Painted Pony Petroleum Ltd.
TSX : PPY

Painted Pony Petroleum Ltd.

November 12, 2014 16:24 ET

Painted Pony Petroleum Announces Northeast BC Montney Land Acquisition and Third Quarter 2014 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - Nov. 12, 2014) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX:PPY) is pleased to announce a recent acquisition of northeast British Columbia Montney land and third quarter 2014 financial and operating results from its Montney natural gas growth initiatives.

Current and third quarter 2014 highlights include:

  • Acquisition at a recent Crown land sale of 14.5 sections (100% working interest) northeast BC Montney lands, directly contiguous to the Corporation's premium liquids-rich natural gas project in the Townsend area;

  • Entry into a 15-year Strategic Alliance with AltaGas for processing infrastructure and marketing services, including the construction of a 198 MMcf/d natural gas processing facility in the Corporation's Townsend area that is expected to commence operations by the end of 2015; and

  • Closing of the sale of the Corporation's southeast Saskatchewan crude oil assets for approximately $100 million.

Financial and operational highlights for the third quarter of 2014 versus the third quarter of 2013 include:

  • 60% increase in average production volumes to 14,283 boe/d (53% increase per share);

  • 105% increase in natural gas liquids production to 964 bbls/d;

  • 90% increase in funds flow from operations to $23.2 million (79% increase per share to $0.25);

  • 29% reduction in operating costs per boe to $6.75;

  • 26% reduction in general and administrative costs per boe to $1.46;

  • Net income of $8.2 million (compared to a net loss of $0.2 million in the third quarter of 2013); and

  • $63.4 million of positive working capital.

THREE TRANSACTIONS SUPPORT FIVE-YEAR PLAN

Northeast BC Montney Land Acquisition

At the November 5, 2014 British Columbia Crown land sale Painted Pony acquired 14.5 sections of 100% working interest prospective Montney land for $66.8 million. The land acquired consists of 3,710 hectares or 9,275 acres immediately adjacent to Painted Pony's liquids-rich Montney natural gas project in the Townsend area of northeast British Columbia. As there are limited opportunities to acquire Crown land in this area, this was a strategic land acquisition for the Corporation. This acquisition increases Painted Pony's land base in the Townsend area by 50% and is in close proximity to the AltaGas Ltd. ("AltaGas") Townsend gas processing facility that will be built through a strategic alliance between Painted Pony and AltaGas. With this acquisition the Corporation's total Montney land position has expanded by 7% to 217 net sections (76% average working interest).

As shown on the map below, the newly acquired land is directly contiguous to Painted Pony's Townsend area, a "sweet spot" of the northeast BC Montney where the average reservoir thickness is approximately 340 metres (1,100 feet) and the liquids yields are substantially higher than regional averages. The acquired land is expected to add over 170 liquids-rich drilling locations within three prospective intervals of the Montney. The new acreage is believed to exhibit the same over-pressured geological characteristics as the Corporation's existing Townsend block, with wells expected to yield similar liquids recovery of 40 to 80 bbls/MMcf of condensate, propane and butane (C3+). An offsetting land block to the east, consisting of 32.6 sections (8,350 hectares or 20,875 acres), was purchased by a third party at the same Crown land sale for approximately $124 million.

To view the map associated with this press release, please visit the following link: http://media3.marketwire.com/docs/PPYMap.pdf.

Strategic Alliance with AltaGas

In the third quarter of 2014, as previously announced on August 19, 2014, the Corporation entered into a 15-year strategic alliance with AltaGas for the development of processing infrastructure and marketing services for natural gas and natural gas liquids (the "Strategic Alliance"). The Strategic Alliance is expected to provide for the development of essential liquids-rich gas processing infrastructure in northeast BC and provide preferred access to international energy markets for the Corporation's Montney production. In the first phase of the Strategic Alliance, AltaGas will construct and operate a 198 MMcf/d shallow-cut gas processing facility (the "AltaGas Townsend Facility") on the Montney resource play, of which the Corporation will maintain the right to a minimum of 150 MMcf/d of firm capacity. Engineering work, application preparations and field lease construction for the AltaGas Townsend Facility began in the third quarter of 2014.

The Corporation also closed a private placement of common shares with AltaGas for total cash consideration of approximately $50 million. The proceeds from this transaction further strengthened the Corporation's balance sheet in support of execution of the five-year plan.

Disposition of Saskatchewan Assets

On July 30, 2014 the Corporation closed the sale of its southeast Saskatchewan assets, with an effective date of June 1, 2014, for total cash consideration of $100 million, subject to adjustments. The Corporation used the proceeds of the disposition in its high return Montney initiatives, further supporting the five-year plan by focusing the Corporation as a pure-play Montney natural gas and natural gas liquids producer on a go forward basis.

THIRD QUARTER 2014 FINANCIAL & OPERATING RESULTS

Production

Average production volumes for the third quarter of 2014 reached 14,283 boe/d, weighted 91% to natural gas, representing an increase of 60% over third quarter 2013 average production of 8,925 boe/d (83% natural gas). Natural gas liquids volumes for the third quarter of 2014 averaged 964 bbls/d, representing an increase of 105% over the third quarter of 2013 average natural gas liquids production of 470 bbls/d. This is despite third quarter production being negatively impacted by unscheduled facility outages.

Funds Flow and Netbacks

During the third quarter of 2014, Painted Pony generated funds flow from operations of $23.2 million, which represents a 90% increase over the third quarter of 2013. On a per share basis, Painted Pony generated funds flow from operations of $0.25 per share, an increase of 79% over the third quarter 2013. Similarly, funds flow from operations for the nine months ended September 30, 2014 of $76.3 million ($0.84 per share) was almost double the funds flow from operations for the nine months ended September 30, 2013 of $38.9 million ($0.44 per share). Painted Pony continued to realize excellent field operating netbacks in 2014 as a result of ongoing cost reductions and efficiencies in operations coupled with increased natural gas pricing. Painted Pony realized field operating netbacks of $19.12 per boe or $3.19 per Mcfe for the three months ended September 30, 2014, a 14% improvement over realized field operating netbacks for the comparable period in 2013. Realized natural gas prices for the three months ended September 30, 2014 increased to $4.15 per Mcf, an increase of 41% over the realized natural gas prices for the three months ended September 30, 2013 of $2.95 per Mcf.

Capital Expenditures

For the nine months ended September 30, 2014, capital expenditures totaled $126.4 million, which included $91.7 million on drilling and completions and $24.5 million on facilities and equipment.

The Corporation drilled 7 (6.0 net) Montney natural gas wells during the third quarter of 2014, bringing the total for the first nine months of 2014 to 14 (13.0 net) Montney natural gas wells.

All of the wells drilled in 2014 utilized the industry leading open-hole ball drop completion system. Painted Pony continues to see significant increases in per well production rates due to the implementation of new drilling and industry leading completion technology. This technology includes completing the wells with open-hole ball drop completions, shifting most of the drilling to parallel-pairs, and most recently, moving to shorter stage lengths for fracturing. Although at varying stages of implementation, all three of these techniques have delivered strong improvements in well productivity.

During the third quarter of 2014, the Corporation initiated expansion of its 50% working interest dry gas facility in the Daiber area (the "Daiber Facility") from its current processing of 25 MMcf/d to 50 MMcf/d. This expansion is expected to be completed by the end of 2014.

Also in the third quarter of 2014, the Corporation initiated construction of a 25 MMcf/day natural gas compression and dehydration facility in the West Blair area (the "West Blair Facility"). Construction is expected to be completed by the end of 2014.

Operating and G&A Costs

During the third quarter of 2014, Painted Pony improved its operating and general and administrative ("G&A") costs on a per boe basis. Operating costs were $6.75 per boe for the three months ended September 30, 2014, a 29% reduction from operating costs for the comparable period in 2013 of $9.47 per boe. G&A costs were reduced to $1.46 per boe for the three months ended September 30, 2014, a 26% improvement over G&A costs for the three months ended September 30, 2013 of $1.98 per boe.

Net Income and Working Capital

Net income for the third quarter of 2014 was $8.2 million, compared to a net loss of $0.2 million for the third quarter of 2013. Painted Pony had working capital of $63.4 million as well as undrawn credit facilities of $150 million at September 30, 2014, leaving the Corporation well positioned to execute on its development plans.

OUTLOOK

Painted Pony continues to expect production volumes for 2014 to average approximately 13,500 boe/d (90% natural gas). This would result in a 55% increase over 2013 average production of 8,693 boe/d. Fourth quarter 2014 average production is expected to be approximately 15,000 boe/d, with 7 (5.5 net) wells currently being completed and an additional 7 (7.0 net) wells ready for completion in early 2015.

In the fourth quarter of 2014, the Corporation plans to drill 8 (7.5 net) Montney natural gas wells. With respect to facilities, the Corporation anticipates that the expansion of its 50% working interest Daiber Facility will be completed in the fourth quarter of 2014, bringing gross processing capacity to 50 MMcf/d (25 MMcf/d net) and allowing the Corporation to address near-term processing constraints. Engineering work, application preparations and field lease construction for the AltaGas Townsend Facility will be ongoing through the fourth quarter of 2014, targeting a facility start-up by the end of 2015, subject to receipt of the required regulatory approvals.

Painted Pony will announce its 2015 budget in December. The Corporation is well positioned to execute on its five-year plan to grow production to over 100,000 boe/d by 2018 as a result of a strong balance sheet, the Strategic Alliance with AltaGas, the expanded land position and continued improvements in well results.

FINANCIAL AND OPERATING HIGHLIGHTS

Three months ended
September 30,
Nine months ended
September 30,
2014 2013 Change 2014 2013 Change
Financial ($ millions, except per share and shares outstanding)
Petroleum and natural gas revenue(1) 38.9 25.5 53 % 130.5 75.6 73 %
Funds flow from operations(2) 23.2 12.2 90 % 76.3 38.9 96 %
Per share - basic(3) 0.25 0.14 79 % 0.85 0.44 93 %
Per share - diluted(4) 0.25 0.14 79 % 0.84 0.44 91 %
Net income (loss) 8.2 (0.2 ) N/A (12.2 ) (1.3 ) N/A
Per share - basic(3) and diluted(4) 0.09 (0.00 ) N/A (0.14 ) (0.01 ) N/A
Capital expenditures(5) 48.8 39.1 25 % 126.4 106.9 18 %
Working capital (deficiency)(6) 63.4 (20.7 ) N/A 63.4 (20.7 ) N/A
Total assets 669.5 615.9 9 % 669.5 615.9 9 %
Shares outstanding (000s) 94,082 88,457 6 % 94,082 88,457 6 %
Basic weighted-average shares (000s) 91,280 88,456 3 % 89,695 88,408 1 %
Fully diluted weighted-average shares (000s) 92,944 88,635 5 % 90,739 88,824 2 %
Operating
Daily production volumes
Natural gas (MMcf/d) 78.2 44.5 76 % 68.7 41.5 66 %
Natural gas liquids (bbls/d) 964 470 105 % 912 419 118 %
Crude oil (bbls/d)(7) 290 1,034 (72 %) 673 1,147 (41 %)
Total (boe/d) 14,283 8,925 60 % 13,032 8,484 54 %
Realized prices
Natural gas ($/mcf) 4.15 2.95 41 % 4.84 3.34 45 %
Natural gas liquids ($/bbl) 71.26 72.10 (1 %) 81.52 62.14 31 %
Crude oil ($/bbl) 101.16 105.58 (4 %) 102.35 94.76 8 %
Field operating netbacks(8)($/boe) 19.12 16.81 14 % 24.29 19.10 27 %
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. Capital expenditures includes acquisitions, decommissioning costs and capitalized share-based payments.
6. Working capital is a non-GAAP measure calculated as current assets less current liabilities.
7. Related to one month of Saskatchewan crude oil production before closing of the disposition on July 30, 2014.
8. Field operating netbacks is a non-GAAP measure calculated using field operating netbacks on a per unit basis as crude oil, natural gas and natural gas liquids revenues and other income 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.

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 timeframes; number of potential drilling locations added by newly acquired land; anticipated geological characteristics of the newly acquired land; expected liquids recovery from wells to be drilled in the newly acquired land; anticipated liquid-rich natural gas processing infrastructure and preferred access to international energy markets resulting from the Strategic Alliance with AltaGas; 2014 annual average and 2014 fourth quarter production rates; numbers of wells to be drilled and completed in the fourth quarter of 2014 and early in 2015; and the anticipated production rate in 2018.

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 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 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 third quarter 2014 report, containing the unaudited interim condensed financial statements for the three and nine month periods ended September 30, 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.

For more information please visit www.paintedpony.ca.

Contact Information

  • Painted Pony Petroleum Ltd.
    1800, 736 - 6th Ave SW
    Calgary AB T2P 3T7
    (403) 475-0440

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

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

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