Painted Pony Reports Increased Credit Facilities and First Quarter 2017 Financial and Operating Results
Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX: PPY) is pleased to announce increased credit facilities and first quarter 2017 financial and operating results. The first quarter was notable for the announcement of the proposed strategic acquisition of UGR Blair Creek Ltd. ("UGR") through a share purchase agreement whereby Painted Pony agreed to acquire all of the issued and outstanding shares of UGR ("UGR Acquisition"), subject to shareholder approval on May 11, 2017 at the annual general and special meeting of Painted Pony shareholders.
FIRST QUARTER 2017 HIGHLIGHTS:
INCREASED CREDIT FACILITIES
In conjunction with the semi-annual borrowing base review, the Corporation has entered into an agreement to increase its credit facilities to $500 million, consisting of available credit facilities of $400 million and a development line of $100 million, conditional upon closing of the UGR Acquisition, expected to occur on or about May 16, 2017. Total credit facilities upon closing of the UGR Acquisition will consist of available credit facilities of $400 million and a development line of $100 million, which becomes available in stages of $50 million by October 31, 2017 and $50 million by April 30, 2018, subject to borrowing base review at those dates. In the event that the UGR Acquisition does not close, total credit facilities will be $350 million, with no development line.
Upon closing, the UGR Acquisition will be a strategic expansion of Painted Pony's world-class Montney project in NEBC. The Corporation's Montney land position will increase by 52% to 314 net sections (201,009 net acres at an average 94% working interest) in one of the most productive areas of the Montney in British Columbia. Several of Painted Pony's most prolific Montney wells were drilled on the Daiber area lands that are either contiguous with UGR acreage or on lands held jointly with UGR. The UGR Acquisition includes 197 net Proved plus Probable drilling locations which will complement the Painted Pony inventory and are expected to drive near-term growth in the Corporation's proved developed producing reserves.
All Painted Pony shareholders are encouraged to refer to the management information circular of Painted Pony dated March 30, 2017 (the "Circular") for details regarding the UGR Acquisition, which was mailed to shareholders of record at the close of business on April 11, 2017. The Circular is also available under Painted Pony's profile on SEDAR (www.sedar.com) and on Painted Pony's website using the following link:
The Share Issuance Resolution will be considered at the upcoming annual general and special meeting of shareholders of Painted Pony to be held at 3:00 p.m. (MT, Calgary time) on Thursday, May 11, 2017 at the Ranchmen's Club, in the Bennett Room, at 710 – 13th Avenue S.W., Calgary, Alberta.
FIRST QUARTER 2017 FINANCIAL & OPERATING RESULTS
Production volumes for the first quarter of 2017 of 215.3 MMcfe/d (35,878 boe/d) were in-line with previously released guidance and represented an increase of 116% compared to the first quarter of 2016 of 99.6 MMcfe/d (16,601 boe/d). Liquids production increased 270% to 3,149 bbls/d or 9% of total production volumes during the first quarter compared to 852 bbls/d or 5% of total production volumes during the first quarter of 2016. Liquids production during the first quarter of 2017 consisted of 45% condensate, 30% butane and 25% propane. Average daily production volumes during the first quarter of 2017 were reduced by approximately 7.2 MMcfe/d (1,200 boe/d) due to temporary shut-ins of producing wells off-setting completion operations. The increase in first quarter 2017 production volumes was driven by production additions from successful new drills in the Blair Creek, Townsend and Daiber areas, and the commissioning of the AltaGas Townsend natural gas processing plant ("Townsend Facility") in July 2016.
During the first quarter of 2017 Painted Pony invested $96.7 million in capital expenditures, compared to $67.1 million during the first quarter of 2016. A total of 7 wells were tied-in and brought on production during the first quarter of 2017. Capital expenditures for the first quarter of 2017 included $78.5 million to drill 18 (18.0 net) wells and complete 11 (11.0 net) wells as part of Painted Pony's capital program to fulfill current commitments at the Townsend Facility and pre-drills in anticipation of commissioning Townsend Phase 2, expected in late 2017. Facilities spending of $12.7 million included equipping costs, pipeline construction costs and spending on processing facilities. At the end of the first quarter 2017, Painted Pony had an inventory of 16 drilled uncompleted wells ("DUCs") and three completed wells awaiting flow back. Painted Pony believes both those wells awaiting flow back as well as the DUCs have a combined productive capacity of approximately 100 MMcfe/d (16,500 boe/d). This inventory of non-producing wells establishes a foundation from which Painted Pony expects significant production growth during the second half of 2017.
Painted Pony's pro forma 2017 capital program is expected to be $348 million. In 2017, pro forma, the Corporation intends to drill 71 net wells and complete 64 net Montney horizontal natural gas wells on its 100% working interest lands in the Townsend and Blair Creek areas.
During the first quarter of 2017 Painted Pony realized a natural gas price of $2.87/Mcf which represented a 7% premium to the AECO daily spot price, compared to a 12% discount in the first quarter of 2016.
As part of Painted Pony's long-term sales point diversification strategy, effective October 1, 2016, Painted Pony began selling 45 MMcf/d of its production volumes directly into the AECO market, and effective November 1, 2016, began selling 18 MMcf/d of its production volumes into the SUMAS/Huntingdon market. For the remainder of 2017, Painted Pony entered into fixed price contracts for physical delivery of 58.0 to 68.0 MMcf/d priced at AECO less fixed differentials totaling $0.08 per Mcfe, when adjusted for AECO transportation charges.
For the first quarter of 2017 approximately 45% of Painted Pony's NGL volumes were condensate, which received an average price representing an 8% premium to the Edmonton light oil reference price.
Funds Flow From Operations and Net Income
Painted Pony's funds flow from operations for the first quarter of 2017 was $24.8 million or $0.25/share and represents an increase of 226% compared to the first quarter of 2016. Increased funds flow was the result of a 116% increase in production volumes and an 83% improvement in realized commodity prices compared to the first quarter of 2016. Painted Pony also realized an 8% decrease in combined per unit royalties, operating expenses and transportation costs for the first quarter of 2017 compared to the first quarter of 2016. Painted Pony's operating netback, after hedging, for the first quarter of 2017 increased 72% to $2.08 per Mcfe compared to first quarter of 2016, which equals 62% of total revenue of $3.35 per Mcfe.
Net income for the first quarter of 2017 was $56.9 million compared to a net loss of $2.2 million in the first quarter of 2016. Painted Pony generated income before taxes of $8.6 million, excluding the unrealized gain on commodity risk management contracts, compared to a $1.3 million loss before taxes during the first quarter of 2016.
Painted Pony reduced operating expenses by 30% to $0.62/Mcfe ($3.72/boe) during the first quarter of 2017 compared to the first quarter of 2016 where operating expenses were $0.88/Mcfe ($5.28/boe). Per unit operating expenses for the first quarter of 2017 have improved as a result of higher production volumes driving down fixed costs per Mcfe. For the remainder of 2017, Painted Pony expects pro forma average per unit operating expenses of between $0.50 and $0.60/Mcfe, assuming normal seasonal weather conditions.
General and Administrative Expenses
G&A expenses for the first quarter of 2017 decreased by 37% to $0.17/Mcfe compared to the first quarter of 2016 G&A expenses of $0.27/Mcfe due to higher volumes quarter over quarter. For the second quarter of 2017, with anticipated transaction expenses related to the UGR acquisition, Painted Pony expects that pro forma per unit G&A expenses will average between $0.30 and $0.35/Mcfe. For the remainder of 2017, with significant pro forma production volumes expected to come on-stream, Painted Pony expects pro forma per unit G&A expenses will average approximately $0.10 to $0.15 per Mcfe.
Painted Pony intends to use the total net proceeds of $106 million from the Offering (including the net proceeds realized from the exercise of the over-allotment option) to: (i) fund a portion of its 2017 and 2018 capital program in respect of the previously announced UGR Acquisition and for general corporate purposes; and (ii) if the Acquisition does not close, for the development of its assets and for general corporate purposes. In the interim, and to most efficiently use the net proceeds of the Offering, the Corporation intends to initially apply the total net proceeds of the Offering to reduce indebtedness under its credit facilities that has been incurred, principally, for the development of its assets and for general corporate purposes. An equivalent amount will then be redrawn under the Corporation's credit facilities, as and when required, to implement its capital program over 2017 and 2018 (including the development of the assets acquired pursuant to the Acquisition) or in the event the Acquisition is not completed, to develop the current portfolio of its gas and natural gas liquids assets.
Painted Pony expects pro forma production volumes during the second quarter of 2017 to average approximately 234 MMcfe/d (39,000 boe/d) to 246 MMcfe/d (41,000 boe/d), including the partial impact of UGR volumes.
Average pro forma production volumes for 2017 are expected to be approximately 290.0 MMcfe/d (48,400 boe/d), representing a 108% increase over full-year 2016 production volumes. The pro forma forecasted production increase is driven by the expected commissioning of Phase 2 of the Townsend Facility ("Townsend Phase 2") in late 2017, and increased production resulting from the acquisition of UGR. Subsequent to the commissioning of Townsend Phase 2, pro forma exit volumes for 2017 are expected to be between 438 MMcfe/d (73,000 boe/d) to 450 MMcfe/d (75,000 boe/d).
ABOUT PAINTED PONY
Painted Pony is a publicly-traded natural gas corporation based in Western Canada. The Corporation is primarily focused on the development of natural gas and natural gas liquids from the Montney formation in northeast British Columbia. Painted Pony's common shares trade on the Toronto Stock Exchange under the symbol "PPY".
SOURCE: Painted Pony Petroleum Ltd.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.