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 ended March 31, 2022. PPR’s unaudited condensed interim consolidated financial statements for the three months ended March 31, 2022 (“Interim Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) are available on our website at www.ppr.ca and filed on SEDAR.
MESSAGE TO SHAREHOLDERS
Tony Berthelet, President & Chief Executive Officer commented: “The production results from our first quarter Michichi drill campaign confirms the optimized wellbore placement in the lower Banff, and the benefit of increased stage count on initial production results. We will monitor production results to determine improved recovery from this development design change, but we remain very encouraged by the early reservoir pressure and production stabilized rates. Upward cost pressure across all services and materials will continue to be a focus for Q2 as the industry adjusts to inflationary pressures.”
Q1 2022 HIGHLIGHTS
- Successful drilling and capital program: During the quarter, we successfully drilled and completed two gross (2.0 net) Banff formation wells in the Michichi area. The wells both commenced production in early March 2022, with average IP30 rates of approximately 1471boe/d and 1152boe/d, respectively. Current average production of these wells is approximately 420(3) boe/d. During Q1 2022, we incurred Net Capital Expenditures4 of $7.4 million primarily in the Michichi area, including the drill, completion, equip and tie-in of the two wells described above, converting a producing well to an injection well to expand our waterflood in the area and incurred costs related to facility upgrades. Additionally, we spent $0.2 million on the reactivation of the Loyalist field, which was shut-in in 2020 due to weak commodity prices. Production in the Loyalist area is expected to resume in the second quarter of 2022.
- Increased production: Production was on budget for the quarter and averaged 4,175 boe/d (65% liquids), which was 3% or 104 boe/d higher than Q1 2021, due primarily to production additions from the successful 2021 five well (5.0 net) Princess drilling program, partially offset by natural declines. Due to the on production timing of the Q1 2022 drills, the incremental production had a limited impact for the quarter of approximately 755 boe/d, but is expected to have a greater impact on the production of future quarters in 2022.
- Record operating netback4: Operating netback for Q1 2022 was $15.7 million ($41.84/boe) before the impact of derivatives, a record high since PPR became a publicly listed company in 2016. Operating netback before realized losses on derivatives increased by $25.67/boe or 159% relative Q1 2021 driven by significant commodity price recoveries. Q1 2022 operating netback after realized losses on derivatives was $10.2 million ($27.06/boe), an increase of $13.83/boe or 105% from Q1 2021.
- Adjusted funds flow (“AFF”)4: AFF for Q1 2022 totaled $6.9 million ($0.05 per basic and diluted share), excluding $2.1 million of decommissioning settlements, reflecting a 230% improvement from the same quarter of 2021 primarily due to increased operating netbacks.
- Decreased net loss: Net loss totaled $1.9 million in Q1 2022, a $9.6 million improvement compared to Q1 2021. The decrease was primarily driven by a $15.0 million non-cash impairment reversal recognized in Q1 2022, partially offset by an increase in unrealized losses on derivative instruments of $5.8 million. The $4.8 million increase in AFF excluding decommissioning settlements was largely offset by a $3.4 million increase in loss on warrant liability.
- Net debt4: Net debt at March 31, 2022, totaled $128.1 million, an increase of $3.8 million from December 31, 2021 as the Company sought to take advantage of high commodity prices through execution of its capital program and to meet its environmental stewardship goals through meaningful reductions in its decommissioning obligations. As such, the increase was attributed to aggregate capital expenditures, lease payments, decommissioning settlements and restructuring costs in that exceeded AFF4 in the quarter, as well as the recognition of $0.5 million of deferred interest on long-term debt, partially offset by a $1.1 million unrealized foreign exchange gain on our US dollar denominated debt.
- Liquidity: At March 31, 2022, PPR had US$49.3 million of borrowings drawn against its US$53.8 million revolving facility (“Revolving Facility”), leaving the Company with US$4.5 million (CAN$5.66 million equivalent (December 31, 2021 — US$6.4 million)) borrowing capacity under the Revolving Facility. In addition, US$48.8 million (CAN$61.06 million) of senior subordinated notes were outstanding at March 31, 2022, for total borrowings of US$98.1 million (CAN$125.76 million equivalent).
1 Average initial production over a 30-day period commencing March 3, 2022, during which the well produced an average of 126 bbl/d of light & medium crude oil and 113 Mcf/d of conventional natural gas and 2 bbl/d of natural gas liquids from the Banff 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.
2 Average initial production over a 30-day period commencing March 4, 2022, during which the well produced an average of 82 bbl/d of light & medium crude oil, 176 Mcf/d of conventional natural gas and 4 bbl/d of natural gas liquids from the Banff 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.
3 Comprised of average production of approximately 310 bbl/d of light & medium crude oil and 650 Mcf/d of conventional natural gas.
4 Non-GAAP financial measure – see below under “Non-GAAP and Other Financial Measures”.
5 Comprised of average production of approximately 61 bbl/d of light & medium crude oil, 78 Mcf/d of conventional natural gas and 2 bbl/d of natural gas liquids.
6 Converted using the month end exchange rate of $1.00 USD to $1.2496 CAD as at March 31, 2022 and $1.00 USD to $1.2678 CAD as at December 31, 2021.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended
|($000s except per unit amounts)||2022||2021|
|Light & medium crude oil (bbl/d)||1,809||2,453|
|Heavy crude oil (bbl/d)||791||117|
|Conventional natural gas (Mcf/d)||8,763||8,233|
|Natural gas liquids (bbls/d)||115||129|
|Average Realized Prices|
|Light & medium crude oil ($/bbl)||116.73||60.34|
|Heavy crude oil ($/bbl)||80.33||51.76|
|Conventional natural gas ($/Mcf)||4.83||3.48|
|Natural gas liquids ($/bbl)||81.06||44.79|
|Operating Netback ($/boe)1|
|Realized gains (losses) on derivative instruments||(14.78||)||(2.94||)|
|Operating netback, after realized gains (losses) on derivative instruments||27.06||13.23|
1 Operating netback is a non-IFRS measure (see “Non-IFRS Measures” below).
March 31, 2022
December 31, 2021
|Working capital (deficit)1||(2,437||)||(367||)|
|Borrowings outstanding (principal plus deferred interest)||(125,685||)||(123,972||)|
|Total net debt2||(128,122||)||(124,339||)|
|Common shares outstanding (in thousands)||128,882||128,725|
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 of USD$53.8 million at March 31, 2022 and USD$53.8 million at December 31, 2021, converted at an exchange rate of $1.0000 USD to $1.2496 CAD on March 31, 2022 and $1.0000 USD to $1.2678 CAD on December 31, 2021.
|Three Months Ended
|Net (working interest) wells||2.0||2.0|
|Success rate, net wells (%)||100||%||100||%|
The two Michichi Banff wells have stabilized at approximately 210 boe/d each, comprised of 155 bbls of oil and 325 mcf of gas per day. As a result of improvements in drilling and completions the wells are performing well above type curve, currently producing 50 – 75% above expectations with low early declines and original reservoir pressure. The 102/01-04-032-17W4M well was converted to injection to support the waterflood expansion in section 04-032-17W4M. The improved production performance and original reservoir pressure result confirms the proof of concept of Banff development in Michichi targeting undrained reserves in the Lower Banff. This new development modelling will improve Banff recovery in the Michichi field, unlocking additional value for shareholders from the large original oil in place.
NON-CORE DISPOSITION UPDATE
Bids were received for several packages in the non-core disposition package that was marketed in the first quarter. We are reviewing bids and will provide a further update when we have evaluated the optimum disposition outcomes.
During the first quarter of 2022 PPR spent $9.7 million of the previously announced full year $22 million capital program, including asset retirement obligation spending. PPR is very encouraged by the initial flow rates of the recently drilled Michichi Banff wells and has identified several reactivation and recompletion opportunities within it’s suspended well inventory. The second half capital program is currently under evaluation as we prioritize remaining investment opportunities and PPR will provide further clarity on the second half program in the coming weeks. We intend to work to maintain the budgeted outcomes from the allocated capital, however the key elements of the remaining program will be optimized to maximize value for PPR shareholders.
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.