Painted Pony Announces Second Quarter Financial and Operating Results

GlobeNewswire — Thursday, August 13, 2020

CALGARY, Alberta, Aug. 12, 2020 (GLOBE NEWSWIRE) -- Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation”) (TSX: PONY) announces second quarter 2020 financial and operating results.

HIGHLIGHTS

  • Announced an agreement to be acquired by Canadian Natural Resources Limited for $0.69 per share, representing a 30% premium to the 20-day volume weighted average price of $0.53 per share at the time of the announcement on Monday, August 10, 2020;
     
  • Averaged daily production of 305,058 Mcfe/d (50,843 boe/d) during the second quarter of 2020 compared to 293,868 Mcfe/d (48,978 boe/d) during the second quarter of 2019, and;
     
  • Produced average daily liquids of 4,396 bbls/d during the second quarter of 2020, which was 22% higher than liquids production of 3,594 bbls/d during the first quarter of 2020, and compares to second quarter 2019 liquids production of 4,508 bbls/d.

SECOND QUARTER 2020 FINANCIAL & OPERATING RESULTS
Production
Painted Pony’s average daily production increased 4% to 305,058 Mcfe/d (50,843 boe/d) during the second quarter of 2020, compared to 293,868 Mcfe/d (48,978 boe/d) during the second quarter of 2019.  Second quarter 2020 average daily production volumes consisted of 91% natural gas and 9% NGLs compared to the same levels during the second quarter of 2019. During the second quarter of 2020, Painted Pony’s NGLs production increased 22% to 4,396 boe/d, from 3,594 boe/d during the first quarter of 2020, with the increase due to the recently commissioned third-party deep-cut facility at Townsend to which Painted Pony received access.

Capital Expenditures
Painted Pony’s capital program for the second quarter of 2020 was approximately $5 million, including approximately $4 million for drilling and completion costs. Painted Pony drilled 7 (1.75 net) Montney wells during the second quarter of 2020.

Pricing and Adjusted Funds Flow from Operations
Painted Pony’s realized commodity price of $2.12 per Mcf represents a 7% premium to the AECO daily (5A) benchmark price of $1.99 per Mcf during the second quarter of 2020. Painted Pony’s operating netback of ($0.09) per Mcfe during the second quarter of 2020 declined in comparison to the operating netback of $1.26 per Mcfe during the second quarter of 2019. Painted Pony’s adjusted funds flow from (used in) operations during the second quarter of 2020 was $(14) million, compared to $9 million during the second quarter of 2019. This decline was the result of a 55% reduction in realized NGL pricing to $20.48 per bbl during the second quarter of 2020 compared to $45.57 per bbl during the second quarter of 2019, realized losses on risk management contracts, increased capital facility fees and higher transportation costs resulting from contracted capacity on the recently constructed North Montney Mainline. Stronger natural gas pricing at Station 2 and AECO were offset by lower NYMEX prices which reached a 31 year low of US$1.63/MMBtu during June of 2020. The risk management contracts were impacted by the reduced basis between NYMEX natural gas pricing and domestic natural gas hubs. The change in capital facility fees was the result of modifications to finance lease obligations, with a corresponding decrease in finance lease expense.

Liquidity, Future Operations and Arrangement Agreement
As at June 30, 2020, the Corporation had a working capital deficiency of $180.7 million. During the three months ended June 30, 2020, the Corporation had incurred a net loss of $33.5 million and cash flows used in operations were $8.3 million. Included in the working capital deficiency is bank debt of $148.4 million due on May 11, 2021 and in addition, the Corporation has convertible debentures of $50 million which mature on August 23, 2021. The Corporation's syndicated credit facilities consist of available credit facilities of $325 million. The available facilities are provided by a syndicate of financial institutions and include a $275 million extendable revolving facility and a $50 million operating facility. The Corporation also has a $22 million unsecured letter of credit facility backstopped by Export Development Canada ("EDC"). As the current maturity date of the credit facilities is May 11, 2021, the bank debt has been classified as a current liability at June 30, 2020.

On July 31, 2020, subject to certain reporting requirements and spending limits, the Corporation's banking syndicate agreed to extend the date for completion of the annual borrowing base redetermination to August 31, 2020. Any redetermination of the borrowing base is effective immediately, and if the borrowing base is reduced, any shortfall is due immediately. The available lending limits are based on the syndicate's sole interpretation of the Company's reserves, future commodity prices and costs. No assurance can be provided that the amount of the facilities will not be adjusted on August 31, 2020, or that the Company will be able to further renew or extend or replace the current facilities on terms that are favorable to the Corporation. Should the Corporation be unable to extend the maturity date of the credit facilities, it could result in a default under the terms of the credit agreement and lenders would have the right, but not the obligation, to demand immediate repayment of all amounts drawn on the credit facilities and would result in defaults under both the Convertible Debenture Indenture and the Senior Note Trust Indenture. The Corporation's ability to continue as a going concern is dependent upon the Corporation's ability to maintain the credit facilities at or above amounts currently drawn and its ability to renew the credit facilities prior to the repayment/maturity date. There can be no assurances that the facilities will be renewed, or additional sources of funding will be available for the Corporation. These matters cause material uncertainty which may cast significant doubt on the Corporation's ability to continue as a going concern.

The Corporation and its lenders continue to work towards a long-term solution on the facilities and the overall liquidity of the Corporation. In this regard, after reviewing the Corporation's current circumstances and all available proposals, on August 10, 2020, the Corporation entered into a definitive arrangement agreement (the "Arrangement Agreement") pursuant to which Canadian Natural Resources Limited (the "Purchaser") has agreed to acquire all of the issued and outstanding common shares of the Corporation for cash consideration of $0.69 per share (the "Transaction"). The Purchaser will assume the Corporation's net debt as estimated upon closing. The Transaction is subject to various closing conditions, including court approval, the required approval by the Corporation's securityholders and certain regulatory approvals, including approval under the Competition Act (Canada). Closing of the Transaction is anticipated to occur in early October 2020 upon satisfaction of all conditions precedent, including approval under the Competition Act (Canada). The Arrangement Agreement provides for a non-completion fee of $20.0 million payable by the Corporation if the transaction is terminated under certain circumstances.

For additional information concerning Painted Pony’s second quarter 2020 financial and operating results, including Financial Statements and the full Management Discussion and Analysis, please visit https://paintedpony.ca/investors/financial-reports/default.aspx or www.sedar.com.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

 Three months ended June 30,
  Six months ended June 30,  
($ millions, except per share and shares outstanding) 2020  2019  2020  2019  
Financial     
Natural gas and natural gas liquids revenue(1)61.9  59.1  135.9  166.8   
Cash flows from (used in) operating activities(8.3) 22.3  12.6  76.0   
 Per share - basic(2)(4)(0.05) 0.14  0.08  0.47   
 Per share - diluted(3)(4)(0.05) 0.13  0.07  0.45   
Adjusted funds flow from (used in) operations(5)(13.6) 9.1  (8.3) 55.6   
 Per share - basic(2)(5) (0.08) 0.06  (0.05) 0.35   
 Per share - diluted(3)(5)(0.08) 0.05  (0.05) 0.33   
Net loss and comprehensive loss - basic and diluted(33.5) (14.7) (315.6) (17.3)  
 Per share - basic and diluted(2)(3)(0.21) (0.09) (1.96) (0.11)  
Cash capital expenditures5.3  15.3  26.2  52.2   
Working capital (deficiency)(6)(180.7) (20.5) (180.7) (20.5)  
Bank debt148.4  134.8  148.4  134.8   
Senior notes145.6  143.9  145.6  143.9   
Convertible debentures - liability48.2  46.8  48.2  46.8   
Net debt(7)359.4  344.2  359.4  344.2   
Total assets1,099.3  2,013.4  1,099.3  2,013.4   
Shares outstanding (millions)161.0  161.0  161.0  161.0   
Basic weighted-average shares (millions)161.0  161.0  161.0  161.0   
Fully diluted weighted-average shares (millions)169.9  169.9  169.9  169.9   
Operational     
Daily production volumes     
 Natural gas (MMcf/d)278.7  266.8  288.0  283.4   
 Natural gas liquids (bbls/d)4,396  4,508  3,995  4,430   
 Total (MMcfe/d)305.1  293.9  312.0  310.0   
 Total (boe/d)50,843  48,978  51,992  51,669   
Realized commodity prices before financial risk management contracts   
 Natural gas ($/Mcf)2.12  1.66  2.21  2.50   
 Natural gas liquids ($/bbl)20.48  45.57  27.46  48.31   
 Total ($/Mcfe)2.23  2.21  2.39  2.97   
Operating netbacks ($/Mcfe)(8)(0.09) 1.26  0.38  1.88   
Corporate netbacks ($/Mcfe)(8)(0.14) 0.72  0.18  1.36   

1. Before royalties.
2. Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.
3. Diluted per share information reflects the potential dilutive effect of stock options and convertible debentures.
4. Cash flows from (used in) operating activities per share (basic and diluted), are non-GAAP measures calculated by dividing cash flows from (used in) operating activities by the weighted average of basic or diluted shares outstanding in the period. See "Non-GAAP Measures".
5. Adjusted funds flow from (used in) operations and adjusted funds flow from (used in) operations per share (basic and diluted) are non-GAAP measures used to represent cash flow from (used in) operating activities before the effects of changes in non-cash working capital and decommissioning expenditures. Adjusted funds flow from (used in) operations per share is calculated by dividing adjusted funds flow from (used in) operations by the weighted average number of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.
6. Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. See “Non-GAAP Measures”.
7. Net debt is a non-GAAP measure calculated as bank debt, senior notes, the liability portion of convertible debentures, and working capital deficiency, adjusted for the net current portion of fair value of risk management contracts and current portion of the finance lease obligation. See “Non-GAAP Measures”.
8. Operating netbacks and corporate netbacks are non-GAAP measures. Operating netbacks are calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management contracts, less royalties, operating expenses and transportation expenses. Corporate netbacks are calculated as operating netbacks less finance lease expense per unit. See “Non-GAAP Measures” and “Operating Netbacks and Corporate Netbacks”.

DEFINITIONS AND 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 on-stream timing for new wells, including expected on-stream timing for the eight-well pad on the South Townsend block, cost reductions, including in relation to cost structure improvements at the AltaGas Townsend Facility and reduced transportation obligations on both Enbridge T-North and TC Energy Corporation’s North Montney Mainline pipelines, reductions in take-or-pay obligations and capital facility fees relating to the AltaGas Townsend Facility, expectations regarding firm transportation obligations on the North Montney Mainline and the anticipated timing of the closing of the Transaction. In addition, the Company’s ability to continue as a going concern involves significant judgment and is dependent on, among other things, its ability to maintain the credit facilities at or above amounts currently drawn and its ability to renew the credit facilities prior to the repayment/maturity date and the anticipated timing of the closing of the Transaction.

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, 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; anticipated 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, the availability of labor and services, the ability of the Corporation and the Purchaser to receive, in a timely manner, the necessary securityholder, court, regulatory and other third-party approvals, including but not limited to competition approvals, and the ability of the parties to satisfy, in a timely manner, the other conditions to closing the Transaction. 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 production assume that no material unexpected outages occur in the infrastructure that 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 the remainder of 2020 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. Other factors that could cause results or event to differ materially from current expectations include, among other things: the ability of the Corporation to continue as a going concern, public health crises & economic downturn, liquidity risks, general economic conditions and normal business uncertainty, the ability of the Company to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits, changes in laws, rules and regulations applicable to the Company, failure to satisfy any conditions to closing the Transaction, and the emergence of a superior proposal or the failure to obtain securityholder approval which may result in termination of the Arrangement Agreement. The foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. Additional information on these and other risk factors that could affect operational or financial results are included in the Corporation's most recent MD&A, Annual Information Form and in other reports filed with Canadian securities regulatory authorities.

The forward-looking statements in this news release should not be interpreted as providing a full assessment or reflection of the unprecedented impacts of the recent COVID-19 pandemic ("COVID-19") and the resulting indirect global and regional economic impacts.

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.

Non-GAAP Measures: This press release makes reference to the terms “adjusted funds flow from operations”, “adjusted funds flow from operations per share”, “working capital deficiency”, “net debt”, “operating netbacks” and "corporate netbacks", which do not have standardized meanings prescribed by IFRS and therefore may not be comparable with the calculation of similar measures presented by other issuers.

Management uses “adjusted funds flow from operations” to analyze operating performance and considers adjusted funds flow from operations to be a key measure as it demonstrates the Corporation’s ability to generate the cash necessary to fund future capital investment and to repay debt. Adjusted funds flow from operations denotes cash flow from operating activities before the effects of changes in non-cash working capital and decommissioning expenditures. “Adjusted funds flow from operations per share” is calculated using the basic and diluted weighted average number of shares for the period. These terms should not be considered alternatives to, or more meaningful than, cash flows from operating activities as determined in accordance with IFRS as an indicator of the Corporation’s performance. Management uses “working capital deficiency” and “net debt” as useful supplemental measures of the liquidity of the Corporation. Working capital deficiency is calculated as current assets less current liabilities. Net debt is calculated as bank debt, senior notes, liability portion of convertible debentures, and working capital (deficiency), adjusted for the net current portion of fair value of risk management contracts and current portion of finance lease obligation. "Operating netback" and "corporate netback" are used as a supplemental measure of the Corporation's profitability relative to commodity prices. Operating netback is calculated on a per unit basis as natural gas and natural gas liquids revenues, adjusted for realized gains or losses on risk management contracts, less royalties, operating expenses and transportation costs. Corporate netback is calculated on a per unit basis as operating netback per unit less finance lease expense per unit.  These terms should not be considered alternatives to, or more meaningful than net income (loss) and comprehensive income (loss) as determined in accordance with IFRS. For a reconciliation of these measures to the most directly comparable measure calculated in accordance with IFRS, and further information about these measures, see disclosure under “Non-GAAP Measures” in the Corporation’s most recent MD&A.

Management of the Corporation believes these measures are useful supplemental measures of the net position of current assets and current liabilities of the Corporation and the profitability relative to commodity prices. Readers are cautioned, however, that these measures should not be construed as alternatives to other terms such as current and long-term debt or comprehensive income determined in accordance with IFRS as measures of performance. The Corporation's method of calculating these non-GAAP measures may differ from other companies, and accordingly, may not be comparable to similar measures used by other entities.  Please see the "Non-GAAP Measures" section of the Corporation's management's discussion and analysis of the financial results of the Corporation for the period ended June 30, 2020.

ABOUT PAINTED PONY
Painted Pony is a publicly-traded natural gas company 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 TSX under the symbol “PONY”.

Contact Information:
Patrick R. Ward

President and Chief Executive Officer


Stuart W. Jaggard

Chief Financial Officer


Jason W. Fleury

Director, Investor Relations

(403) 776-3261

(403) 475-0440
1-866-975-0440 toll free
ir@paintedpony.ca

www.paintedpony.ca