Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets | Credit Facility Change

Petrus Resources Third Quarter 2020 Results

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Petrus Resources Ltd. reported its Q3 2020 results.

Q3 Summary

In the third quarter of 2020 Canadian natural gas forward prices experienced significant gains. The improved pricing in conjunction with Petrus’ 70% natural gas weighting have contributed to a materially improved revenue outlook for Petrus for the remainder of 2020 and into 2021. Petrus’ realized natural gas price was $2.51/mcf in the third quarter of 2020 compared to $1.12/mcf in the third quarter of 2019. Management continues to utilize financial derivative contracts to protect revenue streams to support planned debt repayments.

Combined with an improved revenue outlook, the efforts Petrus has made to decrease both operating and general and administrative costs have generated increased free cash flow available for debt repayment. The Company reduced net debt⁽¹⁾ levels by $3.9 million in the third quarter; over the last two quarters Petrus has repaid $9.3 million in total net debt. Over the past two quarters, debt reduction has exceeded the bank’s required repayment targets by 70%.

Third quarter production was supported by increased volumes from the two Cardium wells drilled in the first quarter of the year. These wells were intentionally restricted late in the first quarter due to depressed commodity prices but were returned to higher production rates in July. Third quarter production was 6,463 boe/d compared to 6,291 boe/d in the second quarter of 2020. Third quarter production volumes were impacted by the scheduled 2.5 day turnaround at the Ferrier 2-25 gas plant in late September as well as turnaround work at a partner operated facility in the Foothills area; management estimates the impact on third quarter volumes to be approximately 170 boe/ d.

Highlights:

• Debt repayment – Reduced net debt by $3.9 million during the quarter. Net debt repayment totals $31 million since the start of 2018.
• Strong funds flow – Generated funds flow⁽¹⁾ of $7.6 million ($0.15 per share) for the third quarter of 2020 with net capital expenditures of $2.5 million.
• Improving natural gas pricing – November 2020 to October 2021 AECO forward strip price increased 33% from June 30, 2020 to October 30, 2020 – $2.19/GJ to $2.91/GJ (Source: CIBC Energy Update).
• Credit facility – The Company completed the fall borrowing base review subsequent to quarter end with terms consistent to the 2020 annual review.
• Low operating costs – Operating expense for the three months ended September 30, 2020 was $4.05/boe. This is one of the lowest since inception and Petrus’ management believes its operating expense is consistently among the best in its peer group. The Company continues to focus on optimizing its cost structure, particularly in the Ferrier area, through facility ownership and control.
• Commodity price risk mitigation – Petrus utilizes financial derivative contracts to mitigate commodity price risk and provide stability and sustainability to funds flow. Petrus achieved a gain of $2.20/boe in the third quarter as a result of these contracts.

Credit Facility

Subsequent to the end of the third quarter, the Company completed its fall borrowing base review of the Revolving Credit Facility (“RCF”). At the end of the third quarter of 2020, the Company was drawn $80.3 million against the RCF. Petrus has continued to exceed mandated debt repayment targets of $2.75 million per quarter as required under the terms of the RCF. The RCF maturity date is May 31, 2021. Petrus’ management believes it has adequate liquidity to execute the Company’s business plan over the coming year. The Company continues its efforts to divest certain non-core assets and evaluate other sources of capital to improve its balance sheet. Reduction of debt remains the Company’s top priority. Since December 31, 2015 Petrus has repaid 49% or $110 million of its net debt⁽¹⁾.

Q4 2020 Outlook

Petrus intends to remain flexible to adjust quarterly capital spending as the year progresses. The Company did resume drilling activity late in the third quarter as management accelerated a planned fourth quarter drilling operation to take advantage of favorable fall weather conditions. The completion and tie in of this well will comprise the majority of the $2.5 million in capital spending planned for the remainder of the year. With the high level of control afforded by operated assets and ownership of key infrastructure, the Company can adjust liquids content in the natural gas stream to maximize profitability of all products as well as adjust production rates quickly to respond to changing market conditions.

Ops Update

Third quarter average production by area was as follows:

Third quarter production averaged 6,463 boe/d compared to 6,291 boe/d in the second quarter of 2020. The increase is due to additional volumes from the two Cardium wells drilled in the first quarter of the year. These wells were intentionally restricted late in the first quarter due to depressed commodity prices but were returned to higher production rates in July. Third quarter production volumes were impacted by the scheduled 2.5 day turnaround at the Ferrier 2-25 gas plant in late September as well as turnaround work at a partner operated facility in the Foothills area; management estimates the impact on third quarter volumes to be approximately 170 boe/d.

Petrus’ ownership and control of critical processing facilities enables the Company to respond and continually optimize its production revenue streams. To improve operating netback, during 2019, Petrus ceased sending certain natural gas for additional third party deepcut processing to extract additional NGLs. This resulted in lower NGL production volume, however, the heating value of natural gas sales increased and processing fees decreased. Petrus continues to monitor NGL market pricing and is able to modify its operations accordingly.

The Company did resume drilling activity late in the third quarter as management accelerated a planned fourth quarter drilling operation to take advantage of favorable fall weather conditions. The completion and tie in of this well will comprise the majority of the $2.5 million in capital spending planned for the remainder of the year. With the high level of control afforded by operated assets and ownership of key infrastructure, the Company can adjust liquids content in the natural gas stream to maximize profitability of all products as well as adjust production rates quickly to respond to changing market conditions. With current pricing, new wells drilled in Petrus’ core area of Ferrier can deliver payouts in under one year.

Petrus received support benefits from the Canada Emergency Wage Subsidy program and has made successful applications for grants under the Alberta Site Rehabilitation Program. The Company will continue to pursue programs announced by the Federal and Provincial Governments to support Canadian businesses, and the oil and gas industry specifically through the COVID-19 pandemic.