Painted Pony Announces 240 MMcfe/d (40,000 boe/d) Production Milestone and Third Quarter 2016 Financial and Operating Results

CALGARY, Nov. 9, 2016 /CNW/ - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX: PPY) is pleased to announce average daily production over the past week of approximately 240 MMcfe/d (40,000 boe/d), based on field estimates. The Corporation's production increase represents production growth (both absolute and per share) of approximately 76% over third quarter 2016 average daily production volumes of 136.4 MMcfe/d (22,741 boe/d).

In response to reaching this goal, Pat Ward, President and CEO of Painted Pony remarked, "Achieving this production milestone marks the most significant event in the history of Painted Pony and is something of which we are very proud.  As pleased as we are of this accomplishment today, we remain focused on the future and executing on Painted Pony's long-term growth strategy."

HIGHLIGHTS:

  • Achieved current production of approximately 240 MMcfe/d (40,000 boe/d) during the first week in November 2016;

  • Began commercial operations at the Townsend Facility, a 198 MMcf/d natural gas processing facility built and operated by AltaGas, on July 7, 2016 which was more than 30 days ahead of schedule;

  • Increased market diversification by selling 45 MMcf/d, effective October 1, 2016, directly into the AECO hub market and 18 MMcf/d, effective November 1, 2016, at the Huntingdon / Sumas hub;

  • Increased average daily production volumes to 136.4 MMcfe/d (22,741 boe/d) during the third quarter of 2016, an increase of 46% compared to the third quarter of 2015 and a 37% increase compared to the second quarter of 2016;

  • Generated funds flow from operations of $12.6 million ($0.13/share) during the third quarter of 2016, an increase of 100% compared to $6.3 million ($0.06 per share) in the third quarter of 2015;

  • Recorded net income of $11.6 million ($0.12/share) during the third quarter of 2016, compared to a net loss of $0.4 million ($0.00/share) in the third quarter of 2015; and

  • Reduced field cash costs by $0.47/Mcfe or 34% to $0.90/Mcfe during the third quarter of 2016 from $1.37/Mcfe in the third quarter of 2015;

THIRD QUARTER 2016 FINANCIAL & OPERATING RESULTS

Production

Painted Pony's production volumes averaged over 240 MMcfe/d (40,000 boe/d) during the first week of November, 2016.  This represents a 76% increase over average daily production volumes during the third quarter of 2016 of 136.4 MMcfe/d (22,741 boe/d).  Third quarter 2016 average daily production volumes represent a 46% increase over third quarter 2015 production volumes of 93.1 MMcfe/d (15,523 boe/d) and an increase of 37% over second quarter 2016 average daily production volumes of 99.8 MMcfe/d (16,634 boe/d). 

Painted Pony anticipates annual average production volumes for 2016 of 138 MMcfe/d (23,000 boe/d) with 2016 exit production volumes of approximately 240 MMcfe/d (40,000 boe/d), setting an exit production record for the Corporation and marking a significant milestone in the execution of Painted Pony's 5-year plan.

AltaGas Townsend Facility

The Townsend Facility represents a major step change for Painted Pony and began flowing natural gas volumes on July 7, 2016, more than 30 days ahead of Painted Pony's schedule.  The early commissioning of the Townsend Facility has provided Painted Pony the opportunity to accelerate production volume growth for the remainder of 2016. Painted Pony is currently utilizing 150 MMcf/d through the Townsend Facility's 198 MMcf/d capacity with the remaining 48 MMcf/d expected to begin flowing during the second half of 2017.      

Funds Flow from Operations

Painted Pony generated funds flow from operations of $12.6 million or $0.13 per share during the third quarter of 2016, doubling the $6.3 million or $0.06 per share recorded during the third quarter of 2015. Despite a $0.13/Mcfe or 6% drop in average realized commodity prices, Painted Pony's third quarter 2016 operating netback of $1.74/Mcfe increased by 60% compared to an operating netback in the third quarter of 2015 of $1.09/Mcfe. A combination of realized commodity hedging gains, production volume growth, as well as lower general and administrative, transportation, and operating costs, contributed to this increase in funds flow from operations. 

Royalties, Operating and Transportation Costs

Field cash costs of $0.90/Mcfe (royalties of $0.05/Mcfe, operating expenses of $0.63/Mcfe, and transportation of $0.22/Mcfe) were reduced by $0.47/Mcfe or 34% in the third quarter of 2016 compared to $1.37/Mcfe in the third quarter of 2015. This cost improvement was due to increased production volumes that positively impacted fixed field expenses as well as ongoing efficiency improvements by field personnel. 

Capital Expenditures and Operations

Painted Pony's capital expenditures for the third quarter totaled $50.5 million and included 10 (10.0 net) Montney natural gas wells drilled and 11.0 (11.0 net) Montney natural gas wells completed. 

Painted Pony's current inventory of wells, drilled and not yet completed, stands at 8.0 wells.  In addition, 2.0 wells are currently not producing and awaiting reactivation.

New wells for the AltaGas Townsend Facility are exhibiting performance at or slightly above budgeted type curves. Average 90-day initial rates and cumulative production volumes for 19 new wells throughout Blair and Townsend which have at least 90 days of cumulative production history, in aggregate, match or exceed the Corporation's internal estimates. 

Painted Pony anticipates releasing details of the 2017 capital budget within the next two weeks. 

Market Diversification

As part of Painted Pony's market diversification strategy, 45 MMcf/d of natural gas volumes began flowing to the AECO hub as of October 1, 2016.  On November 1, 2016 the Corporation also began selling 18 MMcf/d at the Sumas / Huntingdon hub.

Credit Facilities Confirmed

Painted Pony's syndicated credit facilities of $325 million were confirmed following a regularly scheduled, semi-annual review conducted in October 2016.  As at September 30, 2016 Painted Pony had bank debt and a working capital deficiency of $208.7 million, leaving the Corporation well positioned to execute its planned capital programs.

Conference Participation

Painted Pony is pleased to announce that it will be participating in the GMP FirstEnergy Energy Growth Conference taking place on November 15 and 16, 2016 at The Ritz-Carlton Hotel located at 181 Wellington Street West, Toronto, Ontario. Mr. Pat Ward, President and CEO, will be presenting on Tuesday, November 15, 2016 at 9.40 am (ET) in Presentation Room A, Salon III.

Painted Pony will be undertaking a series of presentations to institutional investors while at this conference in addition to meetings with investors in the US prior to conference attendance. Interested parties are invited to view the current Painted Pony investor presentation at:

http://paintedpony.ca/investors/dashboard/default.aspx

FINANCIAL AND OPERATING HIGHLIGHTS


Three months ended

September 30,

Nine months ended

September 30,


2016

2015

Change

2016

2015

Change

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



Petroleum and natural gas revenue(1)

28.0

20.2

39%

56.4

66.5

(15%)


Funds flow from operations(2)

12.6

6.3

100%

29.1

25.9

12%



Per share – basic(3)

0.13

0.06

117%

0.29

0.26

12%



Per share – diluted(4)

0.12

0.06

100%

0.29

0.26

12%


Net income (loss)

11.6

(0.4)

N/A

(24.1)

(7.8)

209%



Per share – basic(3)

0.12

(0.00)

N/A

(0.24)

(0.08)

200%



Per share – diluted(4)

0.11

(0.00)

N/A

(0.24)

(0.08)

200%


Capital expenditures

50.5

21.8

132%

152.9

92.1

66%


Working capital deficiency (5)

36.6

16.9

117%

36.6

16.9

117%


Bank debt

172.1

45.9

275%

172.1

45.9

275%


Total assets

1,290.2

760.0

70%

1,290.2

760.0

70%


Shares outstanding (millions)

100.1

100.0

-

100.1

100.0

-


Basic weighted-average shares (millions)

100.1

99.9

-

100.1

99.7

-


Fully diluted weighted-average shares (millions)

101.1

99.9

-

100.1

99.7

-

Operational








Daily production volumes









Natural gas (MMcf/d)

129.3

88.6

46%

106.0

89.4

19%



Natural gas liquids (bbls/d)

1,189

760

56%

1,013

896

13%



Total (MMcfe/d)

136.4

93.1

46%

112.0

94.8

18%



Total (boe/d)

22,741

15,523

46%

18,674

15,794

18%


Realized commodity prices









Natural gas ($/Mcf)

1.97

2.07

(5%)

1.56

2.27

(31%)



Natural gas liquids ($/bbl)

41.67

46.68

(11%)

40.18

45.18

(11%)



Total ($/Mcfe)

2.23

2.36

(6%)

1.84

2.57

(28%)


Operating netbacks ($/Mcfe) (6)

1.74

1.09

60%

1.50

1.33

13%

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. See "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. See "Non-GAAP
Measures".

6.

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 costs, adjusted for realized gains or losses on commodity
risk management. See "Non-GAAP Measures" and "Operating Netbacks".

 

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, 2016 and 2015, respectively.

Boe Conversions: Barrel of oil equivalent ("boe") 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. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Mcfe Conversions: Thousands of cubic feet of gas equivalent ("Mcfe") 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. Given that the value ratio based on the current price of natural gas as compared to oil is significantly different from the energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may be misleading as an indication of value.

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 an expectation of 2016 year-end exit production; anticipated volumes of natural gas through the AltaGas Townsend Facility for the remainder of 2016; an expectation that due to the efficiency of the AltaGas Townsend Facility NGL volumes will improve; an expectation that the Corporation will continue to see efficiencies in its capital program with drill times and accelerated completions; pricing expectations at Station 2; an expectation that the Corporation's credit facilities will be adequate to execute the remainder of the 2016 capital development plan. 

Forward-looking information is based on certain expectations and assumptions including but not limited to future commodity prices, currency exchange rates interest rates, royalty rates and tax rates; the state of the economy and the exploration and production business; the economic and political environment in which the Corporation operates; the regulatory framework; anticipate timing and results of capital expenditures; the sufficiency of budgeted capital expenditures to carryout planned operations; operating, transportation, marketing and general and administrative costs; 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 average annual and exit production 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 in 2016 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.  As a consequence, actual results may differ materially from those anticipated.  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, operational risks, risks associated with drilling and completions, 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.

Any "financial outlook" contained in this press release, as such term is defined by applicable securities laws, is provided for the purpose of providing information about management's current expectations and plans relating to the future.  Readers are cautioned that reliance on such information may not be appropriate for other purposes.

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".

SOURCE Painted Pony Petroleum Ltd.

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

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