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Prairie Provident Announces Fourth Quarter and Year-End 2018 Financial and Operating Results


CALGARY, Alberta, March 27, 2019 (GLOBE NEWSWIRE) — Prairie Provident Resources Inc. (“Prairie Provident”, “PPR” or the “Company”) is pleased to announce our operating and financial results for the three months and year ended December 31, 2018.  PPR’s audited consolidated financial statements (“Annual Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 2018 and annual information form dated March 27, 2019 (“AIF”) are available on our website at www.ppr.ca and filed on SEDAR.

Through the year, the Company continued to focus on generating returns for our shareholders through ongoing oil and natural gas liquids drilling and completions activities, high-grading our asset base, and prudently investing capital at a pace designed to optimize adjusted funds flow while growing per share reserves and production. This conservative and disciplined strategy, combined with a supportive global oil price environment for the first nine months of the year, enabled the Company to generate solid adjusted funds flow and higher operating netbacks supported by our oil-weighted asset base.

A key highlight late in 2018 was our acquisition of Marquee Energy Ltd. (“Marquee”), whose assets were focused primarily in the Michichi area targeting Banff light/medium oil.  The combination of our respective assets was complementary and has positioned PPR with an expanded oil-weighted growth profile focused in three core areas:  Michichi, comprised of PPR’s Wheatland/Wayne assets and Marquee’s Michichi area, Princess and Evi.  These three focal areas offer superior economies of scale and lower-risk development drilling opportunities that support PPR’s continued business strategy execution.  This acquisition, coupled with the organic growth achieved through our disciplined 2018 capital program, provides momentum to realize further success in 2019 as we anticipate underspending adjusted funds flow due to our low-decline oil assets and commitment to increasing our long-term financial flexibility.

HIGHLIGHTS

  • On November 21, 2018, PPR closed the Marquee acquisition, expanding our size and competitive position through economies of scale, an increased inventory of drilling locations and operating synergies which avail us the opportunity to continue improving on our capital efficiencies and enhancing per share metrics.
  • Full-year 2018 production averaged 5,372 boe/d (71% liquids), which reflects approximately 1,120 boe/d of production additions from PPR’s successful 2018 drilling program, and 41 days of production from Marquee, offset by the disposition of certain non-core gas-weighted properties and natural production declines.  Production in Q4 2018 averaged 5,937 boe/d, 22% higher than Q4 2017 driven by our successful drilling program and the impact of Marquee.
  • Oil and liquids production weighting increased 15% year-over-year averaging 71% in 2018, up from 62% in 2017, reflecting our strategy to focus on oil and natural gas liquids opportunities.  This shift to a higher liquids weighting also positioned PPR to benefit from a 9% increase in realized prices per boe and a 15% improvement in operating netbacks1 per boe (before realized hedging gains) on a year-over-year basis.
  • During 2018, Prairie Provident drilled, completed and brought on production ten gross (10.0 net) new wells for $18.0 million.  Annual capital expenditures also included $11.8 million to advance the Evi waterflood, drill two (2.0 net) Slave Point wells in Evi, and invest in facilities, pipelines, land and capitalized overhead.  With our 2018 exploration program, PPR’s flow-through share commitment for the year was fulfilled. Our Q4 capital expenditures totaled $7.8 million and were primarily directed to the Evi drilling program.
  • Operating netbacks1 before realized hedging loss averaged $17.26/boe for the year ($12.66/boe after hedging loss), a $2.25/boe improvement from 2017 due to realized prices that were $3.69/boe higher, partially offset by higher royalty expenses.  Rapid and severe widening of Canadian oil crude differentials in Q4 2018 contributed to a 51% decrease in PPR’s Q4 2018 realized pricing compared to the first nine months of 2018.  In response to these low prices, the Company reduced non-essential workovers and reactivations and lowered per boe operating costs by 9% compared to the same period in 2017.  Operating netbacks before realized hedging loss was $2.30/boe (negative $0.02/boe after hedging loss). PPR also reduced general and administrative per boe costs by 33% from the same period in 2017, while expanding our operations through production growth and the Marquee Acquisition.
  • Net loss was $33.0 million in 2018 compared to a net loss of $47.8 million the prior year, primarily related to non-cash items, while for Q4 2018, net loss totaled $3.5 million compared to $44.1 million in Q4 2017.
  • Adjusted funds flow1 in 2018 totaled $8.0 million ($0.07/share) compared to $17.9 million ($0.16/share) in 2017, which reflects higher realized losses on derivative instruments and lower interest expense in 2017, partially offset by higher operating netbacks and a decrease in decommissioning settlements.  In accordance with recent direction expressed by Alberta Securities Commission staff regarding funds flow disclosure by oil and gas issuers, PPR’s adjusted funds flow now includes decommissioning settlements that were previously excluded from the calculation, which is reflected in restatements for the current and prior periods.  For the year 2018, $2.1 million of decommissioning settlements were included in adjusted funds flow.
  • Positive adjusted funds flow for the year combined with the disposition of non-core assets and disciplined capital spending allowed PPR to return capital to our shareholders by continuing to invest in our normal course issuer bid program.  During 2018, PPR purchased 395,600 shares at a weighted average cost of $0.35/share.
  • On October 11, 2018, PPR closed a $5.5 million equity financing, proceeds from which supported balance sheet strength.  At December 31, 2018, the Company had US$47.9 million drawn on our US$65 million revolving facility and US$29.5 million of subordinated notes, plus a working capital deficit of $16.1 million.  Based on our 2019 budget forecast for capital expenditures being less than expected adjusted funds flow at current strip pricing, we anticipate greater financial flexibility for growth should commodity prices and the broader market be supportive.

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1 Operating netback and adjusted funds flow are non-IFRS measures and are defined below under “Non-IFRS Measures”.

FINANCIAL AND OPERATING HIGHLIGHTS

  Three Months Ended 
December 31,
  Year Ended
December 31,
 
($000s except per unit amounts) 2018   2017 2018 2017  
Financial    
Oil and natural gas revenue 13,542   20,510 84,822 79,011
Net loss (3,532 ) (44,145 ) (32,965 ) (47,802 )
Per share – basic & diluted (0.02 ) (0.38 ) (0.27 ) (0.42 )
Adjusted Funds Flow1 (5,346 ) 5,312 8,034 17,939
Per share – basic & diluted (0.04 ) 0.05 0.07 0.16
 Net capital expenditures2 4,661   6,251 24,476 64,198
Production Volumes    
Crude oil (bbls/d) 4,042   3,233 3,676 3,178
Natural gas (Mcf/d) 10,523   9,200 9,426 12,537
Natural gas liquids (bbls/d) 141   106 125 202
Total (boe/d) 5,937   4,872 5,372 5,470
% Liquids 70 % 69 % 71 % 62 %

 

Average Realized Prices
Crude oil ($/bbl) 30.47 62.01 57.47 56.01
Natural gas ($/Mcf) 1.74 1.81 1.59 2.47
Natural gas liquids ($/bbl) 40.70 54.86 49.38 37.08
Total ($/boe) 24.79 45.76 43.26 39.57
Operating Netback ($/boe)3
Realized price 24.79 45.76 43.26 39.57
Royalties (3.48 ) (4.84 ) (6.66 ) (5.20 )
Operating costs (19.01 ) (20.78 ) (19.34 ) (19.36 )
Operating netback 2.30   20.14 17.26   15.01
Realized (losses) gains on derivative instruments (2.32 ) 1.90 (4.60 ) 2.47
Operating netback, after realized gains/losses on derivative instruments (0.02 ) 22.04 12.66 17.48

Notes:
(1)(2)(3) Adjusted funds flow, net capital expenditures and operating netback are non-IFRS measures and are defined below under “Non-IFRS Measures”.

Capital Structure
($000s)
As at
December 31, 2018
As at
December 31, 2017
Working capital (deficit)(1) (16,139 ) (2,201 )
Long-term debt (101,144 ) (55,760 )
Total net debt(2) (117,283 ) (57,961 )
Debt capacity(3) 21,827   11,291
Common shares outstanding (in millions) 171.9 115.9

Notes:
(1) Working capital (deficit) is a non-IFRS measure (see “Non-IFRS Measures” below) calculated as current assets less current liabilities excluding the current portion of derivative instruments, the current portion of decommissioning liabilities and flow-through share premium.
(2) Net debt is a non-IFRS measure (see “Non-IFRS Measures” below), calculated by adding working capital (deficit) and long-term debt.
(3) Debt capacity reflects the undrawn capacity of the Company’s revolving facility of USD$65 million at December 31, 2018 and USD$40 million at December 31, 2017, converted at an exchange rate of $1.0000 USD to $1.3642 CAD on December 31, 2018 and $1.0000 USD to $1.2545 CAD on December 31, 2017.

The financial impact from depressed oil prices during Q4 2018 is expected to have a lasting effect to the computation of certain financial covenants for 2019.  In light of this, the Company has been in active engagement with our lenders and has an understanding that the financial covenant requirements will be adjusted by March 31, 2019.

  Three months ended
December 31
Year ended
December 31
  2018  2017 2018 2017
Drilling Activity    
Gross wells 6.0 14.0 6.0
Net (Working interest) wells 5.9 13.9 5.7
Success rate, net wells (%) 67 N/A 86 82

OPERATIONS REVIEW

Throughout 2018, PPR continued to execute our business strategy and posted numerous key achievements.  In addition to closing a corporate acquisition, we successfully invested $30 million in our capital program focused on increasing the oil and liquids weighting of our assets; prudently and swiftly responded to volatile and unexpected changes in commodity prices; and ultimately achieved record high reserves and production while generating robust capital efficiencies.

Michichi, AB

During 2018, $7.0 million was primarily directed to the development of three wells at Michichi, all of which were on production by the end of the second quarter.  We expanded our footprint in the area through the Marquee acquisition, adding significant reserves, 60+ gross proved drilling locations2 and approximately 1,800 boe/d of current production.

Princess, AB

In the Princess area, development of five Lithic Glauconite wells, pipeline construction and a multi-well satellite were undertaken with $10.5 million invested in the area.  The first three wells were brought on production in the Q2 2018, with the final two wells added in mid-July and early September.  These five wells are currently producing approximately 1,000 boe/d (77% liquids) in total, based on field estimates, and their success demonstrates the Company’s ability to target higher-value oil and liquids-weighted drilling opportunities.  Future development in this area will be supported by PPR’s 33,000 acres of undeveloped lands with plans to resume drilling operations in 2019.

Evi, AB

At Evi, PPR invested approximately $3.3 million for continued advancement of the waterflood project with an additional $7.7 million allocated to drill six (5.9 net) wells.  Four (3.9 net) Granite Wash wells were drilled during the fourth quarter of 2019, of which two (2.0 net) came on production in late 2018 with the balance unsuccessful.  Two (2.0 net) Slave Point wells were also completed and brought on production in the first quarter of 2019.

2019 OUTLOOK AND GUIDANCE

Prairie Provident is well positioned for further success in 2019 with predictable funds flow from our low-decline oil assets, an attractive inventory of drilling locations, and the ability to scale-up the capital program should supportive commodity prices be sustained.  Our three core areas of Michichi, Princess and Evi all offer light/medium oil exposure and focused, lower-risk capital allocation opportunities, and we benefit from a relatively low base decline rate of approximately 22% after incorporating in the higher initial production rate wells at Princess, which feature steeper declines.  With over 90% of our production operated and an average working interest exceeding 98% across our core areas, PPR remains focused on continuing to responsibly manage our inventory of high-quality drilling locations for the long term and enhancing our per share production, reserves, and funds flow metrics.

We will remain focused on generating value for our shareholders with a 2019 capital budget of $14.2 million3, $12.3 million of which will be directed to development activities, and we anticipate underspending forecast 2019 adjusted funds flow.  This budget and associated production profile is forecast to generate stable annual average production between 6,100 and 6,500 boe/d (69% oil and liquids), targeting an exit rate of approximately 6,650 boe/d.  With over 90% of PPR’s 2019 forecast revenue expected to be derived from oil and liquids production, the Company continues to proactively hedge volumes in order to protect economics.

Our full-year 2019 guidance estimates remain unchanged from those presented in PPR’s 2019 budget release dated February 25, 2019 and summarized in the following table. Additional details on Prairie Provident’s 2019 capital program and guidance can be found on our website at www.ppr.ca.

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2 Proved drilling locations are locations to which Sproule Associates Limited (“Sproule”), independent qualified reserves evaluator, attributed proved reserves in its most recent year-end evaluation of Prairie Provident’s reserves, effective December 31, 2018. Sproule’s year-end evaluation was in accordance with National Instrument 51-101 and, pursuant thereto, the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”).

2019 BUDGET AND GUIDANCE SUMMARY

Average daily production 6,100 – 6,500 boe/d
2019 exit production 6,650 boe/d
Liquids weighting 69%
Capital expenditures3 $14.2 million
Development capital $12.3 million
Operating expenses $18.70 – $19.95/boe
General & administrative expenses $3.60 – $3.80/boe
Assumptions:
WTI (US$/bbl) $56.90
CAD WTI (C$/bbl) $75.00
WCS (C$/bbl) $52.60
Edmonton Light Diff (C$/bbl) $(6.80)
WCS Diff (C$/bbl) $(22.30)
AECO gas (C$/GJ) $1.90

3 Previously, capital budget was disclosed at $18.9 million which included expected decommissioning (ARO) expenditures of $4.7 million.  ARO expenditures are now excluded from capital expenditure numbers and included in adjusted funds flow to conform to recent direction from Alberta Securities Commission staff regarding funds flow disclosure by oil and gas issuers and permissible adjustments.  This is a change in classification and does not change PPR’s 2019 expected overall cash flows.

ABOUT PRAIRIE PROVIDENT

Prairie Provident is a Calgary-based company engaged in the exploration and development of oil and natural gas properties in Alberta. The Company’s strategy is to grow organically in combination with accretive acquisitions of conventional oil prospects, which can be efficiently developed. Prairie Provident’s operations are primarily focused at the Michichi and Princess areas in Southern Alberta targeting the Banff, the Ellerslie and the Lithic Glauconite formations, along with an established and proven waterflood project at our Evi area in the Peace River Arch. Prairie Provident protects its balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.



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