PAINTED PONY ENERGY LTD. CALGARY, ALBERTA--(Marketwired - Aug 12, 2015) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX:PPY) is pleased to provide an operational update and announce its second quarter 2015 financial and operating results.
Highlights:
- Increased syndicated credit facilities to $325 million from $175 million.
- Construction has commenced for the 198 MMcf/d AltaGas Townsend Facility and remains on schedule for completion in mid-2016.
- Entered into a long-term natural gas transportation agreement with Spectra Energy for 220 MMcf/d of firm capacity on the T-North Pipeline.
- Continued flow testing of the Company's first parallel-pair Montney wells in the Townsend area, which have flowed at a combined average rate of 25.8 MMcfe/d (4,300 boe/d), which includes 21.1 MMcf/d of natural gas and approximately 1,100 bbls/d of natural gas liquids.
- Increased average production to 93.7 MMcfe/d (15,622 boe/d), a 4% increase from the second quarter of 2014, even though second quarter of 2014 production included 980 boe/d from Saskatchewan, which was sold in July 2014.
- Reduced operating expenses by 20% to $0.98 per Mcfe, transportation costs by 43% to $0.32 per Mcfe, and had a royalty reduction of 50% to $0.07 per Mcfe, all relative to the second quarter of 2014.
In commenting on second quarter performance, Mr. Patrick Ward, President and CEO said "We are very pleased with the success of our efforts to reduce operating and capital costs, while continuing to realize strong flow test and initial production rates from recent wells. Painted Pony remains on track to deliver fully contracted volumes to the AltaGas Townsend Facility when it begins processing Painted Pony's production in mid-2016."
OPERATIONS UPDATE
During the second quarter of 2015, a number of milestones have been achieved in Painted Pony's plan to deliver 240 MMcfe/d of production by the end of 2016.
As previously announced, the Corporation's syndicated credit facilities were increased to $325 million from $175 million, with initial availability of $225 million. Availability under the credit facilities is structured to increase in stages, in line with a pre-determined development schedule associated with the AltaGas Townsend Facility.
Construction has commenced for the AltaGas Townsend Facility and remains on schedule to be completed mid-2016. Mobilization of site facilities and driving of test piles is underway. The Facility will have a capacity of 198 MMcf/d after initial commissioning is completed and Painted Pony expects to begin ramping up production to its initial firm capacity of 150 MMcf/d (135 MMcf/d "take or pay") in the second half of 2016. The contractual obligation to deliver 180 MMcf/d on a "take or pay" basis will begin twelve months after Facility start-up.
As previously announced, Painted Pony signed a definitive agreement with Spectra Energy for 220 MMcf/d of firm capacity on the T-North pipeline, the November 2016 timing of which will follow the start-up of the new AltaGas Townsend Facility. This contract provides long-term natural gas transportation for Painted Pony's growing British Columbia production base with a connection to Station 2 and the opportunity for future deliveries to AECO.
Painted Pony continues to advance its pre-drill program for the AltaGas Townsend Facility. To date, six (6.0 net) wells have completed drilling operations. Over the next 12 months, the Corporation expects to drill an additional 16 (16.0 net) wells under its Townsend pre-drill program. All of the Townsend pre-drill wells will be completed using Painted Pony's industry-leading ball-drop and parallel pair completion technology.
Two Lower Montney wells in the Townsend area, recently completed using ball-drop, parallel-pair technology, have been placed on production and have commenced flowing in-line to the Corporation's 33-J facility. The first well, identified as "c-2-J" tested at an average rate of 8.4 MMcf/d over two flow intervals for a combined 12.2 days. It flowed at 9.9 MMcf/d during the latest 72 hours of flow testing, with an average flowing pressure of 1,579 psi. The second well, identified as "c-A2-J", tested at an average rate of 10.8 MMcf/d over two flow intervals for a combined 13.4 days. It flowed at 11.2 MMcf/d during the latest 72 hours of flow testing, with an average flowing pressure of 1,166 psi. Utilizing gas analyses from these two wells and a plant process model for the AltaGas Townsend Facility, the combined average flow rate of these two wells is 25.8 MMcfe/d (4,300 boe/d), which includes 21.1 MMcf/d of natural gas and approximately 1,100 bbls/d of natural gas liquids. These natural gas liquids (C3+) include 725 bbls/d of condensate and 375 bbls/d of propane and butane.
Current Production and Guidance
Subsequent to a major turnaround of a third party operated facility, Painted Pony's production during the first week of August was over 102 MMcfe/d (17,000 boe/d), based on field estimates. There is approximately 36 MMcf/d (6,000 boe/d) of additional volume behind pipe due to limited processing capacity, with seven (7.0 net) wells drilled and cased, awaiting completion.
For 2015, Painted Pony's capital budget remains unchanged at $104 million and production guidance remains unchanged at an average of approximately 96 MMcfe/d (16,000 boe/d). Estimated 2015 production represents a 21% increase over production volumes for 2014, driven by recent commissioning of new and expanded facilities in the Blair and Daiber areas, allowing shut-in production and incremental volumes from the Corporation's successful drilling program to come on stream.
SECOND QUARTER 2015 FINANCIAL & OPERATING RESULTS
Production
Production averaged 93.7 MMcfe/d (15,622 boe/d) in the second quarter of 2015, weighted 94% to natural gas and represented an increase of 4% over the second quarter of 2014. This production increase was accomplished despite a major turnaround of a third party operated facility during the quarter and the inclusion in the second quarter of 2014 of 980 boe/d in Saskatchewan, which was sold in July 2014. Average NGL production for the second quarter of 2015 was 864 bbl/d, down 33% from the second quarter of 2014 production of 1,293 bbl/d, also due to the third party facility turnaround, impacting production from the Corporation's liquids rich Townsend area. Natural gas and NGL volumes are expected to recover early in the third quarter of 2015.
Operating Netbacks
Painted Pony improved its operating costs on a per unit basis in the second quarter of 2015 to $0.98 per Mcfe, a 20% reduction from the second quarter of 2014. This reflects recent decreases in service costs due to reduced industry activity and the dedication and commitment from production and operations staff to cost management and control.
Transportation costs decreased 43% from second quarter of 2014 to $0.32 per Mcfe as the Corporation is now utilizing alternative delivery points with shorter wait times for the trucking of NGLs. In addition, due to the turnaround of a third party operated facility, production volumes were shut in for 25 days during the month of June in the Corporation's Townsend area, which typically have higher transportation costs.
With all of its production coming from west of the royalty reduction line in British Columbia, Painted Pony continues to benefit from one of the most attractive fiscal regimes in the oil and gas industry, paying an average royalty rate of 2.5% in the second quarter of 2015.
Painted Pony realized total field operating netbacks of $1.30 per Mcfe for the second quarter of 2015, down 71% from second quarter of 2014 netbacks of $4.51 per Mcfe. This drop was primarily a result of lower realized commodity prices and the impact of the disposition of the Corporation's Saskatchewan oil assets effective July 30, 2014, partially offset by lower per unit royalties, operating expenses and transportation costs.
General and Administrative Costs
Painted Pony improved its general and administrative costs on a per unit basis in the second quarter of 2015 to $0.25 per Mcfe, a 4% improvement over the second quarter of 2014. In February 2015 each of Painted Pony's executive officers and senior managers voluntarily took a 12% and 6% reduction in their salaries, respectively, as part of a commitment to reducing costs during this period of low commodity prices.
Funds Flow from Operations
During the second quarter of 2015, Painted Pony generated funds flow from operations of $10.7 million, which represents a 68% decrease over the second quarter of 2014. On a per share basis, Painted Pony generated funds flow from operations of $0.11 per share, a decrease of 71% over the results of the second quarter 2014 of $0.38 per share. Decreased funds flow from operations was primarily a result of lower natural gas and natural gas liquids prices.
Net Loss
During the second quarter of 2015 Painted Pony had a net loss of $3.8 million, compared to a net loss of $18.9 million in the second quarter of 2014.
Capital Expenditures
During the three months ended June 30, 2015 the Corporation invested $21.8 million in exploration and development capital expenditures, including $12.8 million on drilling and completions activity. The Corporation drilled two (2.0 net) and completed two (2.0 net) Montney natural gas wells in the quarter. Facilities and equipment spending of $8.0 million includes equipping costs and pipeline infrastructure costs in the Blair and Townsend areas.
HEDGING POSITION
At August 12, 2015, the Corporation held commodity risk management contracts summarized as follows:
| AECO Hedges (CDN) | ||||
| (Assuming an average heating value of the Corporation's sales gas at 1.17 GJ/Mcf) | ||||
| Quarter | Volume (MMcf/d | ) | Weighted Average Price ($/Mcf | ) |
| 2015 Q2 - Q4 | 34.2 | 3.49 | ||
| 2016 Q1 | 59.8 | 3.35 | ||
| 2016 Q2 - Q4 | 59.8 | 3.36 | ||
| 2017 Q1 | 59.8 | 3.36 | ||
| 2017 Q2 | 38.5 | 3.39 | ||
| 2017 Q3 - Q4 | 31.6 | 3.49 | ||
| 2018 Q1 - Q2 | 10.3 | 3.57 | ||
| 2018 Q3 | 5.1 | 3.59 | ||
| Financial and Operating Highlights | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||
| Financial ($ millions, except per share and shares outstanding) | |||||||||||||
| Petroleum and natural gas revenue(1) | 22.8 | 54.4 | (58 | %) | 46.4 | 91.6 | (49 | %) | |||||
| Funds flow from operations(2) | 10.7 | 33.7 | (68 | %) | 20.8 | 53.2 | (61 | %) | |||||
| Per share - basic(3) | 0.11 | 0.38 | (71 | %) | 0.21 | 0.60 | (65 | %) | |||||
| Per share - diluted(4) | 0.11 | 0.37 | (70 | %) | 0.21 | 0.59 | (64 | %) | |||||
| Net loss | (3.8 | ) | (18.9 | ) | (80 | %) | (7.4 | ) | (20.4 | ) | (64 | %) | |
| Per share - basic(3) and diluted(4) | (0.04 | ) | (0.21 | ) | (81 | %) | (0.07 | ) | (0.23 | ) | (70 | %) | |
| Capital expenditures | 21.9 | 28.1 | (22 | %) | 70.3 | 73.6 | (4 | %) | |||||
| Working capital (deficiency)(5) | (11.8 | ) | 80.4 | N/A | (11.8 | ) | 80.4 | N/A | |||||
| Bank debt | (38.8 | ) | (49.3 | ) | (21 | %) | (38.8 | ) | (49.3 | ) | (21 | %) | |
| Total assets | 746.1 | 649.6 | 15 | % | 746.1 | 649.6 | 15 | % | |||||
| Shares outstanding (millions) | 99.8 | 89.3 | 12 | % | 99.8 | 89.3 | 12 | % | |||||
| Basic weighted-average shares (millions) | 99.7 | 89.2 | 12 | % | 99.7 | 88.9 | 12 | % | |||||
| Fully diluted weighted-average shares (millions) | 99.7 | 90.6 | 10 | % | 99.7 | 89.8 | 11 | % | |||||
| Operational | |||||||||||||
| Daily production volumes | |||||||||||||
| Natural gas (MMcf/d) | 88.5 | 77.0 | 15 | % | 89.8 | 63.9 | 41 | % | |||||
| Natural gas liquids (bbls/d) | 864 | 1,293 | (33 | %) | 966 | 885 | 9 | % | |||||
| Crude oil (bbls/d) | - | 907 | N/A | - | 867 | N/A | |||||||
| Total (boe/d) | 15,622 | 15,029 | 4 | % | 15,931 | 12,396 | 29 | % | |||||
| Total (MMcfe/d) | 93.7 | 90.2 | 4 | % | 95.6 | 74.4 | 29 | % | |||||
| Realized prices | |||||||||||||
| Natural gas ($/Mcf) | 2.35 | 4.97 | (53 | %) | 2.37 | 5.26 | (55 | %) | |||||
| Natural gas liquids ($/bbl) | 48.53 | 89.70 | (46 | %) | 44.58 | 87.20 | (49 | %) | |||||
| Crude oil ($/bbl) | - | 105.39 | N/A | - | 102.56 | N/A | |||||||
| Total ($/boe) | 16.04 | 39.77 | (60 | %) | 16.08 | 40.84 | (61 | %) | |||||
| Total ($/Mcfe) | 2.67 | 6.63 | (60 | %) | 2.68 | 6.81 | (61 | %) | |||||
| Field operating netbacks(6) | |||||||||||||
| Total ($/boe) | 7.81 | 27.04 | (71 | %) | 7.26 | 27.32 | (73 | %) | |||||
| Total ($/Mcfe) | 1.30 | 4.51 | (71 | %) | 1.21 | 4.56 | (73 | %) | |||||
- Before royalties.
- Funds flow from operations and funds flow from operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from operating activities before the effects of changes in non-cash working capital, DSU expense and and decommissioning expenditures. Funds flow from operations per share is calculated by dividing funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period. Refer to "Non-GAAP Measures".
- Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.
- Diluted per share information reflects the potential dilutive effect of stock options.
- Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. Refer to "Non-GAAP Measures".
- Field operating netbacks is a non-GAAP measure calculated on a per unit basis as natural gas, crude oil and natural gas liquids revenues less royalties, operating expenses and transportation expenses. Refer to "Non-GAAP Measures".
ADVISORIES
Well Test Results: Test rates are not necessarily indicative of long-term performance or of ultimate recovery.
Non-GAAP Financial Measures: This press release contains the terms "funds flow from operations", "working capital deficiency" and "field operating netbacks", which do not have any standardized meanings prescribed by generally accepted accounting principles ("GAAP") and therefore may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and considers funds flow from operations to be a key measure as it demonstrates the Corporation's ability to generate the cash necessary to fund future capital investment. Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, consistent with the calculations of earnings per share and is used to represent cash flow from operating activities before the effects of changes in non-cash working capital, deferred share unit expense and decommissioning expenditures. Management calculates working capital as current assets less current liabilities and uses this ratio to analyze the liquidity of the Corporation. Field operating netbacks are calculated on a per unit basis as crude oil, natural gas and natural gas liquids revenues less royalties, operating expenses and transportation costs.
Per Share Information: Per share information in this press release is based upon the basic weighted average number of common shares of the Corporation outstanding in the three months ended June 30, 2015 and 2014, respectively.
Boe Conversions: Barrel of oil equivalent amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel of oil (1 bbl). Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Mcfe Conversions: Thousands of cubic feet of gas equivalent amounts have been calculated by using the conversion ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural gas. Mcfe amounts may be misleading, particularly if used in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Forward-Looking Information: This press release contains certain forward-looking information within the meaning of Canadian securities laws. Forward-looking information relates to future events or future performance and is based upon the Corporation's current internal expectations, estimates, projections, assumptions and beliefs. All information other than historical fact is forward-looking information. Words such as "plan", "expect", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words that indicate events or conditions may occur are intended to identify forward-looking information. In particular, this press release contains forward looking information relating to: the AltaGas Townsend Facility construction completion timeframe; anticipated production to be processed through the AltaGas Townsend Facility; the number of wells to be drilled and completed in 2015 and 2015 annual average production rates.
Forward-looking information is based on assumptions including but not limited to future commodity prices, currency exchange rates, drilling success, production rates, future capital expenditures and the availability of labor and services. With respect to future wells, a key assumption is the validity of geological and technical interpretations performed by the Corporation's technical staff, which indicate that commercially economic volumes can be recovered from the Corporation's lands. Estimates as to average annual production assume that no material unexpected outages occur in the infrastructure the Corporation relies upon to produce its wells, that existing wells continue to meet production expectations and that future wells scheduled to come on production in 2015 and 2016 meet timing and production rate expectations.
Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations on which they are based will occur. Although the Corporation's management believes that the expectations in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.
Forward-looking information necessarily involves both known and unknown risks associated with oil and gas exploration, production, transportation and marketing. There are risks associated with the uncertainty of geological and technical data, imprecision of reserve estimates, operational risks, risks associated with drilling and completions, the risk that anticipated project timelines change, environmental risks, risks of the change in government regulation of the oil and gas industry, risks associated with competition from others for scarce resources and risks associated with general economic conditions affecting the Corporation's ability to access sufficient capital. Additional information on these and other risk factors that could affect operational or financial results are included in the Corporation's most recent Annual Information Form and in other reports filed with Canadian securities regulatory authorities.
Forward-looking information is based on estimates and opinions of management at the time the information is presented. The Corporation is not under any duty to update the forward-looking information after the date of this press release to revise such information to actual results or to changes in the Corporation's plans or expectations, except as required by applicable securities laws.
ABBREVIATIONS
| Natural Gas | Natural Gas Liquids | |||
| Mcf | thousand cubic feet | bbls | barrels | |
| Mcf/d | thousand cubic feet per day | bbls/d | barrels per day | |
| MMcf/d | million cubic feet per day | NGL | natural gas liquids | |
| boe | barrels of oil equivalent | Mcfe | thousand cubic feet equivalent | |
| boe/d | barrels of oil equivalent per day | Mcfe/d | thousand cubic feet equivalent per day | |
| MMcfe | million cubic feet equivalent | |||
| MMcfe/d | million cubic feet equivalent per day | |||
ABOUT PAINTED PONY
Painted Pony is a publicly-traded natural gas corporation based in Western Canada. The Corporation is primarily focused on the development of natural gas and natural gas liquids from the Montney formation in northeast British Columbia. Painted Pony's common shares trade on the Toronto Stock Exchange under the symbol "PPY".
The full second quarter 2015 report, containing the unaudited financial statements and the related Management's Discussion and Analysis will be available on SEDAR at www.sedar.com and on Painted Pony's website at www.paintedpony.ca.
For more information please visit www.paintedpony.ca.
