 net) new carried interest wells at East Edson and the restart of heavy crude oil production which was shut-in late in the first quarter of 2020 in response to extremely low oil prices.
- Adjusted funds flow of $2.3 million ($0.04 per share), a dramatic turnaround from the negative $3.3 million adjusted funds flow from the same quarter a year prior.
- Net income of $27.0 million ($0.43/share), up from the $2.7 million net loss reported in the first quarter of 2021. The increase was primarily driven by the non-cash impairment reversal of $30.1 million recognized in the second quarter.
- Cash flows from operating activities of $2.9 million, up $1.2 million from the first quarter of 2021, reflecting higher realized natural gas and oil prices.
- Cash costs of $9.0 million ($19.34/boe), up $1.7 million from the first quarter of 2021 ($15.41/boe) and $1.7 million from the second quarter of 2020 ($21.93/boe). Increased cash costs reflect higher royalties and production and operating expenses following the improvement in commodity prices and the continued reactivation of heavy crude oil production.
- Operating netbacks increased to $10.71/boe from $8.65/boe in Q1 2021, reflecting the continued strengthening of Western Canadian Select (“WCS”) benchmark oil prices. Compared to the second quarter of 2020, operating netbacks increased approximately three times from $2.92/boe.
- Exploration and development spending of $1.6 million, with the commencement of drilling of the first of two (1.0 net) wells at Marten Hills which spud on June 15, 2021. The two wells, each completed with eight horizontal lateral legs, were placed on stream after the end of the quarter and are currently recovering oil-based drilling fluids at rates over 400 bbl/d and no water. Oil sales are expected to commence later in August.
- Perpetual continued its active abandonment and reclamation program, executing $0.8 million of abandonment and reclamation projects and receiving $0.5 million of funding from Alberta’s Site Rehabilitation Program (“SRP”).
- Net debt of $110.0 million, up slightly from net debt levels at the end of the first quarter of $107.4 million.
- Perpetual had available liquidity at June 30, 2021 of $3.8 million, comprised of the $20 million credit facility borrowing limit, less current borrowings and letters of credit of $15.2 million and $1.0 million, respectively.
2021 OUTLOOK
On July 16, 2021, Perpetual announced the creation of Rubellite Energy Inc., approximately $73 million in equity financings, the settlement of the majority of its second lien term loan (the “Second Lien Loan Settlement”) and new credit facilities (the “Rubellite Transactions”). The management information circular (the “Information Circular”) with respect to the Plan of Arrangement involving Rubellite has been filed on SEDAR at www.sedar.com. The Special Meeting of Shareholders to consider the Plan of Arrangement is scheduled to be held on August 31, 2021. Perpetual shareholders are encouraged to carefully review the Information Circular as it contains important deadlines and information with respect to the exercise of warrants to be received by Perpetual shareholders in connection with the Plan of Arrangement and for Perpetual shareholders to participate in the equity financings.
Perpetual shareholders who have questions or require assistance in voting for the Plan of Arrangement or in exercising their Rubellite Warrants to subscribe for Rubellite Common Shares can contact the strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors, by telephone toll-free at 1-877-659-1819 (416-867-2272 for collect calls outside North America) or by email at contactus@kingsdaleadvisors.com.
The Rubellite Transactions offer a full capital solution for Perpetual by reducing Perpetual’s net debt, normalizing the balance sheet leverage ratios and surfacing incremental value from the development of its assets. Perpetual believes that the Rubellite Transactions will materially improve its liquidity, ensure its ongoing solvency and significantly improve both its ability to operate as a going concern and meet its obligations as they become due, including the flexibility to make cash payments of second lien and third lien interest which has recently been paid in-kind. At the same time, completion of the Rubellite Transactions will enhance Perpetual’s ability to capture the inherent value in its asset base by funding investment opportunities to grow and sustain production and adjusted funds flow.
Perpetual will realize net cash proceeds from the Rubellite Transactions of approximately $53.2 million which it will use to reduce net debt. The maturity of the Company’s credit facility has been extended to May 31, 2023, subject to the completion of the Rubellite Transactions at which time Perpetual expects to be less than 25% drawn on the new $17 million credit facility. As part of the Second Lien Loan Settlement, the maturity of a new second lien term loan of approximately $2.7 million has been extended to December 31, 2024. Net debt is forecast to decline by 46% from $110 million at June 30, 2021 to approximately $59 million at closing of the Rubellite Transactions, inclusive of estimated capital spending at East Edson and other forecast corporate revenues and expenses during the third quarter of 2021. Interest cost savings alone will improve Perpetual’s liquidity by approximately $4 million annually. The general and administrative cost recoveries under the management services agreement with Rubellite will further enhance Perpetual’s liquidity by approximately $2 to $3 million annually.
Following completion of the Rubellite Transactions, Perpetual is expected to have sufficient liquidity to invest capital in its assets to grow production and adjusted funds flow and convert proved and probable undeveloped reserves to proved developed producing reserves which serves to support the Company’s borrowing capacity, increases the fair market value of Perpetual’s assets, and generally enhances the Company’s ability to meet its obligations as they become due. In addition, with the committed extension to the first lien credit facility, Perpetual anticipates it will be better positioned to enter into risk management contracts to mitigate commodity price risk.
Operationally, Perpetual and Rubellite are both expected to have active capital programs over the balance of the year. At Perpetual’s 50% working interest East Edson property, the last well of the 8-well carried interest commitment was spud on July 26, 2021, and our joint venture partner Tourmaline expects to keep that rig working with an additional six (3.0 net) wells drilled prior to year-end. At Rubellite’s Figure Lake property, the first of four (4.0 net) wells was spud on July 21, 2021. This program is expected to be 100% financed by the GORR financing announced as part of the Rubellite Transactions. An additional eight Clearwater multi-lateral wells are expected to be drilled in the Ukalta area by Rubellite following the closing of the Rubellite Financings.
Subject to completion of the Rubellite Financings, Perpetual’s Board of Directors has approved exploration and development capital spending for Perpetual’s remaining assets for the second half of 2021 of $14 to $17 million to be funded from proceeds from the Rubellite Transactions and adjusted funds flow. The majority of the expenditures will be directed to the East Edson property in West Central Alberta to participate for Perpetual’s 50% working interest share in the drilling, completion and tie-in of the six (3.0 net) wells developing liquids-rich conventional natural gas reserves in the Wilrich formation. The six well drilling program will follow immediately upon the completion of the drilling of the eighth and final carried interest well that formed part of the consideration when the Company sold a 50% working interest in the East Edson property in April 2020. The Company expects the final carried interest well to be completed and brought onstream late in the third quarter. The remaining six wells are expected to be extended reach horizontal wells and are forecast to come onstream in two tranches midway through the fourth quarter and late in the fourth quarter of 2021. The second half 2021 drilling program is targeting to fill the West Wolf gas plant to maximize natural gas and NGL sales through next winter. Activity in Mannville in Eastern Alberta will be focused on waterflood optimization and battery consolidation projects.
Total spending for the second half of 2021 on Rubellite’s Clearwater Assets is forecast to be $18 to $20 million. The fully-funded four well Figure Lake drilling program is underway and a $12 to $14 million drilling program at Ukalta is expected to begin upon closing of the Rubellite Financings.
The table below summarizes anticipated capital spending and drilling activities for Perpetual and Rubellite for the first and second half of 2021.
2021 Exploration and Development Forecast Capital Expenditures
H1 2021 ($ millions) |
# of wells (gross/net) |
H2 2021 ($ millions) |
# of wells (gross/net) |
|
West Central(1) |
0.7 |
2/1.0 |
$14 – $16 |
7/3.5 |
Eastern Alberta(2) |
0.9 |
1/0.5 |
0 – $1 |
1/0.5 |
Rubellite Clearwater Assets |
– |
– |
$18 – $20 |
12/12.0 |
Total(3) |
1.6 |
3/1.5 |
$32 – $37 |
20/16.0 |
(1) |
Production from West Central is primarily liquids-rich conventional natural gas. The two (1.0 net) wells drilled in H1 2021 and the first well drilled in H2 2021 represent the final three wells of the eight well carried interest drilling commitment. |
(2) |
Drilling in Eastern Alberta was at Marten Hills, with one (0.5 net) well rig released in H1 2021 and the second well rig released July 14, 2021. This activity was funded by Perpetual and the wells form part of the Rubellite Transactions. Production from Eastern Alberta is primarily heavy crude oil. |
(3) |
Excludes budgeted abandonment and reclamation spending of $2.4 million ($1.2 million of which is expected to be funded by the SRP and recorded as other income). |
Perpetual continues its ESG focus, with total abandonment and reclamation expenditures of up to $2.4 million planned in 2021, with up to $1.2 million to be funded through Alberta’s SRP. The remaining $1.2 million will more than satisfy the Company’s area-based closure spending requirements of $1.0 million.
Financial and Operating Highlights
|
Three months ended June 30 |
Six months ended June 30 |
||||
(Cdn$ thousands, except volume and per share amounts) |
2021 |
2020 |
Change |
2021 |
2020 |
Change |
Financial |
||||||
Oil and natural gas revenue |
13,226 |
3,722 |
255% |
24,762 |
14,219 |
74% |
Net income (loss) |
27,017 |
(8,831) |
(406%) |
24,311 |
(68,549) |
(135%) |
Per share – basic(2) |
0.43 |
(0.15) |
(387%) |
0.39 |
(1.13) |
(135%) |
Per share – diluted(2) |
0.38 |
(0.15) |
(353%) |
0.35 |
(1.13) |
(131%) |
Cash flow from (used in) operating activities |
2,854 |
(2,777) |
(203%) |
4,536 |
(5,891) |
(177%) |
Adjusted funds flow(1) |
2,302 |
(3,328) |
(169%) |
4,846 |
(6,929) |
(170%) |
Per share – basic(2) |
0.04 |
(0.05) |
(180%) |
0.08 |
(0.11) |
(173%) |
Per share –diluted(2) |
0.03 |
(0.05) |
(160%) |
0.07 |
(0.11) |
(164%) |
Total assets |
164,936 |
132,772 |
24% |
164,936 |
132,772 |
24% |
Revolving bank debt |
15,239 |
11,080 |
38% |
15,239 |
11,080 |
38% |
Term loan, principal amount |
48,719 |
45,000 |
8% |
48,719 |
45,000 |
8% |
Senior notes, principal amount |
36,403 |
33,580 |
8% |
36,403 |
33,580 |
8% |
Net working capital deficiency(1) |
9,629 |
8,873 |
9% |
9,629 |
8,873 |
9% |
Net debt(1) |
109,990 |
98,533 |
12% |
109,990 |
98,533 |
12% |
Capital expenditures |
1,554 |
(11) |
(14,227%) |
1,557 |
5,222 |
(70%) |
Net proceeds on acquisitions and dispositions |
(46) |
(34,661) |
(100%) |
423 |
(34,661) |
(101%) |
Net capital expenditures |
1,508 |
(34,672) |
(104%) |
1,980 |
(29,439) |
(107%) |
Common shares outstanding (thousands)(3) |
||||||
End of period |
62,591 |
60,894 |
3% |
62,591 |
60,894 |
3% |
Weighted average – basic |
62,574 |
60,776 |
3% |
62,091 |
60,725 |
2% |
Weighted average – diluted |
70,461 |
60,776 |
16% |
69,324 |
60,725 |
14% |
Operating |
||||||
Daily average production |
||||||
Conventional natural gas (MMcf/d) |
22.2 |
16.9 |
31% |
22.6 |
25.2 |
(10%) |
Heavy crude oil (bbl/d) |
1,074 |
573 |
87% |
1,085 |
946 |
15% |
NGL (bbl/d) |
331 |
268 |
24% |
313 |
437 |
(28%) |
Total (boe/d)(5) |
5,099 |
3,662 |
39% |
5,155 |
5,570 |
(7%) |
Average prices |
||||||
Realized natural gas price ($/Mcf)(4) |
2.25 |
0.28 |
704% |
2.25 |
0.86 |
162% |
Realized oil price ($/bbl)(4) |
55.75 |
67.56 |
(17%) |
48.26 |
43.18 |
12% |
Realized NGL price ($/bbl)(4) |
55.48 |
17.35 |
220% |
55.74 |
30.62 |
82% |
Wells drilled – gross (net) |
||||||
Conventional natural gas |
– (–) |
– (–) |
2 (1.0) |
– (–) |
||
Heavy crude oil |
1 (0.5) |
– (–) |
1 (0.5) |
4 (4.0) |
||
Total |
1 (0.5) |
– (–) |
3 (1.5) |
4 (4.0) |
(1) |
These are non-GAAP measures. Please refer to “Non-GAAP Measures” below. |
(2) |
Based on weighted average basic and diluted common shares outstanding for the period. |
(3) |
common shares are net of shares held in trust (June 30, 2021 – 0.5 million; June 30, 2020 – 0.6 million). See “Note 14 to the condensed interim consolidated financial statements”. |
(4) |
Realized natural gas, oil, and NGL prices include physical forward sales contracts for which delivery was made during the reporting period, along with realized gains and losses on financial derivatives and foreign exchange contracts. |
(5) |
Please refer to “Boe volume conversions” below. |
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual owns a diversified asset portfolio, including liquids-rich conventional natural gas assets in the deep basin of West Central Alberta, heavy crude oil and shallow conventional natural gas in Eastern Alberta, undeveloped bitumen leases in Northern Alberta and prospective undeveloped acreage in the emerging Clearwater play fairway through its wholly owned subsidiary, Rubellite Energy Inc. Additional information on Perpetual can be accessed at www.sedar.com or from the Company’s website at www.perpetualenergyinc.com.