This news release contains certain specified financial measures that are not recognized by GAAP and used by management to evaluate the performance of the Company and its business. Since certain specified financial measures may not have a standardized meaning, securities regulations require that specified financial measures are clearly defined, qualified and, where required, reconciled with their nearest GAAP measure. See “Non GAAP and Other Financial Measures” in this news release and in the MD&A for further information on the definition, calculation and reconciliation of these measures. This news release also contains forward-looking information. See “Forward-Looking Information”. Readers are also referred to the other information under the “Advisories” section in this news release for additional information.
SECOND QUARTER 2023 HIGHLIGHTS
- Second quarter production averaged 6,532 boe/d with production increases from two (1.0 net) wells drilled in East Edson, offset by approximately 574 boe/d of curtailed production related to the Alberta forest fires. The Company remains on track to achieve previous 2023 production guidance of 6,400 to 6,600 boe/d as a result of strong well performance from the new East Edson drills.
- Adjusted funds flow(1) was $3.7 million ($0.05/share) in the second quarter of 2023. On a unit-of-production basis, adjusted funds flow was $6.20/boe. Net cash flows from operating activities were $8.3 million.
- Perpetual invested $1.8 million to finish the completion, equip and tie-in of the two (1.0 net) wells drilled during the first quarter at East Edson targeting the Wilrich formation. In addition, $0.3 million was spent on asset retirement obligations (“ARO”) during the second quarter to abandon wells that had reached their end of life and execute surface lease reclamation activities.
- Cash costs(1) were $10.0 million or $16.88/boe in the second quarter of 2023, inline with expectations for annual cash cost guidance of $16 to $18 per boe for 2023.
- Net loss for the second quarter of 2023 was $4.2 million.
- Net debt(1) was $56.7 million at June 30, 2023, an increase of $1.0 million from $55.7 million at December 31, 2022.
- Perpetual had available liquidity(1) at June 30, 2023 of $15.8 million, comprised of the $30.0 million borrowing limit of Perpetual’s first lien credit facility, less current borrowings and letters of credit of $12.9 million and $1.3 million, respectively.
|
(1) |
Non-GAAP financial measure, non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. See “Non-GAAP and Other Financial Measures” in this news release. |
2023 OUTLOOK
Perpetual’s Board of Directors previously approved annual exploration and development capital spending(1) of $25 – $32 million for 2023. As planned, two (1.0 net) wells were drilled at East Edson in the first quarter. The remainder of the 2023 capital program is expected to be concentrated in the third quarter of 2023 and focused primarily at East Edson. The 2023 capital program is forecast to be fully funded from the Company’s credit facility and adjusted funds flow(1).
During the second half of 2023, Perpetual is planning to participate at its 50% working interest in an East Edson drilling program to drill, complete, equip and tie-in an additional four to six (2.0 to 2.8 net) horizontal wells to fill the West Wolf gas plant in order to optimize production and operating costs, meet transportation commitments and maximize natural gas and NGL sales through next winter.
At Mannville in Eastern Alberta, Perpetual continues to monitor performance of the horizontal, multi-lateral wells drilled in 2022 targeting heavy oil in the Sparky formation, and is operationally prepared to drill up to one follow-up multi-lateral well in the second half of 2023. Perpetual will also continue to focus on waterflood optimization and battery consolidation projects as well as abandonment and reclamation activities at the Mannville property.
Exploration and development capital spending for full year 2023 continues to be forecast at $25 to $32 million. The table below summarizes anticipated capital spending and drilling activities for Perpetual for the full year of 2023.
|
H1 2023 |
# of wells |
H2 2023 |
# of wells |
2023 |
# of wells |
|
|
($ millions) |
(gross/net) |
($ millions) |
(gross/net) |
($ millions) |
(gross/net) |
|
|
West Central |
$10.4 |
2 / 1.0 |
$12 – $18 |
4 – 6 / 2.0 – 2.8 |
$23 – $28 |
6 – 8 / 3.0 – 3.8 |
|
Eastern Alberta(1) |
$0.1 |
– / – |
$2 – $4 |
0 – 1 / 0.0 – 1.0 |
$2 – $4 |
0 – 1 /0.0 – 1.0 |
|
Total(2) |
$10.5 |
2 / 1.0 |
$14 – $22 |
4 – 7 / 2.0 – 3.8 |
$25 – $32 |
6 – 9 / 3.0 – 4.8 |
|
(1) |
Oil-based mud load fluid is recycled for future drilling operations to the extent possible, or sold and credited back to drilling capital. |
|
(2) |
Excludes abandonment and reclamation spending and acquisitions or land expenditures, if any. |
Total Company average production is expected to be stable year over year at 6,400 to 6,600 boe/d (22% oil and NGL) in 2023. Cash costs(1) are expected to be similar to 2022 levels with an average between $16 and $18 per boe for the calendar year.
2023 guidance assumptions, which are unchanged are as follows:
|
2023 Guidance |
|
|
Exploration and development capital expenditures(1) ($ millions) |
$25 – $32 |
|
Cash costs(1) ($/boe) |
$16 – $18 |
|
Royalties (% of revenue)(1) |
16 – 18% |
|
Average daily production (boe/d) |
6,400 – 6,600 |
|
Production mix (%) |
22% oil and NGL |
|
(1) |
Non-GAAP measure, financial measure, non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. See “Non-GAAP and Other Financial Measures” in this news release and in the MD&A. |
Perpetual will continue addressing end of life ARO, with total abandonment and reclamation expenditures of approximately $1.5 to $2.0 million planned for 2023. This exceeds the Company’s annual area-based closure mandatory spending requirement of $1.4 million as calculated by the Alberta Energy Regulator (“AER”).
|
Financial and Operating Highlights |
Three Months Ended June 30 |
Six Months Ended June 30 |
||||
|
($Cdn thousands except volume and per share amounts) |
2023 |
2022 |
Change |
2023 |
2022 |
Change |
|
Financial |
||||||
|
Oil and natural gas revenue |
15,167 |
33,092 |
(54) % |
32,978 |
57,909 |
(43) % |
|
Net income (loss) and comprehensive income (loss) |
(4,203) |
4,470 |
(194) % |
(4,438) |
11,632 |
(138) % |
|
Per share – basic(2) |
(0.06) |
0.07 |
(186) % |
(0.07) |
0.18 |
(139) % |
|
Per share – diluted(2) |
(0.06) |
0.06 |
(200) % |
(0.07) |
0.16 |
(144) % |
|
Cash flow from operating activities |
8,295 |
11,571 |
(28) % |
15,731 |
17,843 |
(12) % |
|
Adjusted funds flow(1) |
3,687 |
10,505 |
(65) % |
12,563 |
24,622 |
(49) % |
|
Per share(3) |
0.05 |
0.16 |
(66) % |
0.19 |
0.38 |
(50) % |
|
Total assets |
208,840 |
188,906 |
11 % |
208,840 |
188,906 |
11 % |
|
Revolving bank debt |
12,927 |
5,248 |
146 % |
12,927 |
5,248 |
146 % |
|
Term loan, principal amount |
2,671 |
2,671 |
— % |
2,671 |
2,671 |
— % |
|
Other liability (undiscounted) |
2,563 |
3,342 |
(23) % |
2,563 |
3,342 |
(23) % |
|
Senior Notes, principal amount |
34,390 |
36,583 |
(6) % |
34,390 |
36,583 |
(6) % |
|
Adjusted working capital (surplus) deficiency(1) |
4,158 |
(572) |
(827) % |
4,158 |
(572) |
(827) % |
|
Net debt(1) |
56,709 |
47,272 |
20 % |
56,709 |
47,272 |
20 % |
|
Capital expenditures |
||||||
|
Net capital expenditures(1) |
1,800 |
4,361 |
(59) % |
10,911 |
9,198 |
19 % |
|
Common shares outstanding (thousands)(4) |
||||||
|
End of period |
67,503 |
64,582 |
5 % |
67,503 |
64,582 |
5 % |
|
Weighted average – basic |
66,578 |
63,642 |
5 % |
66,280 |
63,383 |
5 % |
|
Weighted average – diluted |
66,578 |
74,721 |
(11) % |
66,280 |
74,837 |
(11) % |
|
Operating |
||||||
|
Daily average production |
||||||
|
Conventional natural gas (MMcf/d) |
30.6 |
29.9 |
2 % |
30.7 |
32.1 |
(4) % |
|
Heavy crude oil (bbl/d) |
953 |
775 |
23 % |
988 |
728 |
36 % |
|
NGL (bbl/d) |
474 |
364 |
30 % |
484 |
382 |
27 % |
|
Total (boe/d)(5) |
6,532 |
6,123 |
7 % |
6,594 |
6,461 |
2 % |
|
Average realized prices |
||||||
|
Realized natural gas price ($/Mcf)(1) |
2.16 |
7.85 |
(72) % |
2.65 |
6.39 |
(59) % |
|
Realized oil price ($/bbl)(1) |
73.46 |
117.20 |
(37) % |
68.28 |
107.13 |
(36) % |
|
Realized NGL price ($/bbl)(1) |
64.11 |
104.71 |
(39) % |
69.04 |
95.94 |
(28) % |
|
Wells drilled – gross (net) |
||||||
|
Conventional natural gas |
-/- |
1/0.5 |
2/1.0 |
1/0.5 |
||
|
Heavy crude oil |
-/- |
1/1.0 |
-/- |
2/2.0 |
||
|
Total |
-/- |
2/1.5 |
2/1.0 |
3/2.5 |
||
|
(1) |
Non-GAAP financial measure, non-GAAP ratio or supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. See “Non-GAAP and Other Financial Measures” contained within this news release. |
|
(2) |
Based on weighted average basic common shares outstanding for the period. |
|
(3) |
Adjusted funds flows divided by the Company’s shares outstanding. |
|
(4) |
Shares outstanding are net of shares held in trust (Q2 2023 – 1.0 million; Q2 2022 – 0.7 million). |
|
(5) |
See “Advisories – Volume Conversions” below. |
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual owns a diversified asset portfolio, including liquids-rich conventional natural gas assets in the deep basin of West Central Alberta, heavy crude oil and shallow conventional natural gas in Eastern Alberta and undeveloped bitumen leases in Northern Alberta. Additional information on Perpetual can be accessed at SEDAR+ at www.sedarplus.com or from the Company’s website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
ADVISORIES
VOLUME CONVERSIONS
Barrel of oil equivalent (“boe”) may be misleading, particularly if used in isolation. In accordance with NI 51-101, a conversion ratio for conventional natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between conventional natural gas and heavy crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl. A conversion ratio of 1 bbl of heavy crude oil to 1 bbl of NGL has also been used throughout this news release.
ABBREVIATIONS
The following abbreviations used in this news release have the meanings set forth below:
bbl barrels
bbl/d barrels per day
boe barrels of oil equivalent
boe/d barrels of oil equivalent per day
MMboe million barrels of oil equivalent
Mcf thousand cubic feet
MMcf million cubic feet
MMcf/d million cubic feet per day
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by the Company, Perpetual uses certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from operating activities, and cash flow from investing activities, as indicators of Perpetual’s performance.
Non-GAAP Financial Measures:
Capital expenditures or capital spending: Perpetual uses capital expenditures or capital spending related to exploration and development to measure its capital investments compared to the Company’s annual capital budgeted expenditures. Perpetual’s capital budget excludes acquisition and disposition activities.
The most directly comparable GAAP measure for capital expenditures or capital spending is cash flow used in investing activities. A summary of the reconciliation of cash flow used in investing activities to capital expenditures or capital spending, is set forth below:
|
Three months ended June 30, |
Six months ended June 30, |
|||
|
2023 |
2022 |
2023 |
2022 |
|
|
Net cash flows used in investing activities |
6,902 |
4,535 |
10,079 |
16,885 |
|
Purchase of marketable securities |
— |
(6) |
— |
(29) |
|
Change in non-cash working capital |
(5,102) |
(168) |
832 |
(7,658) |
|
Capital expenditures |
1,800 |
4,361 |
10,911 |
9,198 |
Net operating costs: Net operating costs equals operating expenses net of other income, which is made up of processing revenue. Management views net operating costs as an important measure to evaluate its operational performance. The most directly comparable IFRS measure for net operating costs is production and operating expenses.
The following table reconciles net operating costs from production and operating expenses and other income in the Company’s consolidated statement of income (loss) and comprehensive income (loss).
|
Three months ended June 30, |
Six months ended June 30, |
|||
|
($ thousands, except per share and per boe amounts) |
2023 |
2022 |
2023 |
2022 |
|
Production and operating |
4,658 |
4,131 |
8,910 |
7,782 |
|
Processing income |
||||
|
Other income |
(288) |
(165) |
(423) |
(313) |
|
SRP revenue (1) |
— |
14 |
— |
34 |
|
Processing income (1) |
(288) |
(151) |
(423) |
(279) |
|
Net operating costs |
4,370 |
3,980 |
8,487 |
7,503 |
|
Per boe |
7.36 |
7.14 |
7.12 |
6.41 |
|
(1) |
Processing income is other income less amounts related to Alberta Site Rehabilitation Program (“SRP”) revenue. |
Adjusted funds flow: Adjusted funds flow is calculated based on cash flows from (used in) operating activities, excluding changes in non-cash working capital and expenditures on decommissioning obligations since Perpetual believes the timing of collection, payment or incurrence of these items is variable. Expenditures on decommissioning obligations may vary from period to period depending on capital programs and the maturity of the Company’s operating areas. Expenditures on decommissioning obligations are managed through the capital budgeting process which considers available adjusted funds flow and regulatory requirements. The Company has added back non-cash oil and natural gas revenue in-kind, equal to retained East Edson royalty obligation payments taken in-kind, to present the equivalent amount of cash revenue generated. Management uses adjusted funds flow and adjusted funds flow per boe as key measures to assess the ability of the Company to generate the funds necessary to finance capital expenditures, expenditures on decommissioning obligations, and meet its financial obligations.
Adjusted funds flow is not intended to represent net cash flows from (used in) operating activities calculated in accordance with IFRS.
The following table reconciles net cash flows from (used in) operating activities as reported in the Company’s consolidated statements of cash flows, to adjusted funds flow:
|
Three months ended June 30, |
Six months ended June 30, |
|||
|
($ thousands, except per share and per boe amounts) |
2023 |
2022 |
2023 |
2022 |
|
Net cash flows from operating activities |
8,295 |
11,571 |
15,731 |
17,843 |
|
Change in non-cash working capital |
(4,919) |
(1,304) |
(3,730) |
7,206 |
|
Decommissioning obligations settled (cash) |
311 |
238 |
562 |
(427) |
|
Adjusted funds flow |
3,687 |
10,505 |
12,563 |
24,622 |
|
Adjusted funds flow per share |
0.05 |
0.16 |
0.19 |
0.38 |
|
Adjusted funds flow per boe |
6.20 |
18.85 |
10.53 |
21.05 |
Cash costs: Cash costs are controllable costs comprised of net operating costs, transportation, general and administrative, and cash finance expense as detailed below. Cash costs per boe is calculated by dividing cash costs by total production sold in the period. Management believes that cash costs assist management and investors in assessing Perpetual’s efficiency and overall cost structure.
|
Three months ended June 30, |
Six months ended June 30, |
|||
|
($ thousands, except per boe amounts) |
2023 |
2022 |
2023 |
2022 |
|
Net operating costs |
4,370 |
3,980 |
8,487 |
7,503 |
|
Transportation |
1,197 |
932 |
2,289 |
1,624 |
|
General and administrative |
3,224 |
2,328 |
6,778 |
4,407 |
|
Cash finance expense |
1,242 |
1,158 |
2,450 |
2,210 |
|
Cash costs |
10,033 |
8,398 |
20,004 |
15,744 |
|
Cash costs per boe |
16.88 |
15.07 |
16.76 |
13.46 |
Net Debt: Perpetual uses net debt as an alternative measure of outstanding debt. Management considers net debt as an important measure in assessing the liquidity of the Company. Net debt is used by management to assess the Company’s overall debt position and borrowing capacity. Net debt is not a standardized measure and therefore may not be comparable to similar measures presented by other entities.
The following table details the composition of net debt:
|
As of June 30, 2023 |
As of December 31, 2022 |
|
|
Accounts and accrued receivable |
8,532 |
15,804 |
|
Prepaid expenses and deposits |
1,817 |
1,564 |
|
Marketable securities |
1,324 |
1,814 |
|
Inventory |
877 |
674 |
|
Accounts payable and accrued liabilities |
(16,708) |
(18,962) |
|
Adjusted working capital surplus (deficiency) |
(4,158) |
894 |
|
Bank indebtedness |
(12,927) |
(14,909) |
|
Term loan (principal) |
(2,671) |
(2,671) |
|
Other liability (undiscounted amount) |
(2,563) |
(3,342) |
|
Senior notes (principal) |
(34,390) |
(35,647) |
|
Net debt |
(56,709) |
(55,675) |
Available Liquidity: Available Liquidity is defined as Perpetual’s credit facility borrowing limit, less current borrowings and letters of credit issued under the credit facility. Management uses available liquidity to assess the ability of the Company to finance capital expenditures and expenditures on decommissioning obligations, and to meet its financial obligations.
Non-GAAP Financial Ratios
Perpetual calculates certain non-GAAP measures per boe as the measure divided by weighted average daily production. Management believes that per boe ratios are a key industry performance measure of operational efficiency and one that provides investors with information that is also commonly presented by other crude oil and natural gas producers. Perpetual also calculates certain non-GAAP measures per share as the measure divided by outstanding common shares.
Adjusted funds flow per share: Adjusted funds flow ratios are calculated on a per share basis as the measure divided by basic shares outstanding.
Adjusted funds flow per boe: Adjusted funds flow per boe is calculated as adjusted funds flow divided by total production sold in the period.
Supplementary Financial Measures
“Average realized price” is comprised of total commodity sales from production, as determined in accordance with IFRS, divided by the Company’s total sales production on a boe basis.
“Realized oil price” is comprised of oil commodity sales from production, as determined in accordance with IFRS, divided by the Company’s oil sales production.
“Realized natural gas price” is comprised of natural gas commodity sales from production, as determined in accordance with IFRS, divided by the Company’s natural gas sales production.
“Realized NGL price” is comprised of NGL commodity sales from production, as determined in accordance with IFRS, divided by the Company’s NGL sales production.
Other per boe measures are calculated using the financial measure, as determined in accordance with IFRS, divided by the Company’s total sales production.
FORWARD-LOOKING INFORMATION
Certain information in this news release including management’s assessment of future plans and operations, and including the information contained under the heading “2023 Outlook” may constitute forward-looking information or statements (together “forward-looking information”) under applicable securities laws. The forward-looking information includes, without limitation, statements with respect to: forecast production and exploration and development capital expenditures for 2023 and the expectation that such expenditures will be funded from the credit facility and adjusted funds flow; drilling activities for 2023 including the number of gross and net wells to be drilled; cash costs estimates; projected abandonment and reclamation expenditures and the funding thereof; expectations as to drilling activity plans in various areas and the benefits to be derived from such drilling including the production growth and expectations respecting Perpetual’s future exploration, development and drilling activities; and Perpetual’s business plan.
Forward-looking information is based on current expectations, estimates and projections that involve a number of known and unknown risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward-looking information contained in this news release. In particular and without limitation of the foregoing, material factors or assumptions on which the forward-looking information in this news release is based include: forecast commodity prices and other pricing assumptions; forecast production volumes based on business and market conditions; foreign exchange and interest rates; near-term pricing and continued volatility of the market including inflationary pressures; accounting estimates and judgments; future use and development of technology and associated expected future results; the ability to obtain regulatory approvals; the successful and timely implementation of capital projects; ability to generate sufficient cash flow to meet current and future obligations; the ability of Perpetual to obtain and retain qualified staff and equipment in a timely and cost-efficient manner, as applicable; the retention of key properties; forecast inflation, supply chain access and other assumptions inherent in Perpetual’s current guidance and estimates; climate change; severe weather events (including forest fires); the continuance of existing tax, royalty, and regulatory regimes; the accuracy of the estimates of reserves volumes; ability to access and implement technology necessary to efficiently and effectively operate assets; and the ongoing and future impact of the pandemics (including COVID-19) and the war in Ukraine and related sanctions on commodity prices and the global economy, among others.
Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described herein and under “Risk Factors” in Perpetual’s Annual Information Form and MD&A for the year ended December 31, 2022 and in other reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR+ website (www.sedarplus.com) and at Perpetual’s website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual’s management at the time the information is released, and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities law.
SOURCE Perpetual Energy Inc
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