Pacific Exploration & Production Corporation (TSX: PEN) ("Pacific" or the "Company") is pleased to announce its full year outlook and guidance for 2017 and first quarter 2017 operational update. All values in this news release are expressed in United States dollars and all production volumes are expressed net of royalties, unless otherwise stated.
Barry Larson, Chief Executive Officer of the Company commented:
"Pacific is off to a great start in 2017, a critical year as we shift the Company's focus and resources towards sustainable production through development drilling and growth through low-risk exploration. We are very pleased to see production increasing faster than we expected in the first two months of 2017. In addition, the Company's cash balance is approximately $90 million higher than previous forecasts, mainly through active management of government receivables and commitments. We will continue to look at ways to maximize the value of non-E&P related assets and reduce overall costs. Our constant goal is to improve margins and drive higher returns for invested capital so that our long-term growth can be self-sustaining."
2017 Capital Expenditure Highlights:
Pacific's highly disciplined 2017 exploration and development ("E&D") capital expenditures program emphasizes the Company's strategy to narrow its geographic focus and reduce organizational scale, complexity and cost while maximizing operating and cost efficiencies to ensure the Company has sustainable high margin production. The Company will continue to capture sustainable cost efficiencies and maintain operational momentum in Colombia and Peru. The E&D capital program will focus on production in an effort to reduce the impact of the declining rates of existing production. In 2017, estimated E&D capital expenditures are expected to be in the range of $325 to $375 million, an increase over 2016 expenditures ($161 million) which were significantly lowered as the Company focused on preserving cash through the restructuring process.
The E&D capital program allocates $220 to $250 million to maintenance and development drilling. Approximately 53% will be allocated to light and medium oil development predominantly at the Guatiquia and Cubiro fields, 44% will be allocated to heavy oil development predominantly at the Quifa SW Field, and 3% will be allocated to other development in Colombia. Additionally, $50 to $60 million will be allocated to facilities and infrastructure expenditures, targeting fields that are either currently producing or under development. Lastly, $55 to $65 million will be allocated to exploration expenditures, mainly targeting lower risk appraisal wells. The Company has a robust portfolio of exploration prospects in Colombia and Peru and recognizes that these prospects have the potential to provide significant future production volumes and reserves.
The E&D capital program is being increased using a systematic, disciplined and prudent approach, which will be internally funded with cash on hand and free cash flow generation. Pacific is committed to allocating additional capital to exploration activities to drive future growth if the Company is able to generate excess cash flow.
2017 Outlook & Guidance Highlights:
First Quarter 2017 Operational Update:
Net production for the first quarter of 2017 is expected to be in the range of 72,000 to 75,000 boe/d, approximately 6% higher than the previous quarter. The 2017 drilling and production plan is consistent with expectations, leading to steadily increasing production volumes in the first two months of 2017. Mid-March 2017 production rate is approximately 75,000 boe/d of which 5,000 boe/d is attributable to Peru. Pacific expects combined realized prices (including natural gas production) in the first quarter to be in the range of $40 to $43/boe, comparable to the fourth quarter of 2016. Operating costs (including production, transportation and diluent) in the first quarter is expected to be in the range of $25 to $28/boe. Operating netbacks for the quarter are expected to be higher compared with the prior quarter, as the Company's field optimization and cost reduction programs start to show incremental value.
Optimization & Cost Reduction Achievements:
Pacific emerged from its restructuring with a plan focused on capital discipline and value maximization. Headcount reduction initiatives have generated approximately $22 million in annualized savings during the first quarter of 2017. The Company's operations team has been able to prevent production declines due to successful drilling at Quifa and additional wells at Guatiquia and Corcel. Pacific's hedging strategy will continue in 2017, as the Company continues to enter into oil price risk management contracts to hedge volume to the 60% production maximum allowed under the indenture governing the $250 million 10% senior secured notes due 2021 and the $115 million letter of credit facility. Furthermore, the Company's cash position has significantly improved by approximately $90 million above expectations, mainly through active management of government receivables and commitments. Going forward the Company will continue to focus on safeguarding cash by maintain this active management approach.
Pacific has agreed to sell certain interests in the Caguan-Putumayo basin to Amerisur Resources Plc for total cash proceeds of $4.85 million. The interests include 1) a 60% working interest in the Put-9 block; 2) a 58% working interest in the Mecaya block; 3) a 100% working interest in the Terecay block; and 4) a 50.5% working interest in the Tacacho block. In addition to cash consideration, Pacific will also receive a 2% overriding royalty interest ("ORRI") on production from the Terecay block and a 1.2% ORRI on production from the Put-9 block. By selling these interests, Pacific is eliminating $30 million in Agencia Nacional de Hidrocarburos ("ANH") commitments. Transaction closing is subject to approval by the ANH.
On March 13, 2017, the Superintendencia de Sociedades ("Superintendencia") issued a decision to conclude proceedings under Ley 1116 of 2006 in Colombia. Consequently, the Company will initiate the processes to lift all liens imposed by the mentioned judge, including the remaining $23.7 million held in a trust account previously ordered by the judge.
Future Optimization Initiatives:
As previously announced, the Company is making continuous efforts to control G&A and all non-essential spending activities to eliminate inefficiencies. The Company continues to focus on this initiative for additional savings. Pacific is also deploying an optimization program company-wide to reduce costs associated with, among other things, production, transportation, and dilution. The Company has immediately identified optimization and cost reduction activities in the following areas:
A lot of progress has been made to restructure the organization and drive the right culture internally; however, the Company recognizes that significant work remains to maximize value for all stakeholders.
Pacific is a Canadian public company and a leading explorer and producer of natural gas and crude oil, with operations focused in Latin America. The Company has a diversified portfolio of assets with interests in more than 45 exploration and production blocks in various countries including Colombia, Peru and Belize. The Company's strategy is focused on sustainable growth in production & reserves and cash generation. Pacific is committed to conducting business safely, in a socially and environmentally responsible manner.
The Company's common shares trade on the Toronto Stock Exchange under the ticker symbol PEN.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.