PERPETUAL ENERGY INC. RELEASES FIRST QUARTER 2013 FINANCIAL AND OPERATING RESULTS

 

NEWS RELEASE

 

Perpetual Energy inc. RELEASES FIRST

QUARTER 2013 FINANCIAL AND OPERATING RESULTS

 

Calgary, Alberta – May 13, 2013 (TSX:PMT) - Perpetual Energy Inc. (“Perpetual” or the “Corporation”) is pleased to release its financial and operating results for the three months ended March 31, 2013.

 

Perpetual is focused on five key strategic priorities in 2013:

 

1.        Maximize value of Mannville heavy oil;

2.        Position for growth of Edson liquids-rich gas;

3.        Manage downside risk and reduce debt;

4.        Advance and broaden the portfolio of high impact opportunities with risk-managed investment; and

5.        Prepare to maximize value from shallow gas base assets in gas price recovery.

 

Significant progress was made with respect to these priorities during the first quarter of 2013 as highlighted below.

 

Perpetual’s unaudited interim consolidated financial statements and related notes and management’s discussion and analysis for the three months ended March 31, 2013 and 2012 can be obtained through the Corporation’s website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.

 

FIRST QUARTER SUMMARY

 

Financial and operating highlights

 

·         Perpetual executed a $39.5 million capital program in the first quarter of 2013 primarily directed to the development of oil and liquids-rich gas assets.

 

·         Total actual and deemed production of 22,403 boe/d was virtually flat as compared to 22,433 boe/d recorded in the fourth quarter of 2012, as production declines for gas and liquids were offset by the start-up of production from new wells drilled in the fourth quarter of 2012. Total actual and deemed production decreased 17 percent from 27,045 boe/d in the first quarter of 2012, due primarily to non-core asset dispositions with production of 2,944 boe/d combined with natural declines, partially offset by increased production in the Mannville and Edson areas.

 

·         Perpetual’s gas price, before derivatives, increased 27 percent to $3.18 per Mcf from $2.50 per Mcf in the first quarter of 2012 due to improved AECO prices. Natural gas prices also improved relative to the fourth quarter of 2012, increasing six percent from $2.99 per Mcf. Perpetual’s realized natural gas price, including derivatives, increased five percent from the first quarter of 2012 to $3.28 per Mcf.

 

·         Perpetual’s average oil and NGL price, before derivatives, was $54.74 per bbl, down 21 percent from $69.72 per bbl for the same period in 2012 and 12 percent from $62.02 per bbl in the fourth quarter of 2012, due to a wider West Texas Intermediate (“WTI”) to Western Canadian Select (“WCS”) differential and lower WTI prices in the 2013 quarter. The average realized oil and NGL price, including derivatives, decreased to $56.82 per bbl, down 15 percent from the first quarter of 2012 and 20 percent compared to the fourth quarter of 2012.

 

·         Funds flow was $9.5 million ($0.06 per common share) for the first quarter of 2013.

 

·         Net earnings of $32.3 million or $0.22 per basic common share were recorded for the first quarter of 2013, an improvement primarily related to a $51.8 million gain on the disposition of the Elmworth property in the West Central district.

 

Maximize value of Mannville heavy oil

 

·         In the Southern district 27 (25.7 net) heavy oil wells were drilled in the Mannville area during the first quarter. Production commenced from 26 (24.7 net) of the new wells in late March and April with one (1.0 net) well waiting on facilities.

 

·         Heavy oil production increased 15 percent relative to the first quarter of 2012 to 2,786 bbl/d as a result of the preferential concentration of capital allocated to heavy oil projects during 2012. This increase was despite the sale of 167 bbl/d of heavy oil production related to the strategic partnering in one Mannville heavy oil pool to advance enhanced oil recovery plans. Current heavy oil production is approximately 3,775 bbl/d, reflecting the start-up of wells drilled during the winter capital program.

 

Position for growth of Edson liquids-rich gas

 

·         West Central first quarter 2013 activity was focused on the completion and tie-in of the fourth quarter 2012 drilling program at West Edson. Perpetual and its partner continued to grow the production capability of the West Edson area with the expansion of the West Edson compressor station to 30 MMcf/d from 10 MMcf/d of gross capacity (50 percent net to Perpetual).

 

·         In early March 2013, Perpetual entered into rich gas premium agreements with Aux Sable Canada and an interconnection agreement with Alliance Canada to allow access to a premium market in the mid-west United States.

 

·         To fulfill these arrangements, Perpetual and its partner are further enhancing the West Edson compressor station with the installation of refrigeration and other related components to produce sales quality gas and constructing a sales pipeline to tie-in to the Alliance pipeline system. Start-up of the gas plant and sales pipeline is expected to commence in the third quarter of 2013.

 

Manage downside risk and reduce debt

 

·         Perpetual closed the sale of its non-producing Elmworth Montney assets in the first quarter with net proceeds of $76.8 million. Proceeds from the Elmworth disposition were used to strengthen Perpetual’s balance sheet.

 

·         Net debt decreased by $135.4 million to $351.2 million at March 31, 2012, a decline of 28 percent from the quarter end one year ago and 11 percent from $396.6 million at December 31 2012, due to successful execution of the planned asset disposition program. Current net bank debt is approximately $45 million.

 

·         In April 2013 Perpetual’s bank syndicate completed its borrowing base review establishing total availability under the credit facility at $125 million, down from $127.5 million. A further revision to $110 million is scheduled to occur on July 31, 2013. Both reductions reflect dispositions and lower natural gas price forecasts used in lender evaluations, offset by increased lending values attributable to higher oil and NGL reserves.

 

·         To manage downside risk, following the end of the first quarter, Perpetual increased natural gas hedges to 44 percent of budgeted actual and deemed production for the remainder of 2013 as forward prices strengthened with lower volumes of natural gas in storage relative to 2012 and historical average levels. Perpetual has an average of 52,500 Gj/d of natural gas production hedged at an average price of $3.65 per Gj to bring certainty to a portion of funds flow for the remainder of 2013 to support the planned capital program.

 

·         To reduce exposure to fluctuations in the WTI index, Perpetual has oil sales arrangements for 2,250 bbl/d for the remainder of 2013, protecting an average floor price of $88.22 per bbl with an average ceiling price of $101.18 per bbl. The Corporation has also entered into financial contracts for 2,250 bbl/d to fix the basis differential between the WTI and WCS trading hubs for 2,250 bbl/d at an average of $US 22.79 per bbl.

Advance and broaden the portfolio of high impact opportunities with risk-managed investment

 

·         Funding approval through the Government of Alberta’s Innovative Energy Technology Program (“IETP”) was received for Perpetual’s Low-Pressure Electro-Thermally Assisted Drive (“LEAD”) project to develop bitumen in the Bluesky reservoir in the Panny area of northeast Alberta. Total capital and operating costs for the pilot project are estimated at $18.2 million. Approved funding through the IETP allowance is 30 percent of actual eligible costs to a maximum of $5.5 million.

 

·         On April 25, 2013, Perpetual exercised the Warwick Gas Storage call option to buy back an additional 20 percent interest in the Warwick Gas Storage Limited Partnership, increasing its total interest in the gas storage facility to 30 percent. This transaction is expected to close in late May.

 

Prepare to maximize value from shallow gas base assets in gas price recovery

 

·         Optimization of facilities and gathering systems, field office consolidation and streamlining of metering and other operations resulted in lower operating expenses related to Perpetual’s shallow gas assets. Operating costs related to shallow gas production decreased 17 percent ($2.3 million) relative to the first quarter of 2012 to $11.8 million.

 

·         Total production-related operating costs decreased 10 percent to $18.2 million for the first quarter as compared to $20.1 million for the same period in 2012. The reduction was primarily due to lower labour and field gathering and processing costs partially offset by higher operating costs related to increased heavy oil production.

 

2013 Outlook

 

The Corporation’s Board of Directors has approved a capital budget of $75 million for 2013, highly focused on its commodity diversification strategy. This capital spending plan allows flexibility to direct capital to either Mannville heavy oil or liquids-rich gas drilling, depending on commodity prices in the second half of the year.

 

Perpetual will continue its drilling and development program in the Mannville area with up to 13 (12.3 net) additional Mannville heavy oil wells planned for the remainder of 2013. Depending on commodity prices and construction timelines for the West Edson plant and sales gas pipeline, Perpetual plans to drill two to six (1.0 to 3.5 net) additional wells in the deep basin prior to year end.

 

Perpetual will continue to pursue dispositions and proceeds from any potential divestitures will be utilized to strengthen the balance sheet and to enhance the Corporation’s ability to pursue further investment opportunities.

 

Perpetual estimates that 2013 funds flow will average $55 to $70 million based on current forward commodity prices, with production averaging 3,900 to 4,200 bbl/d for oil and liquids and 85 to 90 MMcf/d for natural gas depending on the allocation of capital for the remainder of the year.

 

Additional Information

 

Perpetual’s Annual General and Special Meeting of Shareholders will be held on May 22, 2013 at the Calgary Petroleum Club, 319 - 5 Avenue S.W., Calgary, Alberta beginning at 9:00 a.m. (MDT). Following the business portion of the meeting, a corporate update will be provided by management. To participate in the live webcast of Perpetual’s corporate presentation please use the following URL:

http://event.on24.com/r.htm?e=568876&s=1&k=3699EBA6EC3FD73445A3B0CAAECCD4A3 or visit

www.perpetualenergyinc.com.

 

 

FINANCIAL AND OPERATING HIGHLIGHTS	Three Months Ended March 31
($Cdn thousands except volume and per share amounts)	2013	2012	% Change
Financial
Revenue (1)	43,967	56,728	(22)
Funds flow (2)	9,534	14,501	(34)
Per share - basic (3)	0.06	0.10	(40)
Net earnings (loss)	32,332	(13,040)	348
Per share - basic (3)	0.22	(0.09)	344
Per share - diluted (3)	0.21	(0.09)	333
Total assets	745,658	940,390	(21)
Net bank debt outstanding (2)	41,261	98,707	(58)
Senior notes, at principal amount	150,000	150,000	-
Convertible debentures, at principal amount	159,972	234,897	(32)
Total net debt (2)	351,233	483,604	(27)
Shareholders’ equity	69,048	65,563	5
Capital expenditures
Exploration, development	39,456	31,011	27
Gas storage	-	51	-
Dispositions	(77,930)	(63,390)	22
Acquisitions	1,752	698	151
Other	51	139	(63)
Net capital expenditures	(36,671)	(31,491)	16
Common Shares outstanding (thousands)
End of period	147,704	146,996	-
Weighted average - Basic	147,672	146,977	-
Weighted average - Diluted	171,667	146,977	17
Shares outstanding at May 13, 2013	147,973	-	-
Operating
Daily average production
Natural gas (MMcf/d) (5)	88.6	113.7	(22)
Oil and NGL (bbl/d) (5)	3,483	3,474	-
Total (boe/d) (5)	18,244	22,428	(19)
Gas over bitumen deemed production (MMcf/d) (4)	25.0	27.7	(10)
Average daily (actual and deemed - boe/d) (4,5)	22,403	27,045	(17)
Per common share (boe/d/share) (3)	0.15	0.18	(17)
Average prices
Natural gas, before derivatives ($/Mcf)	3.18	2.50	27
Natural gas, including derivatives ($/Mcf)	3.28	3.13	5
Oil and NGL, before derivatives ($/bbl)	54.74	69.70	(21)
Oil and NGL, including derivatives ($/bbl)	56.82	66.60	(15)
Barrel of oil equivalent, including derivatives ($/boe)	26.80	26.22	2
Land (thousands of net acres)
Undeveloped land holdings	1,577	1,812	(13)
Drilling (wells drilled gross/net)
Gas	-/-	4/3.5	-/-
Oil	27/25.7	16/15.3	69/68
Total	27/25.7	20/18.8	35/37
Success rate (%)	100/100	100/100	-/-

⁽¹⁾         Revenue includes realized gains (losses) on derivatives.

⁽²⁾         These are non-GAAP measures. Please refer to “Non-GAAP Measures” included in management’s discussion and analysis.

⁽³⁾         Based on weighted average basic or diluted Common Shares outstanding for the period.

⁽⁴⁾         The deemed production volume describes all gas shut-in or denied production pursuant to a decision report, corresponding order or general bulletin of the Alberta Energy and Utilities Board (“AEUB”), or through correspondence in relation to an AEUB ID 99-1 application. This deemed production volume is not actual gas sales but represents shut-in gas that is the basis of the gas over bitumen financial solution which is received monthly from the Alberta Crown as a reduction against other royalties payable.

⁽⁵⁾         Production amounts are based on the Corporation’s interest before royalty expense.

 

Forward-Looking Information

 

Certain information regarding Perpetual in this news release including management's assessment of future plans and operations and including the information contained under the heading “2013 Outlook” above may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding expected access to capital markets; prospective drilling activities; forecast production, production type, operations, funds flows, and timing thereof; forecast and realized commodity prices; expected funding, allocation and timing of capital expenditures; projected use of funds flow; planned drilling and development and the results thereof; expected dispositions and the use of proceeds therefrom; commodity prices; and estimated funds flow sensitivity. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management analysis of historical trends, experience, current conditions, and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under “Risk Factors” in Perpetual’s MD&A for the year ended December 31, 2012 and those included in reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual’s management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.

 

Non-GAAP Measures

 

This news release contains financial measures that may not be calculated in accordance with generally accepted accounting principles in Canada (“GAAP”). Readers are referred to advisories and further discussion on non-GAAP measures contained in the “Significant Accounting Policies and non-GAAP Measures” section of management’s discussion and analysis.

 

Perpetual Energy Inc. is a natural gas-focused Canadian energy company with a growing base of oil and NGL assets. Perpetual’s shares and convertible debentures are listed on the Toronto Stock Exchange under the symbol “PMT”, “PMT.DB.D” and “PMT.DB.E”, respectively. Further information with respect to Perpetual can be found at its website at www.perpetualenergyinc.com.

 

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

 

For additional information, please contact:

 

Perpetual Energy Inc. Suite 3200, 605 - 5 Avenue SW Calgary, Alberta, Canada T2P 3H5 Telephone: [phone]       Fax: [phone]      Email:  [e-mail]

Susan L. Riddell Rose             President and Chief Executive Officer Cameron R. Sebastian             Vice President, Finance and Chief Financial Officer