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Painted Pony Announces Bank Line Reaffirmed at $375 Million, and Third Quarter Financial and Operating Results

CALGARY, Alberta, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation”) (TSX: PONY) is pleased to announce the Corporation's total credit capacity remains at $397 million, positive longer lateral well tests, and third quarter 2019 financial and operating results.     

RECENT HIGHLIGHTS:

  • Announced the sale of a 75% working interest in a block of 100% Painted Pony-owned 11,280 gross acres (8,460 net acres) (the "Asset Sale") for cash consideration of $45 million and which is expected to close on November 8, 2019;
     
  • Maintained $397 million of credit capacity composed of a reaffirmed $375 million syndicated  facility with no financial covenants and a $22 million unsecured letter of credit facility backstopped by Export Development Canada, and;
     
  • Initiated flow back of three wells on the 74-F pad at Blair with lateral sections averaging greater than 3,000 meters which produced a combined flow rate of approximately 35 MMcf/d in addition to production volumes of Condensate and NGLs.

Patrick Ward, President and CEO of Painted Pony, in commenting on these recent highlights said, “Despite a challenging commodity price environment, we continue to prioritize balance sheet strength and financial flexibility through debt reduction. Our recently announced asset sale and our debt reduction over the past year are allowing us to navigate these low commodity prices. As winter approaches, prices in the AECO and NYMEX markets have recovered from summer lows with a more balanced market. We are optimistic that market fundamentals are improving and that the recent changes via the Temporary Service Protocol ("TSP") will yield positive results for AECO natural gas prices for 2020 which have improved significantly since the the TSP was initiated in October 2019. We continue to seek long-term contracts, similar to our Methanex contract, for our natural gas and are in discussions with large consumers of natural gas including utilities, LNG exporters, and petrochemical companies. We also see significant improvement in long lateral well results, most recently on our three 74-F pad wells. Although still early days, we believe longer lateral wells could deliver improved capital efficiencies compared to our standard well design.”

CREDIT CAPACITY REMAINS UNCHANGED
In conjunction with the semi-annual borrowing base review, Painted Pony received confirmation of syndicated credit facilities of $375 million.  Painted Pony maintains a $22 million unsecured letter of credit facility backstopped by Export Development Canada, bringing the Corporation's total credit capacity to $397 million. As at September 30, 2019, Painted Pony had $156 million in bank debt, $17 million less than at the end of the third quarter of 2018.

OPERATIONAL UPDATE
Long Lateral Well Results
Three wells were completed using an open-hole ball drop system and are currently pipeline connected to the Townsend Facility.

b-074-F Well

  • b-074-F, averaged a production rate of 8.3 MMcf/d of natural gas and an estimated 130 bbls/d of Condensate and NGLs during the initial 24 hour test period of stabilized production flow. The flowing pressure of the well during the initial 24 hours of the two day test period was 16.9 MPA through an 11.1 mm choke.
     
  • During the final 24 hours of the two day production test period the b-074-F well averaged a production rate of 10.5 MMcf/d of natural gas and an estimated 165 bbls/d of Condensate and NGLs. The flowing pressure of the well during the final 24 hours of the two day test period was 16.3 MPA through a 12.7 mm choke.

b-A074-F

  • b-A074-F averaged 5.6 MMcf/d of natural gas and an estimated 88 bbls/d of Condensate and NGLs during the initial 24 hour test of the seven day test period of stabilized production flow. The flowing pressure of the well during the initial 24 hours was 16.6 MPA through an 11.1 mm choke.
     
  • During the final 24 hours of the seven day production test period the b-A074-F well averaged a production rate of approximately 12.8 MMcf/d of natural gas and an estimated 200 bbls/d of Condensate and NGLs. The flowing pressure of the well during the final 24 hours of the test period was 15.2 MPA through a 14.3 mm choke.

b-B074-F

  • b-B074-F, averaged a production rate of approximately 10.1 MMcf/d of natural gas and an estimated 160 bbls/d of Condensate and NGLs of stabilized production flow during the initial 24 hour test period of the two day test. The flowing pressure of the well during the initial 24 hours  period was 15.9 MPA through a 12.7 mm choke.
     
  • During the final 24 hours of the two day production test period the b-B074-F well averaged a production rate of approximately 11.8 MMcf/d of natural gas and an estimated 185 bbls/d of Condensate and NGLs.  The flowing pressure of the well during the final 24 hours of the two day test period was 15.3 MPA through a 12.7 mm choke.

Improved Capital Efficiencies
Painted Pony continues to innovate and improve drilling and completion operations to drive maximum capital efficiencies through the introduction of longer lateral lengths on new drills. The three wells referenced above which are located on Painted Pony's 74-F pad located in the Blair area were drilled into the Upper Montney to a vertical depth of approximately 2,200 meters with lateral lengths averaging 3,050 meters, Painted Pony's longest lateral lengths to-date. The drill and complete cost for the wells on this pad averaged approximately $4.85 million per well compared to standard length wells with lateral lengths of 1,800 meters costing approximately $4.2 million per well. These wells represent a lateral length increase of approximately 70% over standard lateral length wells while only increasing capital costs by approximately 15%. 

ASSET SALE ANNOUNCED
On October 18, 2019 Painted Pony announced the Asset Sale of a 75% working interest in 11,280 gross acres (8,460 net acres) in the north east British Columbia Montney. The Asset Sale is expected to generate cash proceeds to Painted Pony of $45 million and to close on Friday, November 8, 2019. The Asset Sale acreage totaled approximately 4% of Painted Pony’s total Montney acreage prior to closing.

THIRD QUARTER 2019 FINANCIAL & OPERATING RESULTS
Production
Painted Pony's average daily production was 285 MMcfe/d (47,495 boe/d) during the third quarter 2019 compared to 294 MMcfe/d (48,978 boe/d) during the second quarter of 2019. Shut in volumes totaled approximately 41 MMcfe/d (6,900 boe/d) during the third quarter of 2019. Low commodity prices during the third quarter resulted in voluntary pricing-related production shut-ins averaged approximately 19 MMcfe/d (3,100 boe/d), combined with additional shut-ins of 23 MMcfe/d (3,800 boe/d) caused by third-party infrastructure maintenance and expansions as well as the scheduled plant turnaround at the Townsend Facility.

Inclusive of pricing-related shut-ins during October 2019, average daily production volumes are expected to average between 276 MMcfe/d (46,000 boe/d) and 288 MMcfe/d (48,000 boe/d) during the fourth quarter of 2019. This places 2019 annual average daily production volumes within previously released 2019 annual production guidance of 294 MMcfe/d (49,000 boe/d) to 306 MMcfe/d (51,000 boe/d).

Adjusted Funds Flow from Operations
For the third quarter of 2019, Painted Pony generated adjusted funds flow from operations of $3 million ($0.02 per share basic) contributing to adjusted funds flow from operations of $59 million ($0.36 per share basic) for the first nine months of 2019.

Capital Expenditures
Painted Pony invested $23 million of capital during the third quarter of 2019, which included drilling 5.0 net wells and completing 4.0 net wells for a combined cost of $16 million. Other capital expenditures for the third quarter of 2019 were related to pipelines, facilities and equipment.

Capital spending for the nine months ending September 30, 2019 totaled $75 million, on-track with Painted Pony’s full year 2019 capital budget guidance of $80 to $95 million.

Market Access
Painted Pony realized an average natural gas price which represented an 89% premium to the AECO daily (5A) benchmark price during the third quarter of 2019. As part of a long-term sales point diversification strategy, Painted Pony has access to multiple sales hubs including the Dawn and Sumas markets. This market access strategy allows Painted Pony to optimize revenue through the opportunistic marketing of natural gas volumes to those markets which offer the best index prices.

Painted Pony realized incremental revenues in excess of $65 million during the first nine months of 2019. Painted Pony delivered an average of 73 MMcf/d of natural gas to the Dawn market via long term fixed price service contracts during the first nine months of 2019. Starting November 2019, Painted Pony added an incremental 15 MMcf/d of natural gas sales into the Dawn market via long-term fixed price transportation contracts for a total of 88 MMcf/d into the Dawn market.

During the third quarter of 2019, Painted Pony’s produced 4,109 bbls/d of NGLs and condensate. Condensate received an average price of $73.08/bbl, representing a premium of 7% to the Edmonton Par light oil price of $68.44/bbl. Painted Pony's realized propane price at the Ridley Island Propane Export Terminal represented a premium of $11.86/bbl to prices at the Conway sales hub during the third quarter of 2019. 

FINANCIAL AND OPERATIONAL HIGHLIGHTS

  Three months ended September 30, Nine months ended September 30,
($ millions, except per share and shares outstanding) 2019   2018   Change 2019   2018   Change
Financial            
Petroleum and natural gas revenue (1) 54.9   90.2   (39 ) % 221.7   278.7   (20 ) %
Cash flows from (used in) operating activities (1.6 ) 33.3   (105 ) % 79.5   120.6   (34 ) %
  Per share - basic (3)(8) (0.01 ) 0.21   (105 ) % 0.49   0.75   (34 ) %
  Per share - diluted (4)(8) (0.01 ) 0.20   (105 ) % 0.47   0.71   (34 ) %
Adjusted funds flow from operations (2) 2.9   30.3   (90 ) % 58.5   115.9   (50 ) %
  Per share - basic (3) 0.02   0.19   (90 ) % 0.36   0.72   (50 ) %
  Per share - diluted (4) 0.02   0.18   (90 ) % 0.34   0.68   (50 ) %
Net loss and comprehensive loss - basic and diluted (37.1 ) (13.8 ) 169   % (54.4 ) (55.4 ) (2 ) %
  Per share - basic and diluted (3)(4) (0.23 ) (0.09 ) 169   % (0.34 ) (0.34 ) (2 ) %
Capital expenditures 22.6   39.4   (43 ) % 74.8   135.2   (45 ) %
Working capital (deficiency) (5) (32.5 ) (37.7 ) (14 ) % (32.5 ) (37.7 ) (14 ) %
Bank debt 156.4   172.9   (10 ) % 156.4   172.9   (10 ) %
Senior notes 144.3   142.7   1   % 144.3   142.7   1   %
Convertible debentures - liability 47.1   45.8   3   % 47.1   45.8   3   %
Net debt (6) 369.9   385.1   (4 ) % 369.9   385.1   (4 ) %
Total assets 2,018.2   2,011.2     % 2,018.2   2,011.2     %
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) 260.3   318.5   (18 ) % 275.6   325.5   (15 ) %
  Natural gas liquids (bbls/d) 4,109   5,248   (22 ) % 4,321   5,457   (21 ) %
  Total (MMcfe/d) 285.0   350.0   (19 ) % 301.6   358.2   (16 ) %
  Total (boe/d) 47,495   58,330   (19 ) % 50,262   59,707   (16 ) %
Realized commodity prices before financial risk management contracts
  Natural gas ($/Mcf) 1.72   2.10   (18 ) % 2.25   2.13   6   %
  Natural gas liquids ($/bbl) 36.14   59.21   (39 ) % 44.41   60.13   (26 ) %
  Total ($/Mcfe) 2.10   2.80   (25 ) % 2.69   2.85   (6 ) %
Operating netbacks ($/Mcfe) (7) 1.07   1.72   (38 ) % 1.63   1.94   (16 ) %
Corporate netbacks ($/Mcfe) (7) 0.51   1.27   (60 ) % 1.10   1.5   (27 ) %
  1. Before royalties.
  2. Adjusted funds flow from operations and adjusted funds flow from operations per share (basic and diluted) are non-GAAP measures used to represent 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 by dividing adjusted funds flow from operations by the weighted average number of basic or diluted shares outstanding in the period. See “Non-GAAP Measures”.
  3. Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period.
  4. Diluted per share information reflects the potential dilutive effect of stock options and convertible debentures.
  5. Working capital (deficiency) is a non-GAAP measure calculated as current assets less current liabilities. See “Non-GAAP Measures”.
  6. Net debt is a non-GAAP measure 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. See “Non-GAAP Measures”.
  7. 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 netback less finance lease expense per unit. See “Non-GAAP Measures” and “Operating and Corporate Netbacks”.
  8. Cash flows from operating activities per share - basic and diluted are non-GAAP measures calculated by dividing cash flows from operating activities by the weighted average of basic or diluted shares outstanding in the period.  See “Non-GAAP Measures”.

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 the anticipated sales proceeds and closing date of the Asset Sale, natural gas pricing expectations, anticipated well results from longer laterals, and estimated average daily production volumes during the fourth quarter of 2019.

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 and 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; anticipate 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 and the availability of labor and services. 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 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 2019 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. Additional information on these and other risk factors that could affect operational or financial results are included in the Corporation's most recent Annual Information Form and in other reports filed with Canadian securities regulatory authorities.

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: Press releases may make reference to the terms “adjusted funds flow from operations”, “adjusted funds flow from operations per share”, "cash flow from operations per share", “adjusted funds flow from operations per Mcfe”, "income (losses) before income taxes and unrealized gains (losses) on risk management contracts and foreign exchange", “working capital deficiency”, “net debt”, “operating netbacks” and "corporate netback", 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” and "cash flow from operations per share" is calculated using the basic and diluted weighted average number of shares for the period. “Adjusted funds flow from operations per Mcfe” is calculated using the average production volumes 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. These terms should not be considered alternatives to, or more meaningful than, current and long-term debt as determined in accordance with IFRS.
Management uses "income (loss) before taxes and unrealized gains (losses) on risk management contracts and foreign exchange" to analyze the ongoing operational activities of the Corporation before taking into account taxes and the non-cash effects of changes in the fair value of risk management contracts and foreign exchange translation. This term should not be considered an alternative to, or more meaningful than income before taxes as determined in accordance with IFRS as an indicator of the Corporation's performance.

"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 IRFS.

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 September 30, 2019 for further information regarding these “Non-GAAP Measures”, including reconciliations to the most directly comparable measures calculated in accordance with IFRS.

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
(403) 475-0440

Stuart W. Jaggard
Chief Financial Officer
(403) 475-0440

Jason W. Fleury
Director, Investor Relations
(403) 776-3261

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