Painted Pony Announces 6.9 Tcfe of Proved Plus Probable Reserves, Record Annual Production and Adjusted Funds Flow from Operations, and 2017 Year-End Financial and Operating Results

CALGARY, March 7, 2018 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) is pleased to announce that Proved Plus Probable reserves as at December 31, 2017 were 6.9 Tcfe representing year-over-year growth of 40%, record annual average daily production of 257 MMcfe/d (42,882 boe/d) complimented by a 93% increase in adjusted funds flow from operations to a Corporation record of $108 million, and 2017 year-end financial and operational results.

2017 Reserve Highlights:

• Increased Proved Developed Producing reserves by 64% to 797 Bcfe at year-end 2017 from 484 Bcfe at year-end 2016;
• Increased Proved Developed Producing net present value by 28% or $200 million to $905 million ($5.62per share) compared to December 31, 2016 at a 10% discount rate using pricing from independent qualified reserves evaluators, GLJ Petroleum Consultants Ltd. (“GLJ“);
• Generated a finding, development and acquisition (“FD&A“) Proved Developed Producing recycle ratio of 1.1 times, while finding and development (“F&D“) Proved Developed Producing costs produced a recycle ratio of 1.6 times;
• Replaced 432% of 2017 production volumes through Proved Developed Producing reserve additions of 313 Bcfe, including 10 MMbbls of natural gas liquids (“NGL“);
• Increased Total Proved reserves by 17% to 3.1 Tcfe, including 31 MMbbls of natural gas liquids, at year-end 2017 compared to 2.7 Tcfe at year end 2016;
• Generated an FD&A Total Proved recycle ratio of 1.6 times, inclusive of changes in future development capital (“FDC“);
• Increased Proved Plus Probable reserves by 40% to 6.9 Tcfe, including 73 MMbbls of natural gas liquids, at year-end 2017 from 4.9 Tcfe at year end 2016; and
• Generated an FD&A Proved Plus Probable recycle ratio of 1.9 times, inclusive of FDC.

2017 Fourth Quarter and Full Year Financial Highlights

• Achieved record annual adjusted funds flow from operations for Painted Pony of $108 million ($0.76 per share) in 2017 compared to $56 million ($0.56 per share) during 2016, an increase of 93% (36% per share);
• Increased adjusted funds flow from operations during the fourth quarter of 2017 by 33% to $35 millioncompared to $27 million during the fourth quarter of 2016; and
• Underspent fourth quarter capital by $11 million or 15%, spending $62 million compared to capital spending guidance of $74 million as released on November 8, 2017.

2017 Fourth Quarter and Full-Year Production Highlights

• Increased fourth quarter 2017 average daily production volumes by 43% to 315 MMcfe/d (52,544 boe/d), which includes the impact of approximately 48 MMcfe/d (8,000 boe/d) of voluntary pricing-related production shut-ins, compared to 2016 average daily production volumes of 220 Mcfe/d (36,695 boe/d);
• Averaged annual daily production volumes of 257 MMcfe/d (42,882 boe/d) during 2017, an 85% increase over 2016 annual average daily production of 139 MMcfe/d (23,204 boe/d); and
• NGL annual average daily production volumes increased by 130% to 3,587 bbls/d during 2017 compared to 1,557 bbls/d during 2016.

Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, “Despite a very challenging commodity price environment, 2017 operations lifted Painted Pony to almost 7 Tcfe of Proved Plus Probable reserves with a net present value of $3.3 billion or $20.43 per share at a 10% discount rate using our independent reserve evaluator’s pricing. We are particularly pleased with the 64% growth in our Proved Developed Producing reserves. Painted Pony achieved some notable records for the Corporation in 2017.  Annual average daily production at over 257 MMcfe/d or 42,882 boe/d and adjusted funds flow from operations of $108 million are both records for Painted Pony and significant milestones for the Corporation of which we are very proud.”

SUMMARY OF 2017 RESERVES AS PREPAR ED BY GLJ PETROLEUM CONSULTANTS
2017 Summary of Reserves
GLJ, independent qualified reserves evaluators, prepared an evaluation of Painted Pony’s properties effective December 31, 2017, which is contained in a report dated March 6, 2018.

Proved Developed Producing
During 2017, Painted Pony increased Proved Developed Producing reserves by 64% to 797 Bcfe (133 MMboe) at an FD&A cost of $1.40 per Mcfe.  The Corporation’s Proved Developed Producing reserve additions replaced 2017 average daily production by 4.3 times.

Total Proved
During 2017, Painted Pony increased Total Proved reserves by 17% to 3.1 Tcfe (518 MMboe) at an FD&A cost of $0.96 per Mcfe. The Corporation’s Total Proved reserve additions replaced 2017 average daily production by 5.9 times.

Proved Plus Probable
During 2017, Painted Pony increased Proved Plus Probable reserves by 40% to 6.9 Tcfe (1,149 MMboe) at an FD&A cost of $0.82 per Mcfe. The Corporation’s Proved Plus Probable reserve additions replaced 2017 average daily production by 21.8 times.

2017 FINDING, DEVELOPMENT & ACQUISITION COSTS AND RECYCLE RATIOS
In 2017, the Corporation generated an FD&A Total Proved recycle ratio, inclusive of FDC, of 1.6 times. This is calculated as per the table below.  The operating netback of $1.54 /Mcfe, which has been adjusted to include the cost of the finance lease expense related to the AltaGas Ltd. facility at Townsend (“AltaGas Townsend Facility“), is divided by the FD&A costs, including changes in FDC, of $0.96/Mcfe on a Total Proved basis.

The following tables outline GLJ’s estimates of Painted Pony’s reserves at December 31, 2017 and December 31, 2016:

Summary of Company Working Interest Reserves
(Numbers in this table may not add due to rounding)

The following tables outline GLJ’s estimates of Painted Pony’s associated net present values of reserves at December 31, 2017:

Net Present Values of Future Net Revenue ⁽¹⁾⁽²⁾

Reconciliation of Company Gross Reserves

Painted Pony uses the measure of recycle ratios as a measure of the Corporation’s ability to grow reserves profitably and invest capital efficiently. The recycle ratio is calculated by dividing the annual corporate operating netback by the annual finding, development and acquisition cost, both on a per unit basis.  The higher the recycle ratio, the more efficient the Corporation has been in deploying capital to grow reserves.  The Corporation also uses the 3-year weighted average recycle ratio, which smooths out yearly fluctuations by dividing the 3-year weighted average operating netback by the 3-year weighted average finding, development and acquisition cost, both on a per unit basis. The following table highlights Painted Pony’s capital program  efficiency and the resulting recycle ratios.

Capital Efficiencies ⁽¹⁾

Future Development Costs of Undeveloped Reserves

2017 FINANCIAL AND OPERATING RESULTS
Capital Expenditures
Painted Pony invested a total of $303 million during 2017 into the Corporation’s Montney assets.  Activities included the drilling of 52 (52.0 net) wells, the completion of 51 (51.0 net) and minor investments into associated facilities and infrastructure.

During the fourth quarter of 2017, Painted Pony drilled 7 (7.0 net) and completed 15 (15.0 net) wells, and executed a capital program of $62 million, which was lower than planned spending of $74 million per Painted Pony’s guidance.

Production
The Corporation’s 2017 annual average daily production increased by 85% to 257 MMcfe/d (42,882 boe/d) over 2016 annual average daily production volumes of 139 MMcfe/d (23,204 boe/d).  Painted Pony increased fourth quarter 2017 production volumes by 43% to 315 MMcfe/d (52,544 boe/d) compared to fourth quarter 2016 production volumes of 220 MMcfe/d (36,695 boe/d).

The production volume increase during 2017 was driven by production additions from successful new drills in the Blair Creek, Townsend and Daiber areas, the commissioning of the AltaGas Townsend Facility expansion in the third quarter of 2016, and the acquisition of UGR Blair Creek Ltd.

Painted Pony’s increase in liquids production volumes by 130% to 3,587 bbls/d in 2017 compared to 1,557 bbls/d in 2016 reflects the impact of a full year of liquids-rich processing capacity of the Townsend Facility that came on-line during the third quarter of 2016. Production volumes during the fourth quarter of 2017 were impacted by approximately 48 MMcfe/d (8,000 boe/d) of voluntary pricing-related production shut-ins.

Adjusted Funds Flow from Operations
Adjusted funds flow from operations increased to $108 million during 2017, compared to adjusted funds flow from operations of $56 million in the year ended December 31, 2016.  The increase in adjusted funds flow from operations is the result of an 85% increase in production volumes, a 24% increase in per unit realized gains on risk management contracts, and an 11% increase in realized commodity prices, offset by a 7% increase in costs per unit.

Painted Pony’s adjusted funds flow from operations increased to $35 million during the fourth quarter of 2017, an increase of 33%, compared to adjusted funds flow from operations of $27 million during the fourth quarter of 2016.

The increase in adjusted funds flow from operations was largely the result of a 43% fourth quarter over fourth quarter increase in average daily production volumes including a 44% increase in liquids production to 4,575 bbls/d during the fourth quarter of 2017 from 3,177 bbls/d during the fourth quarter of 2016.

2018 CAPITAL PROGRAM
The 2018 capital budget strategy is to deliver a capital program that approximately matches internally generated adjusted funds flow from operations. Painted Pony closely monitors commodity prices and the impact forward strip prices may have on near-term adjusted funds flow from operations to ensure forecasted levels of capital spending align with the Corporation’s stated 2018 capital spending strategy.

CFO Appointment
Mr. Stuart Jaggard, Vice President, Finance, is appointed Chief Financial Officer of the Corporation on March 7, 2018. Mr. Jaggard joined Painted Pony as Vice President and Controller in October 2014. He has over 30 years of experience in the oil and gas industry, obtaining his Chartered Accountant designation in 1985. He held various senior finance positions within the oil and gas industry prior to joining Painted Pony. Mr. Jaggard worked in the audit practice of KPMG LLP from 1982 to 1995.

Mr. Jaggard completed his Bachelor of Commerce degree at the University of Calgary in 1982. He is a member of CPA Canada and CPA Alberta.

FINANCIAL AND OPERATIONAL HIGHLIGHTS