Painted Pony Petroleum Ltd.
TSX : PPY

Painted Pony Petroleum Ltd.

March 04, 2015 16:49 ET

Painted Pony Increases 2P Reserves by 68% to 2.9 Tcfe With a Recycle Ratio of 5.1 Times

CALGARY, ALBERTA--(Marketwired - March 4, 2015) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX:PPY) is pleased to announce the results of its independent reserves report effective December 31, 2014. This evaluation was prepared by GLJ Petroleum Consultants Ltd. ("GLJ") and encompasses 100% of Painted Pony's reserves entities. Highlights include:

  • Increased proved plus probable ("2P") reserves by 68% to 2.9 Tcfe (488 MMboe), an increase of 50% per share;
  • Increased the estimated net present value discounted at 10% ("NPV10") of 2P reserves, by 75% to $2.6 billion and the estimated 2P net asset value ("NAV") by 52% to $27.50 per fully diluted share;
  • Added 2P reserves at a finding, development and acquisition ("FD&A") cost of $0.70/Mcfe ($4.19/boe) and a finding and development ("F&D") cost of $0.76/Mcfe ($4.57/boe);
  • Achieved FD&A recycle ratios of 5.1 times for 2P reserves, 3.1 times for proved reserves and 2.3 times for proved developed producing ("PDP") reserves; and
  • The application of advanced drilling and completion technologies has resulted in improved well productivities and recovery factors, leading to a substantial improvement in capital efficiency associated with a 30% increase in 2P undeveloped reserves per well.

"Decreasing future development costs ("FDC") per Mcfe and improved well production performance drives us forward to industry leading capital efficiencies. This results in our ability to grow economically in a low price environment, putting us on the trail toward a step change in production associated with the start-up of the new 198 MMcf/d shallow cut AltaGas plant coming on mid-year 2016," said Patrick Ward, President and CEO.

SUMMARY OF NATURAL GAS AND NATURAL GAS LIQUIDS RESERVES

During 2014 Painted Pony increased its total 2P reserves by 68% to 2.9 Tcfe (488 MMboe), an increase of 50% per share. Proved reserves increased by 105% to 736 Bcfe (123 MMboe). As a result, from December 31, 2013, the NPV10 of Painted Pony's 2P reserves increased 75% to $2.6 billion and by 66% to $792 million for proved reserves. 2P reserves of natural gas liquids (propane, butane and condensate) increased 140% to 49 MMbbl, accounting for 10% of total reserves.

2P reserve additions replaced 2014 production of 13,192 boe/d (89% gas) by 4,215%. The Corporation has a reserve life index ("RLI") of 98 years on a 2P basis and 25 years on a proved basis, based on fourth quarter 2014 annualized production of 13,665 boe/d (93% gas).

Continued improvements in well productivity from the application of advanced drilling and completion technologies led to positive technical revisions of 501 Bcfe, with 2P undeveloped reserves per well increasing 30% over 2013.

The following tables outline GLJ's estimates of Painted Pony's reserves and associated net present values at December 31, 2014 and December 31, 2013.

Summary of Company Gross Reserves

(Forecast Prices and Costs)

As at
December 31,
2014
As at
December 31,
2013
Reserves Category Natural Gas
(MMcf)
NGLs
(Mbbl)
Oil
Equivalent
(Mboe)
Oil
Equivalent
(Mboe)
Proved
Developed Producing 171,072 3,454 31,966 18,633
Developed Non-Producing 2,145 43 401 87
Undeveloped 488,790 8,795 90,260 41,159
Total Proved 662,006 12,292 122,626 59,878
Probable 1,974,012 36,798 365,800 230,392
Total Proved Plus Probable 2,636,019 49,089 488,426 290,271

Net Present Values of Future Net Revenue(1)(2)

(Forecast Prices and Costs) (MM$)

As at December 31, 2014
Annual Discount Rate 0% 5% 10% 15% 20%
BEFORE INCOME TAXES
Proved
Developed Producing 627 434 333 273 234
Developed Non-Producing 4 3 3 2 2
Undeveloped 1,483 791 456 270 155
Total Proved 2,114 1,228 792 545 391
Probable 7,756 3,452 1,840 1,091 690
Total Proved Plus Probable 9,870 4,681 2,632 1,636 1,081
(1) Estimates of future net revenue, whether discounted or not, do not represent fair market value.
(2) Future net revenue is after deduction of estimated costs of abandonment and reclamation of existing and future wells that were evaluated by GLJ in the 2014 Reserves Evaluation and does not include costs of abandonment and reclamation of facilities.

NET ASSET VALUE

Management estimates Painted Pony's net asset value to be $3.0 billion, or $27.50 per fully diluted share, based on the value of its 2P reserves, undeveloped land and working capital and option proceeds at December 31, 2014.

The following table highlights Painted Pony's estimated total NAV and total NAV per fully diluted share at December 31, 2014.

Net Asset Value

(Forecast Prices and Costs)

December 31, 2014 December 31, 2013
$ millions $/share(2) $ millions $/share(2)
2P Reserves (NPV10) 2,632 24.45 1,502 15.60
Undeveloped Land(1) 250 2.33 215 2.23
Working Capital & Option Proceeds 78 0.72 $ 23 0.23
Net Asset Value $ 2,960 $ 27.50 1,739 $ 18.07
(1) Seaton - Jordan & Associates Ltd. estimated the Corporation had 208,140 net undeveloped acres at December 31, 2014.
(2) On a fully diluted basis, there were 107.6 million shares outstanding at December 31, 2014 and 96.3 million shares outstanding at December 31, 2013.

The following tables summarize the change in Painted Pony's reserves for the period from December 31, 2013 to December 31, 2014.

Reconciliation of Company Gross Reserves

(Forecast Prices and Costs)

Natural
Gas(1)
NGLs Light and
Medium Oil
Total Total
(MMcf) (Mbbl) (Mbbl) (Mboe) (MMcfe)
Proved Developed Producing Reserves
Opening Balance December 31, 2013 94,266 1,285 1,636 18,633 111,795
Discoveries 0 0 0 0 0
Extensions and Improved Recovery 6,179 255 0 18,557 111,342
Technical Revisions 97,044 2,383 0 1,285 7,710
Dispositions (649 ) (132 ) (1,453 ) (1,693 ) (10,160 )
Production (25,767 ) (337 ) (184 ) (4,815 ) (28,890 )
Closing Balance December 31, 2014 171,072 3,454 0 31,966 191,797
Proved Reserves
Opening Balance December 31, 2013 318,478 4,192 2,607 59,878 359,268
Discoveries 0 0 0 0 0
Extensions and Improved Recovery 299,021 6,527 0 56,363 338,178
Technical Revisions 71,254 2,102 0 13,978 83,868
Dispositions (980 ) (191 ) (2,423 ) (2,778 ) (16,668 )
Production (25,767 ) (337 ) (184 ) (4,815 ) (28,890 )
Closing Balance December 31, 2014 662,006 12,292 0 122,626 735,756
Proved Plus Probable Reserves
Opening Balance December 31, 2013 1,591,020 20,428 4,672 290,271 1,741,626
Discoveries 0 0 0 0 0
Extensions and Improved Recovery 636,292 18,506 0 124,555 747,330
Technical Revisions 436,123 10,817 0 83,504 501,024
Dispositions (1,649 ) (325 ) (4,489 ) (5,089 ) (30,534 )
Production (25,767 ) (337 ) (184 ) (4,815 ) (28,890 )
Closing Balance December 31, 2014 2,636,019 49,089 0 488,426 2,930,556
(1) Includes associated gas and non-associated gas and natural gas solution.

2014 FINDING AND DEVELOPMENT COSTS AND RECYCLE RATIOS

Painted Pony's 2014 F&D expenditures were $269 million and its net FD&A expenditures totalled $169 million, including $100 million of net property dispositions. FDC increased $680 million for 2P reserves and $300 million for proved reserves. This resulted in 2P reserve additions of 1.2 Tcfe at an FD&A cost of $0.70/Mcfe and proved reserve additions of 422 Bcfe at an FD&A cost of $1.16/Mcfe.

The Corporation generated recycle ratios of 5.1 times on a 2P basis, 3.1 times on a proved basis and 2.3 times on a PDP basis. This is calculated by dividing Painted Pony's average field operating netback of $3.56/Mcfe (calculated by subtracting royalties, operating expenses and transportation costs from revenue) by the FD&A costs (including changes in FDC) per Mcfe in the PDP, proved and 2P categories of reserves.

The following table highlights Painted Pony's capital program efficiency.

Capital Efficiencies(1)

(Forecast Prices and Costs)

Proved Developed Producing 2014 2013 2012 3-Year
Weighted Avg.
FD&A ($/Mcfe) $ 1.55 $ 2.77 $ 7.31 $ 2.86
Recycle Ratio 2.3x 1.1x 0.4x 1.2x
F&D ($/Mcfe) $ 2.26 $ 2.77 $ 3.82 $ 2.64
Recycle Ratio 1.6x 1.1x 0.8x 1.3x
Proved
FD&A ($/Mcfe) $ 1.16 $ 1.95 $ 4.06 $ 1.72
Recycle Ratio 3.1x 1.6x 0.8x 1.9x
F&D ($/Mcfe) $ 1.35 $ 1.95 $ 3.90 $ 1.72
Recycle Ratio 2.6x 1.6x 0.8x 1.9x
Proved Plus Probable
FD&A ($/Mcfe) $ 0.70 $ 1.60 $ 2.17 $ 1.18
Recycle Ratio 5.1x 2.0x 1.4x 2.8x
F&D ($/Mcfe) $ 0.76 $ 1.60 $ 2.37 $ 1.20
Recycle Ratio 4.7x 2.0x 1.3x 2.8x
(1) See advisories with respect to finding and development costs.

FUTURE DEVELOPMENT COSTS PER MCFE

The number of net wells included in 2P undeveloped reserves increased 30% to 434, with an associated 29% increase in FDC to $3.0 billion. However, the application of advanced drilling and completion technologies has resulted in improved well productivities and recovery factors, leading to a 30% increase in 2P undeveloped reserves per well and a 68% increase in total 2P undeveloped reserves. As a result, the cost to develop an Mcfe of 2P reserves has decreased from $1.48 to $1.13.

Future Development Costs of Undeveloped Reserves

(Forecast Prices and Costs)

Proved Plus Probable Undeveloped
As at December 31 2014 2013
Net 2P Undeveloped Wells 434 335
FDC ($MM, undiscounted) 3,038 2,358
Reserves (Mcfe) 2,684,424 1,596,820
FDC per Mcfe $ 1.13 $ 1.48

DEFINITIONS AND ADVISORIES

Independent Reserves Evaluation

GLJ Petroleum Consultants ("GLJ"), independent qualified reserves evaluators of Calgary, Alberta, prepared a reserves estimation and economic evaluation of the Corporation's oil and natural gas properties effective December 31, 2014, which is contained in a report dated February 25, 2015 (the "2014 Reserves Report"). GLJ and Sproule Associates Limited ("Sproule") prepared reserves estimations and economic evaluations of the Corporation's reserves effective December 31, 2013 and December 31, 2012. Reserves estimates stated herein as at December 31 of a year are extracted from the relevant evaluation.

The 2014 Reserves Report and the prior reserves evaluation were prepared in accordance with the Canadian Oil & Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101").

The reserves data provided in this press release contains only excerpts of the disclosure required under NI 51-101. All of the required information will be contained in the Corporation's Annual Information Form for the year ended December 31, 2014, which will be filed on SEDAR on or before March 31, 2015.

Forecast Prices and Costs: Reserves estimates stated herein are calculated using the forecast price and cost assumptions by the reserves evaluator which were in effect at the time of the applicable reserves evaluation. The complete GLJ January 1, 2015 price forecast is available on its website at gljpc.com. At the time of the 2014 Reserves Evaluation the Corporation's 2015 capital expenditure budget was $295 million and forecast expenditures in future years may vary from actual expenditures.

Company Gross Reserves: In this press release, unless otherwise stated, references to "reserves" are to the Corporation's gross reserves, defined as the Corporation's working interest (operated or non-operated) share before deduction of royalties and without including any royalty interests of the Corporation.

Rounding: Numbers in tables may not add due to rounding.

Estimated Future Net Revenues: Estimated future net revenues are stated before deducting income taxes and future estimated site restoration costs and are reduced for estimated future abandonment costs and estimated capital for future development associated with the reserves. The undiscounted and discounted net present values disclosed do not represent the fair market value of the reserves.

Reserves for Portion of Properties: With respect to the disclosure of reserves contained herein relating to portions of the Corporation's properties, the estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation.

Finding and Development Costs: With respect to disclosure of finding and development ("F&D") costs and finding, development and acquisition costs ("FD&A") costs disclosed in this press release:

  • F&D costs both including and excluding acquisitions and dispositions have been presented in this press release. While NI 51-101 requires the calculation of F&D costs to eliminate the effects of acquisitions and dispositions, FD&A costs have also been presented because acquisitions and dispositions can have a significant impact on the Corporation's ongoing reserve replacement costs and excluding these amounts could result in an inaccurate portrayal of the Corporation's cost structure.
  • F&D costs for each of the years 2014, 2013 and 2012 are calculated by dividing the total of the exploration costs, development costs and the change during the most recent financial year in estimated future development capital relating to either proved reserves or 2P reserves, by the additions to either proved reserves or 2P reserves during the most recent financial year.
  • The aggregate of the exploration and development costs incurred in the most recent financial year and any change during that year in estimated future development costs generally will not reflect total F&D costs related to reserves additions for that year.

Future Development Costs: With respect to future development costs, there can be no guarantee that in the future, funds will be available or that the Corporation will allocate funds to develop all of the attributed reserves. Failure to develop these reserves would have a negative impact on future production and cash flow estimated by GLJ.

Boe Conversions: Barrel of oil equivalent ("boe") 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, Bcfe and Tcfe Conversions: Thousands of cubic feet of gas equivalent ("Mcfe"), billions of cubic feet of gas equivalent ("Bcfe") and trillions of cubic feet of gas equivalent ("Tcfe") 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, Bcfe and Tcfe 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.

Non-GAAP Financial Measures: This press release contains the terms, "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 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, operating costs and transportation costs.

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 estimates of recoverable reserves volumes and the future net revenues associated with those reserves.

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 estimates of reserves, a key assumption is that the data used by GLJ in their independent reserves evaluation is valid. 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 2014 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, 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 NGLs 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