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Pieridae Energy First Quarter 2020 Results

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   |    Thursday,May 28,2020

Pieridae Energy has reported its Q1 2020 results.

Highlights:

  • Revenue of $74.0 million in Q1 2020, an increase of $51.0 million or 222% compared to Q1 2019
  • Petroleum and natural gas revenue increased by $41.4 million or 178% compared to Q1 2019
  • Net operating income1 (“NOI”) increased by $14.1 million or 273% compared to Q1 2019
  • Adjusted Funds Flow From Operations1 (“AFFO”) increased by $12.0 million or 1,845% compared to Q1 2019, and cashflow from operations improved from a deficit of $17.1 million to $6.4 million
  • Q1 2020 average production was 41,211 barrels of oil equivalent per day (“boe/day”), an increase of 23,975 boe/day or 139% compared to Q1 2019
  • Natural gas physical hedging resulted in a realized natural gas price of $2.23/mcf, 15% higher than benchmark prices of $1.94/mcf for the quarter

Chief Executive Officer Alfred Sorensen said: “We continue to see the benefits of last fall’s Foothills Asset acquisition, with Pieridae recording strong financial results in spite of very challenging market conditions. Once again, our strong operational performance and positive hedging strategy helped insulate us from the current harsh realities, as realized natural gas prices were 15% higher than the benchmark price for the quarter.

"With a severe drop in oil prices and the overall impacts of COVID-19, some companies have had to deal with impairment charges as well as sizeable reductions in capital spending. Pieridae has not been required to take similar impairments in the quarter, and capital spending as well as the development budget for the Goldboro LNG Project remain intact.

“With a number of global LNG projects either being cancelled or delayed, now is the time for Canada to seize the opportunity to enter into this industry at a time when others are exiting. Our Goldboro LNG Project is sound‎ and supports the fundamental principles of First Nations reconciliation; interlocks with the goals of the Paris Climate Accord; would create good paying, middle-class jobs across the country; and opens up new energy trade routes to get sustainably-produced Canadian natural gas to global markets,” concluded Sorensen.

Q1 2020 Financial & Operations Highlights

Revenue of $74.0 million in Q1 2020 increased by $51.0 million or 222% compared to Q1 2019. This was due to three full months of operations from the combined natural gas and midstream assets purchased in 2018 and 2019. Third party processing fees together with expanded NGL and condensate production also contributed to the increase. Q1 2020 petroleum and natural gas revenue increased by $41.4 million or 178% compared to Q1 2019, including additional revenues as well as new revenue streams brought on as a result of the capabilities of the new assets acquired in the Foothills Asset acquisition.

NOI increased by $14.1 million or 273% compared to Q1 2019 due to the accretive production and revenue mix from the acquisition of the Foothills Assets last fall. Similarly, AFFO increased by $12.0 million or 1,845%, and cashflow from operations improved from a deficit of $17.1 million to $6.4 million during the quarter, providing further financial flexibility and improving working capital.

Operating netback in Q1 2020 increased by $1.82/boe or 55% as compared to Q1 2019. This was the result of a combination of higher average realized pricing and more diversified revenue streams.

This continuation of the transformational growth recorded in Q4 2019 will provide Pieridae with the liquidity it needs to operate its assets, as well as further de-risk the development work required for the multi-billion dollar Goldboro LNG Project.

Production

As previously highlighted, Q1 2020 production was 41,211 boe/day, an increase of 23,975 boe/day or 139% compared to the Q1 2019. This increase is primarily due to the Foothills Asset acquisition, partially offset by unplanned outages in the first two months of 2020 at two gas processing facilities during the coldest weeks of the year, which was rectified during the quarter. The significant growth in condensate and NGL production in the quarter reflects the deep cut capacity of the processing facilities acquired last fall.

The Company continues to have a strong hedging program in place to partially insulate itself from volatile commodity prices, which has proven successful at providing a degree of pricing certainty and revenue stability during these uncertain and challenging times. Realized natural gas prices were $2.23/mcf, which is $0.29/mcf or 15% higher than benchmark prices of $1.94 during the quarter.

COVID-19 Response/Adjustments

The Company reacted quickly and decisively early on in dealing with the potential impacts of COVID-19, implementing strict and consistent guidelines such as respecting the requirement for social distancing; a focus on frequent hand-washing; and having the protocol at the ready to self-isolate should anyone exhibit symptoms of the virus, which no employee has experienced.

Since mid-March, a majority of Pieridae head office employees have been working remotely, with the aligned purpose of ensuring all of the Company’s assets continue to operate safely and reliably. The assets have continued to perform well, without incident.

Pieridae maintained its focus on protecting the physical and mental well-being of its employees while doing all it could to protect against layoffs of full-time staff. That said, the Company has recognized the need to react to ensure the business remains viable for the near and long-term. The Board and CEO have absorbed a 20% reduction in compensation, VPs and above received a 15% cut and there has been a reduction of 10% in earnings for all salary/hourly employees.

AER Shell Asset Licence Transfer Decision

On May 13, 2020, the Alberta Energy Regulator (“AER”) made the decision to deny the application to transfer licences from Shell’s Foothills Assets to Pieridae.

While disappointed by the AER’s decision, both Pieridae and Shell are moving swiftly to evaluate options on the transfer applications and will continue to attempt to seek clarity from the regulator to define an appropriate path forward.

The decision has nothing to do with Pieridae’s financial position nor its ability to remediate certain assets. The issue for denial was the fact that there is no precedent for splitting a licence or no ability under the current legislation to do so, which is how the application submitted by Shell was presented to the AER. ‎This issue only applies to the Waterton and Jumping Pound gas plants.

The Foothills Assets are high quality and they include operating wells and three deep-cut sour gas processing plants with long term potential and remain attractive as the anchor production for our Goldboro LNG Project.

The Company is confident that the Shell Asset acquisition, having previously closed and been successfully integrated into Pieridae’s operations, can be aligned to address the concerns of the AER. Pieridae continues to maintain a solid relationship with Shell Canada and they remain with us as we work through a solution to this matter.

Q1 2020 Developments

Uniper Deadlines Extensions

On May 5, the Company announced that it and energy company Uniper Global Commodities agreed to extend key deadlines under their joint, 20-year agreement. The deadline extensions included expected commercial deliveries of gas to Uniper to start between August 31, 2025 and February 28, 2026; and the extension to June 30, 2021 of the deadline to make a positive final investment decision for the Company’s proposed Goldboro LNG Facility. The 20-year agreement with Uniper is for all of the liquefied natural gas produced at Goldboro Train 1 or 4.8 million tonnes per annum (“mmtpa”).

Pieridae remains focused on progressing work with KBR to deliver a fixed price contract to build the gas liquefaction Facility. The Company has begun to contract for services outside the primary engineering, procurement, construction and commissioning contract with the intent to begin the site preparation work as soon as possible. Some of these main activities include building the wharf and jetty, road reconstruction and constructing the work camp.

Guidance

We anticipate 2020 NOI in the range of $70 million to $90 million, production of 40,000 to 45,000 boe/day, capital expenditures of $28 million, and investment in Goldboro LNG development expense of $16 million. We anticipate commodities hedging of 40% to 60% on a boe/day basis, and $11.50 to $13.00/boe realized operating costs, not including transportation costs of approximately $0.90/boe.


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