Painted Pony Announces Record First Quarter Production, Financial and Operating Results

CALGARY, May 3, 2018 /CNW/ – Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) is pleased to announce that during the first quarter of 2018 record adjusted funds flow from operations and record production volumes were achieved, marking a significant milestone in the growth of the Corporation.

HIGHLIGHTS:

• Increased adjusted funds flow from operations by 87% to a record $46.4 million ($0.29 per share basic), compared to $24.8 million ($0.25 per share basic) during the first quarter of 2017;
• Increased production by 69% to a record 364 MMcfe/d (60,703 boe/d) of which 9% was natural gas liquids, compared to 215 MMcfe/d (35,878 boe/d) during the first quarter of 2017;
• Grew liquids production by 78% to 5,614 bbls/d, of which 44% was high-value condensate, compared to 3,149 bbls/d during the first quarter of 2017;
• Invested $78.1 million of capital during the first quarter of 2018, approximately $16 million less than previous spending guidance of $94 million during the first quarter of 2018;
• Realized an average price of $3.08/Mcfe ($18.48/boe) during the first quarter of 2018 through a combination of diversified sales points, fixed physical pricing contracts and financial hedges;
• Confirmed a $400 million syndicated credit facility with no financial covenants, and;
• Drilled and completed a horizontal discovery well on the Beg block which flow-tested at over 10 MMcf/d with 360 bbls/d of natural gas liquids, for a combined rate of more than 2,000 boe/d or 12 MMcfe/d.

Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, “We have achieved enormous growth at Painted Pony over the past few years, in particular achieving record first quarter adjusted funds flow from operations.  Between 2016 and 2018, we have grown adjusted funds flow from operations per share by more than 260%.  Production of over 360 MMcfe/d (60,000 boe/d) is another record for Painted Pony.”

UPDATED CREDIT FACILITIES
In conjunction with the semi-annual borrowing base review, on May 3, 2018, the Corporation received confirmation of syndicated credit facilities of $400 million, including a $350 million extendable revolving facility and a $50 million operating facility with removal of the financial covenants.   The amendment to the credit agreement is subject to typical closing conditions. As at March 31, 2018, the Corporation had $163.5 million in bank debt.

BEG DISCOVERY WELL
As announced in the press release dated April 17, 2018, Painted Pony drilled and completed an upper Montney horizontal test well in the Corporation’s Beg block. During the final 8 hours of the 6.6 day test period, this discovery well averaged an estimated rate over 2,000 boe/d including 10 MMcf/d of natural gas and an estimated 360 bbls/d of liquids (60% condensate and 40% NGLs) based on well head condensate plus calculated gas plant liquids recoveries from gas analysis.

Although test data is preliminary, the estimated liquids to gas ratio is approximately 35 to 40 bbls/MMcf. Additional development is currently being reviewed and the timing of additional drilling and production scheduling will be considered along with other development options. Painted Pony’s Beg block is comprised of 36 net sections of Montney rights and is located on the northeast block of the Corporation’s Montney acreage in northeast British Columbia. Based on the positive results of the discovery well and offset industry production data, management anticipates all 36 sections to be prospective for Montney development.

FIRST QUARTER 2018 FINANCIAL & OPERATING RESULTS
Adjusted Funds Flow from Operations and Cash Flow from Operating Activities
For the first quarter of 2018, adjusted funds flow from operations increased to a record $46.4 million ($0.29per share basic) compared to adjusted funds flow from operations of $24.8 million ($0.25 per share basic) during the first quarter of 2017.

Painted Pony’s cash flow from operating activities during the first quarter of 2018 was $51.6 million ($0.32 per share basic) compared to cash flow from operating activities of $31.7 million ($0.32 per share basic) during the first quarter of 2017.

Painted Pony’s record adjusted funds flow from operations and cash flow from operating activities during the first quarter of 2018 were achieved despite lower prevailing natural gas prices. Increases in both adjusted funds flow from operations and cash flows from operating activities for the first quarter of 2018 compared to the first quarter of 2017, resulted from a 69% increase in production volumes, a realized gain on risk management contracts, partially offset by an 8% increase in per unit cash costs.  These cash cost increases are the result of increased per unit transportation costs associated with accessing diversified markets for Painted Pony’s natural gas sales and increased operating costs due to higher natural gas liquids production; two strategies that are focused on driving higher margins by accessing sales points which provide for higher prices and diversifying price risk.

Production
Painted Pony increased first quarter 2018 production volumes by 69% to a record 364 MMcfe/d (60,703 boe/d) compared to the same period of 2017 when production volumes totaled 215 MMcfe/d (35,878 boe/d). Natural gas liquids volumes during the first quarter of 2018 increased by 78% to a record 5,614 bbls/d, of which 44% was high-value condensate, compared to 3,149 bbls/d during the first quarter of 2017.

Capital Expenditures
Painted Pony invested $78.1 million of capital during the first quarter of 2018, which included drilling and completing 14 (14.0 net) wells, as well as associated facilities and infrastructure spending. First quarter capital expenditures were approximately $16 million less than originally planned.

Pricing
Painted Pony’s realized average commodity price of $3.08/Mcfe ($18.48/boe) during the first quarter of 2018 includes an average natural gas price of $2.38/Mcf, a 14% premium to the AECO (5A) daily spot price of $2.08/Mcf, compared to a 7% premium during the first quarter of 2017.

During the first quarter of 2018, approximately 44% of Painted Pony’s natural gas liquids volumes were condensate, which received an average price of $82.53/bbl, representing a premium of 4% to the WTI reference price. Natural gas liquids, excluding condensate, received an average price of $40.93/bbl during the first quarter of 2018.

Painted Pony’s long-term market diversification was strengthened further by entering into financial and physical commitments, including incremental transportation contracts to a diversity of sales markets. As a result, Painted Pony’s sales portfolio includes pricing exposure in the AECO, Dawn, NYMEX, Sumas and Station 2 markets, in addition to the fixed-price contract for delivery of natural gas volumes to the Methanex methanol plant in Medicine Hat, Alberta.

For the remainder of 2018, Painted Pony expects revenue exposure to Station 2 index to average below 6%, after the impact of financial hedges and market diversification. For the remainder of 2018, Painted Pony expects to receive a realized natural gas price that exceeds the AECO (5A) benchmark price.

The majority of Painted Pony’s commodity price volatility will be mitigated for 2018 through financial hedging contracts, as well as the completion of the Towerbirch pipeline expansion at Groundbirch. This expansion will increase the volume of natural into the AECO market by 130 MMcf/d compared the prior two quarters.  Production volumes of 43 MMcf/d were sold into the Dawn market in southern Ontario by Painted Pony during the first quarter of 2018.  Production volumes sold into the Dawn market will increase over the coming quarters to a total of 73 MMcf/d beginning November 1, 2018 and are expected to reach approximately 90 MMcf/d by year-end 2019.

UPDATED GUIDANCE
Due to a combination of Painted Pony’s commitment to deliver a 2018 capital program that approximates internally generated cash flow and the ongoing weakness of natural gas prices in western Canada, the Corporation is lowering expected 2018 capital expenditures to between $145 and $165 million from previous 2018 expected capital spending of $185 million.  With the reduced capital program, Painted Pony anticipates annual average daily production guidance for 2018 of between 348 MMcfe/d (58,000 boe/d) and 360 MMcfe/d (60,000 boe/d) from 366 Mcfe/d (61,000 boe/d) to 378 MMcfe/d (63,000 boe/d).

While 2018 expected capital spending of $155 million (mid-point of the guidance range) represents a reduction of approximately 16% when compared to previous 2018 capital budget spending guidance of $185 million, updated 2018 anticipated annual average daily production volumes are expected to decrease by approximately 5% (mid-point of guidance to mid-point of guidance) compared to previous 2018 guidance.

Patrick Ward, President and CEO of Painted Pony, in commenting on the updated guidance said, “The same financial strategy and operational prudence that we used to achieve significant production and cash flow milestones means we need to acknowledge the current weakness in natural gas prices and act to preserve our financial flexibility. This requires Painted Pony to carry out a prudent capital program which strikes a balance between maintaining financial flexibility and cash flow generation. We believe the updated 2018 capital program supports both of these objectives as we expect to hold 2018 production volumes approximately flat. At these forecasted production levels, we will still show year-over-year production volume growth of 38%. We believe trimming our budgeted expenditures is the prudent course to chart and one that will retain Painted Pony’s financial and operational flexibility.”

FINANCIAL AND OPERATIONAL HIGHLIGHTS