CALGARY, Alberta – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) (TSX:PPR) is pleased to announce our operating and financial results for the fourth quarter and year ended 2021. PPR’s audited annual consolidated financial statements (“Annual Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) and annual information form dated March 29, 2022 (“AIF”) are available on our website at www.ppr.ca and filed on SEDAR at www.sedar.com.
MESSAGE TO SHAREHOLDERS
Tony Berthelet, President & Chief Executive Officer commented: “2021 saw the Company increase focus to maximizing cash flow from existing assets and unlocking the significant potential of the Michichi asset. Waterflood reserves recognition from the Michichi waterflood pilot in 2021 sets the foundation for further waterflood expansion and reserves development. Enhancing the team across all disciplines sets the Company up for continued optimization of the existing asset base and maximizing value from these legacy assets. The focus for PPR in 2022 is to continue to improve the balance sheet through non-core dispositions and debt reduction.”
- Successful 2021 drilling program and fully funded by adjusted funds flow (“AFF”)1: During 2021, we incurred net capital expenditures(1) of $14.7 million, $12.1 million of which to drill, complete, equip and tie-in five gross (5.0 net) wells in the Princess area. All five wells came on production during the year and contributed approximately 415(2) boe/d of incremental production in 2021 and are anticipated to deliver annualized average production of approximately 875(3) boe/d over the 12-month period from their respective on initial production dates. Our capital program was fully funded by 2021 AFF(1) of $15.5 million (excluding decommissioning settlements). The final well was brought on production on December 1, 2021 with an IP30(4) rate of approximately 775 boe/d. Current production on this well remains at approximately 400(5) boe/d.
- Maintained exit production: Production for 2021 averaged 4,268 boe/d (65% liquids), which was 11% lower than 2020 primarily due to natural declines, partially offset by production from our 2021 drilling program. Even with the suspension of our capital program during 2020, we maintained our year-over-year exit production rate with our 2021 drilling program and workover activities, where Q4 2021 production averaged 4,369 boe/d (65% liquids), similar to Q4 2020.
- Record operating netback(1) per boe: Operating netback before realized losses on derivatives for Q4 and year of 2021 was $28.86/boe and $22.87/boe, respectively, a record high since PPR became a publicly listed company in 2016. 2021 operating netback before realized losses on derivatives increased by $17.48/boe or 324% from 2020 driven by significant commodity price recoveries in the year. Q4 2021 operating netback per boe before realized losses on derivatives increased by 237% from Q4 2020, due to the same factor that led to the annual increase.
- Net earnings amidst commodity price recovery: Net earnings totaled $10.4 million in 2021, compared to a net loss of $90.8 million in 2020, driven primarily by impairment reversals recognized in 2021 related to our Evi and Princess CGUs as a result of recoveries of commodity prices versus impairment losses recognized in 2020. For Q4 2021, net income totaled $7.9 million driven by AFF and non-cash items including fourth quarter impairment reversals, unrealized gains on derivative instruments and gains on debt modifications.
- Improved AFF(1): PPR generated AFF of $15.5 million for 2021 ($0.11 per basic and $0.09 per diluted share), excluding $3.3 million of decommissioning settlements, an increase of 29% or $3.5 million from 2020, reflecting improved operating netbacks. Q4 2021 AFF, excluding $2.6 million of decommissioning settlements, was $4.3 million ($0.03 per basic and diluted share), a 121% increase from Q4 2020.
- Reduced decommissioning liabilities: During 2021, we actively reduced our decommissioning liabilities with a combination of $2.2 million of funding from Alberta’s Site Rehabilitation Program (“SRP”) and $3.3 million of internal funding. In addition, we removed $0.5 million of decommissioning liabilities through property dispositions. PPR continues to increase its focus on environmental stewardship and has budgeted $4.0 million of internally funded decommission settlements for 2022, in addition to $3.7 million of settlements anticipated to be covered by grants under the SRP.
- Secured liquidity by extending maturity dates of long-term debt: In December 2021, PPR entered into agreements with our lenders for the renewal of our credit facilities including the extension of the maturity date of the revolving facility to December 31, 2023. The amendments also provide for added borrowing base certainty during 2022, as there is to be no scheduled redetermination of the borrowing base until after December 31, 2022. Additionally, the maturity date of the US$28.5 million aggregate original principal of subordinated senior notes issued in October 2017 and November 2018 (together with deferred interest amounts) was extended to June 30, 2024.
- Net debt(1): As at December 31, 2021, net debt1 totaled $124.3 million which increased by $8.4 million from December 31, 2020. The increase was attributed to accelerating capital spending to take advantage of commodity pricing by drilling short cycle wells in Princess and advancing development of the Michichi Q1 2022 capital program to unlock value from these high quality assets. These capital expenditures coupled with lease payments, deferred interest on long-term debt, decommissioning settlements, and transaction, restructuring and other costs in 2021 exceeded of AFF1. PPR had US$6.4 million (CAN$8.1(6) million equivalent) at December 31, 2021 (December 31, 2020 — US$11.2 million) of available borrowing capacity under the Company’s senior secured revolving note facility.
1 Non-GAAP financial measure – see below under “Non-GAAP and Other Financial Measures”.
2 Comprised of average production of approximately 258 bbl/d of heavy crude oil and 942 Mcf/d of conventional natural gas.
3 Anticipated annualized 12-month average production from these 5 wells is comprised of and estimated 605 bbl/d of heavy crude oil and an estimated 1,620 Mcf of conventional natural gas, and is calculated based on actual production from the wells’ respective on-production dates to February 28, 2022 plus forecasted production provided by Sproule Associates Limited (“Sproule”) and applied by Sproule in its evaluation of reserves as of December 31, 2021 for the remaining period to total 12-month of production. Readers are cautioned that forecasted production volumes and rates may differ materially from actual production volumes and rates.
4 Average initial production over a 30-day period commencing December 1, 2021, during which the well produced an average of 640 bbl/d of heavy crude oil and 810 Mcf/d of conventional natural gas from the Glauconite formation. Readers are cautioned that short-term initial production rates are 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.
5 Comprised of average production of approximately 308 bbl/d of heavy crude oil and 552 Mcf/d of conventional natural gas.
6 Converted using the month end exchange rate of $1.00 USD to $1.27 CAD as at December 31, 2021.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended
|($000s except per unit amounts)||2021||2020||2021||2020|
|Light & medium crude oil (bbl/d)||2,198||2,639||2,355||2,881|
|Heavy crude oil (bbl/d)||492||163||294||210|
|Conventional natural gas (Mcf/d)||9,246||9,080||8,900||9,328|
|Natural gas liquids (bbl/d)||138||140||135||136|
|Average Realized Prices|
|Light & medium crude oil ($/bbl)||80.81||45.04||71.83||38.05|
|Heavy crude oil ($/bbl)||79.98||40.91||72.12||35.26|
|Conventional natural gas ($/Mcf)||4.89||2.71||3.73||2.25|
|Natural gas liquids ($/bbl)||74.35||30.98||57.25||24.59|
|Operating Netback ($/boe)1|
|Realized gains (losses) on derivative instruments||(9.82||)||5.64||(6.13||)||8.71|
|Operating netback, after realized gains (losses) on derivative instruments||19.04||14.20||16.74||14.10|
1 Operating netback is a Non-GAAP financial measure (see “Non-GAAP and Other Financial Measures” below) calculated as oil and natural gas revenue less royalties less operating costs.
December 31, 2021
December 31, 2020
|Borrowings outstanding (principal plus deferred interest)||(124.0||)||(121.3||)|
|Total net debt2||(124.3||)||(115.9||)|
|Common shares outstanding (in millions)4||128.7||172.3|
1 Working capital (deficit) is a non-GAAP financial measure (see “Non-GAAP and Other Financial Measures” below) calculated as current assets less current portion of derivative instruments, minus accounts payable and accrued liabilities.
2 Net debt is a non-GAAP financial measure (see “Non-GAAP and Other Financial Measures” below), calculated by adding working capital (deficit) and borrowings outstanding under long-term debt.
3 Debt capacity reflects the undrawn capacity of the Company’s revolving facility, which had a borrowing base of USD$53.8 million at December 31, 2021 and USD$60.0 million at December 31, 2020, converted at an exchange rate of $1.0000 USD to $1.2678 CAD on December 31, 2021 and $1.0000 USD to $1.2732 CAD on December 31, 2020.
4 Subsequent to December 31, 2020, PPR cancelled 44,711,330 common shares that were surrendered to the Company for nominal consideration. After giving effect to the cancellation, PPR had 128.0 million common shares outstanding.
|Three Months Ended
|Net (working interest) wells||1.0||—||5.0||1.0|
|Success rate, net wells (%)||100||N/A||100||100|
In the first quarter of 2022, PPR advanced the development of its Banff Formation properties in the Michichi area near Drumheller. PPR finalized the drilling and completion of two gross (2.0 net) wells, both of which came on production in the first week of March, ahead of the budgeted schedule. The wells are currently on pump and cleaning up with load water being recovered and peak rates still to be seen. Early indications trend the production to be at or above forecasted type curves1. The wells were targeted in the Lower Banff to maximize oil recovery and assist in an optimized water injection scheme. PPR is in the process of converting the first of three wells in Michichi planned in 2022 to injection to aid in the secondary oil recovery program from the Banff Formation.
1 Based on type curves developed by Sproule and applied by Sproule in its evaluation of the Company’s reserves as of December 31, 2021 in accordance with National Instrument 51-101 – Standards of Dislcosure for Oil and Gas Activities.
NON-CORE DISPOSITION UPDATE
As previously announced, PPR continues to advance the disposition of several non-core properties with the goals of reducing liabilities, fixed operating costs, and reducing debt. Bids are due in April 2022.
ENVIRONMENT SOCIAL AND GOVERNANCE UPDATE
PPR continues to increase its focus on environmental stewardship, as well as on social and governance initiatives and expects to publish its inaugural Environmental, Social and Governance (“ESG”) report on its website (www.ppr.ca) in early April 2022. Additionally, in early 2022 an ESG board committee was formed and a corporate ESG policy has been developed.
On February 22, 2022, PPR announced its planned 2022 capital budget (see press release at www.ppr.ca). PPR’s 2022 development plan builds on 2021 successful drilling programs and waterflood results in Evi and Michichi. Unlocking the significant reserves potential in Michichi is a key focus for 2022 through a combination of drilling activity and waterflood expansion. PPR expects to fully fund budgeted 2022 capital expenditures and decommissioning settlements from cash from operating activities, though PPR may utilize borrowing capacity under the Revolving Facility for liquidity from time to time to temporarily fund operations during periods should expenditures exceed cash from operating activities.
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 optimize cash flow from our existing assets, grow a base waterflood business in Evi (Slave Point Formation) and Michichi (Banff Formation) providing stable low decline cash flow, and organically develop a new complementary play to facilitate reserves and production growth. The Princess area in Southern Alberta continues to provide short cycle returns through successful development of the Glauconite and Ellerslie Formations.