CALGARY, Nov. 26, 2014 /CNW/ - Parallel Energy Trust ("Parallel" or the "Trust") (TSX: PLT.UN, PLT.DB) today announced its 2015 capital budget; its 2015 production and cash flow guidance; and, a change to its distribution.
Since its inception, Parallel has focused on acquiring and managing assets that are ideally suited for a distribution-paying oil and gas producer. As a result, Parallel's asset base has a very low decline rate of approximately eight per cent, attractive drilling efficiencies of approximately US$15,000 per flowing boe/day and a high reserve life index comprised primarily of proven reserves. Parallel has also remained committed to operating a sustainable business model, which requires that the Trust generate more than sufficient free cash flow to fund its distribution and capital expenditures.
Parallel recognizes that the Trust's ability to generate sufficient cash flow to fund the existing distribution of $0.05 per unit per month and to reduce debt to a more appropriate level has been impacted by the recent steep decline in oil and natural gas liquids prices. As a result, Parallel will reduce its distribution to a level which will position the Trust to withstand a weak commodity price environment while spending a sufficient amount of capital to maintain production levels year-over-year.
By reducing its distribution, Parallel continues to demonstrate its commitment to maintaining a sustainable business model even at an average WTI oil price that is below the Trust's 2015 base case assumption of US$80.00/bbl. In 2015, the Trust intends to use all free cash flow from operations to accelerate debt repayment and to improve its financial flexibility.
Capital Budget and Production Guidance
For 2015, Parallel's board of directors has approved a capital budget of US$10.5 million. The principal drilling and operating assumptions underlying this guidance are that Parallel will:
- drill, complete and tie-in nine gross wells for a total cost of US$6.8 million. Parallel plans to drill and complete single lateral development wells in the Carson and Sneed operating areas using the Trust's proven drilling techniques. The average 30 day initial production rate is expected to be 50 boe/day per well, resulting in drilling efficiencies of approximately US$15,000 per flowing boe/day;
- complete up to 100 well cleanouts for a total cost of US$2.2 million; and,
- purchase additional equipment and perform planned maintenance and overhauls in the Carson and Sneed operating areas for a total cost of US$1.5 million.
Based on this level of spending, Parallel expects to achieve an annual average daily production rate of approximately 7,100 boe/day in 2015, consistent with actual production in 2013 and expected full year production in 2014. The Trust's production mix is expected to comprise approximately 68 per cent natural gas liquids and condensate, and 32 per cent natural gas, which is consistent with historical averages.
Cash Flow Guidance
The Trust's 2015 cash flow guidance is based on a WTI oil price of US$80.00/bbl, a NYMEX natural gas price of US$4.00/mcf and an average natural gas liquids price of 45 per cent of the US$80.00/bbl WTI oil price. The Trust's cash flow guidance also assumes a U.S. dollar to Canadian dollar exchange rate of $1.12. Royalty rates, production tax and processing fees, which are all directly correlated to Parallel's production revenue, are expected to be consistent on a percentage of revenue basis with the levels experienced in 2014. The Trust expects that operating and general and administrative costs will be lower in 2015 compared to 2014.
Based on the Trust's 2015 production guidance and other assumptions described herein, Parallel's 2015 cash flow is estimated to be approximately C$37 million.
Distribution Level and Payout Ratios
Given the current commodity price environment and the Trust's commodity price assumptions for 2015, the current distribution of $0.05 per unit per month no longer results in a forecasted total payout ratio of less than 100 per cent. The Trust believes that in the current volatile commodity price environment, it is in the best interests of its unitholders to maintain a total payout ratio substantially below 100 per cent to provide greater financial flexibility by reducing its bank debt while maintaining a stable production profile year-over-year.
As a result, beginning with the distribution to be announced in December, 2014, the Trust will reduce its monthly distribution to $0.025 per unit per month.
Based on the Trust's 2015 capital budget, production and cash flow guidance, estimated commodity prices and the updated distribution level, Parallel's basic payout ratio (calculated as declared distributions of $0.025 per unit per month divided by funds from operations) is expected to be approximately 45 per cent in 2015. The Trust's total payout ratio (calculated as declared distributions of $0.025 per unit per month plus capital expenditures divided by funds from operations) is expected to be approximately 80 per cent in 2015.
Parallel's existing bank facility of US$190 million was reconfirmed by the Trust's lenders during the semi-annual review in October 2014. Parallel reported bank debt of US$157.6 million drawn under the facility at September 30, 2014. The Trust expects to reduce the amount of bank debt during the fourth quarter of 2014.
Parallel currently has C$63 million of convertible debentures due on June 30, 2017. Parallel intends to have sufficient availability under its bank facility to fund the repayment of the convertible debentures prior to their maturity date. The Trust plans to achieve this goal by using its available free cash flow to pay down debt between now and the date of maturity and by pursuing alternative debt reduction strategies.
Changes Within Board of Directors
Parallel's board of directors has eliminated the Executive Chairman role. As a result, Henry Sykes will cease acting as Executive Chairman but will continue to serve as a director. Consistent with best practices in governance, the board of directors has appointed Christopher Burley as Chairman. Mr. Burley is an independent director and has served as Lead Director on the board of directors since April 2011.
"Operational excellence remains our top priority for 2015; however, improving our financial flexibility continues to be important to the future success of our company. Given the current commodity price environment, the reduction of our distribution to a sustainable level is an important step towards achieving our debt reduction goal. Should oil and gas prices rebound from current levels, we will utilize the excess cash flow to pay down debt and improve our financial position well in advance of our debenture maturity date of mid-2017."
"In 2014, we marked the second consecutive year in which we exceeded our drilling expectations. Given the improvements we have made in executing our drilling program, we believe we can maintain our production levels in 2015 while drilling only nine wells compared to the 14 wells we drilled in 2014. With our planned workover program and the continued excellence of our field staff, we are confident that we can achieve our production guidance of an average 7,100 boe/day in 2015. We also believe that we will be able to substantially reduce our debt levels during the year utilizing our base case cash flow assumptions."
"Lastly, I want to thank Henry for all of his contributions as Executive Chairman since the formation of the Trust. His advice and guidance is very much appreciated by myself and the entire board, and we are delighted that he has agreed to continue to serve as a director."
ABOUT PARALLEL ENERGY TRUST
Established in March 2011, Parallel Energy Trust ("Parallel" or the "Trust") is a Calgary-based distribution-paying energy income trust. Parallel's assets and operations are located in the Mid-Continent Region of the United States and its portfolio consists of mature, liquids-rich natural gas assets. The Trust's business strategy is focused on acquiring and developing long-life, conventional oil and natural gas assets.
Parallel is considered to be a "mutual fund trust" under the Income Tax Act of Canada; however, the Trust is not subject to specified investment flow through ("SIFT") trust taxes as all of its properties are held outside of Canada. Parallel's common units are traded on the Toronto Stock Exchange ("TSX") under the symbol "PLT.UN" and the Trust's debentures are traded on the TSX under the symbol "PLT.DB".
This news release contains forward-looking information that involves substantial known and unknown risks and uncertainties, most of which are beyond the control of Parallel, including, without limitation, those listed under "Risk Factors" in Parallel's annual information form dated March 21, 2014 (collectively, "forward-looking information"). Forward-looking information in this news release includes, but is not limited to, Parallel's objectives and status as a mutual fund trust and not a SIFT trust and Parallel's expectations and estimates regarding current and future production rates and drilling results. Parallel cautions investors in Parallel's securities about important factors that could cause Parallel's actual results to differ materially from those projected in any forward-looking statements included in this news release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that the expectations set out in Parallel's final prospectus or herein will prove to be correct and accordingly, prospective investors should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this press release and Parallel does not assume any obligation to update or revise them to reflect new events or circumstances.
In this news release, Parallel and its subsidiaries are referred to collectively as the "Trust" or "Parallel" for purposes of convenience.
Oil and Gas Measures and Definitions
This press release contains disclosure expressed as "boe" and "boe/day". All oil and natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily.
SOURCE: Parallel Energy Trust
For further information: Curtis Pelletier, Manager, Investor Relations, 403-781-7888 or Toll-Free: 1-855-781-7888, [email protected]