CALGARY, ALBERTA–(Marketwired – Nov. 10, 2017) – Petrus Resources Ltd. (“Petrus” or the “Company”) (TSX:PRQ) is pleased to report financial and operating results for the third quarter of 2017. Petrus is focused on organic growth and infrastructure control in its core area, Ferrier, Alberta. The Company is targeting liquids rich natural gas in the Cardium formation as well as investing in infrastructure in Ferrier to control operations in order to maximize the Company’s return on investment. The Company’s Management’s Discussion and Analysis (“MD&A”) and interim consolidated financial statements dated as at and for the period ended September 30, 2017 are available on SEDAR (the System for Electronic Document Analysis and Retrieval) at www.sedar.com.
- Petrus generated funds flow of $7.7 million in the third quarter of 2017, a 30% increase relative to the $5.9 million generated in the third quarter of 2016. The 30% increase in funds flow is attributed to 49% higher production and 11% lower operating expenses (on a per boe basis) from the prior year. This production growth and lower cost structure reflects the Company’s strategic shift to focus on developmental drilling and facility ownership and control in the Ferrier area.
- Third quarter average production was 10,567 boe/d in 2017 compared to 7,100 boe/d for the same period in 2016. The 49% increase is attributable to the Company’s drilling program at Ferrier, where production has grown 110% since the third quarter of 2016.
- Total operating expenses have decreased 11% from $6.04 per boe in the third quarter of 2016 to $5.42 per boe in the third quarter of 2017. Due to facility constraints, a portion of the Company’s Ferrier production was processed through third party facilities during the third quarter of 2017. Ferrier operating expenses are expected to decrease further in the fourth quarter as the Ferrier gas plant expansion is now complete(1).
- Petrus utilizes financial derivative contracts to mitigate commodity price risk. The Company’s realized gain on financial derivatives in the third quarter of 2017 increased the Company’s corporate netback(2) by $1.88 per boe. The realized hedging gain increased significantly from the $0.23 per boe realized in the second quarter of 2017 to $1.88 per boe in the third quarter of 2017. The increase is attributed to the recent volatility in commodity prices, natural gas in particular. As a percentage of third quarter 2017 production, Petrus has derivative contracts in place for 60% and 70% of its natural gas and oil and natural gas liquids production, respectively, up to the end of the next fiscal year.
- During the third quarter Petrus entered into a farm-in agreement (the “Farm-in Agreement”) to drill two extended reach horizontal (“ERH”) Cardium wells in Ferrier. Upon completion of these wells, Petrus will also earn a working interest in three additional sections of land in Ferrier. Subsequent to the end of the third quarter, the ERH wells were each drilled with a lateral length of approximately 2 sections. The Company estimates the Farm-in Agreement will contribute 16 gross (5.2 net) Cardium locations to its drilling inventory(1).
- In order to accommodate for the Farm-in Agreement, Petrus’ Board of Directors approved a $10 million increase to the Company’s capital budget for 2017 to a range of $60 to $70 million, from the $50 to $60 million previously approved. The budget increase is expected to be funded through availability under the Company’s existing credit facilities(1).
- During the third quarter of 2017, Petrus participated in or spud 6 gross (4.7 net) Cardium wells in the Ferrier area. The Ferrier gas plant expansion, increasing the plant’s capacity from 30 mmcf/d to 60 mmcf/d, was completed in early October. With the new processing capacity available at the plant, the fracture stimulation operations for the new wells were scheduled for the fourth quarter. The wells are expected to be brought onstream later in the fourth quarter(1).
- Subsequent to the end of the third quarter of 2017 Petrus completed the semi-annual review of its revolving credit facility (“RCF”). The RCF syndicate of lenders increased the borrowing base from $120 million to $130 million. In addition, the Company’s total debt borrowing limit was increased from $141 million to $155 million. Petrus’ second lien term loan (“Term Loan”) has $35 million outstanding therefore lender consent, from both the RCF syndicate and Petrus’ Term Loan lender, is required for total borrowings against the RCF that exceed $120 million.
(1) Refer to “Advisories – Forward-Looking Statements” attached hereto.
(2) Refer to “Non-GAAP Financial Measures” in the September 30, 2017 Management’s Discussion & Analysis.
| SELECTED FINANCIAL INFORMATION | ||||||||||||
| OPERATIONS | Three months ended Sept. 30, 2017 |
Three months ended Sept. 30, 2016 |
Three months ended Jun. 30, 2017 |
Three months ended Mar. 31, 2017 |
Three months ended Dec. 31, 2016 |
|||||||
| Average Production | ||||||||||||
| Natural gas (mcf/d) | 45,550 | 30,009 | 42,392 | 40,332 | 37,327 | |||||||
| Oil (bbl/d) | 1,877 | 1,419 | 2,015 | 1,542 | 1,452 | |||||||
| NGLs (bbl/d) | 1,098 | 680 | 1,160 | 1,067 | 922 | |||||||
| Total (boe/d) | 10,567 | 7,100 | 10,240 | 9,331 | 8,595 | |||||||
| Total (boe) | 972,140 | 653,215 | 931,821 | 839,746 | 790,806 | |||||||
| Natural gas sales weighting | 72 | % | 70 | % | 69 | % | 72 | % | 72 | % | ||
| Realized Prices | ||||||||||||
| Natural gas ($/mcf) | 1.66 | 2.53 | 3.29 | 2.85 | 3.29 | |||||||
| Oil ($/bbl) | 51.23 | 44.50 | 59.02 | 62.62 | 59.42 | |||||||
| NGLs ($/bbl) | 24.79 | 15.56 | 30.32 | 33.18 | 24.56 | |||||||
| Total realized price ($/boe) | 18.82 | 21.06 | 28.69 | 26.48 | 26.97 | |||||||
| Royalty income | 0.01 | 0.07 | 0.03 | 0.05 | 0.10 | |||||||
| Royalty expense | (2.73 | ) | (2.99 | ) | (4.62 | ) | (3.94 | ) | (3.52 | ) | ||
| Net oil and natural gas revenue ($/boe) | 16.10 | 18.14 | 24.10 | 22.59 | 23.55 | |||||||
| Operating expense | (5.42 | ) | (6.04 | ) | (5.53 | ) | (4.50 | ) | (3.63 | ) | ||
| Transportation expense | (1.29 | ) | (1.49 | ) | (1.32 | ) | (1.38 | ) | (1.50 | ) | ||
| Operating netback (1)(2) ($/boe) | 9.39 | 10.61 | 17.25 | 16.71 | 18.42 | |||||||
| Realized gain on derivatives ($/boe) (2) | 1.88 | 4.06 | 0.23 | 0.57 | 0.99 | |||||||
| General & administrative expense | (1.09 | ) | (1.69 | ) | (1.12 | ) | (1.05 | ) | (3.78 | ) | ||
| Cash finance expense | (1.99 | ) | (3.85 | ) | (1.94 | ) | (2.07 | ) | (2.58 | ) | ||
| Decommissioning expenditures (3) | (0.23 | ) | (0.04 | ) | (1.03 | ) | (0.19 | ) | (0.64 | ) | ||
| Corporate netback (1)(2) ($/boe) | 7.96 | 9.09 | 13.39 | 13.97 | 12.41 | |||||||
| FINANCIAL (000s except per share) | Three months ended Sept. 30, 2017 |
Three months ended Sept. 30, 2016 |
Three months ended Jun. 30, 2017 |
Three months ended Mar. 31, 2017 |
Three months ended Dec. 31, 2016 |
|||||||
| Oil and natural gas revenue | 18,299 | 13,805 | 26,753 | 22,274 | 21,409 | |||||||
| Net income (loss) | (50,696 | ) | (4,702 | ) | (781 | ) | 7,311 | (11,842 | ) | |||
| Net income (loss) per share | ||||||||||||
| Basic | (1.03 | ) | (0.10 | ) | (0.02 | ) | 0.16 | (0.26 | ) | |||
| Fully diluted | (1.03 | ) | (0.10 | ) | (0.02 | ) | 0.16 | (0.26 | ) | |||
| Funds flow (3) | 7,727 | 5,938 | 12,458 | 11,732 | 9,809 | |||||||
| Funds flow per share (3) | ||||||||||||
| Basic | 0.16 | 0.13 | 0.25 | 0.25 | 0.22 | |||||||
| Fully diluted | 0.16 | 0.13 | 0.25 | 0.25 | 0.22 | |||||||
| Capital expenditures | 13,055 | 7,231 | 18,903 | 18,907 | 10,026 | |||||||
| Net acquisitions (dispositions) | (4,866 | ) | (29,718 | ) | – | 8,818 | – | |||||
| Weighted average shares outstanding | ||||||||||||
| Basic | 49,428 | 45,349 | 49,428 | 46,754 | 45,349 | |||||||
| Fully diluted | 49,428 | 45,349 | 49,428 | 46,989 | 45,349 | |||||||
| As at period end | ||||||||||||
| Common shares outstanding | ||||||||||||
| Basic | 49,428 | 45,349 | 49,428 | 49,428 | 45,349 | |||||||
| Fully diluted | 49,428 | 45,349 | 49,428 | 52,664 | 45,349 | |||||||
| Total assets | 409,078 | 448,404 | 465,794 | 460,095 | 439,967 | |||||||
| Non-current liabilities | 191,145 | 169,714 | 170,580 | 165,104 | 118,934 | |||||||
| Net debt (1) | 137,531 | 124,310 | 137,069 | 130,624 | 124,915 | |||||||
(1) Refer to “Non-GAAP Financial Measures” in the September 30, 2017 Management’s Discussion & Analysis.
(2) In prior periods Petrus included realized gain on derivatives (hedging gain (loss)) in the calculation of operating netback. The amount is included in the calculation of corporate netback. The comparative information has been re-classified to conform to current presentation.
(3) In prior periods Petrus excluded decommissioning expenditures from the calculation of funds flow. The comparative information has been re-classified to conform to current presentation.
| OPERATIONS UPDATE | |||||
| Production | |||||
| Average third quarter production by area was as follows: | |||||
| For the three months ended September 30, 2017 | Ferrier | Foothills | Central Alberta | Total | |
| Natural gas (mcf/d) | 30,014 | 8,123 | 7,413 | 45,550 | |
| Oil (bbl/d) | 1,157 | 237 | 483 | 1,877 | |
| NGLs (bbl/d) | 846 | 28 | 223 | 1,097 | |
| Total (boe/d) | 7,007 | 1,627 | 1,933 | 10,567 | |
| Natural gas sales weighting | 71% | 83% | 64% | 72% | |
Third quarter average production was 10,567 boe/d (72% natural gas) in 2017 compared to 7,100 boe/d (70% natural gas) in the third quarter of 2016. The 49% increase is attributable to the Company’s drilling program in its core operating area, Ferrier, where production has grown 110% since the third quarter of 2016.
Commodity Pricing
During the third quarter of 2017, Petrus realized high volatility in the market price of its natural gas revenue as a result of weakness and volatility in the Alberta natural gas commodity price market. In particular, there was high volatility in the daily average natural gas spot price (AECO 5A index) which is the index on which Petrus sold all of its natural gas in the third quarter of 2017. Due to market factors outside the Company’s control, the AECO 5A natural gas price averaged $1.38 per GJ during the third quarter of 2017, which is 28% lower than the third quarter 2017 average forward monthly (AECO 7A index) natural gas price of $1.93 per GJ. During the third quarter of 2017 Petrus’ realized natural gas price was $1.66 per mcf which is 50% lower than the $3.29 per mcf realized in the second quarter of 2017. Beginning in November 2017, Petrus has elected for approximately half of its natural gas production to be paid on the forward monthly natural gas price (AECO 7A index) in an attempt to reduce the Company’s exposure to daily natural gas price volatility.
Ferrier Farm-In
During the third quarter Petrus entered into a farm-in agreement (the “Farm-in Agreement”) to drill two extended reach horizontal (“ERH”) Cardium wells in Ferrier, the Company’s core operating area. Upon completion of these wells, Petrus will earn a working interest in three additional sections of land in Ferrier. Subsequent to the end of the third quarter, the ERH wells were drilled with a lateral length of approximately two sections. The Company estimates that the Farm-in Agreement will contribute 16 gross (5.2 net) Cardium locations to its drilling inventory(1).
Capital Development
In order to accommodate for the Farm-in Agreement, Petrus’ Board of Directors approved a $10 million increase to the Company’s capital budget for 2017 to $60 to $70 million, from the $50 to $60 million previously approved. The budget increase is expected to be funded through availability under the Company’s existing credit facilities. The Company’s capital expenditure program anticipates drilling 16 gross (11.8 net) Cardium wells in Ferrier. The capital expenditure program also provides for investment in facility expansion(1).
Petrus has spud or participated in 6 gross (4.7 net) Cardium wells in the Ferrier area since the end of the second quarter of 2017. The Ferrier gas plant expansion, increasing the plant’s capacity from 30 mmcf/d to 60 mmcf/d, was completed in early October. With the new processing capacity available at the plant, the fracture stimulation operations for the new wells were scheduled for the fourth quarter. The wells are expected to be brought onstream later in the fourth quarter(1).
Property Acquisition & Disposition Activity
On August 15, 2017 Petrus closed the disposition of its working interest in certain non-core oil and natural gas properties in the Company’s Foothills area for cash consideration of $4.9 million. The assets disposed of included approximately 150 boe/d of production along with related land and infrastructure. The proceeds were utilized to repay indebtedness under the Company’s credit facilities.
Petrus has initiated a non-core asset divestiture process for its Central Alberta (Thorsby) and Foothills areas, and has engaged GMP Securities L.P. (“GMP FirstEnergy”) as its exclusive financial advisor to assist with the process. Through the divestiture process, the Company’s Board of Directors determined its Foothills assets’ characteristics do not fit within the strategic objectives of the Company. As a result, Petrus recognized an impairment loss of $45.0 million related to the Foothills Cash Generating Unit (“CGU”) for the three and nine month periods ended September 30, 2017. The divestiture of these non-core assets is expected to further enhance Petrus’ balance sheet and continue to strengthen the focus on the Company’s core operating area, Ferrier(1).
Credit Review
Subsequent to the end of the third quarter of 2017 Petrus completed the semi-annual review of its revolving credit facility (“RCF”). The RCF syndicate of lenders increased the borrowing base from $120 million to $130 million. In addition, the Company’s total debt borrowing limit was increased from $141 million to $155 million. Petrus’ second lien term loan (“Term Loan”) has $35 million outstanding therefore lender consent, from both the RCF syndicate and Petrus’ Term Loan lender, is required for total borrowings against the RCF that exceed $120 million.
(1) Refer to “Advisories – Forward-Looking Statements” attached hereto.
An updated corporate presentation can be found on the Company’s website at www.petrusresources.com.
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