Painted Pony Announces Record First Quarter Production, Financial and Operating Results

05/03/2018

CALGARY, May 3, 2018 /CNW/ - Painted Pony Energy Ltd. ("Painted Pony" or the "Corporation") (TSX: PONY) is pleased to announce that during the first quarter of 2018 record adjusted funds flow from operations and record production volumes were achieved, marking a significant milestone in the growth of the Corporation. 

Painted Pony Energy Ltd. (CNW Group/Painted Pony Energy Ltd.)

HIGHLIGHTS:

  • Increased adjusted funds flow from operations by 87% to a record $46.4 million ($0.29 per share basic), compared to $24.8 million ($0.25 per share basic) during the first quarter of 2017;

  • Increased production by 69% to a record 364 MMcfe/d (60,703 boe/d) of which 9% was natural gas liquids, compared to 215 MMcfe/d (35,878 boe/d) during the first quarter of 2017;

  • Grew liquids production by 78% to 5,614 bbls/d, of which 44% was high-value condensate, compared to 3,149 bbls/d during the first quarter of 2017;

  • Invested $78.1 million of capital during the first quarter of 2018, approximately $16 million less than previous spending guidance of $94 million during the first quarter of 2018;

  • Realized an average price of $3.08/Mcfe ($18.48/boe) during the first quarter of 2018 through a combination of diversified sales points, fixed physical pricing contracts and financial hedges;

  • Confirmed a $400 million syndicated credit facility with no financial covenants, and;

  • Drilled and completed a horizontal discovery well on the Beg block which flow-tested at over 10 MMcf/d with 360 bbls/d of natural gas liquids, for a combined rate of more than 2,000 boe/d or 12 MMcfe/d.

Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, "We have achieved enormous growth at Painted Pony over the past few years, in particular achieving record first quarter adjusted funds flow from operations.  Between 2016 and 2018, we have grown adjusted funds flow from operations per share by more than 260%.  Production of over 360 MMcfe/d (60,000 boe/d) is another record for Painted Pony."

UPDATED CREDIT FACILITIES
In conjunction with the semi-annual borrowing base review, on May 3, 2018, the Corporation received confirmation of syndicated credit facilities of $400 million, including a $350 million extendable revolving facility and a $50 million operating facility with removal of the financial covenants.   The amendment to the credit agreement is subject to typical closing conditions. As at March 31, 2018, the Corporation had $163.5 million in bank debt.

BEG DISCOVERY WELL
As announced in the press release dated April 17, 2018, Painted Pony drilled and completed an upper Montney horizontal test well in the Corporation's Beg block. During the final 8 hours of the 6.6 day test period, this discovery well averaged an estimated rate over 2,000 boe/d including 10 MMcf/d of natural gas and an estimated 360 bbls/d of liquids (60% condensate and 40% NGLs) based on well head condensate plus calculated gas plant liquids recoveries from gas analysis.

Although test data is preliminary, the estimated liquids to gas ratio is approximately 35 to 40 bbls/MMcf. Additional development is currently being reviewed and the timing of additional drilling and production scheduling will be considered along with other development options. Painted Pony's Beg block is comprised of 36 net sections of Montney rights and is located on the northeast block of the Corporation's Montney acreage in northeast British Columbia. Based on the positive results of the discovery well and offset industry production data, management anticipates all 36 sections to be prospective for Montney development. 

FIRST QUARTER 2018 FINANCIAL & OPERATING RESULTS
Adjusted Funds Flow from Operations and Cash Flow from Operating Activities
For the first quarter of 2018, adjusted funds flow from operations increased to a record $46.4 million ($0.29 per share basic) compared to adjusted funds flow from operations of $24.8 million ($0.25 per share basic) during the first quarter of 2017.

Painted Pony's cash flow from operating activities during the first quarter of 2018 was $51.6 million ($0.32 per share basic) compared to cash flow from operating activities of $31.7 million ($0.32 per share basic) during the first quarter of 2017.

Painted Pony's record adjusted funds flow from operations and cash flow from operating activities during the first quarter of 2018 were achieved despite lower prevailing natural gas prices. Increases in both adjusted funds flow from operations and cash flows from operating activities for the first quarter of 2018 compared to the first quarter of 2017, resulted from a 69% increase in production volumes, a realized gain on risk management contracts, partially offset by an 8% increase in per unit cash costs.  These cash cost increases are the result of increased per unit transportation costs associated with accessing diversified markets for Painted Pony's natural gas sales and increased operating costs due to higher natural gas liquids production; two strategies that are focused on driving higher margins by accessing sales points which provide for higher prices and diversifying price risk.

Production
Painted Pony increased first quarter 2018 production volumes by 69% to a record 364 MMcfe/d (60,703 boe/d) compared to the same period of 2017 when production volumes totaled 215 MMcfe/d (35,878 boe/d). Natural gas liquids volumes during the first quarter of 2018 increased by 78% to a record 5,614 bbls/d, of which 44% was high-value condensate, compared to 3,149 bbls/d during the first quarter of 2017. 

Capital Expenditures
Painted Pony invested $78.1 million of capital during the first quarter of 2018, which included drilling and completing 14 (14.0 net) wells, as well as associated facilities and infrastructure spending. First quarter capital expenditures were approximately $16 million less than originally planned. 

Pricing
Painted Pony's realized average commodity price of $3.08/Mcfe ($18.48/boe) during the first quarter of 2018 includes an average natural gas price of $2.38/Mcf, a 14% premium to the AECO (5A) daily spot price of $2.08/Mcf, compared to a 7% premium during the first quarter of 2017.

During the first quarter of 2018, approximately 44% of Painted Pony's natural gas liquids volumes were condensate, which received an average price of $82.53/bbl, representing a premium of 4% to the WTI reference price. Natural gas liquids, excluding condensate, received an average price of $40.93/bbl during the first quarter of 2018. 

Painted Pony's long-term market diversification was strengthened further by entering into financial and physical commitments, including incremental transportation contracts to a diversity of sales markets. As a result, Painted Pony's sales portfolio includes pricing exposure in the AECO, Dawn, NYMEX, Sumas and Station 2 markets, in addition to the fixed-price contract for delivery of natural gas volumes to the Methanex methanol plant in Medicine Hat, Alberta. 

For the remainder of 2018, Painted Pony expects revenue exposure to Station 2 index to average below 6%, after the impact of financial hedges and market diversification. For the remainder of 2018, Painted Pony expects to receive a realized natural gas price that exceeds the AECO (5A) benchmark price.

The majority of Painted Pony's commodity price volatility will be mitigated for 2018 through financial hedging contracts, as well as the completion of the Towerbirch pipeline expansion at Groundbirch. This expansion will increase the volume of natural into the AECO market by 130 MMcf/d compared the prior two quarters.  Production volumes of 43 MMcf/d were sold into the Dawn market in southern Ontario by Painted Pony during the first quarter of 2018.  Production volumes sold into the Dawn market will increase over the coming quarters to a total of 73 MMcf/d beginning November 1, 2018 and are expected to reach approximately 90 MMcf/d by year-end 2019. 

UPDATED GUIDANCE
Due to a combination of Painted Pony's commitment to deliver a 2018 capital program that approximates internally generated cash flow and the ongoing weakness of natural gas prices in western Canada, the Corporation is lowering expected 2018 capital expenditures to between $145 and $165 million from previous 2018 expected capital spending of $185 million.  With the reduced capital program, Painted Pony anticipates annual average daily production guidance for 2018 of between 348 MMcfe/d (58,000 boe/d) and 360 MMcfe/d (60,000 boe/d) from 366 Mcfe/d (61,000 boe/d) to 378 MMcfe/d (63,000 boe/d). 

While 2018 expected capital spending of $155 million (mid-point of the guidance range) represents a reduction of approximately 16% when compared to previous 2018 capital budget spending guidance of $185 million, updated 2018 anticipated annual average daily production volumes are expected to decrease by approximately 5% (mid-point of guidance to mid-point of guidance) compared to previous 2018 guidance. 

Patrick Ward, President and CEO of Painted Pony, in commenting on the updated guidance said, "The same financial strategy and operational prudence that we used to achieve significant production and cash flow milestones means we need to acknowledge the current weakness in natural gas prices and act to preserve our financial flexibility. This requires Painted Pony to carry out a prudent capital program which strikes a balance between maintaining financial flexibility and cash flow generation. We believe the updated 2018 capital program supports both of these objectives as we expect to hold 2018 production volumes approximately flat. At these forecasted production levels, we will still show year-over-year production volume growth of 38%. We believe trimming our budgeted expenditures is the prudent course to chart and one that will retain Painted Pony's financial and operational flexibility."

FINANCIAL AND OPERATIONAL HIGHLIGHTS





Three months ended March 31,

($ millions, except per share and shares outstanding)

2018

2017

Change

Financial




Petroleum and natural gas revenue(1)

100.8

64.9

55%

Cash flow from operating activities

51.6

31.7

63%


Per share - basic(3)                                                

0.32

0.32

—%


Per share - diluted(4)

0.30

0.31

(3)%

Adjusted funds flow from operations(2)

46.4

24.8

87%


Per share - basic(3)

0.29

0.25

16%


Per share - diluted(4)

0.27

0.25

8%

Net income (loss) and comprehensive income (loss)

(8.4)

56.9

—%


Per share - basic(3)

(0.05)

0.57

—%


Per share - diluted(4)

(0.05)

0.56

—%

Capital expenditures

78.1

96.7

(19)%

Working capital (deficiency) (5)

(5.1)

74.2

—%

Bank debt

163.5

232.6

(30)%

Senior notes

142.0

—%

Convertible debentures - liability

45.2

—%

Net debt (6)

396.1

299.8

32%

Total assets

2,057.9

1,406.2

46%

Shares outstanding (millions)

161.0

100.2

61%

Basic weighted-average shares (millions)

161.0

100.2

61%

Fully diluted weighted-average shares (millions)

169.9

101.0

68%

Operational




Daily production volumes





Natural gas (MMcf/d)

330.5

196.4

68%


Natural gas liquids (bbls/d)

5,614

3,149

78%


Total (MMcfe/d)

364.2

215.3

69%


Total (boe/d)

60,703

35,878

69%

Realized commodity prices





Natural gas ($/Mcf)

2.38

2.87

(17)%


Natural gas liquids ($/bbl)

59.39

50.30

18%


Total ($/Mcfe)                                           

3.08

3.35

(8)%

Operating netbacks ($/Mcfe)(7)

2.18

2.08

5%

1.

Before royalties.

2.

Adjusted funds flow from operations and adjusted 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, share unit expense (recovery) and decommissioning expenditures.  Adjusted funds flow from operations per share is calculated by dividing adjusted funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period. See "Non-GAAP Measures in the First Quarter 2018 MD&A".

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 stock options and convertible debentures.

5.

Working capital deficiency is a non-GAAP measure calculated as current assets less current liabilities. See "Non-GAAP Measures in the First Quarter 2018 MD&A".

6.

Net debt is a non-GAAP measure calculated as bank debt, senior notes, liability portion of convertible debentures, and working capital deficiency, adjusted for the net current portion of fair value of risk management contracts and current portion of finance lease obligation.

7.

Operating netbacks is a non-GAAP measure calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management contracts, less royalties, operating expenses and transportation costs. See "Non-GAAP Measures in the First Quarter 2018 MD&A" and "Operating Netbacks".

 

ADVISORIES
Currency: All amounts referred to in this press release are stated in Canadian dollars unless otherwise specified.

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. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Mcfe Conversions: Thousands of cubic feet of gas equivalent ("Mcfe") 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. Given that the value ratio based on the current price of natural gas as compared to oil is significantly different from the energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may be misleading as an indication of value.

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 production volumes for the remainder of 2018, the amendment to the Corporation's syndicated credit facilities, the estimated rates and liquids to gas ratio for the upper Montney horizontal test well, the timing of additional drilling and production scheduling and prospective Montney development, the expected revenue exposure to Station 2 index, the expected completion of the Towerbirch pipeline expansion at Groundbirch, the production volumes sold into the Dawn market, the expected 2018 capital expenditure, and the anticipated 2018 annual average daily production volume.

Forward-looking information is based on certain expectations and assumptions including but not limited to future commodity prices, currency exchange rates interest rates, royalty rates and tax rates; the state of the economy and the exploration and production business; the economic and political environment in which the Corporation operates; the regulatory framework; anticipate timing and results of capital expenditures; the sufficiency of budgeted capital expenditures to carry out planned operations; operating, transportation, marketing and general and administrative costs; drilling success, production rates, future capital expenditures and the availability of labor and services. The amount of the amended syndicated credit facilities is based on the assumption that the closing conditions are met. 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 the remainder of 2018 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. As a consequence, actual results may differ materially from those anticipated.

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, 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.

Any "financial outlook" contained in this press release, as such term is defined by applicable securities laws, is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes

Non-GAAP Measures: This press release makes reference to the terms "adjusted funds flow from operations", "adjusted funds flow from operations per share", "working capital deficiency", "net debt" and "operating netbacks", which do not have standardized meanings prescribed by IFRS and therefore may not be comparable with the calculation of similar measures presented by other issuers.

Management uses "adjusted funds flow from operations" to analyze operating performance and considers adjusted 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 and to repay debt. Adjusted funds flow from operations denotes cash flow from operating activities before the effects of changes in non-cash working capital, share unit expense and decommissioning expenditures. "Adjusted funds flow from operations per share" is calculated using the basic and diluted weighted average number of shares for the period. "Adjusted funds flow from operations per Mcfe" is calculated using the average production volumes for the period.

Management uses "working capital deficiency" and "net debt" as useful supplemental measures of the liquidity of the Corporation. Working capital deficiency is calculated as current assets less current liabilities. Net debt is calculated as bank debt, senior notes, liability portion of convertible debentures, and working capital deficiency, adjusted for the net current portion of fair value of risk management contracts and current portion of finance lease obligation. These terms should not be considered alternatives to, or more meaningful than, current and long-term debt as determined in accordance with IFRS.

"Operating netback" and "operating netback including finance lease expense" are used as a supplemental measure of the Corporation's profitability relative to commodity prices. Operating netback is calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management contracts, less royalties, operating expenses and transportation costs. Operating netback including finance lease expense is calculated on a per unit basis as operating netback per unit less finance lease expense for AltaGas Townsend Facility. These terms should not be considered alternatives to, or more meaningful than net income (loss) and comprehensive income (loss) as determined in accordance with IRFS.

Management of the Corporation believes these measures are useful supplemental measures of the net position of current assets and current liabilities of the Corporation and the profitability relative to commodity prices. Readers are cautioned, however, that these measures should not be construed as alternatives to other terms such as current and long-term debt or comprehensive income determined in accordance with IFRS as measures of performance. The Corporation's method of calculating these non-GAAP measures may differ from other companies, and accordingly, may not be comparable to similar measures used by other entities.

ABOUT PAINTED PONY
Painted Pony is a publicly-traded natural gas company 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 TSX under the symbol "PONY".

SOURCE Painted Pony Energy Ltd.

Patrick R. Ward, President and Chief Executive Officer; Stuart W. Jaggard, Chief Financial Officer; Jason W. Fleury, Director, Investor Relations, (403) 776-3261, (403) 475-0440, 1-877-975-0440 toll free, ir@paintedpony.ca, www.paintedpony.ca

Emergency Phone: 1-888-775-0440

PAINTED PONY ENERGY LTD.

Suite 1800, 736 – 6th Avenue SW Calgary, AB T2P 3T7 P: 403 475-0440 F: 403 238-1487 TF: 1-866-975-0440 E: info@paintedpony.ca

24-HOUR EMERGENCY CONTACT

Call 1-888-775-0440 to report concerns regarding any of Painted Pony’s field operations. This is for EMERGENCIES ONLY and does not connect to Painted Pony’s head office.

PAINTED PONY ENERGY LTD.

Suite 1800, 736 – 6th Avenue SW Calgary, AB T2P 3T7 P: 403 475-0440 F: 403 238-1487 TF: 1-866-975-0440 E: info@paintedpony.ca