Painted Pony Petroleum Ltd.
TSX : PPY

Painted Pony Petroleum Ltd.

May 13, 2015 17:38 ET

Painted Pony Announces Increased Credit Facilities to $325 Million and First Quarter 2015 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - May 13, 2015) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX:PPY) is pleased to announce an increase to the Corporation's credit facilities and its first quarter 2015 financial and operating results.

Highlights include:

  • An increase in the Corporation's credit facilities to $325 million from $175 million;

  • 67% increase in average production to 16,243 boe/d (97.5 MMcfe/d);

  • 126% increase in average natural gas liquids ("NGL") production to 1,068 bbl/d;

  • 36% reduction in operating costs to $1.07 per Mcfe;

  • 44% reduction in general and administrative costs to $0.23 per Mcfe;

  • A decrease in average corporate royalties to 2.5% ($0.07/Mcfe) from 5.9% ($0.42/Mcfe); and

  • Entered into additional commodity risk management contracts.

INCREASED CREDIT FACILITIES

On May 13, 2015 the Corporation's syndicated credit facilities were increased from $175 million to $325 million made up of a $300 million extendible revolving facility and a $25 million operating facility. 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. The current availability is $225 million, increasing to $250 million on April 30, 2016, $275 million on July 31, 2016 and $325 million on October 31, 2016. The credit facilities are provided by a syndicate of six financial institutions led by The Toronto-Dominion Bank and The Bank of Nova Scotia, and including Alberta Treasury Branches, Canadian Imperial Bank of Commerce, HSBC Bank Canada and Wells Fargo Bank. The facilities revolve for a two year period, which is extendible annually after the first two years, subject to syndicate approval. The facilities are subject to a semi-annual borrowing base review, the next of which is expected to occur on or before October 31, 2015. Mr. Patrick Ward, President & CEO said "This unique credit facility removes concerns about a potential funding gap between now and the step change in production expected with the completion of the AltaGas Townsend Facility mid-year 2016."

As at March 31, 2015 Painted Pony had $7.7 million drawn on its syndicated credit facilities, leaving the Corporation well positioned to execute on its development plans. Net debt was $39.5 million as at March 31, 2015.

ALTAGAS TOWNSEND FACILITY

Completion of the 198 MMcf/d AltaGas Townsend facility remains on schedule for mid-2016, with construction expected to commence by late summer 2015, pending regulatory approval. Compressors and turbines are currently being fabricated and long lead items for the refrigeration process skid have been ordered. Painted Pony expects to begin ramping production up to its initial firm capacity of 150 MMcf/d (135 MMcf/d "take-or-pay") in September 2016, targeting a 2016 exit rate of approximately 40,000 boe/d. Firm capacity increases to the full 198 MMcf/d (180 MMcf/d "take-or-pay") 12 months after facility start-up.

FIRST QUARTER 2015 FINANCIAL & OPERATING RESULTS

Production

Production averaged 16,243 boe/d (97,461 Mcfe/d) in the first quarter of 2015, weighted 93% to natural gas and represented an increase of 67% over the first quarter of 2014. Average NGL production for the first quarter of 2015 was 1,068 bbl/d, up 126% from the first quarter of 2014 production of 473 bbl/d.

Production guidance remains unchanged at an average of approximately 16,000 boe/d (96,000 Mcfe/d) for 2015. Due to planned maintenance at the McMahon Gas Plant, production is expected to average approximately 15,500 boe/d (93,000 Mcfe/d) in the second and third quarters, with volumes rising to 17,000 boe/d (102,000 Mcfe/d) in the fourth quarter. The Corporation has approximately 15 MMcf/d of additional volumes behind pipe due to limited processing capacity.

Operating Costs and Netbacks

Painted Pony improved its operating costs on a per unit basis in the first quarter of 2015 to $1.07 per Mcfe ($6.40 per boe), a 36% reduction from the first quarter of 2014. Painted Pony realized total field operating netbacks of $1.12 per Mcfe for the first quarter of 2015, down 76% from first quarter of 2014 netbacks of $4.63 per Mcfe. This drop was primarily a result of lower natural gas and natural gas liquids prices received during the quarter, as well as the disposition of higher netback oil production in July 2014. In addition to depressed natural gas prices at Henry Hub and AECO, the Station 2 discount to AECO was unusually wide due to maintenance on major sales pipelines and facilities. The Station 2 discount to AECO has narrowed recently and management expects it to track closer to the historical average going forward.

With all of its production coming from west of the royalty change 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 first quarter of 2015.

General and Administrative Costs

Painted Pony improved its general and administrative ("G&A") costs on a per boe basis in the first quarter of 2015 to $0.23 per Mcfe ($1.38 per boe), a 44% improvement over the first quarter of 2014.

Funds Flow from Operations

During the first quarter of 2015, Painted Pony generated funds flow from operations of $10.2 million, which represents a 48% decrease over the first quarter of 2014. On a per share basis, Painted Pony generated funds flow from operations of $0.10 per share, a decrease of 55% over the results of the first quarter 2014 of $0.22 per share. Decreased funds flow from operations was primarily a result of lower natural gas and natural gas liquids prices received during the quarter, as well as the disposition of higher netback oil production in July 2014, partially offset by higher production volumes, as well as lower royalties and operating costs.

Net Loss

During the first quarter of 2015 Painted Pony had a net loss of $3.5 million primarily due to non-cash depletion and depreciation expense, compared to a net loss of $1.5 million in the first quarter of 2014.

Capital Expenditures and Operations

During the three months ended March 31, 2015 the Corporation invested $48.3 million in exploration and development capital expenditures, including $39.6 million on drilling and completions activity. The Corporation drilled 6 (6.0 net) and completed 5 (5.0 net) Montney natural gas wells in the quarter. Facilities and equipment spending of $7.6 million reflects costs related to the completion of a 25 MMcf/d (12.5 MMcf/d net) expansion of a Painted Pony operated natural gas processing facility at Daiber. Both the Daiber facility and the recently completed West Blair facility continue to demonstrate high reliability.

The 2015 capital budget remains unchanged at $104 million. During the remainder of 2015, the Corporation intends to drill 8 (8.0 net) Montney horizontal natural gas wells on its 100% working interest lands in the Blair and Townsend areas, of which the majority will be part of the pre-drill program directed towards the AltaGas Townsend Facility.

HEDGING UPDATE

Subsequent to March 31, 2015, the Corporation entered into additional commodity risk management contracts. The current hedging position is summarized as follows:

Natural Gas Financial Contracts
Reference Volume (MMcf/d) Term Weighted Average Price ($/Mcf) Options Traded
CDN$ AECO 37.9 April - December 2015 $ 3.14 Swap
CDN$ AECO 56.9 January - March 2016 $ 3.00 Swap
CDN$ AECO 47.4 April - December 2016 $ 3.00 Swap
CDN$ AECO 47.4 January - March 2017 $ 3.00 Swap
CDN$ AECO 28.4 April 2017 $ 2.98 Swap
Financial and Operating Highlights
Three months ended March 31,
2015 2014 Change
Financial ($ millions, except per share and shares outstanding)
Petroleum and natural gas revenue(1) 23.6 37.2 (37 %)
Funds flow from operations(2) 10.2 19.5 (48 %)
Per share - basic(3) and diluted(4) 0.10 0.22 (55 %)
Net loss (3.5 ) (1.5 ) 133 %
Per share - basic(3) and diluted(4) (0.04 ) (0.02 ) 100 %
Capital expenditures 48.4 45.5 6 %
Working capital deficiency(5) 29.1 41.3 (30 %)
Bank debt 7.7 33.4 (77 %)
Total assets 740.1 669.8 10 %
Shares outstanding (000s) 99,651 88,964 12 %
Basic weighted-average shares (000s) 99,580 88,544 12 %
Fully diluted weighted-average shares (000s) 99,580 88,641 12 %
Operational
Daily production volumes
Natural gas (Mcf/d) 91,050 50,605 80 %
Natural gas liquids (bbls/d) 1,068 473 126 %
Crude oil (bbls/d) - 827 N/A
Total (boe/d) 16,243 9,734 67 %
Total (Mcfe/d) 97,461 58,404 67 %
Realized prices
Natural gas ($/Mcf) 2.38 5.72 (58 %)
Natural gas liquids ($/bbl) 41.35 80.27 (48 %)
Crude oil ($/bbl) - 99.41 N/A
Total ($/boe) 16.11 42.50 (62 %)
Total ($/Mcfe) 2.69 7.08 (62 %)
Field operating netbacks(6)
Total ($/boe) 6.73 27.75 (76 %)
Total ($/Mcfe) 1.12 4.63 (76 %)
(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.

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 three months ended March 31, 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 anticipated availability of funds under the syndicated credit facilities; 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 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 first 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.

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
    www.paintedpony.ca