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Pieridae Energy Third Quarter 2020 Results

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   |    Friday,November 13,2020

Pieridae Energy Limited reported its Q3 2020 results.

Highlights:

• Revenue (net of royalties) of $54.6 million in Q3 2020, an increase of $41.4 million or 315% compared to Q3 2019
• Net operating income¹ (“NOI”) increased by $2.1 million or 76% compared to Q3 2019
• Adjusted Funds Flow From Operations¹ (“AFFO”) increased by $0.9 million or 13% compared to Q3 2019
• Q3 2020 average production was 38,209 barrels of oil equivalent per day (“boe/day”), an increase of 23,552 boe/day or 161% compared to Q3 2019
• Completed deferred maintenance to ensure the continued, safe and reliable operation of our assets

Pieridae’s Chief Executive Officer Alfred Sorensen, said: “Our results show resiliency over the past three quarters as many companies continue to face the negativity of COVID-19 and its harsh impacts on the energy industry. We did invest in completing planned maintenance of our assets in the quarter that had been deferred due to the pandemic. This work is necessary to ensure we continue to operate safely and reliably for the winter season. Resulting lower volumes did impact our bottom line, but we will never compromise the safety of our employees. That said, volumes continue to recover in the fourth quarter, with October’s production averaging approximately 44,100 boe/day, a 13% improvement from September.

“I am pleased to say we made solid progress on our Goldboro LNG Project in the quarter, reaching an agreement with globally-respected engineering firm Bechtel to design and build the LNG Facility, and the Nova Scotia Mi’kmaq and Black Diamond Group received a Letter of Award from Pieridae for the exclusive right to negotiate the contract to build the $720 million workforce lodge to house the 5,000 men and women who will build the Facility,” added Sorensen.

“As Chiefs Prosper and Francis said, ‘A key component of reconciliation in Canada is the ability to have meaningful involvement in projects happening within our territories. We desire responsible development and environmental stewardship that reflect a Mi’kmaq voice and our agreement with Pieridae is an example of how companies can respect our Mi’kmaw Rights and Title, and also provide an opportunity for Mi’kmaq participation in development on our lands’.”

Q3 2020 Financial & Operations Highlights

Revenue (net of royalties) of $54.6 million in the three months ended September 30, 2020 increased by $41.4 million or 315% compared to the same period in 2019, due to the acquisition of the Southern Alberta Foothills assets. This includes $28.8 million of natural gas revenue, natural gas liquids (“NGLs”) and condensate revenue of $17.7 million, and third-party processing fees of $6.0 million. Petroleum and natural gas revenue in Q3 2020 of $48.3 million increased by $35.7 million or 281% compared to the same quarter in 2019. On a year-to-date basis, petroleum and natural gas revenue of $167.4 million increased by $119.1 million or 247% compared to the same period in 2019.

Similarly, revenues (net of royalties) were $197.1 million on a year-to-date basis in 2020, an increase of $147.6 million or 298% as compared to the same period in 2019. Increases in both the three and nine months ended September 30 when compared to the same period in 2019 are due to full quarters of operations, including expanded production of natural gas, condensate and NGLs from the Southern Alberta Foothills assets, and the addition of third party processing revenue of $6.0 million for the current quarter and $19.7 million on a year-to-date basis.

NOI increased by $2.1 million or 76% compared to Q3 2019 due to the ongoing, positive impacts of our acquisition of the Foothills assets. Q3 2020 NOI of $-0.6 million was down from the previous quarter due to both the realized gain on risk management contracts of $8.2 million and the decrease of processing fee expenses of $10.0 million related to a legal arbitration provision adjustment both recorded in the second quarter and not repeated in the third quarter.

AFFO increased by $0.9 million or 13% year-over-year, and working capital increased 90% from a deficit of -$88.4 million in Q3 2019 to a much smaller deficit of -$9.2 million in Q3 2020. The deficit was the result of net losses experienced during the period, continued weakness in condensate and liquids pricing, and sustaining and maintenance capital projects undertaken during the quarter, which also lowered volumes. These are expected to be temporary and working capital is anticipated to trend higher over the next 12 months.

During the nine months ended September 30, 2020, NOI increased by $37.4 million when compared to the same period in 2019 due to accretive production and enhanced revenue mix from the acquisition of the Southern Alberta Foothills assets. Similarly, on a year-to-date basis, AFFO improved from a deficit of $13.8 million to positive $18.3 million.

Summary of Q3 Results

Q3 2020 average production was 38,209 boe/day, an increase of 23,552 boe/day or 161% compared to Q3 2019. Compared to Q2 2020, production was down by 5,582 boe/day due primarily to the previously highlighted maintenance on our assets we preformed in Q3, including the $3.7 million turnaround at our Jumping Pound Gas Complex, and volumes lost through heavy June flooding. As stated earlier, those volumes are returning in the fourth quarter. Throughout the challenges COVID-19 has posed amid a year of operational and cultural integration as a result of significant recent acquisitions, Pieridae remains committed to following through with continued, appropriate maintenance programs, and we are impressed by the operational resilience of our assets.

The Company continues to have a robust hedging program in place with the goal of partially insulating us from volatile commodity prices, which has proven successful in previous quarters at providing a degree of pricing certainty and revenue stability during these uncertain and challenging times. The average realized price during the quarter, excluding hedging gains, was $1.70/mcf for natural gas compared to $1.87/mcf in the previous quarter, representing a decrease of 9%, and compared to an average benchmark price of $2.31/mcf in Q3 2020. Hedging that had been put into place earlier in the year to protect revenues ultimately did not allow Pieridae to fully take advantage of the strengthening natural gas price. This was partially offset by stronger condensate and liquids pricing. The average realized price for condensate was $44.53/bbl compared to $39.91/bbl in the previous quarter, an increase of 12%.

COVID-19 Response/Adjustments

Pieridae continues to proactively respond to the safety and financial challenges associated with the global COVID-19 pandemic. We remain committed to ensuring the health and safety of all our employees and contractors in the field and in our corporate offices. The first half of 2020 was characterized by extremely negative movements in liquids pricing coupled with unprecedented uncertainty. The Company responded strongly by monetizing certain hedge positions, limiting non-essential capital and operating expenditures, and took steps to reduce administrative costs, while continuing to support the safe and reliable operation of our assets.

During the third quarter, the impact from the pandemic began to subside as governments reduced public restrictions. As stated earlier, Pieridae responded by successfully completing key maintenance projects.

Q3 2020 Developments

New SVP LNG Hired

On August 27, 2020, we were excited to welcome Andy Mukherjee P. Eng. as Senior Vice-President LNG to lead the development of the multi-billion-dollar Goldboro LNG Project. Mr. Mukherjee is a veteran LNG industry professional with worldwide expertise in front-end engineering and design; and engineering, procurement, construction and commissioning (“EPCC”) contracts.

He is a very skillful and credible addition to Pieridae, having worked on modular design and execution of four major global LNG projects: Qatargas NFE LNG, Cameron LNG, INPEX-Ichthys LNG and British Gas QCLNG, with additional experience working with EPCC contractors Jacobs, FLOUR, Wood Group and JGC.

Mr. Mukherjee has moved quickly to integrate Pieridae’s new EPCC contractor and optimize the LNG team’s structure to get the Goldboro LNG Project across the finish line as we prepare for a final investment decision next summer.

Pieridae Engages EPCC Contractor Bechtel

On September 29, 2020, we were pleased to announce the signing of a services agreement with respected global engineering firm Bechtel related to Pieridae’s 2-Train Goldboro LNG Facility. Some of the key deliverables in the services agreement are:

• Initiating a detailed review of the scope and design of the Goldboro LNG Facility and developing a comprehensive EPCC execution plan by March 31, 2021;
• Delivering a final lump sum, turnkey EPCC contract price proposal by May 31, 2021; and
• Conducting a meaningful engagement with the Nova Scotia Mi’kmaq First Nations including their participation in the construction of a large-scale workforce lodge at the LNG site.

Our press release highlighted the fact that Bechtel has significant experience building and delivering global LNG projects, helping their customers deliver about 30% of the world’s LNG capacity over the past two decades. They have a proven track record of delivering projects throughout the world on time and on budget.

Bechtel’s Oil, Gas and Chemicals President Paul Marsden was quoted in the release as saying his company was honoured to partner with Pieridae to deliver a cleaner energy future, and that Bechtel brings a long history of successfully delivering projects in Canada and partnering with its global customers to expand access to this energy source.

Nova Scotia Mi’kmaq, Black Diamond Group Given Opportunity to Build Large-Scale Workforce Lodge

On October 1, 2020, it was announced that all 13 Nova Scotia Mi’kmaq communities and Black Diamond Group had received a Letter of Award from Pieridae which gives them the exclusive right to negotiate the contract to build a workforce lodge and associated amenities during the four year construction phase of the Goldboro LNG Facility proposed for Guysborough County, Nova Scotia. The estimated value of the contract is $720 million.

The lodge will be home to 5,000 workers who will build the multi-billion-dollar LNG Facility. Black Diamond will be responsible for the lodge, the Mi’kmaq would provide hospitality services such as catering, housekeeping and guest services.

Our CEO Alfred Sorensen was quoted in the Black Diamond press release as saying: “Signing the Benefits Agreement with the Assembly of Mi’kmaq Chiefs in early 2019 was the first step in helping to ensure the Mi’kmaq participate in the opportunities that stem from the construction of our Goldboro LNG Facility. This award for the Mi’kmaq and Black Diamond to work together on a $720 million, 5,000-bed workforce lodge at the LNG site is a clear demonstration the Benefits Agreement is real, and that there will be more opportunities to come.”

2020 Guidance

We now anticipate 2020 NOI in the range of $55 million to $65 million, expected production of 40,000 to 45,000 boe/day, capital expenditures of $11 million, and a development expense investment in Goldboro LNG of $16 million. We anticipate commodities hedging of 40% to 60% of net production on an 18-month rolling boe/day basis, and $11.50 to $13.00/boe realized operating costs, not including transportation costs of approximately $1.02/boe.