Painted Pony Announces Second Quarter 2016 Financial and Operating Results and Operational Update

CALGARY, Aug. 10, 2016 /CNW/ - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Corporation") (TSX: PPY) is pleased to announce second quarter 2016 financial and operating results.

HIGHLIGHTS:

  • Average daily production volumes during the second quarter of 2016 were 99.8 MMcfe/d (16,634 boe/d), an increase of 6% compared to 93.7 MMcfe/d (15,622 boe/d) during the second quarter of 2015;

  • Second quarter 2016 cash flow was $11.1 million ($0.11 per share), an increase of 4% when compared to $10.7 million ($0.11 per share) during the second quarter of 2015;

  • Second quarter 2016 royalties, operating costs and transportation costs per Mcfe decreased 23% to $1.05/Mcfe (royalties of $0.02/Mcfe, operating costs of $0.73/Mcfe and transportation costs of $0.30/Mcfe) from $1.37/Mcfe (royalties of $0.07/Mcfe, operating costs of $0.98/Mcfe and transportation costs of $0.32/Mcfe) during the second quarter of 2015;

  • The 198 MMcf/d natural gas processing facility built and operated by AltaGas at Townsend (the "Townsend Facility") began commercial operations on July 10, 2016, more than 30 days ahead of schedule;

  • Production through the Townsend Facility during the first week of August has averaged over 50 MMcf/d with all plant operations running as expected and with company production averaging approximately 126 MMcfe/d (21,000 boe/d); and

  • Painted Pony recently announced a swap transaction with an industry partner involving 15.4 net sections (9,856 net acres), which will increase the Corporation's average Montney working interest from 75% currently to greater than 86% at closing while providing a new 100% owned and operated core development in the highly productive Daiber area.

ALTAGAS TOWNSEND FACILITY

The Townsend Facility began producing natural gas sales 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 in the second half of 2016.  Painted Pony expects raw natural gas production volumes through the Townsend Facility to average over 50 MMcf/d during August 2016; 100 MMcf/d during September 2016; and 150 MMcf/d during October 2016.  Currently at approximately 50 MMcf/d of production throughput, the Townsend Facility has been performing per expectations with no material operating concerns or deficiencies. Painted Pony continues to anticipate a 2016 year-end exit production rate of approximately 240 MMcfe/d (40,000 boe/d). 

Based on its design, the expected efficiency of the Townsend Facility is anticipated to improve natural gas liquids ("NGL") yields from Blair Creek in addition to allowing for higher production volumes from the liquids-rich Townsend area.  As a result, NGL volumes are expected to increase from approximately 5% of total production volumes currently to approximately 10% of total production volumes in the fourth quarter of 2016.  This will result in a liquids production increase of approximately 300% from current rates of approximately 1,000 bbls/d to an expected year-end production rate of approximately 4,000 bbls/d.  Painted Pony expects the increased NGL production to be comprised of approximately 50% condensate with the remaining volumes to be split evenly between propane and butane. 

SECOND QUARTER 2016 FINANCIAL & OPERATING RESULTS

Production

Daily production volumes were strong through the second quarter of 2016, averaging 99.8 MMcfe/d (16,634 boe/d), which represented a 6% increase over the second quarter of 2015 and was relatively flat with first quarter 2016 average daily production volumes of 99.6 MMcfe/d (16,601 boe/d), despite the impact of shut in volumes during the second quarter of 2016 of approximately 3.0 MMcfe/d (500 boe/d) due to low natural gas prices. 

Based on field estimates, production volumes through the Townsend Facility were over 50 MMcf/d and Painted Pony's total production averaged approximately 126 MMcfe/d (21,000 boe/d) during the first week of August.  Third quarter 2016 production volumes are expected to average approximately 138 MMcfe/d (23,000 boe/d) while year-end 2016 exit production volumes are expected to be approximately 240 MMcfe/d (40,000 boe/d).

Funds Flow from Operations

Painted Pony generated funds flow from operations of $11.1 million during the second quarter of 2016, compared to $10.7 million during the second quarter of 2015.  Funds flow for the second quarter of 2016 included the impact of 60.9 MMcf/d of hedged volumes at an average price of $3.31/Mcf on AECO swaps. 

Royalties, Operating and Transportation Costs

Royalties, operating, and transportation costs were reduced by 23% or $0.32 per Mcfe in the second quarter of 2016 compared to the second quarter of 2015 and by $0.33 per Mcfe or 22% in the first half of 2016 compared to the first half of 2015. Per unit operating costs for the second quarter of 2016 improved, primarily as a result incremental production volumes that positively impacted fixed costs. Per unit operating costs for the first half of 2016 of $0.80/Mcfe have improved due to reduced water hauling and disposal costs.  The commissioning of Painted Pony's Daiber facility expansion during 2015, where Painted Pony is the operator, also contributed to lower processing and treating costs in 2016.

Capital Expenditures and Operations

By the end of the second quarter of 2016, Painted Pony had drilled and completed the wells required to prepare for the commissioning of the Townsend Facility, which started commercial operations in July 2016, more than 30 days earlier than expected. The capital program for the second quarter of 2016 of $35.3 million included 5 (5.0 net) Montney natural gas wells drilled and 10 (10.0 net) Montney natural gas wells completed, as well as associated facilities infrastructure. The year-to-date capital program of $102.4 million included 17 (17.0 net) wells drilled and 19 (19.0 net) wells completed.

Due to the early commissioning of the Townsend Facility and the acceleration of 2017 drilling and completions into the fourth quarter of 2016, Painted Pony now expects 2016 capital expenditures to total $199 million, an increase of $20 million over the previous capital spending forecast for 2016 of $179 million.  The additional capital will enable Painted Pony to drill an additional 6 (6.0 net) wells and complete an additional 2 (2.0 net) wells during the remainder of 2016.  For the second half of 2016, the Corporation expects to drill 14 (14.0 net) wells and complete 13 (13.0 net) wells, ramp-up production at the Townsend Facility to ensure exit volumes for 2016 of 240.0 MMcfe/d or 40,000 boe/d and continued production growth in 2017.

CONFIRMED CREDIT FACILITIES

Painted Pony's syndicated credit facilities of $325 million, which includes current availability under the borrowing base of $250 million, were confirmed following a regularly scheduled, semi-annual review conducted in April 2016.  As at June 30, 2016 Painted Pony had $173.6 million in bank debt and working capital deficiency, leaving the Corporation well positioned to execute on the remainder of the 2016 capital development plan. 

ASSET SWAP TRANSACTION

Recently Painted Pony announced a strategic asset exchange agreement (the "Swap") on jointly held 15.4 net sections (9,856 net acres) in the Daiber, Cameron and Blair areas of Painted Pony's northeast BC Montney asset.  As a result of this Swap, Painted Pony's average working interest across its Montney acreage will increase from 75% currently to greater than 86% at closing.  All of the land and wells acquired in the transaction will be held by Painted Pony at 100% working interest. 

Painted Pony will receive three Montney horizontal wells at Blair, which will be 100% working interest and will be re-directed to produce to the new Townsend Facility.  The counterparty will receive wells in which Painted Pony has a 20% working interest. Painted Pony will receive 9.4 MMcfe/d of production, an estimated net 5.4 MMcfe/d (900 boe/d) gain. The Swap has an effective date of January 1, 2016 and closing is subject to usual closing conditions and regulatory approvals, including approvals required by the Competition Act (Canada). 

ENERCOM CONFERENCE PARTICIPATION

Painted Pony is pleased to announce that it will be participating in EnerCom's 21st Annual "The Oil & Gas Conference" taking place on August 16 and 17, 2016 at The Westin Denver Downtown located at 1672 Lawrence Street in Denver, Colorado. Mr. Pat Ward, President and CEO, will be presenting on Tuesday, August 16, 2016 at 10:35 am (MDT) at The Westin Denver Downtown in Denver, Colorado.

The Corporation will be undertaking a series of presentations to institutional investors while at this conference. Interested parties are invited to view the current Painted Pony investor presentation at: http://paintedpony.ca/investors/dashboard/default.aspx and to listen to Mr. Ward's presentation via webcast at http://www.theoilandgasconference.com/togc-webcast/ppy/

FINANCIAL AND OPERATING HIGHLIGHTS





Three months ended

June 30,

Six months ended

June 30,


2016

2015

Change

2016

2015

Change

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


Petroleum and natural gas revenue(1)

11.9

22.8

(48%)

28.4

46.4

(39%)

Funds flow from operations(2)

11.1

10.7

4%

19.7

20.8

(5%)


Per share – basic(3) and diluted(4)

0.11

0.11

-

0.20

0.21

(5%)

Net loss

(33.6)

(3.8)

N/A

(35.7)

(7.4)

N/A


Per share – basic(3) and diluted(4)

(0.34)

(0.04)

N/A

(0.36)

(0.07)

N/A

Capital expenditures

35.3

21.9

61%

102.4

70.3

46%

Working capital (deficiency)(5)

(36.7)

(11.8)

N/A

(36.7)

(11.8)

N/A

Bank debt

(136.9)

(38.8)

N/A

(136.9)

(38.8)

N/A

Total assets

876.3

746.1

17%

876.3

746.1

17%

Shares outstanding (millions)

100.1

99.8

-

100.1

99.8

-

Basic weighted-average shares (millions)

100.0

99.7

-

100.0

99.7

-

Fully diluted weighted-average shares (millions)

100.1

99.7

-

100.1

99.7

-








Operational







Daily production volumes








Natural gas (MMcf/d)

93.8

88.5

6%

94.2

89.8

5%


Natural gas liquids (bbls/d)

996

864

15%

924

966

(4%)


Total (boe/d)

16,634

15,622

6%

16,618

15,931

4%


Total (MMcfe/d)

99.8

93.7

6%

99.7

95.6

4%

Realized commodity prices








Natural gas ($/Mcf)

0.94

2.35

(60%)

1.27

2.37

(46%)


Natural gas liquids ($/bbl)

41.73

48.53

(14%)

39.21

44.58

(12%)


Total ($/Mcfe)

1.31

2.67

(51%)

1.57

2.68

(41%)

Operating netbacks ($/Mcfe) (6)

1.44

1.50

(4%)

1.33

1.44

(8%)








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

 

ADVISORIES

Currency: All amounts referred to in this press release are stated in Canadian dollars unless otherwise specified.

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 that the Corporation will continue to see efficiencies in its capital program with drill times and accelerated completions; an anticipation that the Corporation will have the opportunity to accelerate production volumes during the second half of 2016; anticipated volumes of natural gas through the AltaGas Townsend Facility during August, September and October 2016; an expectation of 2016 year-end exit production; an expectation that due to the efficiency of the AltaGas Townsend Facility NGL volumes will improve; an expectation of the percentage of NGL volumes to total production volumes; an expectation of the percentage of increase in year-end 2016 liquids volumes; anticipated third quarter production volumes and year-end 2016 exit production volumes; an anticipate that an additional $20 million in capital during 2016 will allow the Corporation to drill and complete additional wells; an expectation that the Corporation's credit facilities will be adequate to execute the remainder of the 2016 capital development plan; expectations in respect of completion of the Swap, which is subject to a number of conditions to closing and required regulatory approvals, including approvals required by the Competition Act (Canada), and the anticipated benefits of the Swap including a net productive capacity increase and future drilling and capacity expansions. 

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 carry out 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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