Painted Pony Announces $215 Million 2016 Capital Budget to Fund 150 Percent Exit Rate Production Growth in 2016 and Third Quarter 2015 Financial and Operating Results

CALGARY, Nov. 10, 2015 /CNW/ - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX: PPY) is pleased to announce a 2016 capital budget of $215 million and third quarter 2015 financial and operating results.  The Corporation's 2016 capital budget is focused on adding production volumes at strong capital efficiencies to ensure ongoing balance sheet strength while adding significant shareholder value.  Improved well performance in Painted Pony's Montney resource is providing exposure for investors to one of North America's most economic natural gas plays.

Highlights

  • Painted Pony's $215 million capital budget for 2016 is $72 million (25 percent) less than previous estimates while maintaining previously planned 2016 production estimates.

  • 2016 exit production is expected to exceed 240 MMcfe per day (40,000 boe per day), a year-over-year increase of 150 percent.

  • Painted Pony anticipates drilling 29 net wells in 2016, 9 fewer than originally planned, while meeting volume targets.

  • Recent 2015 drilling, completions, equipping and tie-in costs have averaged $5.9 million per well, a decrease of 18 percent from 2014 average well costs.

  • In 2016, 75 percent of current production is hedged at an average price of $3.03 per Mcf.

  • 100 percent of Painted Pony's planned field spending in the 2016 capital budget will be invested in British Columbia which has an attractive royalty structure. 

  • Painted Pony's borrowing base was recently confirmed at $225 million, with total bank facilities being maintained at $325 million.

  • Construction by AltaGas Ltd. ("AltaGas") at the AltaGas Townsend Facility is on schedule and on budget.

  • Average production grew 9 percent to 93.1 MMcfe per day (15,523 boe per day) in the third quarter of 2015 compared to 85.7 Mmcfe per day (14,283 boe per day) in the third quarter of 2014.

  • Operating costs decreased 16 percent to $0.95 per Mcfe in the third quarter of 2015 compared to $1.13 per Mcfe in the third quarter of 2014.

  • Transportation costs decreased 20 percent to $0.36 per Mcfe in the third quarter of 2015, compared to $0.45 per Mcfe in the third quarter 2014.

  • Royalties decreased by 26 percent to 2.6 percent of revenue in the third quarter of 2015 compared to 3.5 percent of revenue in the third quarter of 2014.

In commenting on the 2016 capital budget, Mr. Patrick Ward, President and CEO said, "Continued decreases in capital costs combined with increasing well performance and a continuation of the existing borrowing base, position Painted Pony to achieve its 2016 goals as outlined in the 5-year plan.  In 2016, Painted Pony expects to bring on production that will show more than 150 percent growth in the fourth quarter 2016 over fourth quarter exit 2015 by drilling fewer wells and spending less per well."

2016 Capital Budget

2016 is a pivotal year for Painted Pony with average annual daily production anticipated to increase 44 percent from 93 MMcfe per day (15,500 boe per day) in 2015 to 138 MMcfe per day (23,000 boe per day).  Fourth quarter 2016 exit production is expected to exceed 40,000 boe per day (240 MMcfe per day) driven by the anticipated commissioning of the AltaGas Townsend Facility in mid-2016.  The forecast growth during 2016 is comparable to production forecasts previously outlined in Painted Pony's 5-year plan.

Painted Pony expects to deliver 2016 production volumes consistent with the 5-year plan, while executing a capital budget of $215 million, $72 million less than the $287 million originally planned.  This is due to reduced costs and improved well performance.  This capital program is expected to support the production necessary to achieve the Corporation's 150 MMcf per day planned volume at the Townsend Facility in the fourth quarter of 2016.  The AltaGas Townsend Facility is currently estimated to begin processing natural gas by mid-year 2016.

Strong well performance in the Townsend and Blair areas combined with capital costs that continue to decline are driving significant capital efficiency improvements.  Parallel pair wells represent a step-change in well-productivity with average 6-month cumulative production more than 40 percent higher than previous single ball-drop wells and 93 percent higher than wells completed using the plug and perf methodology.  Drilling, completion, and equipping costs have dropped 18 percent to $5.9 million per well from a 2014 average of $7.2 million per well.  Painted Pony originally planned to drill 38 net wells in 2016.  Improved well performance reduces the number of wells required to meet the 2016 production guidance, from 38 net wells to 29 net wells, a 24 percent reduction. 

Third Quarter Financial and Operating Results

Despite increased production volumes for the third quarter of 2015, a reduced pricing environment was the primary cause of funds flow from operations declining by 69% compared to the third quarter of 2014.  Painted Pony periodically shut in production volumes during the third quarter to mitigate the impact of pricing volatility at Station 2.  While the duration of production turndowns were brief, lasting from one day to three days, the net impact to third quarter 2015 production volumes was approximately 640 boe per day.  Despite these production turndowns, the Corporation met third quarter 2015 production guidance due to improved well performance. 

The Corporation has executed AECO-based pricing contracts on greater than 70 percent of estimated natural gas production volumes for November and December of 2015 at an AECO-based price minus a fixed $0.64 per GJ differential.  Painted Pony has signed additional fixed price contracts on approximately 37 percent of estimated natural gas production for January through October of 2016 at an AECO-based price minus a fixed $0.58 per GJ differential.  These contracts mitigate exposure to recent low natural gas pricing at the British Columbia-based sales hub, Station 2. 

Guidance

Painted Pony expects the 2015 capital program to be $107 million, which includes accelerating one well from the 2016 drilling plan into 2015.  Due to ongoing third-party transportation outages, Painted Pony's full-year 2015 average daily production guidance is expected to be approximately 93 MMcfe per day (15,500 boe per day) and fourth quarter 2015 average daily production is expected to be approximately 90 - 93 MMcfe per day (15,000 – 15,500 boe per day).  Average daily 2015 production guidance represents a 17 percent increase over average daily production volumes for 2014.  Additional current production capability of 48 MMcf per day (8,000 boe per day) is shut-in waiting on expanded production facilities.  Painted Pony expects first quarter 2016 average daily production volumes to be approximately 102 Mmcfe per day (17,000 boe per day). 

Firm Take-Away Capacity

As previously released on August 12, 2015, the Corporation has signed a definitive agreement with Spectra Energy for 220 MMcf/d of firm capacity for a total of 266 MMcf/d on the T-North pipeline beginning in November 2016.  This contract provides long-term natural gas transportation for Painted Pony's growing British Columbia production base with a connection to Station 2 and Sunset Creek.  The Sunset Creek sales point gives Painted Pony the opportunity for direct access to AECO pricing.  

Townsend Facility Update

The Townsend Facility is a 198 MMcf per day shallow cut gas processing facility being constructed by AltaGas and is located approximately 100 kilometers north of Fort St. John.  Painted Pony has reserved firm capacity under a take-or-pay agreement for 90 percent of plant capacity.  AltaGas confirms that earth works are 95 percent complete, piping prefabrication is 30 percent complete, major equipment modules are starting to arrive at site, and the facility is on track to be in service by mid-2016.

Credit Facilities Confirmed

The 2016 capital program is expected to be funded by a combination of funds flow from operations and the Corporation's syndicated credit facilities.  The Corporation anticipates debt levels to be approximately $225 million by year end 2016.  On May 13, 2015 the Corporation's syndicated credit facilities were increased from $175 million to $325 million with initial availability under the facilities amounting to $225 million.  As part of the October 31, 2015 review, Painted Pony's borrowing base on the currently available 2-year credit facilities was confirmed at $225 million resulting in the total facilities being maintained at $325 million.  Availability under the facilities will be increased in stages to $325 million by October 31, 2016 based on a defined development schedule.

Hedging

Painted Pony hedges certain production volumes to provide balance sheet and capital spending protection.  Currently the Corporation has hedging contracts extending into the third quarter of 2018.  For 2016, Painted Pony has AECO-based hedges using fixed price contracts for approximately 75 percent of current production at a weighted average price of CAD $3.03 per Mcf. 

Outlook

Continuing access to existing credit facilities, combined with definitive long-term natural gas transportation contracts, further confirms Painted Pony's ability to achieve its drilling and completion plans.  This further confirms the ability to meet Painted Pony's target to supply natural gas and NGLs to the AltaGas Townsend Facility of 150 MMcfe per day in the fourth quarter of 2016.   Prior to year-end 2015, Painted Pony expects to see a reduction in third-party pipeline maintenance activities that have negatively impacted pricing at Station 2. 

Conference Attendance

Painted Pony is pleased to announce that Mr. Pat Ward, President and CEO, and Mr. Ted Hanbury, Senior Vice President, Engineering, will be attending the FirstEnergy Energy Growth Conference taking place November 17 and 18, 2015 at the Ritz-Carlton in Toronto, Ontario.  Mr. Ward and Mr. Hanbury will also be undertaking a series of presentations to institutional investors.  Interested parties are invited to view the updated Corporate Presentation on Painted Pony's website at www.paintedpony.ca.

FINANCIAL AND OPERATING HIGHLIGHTS





Three months ended
September 30,

Nine months ended
September 30,


2015

2014

Change

2015

2014

Change

Financial ($ millions, except per share and shares outstanding)

Petroleum and natural gas revenue(1)

20.2

38.9

(48%)

66.5

130.5

(49%)

Funds flow from operations(2)

7.1

23.2

(69%)

27.9

76.3

(63%)


Per share – basic(3)

0.07

0.25

(72%)

0.28

0.85

(67%)


Per share – diluted(4)

0.07

0.25

(72%)

0.28

0.84

(67%)

Net income (loss)

(0.4)

8.2

N/A

(7.8)

(12.2)

(36%)


Per share – basic(3) and diluted(4)

(0.00)

0.09

N/A

(0.08)

(0.14)

(43%)

Capital expenditures

22.8

48.8

(53%)

95.6

126.4

(24%)

Working capital (deficiency)(5)

(16.9)

63.4

N/A

(16.9)

63.4

N/A

Bank debt

45.9

-

N/A

45.9

-

N/A

Total assets

760.0

669.5

14%

760.0

669.5

14%

Shares outstanding (millions)

100,031

94,082

6%

100,031

94,082

6%

Basic weighted-average shares (millions)

99,882

91,280

9%

99,723

89,695

11%

Fully diluted weighted-average shares (millions)

99,882

92,944

7%

99,723

90,739

10%

Operational







Daily production volumes








Natural gas (MMcf/d)

88.6

78.2

13%

89.4

68.7

30%


Natural gas liquids (bbls/d)

760

964

(21%)

896

912

(2%)


Crude oil (bbls/d)

-

290

N/A

-

673

N/A


Total (boe/d)

15,523

14,283

9%

15,794

13,032

21%


Total (MMcfe/d)

93.1

85.7

9%

94.8

78.2

21%

Realized prices








Natural gas ($/Mcf)

2.07

4.15

(50%)

2.27

4.84

(53%)


Natural gas liquids ($/bbl)

46.68

71.26

(34%)

45.18

81.52

(45%)


Crude oil ($/bbl)

-

101.16

N/A

-

102.35

N/A


Total ($/boe)

14.13

29.62

(52%)

15.43

36.69

(58%)


Total ($/Mcfe)

2.36

4.94

(52%)

2.57

6.12

(58%)

Field operating netbacks(6)








Total ($/boe)

5.95

19.12

(69%)

6.82

24.29

(72%)


Total ($/Mcfe)

0.99

3.19

(69%)

1.14

4.05

(72%)



1.

Before royalties.

2.

Funds flow from operations and funds flow from operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from operating activities before the effects of changes in non-cash working capital, DSU expense and decommissioning expenditures.  Funds flow from operations per share is calculated by dividing funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period.  Refer to "Non-GAAP Measures".

3.

Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.

4.

Diluted per share information reflects the potential dilutive effect of stock options.

5.

Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities.  Refer to "Non-GAAP Measures".

6.

Field operating netbacks is a non-GAAP measure calculated on a per unit basis as natural gas, crude oil and natural gas liquids revenues less royalties, operating expenses and transportation expenses.  Refer to "Non-GAAP Measures".

ADVISORIES

Non-GAAP Financial Measures:  This press release contains the terms "funds flow from operations", "working capital deficiency" and "field operating netbacks", which do not have any standardized meanings prescribed by generally accepted accounting principles ("GAAP") and therefore may not be comparable with the calculation of similar measures for other entities.  Management uses funds flow from operations to analyze operating performance and considers funds flow from operations to be a key measure as it demonstrates the Corporation's ability to generate the cash necessary to fund future capital investment.  Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, consistent with the calculations of earnings per share and is used to represent cash flow from operating activities before the effects of changes in non-cash working capital, deferred share unit expense and decommissioning expenditures.  Management calculates working capital as current assets less current liabilities and uses this ratio to analyze the liquidity of the Corporation.  Field operating netbacks are calculated on a per unit basis as crude oil, natural gas and natural gas liquids revenues less royalties, operating expenses and transportation costs.

Per Share Information:  Per share information in this press release is based upon the basic weighted average number of common shares of the Corporation outstanding in the three months ended September 30, 2015 and 2014, respectively.

Boe Conversions:  Barrel of oil equivalent amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel of oil (1 bbl).  Boe amounts may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Mcfe Conversions:  Thousands of cubic feet of gas equivalent amounts have been calculated by using the conversion ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural gas.  Mcfe amounts may be misleading, particularly if used in isolation.  A conversion ratio of 1 bbl to 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-Looking Information:  This press release contains certain forward-looking information within the meaning of Canadian securities laws.  Forward-looking information relates to future events or future performance and is based upon the Corporation's current internal expectations, estimates, projections, assumptions and beliefs.  All information other than historical fact is forward-looking information.  Words such as "plan", "expect", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words that indicate events or conditions may occur are intended to identify forward-looking information.  In particular, this press release contains forward looking information relating to: the 2016 capital budget; 2016 annual, fourth quarter and exit production rates; the number of wells anticipated to be drilled in 2016; the AltaGas Townsend Facility construction completion timeframe; anticipated production to be processed through the AltaGas Townsend Facility; the 2015 capital budget, the number of wells to be drilled in 2015; 2015 annual, fourth quarter and exit production rates; pricing expectations at Station 2; timeframe of third party outages; and debt levels at the end of 2016.

Forward-looking information is based on assumptions including but not limited to future commodity prices, currency exchange rates, drilling success, production rates future capital expenditures and the availability of labor and services.  With respect to future wells, a key assumption is the validity of geological and technical interpretations performed by the Corporation's technical staff, which indicate that commercially economic volumes can be recovered from the Corporation's lands.  Estimates as to production rates assume that no material unexpected outages occur in the infrastructure the Corporation relies upon to produce its wells, that existing wells continue to meet production expectations and that future wells scheduled to come on production meet timing and production rate expectations.

Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations on which they are based will occur.  Although the Corporation's management believes that the expectations in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

Forward-looking information necessarily involves both known and unknown risks associated with oil and gas exploration, production, transportation and marketing.  There are risks associated with the uncertainty of geological and technical data, imprecision of reserve estimates, operational risks, risks associated with drilling and completions, the risk that anticipated project timelines change, environmental risks, risks of the change in government regulation of the oil and gas industry, risks associated with competition from others for scarce resources and risks associated with general economic conditions affecting the Corporation's ability to access sufficient capital.  Additional information on these and other risk factors that could affect operational or financial results are included in the Corporation's most recent Annual Information Form and in other reports filed with Canadian securities regulatory authorities. 

Forward-looking information is based on estimates and opinions of management at the time the information is presented.  The Corporation is not under any duty to update the forward-looking information after the date of this press release to revise such information to actual results or to changes in the Corporation's plans or expectations, except as required by applicable securities laws. 

ABBREVIATIONS

Natural Gas

Natural Gas Liquids

Mcf

thousand cubic feet

bbls

barrels

Mcf/d

thousand cubic feet per day

bbls/d

barrels per day

MMcf/d

million cubic feet per day

NGL

natural gas liquids

boe

barrels of oil equivalent

Mcfe

thousand cubic feet equivalent

boe/d

barrels of oil equivalent per day

Mcfe/d

thousand cubic feet equivalent per day



MMcfe

million cubic feet equivalent



MMcfe/d

million cubic feet equivalent per day

ABOUT PAINTED PONY

Painted Pony is a publicly-traded natural gas corporation based in Western Canada.  The Corporation is primarily focused on the development of natural gas and natural gas liquids from the Montney formation in northeast British Columbia.  Painted Pony's common shares trade on the Toronto Stock Exchange under the symbol "PPY".

The full third quarter 2015 report, containing the unaudited financial statements and the related Management's Discussion and Analysis will be available on SEDAR at www.sedar.com and on Painted Pony's website at www.paintedpony.ca.

SOURCE Painted Pony Petroleum Ltd.

For further information: Patrick R. Ward, President & CEO, (403) 475-0440; John H. Van de Pol, Senior Vice President & CFO, (403) 475-0440; Jason Fleury, Director, Investor Relations, (403) 776-3261; www.paintedpony.ca

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