CALGARY, Alberta – Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX: PRQ) is pleased to report financial and operating results as at and for the three and six months ended June 30, 2020. Petrus is focused on the profitable development of its Ferrier Cardium asset to generate free cash flow for debt repayment.
The second quarter of 2020 was one of the most challenging on record for the Canadian oil and gas sector with volatile commodity prices resulting from the COVID-19 pandemic. This environment tested the business strategy, profitability and balance sheets of all companies in the industry. The efforts Petrus has made to reduce debt levels, decrease both operating and general and administrative (“G&A”) costs and balance the production base between natural gas and light oil and liquids, have allowed the Company to succeed in this challenging environment. As one of the lowest cost producers in the Western Canadian Sedimentary Basin, Petrus is well positioned to prosper with the recent improvement in commodity prices. With current pricing, new wells drilled in Petrus’ core area of Ferrier can deliver payouts in under one year(2).
A low corporate cost structure combined with a strong hedging portfolio and higher natural gas weighting has helped to protect the Company against extreme commodity price volatility though the first half of 2020. As a percentage of second quarter 2020 production, Petrus has derivative contracts in place for 54%, at an average price of $2.11/mcf, and 80%, at average price of $75.91 (C$/bbl), of natural gas and oil and natural gas liquids production, respectively, for the remainder of 2020.
During the first quarter of 2020, Petrus successfully drilled and brought on stream two net wells in its core area of Ferrier. While initial production rates were strong for both wells, the decision was made to shut in one well and heavily restrict production volumes on the other. While this impacted second quarter production, it was done in order to conserve value, rather than produce high initial rates in a depressed oil price market. As commodity prices improved subsequent to June 30, 2020, the shut-in well was brought on production at restricted rates while the second well continues to be limited by the use of downhole choke. Second quarter production was 6,291 boe/d which does not include approximately 750 boe/d of intentionally reduced volumes, as estimated by management. As of mid-July, the majority of these volumes have resumed production.
HIGHLIGHTS:
- Credit facility – The Company completed the extension of its revolving credit facility and second lien term loan, extending maturities to mid-2021.
- Debt repayment – Generated funds flow(1) of $5.9 million ($0.12 per share) for the second quarter of 2020 with net capital expenditures of $0.3 million while reducing net debt by $5.5 million during the quarter.
- Low operating costs – Operating expense for the three months ended June 30, 2020 was $4.44/boe. The Company continues to focus on optimizing its cost structure, particularly in the Ferrier area, through facility ownership and control.
- Commodity price risk mitigation – Petrus utilizes financial derivative contracts to mitigate commodity price risk and provide stability and sustainability to funds flow. Petrus achieved a gain of $6.39/boe in the second quarter as a result of these contracts.
CREDIT FACILITY EXTENSION
Subsequent to the end of the second quarter, the Company completed its annual Revolving Credit Facility (“RCF”) review with the total facility updated to $88.5 million. At the end of the second quarter of 2020, the Company was drawn $86.7 million against the RCF, inclusive of a $0.6 million letter of credit outstanding. The RCF is required to reduce by $2.75 million at the end of each fiscal quarter. The RCF maturity date has been updated to May 31, 2021.
SECOND LIEN TERM LOAN EXTENSION
Concurrent with the extension to the maturity of the RCF, Petrus has entered into an amending agreement with Macquarie Bank Limited to extend the $35 million second lien term loan (“Term Loan”) maturity date to July 31, 2021. The interest rate on the Term Loan balance will be updated to become the Canadian Dealer Offered Rate plus 975 basis points. All of the interest will be made by way of payment-in-kind (“PIK”) and added to the outstanding balance of the Term Loan in lieu of monthly payment of cash interest.
The extensions of both the RCF and Term Loan include the removal of the Total Debt to Adjusted EBITDA ratio as well as the Proved and PDP Asset Coverage Ratios from the financial covenants, and the Working Capital ratio covenant has been updated to a minimum test of 0.6:1.0.
Petrus’ management believes it has adequate liquidity to execute the Company’s business plan over the coming year. The Company continues its efforts to divest certain non-core assets and evaluate other sources of capital to improve its balance sheet. Reduction of debt remains the Company’s top priority. Since December 31, 2015 Petrus has repaid 47% or $106 million of its net debt(1). This includes a $55 million reduction of the Company’s Term Loan, which was $90 million in 2014 and currently has $35 million outstanding.
2020 OUTLOOK
Petrus intends to remain flexible to adjust quarterly capital spending as the year progresses. The Company continues to forecast free cash flow in excess of planned capital expenditures for the remainder of the year and will utilize free cash flow to reduce amounts drawn on its credit facilities. Petrus’ Board of Directors approved a third quarter 2020 capital budget of $0.7 million. Management continues to review pricing on a daily basis to adjust production levels to maximize value of the reserve base. Petrus received support benefits from the Canada Emergency Wage Subsidy (“CEWS”) program and has made successful applications for grants under the Alberta Site Rehabilitation Program. The Company will continue to pursue programs announced by the Federal and Provincial Governments to support Canadian businesses, and the oil and gas industry specifically through the COVID-19 pandemic(2).
OPERATIONS UPDATE | ||||
Second quarter average production by area was as follows: | ||||
For the three months ended June 30, 2020 | Ferrier | Foothills | Central Alberta | Total |
Natural gas (mcf/d) | 21,222 | 1,211 | 5,192 | 27,625 |
Oil (bbl/d) | 558 | 50 | 257 | 865 |
NGLs (bbl/d) | 707 | 4 | 111 | 822 |
Total (boe/d) | 4,803 | 255 | 1,233 | 6,291 |
Second quarter production averaged 6,291 boe/d in 2020 compared to 8,647 boe/d in 2019. The decrease in production can be attributed to natural declines due to lower capital activities in the second half of 2019 and first half of 2020 as the Company focused on debt reduction, and the significant restriction of production volumes from new wells drilled in the first quarter of 2020. Second quarter production does not include approximately 750 boe/d of intentionally reduced volumes, as estimated by management. As of mid-July, the majority of these volumes have resumed production.
In the second quarter of 2020, the Company invested capital of $0.3 million, which consisted of non-discretionary maintenance capital and capitalized G&A. Petrus’ Board of Directors approved a third quarter 2020 capital budget of $0.7 million. Management continues to review pricing on a daily basis to adjust production levels to maximize value of the reserve base. With the high level of control afforded by operated assets and ownership of key infrastructure, the Company can adjust liquids content in the natural gas stream to maximize profitability of all products as well as adjust production rates quickly to respond to changing market conditions.
(1) Refer to “Non-GAAP Financial Measures” .
(2) Refer to “Advisories – Forward-Looking Statements”.
SELECTED FINANCIAL INFORMATION
OPERATIONS | Three months ended
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Mar. 31, 2020 |
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Average Production | ||||||||||
Natural gas (mcf/d) | 27,630 | 32,350 | 30,604 | 32,641 | 30,998 | |||||
Oil (bbl/d) | 867 | 1,679 | 1,134 | 1,834 | 1,247 | |||||
NGLs (bbl/d) | 819 | 1,576 | 1,088 | 1,018 | 1,372 | |||||
Total (boe/d) | 6,291 | 8,647 | 7,323 | 8,292 | 7,785 | |||||
Total (boe) | 572,440 | 786,819 | 666,361 | 762,874 | 716,220 | |||||
Light oil weighting | 14 | % | 19 | % | 15 | % | 22 | % | 16 | % |
Realized Prices | ||||||||||
Natural gas ($/mcf) | 2.35 | 1.30 | 2.40 | 2.65 | 1.12 | |||||
Oil ($/bbl) | 27.18 | 70.96 | 50.02 | 65.16 | 65.64 | |||||
NGLs ($/bbl) | 12.87 | 19.91 | 23.19 | 20.62 | 11.49 | |||||
Total realized price ($/boe) | 15.73 | 22.29 | 21.23 | 27.39 | 16.99 | |||||
Royalty income | 0.06 | 0.15 | 0.30 | 0.13 | 0.48 | |||||
Royalty expense | (1.51 | ) | (1.72 | ) | (2.85 | ) | (2.91 | ) | (1.65 | ) |
Net oil and natural gas revenue ($/boe) | 14.28 | 20.72 | 18.68 | 24.61 | 15.82 | |||||
Operating expense | (4.44 | ) | (4.33 | ) | (4.55 | ) | (4.47 | ) | (4.44 | ) |
Transportation expense | (1.40 | ) | (1.22 | ) | (1.05 | ) | (1.30 | ) | (1.25 | ) |
Operating netback(1) ($/boe) | 8.44 | 15.17 | 13.08 | 18.84 | 10.13 | |||||
Realized gain (loss) on derivatives ($/boe) | 6.39 | (1.02 | ) | 1.76 | (1.86 | ) | 0.50 | |||
Other income | 0.17 | 0.10 | 0.07 | — | 0.03 | |||||
General & administrative expense | (1.43 | ) | (0.67 | ) | (1.35 | ) | (1.91 | ) | (1.08 | ) |
Cash finance expense | (3.20 | ) | (2.70 | ) | (3.13 | ) | (2.54 | ) | (3.11 | ) |
Decommissioning expenditures | (0.15 | ) | (0.24 | ) | (0.56 | ) | (0.41 | ) | (0.29 | ) |
Funds flow & corporate netback(1)(2) ($/boe) | 10.22 | 10.64 | 9.87 | 12.12 | 6.18 |
FINANCIAL (000s except $ per share) | Three months ended
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Oil and natural gas revenue | 9,041 | 17,652 | 14,344 | 20,998 | 12,517 | ||||
Net income (loss) | (6,281 | ) | 2,863 | (87,444 | ) | (3,332 | ) | (29,569 | ) |
Net income (loss) per share | |||||||||
Basic | (0.13 | ) | 0.06 | (1.77 | ) | (0.06 | ) | (0.60 | ) |
Fully diluted | (0.13 | ) | 0.06 | (1.77 | ) | (0.06 | ) | (0.60 | ) |
Funds flow | 5,855 | 8,366 | 6,566 | 9,260 | 4,427 | ||||
Funds flow per share | |||||||||
Basic | 0.12 | 0.17 | 0.13 | 0.19 | 0.09 | ||||
Fully diluted | 0.12 | 0.17 | 0.13 | 0.19 | 0.09 | ||||
Capital expenditures | 305 | 2,505 | 8,655 | 4,351 | 2,734 | ||||
Net dispositions | — | — | — | — | 651 | ||||
Weighted average shares outstanding | |||||||||
Basic | 49,469 | 49,469 | 49,469 | 49,469 | 49,469 | ||||
Fully diluted | 49,469 | 49,469 | 49,469 | 49,469 | 49,469 | ||||
As at period end | |||||||||
Common shares outstanding | |||||||||
Basic | 49,469 | 49,469 | 49,469 | 49,469 | 49,469 | ||||
Fully diluted | 49,469 | 49,469 | 49,469 | 49,469 | 49,469 | ||||
Total assets | 184,532 | 328,912 | 193,679 | 289,225 | 296,367 | ||||
Non-current liabilities | 43,017 | 81,249 | 38,533 | 42,346 | 82,650 | ||||
Net debt(1) | 120,570 | 130,619 | 125,974 | 123,744 | 128,553 |
(1)Refer to “Non-GAAP Financial Measures”.
(2)Corporate netback is equal to funds flow which is a directly comparable GAAP measure. Petrus analyzes these measures on an absolute value and per unit basis.