SECOND QUARTER 2021 HIGHLIGHTS
- Production of 5,099 boe/d (73% conventional natural gas), at the high end of second quarter guidance and down 2% from the first quarter of 2021 as no new wells were placed on production during the quarter. Perpetual had previously disposed of a 50% working interest in the
East Edson liquids-rich natural gas property in West Central Alberta, effectiveApril 1, 2020 for consideration which included a 50% working interest carry to drill, complete and tie-in eight wells. Production averaged 3,662 boe/d in the second quarter of 2020, representing the starting point from which Perpetual has grown production. Relative to Q2 2020, second quarter 2021 production is up 39% year over year, reflecting the commencement of production from seven (3.5 net) new carried interest wells atEast Edson and the restart of heavy crude oil production which was shut-in late in the first quarter of 2020 in response to extremely low oil prices. - Adjusted funds flow of
$2.3 million ($0.04 per share), a dramatic turnaround from the negative$3.3 million adjusted funds flow from the same quarter a year prior. - Net income of
$27.0 million ($0.43 /share), up from the$2.7 million net loss reported in the first quarter of 2021. The increase was primarily driven by the non-cash impairment reversal of$30.1 million recognized in the second quarter. - Cash flows from operating activities of
$2.9 million , up$1.2 million from the first quarter of 2021, reflecting higher realized natural gas and oil prices. - Cash costs of
$9.0 million ($19.34 /boe), up$1.7 million from the first quarter of 2021 ($15.41 /boe) and$1.7 million from the second quarter of 2020 ($21.93 /boe). Increased cash costs reflect higher royalties and production and operating expenses following the improvement in commodity prices and the continued reactivation of heavy crude oil production. - Operating netbacks increased to
$10.71 /boe from$8.65 /boe in Q1 2021, reflecting the continued strengthening of Western Canadian Select ("WCS") benchmark oil prices. Compared to the second quarter of 2020, operating netbacks increased approximately three times from$2.92 /boe. - Exploration and development spending of
$1.6 million , with the commencement of drilling of the first of two (1.0 net) wells atMarten Hills which spud onJune 15, 2021 . The two wells, each completed with eight horizontal lateral legs, were placed on stream after the end of the quarter and are currently recovering oil-based drilling fluids at rates over 400 bbl/d and no water. Oil sales are expected to commence later in August. - Perpetual continued its active abandonment and reclamation program, executing
$0.8 million of abandonment and reclamation projects and receiving$0.5 million of funding fromAlberta's Site Rehabilitation Program ("SRP"). - Net debt of
$110.0 million , up slightly from net debt levels at the end of the first quarter of$107.4 million . - Perpetual had available liquidity at
June 30, 2021 of$3.8 million , comprised of the$20 million credit facility borrowing limit, less current borrowings and letters of credit of$15.2 million and$1.0 million , respectively.
2021 OUTLOOK
On
Perpetual shareholders who have questions or require assistance in voting for the Plan of Arrangement or in exercising their Rubellite Warrants to subscribe for Rubellite Common Shares can contact the strategic shareholder advisor and proxy solicitation agent,
The Rubellite Transactions offer a full capital solution for Perpetual by reducing Perpetual's net debt, normalizing the balance sheet leverage ratios and surfacing incremental value from the development of its assets. Perpetual believes that the Rubellite Transactions will materially improve its liquidity, ensure its ongoing solvency and significantly improve both its ability to operate as a going concern and meet its obligations as they become due, including the flexibility to make cash payments of second lien and third lien interest which has recently been paid in-kind. At the same time, completion of the Rubellite Transactions will enhance Perpetual's ability to capture the inherent value in its asset base by funding investment opportunities to grow and sustain production and adjusted funds flow.
Perpetual will realize net cash proceeds from the Rubellite Transactions of approximately
Following completion of the Rubellite Transactions, Perpetual is expected to have sufficient liquidity to invest capital in its assets to grow production and adjusted funds flow and convert proved and probable undeveloped reserves to proved developed producing reserves which serves to support the Company's borrowing capacity, increases the fair market value of Perpetual's assets, and generally enhances the Company's ability to meet its obligations as they become due. In addition, with the committed extension to the first lien credit facility, Perpetual anticipates it will be better positioned to enter into risk management contracts to mitigate commodity price risk.
Operationally, Perpetual and Rubellite are both expected to have active capital programs over the balance of the year. At Perpetual's 50% working interest
Subject to completion of the Rubellite Financings, Perpetual's Board of Directors has approved exploration and development capital spending for Perpetual's remaining assets for the second half of 2021 of
Total spending for the second half of 2021 on Rubellite's Clearwater Assets is forecast to be
The table below summarizes anticipated capital spending and drilling activities for Perpetual and Rubellite for the first and second half of 2021.
2021 Exploration and Development Forecast Capital Expenditures
H1 2021 ($ millions) | # of wells (gross/net) | H2 2021 ($ millions) | # of wells (gross/net) | |
West Central(1) | 0.7 | 2/1.0 | 7/3.5 | |
0.9 | 1/0.5 | 0 - | 1/0.5 | |
Rubellite Clearwater Assets | - | - | 12/12.0 | |
Total(3) | 1.6 | 3/1.5 | 20/16.0 |
(1) | Production from West Central is primarily liquids-rich conventional natural gas. The two (1.0 net) wells drilled in H1 2021 and the first well drilled in H2 2021 represent the final three wells of the eight well carried interest drilling commitment. |
(2) | Drilling in |
(3) | Excludes budgeted abandonment and reclamation spending of |
Perpetual continues its ESG focus, with total abandonment and reclamation expenditures of up to
Financial and Operating Highlights
| Three months ended | Six months ended June 30 | ||||
(Cdn$ thousands, except volume and per share amounts) | 2021 | 2020 | Change | 2021 | 2020 | Change |
Financial | ||||||
Oil and natural gas revenue | 13,226 | 3,722 | 255% | 24,762 | 14,219 | 74% |
Net income (loss) | 27,017 | (8,831) | (406%) | 24,311 | (68,549) | (135%) |
Per share – basic(2) | 0.43 | (0.15) | (387%) | 0.39 | (1.13) | (135%) |
Per share – diluted(2) | 0.38 | (0.15) | (353%) | 0.35 | (1.13) | (131%) |
Cash flow from (used in) operating activities | 2,854 | (2,777) | (203%) | 4,536 | (5,891) | (177%) |
Adjusted funds flow(1) | 2,302 | (3,328) | (169%) | 4,846 | (6,929) | (170%) |
Per share – basic(2) | 0.04 | (0.05) | (180%) | 0.08 | (0.11) | (173%) |
Per share –diluted(2) | 0.03 | (0.05) | (160%) | 0.07 | (0.11) | (164%) |
Total assets | 164,936 | 132,772 | 24% | 164,936 | 132,772 | 24% |
Revolving bank debt | 15,239 | 11,080 | 38% | 15,239 | 11,080 | 38% |
Term loan, principal amount | 48,719 | 45,000 | 8% | 48,719 | 45,000 | 8% |
Senior notes, principal amount | 36,403 | 33,580 | 8% | 36,403 | 33,580 | 8% |
Net working capital deficiency(1) | 9,629 | 8,873 | 9% | 9,629 | 8,873 | 9% |
Net debt(1) | 109,990 | 98,533 | 12% | 109,990 | 98,533 | 12% |
Capital expenditures | 1,554 | (11) | (14,227%) | 1,557 | 5,222 | (70%) |
Net proceeds on acquisitions and dispositions | (46) | (34,661) | (100%) | 423 | (34,661) | (101%) |
Net capital expenditures | 1,508 | (34,672) | (104%) | 1,980 | (29,439) | (107%) |
Common shares outstanding (thousands)(3) | ||||||
End of period | 62,591 | 60,894 | 3% | 62,591 | 60,894 | 3% |
Weighted average – basic | 62,574 | 60,776 | 3% | 62,091 | 60,725 | 2% |
Weighted average – diluted | 70,461 | 60,776 | 16% | 69,324 | 60,725 | 14% |
Operating | ||||||
Daily average production | ||||||
Conventional natural gas (MMcf/d) | 22.2 | 16.9 | 31% | 22.6 | 25.2 | (10%) |
Heavy crude oil (bbl/d) | 1,074 | 573 | 87% | 1,085 | 946 | 15% |
NGL (bbl/d) | 331 | 268 | 24% | 313 | 437 | (28%) |
Total (boe/d)(5) | 5,099 | 3,662 | 39% | 5,155 | 5,570 | (7%) |
Average prices | ||||||
Realized natural gas price ($/Mcf)(4) | 2.25 | 0.28 | 704% | 2.25 | 0.86 | 162% |
Realized oil price ($/bbl)(4) | 55.75 | 67.56 | (17%) | 48.26 | 43.18 | 12% |
Realized NGL price ($/bbl)(4) | 55.48 | 17.35 | 220% | 55.74 | 30.62 | 82% |
Wells drilled – gross (net) | ||||||
Conventional natural gas | – (–) | – (–) | 2 (1.0) | – (–) | ||
Heavy crude oil | 1 (0.5) | – (–) | 1 (0.5) | 4 (4.0) | ||
Total | 1 (0.5) | – (–) | 3 (1.5) | 4 (4.0) |
(1) | These are non-GAAP measures. Please refer to "Non-GAAP Measures" below. |
(2) | Based on weighted average basic and diluted common shares outstanding for the period. |
(3) | common shares are net of shares held in trust ( |
(4) | Realized natural gas, oil, and NGL prices include physical forward sales contracts for which delivery was made during the reporting period, along with realized gains and losses on financial derivatives and foreign exchange contracts. |
(5) | Please refer to "Boe volume conversions" below. |
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in
BOE VOLUME CONVERSIONS: Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with National Instrument 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.
The following abbreviations used in this news release have the meanings set forth below:
bbls | barrels |
boe | barrels of oil equivalent |
Mcf | thousand cubic feet |
MMcf | million cubic feet |
Non-GAAP Measures
This news release contains the terms "adjusted funds flow", "adjusted funds flow per share", "adjusted funds flow per boe", "available liquidity", "cash costs", "net working capital deficiency", "net debt", "net bank debt", "net debt to adjusted funds flow ratio", "operating netback" and "realized revenue" which do not have standardized meanings prescribed by GAAP. Management believes that in addition to net income (loss) and net cash flows from (used in) operating activities as defined by GAAP, these terms are useful supplemental measures to evaluate operating performance. Users are cautioned however that these measures should not be construed as an alternative to net income (loss) or net cash flows from operating activities determined in accordance with GAAP as an indication of Perpetual's performance and may not be comparable with the calculation of similar measurements by other entities.
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. The Company has added back non-cash oil and natural gas revenue in-kind, equal to retained
Adjusted funds flow per share is calculated using the weighted average number of shares outstanding used in calculating net income (loss) per share. Adjusted funds flow is not intended to represent net cash flows from (used in) operating activities calculated in accordance with IFRS.
Adjusted funds flow per boe is calculated as adjusted funds flow divided by total production sold in the period.
Available Liquidity: Available Liquidity is defined as Perpetual's reserve-based credit facility (the "Credit Facility") borrowing limit (the "Borrowing Limit"), less 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.
Cash costs: Cash costs are comprised of royalties, production and operating, transportation, general and administrative, and cash finance expense. 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.
Realized revenue: Realized revenue is the sum of realized natural gas revenue, realized oil revenue, and realized natural gas liquids ("NGL") revenue which includes realized gains (losses) on financial natural gas, crude oil, NGL, and foreign exchange contracts. Realized revenue is used by management to calculate the Company's net realized commodity prices, taking into account the monthly settlements of financial crude oil and natural gas forward sales, collars, basis differentials, and forward foreign exchange sales. These contracts are put in place to protect Perpetual's adjusted funds flow from potential volatility in commodity prices and foreign exchange rates. Any related realized gains or losses are considered part of the Company's realized price.
Operating netback: Operating netback is calculated by deducting royalties, production and operating expenses, and transportation costs from realized revenue. Operating netback is also calculated on a per boe basis using production sold in the period. Operating netback on a per boe basis can vary significantly for each of the Company's operating areas. Perpetual considers operating netback to be an important performance measure as it demonstrates its profitability relative to current commodity prices.
Net working capital deficiency: Net working capital deficiency includes total current assets and current liabilities excluding short-term derivative assets and liabilities related to the Company's risk management activities, revolving bank debt, second lien term loan (the "Term Loan"), current portion of royalty obligations, current portion of lease liabilities, and current portion of decommissioning obligations.
Net bank debt, net debt, and net debt to adjusted funds flow ratio: Net bank debt is measured as current and long-term revolving bank debt, including the net working capital deficiency. Net debt includes the carrying value of net bank debt, the principal amount of the Term Loan, and the principal amount of senior notes. Net debt, net bank debt, and net debt to adjusted funds flow ratios are used by management to assess the Company's overall debt position and borrowing capacity. Net debt to adjusted funds flow ratios are calculated on a trailing twelve-month basis.
Forward-Looking Information and Statements
Certain information and statements contained in this news release including management's assessment of future plans and operations, and including the information contained under the headings "2021 Outlook" and "2021 Exploration and Development Forecast Capital Expenditures" and the statements relating to the timing for the upcoming special meeting and the completion of, and the anticipated benefits to be derived from, the Rubellite Transactions may constitute forward-looking information and statements within the meaning of applicable securities laws. This information and these statements relate to future events or to future performance. All statements other than statements of historical fact may be forward-looking information and statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "outlook", "guidance", "objective", "plans", "intends", "targeting", "could", "potential", "strategy" and any similar expressions are intended to identify forward-looking information and statements.
Various assumptions were used in drawing the conclusions or making the forecasts and projections in the forward-looking information contained in this news release, which assumptions are based on management's analysis of historical trends, experience, current conditions and expected future developments pertaining to Perpetual and Rubellite, the completion of the Rubellite Transactions and the receipt of all required approvals in connection therewith, and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of known and unknown risks, including, without limitation, the ability to continue to operate on a going concern basis if the Rubellite Transactions are not completed in a timely manner or at all, the impact of COVID-19 as further described below, 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, the outbreak of COVID-19 has had a negative impact on global financial conditions. Perpetual cannot accurately predict the impact that COVID-19 will have on its ability to execute its business plans in response to government public health efforts to contain COVID-19 and to obtain financing or third parties' ability to meet their contractual obligations with Perpetual including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected jurisdictions; and the current and future demand for oil and gas. In the event that the prevalence of COVID-19 increases (or fears in respect of COVID-19 increase), governments may increase regulations and restrictions regarding the flow of labour or products, travel bans, and Perpetual's operations, service providers and customers, and ability to advance its business plan or carry out its top strategic priorities, could be adversely affected. In particular, should any employees, consultants or other service providers of Perpetual become infected with COVID-19 or similar pathogens, it could have a material negative impact on Perpetual's operations, prospects, business, financial condition and results of operations. 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
The forward-looking information and statements contained in this news release reflect several material factors, expectations and assumptions of the Company and Rubellite including, without limitation, that each of Perpetual and Rubellite will conduct its operations in a manner consistent with its expectations and, where applicable, consistent with past practice; the general continuance of current or, where applicable, assumed industry conditions; the ability of Perpetual to obtain equipment, services, and supplies in a timely manner to carry out its activities; the accuracy of the estimates of Perpetual's reserve and resource volumes; certain commodity price and other cost assumptions; the continued availability of adequate debt and/or equity financing and adjusted funds flow to fund the Company's capital and operating requirements as needed; and the extent of Perpetual's liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
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
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