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Painted Pony Provides An Operational Update and First Quarter 2020 Financial and Operating Results

05/06/2020

CALGARY, Alberta, May 06, 2020 (GLOBE NEWSWIRE) -- Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation”) (TSX: PONY) is pleased to announce first quarter 2020 financial and operating results.

HIGHLIGHTS:

  • Averaged strong first quarter 2020 production volumes of 319 MMcfe/d (53,141 boe/d) which is 18% higher than fourth quarter 2019 production of 271 MMcfe/d (45,173 boe/d).
  • Realized an average natural gas price of $2.30/Mcf, 13% higher than the average AECO 5A daily spot price of $2.03/Mcf, and a combined realized price including liquids of $2.55/Mcfe during the first quarter of 2020 through a combination of diversified sales points and fixed physical pricing contracts.
  • Renegotiated terms with AltaGas Ltd. ("AltaGas") during the first quarter of 2020 which resulted in a processing take-or-pay reduction of 40 MMcf/d at the AltaGas Townsend Facility as well as other fixed and variable cost reductions.
  • Reduced firm transportation obligations by 30 MMcf/d, split evenly over Enbridge's T-North and TC Energy Corporation's North Montney Mainline pipelines, which is expected, once fully implemented, to reduce Painted Pony's cash transportation expenses. 
  • Drilling of the planned eight-well pad on the 25% working interest South Townsend block by our joint venture partner Tourmaline Oil Corporation ("Tourmaline") which began during the first quarter of 2020, is progressing well with two wells drilled and another well underway. Management expects this eight-well pad to be on-stream later in the second half of 2020.

Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, “North American crude oil prices fell dramatically in March and April 2020 and this has resulted in some producers shutting in significant volumes of crude oil production. The result of shut-in crude oil is a drop in associated natural gas production, which has reduced current and future natural gas supply across North America and increased forward strip pricing. It is encouraging to see improving natural gas forward strip prices in the second half of 2020 and 2021 after four years of weak natural gas prices. Station 2 forward strip pricing for the second half of 2020 and through 2021 is over 200% higher than the average price over the last three years while AECO, NYMEX and Dawn continue to strengthen as well. While the future strip prices for natural gas are encouraging, we are capital constrained. As volatility continues in both natural gas and liquids prices, we will review our capital spending for the second half of the year in late-June."

OPERATIONAL UPDATE
Long Lateral Well Performance
Painted Pony continues to record production rates above management's type curve from the three long lateral wells on the 74-F pad. These three long lateral wells are located at Blair Creek and were drilled into the Upper Montney with lateral lengths averaging approximately 3,050 meters. Initial rates from these wells were previously detailed in the Painted Pony press release dated November 6, 2019. After approximately five months of production, these wells are producing individual well calendar day natural gas rates of between 10 - 12 MMcf/d, and have produced cumulative natural gas of between 1.6 and 1.75 Bcf per well.

The drill and complete cost for the wells on this pad averaged $4.85 million per well compared to standard length wells with lateral lengths of 1,800 meters costing $4.2 million per well. These wells represent a lateral length increase of approximately 70% over standard lateral length wells (1,800 meters) while only increasing capital costs by approximately 15%.

FIRST QUARTER 2020 FINANCIAL & OPERATING RESULTS
Production
Painted Pony's first quarter 2020 average daily production volumes of 319 MMcfe/d (53,141 boe/d) were 18% higher than fourth quarter 2019 production volumes of 271 MMcfe/d (45,173 boe/d). First quarter 2020 liquids production averaged 3,594 bbls/d or approximately 7% of total first quarter 2020 production volumes.

Cost Structure Improvements
During the first quarter of 2020 Painted Pony signed a series of agreements which reduced natural gas processing and transportation take-or-pay obligations, as previously announced on March 11, 2020. Once fully implemented, natural gas processing cost structure improvements at the AltaGas Townsend Facility combined with reduced transportation obligations on both Enbridge's T-North and TC Energy Corporation's North Montney Mainline pipelines are expected to reduce Painted Pony costs by approximately $18 million per year.

Processing - The take-or-pay commitment at the AltaGas Townsend Facility has started to decrease and will ultimately decrease the total obligation by 15% or 40 MMcf/d in stages, by August 1, 2021. In addition, Painted Pony will realize a reduced capital facility fee at the AltaGas Townsend Facility, which has lowered per unit costs by approximately 10%. Additionally, the annual fixed-cost liquids transportation expense has been reduced by approximately 40% from the AltaGas Townsend Facility to the North Pine Fractionator.

Transportation - Painted Pony permanently reduced firm transportation obligations by a combined 30 MMcf/d. Effective August 1, 2020, Painted Pony’s excess firm transportation obligations will be reduced by 15 MMcf/d on the T-North pipeline and 15 MMcf/d on the North Montney Mainline.

Capital Expenditures
Painted Pony invested $21 million of capital during the first quarter of 2020 which included $17 million, or 81% of total first quarter 2020 capital spending, on drilling 4 (3.25 net) wells and completing 2 (2.0 net) wells.

Painted Pony continues to forecast total first half 2020 capital spending of between $25 and $30 million. Painted Pony's Board of Directors and management have planned a mid-year review to determine appropriate second-half spending.

Pricing
Painted Pony realized an average price of $ 2.55/Mcfe, before realized risk management gains / losses, during the first quarter of 2020 compared to a realized price $3.67/Mcfe during the first quarter of 2019. This realized price of $2.55/Mcfe includes an average natural gas price of $2.30/Mcf, a 13% premium to the AECO 5A daily spot price of $2.03/Mcf.

Painted Pony’s market diversification was strengthened by entering into financial and physical commitments to a diversity of sales markets. As a result, Painted Pony’s marketing portfolio includes pricing exposure in the AECO, Dawn, NYMEX, Sumas and Station 2 markets, all of which are showing higher forward strip prices compared to six months ago. Additionally, Painted Pony has a fixed-price contract for the delivery of natural gas volumes to the Methanex methanol plant in Medicine Hat, Alberta. This existing long-term contract with Methanex Corporation increases from the current 10 MMcf/d to 20 MMcf/d in 2021 before increasing to 50 MMcf/d in 2023 and for the remainder of the contract. Painted Pony continues to pursue incremental long-term contracts with large end-users of natural gas, including utilities, petrochemical manufacturers, and LNG exporters.

Adjusted Funds Flow from Operations
For the first quarter of 2020, adjusted funds flow from operations were $5.4 million ($0.03 per share basic) and were impacted by a 31% decrease in realized commodity prices for natural gas and NGLs. Higher transportation expenses from acquired capacity on TC Energy Corporation's North Montney Mainline pipeline, which came in service during the first quarter of 2020, also negatively affected adjusted funds flow from operations.

Finance Lease Treatment
As a result of changes in the agreement with AltaGas which reduced processing obligations and costs, certain costs no longer qualify as a finance lease. These processing and transportation costs at the AltaGas Townsend Facility are now recorded in operating expenses instead of finance lease expense and amortization of the finance lease obligation.

CREDIT FACILITIES

As at March 31, 2020, Painted Pony's syndicated credit facilities consisted of available credit facilities of $375 million. The facilities revolve for a two-year period, which is extendable annually, subject to syndicate approval. The current maturity date is May 11, 2021. Due to commodity price volatility, Painted Pony and the banking syndicate have agreed to extend the date for completion of the annual borrowing base redetermination from April 30, 2020 to June 30, 2020. As part of this extension, Painted Pony's available credit facilities were reduced from $375 million to $350 million. Painted Pony also has a $22 million unsecured letter of credit facility backstopped by Export Development Canada ("EDC"), bringing the Corporation's present total credit capacity to $372 million. 

As at March 31, 2020, Painted Pony was drawn approximately 32% or $121 million (excluding letters of credit) on the $375 million syndicated credit facility. Bank debt at the end of the first quarter 2020 was $18 million or 13% lower than at the end of the first quarter of 2019.

Recently announced Canadian Federal Government programs are designed to help Canada’s exploration and production industry by providing additional liquidity in this period of global pandemic and other market-based challenges. These programs, administered through EDC and the Business Development Bank of Canada, are intended to provide short term liquidity to companies like Painted Pony in these very challenging markets. Painted Pony is actively exploring the opportunity to participate in these programs.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

  Three months ended March 31,
 
($ millions, except per share and shares outstanding) 2020     2019     Change  
Financial      
Natural gas and natural gas liquids revenue(1) 74.0     107.7     (31 )%
Cash flows from operating activities 20.9     53.8     (61 )%
Per share - basic(3)(8) 0.13     0.33     (61 )%
Per share - diluted(4)(8) 0.12     0.32     (61 )%
Adjusted funds flow from operations(2) 5.4     46.5     (88 )%
Per share - basic(3) 0.03     0.29     (88 )%
Per share - diluted(4) 0.03     0.27     (88 )%
Net income (loss) and comprehensive income (loss) - basic and diluted (282.0 )   (2.6 )   > (100 %)
Per share - basic and diluted(3)(4) (1.75 )   (0.02 )   > (100 %)
Cash capital expenditures (net) 20.9     36.9     (43 )%
Working capital (deficiency)(5) (38.1 )   (6.2 )   > 100 %
Bank debt 120.5     138.2     (13 )%
Senior notes 145.2     143.5     1 %
Convertible debentures - liability 47.8     46.4     3 %
Net debt(6) 341.1     341.4     %
Total assets 1,105.8     2,043.7     (46 )%
Shares outstanding (millions) 161.0     161.0     %
Basic weighted-average shares (millions) 161.0     161.0     %
Fully diluted weighted-average shares (millions) 169.9     169.9     %
Operational      
Daily production volumes      
Natural gas (MMcf/d) 297.3     300.2     (1 )%
Natural gas liquids (bbls/d) 3,594     4,350     (17 )%
Total (MMcfe/d) 318.8     326.3     (2 )%
Total (boe/d) 53,141     54,389     (2 )%
Realized commodity prices before financial risk management contracts      
Natural gas ($/Mcf) 2.30     3.24     (29 )%
Natural gas liquids ($/bbl) 36.01     51.17     (30 )%
Total ($/Mcfe) 2.55     3.67     (30 )%
Operating netbacks ($/Mcfe)(7) 0.84     2.45     (66 )%
Corporate netbacks ($/Mcfe)(7) 0.50     1.96     (74 )%
                 
  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 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”.
  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”.
  6. Net debt is a non-GAAP measure calculated as bank debt, senior notes, the 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. See “Non-GAAP Measures”.
  7. Operating netbacks and corporate netbacks are non-GAAP measures. Operating netbacks are 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 expenses. Corporate netbacks are calculated as operating netbacks less finance lease expense per unit. See “Non-GAAP Measures” and “Operating and Corporate Netbacks”.
  8. Cash flows from operating activities per share (basic and diluted) are non-GAAP measures calculated by dividing cash flows from operating activities by the weighted average of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.

DEFINITIONS AND 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 potential cost structure improvements, expected 2020 capital investments, expected impact of commodity price volatility on 2020 prices, the amendment to the Corporation’s syndicated credit facilities, and potential Canadian Federal Government aid programs.

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. 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 2020 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.

Non-GAAP Measures: Press releases may make reference to the terms “adjusted funds flow from operations”, “adjusted funds flow from operations per share”, "cash flow from operations per share", “adjusted funds flow from operations per Mcfe”, “working capital deficiency”, “net debt”, “operating netbacks” and "corporate netback", 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 and decommissioning expenditures. “Adjusted funds flow from operations per share” and "cash 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.  These terms should not be considered alternatives to, or more meaningful than, cash flows from operating activities as determined in accordance with IFRS as an indicator of the Corporation’s performance.

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 "corporate netback" 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. Corporate netback is calculated on a per unit basis as operating netback per unit less finance lease expense per unit.  These terms should not be considered alternatives to, or more meaningful than net income (loss) and comprehensive income (loss) as determined in accordance with IFRS.

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.  Please see the "Non-GAAP Measures" section of the Corporation's management's discussion and analysis of the financial results of the Corporation for the quarter ended March 31, 2020 for further information regarding these “Non-GAAP Measures”, including reconciliations to the most directly comparable measures calculated in accordance with IFRS.

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”.

Contact Information:

Patrick R. Ward
President and Chief Executive Officer
(403) 475-0440

Stuart W. Jaggard
Chief Financial Officer
(403) 475-0440

Jason W. Fleury
Director, Investor Relations
(403) 776-3261

(403) 475-0440
1-866-975-0440 toll free
ir@paintedpony.ca
www.paintedpony.ca

paintedpony_logo.jpg

Source: Painted Pony Energy Ltd.

Reporting Dates

  • 2019 Q4: March 11, 2020
  • 2020 Q1: May 6, 2020
  • 2020 Q2: July 29, 2020
  • 2020 Q3: November 4, 2020
  • 2020 Q4: March 12, 2021

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

Whistleblower Hotline

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