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Painted Pony Increases Credit Limit, Drilling 16 Townsend Wells

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Painted Pony Petroleum Ltd. has provided an operational update and announce its second quarter 2015 financial and operating results.

Highlights:

• Increased syndicated credit facilities to $325 million from $175 million.
• Construction has commenced for the 198 MMcf/d AltaGas Townsend Facility and remains on schedule for completion in mid-2016.
• Entered into a long-term natural gas transportation agreement with Spectra Energy for 220 MMcf/d of firm capacity on the T-North Pipeline.
• Continued flow testing of the Company's first parallel-pair Montney wells in the Townsend area, which have flowed at a combined average rate of 25.8 MMcfe/d (4,300 boe/d), which includes 21.1 MMcf/d of natural gas and approximately 1,100 bbls/d of natural gas liquids.
• Increased average production to 93.7 MMcfe/d (15,622 boe/d), a 4% increase from the second quarter of 2014, even though second quarter of 2014 production included 980 boe/d from Saskatchewan, which was sold in July 2014.
• Mr. Patrick Ward, President and CEO said: "We are very pleased with the success of our efforts to reduce operating and capital costs, while continuing to realize strong flow test and initial production rates from recent wells. Painted Pony remains on track to deliver fully contracted volumes to the AltaGas Townsend Facility when it begins processing Painted Pony's production in mid-2016."

Operations Update

• During the second quarter of 2015, a number of milestones have been achieved in Painted Pony's plan to deliver 240 MMcfe/d of production by the end of 2016.
• As previously announced, the Corporation's syndicated credit facilities were increased to $325 million from $175 million, with initial availability of $225 million. Availability under the credit facilities is structured to increase in stages, in line with a pre-determined development schedule associated with the AltaGas Townsend Facility.
• Construction has commenced for the AltaGas Townsend Facility and remains on schedule to be completed mid-2016. Mobilization of site facilities and driving of test piles is underway. The Facility will have a capacity of 198 MMcf/d after initial commissioning is completed and Painted Pony expects to begin ramping up production to its initial firm capacity of 150 MMcf/d (135 MMcf/d "take or pay") in the second half of 2016. The contractual obligation to deliver 180 MMcf/d on a "take or pay" basis will begin twelve months after Facility start-up.
• As previously announced, Painted Pony signed a definitive agreement with Spectra Energy for 220 MMcf/d of firm capacity on the T-North pipeline, the November 2016 timing of which will follow the start-up of the new AltaGas Townsend Facility. This contract provides long-term natural gas transportation for Painted Pony's growing British Columbia production base with a connection to Station 2 and the opportunity for future deliveries to AECO.
• Painted Pony continues to advance its pre-drill program for the AltaGas Townsend Facility. To date, six (6.0 net) wells have completed drilling operations. Over the next 12 months, the Corporation expects to drill an additional 16 (16.0 net) wells under its Townsend pre-drill program. All of the Townsend pre-drill wells will be completed using Painted Pony's industry-leading ball-drop and parallel pair completion technology.
• Two Lower Montney wells in the Townsend area, recently completed using ball-drop, parallel-pair technology, have been placed on production and have commenced flowing in-line to the Corporation's 33-J facility. The first well, identified as "c-2-J" tested at an average rate of 8.4 MMcf/d over two flow intervals for a combined 12.2 days. It flowed at 9.9 MMcf/d during the latest 72 hours of flow testing, with an average flowing pressure of 1,579 psi. The second well, identified as "c-A2-J", tested at an average rate of 10.8 MMcf/d over two flow intervals for a combined 13.4 days. It flowed at 11.2 MMcf/d during the latest 72 hours of flow testing, with an average flowing pressure of 1,166 psi. Utilizing gas analyses from these two wells and a plant process model for the AltaGas Townsend Facility, the combined average flow rate of these two wells is 25.8 MMcfe/d (4,300 boe/d), which includes 21.1 MMcf/d of natural gas and approximately 1,100 bbls/d of natural gas liquids. These natural gas liquids (C3+) include 725 bbls/d of condensate and 375 bbls/d of propane and butane.

Current Production and Guidance

• Subsequent to a major turnaround of a third party operated facility, Painted Pony's production during the first week of August was over 102 MMcfe/d (17,000 boe/d), based on field estimates. There is approximately 36 MMcf/d (6,000 boe/d) of additional volume behind pipe due to limited processing capacity, with seven (7.0 net) wells drilled and cased, awaiting completion.
• For 2015, Painted Pony's capital budget remains unchanged at $104 million and production guidance remains unchanged at an average of approximately 96 MMcfe/d (16,000 boe/d). 
• Estimated 2015 production represents a 21% increase over production volumes for 2014, driven by recent commissioning of new and expanded facilities in the Blair and Daiber areas, allowing shut-in production and incremental volumes from the Corporation's successful drilling program to come on stream.

Q2 2015

Production

• Production averaged 93.7 MMcfe/d (15,622 boe/d) in the second quarter of 2015, weighted 94% to natural gas and represented an increase of 4% over the second quarter of 2014. This production increase was accomplished despite a major turnaround of a third party operated facility during the quarter and the inclusion in the second quarter of 2014 of 980 boe/d in Saskatchewan, which was sold in July 2014. Average NGL production for the second quarter of 2015 was 864 bbl/d, down 33% from the second quarter of 2014 production of 1,293 bbl/d, also due to the third party facility turnaround, impacting production from the Corporation's liquids rich Townsend area. Natural gas and NGL volumes are expected to recover early in the third quarter of 2015.

Operating Netbacks

• Painted Pony improved its operating costs on a per unit basis in the second quarter of 2015 to $0.98 per Mcfe, a 20% reduction from the second quarter of 2014. This reflects recent decreases in service costs due to reduced industry activity and the dedication and commitment from production and operations staff to cost management and control.
• Transportation costs decreased 43% from second quarter of 2014 to $0.32 per Mcfe as the Corporation is now utilizing alternative delivery points with shorter wait times for the trucking of NGLs. In addition, due to the turnaround of a third party operated facility, production volumes were shut in for 25 days during the month of June in the Corporation's Townsend area, which typically have higher transportation costs.
• With all of its production coming from west of the royalty reduction line in British Columbia, Painted Pony continues to benefit from one of the most attractive fiscal regimes in the oil and gas industry, paying an average royalty rate of 2.5% in the second quarter of 2015.
• Painted Pony realized total field operating netbacks of $1.30 per Mcfe for the second quarter of 2015, down 71% from second quarter of 2014 netbacks of $4.51 per Mcfe. This drop was primarily a result of lower realized commodity prices and the impact of the disposition of the Corporation's Saskatchewan oil assets effective July 30, 2014, partially offset by lower per unit royalties, operating expenses and transportation costs.

General and Administrative Costs

• Painted Pony improved its general and administrative costs on a per unit basis in the second quarter of 2015 to $0.25 per Mcfe, a 4% improvement over the second quarter of 2014. In February 2015 each of Painted Pony's executive officers and senior managers voluntarily took a 12% and 6% reduction in their salaries, respectively, as part of a commitment to reducing costs during this period of low commodity prices.

Funds Flow from Operations

• During the second quarter of 2015, Painted Pony generated funds flow from operations of $10.7 million, which represents a 68% decrease over the second quarter of 2014. On a per share basis, Painted Pony generated funds flow from operations of $0.11 per share, a decrease of 71% over the results of the second quarter 2014 of $0.38 per share. Decreased funds flow from operations was primarily a result of lower natural gas and natural gas liquids prices.

Capital Expenditures

• During the three months ended June 30, 2015 the Corporation invested $21.8 million in exploration and development capital expenditures, including $12.8 million on drilling and completions activity. The Corporation drilled two (2.0 net) and completed two (2.0 net) Montney natural gas wells in the quarter. Facilities and equipment spending of $8.0 million includes equipping costs and pipeline infrastructure costs in the Blair and Townsend areas.