Calgary, Alberta – August 8, 2019 – Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) today announced operating and financial results for the three and six months ended June 30, 2019. PPR’s consolidated financial statements (“Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the three and six months ended June 30, 2019 are available on our website at www.ppr.ca and filed on SEDAR.
- Achieved record production averaging 6,386 boe/d (69% liquids) in the second quarter and 6,175 boe/d (69% liquids) for the first six months of 2019, an increase of 24% and 27%, respectively, compared to the corresponding periods in 2018 and in line with guidance. The production increase was driven by a successful development program which contributed 458 boe/d and 315 boe/d of production in the second quarter and the first half of 2019, respectively, as well as incremental production volumes from the Marquee acquisition which closed in Q4 2018.
- A new well in southern Princess came online in June 2019, with production averaging 715 boe/d (36% liquids) for the last 13 days of the month and contributing 102 boe/d of incremental production in the second quarter of 2019.
- Net capital expenditures during the second quarter and first half of 2019 were in line with guidance and totaled $3.2 and $6.9 million, respectively, primarily directed to the Princess drilling program and strategic land acquisitions. With the volatility in both West Texas Intermediate and Canadian oil price differentials late in 2018, PPR elected to take a conservative approach in the first half of 2019 by reducing capital spending relative to the prior year with a focus on improving the balance sheet.
- PPR generated $12.4 million ($21.25/boe) of operating netback1 before the impact of derivatives in the second quarter, which represents an increase of 11% over the operating netback amount generated during the same period in 2018. Higher production volumes year-over-year largely drove the increase, which was partially offset by lower commodity prices, particularly for liquids. PPR generated $10.9 million ($18.79/boe) of operating netback after the realized loss on derivatives, which was 33% higher than the operating netback amount generated in the second quarter of 2018.
- Adjusted funds flow, excluding $0.3 million of decommissioning settlements, totaled $6.6 million ($0.04 per basic share and $0.02 per diluted share) in the second quarter, an increase of 38% from the same period last year and a 56% increase from the first quarter of 2019 due to higher revenue from increased production, lower royalties, lower realized loss on derivatives, and lower absolute operating expenses. Decommissioning settlements decreased by $2.7 million from the first quarter of 2019 when PPR focused efforts on one of our winter-access-only areas. Including the impact from decommissioning settlements, adjusted funds flow increased by 406% and 37% from the first quarter of 2019 and the second quarter of 2018, respectively. Strong adjusted funds flow realized during the second quarter contributed to a strengthened balance sheet, positioning PPR to internally fund our planned 2019 capital program.
- Net earnings totaled $3.2 million in the second quarter of 2019 compared to a net loss of $15.1 million in the same period the prior year, primarily driven by non-cash items, while for the first half of 2019, net loss totaled $18.0 million compared to a net loss of $26.8 million for the same period in 2018.
- PPR’s lenders confirmed the US$60 million borrowing base under the Company’s senior secured revolving facility in April 2019, demonstrating their continued support as PPR successfully executes our strategic plan.
- Overall net debt was reduced during the second quarter primarily due to adjusted funds flow significantly exceeding net capital expenditures. As at June 30, 2019, net debt totaled $113.4 million, a decrease of $2.0 million and $3.9 million from March 31, 2019 and December 31, 2018, respectively. PPR’s 2019 budget forecast for capital expenditures is expected to underspend projected adjusted funds flow at current strip pricing, enhancing the Company’s financial flexibility to pursue future growth opportunities organically or through acquisition.
 Non-IFRS measure – see below under “Non-IFRS Measures”.
FINANCIAL AND OPERATING SUMMARY
|Three Months Ended
|Six Months Ended
|($000s except per unit amounts)||2019||2018||2019||2018|
|Crude oil (bbls/d)||4,230||3,513||4,062||3,302|
|Natural gas (Mcf/d)||11,709||9,175||11,639||8,776|
|Natural gas liquids (bbls/d)||204||104||173||114|
|Average Realized Prices|
|Crude oil ($/bbl)||66.44||70.96||61.80||66.60|
|Natural gas ($/Mcf)||1.15||1.20||1.79||1.62|
|Natural gas liquids ($/bbl)||28.60||53.04||32.73||52.87|
|Operating Netback ($/boe)1|
|Realized losses on derivative instruments||(2.46)||(6.28)||(1.39)||(4.71)|
|Operating netback, after realized losses on derivative instruments||18.79||17.58||17.27||17.46|
1 Operating netback is a Non-IFRS measure (see “Non-IFRS Measures” below).
June 30, 2019
December 31, 2018
|Working capital (deficit)1||(0.5)||(16.1)|
|Total net debt2||(113.4)||(117.2)|
|Common shares outstanding (in millions)||171.3||171.9|
1 Working capital (deficit) is a non-IFRS measure (see “Non-IFRS Measures” below) calculated as current assets less current portion of derivative instruments, minus accounts payable and accrued liabilities.
2 Net debt is a non-IFRS measure (see “Non-IFRS Measures” below), calculated by adding working capital (deficit) and long-term debt.
3 Debt capacity reflects the undrawn capacity of the Company’s revolving facility of USD$60 million at June 30, 2019 and USD$65 million at December 31, 2018, converted at an exchange rate of $1.0000 USD to $1.3087 CAD on June 30, 2019 and $1.0000 USD to $1.3642 CAD on December 31, 2018.
|Three months ended
|Six months ended
|Net (working interest) wells||1.0||2.0||1.0||8.0|
|Success rate, net wells (%)||100%||100%||100%||100%|
PPR’s most recent well in the southern portion of our Princess acreage was completed and brought on production in June 2019, averaging production of 715 boe/d (36% liquids) for the last 13 days of the month and contributing 102 boe/d of incremental production in the second quarter. With a total capital cost of approximately $1.6 million to drill, complete, equip and tie-in, the well is expected to pay out after ten months under current commodity price assumptions. PPR has an inventory of nine additional high-quality Lithic Glauconite drilling opportunities for future development, as well as a further eight liquids-rich Ellerslie and three Detrital potential drilling opportunities in the area. Current production from the Princess area is approximately 1,500 boe/d (70% liquids).
During the first half of 2019, PPR acquired leases on 4.25 sections of undeveloped lands in the Michichi/Wayne area as part of the elimination of PPR’s capital commitment in the area and purchased natural gas rights in areas where PPR currently holds petroleum leases. The Michichi area continues to contribute approximately 2,650 boe/d (50% liquids) to overall production.
Total current production from the Evi area is approximately 1,950 boe/d (98% liquids) and includes incremental production from the two gross (2.0 net) Slave Point wells completed and brought on production in February 2019.
2019 OUTLOOK AND GUIDANCE
Supported by a successful 2019 development program and strong adjusted funds flow generated year-to-date, Prairie Provident’s disciplined 2019 capital budget of $14.2 million is expected to be funded with internally-generated adjusted funds flow. Management and the board will continuously review the capital budget considering commodity prices, economics and market opportunities, and adjust as needed during the year. The Company remains focused on responsibly managing its inventory of high-quality drilling locations, capital spending and asset retirement obligations, while seeking to enhance per share production, reserves, and adjusted funds flow for shareholders.
The Company also reaffirms its full-year 2019 guidance, with estimates unchanged from those included in PPR’s year-end 2018 news release dated March 27, 2019.
ABOUT PRAIRIE PROVIDENT
Prairie Provident is a Calgary-based company engaged in the exploration and development of oil and natural gas properties in Alberta. The Company’s strategy is to grow organically in combination with accretive acquisitions of conventional oil prospects, which can be efficiently developed. Prairie Provident’s operations are primarily focused at the Michichi and Princess areas in Southern Alberta targeting the Banff, the Ellerslie and the Lithic Glauconite formations, along with an established and proven waterflood project at our Evi area in the Peace River Arch. Prairie Provident protects its balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.
For further information, please contact:
Prairie Provident Resources Inc.
President and Chief Executive Officer
Tel: (403) 292-8110
This news release contains certain statements (“forward-looking statements”) that constitute forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking statements relate to future performance, events or circumstances, are based upon internal assumptions, plans, intentions, expectations and beliefs, and are subject to risks and uncertainties that may cause actual results or events to differ materially from those indicated or suggested therein. All statements other than statements of current or historical fact constitute forward-looking statements. Forward-looking statements are typically, but not always, identified by words such as “anticipate”, “believe”, “expect”, “intend”, “plan”, “budget”, “forecast”, “target”, “estimate”, “propose”, “potential”, “project”, “continue”, “may”, “will”, “should” or similar words suggesting future outcomes or events or statements regarding an outlook.
Without limiting the foregoing, this news release contains forward-looking statements pertaining to: the Company’s budgeted capital expenditure amounts for 2019 and its expectation that such amounts will be less than forecast 2019 adjusted funds flow at current strip pricing (see also “Non-IFRS Measures” below); the ability to pursue future growth opportunities; and drilling opportunities at Princess (see also “Potential Drilling Opportunities” below).
Forward-looking statements are based on a number of material factors, expectations or assumptions of Prairie Provident which have been used to develop such statements but which may prove to be incorrect. Although the Company believes that the expectations and assumptions reflected in such forward-looking statements are reasonable, undue reliance should not be placed on forward-looking statements, which are inherently uncertain and depend upon the accuracy of such expectations and assumptions. Prairie Provident can give no assurance that the forward-looking statements contained herein will prove to be correct or that the expectations and assumptions upon which they are based will occur or be realized. Actual results or events will differ, and the differences may be material and adverse to the Company. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: that Prairie Provident will continue to conduct its operations in a manner consistent with past operations; results from drilling and development activities, and their consistency with past operations; the quality of the reservoirs in which Prairie Provident operates and continued performance from existing wells; the continued and timely development of infrastructure in areas of new production; the accuracy of the estimates of Prairie Provident’s reserves volumes; commodity price and cost assumptions; continued availability of debt and equity financing and cash flow to fund Prairie Provident’s current and future plans and expenditures, with external financing on acceptable terms; the impact of competition; the general stability of the economic and political environment in which Prairie Provident operates; the general continuance of current industry conditions; the timely receipt of any required regulatory approvals; the ability of Prairie Provident to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Prairie Provident has an interest in to operate the field in a safe, efficient and effective manner; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Prairie Provident to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Prairie Provident operates; and the ability of Prairie Provident to successfully market its oil and natural gas products.
The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: changes in realized commodity prices; changes in the demand for or supply of Prairie Provident’s products; the early stage of development of some of the evaluated areas and zones; the potential for variation in the quality of the geologic formations targeted by Prairie Provident’s operations; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Prairie Provident or by third party operators; increased debt levels or debt service requirements; inaccurate estimation of Prairie Provident’s oil and gas reserves volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and such other risks as may be detailed from time-to-time in Prairie Provident’s public disclosure documents, (including, without limitation, those risks identified in this news release and Prairie Provident’s current Annual Information Form).
The forward-looking statements contained in this news release speak only as of the date of this news release, and Prairie Provident assumes no obligation to publicly update or revise them to reflect new events or circumstances, or otherwise, except as may be required pursuant to applicable laws. All forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
The oil and gas industry commonly expresses production volumes and reserves on a “barrel of oil equivalent” basis (“boe”) whereby natural gas volumes are converted at the ratio of six thousand cubic feet to one barrel of oil. The intention is to sum oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead nor at the plant gate, which is where Prairie Provident sells its production volumes. Boes may therefore be a misleading measure, particularly if used in isolation. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency ratio of 6:1, utilizing a 6:1 conversion ratio may be misleading as an indication of value.
The Company uses certain terms in this news release and within the MD&A that do not have a standardized or prescribed meaning under International Financial Reporting Standards (IFRS), and, accordingly these measurements may not be comparable with the calculation of similar measurements used by other companies. For a reconciliation of each non-IFRS measure to its nearest IFRS measure, please refer to the “Non-IFRS Measures” section in the MD&A. Non-IFRS measures are provided as supplementary information by which readers may wish to consider the Company’s performance but should not be relied upon for comparative or investment purposes. The non-IFRS measures used in this news release are summarized as follows:
Working Capital – Working capital (deficit) is calculated as current assets excluding the current portion of derivative instruments, less accounts payable and accrued liabilities. This measure is used to assist management and investors in understanding liquidity at a specific point in time. The current portion of derivatives instruments is excluded as management intends to hold derivative contracts through to maturity rather than realizing the value at a point in time through liquidation. The current portion of decommissioning expenditures is excluded as these costs are discretionary and the current portion of flow-through share premium and warrant liabilities are excluded as it is a non-monetary liability. Lease liabilities have historically been excluded as they were not recorded on the balance sheet until the adoption of IFRS 16 – Leases on January 1, 2019.
Net Debt – Net debt is defined as long-term debt plus working capital surplus or deficit. Net debt is commonly used in the oil and gas industry for assessing the liquidity of a company.
Operating Netback – Operating netback is a non-IFRS measure commonly used in the oil and gas industry. This measurement assists management and investors to evaluate the specific operating performance at the oil and gas lease level. Operating netbacks included in this news release were determined by taking (oil and gas revenues less royalties less operating costs). Operating netback may be expressed in absolute dollar basis or per unit basis. Per unit amounts are determined by dividing the absolute value by gross working interest production. Operating netback, including realized commodity (loss) and gain, adjusts the operating netback for only realized gains and losses on derivative instruments.
Adjusted Funds Flow – Adjusted funds flow is calculated based on cash flow from operating activities before changes in non-cash working capital, transaction costs, restructuring costs, and other non-recurring items. Management believes that such a measure provides an insightful assessment of PPR’s operational performance on a continuing basis by eliminating certain non-cash charges and charges that are non-recurring or discretionary and utilizes the measure to assess its ability to finance capital expenditures and debt repayments. Adjusted funds flow as presented is not intended to represent cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Adjusted funds flow per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of earnings per share.
PPR has restated current and prior period adjusted funds flow to include decommissioning settlements that were previously excluded from the calculation. This adjustment was made in order to meet recent direction expressed by Alberta Securities Commission staff regarding funds flow disclosure by oil and gas issuers. The revised adjusted funds flow numbers incorporate more seasonal variability into previously disclosed numbers as a significant portion of PPR’s decommissioning settlements incurred in the last few years has been in winter-access only areas, with considerably higher spend incurred in the winter months.
Net Capital Expenditures – Net capital expenditures is a non-IFRS measure commonly used in the oil and gas industry. The measurement assists management and investors to measure PPR’s investment in the Company’s existing asset base. Net capital expenditures is calculated by taking total capital expenditures, which is the sum of property and equipment and exploration and evaluation expenditures from the consolidated statement of cash flows, plus capitalized stock-based compensation, plus acquisitions from business combinations, which is the outflow cash consideration paid to acquire oil and gas properties, less asset dispositions (net of acquisitions), which is the cash proceeds from the disposition of producing properties and undeveloped lands.
Initial Production Rates
The initial production (IP) rate and product type mix for the Company’s most recent Princess well as disclosed in this news release are short-term and preliminary in nature and may not be indicative of stabilized on-stream production rates, future product types, long-term well or reservoir performance, or ultimate recovery. Actual future results will differ from those realized during an initial short-term production period, and the difference may be material.
Potential Drilling Opportunities
Of the drilling opportunities referenced in this news release, two Lithic Glauconite opportunities and one Detrital opportunity are booked locations to which reserves were assigned by Sproule Associates Limited, the Company’s independent qualified reserves evaluator, in its year-end evaluation of Prairie Provident’s reserves effective December 31, 2018. All other identified opportunities are drilling prospects assessed internally by management (through personnel that is a qualified reserves evaluator within the meaning of applicable securities laws but is not independent of the Company) based on land holdings, development history and geological experience. These other opportunities have not been independently evaluated and assigned reserves or resources in accordance with the Canadian Oil and Gas Evaluation (COGE) Handbook. There is no certainty that the Company will drill any particular locations, or that drilling activity on any location will result in additional oil and gas reserves, resources or production. Locations on which Prairie Provident does drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, commodity prices, anticipated costs, actual drilling results, additional reservoir information and other factors.