Drilling & Completions | Quarterly / Earnings Reports | Fourth Quarter (4Q) Update | Reserves | Financial Results | Capital Markets | Drilling Activity | Capital Expenditure - 2020 | 2020 Guidance

Painted Pony Details 1H20 Capex; Reports Fourth Quarter 2019 Results

Email    |    Print    |    Bookmark

You Need to login first

   |    Friday,March 13,2020

Painted Pony Energy Ltd. reported its fourth quarter and full-year 2019 financial and operating results, year-end 2019 reserves, 2020 first-half capital spending, and anticipated future reductions to transportation, processing, and general and administrative expenses.

2020 Plan - IDs 1H20 Spending Plan

Painted Pony is taking a cautious approach to capital spending in 2020. The Painted Pony Board of Directors has approved first half 2020 capital spending of $25 million to $30 million. This compares to $42 million spend in 2019.

The Board of Directors and management have planned a mid-year review to determine appropriate second-half spending.

2019 Highlights:

• Reduced bank debt at 2019 year end by 26% or $43 million to $120 million when compared to 2018 year-end bank debt of  $163 million;
• Closed the sale of a 75% working interest on 11,280 gross acres (8,460 net acres) in the South Townsend block during the fourth quarter of 2019 for total cash consideration of $45 million;
• Drilling began in March 2020 on an eight-well Montney program by joint venture partner and project operator Tourmaline Oil Corp. on the 25% working interest South Townsend block;
• Amended processing and transportation agreements which, when fully implemented, are expected to save Painted Pony approximately $18 million annually;
• Delivered a 2019 Proved Developed Producing (“PDP“) recycle ratio of 1.3 times, resulting in a three-year average PDP recycle ratio of 1.5 times;
• Reduced Total Proved (“1P“) future development capital (“FDC“) by 11% or $172 million;
• Expect to begin flowing production volumes in March 2020 through the new deep-cut facility at the AltaGas Townsend Facility (“Townsend Facility”) which is expected to add approximately 1,200 bbls/d of natural gas liquids (“NGLs“), increasing Painted Pony’s liquids yields to more than 10%;
• Forecasting 2020 gross G&A to be approximately 8% or $2 million lower than 2019 gross G&A expenses;
• Increased production volumes to an estimated daily average of 315 MMcfe/d (53,000 boe/d) for the months December 2019, January 2020, and February 2020, based on actuals and field estimates; and
• Generated adjusted funds flow from operations of $18 million during the fourth quarter of 2019 bringing full-year 2019, adjusted funds flow from operations to $76 million.

Patrick Ward, President and CEO of Painted Pony, in commenting on these highlights said, “The commodity markets continue to be highly volatile with natural gas prices reaching generational lows during the summer of 2019 before AECO began rebounding in late 2019 only to see NYMEX prices fall in early 2020. Painted Pony’s market diversification strategy and fixed price hedges allowed us to realize a 2019 natural gas price that exceeded the average 2019 AECO 5A daily spot price by 36%. Through the combination of capital discipline and an asset sale, we were able to reduce year-end bank debt by 26% or $43 million. We are entering 2020 with a cautious first half capital budget which forecasts investing $25 to $30 million, including drilling the first eight wells in our new joint venture with Tourmaline Oil Corp. on the South Townsend block.

"We are continuing to exercise caution in this difficult market which means focusing our efforts on streamlining capital spending, potential asset sales, and the ongoing pursuit of long-term contracts with large end-users of natural gas, and other cost saving initiatives. While it remains a very challenging natural gas price environment, the long-term outlook is improving as evidenced by the ongoing construction of the LNG Canada facility at Kitimat, BC, the anticipated final investment decision on the Woodfibre LNG project in 2020, and the recently announced $4 billion planned expansion to FortisBC’s Tilbury LNG facility.”

Cost Structure

As part of ongoing cost reductions, Painted Pony is pleased to announce several successful initiatives which are expected to reduce annual operating and transportation expenses.

Townsend Facility Cost Structure Improvements

Effective October 1, 2019 the take-or-pay commitment at the Townsend Facility was reduced by 15 MMcf/d. The take-or-pay commitment will be reduced by an additional 16 MMcf/d on August 1, 2020 with an additional 9 MMcf/d reduction to the take-or-pay commitment on August 1, 2021, for a total reduction of take-or-pay obligation of 15% or 40 MMcf/d. In addition, Painted Pony will realize a reduced capital lease fee at the Townsend Facility, which is expected to lower the per unit cost by approximately 10%. Also, the annual fixed-cost liquids transportation expense has been reduced by approximately 40% from the Townsend Facility to the North Pine Fractionator.

Reduced Transportation Obligations

In addition to reduced facility costs, Painted Pony has permanently reduced firm transportation obligations on two major pipelines. Effective August 1, 2020, Painted Pony’s excess firm transportation obligations will be reduced by 30 MMcf/d, consisting of a reduction of 15 MMcf/d on the T-North pipeline and 15 MMcf/d on the North Montney Mainline which when combined and fully implemented, is expected to reduce Painted Pony’s annual transportation expenses by approximately $3.7 million.

Once fully implemented, cost structure improvements at the Townsend Facility combined with reduced transportation obligations on both the T-North and North Montney Mainline pipelines are expected to save Painted Pony approximately $18 million per year.

G&A Cost Reductions

Through a combination of staff attrition, reduced compensation, and various other cost cutting measures, 2019 gross G&A expenses were $1.4 million lower than 2018 gross G&A. Ongoing efficiency initiatives are expected to further reduce forecasted 2020 gross G&A expenses by an incremental $2 million below that of 2019.

2019 Financials / Ops Results

Capital Expenditures

Net cash capital spending during 2019 totaled approximately $42 million, net of asset sale proceeds, compared to adjusted funds flow of $76 million.

Capital investment activities during 2019 included drilling 13 (13.0 net) wells, the completion of 14 (14.0 net) wells and investments into associated facilities and infrastructure. During the fourth quarter of 2019, Painted Pony completed 2 (2.0 net) wells, and executed a capital program totaling $12 million.

Production

Painted Pony’s 2019 annual average daily production was 294 MMcfe/d (48,979 boe/d), including 9% or 4,198 bbls/d of NGLs and 269 MMcf/d of natural gas compared to 347 MMcfe/d (57,879 boe/d) during 2018. Fourth quarter 2019 daily production volumes averaged 271 MMcfe/d (45,173 boe/d) compared to 315 MMcfe/d (52,453 boe/d) during the fourth quarter of 2018. Average daily production volumes during 2019 were significantly impacted by voluntary pricing-related shut-ins and pipeline restriction shut-ins. The impact of these shut-ins for the full year 2019 was 36.6 MMcfe/d (6,100 boe/d), while the impact during the  fourth quarter of 2019 was 55.8 MMcfe/d (9,300 boe/d).

The low natural gas prices which plagued summer and fall 2019 and which were the cause for material production volume shut-ins improved in mid-November with natural gas prices supporting higher production volumes. December 2019 daily production volumes averaged 319 MMcfe/d (53,158 boe/d); significantly higher than the quarterly average daily production volumes of 271 MMcfe/d (45,173 boe/d) during the fourth quarter of 2019.

Adjusted Funds Flow from Operations

Adjusted funds flow from operations during the fourth quarter of 2019 was $18 million ($0.11 per basic share) with full year 2019 adjusted funds flow totaling $76 million ($0.47 per basic share).

Ops Update

Current Production

Due to improved natural gas pricing and strong performance from our most recent wells, average daily production volumes during December 2019, January 2020, and February 2020 averaged greater than 318 MMcfe/d (53,000 boe/d), based on actuals and field estimates.

South Townsend Joint Venture

Tourmaline Oil Corp., Painted Pony’s joint venture partner and operator of the project on the liquids-rich South Townsend block, began drilling an eight-well program in March 2020.

Townsend Facility Deep Cut Access

Painted Pony is expecting to access the new deep cut facility at the Townsend Facility which is expected to be commissioned and operational in late March 2020. Producing gas through the deep cut facility will increase Painted Pony’s liquid yields and increase absolute NGL production by an estimated 1,200 bbls/d, increasing Painted Pony’s liquids yield to greater than 10% of daily production volumes. The majority of this NGL production increase will be propane. Painted Pony’s access to the AltaGas North Pine Fractionator and Ridley Island Propane Export Terminal will attract international pricing for the Corporation’s propane production volumes. These international pricing benchmarks have typically traded at a premium price to North America propane pricing.

2019 Summary of Reserves

The Corporation retained independent qualified reserves evaluators, GLJ Petroleum Consultants Limited (“GLJ”), to evaluate and review all of the Corporation’s proved and proved plus probable reserves effective December 31, 2019, which is contained in a report dated March 11, 2020 (the “2019 Reserves Report”). The evaluation and review was conducted and prepared in accordance with standards contained in the Canadian Oil and Gas Handbook. The reserves disclosure is presented in accordance with NI 51-101 requirements using forecast prices and costs.

Despite lower capital investment during 2019 due to lower natural gas prices and their impact on Painted Pony’s adjusted funds flow from operations, 1P and 2P reserve volumes remained relatively unchanged from year-end 2018. Strong well performance, including positive results from longer lateral wells, and improved year-over-year capital efficiencies all contributed to relatively minor changes to the 2019 reserve volumes.

Proved Developed Producing

As at December 31, 2019, Painted Pony had PDP reserves of 878 Bcfe (146 MMboe). The 2019 capital program delivered a PDP FD&A cost of $1.26 per Mcfe. NGLs made up approximately 9% of PDP reserves at December 31, 2019.

Total Proved

As at December 31, 2019, Painted Pony’s 1P reserves were approximately 3.0 Tcfe (496 MMboe). Painted Pony realized 1P FDC cost reductions of 11% or $172 million, largely due to the impact of longer laterals on future development plans. The 1P FDC cost reductions of $172 million exceeded total 2019 capital spending of $87 million (prior to asset disposition proceeds).

Total Proved Plus Probable

As at December 31, 2019, Painted Pony’s 2P reserves were approximately 6.8 Tcfe (1,134 MMboe). Painted Pony realized 2P FDC cost reductions of 4% or $133 million, largely due to the impact of longer laterals on future development plans. The 2P FDC cost reductions of $133 million exceeded total 2019 cash capital spending of $87 million (prior to asset disposition proceeds).