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Pengrowth Completes Transformation Into Thermal Oil and Montney Gas Focused Company

by pmnationtalk on November 10, 201715 Views

CALGARY, ALBERTA–(Nov. 9, 2017) – Pengrowth Energy Corporation (TSX:PGF)(NYSE:PGH) is pleased to announce its third quarter 2017 financial and operating results and the completion of its strategic objective of focusing its asset base to its two growth assets. Pengrowth’s long-term development plan is centered on operational excellence on a concentrated asset portfolio with long-life reserves, reduced cost structures, reduced long-term liabilities and reduced infrastructure costs. The Company and its teams have worked relentlessly this year to execute its asset disposition program, transforming to a leaner, stronger company with significant upside exposure to a recovering crude oil price. Underpinning the new Pengrowth is a focused portfolio consisting of two key long-term growth assets at Lindbergh and Groundbirch, with significant future development opportunities.

The substantial completion of our disposition programs and the recent agreement with our lenders and noteholders along with the quality of our SAGD thermal oil and Montney assets has positioned the Company to source less restrictive debt capital. With success in obtaining less restrictive debt, and a sustained improvement in commodity prices to over US $55 per barrel West Texas Intermediate (WTI), we expect to be in a better position to access financing to move forward with the sanctioning of Phase Two of Lindbergh.

The Phase Two expansion of Lindbergh which is projected to increase production capacity to approximately 40,000 barrels (bbl) per day has received all necessary regulatory approvals and could be on stream within 24 Months of sanctioning. The Lindbergh Phase Two expansion has been significantly derisked by the success of Phase One and based on current assumptions, could deliver full cycle IRR’s of approximately 20 percent at a WTI crude oil price of US $55 per barrel and a $0.75 Canadian dollar exchange rate. In addition to Lindbergh, Pengrowth’s thermal portfolio includes inventory north of Lindbergh at Muriel Lake as well as the Selina project in which Pengrowth holds a 50 percent working interest. Following the development of Lindbergh Phase Two, Selina is expected to produce approximately 12,500 (6,250 net) bbl per day when fully developed. Pengrowth’s Groundbirch Montney asset is expected to offset and underpin the gas supply requirements of current and future expansion plans on the Company’s thermal portfolio.

With the full development Pengrowth expects its total thermal oil production to exceed 50,000 bbl per day, supplemented by natural gas production potential at Groundbirch that could reach 60 million cubic feet (MMcf) per day. These key assets are expected to form the foundation of Pengrowth’s growth strategy over the next several years and are expected to position the Company to deliver years of production and cash flow growth for the Company and its stakeholders.

Derek Evans, President and CEO of Pengrowth commented “The Company and our teams have worked relentlessly this year to execute on our asset disposition program and to enable us to focus on our key growth assets. The work that we have done has transformed Pengrowth into a leaner, focused company that is poised to deliver on its long-term development strategy, upon a sustained recovery in crude oil prices, resulting in significant growth in production and associated cash flow over the next five years.”

2017 Year to Date Highlights:

  • Closed or announced nearly $1.0 billion of asset sales, which are summarized in the following table:
Gross Proceeds
($ million)
Closing Date
Lindbergh GORR $250 January 6, 2017
Bernadet Lands $92 April 11, 2017
Swan Hills (Judy Creek) $185 July 6, 2017
Olds/Garrington $300 August 11, 2017
Alberta W4M $- October 23, 2017
Swan Hills $150 November 3, 2017
Quirk Creek $6.5 Q4, 2017
Total gross proceeds $984
  • Reduced total debt by Cdn $731 million during the first nine months of 2017 through the repayment of the U.S. $400 million term notes originally due July 26, 2017 and the repayment of Cdn $126.6 million of convertible debentures at maturity.
  • Subsequent to September 30, 2017, total debt was further reduced with the repayment of all outstanding U.S. $265 million term notes and Cdn $15 million term notes, both originally due on August 21, 2018. Pengrowth also prepaid an additional Cdn $78 million of principal on its remaining outstanding term notes.
  • Pengrowth’s current term debt, as at November 9, 2017, is approximately Cdn $545 million, with the first amount of term debt, approximately Cdn $60 million due in October of 2019. Cdn $68 million of bank debt was drawn on the credit facility, which matures in March of 2019.
  • Finalized covenant amendments with noteholders and bank lenders for a period up to and including the period ending September 30, 2019. The covenant relaxation is expected to provide Pengrowth with financial flexibility and opportunity to restructure its remaining debt and develop a financing strategy for the ongoing development of its Lindbergh and Groundbirch assets as commodity prices improve.

Q3, 2017 Highlights:

  • Achieved average daily production of 35,072 barrels of oil equivalent (boe) per day during the quarter and 45,727 boe per day year to date.
  • Cash flow used in operations of $0.3 million primarily due to significant onetime restructuring costs associated with asset sales.
  • Continued achievement of reduced cost structures year over year with operating as well as cash general and administrative expenses down $21.7 million and $3.6 million, respectively, from the third quarter of 2016. Also achieved significant reductions in interest expense of approximately $11.4 million compared the third quarter of 2016 resulting from debt repayments completed thus far in 2017.

Operations

Third quarter average daily production was 35,072 boe per day, compared to average daily production of 55,137 boe per day in the third quarter of 2016. The decrease in production year over year is attributed to the absence of volumes related to sold properties, natural declines, as well as lower volumes due to planned maintenance activities on existing properties.

Production at our Lindbergh thermal project averaged 12,086 bbl per day at an average steam oil ratio of 2.9 times during the third quarter. The Company conducted its first major turnaround of the central processing facility which resulted in significant production downtime in the quarter. Production levels have stabilized after the turnaround at approximately 14,500 bbl per day at an average steam oil ratio of 2.6.

During the third quarter, Pengrowth redirected $25 million of maintenance and enhancement capital earmarked for assets that had been sold, to its Lindbergh and Groundbirch assets.

At Lindbergh, $7 million of additional capital allowed for the drilling and completion of three additional well pairs that will be drilled in the fourth quarter of 2017 and are expected to commence production in 2018. These three new well pairs, in addition to the original seven well pairs and two infills are expected to result in average annual production from Lindbergh of approximately 17,000 bbl per day in 2018. In total, $26.9 million (including maintenance capital) of capital was invested at Lindbergh during the third quarter which resulted in the drilling of nine wells (4 producer and 5 injector wells), in addition to related facility, infrastructure and engineering work. Pengrowth anticipates having 70 percent of the engineering and design work relating to the second expansion phase completed by the end of year.

At Groundbirch, $18 million of planned capital initiated a drilling program which includes the drilling of four wells, with the drilling of the first well in the program commencing in the third quarter. These new wells are expected to be completed and tied-in during the first quarter of 2018, growing natural gas sales to approximately 30 MMcf per day from the current production of 9 MMcf per day. $4.5 million of the $18 million of capital allocated to the Groundbirch drilling and infrastructure program was spent in the third quarter of 2017.

The capital work undertaken at Lindbergh and Groundbirch is being completed within the original $125 million capital budget that the Company had allocated at the start of 2017.

Financial Results

Funds flow used in operations amounted to $0.3 million compared to funds flow of $122.7 million ($0.22 per share) for the same period in 2016. The decrease in funds flow year over year was primarily due to the decrease in production resulting from asset sales carried out in 2017 and lower realized commodity risk management gains, as a result of Pengrowth having substantially higher volumes hedged at materially higher prices in the same period in 2016 compared to 2017. In addition, the Company recorded a restructuring cost of $9.2 million related to staff reductions in association with the asset divestitures carried out in 2017. Offsetting these were lower operating expenses, lower G&A and lower interest and financing charges.

A net loss of $144.7 million was recorded in the third quarter of 2017 compared to a net loss of $52.9 million in the same period last year primarily due to an impairment charge of $127.1 million (approximately $93.0 million after-tax) in the quarter resulting from the sale of the non-core Alberta assets, additional impairments of other non-core legacy assets coupled with lower funds flow from operations. These were partly offset by lower unrealized commodity risk management losses recorded in the third quarter and lower DD&A expenses.

Financial Resources and Liquidity

Subsequent to the end of the quarter, Pengrowth finalized the terms of amending agreements with its lenders under its syndicated bank facility and the holders of its remaining term notes. Under the terms of the agreement, the existing financial covenants have been amended effective for the quarter ending September 30, 2017 through to and including the quarter ending September 30, 2019. The amendment includes the elimination of the Senior Debt to Adjusted EBITDA and Debt to Book Capitalization ratio covenants during the waiver period and a reduction of the Adjusted EBITDA to Adjusted Interest Expense ratio covenant during the waiver period. Additional details regarding the amendments are set out in the Company’s news release dated October 12, 2017.

As part of the amendment agreement, the Company’s Credit Facility was reduced from $1.0 billion to $400 million with a further reduction to $330 million following the closing of the Swan Hills asset sale. The facility was undrawn at the end of the third quarter but was subsequently drawn by $175 million to facilitate the repayment of the Company’s 2018 term notes and the Cdn $78 prepayment of the Company’s remaining term notes. Following the closing of the sale of the remaining Swan Hills assets, a portion of the proceeds were used to reduce the borrowings on the facility to approximately $68 million as of November 9, 2017 and a prepayment offer was extended to noteholders which is expected to reduce the amount of term notes outstanding by an additional $37 million.

The full details of the amending agreements, including copies of the Note Purchase Agreements and Amending Agreements are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

To provide additional financial flexibility beyond September 30, 2019, Pengrowth may consider replacing its existing term debt with less restrictive longer-term debt.

Dispositions

In the third quarter, Pengrowth completed the sale of the Olds/Garrington assets for total gross proceeds of $300 million. Subsequent to the end of the quarter, the Company closed the sale of its remaining Swan Hills assets for gross proceeds of $150 million and the vast majority of its non-core Alberta assets for nominal consideration. Year to date, the success of Pengrowth’s asset disposition program has generated approximately $1.0 billion of gross proceeds to the Company, and has allowed the Company to repay approximately Cdn $1.1 billion of term notes and convertible debentures thus far in 2017.

2017 Guidance and 2018 Outlook

Following the closing of the announced Quirk Creek sale, the Company anticipates that its annual 2017 production Guidance to be in a range of 39,500 to 41,500 boe per day, with fourth quarter average production of 24,500 boe per day. The Company anticipates that December 2017 production rates will be approximately 20,000 boe per day, after completion of all announced divestments.

A summary of our previous and updated 2017 guidance follows:

Previous full year 2017 Guidance Current full year 2017 Guidance
Average daily production (boe per day) 41,500 to 43,500 39,500 to 41,500
Total capital expenditures ($ millions) 125 125
Funds Flow from operations1 ($ millions) 90 65
Royalties2 (% of sales) 9.0 9.0
Operating costs3 ($ per boe) 13.00 to 13.50 13.00 to 13.50
Cash G & A3($ per boe) 3.50 to 4.00 3.50 to 4.00
1. Based on WTI price of U.S.$50/bbl, AECO natural gas price of Cdn $2.25/Mcf and an exchange rate of Cdn$1 = U.S.$0.77.
2. Royalties are before impacts of commodity risk management activities
3. Per boe estimates based on high and low ends of production guidance

In addition to updating its 2017 guidance, Pengrowth is also providing an outlook for its preliminary production and capital expenditure estimates for 2018. The Company anticipates a 2018 capital program of between $50 and $60 million which is expected to support an annual production rate of 22,500 to 24,500 boe per day representing a production growth rate of approximately 18 percent (based on mid-point of guidance) from anticipated 2017 December production of 20,000 boe per day. Pengrowth anticipates providing full 2018 guidance and its 2018 capital budget in January of 2018.

Analyst call

Pengrowth will host an analyst call and listen-only audio webcast beginning at 6:30 A.M. Mountain Standard Time (MST) on Friday, November 10, 2017, during which management will review Pengrowth’s third 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/pf9m9uia

Pengrowth’s unaudited Financial Statements for the three and nine months ended September 30, 2017 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 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 Canadian Sedimentary 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 CORPORATION

Derek Evans, President and Chief Executive Officer

For further information about Pengrowth, please visit our website www.pengrowth.com or contact: Investor Relations, E-mail: investorrelations@pengrowth.com

 

NT4

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