Painted Pony Petroleum Ltd.

TSX : PPY


Painted Pony Petroleum Ltd.

August 12, 2014 19:56 ET

Painted Pony Petroleum Announces Record Second Quarter 2014 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - Aug. 12, 2014) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX:PPY) is pleased to announce its record second quarter 2014 financial and operating results from its organic Montney natural gas growth initiatives. Highlights for the second quarter of 2014 as compared to the second quarter of 2013 include:

  • 90% increase in average production volumes to 15,029 barrels of oil equivalent ("boe") per day ("boe/d");

  • 236% increase in natural gas liquids volumes to average 1,293 barrels per day ("bbls/d");

  • 167% increase in funds flow from operations to $33.7 million ($0.38 per share);

  • 69% increase in field operating netbacks from British Columbia operations to $25.04/boe;

  • 39% reduction in general and administrative costs per boe to $1.57/boe; and

  • 22% reduction in operating costs per boe to $7.37/boe.

SECOND QUARTER 2014 FINANCIAL & OPERATING RESULTS

Average production volumes for the second quarter of 2014 reached a record 15,029 boe/d, weighted 85% to natural gas, representing an increase of 90% over second quarter 2013 average production of 7,928 boe/d (82% natural gas). Natural gas liquids volumes for the second quarter of 2014 averaged 1,293 bbls/d, representing an increase of 236% over the second quarter of 2013 average natural gas liquids production of 385 bbls/d. For the first time in the Company's history, natural gas liquids volumes for the second quarter of 2014 exceeded crude oil volumes which averaged 907 bbls/d.

During the second quarter of 2014, Painted Pony generated a Company record funds flow from operations of $33.7 million, which represents a 167% increase over the second quarter of 2013. On a per share basis, Painted Pony generated funds flow from operations of $0.38/share, an increase of 171% over the second quarter 2013 funds flow per share. Similarly, record funds flow from operations for the six months ended June 30, 2014 of $53.2 million ($0.60/share) was approximately double the funds flow from operations for the six months ended June 30, 2013 of $26.7 million ($0.30/share). Painted Pony continued to realize excellent field operating netbacks in 2014. Ongoing cost reductions and efficiencies in operations coupled with increased natural gas pricing has allowed Painted Pony to realize field operating netbacks from its operations in British Columbia of $25.04/boe or $4.17 per thousand cubic feet equivalent ("Mcfe") for the three months ended June 30, 2014, a 69% improvement over realized field operating netbacks for the comparable period in 2013. Realized natural gas prices for the three months ended June 30, 2014 increased to $4.97 per thousand cubic feet ("Mcf"), an increase of 31% over the realized natural gas prices for the three months ended June 30, 2013 of $3.79 per Mcf.

During the second quarter of 2014, Painted Pony improved its general and administrative costs and operating costs per boe. General and administrative costs per boe were reduced to $1.57/boe for the three months ended June 30, 2014, a 39% improvement over general and administrative costs for the three months ended June 30, 2013 of $2.58/boe. Operating costs were $7.37/boe for the three months ended June 30, 2014, a 22% improvement over operating costs for the comparable period in 2013 of $9.49/boe.

For the six months ended June 30, 2014, capital expenditures totaled $77.6 million including $57.0 million on drilling and completions. In the first half of 2014, the Company drilled 7 (7.0 net) Montney wells, and completed 6 (6.0 net) Montney wells, including 2 (2.0 net) previously drilled Montney wells at Townsend, all of which utilized the open-hole ball drop completion system. An additional $15.7 million was spent on facilities and equipment which included the construction of the Company's 100% working interest, 25 million cubic feet ("MMcf") per day ("MMcf/d") natural gas processing and condensate stabilization facility at Townsend.

On July 30, 2014, the Company completed the sale of its southeast Saskatchewan assets for gross proceeds of $100 million and recorded an impairment as a result of the sale which contributed to a net loss in the quarter of $18.9 million. A cash position as at July 30, 2014 of $53 million combined with an undrawn $150 million credit facility positions the Company to be well-capitalized on the execution of its Montney development plan.

OPERATIONS UPDATE

During the second quarter of 2014, Painted Pony commenced operations at its 100% owned and operated natural gas processing facility at the Townsend 33-J pad with a design capacity of 25 MMcf/d. Condensate yields at this facility during the second quarter of 2014 averaged 40 bbls/MMcf, and received a price of $106.14/bbl that approximates the Edmonton Par reference price for light oil.

In addition, the Company has completed an engineering study with a third party midstream company to build a natural gas processing facility, including refrigeration and associated liquids handling, at the Townsend 33-J pad with an expected capacity of approximately 190 MMcf/d. This new plant is anticipated to commence operations in late 2015 pending execution of final agreements, and is expected to reduce transportation, processing, and operating costs, and increase liquids production.

Painted Pony has drilled 10 (10.0 net) Montney wells to date in 2014 including 6 (6.0 net) wells which have been drilled on a parallel-pair spacing pattern. This approach combines the Company's operational experience using open-hole ball drop fracture stimulations with a new sequencing and refined placement of Montney horizontal well trajectories. To date, Painted Pony has completed 4 (4.0 net) paired parallel wells with production results that have exceeded the Company's expectations. Painted Pony is currently drilling 2 (1.5 net) Montney wells at Townsend and Daiber and completing 2 (2.0 net) wells at Blair.

INCREASED 2014 CAPITAL PROGRAM

The Company's financial and operating results to date, combined with proceeds from the sale of its southeast Saskatchewan assets, have led Painted Pony to expand its 2014 capital budget to $206 million from its previous level of $169 million. As part of this budget expansion, the Company has accelerated its Montney development program in British Columbia to include a total of 22 (20.5 net) wells in 2014 and the construction of additional roads, pipeline and operational infrastructure for future production growth.

As previously announced, the 2014 capital budget includes accelerating the construction of a planned 25 MMcf/d natural gas compression and dehydration facility at Blair in the fourth quarter of 2014 with operations beginning early in the first quarter of 2015. In addition, Painted Pony has initiated an expansion of the processing capacity at its 50% working interest Daiber dry gas facility from its current capacity of 25 MMcf/d to 50 MMcf/d. The Company expects construction to be completed in the fourth quarter of 2014.

PRODUCTION EXPECTATIONS FOR 2014

After giving effect to the sale of its southeast Saskatchewan assets, the performance of recent Montney wells completions and 2014 capital spending plans, Painted Pony expects production volumes for 2014 to average approximately 13,500 boe/d (89% natural gas). This represents a 55% increase over 2013 average production of 8,693 boe/d.

Painted Pony is a Canadian oil and gas exploration company that trades on the Toronto Stock Exchange under the symbol "PPY".

FINANCIAL AND OPERATING HIGHLIGHTS

Three months ended
June 30,
Six months ended
June 30,
2014 2013 Change 2014 2013 Change
Financial ($ millions, except per share and shares outstanding)
Petroleum and natural gas revenue(1) 54.4 24.6 121 % 91.6 50.2 82 %
Funds flow from operations(2) 33.7 12.6 167 % 53.2 26.7 99 %
Per share - basic(3) 0.38 0.14 171 % 0.60 0.30 100 %
Per share - diluted(4) 0.37 0.14 164 % 0.59 0.30 97 %
Net income (loss) (18.9 ) 0.7 N/A (20.4 ) (1.1 ) N/A
Per share - basic(3) and diluted(4) (0.21 ) 0.01 N/A (0.23 ) (0.01 ) N/A
Capital expenditures(5) 30.1 15.2 98 % 77.6 67.7 15 %
Working capital(6) 80.4 7.3 N/A 80.4 7.3 N/A
Bank debt 49.3 - N/A 49.3 - N/A
Total assets 649.6 595.4 9 % 649.6 595.4 9 %
Shares outstanding (000s) 89,321 88,489 1 % 89,321 88,489 1 %
Basic weighted-average shares (000s) 89,231 88,424 1 % 88,889 88,383 1 %
Fully diluted weighted-average shares (000s) 90,645 88,653 2 % 89,770 88,700 1 %
Operational
Daily production volumes
Natural gas (mcf per day) 76,977 39,220 96 % 63,864 39,974 60 %
Crude oil (bbls per day) 907 1,006 (10 %) 867 1,205 (28 %)
Natural gas liquids (bbls per day) 1,293 385 236 % 885 393 125 %
Total (boe per day) 15,029 7,928 90 % 12,396 8,260 50 %
Realized prices
Natural gas ($ per mcf) 4.97 3.79 31 % 5.26 3.56 48 %
Crude oil ($ per bbl) 105.39 93.30 13 % 102.56 90.05 14 %
Natural gas liquids ($ per bbl) 89.70 66.67 35 % 87.20 56.09 55 %
Field operating netbacks(7)($ per boe)
British Columbia 25.04 14.78 69 % 25.40 14.75 72 %
Saskatchewan 55.55 51.58 8 % 50.47 48.67 4 %
Company combined 27.04 20.06 35 % 27.32 20.35 34 %
1. Before royalties.
2. This table contains the term "funds flow from operations", which should not be considered an alternative to, or more meaningful than "cash flows from operating activities" as determined in accordance with International Financial Reporting Standards ("IFRS") as an indicator of the Company's performance. Funds flow from operations and funds flow from operations per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and 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 Company's ability to generate the cash necessary to fund future capital investment. The reconciliation between funds flow from operations and cash flows from operating activities can be found in "Management's Discussion and Analysis". 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.
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. Including acquisitions, decommissioning obligations, capitalized share-based payments and transaction costs.
6. This table contains the term "working capital". Working capital does not have any standardized meaning prescribed by IFRS and 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.
7. This table contains the term "field operating netbacks". Field operating netback does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures for other entities. Management calculates field operating netback on a per unit basis as crude oil, natural gas and natural gas liquids revenues and other income less royalties, operating and transportation costs.

Advisory

Special Note Regarding Forward-Looking Information

This news release contains certain forward-looking statements, which are based on numerous assumptions including but not limited to (i) drilling success; (ii) production; (iii) future capital expenditures;(iv) accuracy of reserves and resources estimates; and (v) cash flows from operating activities. In addition, and without limiting the generality of the foregoing, the key assumptions underlying the forward-looking statements contained herein include the following: (i) commodity prices will be volatile, and natural gas prices will remain low, throughout 2014; (ii) capital, undeveloped lands and skilled personnel will continue to be available at the level Painted Pony has enjoyed to date; (iii) the effect of hedges on risk management programs; (iv) Painted Pony will be able to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; (v) production rates in 2014 are expected to show growth from the first quarter of 2014; (vi) Painted Pony will have sufficient financial resources with which to conduct the capital program; and (vii) the current tax and regulatory regime will remain substantially unchanged. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect.

This news release contains information, including in respect of Painted Pony's capital program, which may constitute future oriented financial information or a financial outlook. Such information was approved by management of Painted Pony on August 12, 2014, and such information is included herein to provide readers with an understanding of the Company's anticipated capital expenditures. Readers are cautioned that the information may not be appropriate for other purposes.

Certain information regarding Painted Pony set forth in this news release, including estimates of the Company's reserves and resources, estimates of future net revenue from the Company's reserves and resources, pricing, inflation and exchange rates may constitute forward-looking statements under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony's control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, environmental risks, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, and stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Readers are cautioned that the foregoing list of factors is not exhaustive. Painted Pony's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Non-GAAP Financial Measures

This news release contains the terms "funds flow from operations", "working capital" and "field operating netback", which do not have any standardized meanings prescribed by IFRS and 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 Company'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. Management calculates field operating netback 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.

Oil and Natural Gas Measures

Estimates of production for individual wells may not reflect the same confidence or production levels as estimates of production for all wells on specific properties due to the effects of aggregation.

The well test results and short term production disclosed in this news release represent short-term results, which may not necessarily be indicative of long-term well performance or ultimate hydrocarbon recovery therefrom.

Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 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. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilizing a conversion ratio of 6 Mcf: 1 bbl may be misleading as an indication of value.

Mcfe may be misleading, particularly if used in isolation. An Mcfe conversion ratio of 1 bbl: 6 Mcfe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 1 bbl: 6 Mcf, utilizing a conversion ratio of 1 bbl: 6 Mcf may be misleading as an indication of value.

Additional information on these and other factors that could affect Painted Pony's operations and financial results are included in the Company's Management's Discussion and Analysis for the year ended December 31, 2013, second quarter ended June 30, 2014, and the Company's Annual Information Form for the year ended December 31, 2013 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony's website (www.paintedpony.ca).

Contact Information

  • Painted Pony Petroleum Ltd.
    Patrick R. Ward
    President & CEO
    (403) 475-0440
    (403) 238-1487 (FAX)

    Painted Pony Petroleum Ltd.
    John H. Van de Pol
    Vice President, Finance & CFO
    (403) 475-0440
    (403) 238-1487 (FAX)
    www.paintedpony.ca