Painted Pony Petroleum Ltd.
TSX : PPY

Painted Pony Petroleum Ltd.

March 04, 2015 17:31 ET

Painted Pony Announces 2014 Financial and Operating Results and Increased Capacity at AltaGas Facility

CALGARY, ALBERTA--(Marketwired - March 4, 2015) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX:PPY) is pleased to announce its 2014 financial and operating results. In addition, Painted Pony is pleased to announce the following updates on growth plans:

  • Increased firm capacity at the AltaGas Townsend Facility from 150 MMcf/d to 198 MMcf/d beginning in the second half of 2017; and
  • The 2015 capital expenditure budget has been reduced to $104 million from $295 million, which is expected to result in 2015 average production of approximately 16,000 boe/d, a 21% increase over 2014.

Highlights of 2014 results relative to 2013 include:

  • Exited 2014 with working capital of $2.8 million;
  • 74% increase in funds flow from operations to $89 million ($0.97 per share);
  • 52% increase in average production to 13,192 boe/d (79.2 MMcfe/d);
  • 106% increase in average natural gas liquids ("NGL") production to 923 bbl/d;
  • 43% increase in British Columbia field operating netbacks to $3.33 per Mcfe;
  • 17% reduction in operating costs to $1.27 per Mcfe; and
  • 20% reduction in general and administrative costs to $0.37 per Mcfe.

EXPANDED PAINTED PONY CAPACITY AT THE ALTAGAS TOWNSEND FACILITY

Painted Pony and AltaGas have agreed that Painted Pony's firm capacity of 150 MMcf/d (with a 135 MMcf/d "take or pay" commitment beginning three months after facility start-up) at the AltaGas Townsend Facility will increase to 198 MMcf/d (180 MMcf/d of which will be "take or pay") 12 months after facility start-up. This increased commitment will allow Painted Pony to utilize 100% of the facility's processing capacity. Expected completion of the AltaGas Townsend Facility has been revised to mid-2016, in time to accommodate Painted Pony's production volumes in the third quarter of 2016. This revised schedule is expected to result in cost savings on both facility construction costs and the processing fees to be paid by Painted Pony when the facility begins processing gas, while also providing flexibility to Painted Pony's drilling and completion plans.

2015 CAPITAL EXPENDITURE PROGRAM

Painted Pony's Board of Directors have approved a revised 2015 budget of $104 million, subject to review on a quarterly basis. This prudent budget has been reduced significantly from the $295 million program announced on December 8, 2014, with the intention of preserving a strong balance sheet during this period of weak commodity prices, taking advantage of continued improvements in well productivity and positioning the Corporation for significant growth upon completion of the AltaGas Townsend Facility in 2016.

During 2015, Painted Pony intends to drill 14 (14.0 net) and complete 11 (11.0 net) Montney horizontal natural gas wells in the Blair and Townsend areas. Included in this are 8 (8.0 net) wells that are pre-drills for the Townsend area and will not be brought on production until 2016. Due to improved well productivity, only 6 (6.0 net) wells are required to be drilled in order to keep the Corporation's recently expanded processing capacity full and deliver 21% production growth to 16,000 boe/d for 2015, including 1,100 bbl/d of NGL. Current production is in excess of 16,000 boe/d, including volumes being processed at the recently completed Painted Pony owned facility at West Blair and expanded 50% owned facility at Daiber.

Painted Pony is taking steps to reduce costs during this period of low commodity prices. Each of Painted Pony's executive officers has voluntarily taken a 12% reduction in their salary and the Board of Directors has determined to reduce their annual retainer by the same percentage.

As well, Painted Pony has asked each of its suppliers and service providers to reduce their rates, working with the Corporation to reduce capital and operating costs. Together with the revised drilling schedule, deferring some drilling and completion of wells to later in 2015 and into 2016, the Corporation plans to meet its operational objectives while realizing average savings of over 10% on operating and capital costs.

Hedging

The Corporation has a risk management program that aims to reduce the impact of commodity price volatility with hedges in place through the first quarter of 2017. In the first quarter of 2015 the Corporation has hedged 37.9 MMcf/d of natural gas at an average AECO price of $3.58/Mcf. For the remainder of 2015, the Corporation has hedged 37.9 MMcf/d of natural gas at an average AECO price of $3.14/Mcf. From January 1, 2016 to March 31, 2017, the Corporation has hedged 19.0 MMcf/d at an average AECO price of $3.05/Mcf.

2014 FINANCIAL & OPERATING RESULTS

Production

Average production volumes for 2014 reached 13,192 boe/d (89% natural gas), representing an increase of 52% over 2013 average production of 8,693 boe/d (82% natural gas). Production averaged 13,665 boe/d in the fourth quarter of 2014, weighted 93% to natural gas and representing an increase of 47% over the fourth quarter of 2013. Average NGL production for 2014 was 923 bbl/d, up 106% over 2013 production of 449 bbl/d.

Funds Flow from Operations

During 2014, Painted Pony generated funds flow from operations of $89 million, which represents a 74% increase over 2013. On a per share basis, Painted Pony generated funds flow from operations of $0.97 per share, an increase of 67% over 2013 results of $0.58 per share.

Operating Costs and Netbacks

Painted Pony improved its operating costs on a per boe basis in 2014 to $1.27 per Mcfe ($7.64 per boe), a 17% reduction from 2013. Painted Pony realized total field operating netbacks of $3.56 per Mcfe for 2014, a 13% improvement over 2013 netbacks of $3.15 per Mcfe. In British Columbia field operating netbacks of $3.33 per Mcfe for 2014 were up 43% over 2013 netbacks of $2.33 per Mcfe. This increase was due to higher realized prices, lower operating costs, improved well productivity and increased focus on the liquids rich Townsend area.

General and Administrative Costs

Painted Pony improved its general and administrative ("G&A") costs on a per boe basis in 2014 to $0.37 per Mcfe ($2.19 per boe), a 20% improvement over 2013.

Net Loss

The 2014 net loss of $15.6 million was primarily due to a $43.4 million loss on disposition of the Corporation's Saskatchewan assets.

Capital Expenditures

Capital expenditures for 2014 totaled $271 million focused on drilling & completions, facility construction and land acquisition in the Montney.

Facilities and equipment expenditures in 2014 totaled $45 million, resulting in construction of the 25 MMcf/d gas dehydration and condensate stabilization facility in the Townsend area, construction of the 25 MMcf/day natural gas compression and dehydration facility in the West Blair area, and expansion of the 50% working interest dry gas facility in the Daiber area from 25 MMcf/d to 50 MMcf/d. When combined with 40 MMcf/d of firm capacity at the AltaGas plant in the Blair area, this provides Painted Pony with 115 MMcf/d of gas processing capacity in the Montney. These facilities are all now fully operational and are having a positive impact on production in 2015.

The purchase of 14.5 sections of prospective Montney land in British Columbia for $67 million increased the Corporation's acreage in the liquids rich Townsend area by 50%. The acquired land is expected to add over 170 liquids-rich drilling locations within three prospective intervals of the Montney. The average reservoir thickness at Townsend is approximately 340 metres (1,100 feet) and the liquids yields are substantially higher than regional averages. Management believes the new acreage exhibits the same over-pressured geological characteristics as the Corporation's existing Townsend block, which could enhance both well productivity and reserves. Wells are expected to yield similar liquids recovery of 40 to 80 bbls/MMcf of condensate, propane and butane (C3+).

Technology and Well Performance

The drilling of 21 (19.5 net) and completion of 19 (17.5 net) Montney natural gas wells was accomplished at a cost of $143 million. All of the wells completed in 2014 utilized an open-hole, multi-stage ("OHMS") system. Painted Pony was an industry leader in completing Montney wells using this technology in our area, as well as moving to parallel-pair drilling and completions, including the recently completed first parallel-triple. More recently the Corporation has completed wells with shorter stage lengths and increased tonnage. Although at varying stages of implementation, all of these initiatives have delivered strong improvements in well productivity and recoveries, resulting in the highest average peak month gas rate of any Montney operator during the past three years. As a result of these improvements in well productivity, fewer wells and less capital will be required to deliver on the significant growth in the Corporation's five year plan.

Financial Position

Painted Pony had working capital of $2.8 million and undrawn credit facilities of $175 million at December 31, 2014, leaving the Corporation well positioned to execute on its development plans.

Financial and Operating Highlights

Year ended December 31,
2014 2013 Change
Financial ($ millions, except per share and shares outstanding)
Petroleum and natural gas revenue(1) 160.5 103.1 56 %
Funds flow from operations(2) 88.9 51.2 74 %
Per share - basic(3) and diluted(4) 0.97 0.58 67 %
Net loss (15.6 ) (5.7 ) 174 %
Per share - basic(3) and diluted(4) (0.17 ) (0.06 ) 183 %
Capital expenditures 270.5 146.6 85 %
Working capital (deficiency)(5) 2.8 (16.3 ) 117 %
Total assets 737.8 635.1 16 %
Shares outstanding (000s) 99,470 88,457 12 %
Basic weighted-average shares (000s) 91,245 88,420 3 %
Fully diluted weighted-average shares (000s) 92,068 88,488 4 %
Operational
Daily production volumes
Natural gas (Mcf/d) 70,593 42,853 65 %
Natural gas liquids (bbls/d) 923 449 106 %
Crude oil (bbls/d) 503 1,102 (54 )%
Total (boe/d) 13,192 8,693 52 %
Total (Mcfe/d) 79,152 52,158 52 %
Realized prices
Natural gas ($/Mcf) 4.48 3.45 30 %
Natural gas liquids ($/bbl) 75.39 62.54 21 %
Crude oil ($/bbl) 102.34 93.02 10 %
Total ($/boe) 33.34 32.49 3 %
Total ($/Mcfe) 5.56 5.42 3 %
Field operating netbacks(6)
British Columbia ($/boe) 19.99 13.96 43 %
Saskatchewan ($/boe)(7) 52.36 48.72 7 %
Total ($/boe) 21.34 18.88 13 %
Total ($/Mcfe) 3.56 3.15 13 %
(1) Before royalties.
(2) 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 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.
(3) Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.
(4) Diluted per share information reflects the potential dilutive effect of options.
(5) Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities.
(6) 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 and transportation costs.
(7) The Saskatchewan crude oil properties were disposed of on July 30, 2014.

ADVISORIES

Non-GAAP Financial Measures: This press release contains the terms "funds flow from operations", "working capital" 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 leverage 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. Management calculates working capital as current assets less current liabilities and uses this ratio to analyze operating performance and leverage. Field operating netbacks are calculated on a per unit basis as crude oil, natural gas and natural gas liquids revenues and other income less royalties and operating 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 years ended December 31, 2014 and 2013, 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: facility construction completion timeframe; anticipated liquid-rich natural gas processing infrastructure and preferred access to international energy markets resulting from the Strategic Alliance with AltaGas; 2015 annual average production rates; the amount of capital to be spent in 2015; the number of wells to be drilled and completed in 2015; and the expected reduction in operating costs and general and administrative expenses on a per boe basis.

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 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

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 2014 report, containing the audited financial statements for 2014 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.

Contact Information

  • Painted Pony Petroleum Ltd.
    Patrick R. Ward
    President & CEO
    (403) 475-0440

    Painted Pony Petroleum Ltd.
    John H. Van de Pol
    Senior Vice President & CFO
    (403) 475-0440

    Painted Pony Petroleum Ltd.
    Mark Polak
    Director, Investor Relations
    (403) 475-0440
    www.paintedpony.ca