Pengrowth Energy Corporation (TSX:PGF) (NYSE:PGH) today announced
that the Company’s Board of Directors has approved a 2018 capital
expenditure budget of $65 million. 2018 capital spending will
be focused on adding production volumes at the Company’s two 100
percent owned and operated assets at Lindbergh and
Groundbirch.
The 2018 capital budget is expected to grow
production volumes through the course of the year from a December
2017 exit production rate of approximately 19,000 barrels of oil
equivalent per day (boe/d), excluding the Quirk Creek production
volumes, to an estimated 2018 exit rate of approximately 24,000
boe/d, representing approximately 25 percent production growth in
2018. On an annual basis, the 2018 budget is expected to deliver
average daily production of between 22,500 and 23,500 boe/d.
Derek Evans, President and Chief Executive
Officer said, “Our 2018 capital budget continues our strategy of
putting capital to work growing our production at Lindbergh, one of
the most economic, long life thermal projects in Canada. Our 2018
and 2019 WCS differential hedging and apportionment protection in
combination with our low operating cost structures are expected to
provide us with strong, predictable netbacks for this growing
production stream.”
2018 Capital Plan
The Company has allocated approximately $45
million towards continued development and maintenance activities at
its Lindbergh thermal project. Lindbergh is Pengrowth’s primary oil
asset and with continued development is expected to deliver
long-term growth in production and cash flow to the Company.
2018 development plans at Lindbergh will focus
on continued optimization activities, including the drilling of
eight additional infill wells. Approximately $33 million of the
Lindbergh capital has been allocated to the optimization and infill
well program. The remaining capital will be allocated to
maintenance and enhancement activities to support the continued
production growth from existing operations.
The wells that were drilled in 2017 as part of
the optimization program are now on production and are contributing
to growth in Lindbergh production volumes, with production from the
project expected to reach 16,000 bbl/d by the end of the first
quarter 2018. The eight infill wells in the 2018 capital program
are scheduled to be drilled in the second quarter of 2018 and are
expected to be brought on stream in the fourth quarter of 2018,
increasing Lindbergh production to approximately 18,000 bbl/d by
the end of the year.
At Groundbirch, Pengrowth’s Montney property in
north east British Columbia, $17 million of capital is being
directed to the completion and tie-in of the four wells which where
drilled in the fourth quarter of 2017. The completion of these
wells is expected to increase natural gas production from
Groundbirch from the current 9.0 million cubic feet per day
(MMcf/d) to approximately 30 MMcf/d, with the initial volumes
coming on by the end of April 2018. In addition to the drilling
program, Pengrowth is working on the completion of a compression
project which is expected to allow the Company to shift
transportation of natural gas production at Groundbirch away from
Station Two and onto the Nova system. Once production is on the
Nova system, it is anticipated that the majority of the natural gas
produced (approximately 87 percent) will be transported to
Lindbergh where it will be used to support the energy requirements
of that project.
The pace of development at Groundbirch will be
dependent on the energy requirements for Lindbergh operations. It
is the Company’s intention to utilize the majority of Groundbirch’s
produced natural gas in its thermal operations and avoid having to
export natural gas outside of the Western Canadian Sedimentary
Basin.
An additional $3.0 million of capital has been
allocated to Pengrowth’s remaining conventional assets as well as
for general corporate purposes.
Production Guidance
The anticipated make-up of 2018 expected average
production volumes of 22,500 to 23,500 boe/d, using the mid-point
of guidance, is set out below:
2018 Production Volume Summary |
Light oil and NGLs (bbl/d) |
1,800 |
Thermal oil (bbl/d) |
16,500 |
Total liquids (bbl/d) |
18,300 |
Natural gas (MMcf/d) |
28.2 |
Total production* (boe/d) |
23,000 |
*assumes mid-point of production guidance |
Operating Expenses
Total 2018 corporate operating costs are
expected to be materially lower compared to 2017 costs primarily as
a result of the Company’s significant asset disposition activities
in 2017. This process resulted in the sale of several high cost
legacy assets, leaving the Company with a portfolio centering on
two 100 percent owned and operated, low cost, growth assets. On a
unit basis, operating expenses are expected to be between
$10.50/boe to $11.50/boe, representing a decline of approximately
17 percent from 2017 operating cost guidance, based on the midpoint
of guidance. Pengrowth will continue with its emphasis on cost
minimization and will seek out opportunities to further reduce its
operating costs where possible.
Cash General and Administrative
Expenses
With the extensive asset sales completed in
2017, the Company has been reducing its staff count to align with
its refocused asset base. This process is expected to be completed
in the first half of the year and, as a result, the Company expects
to see a bifurcated cash general and administrative (G&A)
expense profile in 2018, with G&A expenses being higher in the
first half of the year averaging $3.93/boe and ultimately falling
lower in the second half of 2018 to $2.46/boe. This is expected to
result in full year 2018 cash G&A costs in a range of $3.10/boe
and $3.35/boe, representing a decrease of approximately 14 percent
from 2017 G&A guidance, based on the mid-point of guidance.
Risk Management
The ongoing production growth in Canadian heavy
oil and lack of new export pipeline capability has resulted in a
widening of the Western Canadian Select (WCS) price differential.
Pengrowth has afforded itself protection from this volatility
through its hedging activities. For 2018, the Company has locked in
the WCS heavy oil price differential at US $16.82/bbl for 17,000
bbl/d of Lindbergh blended production through physical sales. These
sales provide stability to WTI-WCS differential pricing and in
addition, these sale agreements ensure the Company has committed
purchases for approximately 75 percent of its forecast Lindbergh
production. In the fourth quarter, the delivery of Lindbergh
production to these purchasers resulted in an operating netback of
$23.19/bbl.
Lindbergh Q4 2017 netback |
$/bbl |
Sales revenue |
$ |
39.56 |
Royalties |
$ |
2.86 |
Transportation |
$ |
2.90 |
Operating expenses |
$ |
10.61 |
Operating Netback |
$ |
23.19 |
In addition to the WCS heavy oil price
differential protection, Pengrowth has in place financial hedging
contracts for 10,000 boe/d of 2018 oil production outlined in the
following table:
2018 Financial contracts |
US$/bbl |
Bbl/d |
Collars |
|
|
Ceiling |
$ |
53.48 |
2,000 |
Floor |
$ |
48.00 |
2,000 |
|
|
|
Swaps |
$ |
49.97 |
8,000 |
2018 Forecast Guidance
Summary
The following is a summary of Pengrowth’s 2018
guidance and does not reflect any anticipated acquisition or
divestment activity.
2018 Full Year Guidance |
Average daily production (boe/d) |
22,500 to 23,500 |
Total capital expenditures ($ millions) |
65 |
Royalties1 (% of sales) |
6.0 |
Operating costs2 ($ per boe) |
10.50 to 11.50 |
Cash G & A2 ($ per boe) |
3.10 to 3.35 |
- Royalties are before impacts of commodity risk management
activities
- Per boe estimates based on high and low ends of production
guidance
|
Outlook
Pengrowth is a leaner, more focused organization
than it was in 2017 and is underpinned by two 100 percent owned and
operated growth assets at Lindbergh and Groundbirch. The Company’s
capital focus is centered on continued efforts at its Lindbergh
project, which is expected to ultimately grow oil volumes to 40,000
to 50,000 bbl/d once fully developed, supported by natural gas from
its Groundbirch Montney gas development.
Pengrowth is formalizing a comprehensive
strategy for the next phase of development at Lindbergh that
contemplates splitting the expansion into smaller phases with a
more manageable cost outlay per phase without impacting the
ultimate potential for Lindbergh reaching 40,000 bbl/d to 50,000
bbl/d.
About Pengrowth:
Pengrowth Energy Corporation is a
Canadian intermediate 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
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 CORPORATIONDerek Evans
President 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.
Production and reserves, unless otherwise noted,
are stated as Company Interest. Company Interest, as used herein,
means Pengrowth’s working interest share of production or reserves
prior to the deduction of royalties plus any royalty interest in
production or reserves at the wellhead.
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 25% growth in exit production; anticipated $65 million of
capital expenditures in 2018 and the focus thereof on adding
production volumes at Lindbergh and Groundbirch; expected growth in
exit production to approximately 24,000 boe/d in 2018; expected
average daily production in 2018; expectation of Lindbergh being
one of the most economic, long life SAGD projects in Canada;
expectations regarding netbacks at Lindbergh; allocation of 2018
capital budget; expected long-term growth in production and cash
flow from Lindbergh; continued optimization activities at Lindbergh
including the drilling of eight additional infill wells; expected
production of 16,000 boe/d by the end of the first quarter of 2018
at Lindbergh and 18,000 boe/d 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 four wells at Groundbirch in
the first quarter of 2018; expected increase in production at
Groundbirch to 30 MMcf/d by the end of 2018 with initial volumes
coming on by the end of April 2018; expected completion of a
compression project at Groundbirch which is expected to allow the
Company to shift transportation from Station Two on to the Nova
system and expectation that the majority of gas produced at
Groundbirch will then be transported to Lindbergh to be used to
support the energy requirements of that project; plans to utilize
the majority of Groundbirch natural gas in the Company’s thermal
operations; anticipated breakdown of expected 2018 production
volumes; anticipated operating expenses and decrease from 2017
guidance; anticipated G&A expenses and decrease from 2017
guidance; 2018 royalty guidance; ultimate development potential of
Lindbergh; and the expectation of being able to develop the next
expansion of Lindbergh in smaller phases. 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, 2017.
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.