Pengrowth Energy Corporation (TSX:PGF) (NYSE:PGH) today announced
its operating and financial results for the three months ended
March 31, 2018.
The first quarter results are on plan, setting
the stage for a solid year as “new” Pengrowth continues the
transformation into a resource developer focused on its two 100
percent owned and operated growth assets at Lindbergh and
Groundbirch. “Our results have positioned us with a good start to
the year and have set us up to achieve our target of organic
double-digit production growth in 2018,” said Pete Sametz,
President and Chief Executive Officer of Pengrowth. “We will
ultimately grow our production to approximately 24,000 barrels of
oil equivalent (boe) per day by the end of the year, led by our top
tier Lindbergh thermal oil asset.”
First Quarter Highlights:
First quarter results from our focused
asset portfolio have positioned the Company on the path to
achieving double-digit production growth in 2018
- Delivered first quarter average daily production of 19,541 boe
per day, led by Lindbergh production which averaged 15,118 barrels
(bbl) per day in the quarter.
- First quarter development activities at Lindbergh and
Groundbirch resulted in significant production growth subsequent to
the end of the quarter with Lindbergh production eclipsing 16,500
bbl per day in mid-April and Groundbirch production exceeding 28
million cubic feet (MMcf) per day in early April.
- Managed exposure to Western Canadian Select (WCS) price
differential fluctuations in the quarter through physical delivery
contracts that provided differential as well as pipeline
apportionment protection. These contracts resulted in thermal oil
prices being higher by approximately $10.50 per bbl in the quarter
versus the benchmark prices. For the rest of 2018, 70 percent
of projected WCS sales are price protected at an average price
differential of approximately U.S. $16.80 per bbl.
- Achieved an average netback at Lindbergh of Cdn $26.16 per bbl
in the quarter, including the impact of Pengrowth’s physical
delivery contracts despite the benchmark light-heavy price
differential widening significantly to over U.S. $24.00 per
bbl.
Operations
Pengrowth achieved first quarter average daily
production of 19,541 boe per day, led by production volumes from
Lindbergh, which averaged 15,118 bbl per day in the quarter at an
average SOR of 2.9. Subsequent to the end of the quarter,
production at Lindbergh continued to ramp up following the
development activities in the quarter, with volumes increasing to
over 16,500 bbl per day in mid-April. Similarly, the development
activities at Groundbirch in the quarter resulted in a ramp up of
production at Groundbirch with total production increasing from
approximately 9 MMcf per day at the start of the year to over 28
MMcf per day in early April, representing an increase of over 200
percent.
Lindbergh capital spending in the first quarter
was focused on the conversion of four well pairs drilled on Pad D04
late in 2017 to SAGD production, equipment installation and
initiation of circulating activities on the three remaining well
pairs on Pad D04, as well as the commencement of the 2018
optimization program. As part of our 2018 optimization strategy for
Lindbergh, the Company plans on drilling eight infill wells in
support of production growth at Lindbergh. Drilling of the wells
commenced in the second quarter and the Company expects to have the
wells drilled, completed and tied-in by the third quarter.
Following planned steaming operations, these wells are expected to
be brought on stream in the fourth quarter of 2018, targeting
Lindbergh production of approximately 18,000 bbl per day by the end
of the year.
At Groundbirch, activities in the quarter
included the completion and tie-in of three of the four wells
drilled in 2017. In addition to the development activities, the
Company completed the compression project which allows us to shift
transportation of natural gas production at Groundbirch away from
Station Two and onto the Nova Gas Transmission Limited (NGTL)
system. As of April 1, 2018, volumes from Groundbirch commenced
flow on the NGTL system. The fourth well completion and tie-in is
anticipated during the third quarter of 2018. The gas production
from Groundbirch is a physical hedge for our gas requirements
needed to generate steam at Lindbergh, where we expect to utilize
approximately 87 percent of the natural gas produced from
Groundbirch.
Total capital expenditures in the first quarter
were $26.4 million and primarily focused on development activities
at Groundbirch and Lindbergh.
Net Operating and G&A
Expenses
First quarter net operating expenses of $18.3
million ($10.41 per boe) were on track with full year guidance and
reflect the lower operating costs associated with our focused asset
base. Cash G&A expenses of $8.9 million ($5.06 per boe) in the
quarter continue to trend downwards following the significant asset
dispositions completed in 2017 and the subsequent realignment of
staffing needs to match the smaller asset base. First quarter cash
G&A still contained approximately $1.2 million of staffing
costs related to the divested properties. These trailing tasks are
expected to end in the second quarter of 2018, and the Company
remains on track to reduce G&A costs further in the second half
of the year. We anticipate full year 2018 cash G&A expenses to
be in line with 2018 Guidance.
Financial Results
The Company reported funds flow from operations
of $7.2 million ($0.01 per share), compared to funds flow of $26.9
million ($0.05 per share) for the same period in 2017. The decrease
in funds flow year over year was primarily due to the absence of
production volumes from divested properties combined with higher
diluent expenses at Lindbergh. Diluent is required for processing
and blending of Lindbergh bitumen production to meet pipeline
specifications. The Company typically uses more diluent in the
winter months due to the colder weather. Higher realized prices
during the first quarter of 2018 compared to the same period in
2017, due to material improvements in crude oil benchmark prices,
were partially offset by realized financial risk management
losses.
Pengrowth's WCS physical oil delivery contracts
in the first quarter insulated the Company from the volatility in
the light-heavy price differentials and resulted in the Company’s
Lindbergh production generating an operating netback of $26.16 per
bbl. The physical hedge contracts in the quarter resulted in a
realized gain of $10.51 per bbl for Pengrowth’s thermal oil sales.
A summary of corporate and Lindbergh standalone Q1, 2018 operating
netbacks is provided in the table below:
|
|
|
|
|
|
|
|
|
|
|
Corporate |
Lindbergh |
|
Sales |
39.97 |
|
42.33 |
|
|
Royalties |
(2.79 |
) |
(2.57 |
) |
|
Net operating expenses |
(10.41 |
) |
(10.59 |
) |
|
Transportation expenses
|
(2.73 |
) |
(3.01 |
) |
|
Operating netback |
24.04 |
|
26.16 |
|
|
In addition to the physical delivery contracts,
Pengrowth has in place financial risk management contracts for
2018. During the second half of 2017, in order to ensure compliance
with relaxed covenants on its debt, Pengrowth entered into a series
of WTI hedges. In the first quarter these hedges represented 62
percent of Pengrowth’s liquids production, and as Lindbergh
production continues to increase through 2018, the percentage
hedged will decline to approximately 55 percent of liquids
production. These contracts generated a realized loss of
approximately $7.96 per boe in the quarter, resulting in funds flow
being lower by $14.0 million. If commodity prices remain at current
levels, the absence of these financial risk management contracts
will result in significantly higher realized prices for liquids
production and higher funds flow, starting in
2019.
Pengrowth recorded a net loss of $27.2 million
($0.05 per share) in the first quarter of 2018 compared to a net
loss of $86.3 million ($0.16 per share) in the first quarter of
2017. The smaller net loss is primarily due to the absence of
impairment charges and losses on the disposition of properties
recorded in the first quarter of 2017. Partly offsetting these were
lower funds flow year over year and the absence of unrealized
commodity risk management gains recorded in the first quarter of
2017.
Financial Resources and
Liquidity
Pengrowth’s total debt (excluding letters of
credit) at March 31, 2018 amounted to Cdn $662.1 million, which was
a slight increase from the end of the year. The higher debt was
primarily a result of Pengrowth’s development program, which is
front-end weighted with the bulk of the $65 million of the 2018
capital expected to be spent in the first half of the year. In
addition, as the majority of Pengrowth's long term debt and
interest payments are denominated in U.S. dollars, they are subject
to fluctuations in the exchange rate between the Canadian and US
dollars. The weaker Canadian dollar versus the U.S. dollar during
the quarter translated into a higher Canadian dollar equivalent
debt, contributing to the overall increase in corporate debt.
Pengrowth manages this foreign exchange exposure through swap
contracts on the majority of its outstanding foreign denominated
notes. At March 31, 2017 Pengrowth held U.S. $255 million of swap
contracts at a weighted average exchange rate of Cdn $0.75/U.S.
$1.00.
Outlook
The Company has started to demonstrate its
growth potential and the development focus on our two primary
assets leave us on track to generate double-digit organic
production growth in 2018. Our 2018 capital expenditure budget of
$65 million is unchanged and focused on adding production volumes
from Lindbergh and Groundbirch. The 2018 budget is expected to
generate average annual production of 22,500 to 23,500 boe per day,
with an estimated 2018 exit rate of approximately 24,000 boe per
day, representing double-digit production growth for 2018.
Analyst call
Pengrowth will host an analyst call and
listen-only audio webcast beginning at 7:00 A.M. Mountain Time (MT)
on Wednesday, May 2, 2018, during which management will review
Pengrowth's first quarter results and respond to questions from the
analyst community.
To ensure timely participation in the
teleconference, callers are encouraged to dial in 10 minutes prior
to the start of the call to register.
Dial-in numbers:
Toll free: (844) 358-9179 or International: (478)
219-0186 Live listen only audio webcast:
https://edge.media-server.com/m6/p/dh38jheg
Pengrowth’s unaudited Financial Statements for
the three months ended March 31, 2018 and related Management’s
Discussion and Analysis can be viewed on Pengrowth’s website at
www.pengrowth.com. They have also been filed on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov/edgar
About Pengrowth:
Pengrowth Energy Corporation is a
Canadian energy company focused on the sustainable development
and production of oil and natural gas in Western Canada from its
Lindbergh thermal oil property and its Groundbirch Montney gas
property. The Company is headquartered in Calgary, Alberta, Canada
and has been operating in the Western Canadian basin for over 28
years. The Company’s shares trade on both the Toronto Stock
Exchange under the symbol "PGF" and on the New York Stock Exchange
under the symbol "PGH".
PENGROWTH ENERGY CORPORATIONPete SametzPresident
and Chief Executive Officer
Contact information:
Wassem KhalilManager, Investor Relations Toll
free 1-855-336-8814
For further information about Pengrowth, please
visit our website www.pengrowth.com or contact: Investor Relations,
E-mail: investorrelations@pengrowth.com
Advisories:
Currency:All amounts are stated in
Canadian dollars unless otherwise specified. Caution
Regarding Engineering Terms: When used herein, the term
"boe" means barrels of oil equivalent on the basis of one boe being
equal to one barrel of oil or NGLs or 6,000 cubic feet of natural
gas (6 mcf: 1 bbl). Barrels of oil equivalent may be misleading,
particularly if used in isolation. A conversion ratio of six mcf of
natural gas to one boe is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. All production
figures stated are based on Company Interest before the deduction
of royalties.
Caution Regarding Forward Looking
Information: This press release contains forward-looking
statements within the meaning of securities laws, including the
"safe harbour" provisions of the Canadian securities legislation
and the United States Private Securities Litigation Reform Act of
1995. Forward-looking information is often, but not always,
identified by the use of words such as "anticipate", "believe",
"expect", "plan", "intend", "forecast", "target", "project",
"guidance", "may", "will", "should", "could", "estimate", "predict"
or similar words suggesting future outcomes or language suggesting
an outlook. Forward-looking statements in this press release
include, but are not limited to, statements with respect to
expected double-digit growth in exit production; expected exit
production of 24,000 boe per day; anticipated $65 million of
capital expenditures in 2018 and the focus thereof on adding
production volumes at Lindbergh and Groundbirch; expected average
daily production in 2018; continued optimization activities at
Lindbergh including the drilling of eight additional infill wells;
Lindbergh production reaching 18,000 boe per day by the end of the
year; expectation of new infill wells to be on stream by the fourth
quarter of 2018; anticipated completion and tie-in of fourth well
at Groundbirch in the third quarter of 2018; expected increase in
production at Groundbirch to 30 MMcf per day by the end of 2018;
plans to utilize the majority of Groundbirch natural gas in the
Company’s thermal operations; G&A cost structures expected to
decrease in the second half of 2018 and remain within full year
guidance and the expectation for higher realized prices for liquids
production and higher expected funds flow from operations starting
in 2019. Forward-looking statements and information are based on
current beliefs as well as assumptions made by and information
currently available to Pengrowth concerning anticipated financial
performance, business prospects, strategies and regulatory
developments. Although management considers these assumptions to be
reasonable based on information currently available to it, they may
prove to be incorrect.
By their very nature, forward-looking statements
involve inherent risks and uncertainties, both general and
specific, and risks that predictions, forecasts, projections and
other forward-looking statements will not be achieved. We caution
readers not to place undue reliance on these statements as a number
of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations and
anticipations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not
limited to: changes in general economic, market and business
conditions; the volatility of oil and gas prices; fluctuations in
production and development costs and capital expenditures; the
imprecision of reserve estimates and estimates of recoverable
quantities of oil, natural gas and liquids; Pengrowth's ability to
replace and expand oil and gas reserves; geological, technical,
drilling and processing problems and other difficulties in
producing reserves; environmental claims and liabilities; incorrect
assessments of value when making acquisitions; increases in debt
service charges; the loss of key personnel; the marketability of
production; defaults by third party operators; unforeseen title
defects; fluctuations in foreign currency and exchange rates;
fluctuations in interest rates; inadequate insurance coverage;
compliance with environmental laws and regulations; actions by
governmental or regulatory agencies, including changes in tax laws;
Pengrowth's ability to access external sources of debt and equity
capital; the impact of foreign and domestic government programs and
the occurrence of unexpected events involved in the operation and
development of oil and gas properties. Further information
regarding these factors may be found under the heading "Business
Risks" in our most recent management's discussion and analysis and
under "Risk Factors" in our Annual Information Form dated February
28, 2018.
The foregoing list of factors that may affect
future results is not exhaustive. When relying on our
forward-looking statements to make decisions, investors and others
should carefully consider the foregoing factors and other
uncertainties and potential events. Furthermore, the
forward-looking statements contained in this press release are made
as of the date of this press release, and Pengrowth does not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
applicable laws. The forward-looking statements contained in this
press release are expressly qualified by this cautionary
statement.
The forward-looking statements contained in this
press release are expressly qualified by this cautionary
statement.
Additional and Non-GAAP
Measures In addition to providing measures prepared in
accordance with International Financial Reporting Standards (IFRS),
Pengrowth presents additional and non-GAAP measures including total
debt before working capital, total debt including working capital,
net operating costs and cash G&A expenses. These measures do
not have any standardized meaning prescribed by GAAP and therefore
are unlikely to be comparable to similar measures presented by
other companies. These measures are provided, in part, to assist
readers in determining Pengrowth’s ability to generate cash from
operations. Pengrowth believes these measures are useful in
assessing operating performance and liquidity of Pengrowth’s
ongoing business on an overall basis. These measures should be
considered in addition to, and not as a substitute for, net income
(loss), cash provided by operations and other measures of financial
performance and liquidity reported in accordance with IFRS. Further
information including reconciliation to the applicable GAAP measure
with respect to these additional and non-GAAP measures can be found
in the MD&A.
Note to US ReadersWe report our
production and reserve quantities in accordance with Canadian
practices and specifically in accordance with NI 51- 101. These
practices are different from the practices used to report
production and to estimate reserves in reports and other materials
filed with the SEC by companies in the United States.
Current SEC reporting requirements permit, but
do not require United States oil and gas companies, in their
filings with the SEC, to disclose probable and possible reserves,
in addition to the required disclosure of proved reserves. The SEC
does not permit the inclusion of estimates of contingent resources
in reports filed with it by United States companies. Under current
SEC requirements, net quantities of reserves are required to be
disclosed, which requires disclosure on an after royalties basis
and does not include reserves relating to the interests of others.
Because we are permitted to prepare our reserves information in
accordance with Canadian disclosure requirements, we have included
contingent resources, disclosed reserves before the deduction of
royalties and interests of others and determined and disclosed our
reserves and the estimated future net cash therefrom using forecast
prices and costs. See "Presentation of our Reserve Information" in
our most recent Annual Information Form or Form 40-F for more
information.
We incorporate additional information with
respect to production and reserves which is either not generally
included or prohibited under rules of the SEC and practices in the
United States. We follow the Canadian practice of reporting gross
production and reserve volumes; however, we also follow the United
States practice of separately reporting these volumes on a net
basis (after the deduction of royalties and similar payments). We
also follow the Canadian practice of using forecast prices and
costs when we estimate our reserves. The SEC permits, but does not
require, the disclosure of reserves based on forecast prices and
costs.