investors

Painted Pony Announces Fully-Funded 2019 Capital Budget

12/17/2018

CALGARY, Dec. 17, 2018 /CNW/ - Painted Pony Energy Ltd. ("Painted Pony" or the "Corporation") (TSX: PONY) announces a 2019 capital program focused on preserving financial flexibility and maintaining capital discipline. The Corporation's ongoing risk management program, which includes hedging using both financial and physical contracts, combined with diversified transportation arrangements allows Painted Pony to optimize the 2019 capital program which will be fully funded by internally generated adjusted funds flow from operations. 

2019 CAPITAL BUDGET
Painted Pony's Board of Directors has approved a 2019 development capital budget which consists of:

  • Investing between $95 million and $110 million of development capital approximately matching anticipated 2019 adjusted funds flow from operations, and;

  • Delivering annual average daily production volume between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d).

Pricing and Transportation Diversification:

  • Fixed price contracts on approximately 50% of forecasted 2019 production revenue at a volume-weighted average price of $4.84/Mcfe;

  • Market diversification combined with hedging contracts results in approximately 23% of total production volumes expected to be sold on US-based pricing at Sumas, Dawn and NYMEX.

  • Consistent with 2018 liquids forecast, natural gas liquids during 2019 are expected to average approximately 9% of total production volumes, and;

  • Approximately 61% of 2019 forecasted NGL production has been hedged at an average price of $70.68/bbl.

NGL volumes averaged approximately 9% of average daily production volumes during the nine months ending September 30, 2018 while providing 32% of petroleum and natural gas revenue.  Due to strengthening natural gas prices in the Dawn, NYMEX and Sumas markets, and Painted Pony's access to these markets, NGLs are expected to account for approximately 22% of 2019 total petroleum and natural gas revenue. 

Continued focus on operational efficiencies combined with capital spending plans based on consensus pricing assumptions(1) underscores Painted Pony's commitment to cost discipline and capital efficiency.

Pat Ward, President and CEO of Painted Pony, in commenting on these highlights said, "Current pipeline constraints have caused pricing volatility which has resulted in continued low prices both in the spot market and in the forward natural gas strip in western Canadian markets.  We believe that a combination of reduced capital spending by the natural gas industry in 2018 and 2019 and continuing demand growth should create the support for pricing above current western Canadian strip prices. Establishing a range of capital spending in 2019 and a commitment to limit spending to match anticipated internally generated adjusted funds flow from operations provides Painted Pony the flexibility to shift capital spending based on changing market prices.  We continue to see the benefits of our successful market diversification strategy in our realized prices and our strong netbacks. Accessing market pricing outside of Alberta and BC as well as securing transportation and pricing to a diversity of markets including Dawn, NYMEX, and Sumas has proven to be effective for us as we continue to work to protect Painted Pony from natural gas price weakness and volatility.  It is precisely this sales diversification combined with recent significant natural gas price increases at the Sumas, NYMEX and Dawn markets which are producing cash flows that currently exceed our previous 2018 fourth quarter internal management expectations."

Consistent with past years Painted Pony has fixed price contracts providing approximately 50% of 2019 expected revenues through sales exposure at Sumas, Dawn, NYMEX, and AECO. A combination of these fixed price contracts and consensus prices (1) at the numerous sales hubs into which Painted Pony sells, are expected to yield revenue for 2019 of $3.22/Mcfe (before the impact of realized risk management gains / losses).  At consensus pricing assumptions (1) and cost metrics for 2019, Painted Pony anticipates the following:

2019 Forecasted Metrics (/Mcfe)

Revenue

$3.22

Royalties

(0.07)

Operating Costs

(0.62)

Transportation Costs

(0.75)

Realized Risk Management Gains / (Losses)

(0.06)

Operating Netback*

$1.72

Net General & Administrative Costs

(0.13)

Interest Expense

(0.22)

Capital Lease Finance Expense

(0.48)

Adjusted Funds Flow from Operations

$0.89

*Note:

Operating Netback includes a $0.06/Mcfe provincial carbon tax / levy, which is included in operating and transportation costs.

 

2019 Forecasted Adjusted Funds Flow from Operations Sensitivities

Realized Natural Gas Price

+ / - $0.01/Mcf

+ / - $1.1 million

AECO (7A) Price

+ / - $0.10/Mcf

+ / - $5.1 million

WTI

+ / - USD$5.00/bbl

+ / - $1.4 million

Foreign Exchange (USD/ CAD)

+ / - $0.01

- / + $1.8 million

 

(1) Consensus pricing – NYMEX USD$3.23/MMBtu; AECO 7A CAD$1.90/Mcf; Station 2 CAD$1.50/Mcf; WTI USD$60.00/bbl; USD/CAD Exchange $0.75

Production
Annual daily production volumes for 2019 are anticipated to average between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d) with capital spending expected to be $95 million - $110 million. 

Painted Pony continued to innovate capital operations during 2018 by testing the productive impact of longer lateral lengths, increasing the number of stages per meter in completion operations in addition to increasing sand loading, and testing longer soak times. Well productivity has remained strong and the results, while preliminary, are encouraging.

Consistent with Painted Pony's third quarter 2018 press release on November 5, 2018, based on field estimates for both October and November and including pricing-related voluntary shut-ins during December due to the impact of ongoing apportionment of the Enbridge T-South pipeline, fourth quarter 2018 daily production volumes are expected to average between 303 MMcfe/d (50,500 boe/d) and 312 MMcfe/d (52,000 boe/d). 

OUTLOOK
Painted Pony is well-positioned to deliver a 2019 capital program based on expected adjusted funds flow from operations delivering between 3% and 4% lower forecasted annual average daily production volumes of between 324 MMcfe/d (54,000 boe/d) and 336 MMcfe/d (56,000 boe/d) compared to 2018 expected annual average daily production volumes of between 339 MMcfe/d (56,500 boe/d) and 348 MMcfe/d (58,000 boe/d). Painted Pony's strategy continues to focus on the creation of long-term shareholder value through the deep inventory of drilling locations for natural gas and natural gas liquids across more than 300 net sections of Montney rights, continued focus on long-term opportunities for market diversification, and corporate-wide cost structure optimization.

CONFERENCE PARTICIPATION
Painted Pony is pleased to announce that it will be participating in the 2019 TD Securities London Energy Conference taking place on January 14 and 15, 2019 at Grosvenor House Hotel, London, UK. Mr. Pat Ward, President and CEO, will be presenting on Tuesday, January 15, 2019 at 10:40 am (GMT) at the Grosvenor House Hotel. In addition to Mr. Ward's presentation, the Corporation will be undertaking a series of discussions with institutional investors while at this conference. 

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 expected 2019 capital expenditure, the anticipated 2019 adjusted funds flow from operations, the expected 2019 annual average daily production volumes, the forecasted 2019 production revenue, the total volumes expected to be sold on US-based pricing via Sumas, Dawn and NYMEX, the 2018 liquids forecast, the expected 2019 percentage of total production volumes as natural gas liquids, the 2019 forecasted NGL production, the NGL volumes during the nine months ending September 30, 2018, the expected percentage of 2019 total petroleum and natural gas revenue as NGLs, the expected 2019 cost metrics, the expected fourth quarter 2018 daily production volumes, and the 2018 expected annual average daily production volumes.

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 Corporation's 2019 capital spending plans assumes the following, referred to as "consensus pricing": NYMEX USD$3.23/MMBtu; AECO 7A CAD$1.90/Mcf; Station 2 CAD$1.50/Mcf; WTI USD$60.00/bbl; USD/CAD exchange $0.75. 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", and "operating netbacks", which do not have standardized meanings prescribed by IFRS and 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, and decommissioning expenditures.

For the purposes of this press release, forecasted adjusted funds flow from operations is equivalent to cash flow from operating activities before the effects of changes in non-cash working capital, and decommissioning expenditures.

"Operating netback" is 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. This term should not be considered an alternative 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 profitability relative to commodity prices. Readers are cautioned, however, that these measures should not be construed as alternatives to other terms such as 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.

(1) Consensus pricing – NYMEX USD$3.23/MMBtu; AECO 7A CAD$1.90/Mcf; Station 2 CAD$1.50/Mcf; WTI USD$60.00/bbl; USD/CAD Exchange $0.75

ABOUT PAINTED PONY
Painted Pony is a publicly-traded natural gas and natural gas liquids 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.

Emergency Phone: 1-888-775-0440

PAINTED PONY ENERGY LTD.

1200, 520 3 Avenue SW Calgary, Alberta T2P 0R3 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.

1200, 520 3 Avenue SW Calgary, Alberta T2P 0R3 P: 403 475-0440 F: 403 238-1487 TF: 1-866-975-0440 E: info@paintedpony.ca