Perpetual Energy Inc. releases second quarter 2010 financial and operating
results and confirms August dividend

CALGARY, Aug. 10 /CNW/ - (TSX - PMT) - Perpetual Energy Inc. ("Perpetual" or the "Corporation") is pleased to release its financial and operating results for the three and six months ended June 30, 2010. Perpetual's natural gas price hedging program led the corporation to post strong funds flow for the second quarter of 2010 despite weak natural gas prices related to high gas storage levels and concerns about new supply. A copy of Perpetual's unaudited interim consolidated financial statements and related notes and management's discussion and analysis for the three and six months ended June 30, 2010 and 2009 can be obtained through the Corporation's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.

Perpetual is also pleased to confirm that its dividend to be paid on September 15, 2010 in respect of income received by Perpetual for the month of August 2010, for shareholders of record on August 23, 2010, will be $0.05 per share. The ex-dividend date is August 19, 2010. The August 2010 dividend brings cumulative dividends (including distributions paid since the inception of Perpetual's predecessor, Paramount Energy Trust) to $14.164 per share. Perpetual reviews dividends on a monthly basis. Future dividends are subject to change as dictated by commodity price markets, operations, capital considerations and future business development opportunities.

    
    Second Quarter Summary

    -   On June 30, 2010, Perpetual announced that the Corporation had
        completed the previously announced plan of arrangement (the
        "Arrangement") involving Perpetual, Paramount Energy Trust (the
        "Trust") and Paramount Energy Operating Corp., pursuant to which the
        Trust converted into the Corporation. Unitholders of the Trust voted
        in favor of the Arrangement at the Annual General and Special Meeting
        of Trust Unitholders held on June 17, 2010. Former Unitholders of the
        Trust received common shares of Perpetual in consideration for the
        cancellation of their Trust Units of the Trust on a one-for-one
        basis. In addition, as part of the Arrangement, the Trust was
        dissolved and the Corporation assumed all of the existing liabilities
        of the Trust, including the Trust's outstanding convertible
        debentures which are now convertible debentures of the Corporation.
        Perpetual believes that the conversion will provide the Corporation
        with broadened access to capital markets by eliminating the
        constraints of the income trust structure imposed by the trust tax
        legislation introduced by the federal government in 2006. In
        addition, Canadian taxable shareholders will benefit from what the
        Corporation believes to be a more tax effective treatment of their
        cash dividends following the conversion to a corporate structure.
        Shareholders may also benefit from a simplified and more efficient
        corporate structure.

    -   On April 1, 2010 Perpetual closed the previously announced asset
        acquisition in the Edson area of Alberta ("Edson Acquisition"). The
        acquisition price of $123.2 million, including adjustments and a
        $9.5 million deposit paid in the first quarter of 2010, was funded
        through a combination of bank debt, the early termination of gas
        price hedging contracts and an issue of subscription receipts
        ("Subscription Receipts"). In conjunction with the Edson Acquisition,
        Perpetual entered into an agreement to sell to a syndicate of
        underwriters 10.5 million Subscription Receipts at a price of $4.75
        each for gross proceeds of $50.0 million to a syndicate of
        underwriters. Perpetual also granted the underwriters an option to
        purchase up to an additional 1.6 million Subscription Receipts on the
        same terms as above, which was exercised resulting in total proceeds
        of $57.5 million prior to issue costs. On closing of the Edson
        Acquisition the Subscription Receipts were converted into
        12.1 million common shares of Perpetual. Perpetual acquired natural
        gas and liquids production (80 percent natural gas) as well as
        extensive gathering and processing infrastructure and undeveloped
        lands in a desirable multi-zone part of the Alberta deep basin (the
        "Edson Assets"). The vendor's independent reserve evaluator assigned
        34.5 Bcf of gas reserves and 1.4 MMbbls of oil and natural gas
        liquids ("NGL") reserves (42.9 Bcfe total) to the Edson Assets in
        their December 31, 2009 evaluation. The Edson Assets contributed
        production of 9.0 MMcfe/d to the Corporation's production figures for
        the current quarter.

    -   As part of the Edson Acquisition, Perpetual negotiated a farm-in
        arrangement on 37 gross (31 net) sections of undeveloped Cardium
        rights in the area of which 22 net sections are believed by Perpetual
        to be prospective for light oil. The farm-in includes a two well
        horizontal drilling and completion commitment, each earning
        50 percent of the vendor's net interest in four sections followed by
        a rolling option to earn the additional lands on the same basis. In
        addition to the 19,900 net acres of Cardium rights subject to
        50 percent earning through the farm-in arrangement described above,
        the assets also include 13,393 net acres of undeveloped land
        prospective for development of Cretaceous and Jurassic tight gas
        sands. The first of two commitment wells was rig released during the
        second quarter. The second commitment well is scheduled to spud in
        early September. Perpetual has identified significant upside in the
        acquired assets through further intensified development of the Rock
        Creek basin-centered gas zone, and through several deep basin,
        gas-saturated Cretaceous zones that are prospective for horizontal
        development. Since closing the Edson Acquisition, Perpetual has
        drilled a horizontal well targeting gas and natural gas liquids in
        the Wilrich zone and completed three vertical wells.

    -   Exploration, development and land expenditures totaled $34.5 million
        for the three months ended June 30, 2010 as compared to $7.7 million
        for the second quarter of 2009. The increase is due to capital
        spending on west central Alberta, as well as $13.8 million in
        expenditures by the Corporation's wholly-owned subsidiary, Warwick
        Gas Storage Inc. ("WGSI") on its commercial gas storage project at
        Warwick. Spending in west central Alberta totaled $12.4 million,
        comprised of the completion and tie-in of several wells drilled in
        the first quarter, the drilling of two wells including a horizontal
        Cardium oil well at Edson and undeveloped land acquisitions.
        Undeveloped land acquisitions in new venture areas totaling
        $5.4 million and recompletion, workover and facilities construction
        activity in the Eastern District were also included in capital
        spending for the quarter.

    -   During the second quarter, the Corporation sold non-core properties
        for total proceeds of $35.2 million, including $28.1 million in cash
        and $7.1 million in 1.3 million common shares of a publicly-traded
        junior exploration and production company. The shares of Trioil
        Resources Ltd., which were partial consideration for Perpetual's
        assets in the Cochrane area of southwest Alberta, provide upside
        exposure to the junior company's activities in the emerging light oil
        play at Lochend. The properties produced approximately 2.2 MMcfe/d
        and were assigned proved plus probable reserves of 9.4 Bcfe at
        December 31, 2009 by the Corporation's independent reserves
        evaluator.

    -   Average production measured 165.2 MMcfe/d for the three months ended
        June 30, 2010, comprised of 157.7 MMcf/d of natural gas and
        1,240 bbl/d of oil and natural gas liquids ("NGL") as compared to
        165.5 MMcfe/d reported in the second quarter of 2009. Including
        deemed production related to the gas over bitumen financial solution,
        actual plus deemed production volumes increased four percent to
        191.7 MMcfe/d. Total average production for the six months ended
        June 30, 2010 decreased five percent to 157.2 MMcfe/d from
        166.3 MMcfe/d in the 2009 period due to the shut-in of 10.5 MMcf/d at
        Legend as a result of an interim shut-in order related to the gas
        over bitumen issue and restricted capital programs in eastern Alberta
        in 2009. This was partially offset by acquisitions in west central
        and eastern Alberta with production in excess of those non-core
        assets sold as part of the company's ongoing asset optimization
        activities.

    -   Total operating costs decreased 13 percent to $21.8 million ($1.45
        per Mcfe) for the three months ended June 30, 2010 from $25.2 million
        ($1.67 per Mcfe) for the same period in 2009, due to decreases in
        labour and repair and maintenance expenses and an increase in
        processing income from third parties, which are netted against
        operating costs. Perpetual's reduced operating costs reflect the
        positive results from cost reduction initiatives at all operated
        fields implemented to enhance competitiveness, profitability and
        efficiency.

    -   Perpetual's realized natural gas price was $5.54 per Mcfe for the
        three months ended June 30, 2009, a 39 percent decrease from the
        comparable quarter in 2009. The 2009 figure included realized gains
        on financial instruments totaling $75.2 million as compared to gains
        of $19.9 million for the second quarter of 2010. Early termination
        gains of $12.3 million and $47.7 million are included in realized
        gains on financial instruments for the three months ended June 30,
        2010 and 2009 respectively. The mark-to market value of the
        Corporation's financial and physical forward sales arrangements at
        August 9, 2010 is approximately $63 million. Full details of
        Perpetual's financial and physical forward sales arrangements are
        presented in management's discussion and analysis ("MD&A").

    -   Funds flow was $36.2 million ($0.25 per common share) for the three
        months ended June 30, 2010, down from $91.2 million ($0.81 per common
        share) for the second quarter of 2009. The decrease was caused by
        lower revenues related to lower realized gas prices and reduced
        hedging gains, partially offset by a reduction in operating costs.

    -   Distributions payable for the second quarter of 2010 totaled
        $17.2 million or $0.15 per common share, comprised of $0.05 per share
        paid on May 17, June 15 and July 15 representing a payout ratio of
        59.1 percent of funds flow in the current quarter compared to
        18.9 percent for the second quarter of 2009.

    -   While distributions up to and including the June 2010 distribution
        paid July 15, 2010 were deductible in computing income for tax
        purposes of the Corporation, dividends declared by Perpetual after
        the conversion date will not be deductible in determining taxable
        income of the Corporation. Perpetual has significant tax pools
        available to offset future taxable income, and does not anticipate
        paying cash income tax in 2010. Full details of Perpetual's tax pools
        are presented in the management's discussion and analysis ("MD&A").

    -   Perpetual recorded a net loss of $44.2 million ($0.31 per basic and
        diluted common share) for the second quarter of 2010 as compared to a
        net loss of $8.8 million ($0.08 per basic and diluted common share)
        for the 2009 period, due primarily to a decrease in realized gains on
        financial instruments, a reduction in the mark-to-market value of
        Perpetual's forward gas price management contracts relative to the
        first quarter of 2010 and higher DD&A charges, partially offset by
        $23.4 million in gains on asset sales during the current quarter. The
        forward sale contracts for 2013 natural gas delivery initiated by the
        Corporation in 2009 related to the gas storage project were
        terminated as part of the gas storage funding arrangement closed on
        June 16, 2010. These contracts had a mark-to-market value of
        $8.3 million at March 31, 2010.

    -   Subsequent to the end of the second quarter, Perpetual closed the
        disposition of assets in the Cold Lake area for net proceeds of
        $13.8 million.
    

Outlook and sensitivities

Perpetual has budgeted an additional $34 million in exploration and development capital expenditures for the second half of 2010. Capital programs are underway in eastern Alberta primarily focused on high return recompletion opportunities as well as the strategic evaluation of the commercial development potential of two heavy oil pools in the Mannville area. Capital spending activities are also ongoing to evaluate several game changing opportunities in Perpetual's portfolio including:

    
    -   A horizontal well and four vertical recompletions at Edson, targeting
        the Wilrich formation;
    -   Two additional horizontal wells at Carrot Creek and one additional
        farm-in well at Edson, evaluating the Cardium development potential;
        and
    -   Horizontal drilling and multi-stage fracture completions at Elmworth,
        where a partner is fulfilling its obligation to evaluate Perpetual's
        large Montney acreage position with a three well program.
    

Results on the Wilrich and Cardium programs are expected prior to the end of the third quarter, while preliminary results at Elmworth are anticipated by year end.

In addition, gas storage facility evaluation, design and construction expenditures are proceeding as scheduled, and WGSI anticipates incurring an additional $24 million in capital spending in the second half of 2010 to finalize construction for first withdrawal on November 1, 2010. Injection began on May 3, 2010 at rates of up to 175 MMcf/d of third party natural gas. Injection capability is expected to increase with two additional wells being brought on stream in August 2010. The Corporation expects that cash flow from WGSI will approximate $4 million for 2010 and forecasts $11 million for its first full year of operations in 2011.

The following table reflects Perpetual's projected realized gas price, monthly funds flow and payout ratio at the current monthly dividend of $0.05 per common for the last six months of 2010 at certain AECO natural gas price levels, incorporating the Trust's current financial hedges and physical forward sales contracts, capital expenditures of $58 million and related production additions, operating costs of $56 million, cash general and administrative expenses of $16 million and an interest rate on bank debt of four percent. This information is intended to provide information to readers on estimated production and funds flows for the second half of 2010 and year-end debt levels and may not be appropriate for other purposes.

    
                                        Average AECO Monthly Index Gas Price
                                                 July to December 2010 ($/GJ)
    Funds flow outlook                           $4.00      $5.00      $6.00
    -------------------------------------------------------------------------
    Oil and natural gas production (MMcfe/d)       150        150        150
    Realized gas price ($/Mcfe)(1)                5.57       6.20       6.83
    Funds flow ($millions)(2)                       70         81         90
      Per Share ($/Unit/month)                   0.079      0.092      0.102
    Payout ratio (%)(2)                             64         54         49
    Ending net bank debt ($ millions)(2)           256        245        236
    Ending net debt ($millions)(2)                 533        522        513
    Ending total net debt to funds flow
     ratio (times)(3)                              2.8        2.6        2.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Perpetual's weighted average forward price on an average of
        30,000 Mcf/d for the period July 1 to December 31, 2010 is $7.94 per
        Mcf. The current forward average AECO price for July to December 2010
        is $4.39 per Mcf.
    (2) These are non-GAAP measures; see "Significant accounting policies and
        non-GAAP measures" in management's discussion and analysis.
    (3) Calculated as ending total net debt (including convertible debentures
        and the gas storage funding arrangement) divided by estimated annual
        funds flow. The Trust's convertible debt is classified as long term
        with $75 million maturing in 2012 and the remainder maturing in 2015.
    

Assuming natural gas prices which approximate the current forward market of $4.39 per Mcf at AECO for the second half of 2010, Perpetual expects to cash flow approximately $195 million in 2010 and exit the year with approximately $252 million in net bank debt drawn on its $340 million facility. Total net debt at year end is expected to be approximately $530 million, including WGSI's obligation to provide 8 Bcf of gas in the first quarter of 2013, recorded at $42 million.

    
    FINANCIAL AND
     OPERATING
     HIGHLIGHTS

    ($Cdn thousands         Three Months Ended              Six Months Ended
     except volume                     June 30                       June 30
     and per share                           %                             %
     amounts)          2010       2009  Change       2010       2009  Change
    -------------------------------------------------------------------------
    Financial
      Revenue,
       including
       realized gains
       and losses
       on financial
       instruments
       and call
       option
       premiums      83,979    137,094     (39)   215,319    234,197      (8)
    Funds flow(1)    36,162     91,186     (60)   120,580    132,341      (9)
      Per common
       share(2)        0.25       0.81     (69)      0.89       1.17     (24)
    Net earnings
     (loss)         (44,211)    (8,835)    400     (6,961)    69,625    (110)
      Per common
       share(2)       (0.31)     (0.08)    288      (0.05)      0.62    (108)
    Distributions    21,382     17,240      24     40,549     38,704       5
      Per common
       share(3)        0.15       0.15       -       0.30       0.34     (12)
    Payout ratio
     (%)(1)            59.1       18.9     213       33.6       29.2      15
    -------------------------------------------------------------------------
    Total assets  1,149,486  1,208,605      (5) 1,149,486  1,208,605      (5)
    Net bank and
     other debt
     outstanding(1) 257,197    318,518     (19)   257,197    318,518     (19)
    Convertible
     debentures,
     at principal
     amount         234,897    236,034       -    234,897    236,034       -
    Gas storage
     arrangement(7)  31,569          -     100     31,569          -     100
    Total net
     debt(1)        523,663    554,552      (6)   523,663    554,552      (6)
    Shareholders'
     equity         294,786    310,626      (5)   294,786    310,626      (5)
    -------------------------------------------------------------------------
    Capital
     expenditures
      Exploration
       and
       development   20,684      7,749     167     49,584     47,398       5
      Gas storage    13,787          -     100     23,209          -     100
      Acquisitions,
       net of
       dispositions  78,838     89,687     (12)   100,785     96,279       5
      Other             174        105      66        274        244      12
      Net capital
       expenditures 113,483     97,541      16    173,852    143,921      21
    -------------------------------------------------------------------------
    Common shares
     outstanding
     (thousands)
    End of period   143,623    118,877      21    143,623    118,877      21
    Weighted
     average        142,118    113,071      26    134,797    113,019      19
    Share Options
     and Bonus
     Rights
     outstanding      8,692      9,722     (11)     8,692      9,722     (11)
    Shares
     outstanding
     at August 5,
     2010           144,532                       144,532
    -------------------------------------------------------------------------
    Operating
    Production
      Total natural
       gas (Bcfe)(6)   15.0       15.1      (1)      28.5       30.1      (5)
      Daily average
       natural gas
       (MMcfe/d)(6)   165.2      165.5       -      157.2      166.3      (5)
      Gas over
       bitumen
       deemed
       production
       (MMcf/d)(4)     26.5       18.1      46       26.4       18.5      43
      Average daily
       (actual and
       deemed -
       MMcfe/d)(4)    191.7      183.6       4      183.6      184.8      (1)
      Per common
       share
       (cubic feet
       equivalent/d/
       share)(2)(4)    1.35       1.62     (17)      1.29       1.63     (21)
    Realized natural
     gas prices
     ($/Mcfe)
      Before financial
       hedging and
       physical
       forward
       sales(5)        4.19       3.89       8       4.78       4.66       3
      Including
       financial
       hedging and
       physical
       forward
       sales(5)        5.54       9.10     (39)      7.54       7.78      (3)
    -------------------------------------------------------------------------
    Land (thousands
     of net acres)
    Undeveloped land
     holdings         2,046      1,984       3      2,046      1,984       3
    -------------------------------------------------------------------------
    Drilling (wells
     drilled gross/
     net)
                                          100/                          (32)/
      Gas               2/2        -/-     100    26/22.9    38/31.4   (27.0)

      Gas storage
       injection/                         100/                          100/
       withdrawal       2/2        -/-     100        9/9        -/-     100
                                                                        100/
      Dry               -/-        -/-     -/-        1/1        -/-     100
                                          100/
      Total             4/4        -/-     100    36/32.9    38/31.4   (5)/5

      Success                             100/
       rate (%)     100/100        -/-     100      97/96      95/95     2/1
    -------------------------------------------------------------------------
    (1) These are non-GAAP measures. Please refer to "Significant Accounting
        Policies and Non-GAAP Measures" included in management's discussion
        and analysis.
    (2) Based on weighted average common shares outstanding for the period.
    (3) Based on shares outstanding at each distribution date. In future
        periods Perpetual will be paying dividends instead of distributions.
    (4) The deemed production volume describes all gas shut-in or denied
        production pursuant to a decision report, corresponding order or
        general bulletin of the Alberta Energy and Utilities Board ("AEUB"),
        or through correspondence in relation to an AEUB ID 99-1 application.
        This deemed production volume is not actual gas sales but represents
        shut-in gas that is the basis of the gas over bitumen financial
        solution which is received monthly from the Alberta Crown as a
        reduction against other royalties payable.
    (5) Perpetual's commodity hedging strategy employs both financial forward
        contracts and physical natural gas delivery contracts at fixed prices
        or price collars. In calculating the Corporation's natural gas price
        before financial and physical hedging, Perpetual assumes all natural
        gas sales based on physical delivery fixed-price or price collar
        contracts during the period were instead sold at AECO monthly index.
    (6) Production amounts are based on Perpetual's interest before
        royalties.
    (7) As Perpetual has an obligation to repay the gas storage arrangement
        through the delivery of 8 Bcf of natural gas in the first quarter of
        2013, it is included in the Corporation's net debt.
    

Forward-Looking Information

Certain information regarding Perpetual in this news release including management's assessment of future plans and operations and including the information contained under the heading "Outlook and Sensitivities" above may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding expected access to capital markets; forecast production, operations, cash flows, funds flows, and timing thereof; forecast and realized commodity prices; forecast and funding of capital expenditures; use of funds flow; planned drilling and development and the results and timing thereof; estimated payout ratios, estimated ending net debt; marketing and transportation; reserve estimates; estimated WGSI injection capability; tax treatment of cash dividends; expected use of tax pools; and estimated funds flow sensitivity. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management analysis of historical trends, experience current conditions and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward-looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in the Trust's MD&A for the year ended December 31, 2009 and those included in reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.

Non-GAAP Measures

This news release contains financial measures that may not be calculated in accordance with generally accepted accounting principles in Canada ("GAAP"). Readers are referred to advisories and further discussion on non-GAAP measures contained in the "Significant Accounting Policies and Non-GAAP Measures" section of Perpetual's MD&A.

Mcf equivalent (Mcfe) may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101 ("NI 51-101"), an Mcfe conversion ratio for oil of 1 Bbl: 6 Mcf has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead.

Perpetual Energy Inc. is a natural gas-focused Canadian energy company. Perpetual's common shares and Convertible Debentures are listed on the Toronto Stock Exchange under the symbols "PMT", "PMT.DB.C", "PMT.DB.D" and "PMT.DB.E". Further information with respect to Perpetual can be found at its website at www.perpetualenergyinc.com.

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

SOURCE Perpetual Energy Inc.

For further information: For further information: Perpetual Energy Inc., Suite 3200, 605 - 5 Avenue SW, Calgary, Alberta, Canada, T2P 3H5, Telephone: 403 269-4400, Fax: 403 269-4444, Email: info@perpetualenergyinc.com; Susan L. Riddell Rose, President and Chief Executive Officer; Cameron R. Sebastian, Vice President, Finance and Chief Financial Officer; Sue M. Showers, Investor Relations and Communications Advisor


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890