THIRD QUARTER 2022 HIGHLIGHTS
- Third quarter average production was 5,882 boe/d, up 21% from the comparative period of 2021 (Q3 2021 – 4,876 boe/d; Q2 2022 – 6,123 boe/d) due to the continued success of core area capital programs. At East Edson, four (2.0 net) wells were drilled and placed on production in the fourth quarter of 2021 and seven (3.5 net) wells were added in the third quarter of 2022. At Mannville, two (2.0 net) horizontal multi-lateral heavy oil wells were drilled and placed on production late in the first quarter of 2022 and three (3.0 net) new horizontal, multi-lateral heavy oil wells were added in the third quarter of 2022. Third quarter production declined 4% from the second quarter of 2022 due to natural declines. Five (2.5 net) of the seven (3.5 net) wells drilled at East Edson commenced production during the fourth quarter and the three (3.0 net) heavy oil wells drilled at Mannville recovered oil-based mud (“OBM”) load fluid prior to recording volumes to sales later in the third quarter. Current production is in excess of 7,000 boe/d based on field estimates for October 2022. Third quarter oil and NGL production represented 24% of production.
- Approximately $22.6 million was invested in capital expenditures(1), excluding acquisition or disposition expenditures, during the third quarter of 2022. This was attributable to the East Edson drilling program, where six (3.0 net) wells were drilled and seven (3.5 net) were completed, equipped, tied in and placed on production, and the Mannville drilling program, where three (3.0 net) horizontal, multi-lateral wells were drilled and placed on production, targeting heavy oil in the Sparky formation.
- At Perpetual’s 50% working interest East Edson property, $14.1 million in capital expenditures(1) was spent during the quarter ($17.7 million year to date) to execute the seven (3.5 net) well drilling program. Six (3.0 net) wells targeting the Wilrich formation are on production and early time data indicates that on average they are expected to perform in accordance with Perpetual’s type curve(2), bringing production to a level sufficient to fill the East Edson gas processing infrastructure to maximize natural gas and NGL sales through the upcoming winter.
- At Mannville, $8.5 million in capital was spent during the quarter ($14.1 million year to date). Three multi-lateral wells targeting the Sparky formation were drilled during the third quarter following up encouraging results from the first quarter drilling program aimed at evaluating the applicability of Clearwater-style multi-lateral drilling technology to the Sparky reservoir. The three (3.0 net) wells drilled during the third quarter reached full recovery of their OBM load fluid in mid-July to late August and were turned over to production operations. All three wells have now reached the end of their initial 30-day production periods, recording IP30 rates of 384 bbl/d, 145 bbl/d and 79 bbl/d as compared to the Mannville Sparky type curve(2) IP30 of 50 bbl/d based on year end PUD and PPUD bookings.
- Oil and natural gas revenue for the third quarter of 2022 was $22.9 million, 57% higher than revenue in the comparative period of 2021 due to significantly higher reference prices for all products and the 21% increase in production. Third quarter revenue declined 31% from the second quarter of 2022, as production decreased 4% and realized prices for all products declined 30%. Realized prices after gains on risk management contracts and sales obligations decreased 2%. During the period there were $2.1 million of realized gains on risk management contracts, which included a $3.5 million gain on the modification of market diversification contracts and a $1.4 million realized loss on financial risk management contracts.
- Adjusted funds flow(1) in the third quarter of 2022 was $9.6 million ($0.15/share), up $7.4 million (336%) from the prior year period of $2.2 million ($0.03/share). Adjusted funds flow on a unit-of-production basis was $17.82/boe in the third quarter of 2022, an increase from the prior year period of $4.85/boe, driven by the increase in commodity prices and cost efficiencies related to higher production volumes. Adjusted funds flow recorded for the first nine months of 2022 was $34.3 million ($0.52 per share), up 390% from $7.0 million ($0.11/share) for the same period in 2021.
- Net cash flows from operating activities in the third quarter of 2022 were $8.7 million, up $2.1 million (30%) from the prior year period (Q3 2021 – $6.7 million). The increase was due to higher realized prices for all products and the 21% increase in production, partially offset by higher cash costs due to higher royalties and cash interest payments. Cash finance expense was 25% higher than the prior year period as the 2025 Senior Note interest was paid in cash in 2022 relative to 2021 when Perpetual elected to pay the interest in-kind and add to the principal amount owing.
- Net income for the third quarter of 2022 was $8.2 million (Q3 2021 – $51.1 million). Net income in the third quarter of 2022 was driven by the $8.6 unrealized gain on risk management contracts. Net income in the third quarter of 2021 was positively impacted by a gain on disposition of the Clearwater Assets of $47.9 million.
- Cash costs(1) were $14.8 million or $27.39/boe in the third quarter of 2022, up 57% (30% on a unit-of-production basis) from the prior year period (Q3 2021 – $9.4 million or $21.01/boe). The increase was due to the impact of higher production, increased royalties on higher prices and higher cash interest payments. Efficiencies were realized on a unit-of-production basis as operating costs at East Edson decreased 23% to $4.41/boe from $5.73/boe in the comparative period.
- As at September 30, 2022, net debt(1) was $66.1 million, an increase of 12% from December 31, 2021, as capital expenditures exceeded adjusted funds flow during the first nine months of 2022. As compared to the second quarter of 2022, net debt increased 40%, attributable to the $22.6 million invested in capital expenditures during the third quarter. The majority of Perpetual’s planned 2022 capital spending at East Edson and Mannville was executed during the third quarter, with production additions gradually contributing to sales volumes by late September. By December 31, 2022, forecast free funds flows related to increased sales volumes combined with limited additional capital spending during the fourth quarter is expected to bring net debt down to a similar level as experienced during the first half of 2022.
- Perpetual had available liquidity(1) at September 30, 2022 of $21.8 million, comprised of the $30.0 million borrowing limit of Perpetual’s first lien credit facility (“Credit Facility Borrowing Limit”) Credit Facility Borrowing Limit, less current borrowings and letters of credit of $7.0 million and $1.2 million, respectively.
(1) |
Non-GAAP measure, capital measure, Non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled “Non-GAAP and Other Financial Measures” contained within this news release. |
(2) |
Type curve assumptions are based on the Total Proved plus Probable Undeveloped reserves contained in the McDaniel Reserve Report as disclosed in the Company’s Annual Information Form which is available under the Company’s profile on SEDAR at www.sedar.com. “McDaniel” means McDaniel & Associates Consultants Ltd. independent qualified reserves evaluators. “McDaniel Reserve Report” means the independent engineering evaluation of the crude oil, natural gas and NGL reserves, prepared by McDaniel with an effective date of December 31 2021 and a preparation date of March 10 2022. |
2022 OUTLOOK
Perpetual continues to forecast exploration and development capital expenditures(1) of $31 – $33 million for full year 2022, relative to previous guidance released on August 3, 2022 of $29 – 32 million, to be fully funded from the Company’s credit facility and adjusted funds flow(1). With the East Edson and Mannville 2022 drilling programs fully executed, nominal capital spending is forecast for the fourth quarter.
The table below summarizes forecasted capital expenditures(1) and drilling activities for Perpetual for the remainder of 2022:
Q1 – Q3 2022 |
# of wells |
Q4 2022 |
# of wells |
2022 |
# of wells |
|
($ millions) |
(gross/net) |
($ millions) |
(gross/net) |
($ millions) |
(gross/net) |
|
West Central(1) |
$17.7 |
7 / 3.5 |
$0.5-$1.0 |
0 / 0.0 |
$18 |
7 / 3.5 |
Eastern Alberta |
$14.1 |
5 / 5.0 |
($0.2) |
0 / 0.0 |
$14 |
5 / 5.0 |
Total(2) |
$31.8 |
12 / 8.5 |
$0.3-$0.8 |
0 /0.0 |
$32 |
12 / 8.5 |
(1) Oil-based mud load fluid recovered is credited to capital upon recovery and sales. |
(2) Excludes abandonment and reclamation spending and acquisitions or land expenditures, if any. |
Total Company average production for the third quarter of 2022 was 5,882 boe/d (24% oil and NGL) and average production volumes are forecast to exceed 7,000 boe/d during the fourth quarter of 2022 as the seven (3.5 net) new wells come on production at East Edson and the three (3.0 net) wells at Mannville contribute to heavy oil production volumes. Full year average production is on track to grow approximately 25% from 2021 levels in accordance with guidance on August 3, 2022, of 6,500 to 6,750 boe/d. Cash costs(1) are expected to average between $20.00 and $22.00 per boe for the calendar year, unchanged from previous guidance of $20.00 to $22.00 per boe.
2022 Guidance assumptions are as follows:
2022 Guidance |
|
Exploration and development capital expenditures(1) ($ millions) |
$31 – $32 |
Cash costs(1) ($/boe) |
$20.00 – $22.00 |
Average daily production (boe/d) |
6,500 – 6,750 |
Production mix (%) |
20% oil and NGL |
(1) |
Non-GAAP measure, capital management measure, Non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled “Non-GAAP and Other Financial Measures” contained within this news release. |
Perpetual continues its Environmental, Social, and Corporate Governance (“ESG”) focus, with total abandonment and reclamation expenditures through to the end of the third quarter of $1.1 million and up to an additional $0.9 million of spending on Asset Retirement Obligations (“ARO”) is planned in the fourth quarter of 2022. Of the total $2.0 million of spending to manage ARO in 2022, an estimated $0.4 million is expected to be funded through Alberta’s Site Rehabilitation Program (“SRP”). The remaining $1.6 million will exceed the Company’s annual area-based closure spending requirements of $0.9 million.
Perpetual’s Board of Directors approved a capital budget of $29 – 32 million for 2023, including $5 to 7 million to be spent in the first quarter for pipeline infrastructure and to drill two (1.0 net) wells at East Edson. The remainder of the 2023 capital program is expected to be spent in the third quarter of 2023 and focus primarily at East Edson to drill to fill the infrastructure capacity and at Mannville to pursue additional multi-lateral drilling opportunities.
Financial and Operating Highlights |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||
($Cdn thousands except volume and per share amounts) |
2022 |
2021 |
Change |
2022 |
2021 |
Change |
Financial |
||||||
Oil and natural gas revenue |
22,856 |
14,603 |
57 % |
81,108 |
39,366 |
106 % |
Net income (loss) |
8,234 |
51,141 |
(84) % |
19,866 |
75,452 |
(74) % |
Per share – basic(2) |
0.13 |
0.80 |
(84) % |
0.31 |
1.20 |
(74) % |
Per share – diluted(2) |
0.11 |
0.72 |
(85) % |
0.27 |
1.08 |
(75) % |
Cash flow from operating activities |
8,749 |
6,655 |
31 % |
26,592 |
11,192 |
138 % |
Adjusted funds flow(1) |
9,642 |
2,174 |
344 % |
34,264 |
7,020 |
388 % |
Per share(3) |
0.15 |
0.03 |
388 % |
0.52 |
0.11 |
373 % |
Total assets |
203,431 |
217,665 |
(7) % |
203,431 |
217,665 |
(7) % |
Revolving bank debt |
6,974 |
13,183 |
(47) % |
6,974 |
13,183 |
(47) % |
Term loan, principal amount |
2,671 |
2,671 |
— % |
2,671 |
2,671 |
— % |
Other liability (undiscounted) |
3,342 |
— |
100 % |
3,342 |
— |
100 % |
Senior Notes, principal amount |
35,647 |
36,583 |
(3) % |
35,647 |
36,583 |
(3) % |
Adjusted working capital (surplus) deficiency(1) |
17,509 |
3,914 |
347 % |
17,509 |
3,914 |
347 % |
Net debt(1) |
66,143 |
56,351 |
17 % |
66,143 |
56,351 |
17 % |
Capital expenditures |
||||||
Exploration and development(1) |
22,596 |
9,947 |
127 % |
31,794 |
11,504 |
176 % |
Net payments on acquisitions and dispositions |
— |
— |
100 % |
— |
423 |
(100) % |
Net capital expenditures |
22,596 |
9,947 |
127 % |
31,794 |
11,927 |
167 % |
Common shares outstanding (thousands)(4) |
||||||
End of period |
65,923 |
63,892 |
3 % |
65,923 |
63,892 |
3 % |
Weighted average – basic |
65,016 |
63,801 |
2 % |
63,964 |
62,668 |
2 % |
Weighted average – diluted |
74,607 |
71,227 |
5 % |
74,741 |
69,955 |
7 % |
Operating |
||||||
Daily average production |
||||||
Conventional natural gas (MMcf/d) |
26.9 |
21.6 |
25 % |
30.4 |
22.2 |
37 % |
Heavy crude oil (bbl/d) |
1,002 |
972 |
3 % |
821 |
1,047 |
(22) % |
NGL (bbl/d) |
390 |
300 |
30 % |
385 |
309 |
25 % |
Total (boe/d)(5) |
5,882 |
4,876 |
21 % |
6,267 |
5,061 |
24 % |
Average realized prices |
||||||
Realized natural gas price ($/Mcf)(1) |
4.74 |
3.50 |
35 % |
5.94 |
3.15 |
89 % |
Realized oil price ($/bbl)(1) |
87.24 |
65.22 |
34 % |
98.95 |
53.56 |
85 % |
Realized NGL price ($/bbl)(1) |
85.48 |
65.40 |
31 % |
92.37 |
58.77 |
57 % |
Wells drilled – gross (net) |
||||||
Conventional natural gas |
6 (3.0) |
3 (1.5) |
7 (3.5) |
5 (2.5) |
||
Heavy crude oil |
3 (3.0) |
– (-) |
5 (5.0) |
– (-) |
||
Total |
9 (6.0) |
3 (1.5) |
200 % |
12 (8.5) |
5 (2.5) |
140 % |
(1) |
Non-GAAP measure, capital management measure, Non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled “Non-GAAP and Other Financial Measures” contained within this news release. |
(2) |
Based on weighted average basic common shares outstanding for the period. |
(3) |
Adjusted funds flows divided by the Company’s shares outstanding. |
(4) |
Shares outstanding are net of shares held in trust (Q3 2022 – 1.1 million; Q3 2021 – 0.2 million). |
(5) |
Please refer to “Advisories – Volume conversions” below. |
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 and undeveloped bitumen leases in Northern Alberta. Additional information on Perpetual can be accessed at www.sedar.com or from the Company’s website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.