Painted Pony Announces Updated 2017 Capital Budget and 2018 Development Plans

CALGARY, Aug. 30, 2017 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) announces updated 2017 capital budget and 2018 development plan details.  Consistent with Painted Pony’s focus on capital discipline, the Corporation has reduced planned capital spending levels for 2017 and 2018 to ensure Painted Pony maintains its current financial flexibility in a lower than anticipated commodity price environment.

Highlights:

• Combined $72 million reduction to the 2017 capital budget and 2018 development plan comprised of a $33 million reduction in 2017 and a $39 million reduction in 2018;
• Expected 2017 annual average daily production to be between 261 MMcfe/d (43,500 boe/d) and 276 MMcfe/d (46,000 boe/d), which is a 93% increase, using the mid-point, over 2016 annual average daily production volumes, and;
• Anticipated 2018 annual average daily production to be between 411 MMcfe/d (68,500 boe/d) and 432 MMcfe/d (72,000 boe/d), which is a 57% increase over the expected mid-point of 2017 annual average daily production volumes.

Rationale

Painted Pony believes that this reduction to the 2017 capital budget and the 2018 development plan is financially prudent based on the current commodity price outlook and will help preserve the Corporation’s strong financial position.

Referring to this change in capital spending, Mr. Patrick Ward, President and CEO of Painted Pony said, “The reduced capital budget for 2017 and development plan for 2018 will help us to maintain our financial flexibility and still result in top-decile production growth.”

Production

The revised 2017 capital budget of $314 million is approximately 10% or $33 million lower than the $347 million capital budget disclosed by Painted Pony on March 15, 2017.

In addition to the impact of reduced capital spending, 2017 annual production guidance is being influenced by approximately 6 MMcfe/d (1,000 boe/d) of voluntary production shut-ins due to low natural gas prices  as a result of pipeline maintenance, expansion projects, and unscheduled outages resulting in temporary service interruptions on major pipeline systems.  While some of these expansion projects will result in increased firm transportation capacity for Painted Pony once completed, short-term interruptions have caused volatility in natural gas pricing. Painted Pony expects to shut-in production volumes sold at low spot prices on a short-term basis. Annual cash flow sensitivities to these interruptions are mitigated by Painted Pony’s diversified pricing strategies.

The combined impact of a reduced 2017 capital budget and pricing induced shut-ins is expected to deliver annual average daily production for 2017 of between 261 MMcfe/d (43,500 boe/d) and 276 MMcfe/d (46,000 boe/d), including approximately 7% liquids, representing a production increase to the mid-point of guidance of approximately 93% over 2016 annual average daily production of 139.2 Mcfe/d (23,204 boe/d). Production volumes during the fourth quarter of 2017 are expected to average between 348 MMcfe/d (58,000 boe/d) and 360 MMcfe/d (60,500 boe/d) including an estimated 7% liquids.

The 2018 revised development plan of $262 million is 13% or $39 million less than the $301 million capital program outlined on March 15, 2017. The 2018 capital plan is expected to deliver annual average daily production of between 411 MMcfe/d (68,500 boe/d) and 432 MMcfe/d (72,000 boe/d), which represents a year-over-year production increase of approximately 57% based on the mid-point of guidance for each year.  Production volumes during the fourth quarter of 2018 are expected to average between 462 MMcfe/d (77,000 boe/d) and 480 MMcfe/d (80,000 boe/d), including an estimated 7% liquids.

Operations Update

Painted Pony has four rigs currently running with an expectation to drill a total of 50 net wells in 2017, a reduction of 26% from previous estimates of drilling 68 net wells in 2017. Completion operations are expected to deliver 55 net completions in 2017, an 11% reduction from previous estimates of 62 completions. Included within the updated 2017 capital budget of $314 million is $7.5 million of infrastructure expenditures which include pipeline construction, lease repairs, and land.

Hedging

The Corporation is in a strong financial position with hedged volumes of approximately 218 MMcf/d or 72% of remaining 2017 natural gas production volumes and approximately 167 MMcf/d or 43% of 2018 natural gas volumes at prices well-above future strip prices.  These hedges, combined with physical contracts create a broad, diversified pricing strategy, which protects Painted Pony’s cash flow during periods of low natural gas prices.

Commitments

Production levels from the reduced 2017 capital budget and 2018 development plan are expected to fulfill all of Painted Pony’s take-or-pay processing commitments, which total approximately 216.5 MMcfe/d (36,083 boe/d) currently and will total 302.5 MMcfe/d (50,417 boe/d) as of the first quarter of 2018.  Painted Pony has secured firm transportation for all expected natural gas production volumes through the end of 2019 with exposure to several markets, including an incremental 130 MMcf/d of firm transportation into AECO by April 2018.

Summary

The Corporation anticipates releasing a 2018 capital budget in November of 2017. Painted Pony is well-positioned to deliver significant growth from the Corporation’s Montney assets this year and next. The Corporation will continue to execute the 2017 and 2018 capital programs with a focus on capital efficiency and cost discipline.