Pieridae Releases Q4 and 2020 Results

Source: www.gulfoilandgas.com 3/25/2021, Location: North America

Key Highlights:
- Production increased year over year from 22,397 barrels of oil equivalent per day (“boe/d”) in 2019 to 42,000 boe/d in 2020, an increase of 88%
- The Company managed to replace almost half of its production in 2020 while spending minimal capital
- The proved developed producing (“PDP”) base decline rate of the corporation is now at ~ 10% (based on 2021 PDP forecasts), one of the lowest in the industry
- This decline rate will provide a very reliable base production from which the Company will grow significantly in the next few years to supply the Goldboro LNG Facility in Nova Scotia
- Safe, reliable operations were maintained during the pandemic with historical low recordable injuries without any measurable loss of productivity during the fourth quarter and year ended December 31, 2020 due to COVID-19
- Net Operating Income1 (“NOI”) more than doubled year over year from $25.0 million in 2019 to income of $50.7 million in 2020, an increase of 103%
- Adjusted Funds Flow From Operations1 (“AFFO”) increased year over year from $0.6 million in 2019 to income of $26.9 million in 2020, an increase of 4,383%
- We have formally started our ESG journey, will deliver our inaugural ESG report this year and are committed to net zero emissions for our Goldboro LNG Project by 2050

Pieridae Energy Limited released its 2020 financial and operating results today, highlighted by the fact the Company maintained safe, reliable operations of its assets at a time of unparalleled upheaval in the energy industry due to the Coronavirus. A global oil price war, low commodity prices not seen in decades and unmatched uncertainty created a perfect storm, yet the Company weathered it and saw strong year over year production growth. In addition, Pieridae managed to replace almost half of its production while spending minimal capital. Layer in one of the lowest decline rates in the industry and the Company is well positioned to leverage a very reliable supply base that will grow to feed natural gas to our Goldboro LNG Facility. Numerous, strong advancements were made on the Project and Pieridae continued to adjust its business model in the wake of the ongoing and unprecedented impacts of COVID-19.

“We demonstrated progress during unprecedented times when you compare 2020 to 2019,” said Pieridae’s Chief Executive Officer Alfred Sorensen. “The Company saw increased year over year income and production during a global pandemic and one of the harshest years on record in the energy sector. We responded by monetizing certain hedge positions, limiting non-essential capital and operating spending, and taking active steps to reduce our administrative costs.

“Our Goldboro LNG Project saw plenty of wind in its sails through new experienced leadership, a strong working relationship with globally-respected engineering firm Bechtel who will design and build the LNG Facility, and our ongoing partnership with the Nova Scotia Mi’kmaw Nation where they would partner to develop a $720 million workforce lodge to house the 5,000 workers who will build the Facility.

“This is a transnational project that would benefit all Canadians through our commitment to achieve net zero emissions, continued progress down a path toward true reconciliation, and employing thousands of Canadians during construction and plant operations for decades to come,” concluded Sorensen.

Financial and operational information is set out below and should be read in conjunction with Pieridae’s 2020 Annual Report which includes the Corporation’s audited annual consolidated financial statements and the related management's discussion and analysis ("MD&A"). In addition, the Corporation today announces the filing of its Annual Information Form ("AIF") for the year ended December 31, 2020 that contains the Corporation's reserves and other oil and natural gas information, as required under National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities.

Financial Performance
We saw NOI more than double year over year, from $25 million in 2019 to income of $50.7 million in 2020, an increase of 103%, and AFFO increased 4,383% year over year from $0.6 million in 2019 to $26.9 million. This was due to a full year’s worth of production and revenue from Pieridae’s acquisition of Shell Canada’s Southern Foothills Assets on October 16, 2019 plus the Company’s focus on limiting non-essential capital and operating spending, reducing administrative costs and monetizing certain hedge positions.

Pieridae’s results were lower than our initial forecasts but as stated earlier, the unprecedented and generational impacts of the pandemic along with extremely negative movements in liquids pricing were material in eroding our original budgeted amounts.

Pieridae recorded an increase in cashflow from operating activities year over year and quarter over quarter. NOI decreased 48% to $12.8 million in Q4 2020 compared to $24.5 million in Q4 2019, while AFFO decreased 41% to $8.5 million in Q4 2020 compared to $14.4 million in Q4 2019. Our financial results demonstrate the impacts of COVID-19 during one of the harshest years on record in the energy industry plus the reality of the costs of developing a multi-billion-dollar LNG Project, costs that must be expensed until Pieridae reaches a successful financial investment decision (“FID”) for the Project.

Throughout the challenges COVID-19 posed during a year of operational and cultural integration stemming from the significant recent acquisitions, Pieridae remains committed to and impressed by the operational resilience of our assets and our team. The Company took definitive action during the year to defend its financial position, including ensuring operational flexibility in capital program execution and working to improve cost efficiencies across the business.

Operations Performance
We saw an 88% or 19,603 boe/d increase in production year over year from 22,397 boe/d in 2019 to 42,000 boe/d in 2020.

Pieridae’s assets returned to strong production in the fourth quarter of 2020, averaging 44,800 boe/day, a 17% increase from the prior quarter, and a 6% or 2,663 boe/d increase from the comparative quarter in 2019.

These increases are primarily due to production capabilities acquired from the South Foothills Asset acquisition, partially offset by planned and unplanned outages in 2020, most significantly during the first quarter of 2020 as a result of unseasonably cold weather, and in the third quarter of 2020 as a result of planned maintenance in a number of production fields. The significant growth in condensate and natural gas liquids (“NGLs”) production in the three months and year ended December 31, 2020 reflects the deep cut capability of the processing facilities acquired as part of the acquisition mentioned above.

The Company’s hedging program that was put in place earlier in 2020 to protect revenues prevented Pieridae from fully participating in strengthening natural gas prices until below-market fixed price sales contracts rolled off late in the year. The realized natural gas price was $2.16/mcf in the fourth quarter versus an AECO benchmark of $2.67/mcf. While below the benchmark, realized prices in the fourth quarter were 27% higher than the third quarter, and 13% higher than the comparative quarter in 2019. Pieridae’s senior secured lender has temporarily waived its requirement to have 60% of production hedged on an 18-month rolling average basis in order to allow the Company to take advantage of strengthening crude and natural gas markets. As of December 31, 2020, 119,000 GJ/d of fixed price contracts of natural gas were in place at a weighted-average price of $2.33/GJ, and 1,785 bbl/day of 2021 condensate production was hedged at a weighted average price of $55.90/bbl.

Environmental, Social & Governance (“ESG”) and Safety
As companies continue to champion ethical responsibility, a focus on ESG can help firms understand the positive impacts and manage the risks its operations have on customers, investors, employees, communities and the environment.

At Pieridae, we are aligned with this, including the value it brings to what we strive to accomplish each and every day. We have formally started our ESG journey, partnering with a global leader in ESG strategy development within the energy sector to facilitate and guide the Company towards formulating and implementing our ESG strategy. Their strong knowledge of key stakeholders including Indigenous Peoples, investors, government and others is important in developing our ESG program as we pursue FID and financing of our Goldboro LNG Project.

The target is set to issue our inaugural ESG Report in Q2 2021.

We are committed to achieving net zero emissions by 2050 for our Goldboro LNG Project and note that LNG reduces carbon globally by replacing higher-emissions coal. This is a net benefit for all during the global energy transition to a low carbon economy.

From a health, safety and environment (“HS&E”) perspective, Pieridae had a very successful year in 2020 with excellent ratings on all of our HS&E programs, and no major incidents. That's a major success for the Company. Pieridae’s continued focus on safety was evidenced by no lost time incidents (“LTIs”) recorded during the year, and total reportable injury frequency (“TRIF”) of 0.34 during the year, on a target of less than 1.0. As a comparison, 10 peer companies had an average TRIF of 0.55 in 2019.

Goldboro LNG
In July 2020, Pieridae received written notice from EPCC contractor KBR regarding the firm’s exit from fixed price energy projects in order to refocus on its government services business. As a result, on September 29, 2020 Pieridae announced that it had signed a services agreement with respected global engineering firm Bechtel related to Pieridae’s 2-Train Goldboro LNG Facility. Some of the key deliverables of the Bechtel services agreement are:
- Initiating a detailed review of the scope and design of the Goldboro LNG Facility and developing a comprehensive engineering, procurement, construction and commissioning (“EPCC”) execution plan by March 31, 2021
- Delivering a final lump sum, turnkey EPCC contract price proposal by May 31, 2021 and
- Conducting a meaningful engagement with the Nova Scotia Mi’kmaq First Nation including their participation in the construction of a large-scale work camp at the LNG site

Bechtel remains on schedule to submit to Pieridae its key deliverables.

Pieridae has retained sole responsibility to contract the site preparation, marine civil works and workforce lodge. These projects will be financed concurrently with a positive FID decision, with construction beginning in the summer of 2021.

Under the FEED study, Air Products and Chemicals Inc. developed a plan to design and deliver a 2-Train (each 4.8 million tonnes per annum “MMTPA”) Facility. Construction is expected to take 54 months and much of the work includes assembling modules built in offshore yards with Pieridae employing 4,500-5,000 workers during the peak construction phase. These employees will be housed at a $720 million temporary workforce lodge which will be built on or nearby the existing decommissioned Sable Island sour gas plant site. The Nova Scotia Mi’kmaq and Black Diamond Group will build and operate the lodge. Site preparation, site drainage, highway realignment and marine facilities are some of the major projects that must be built in tandem with, or prior to, the LNG Facility construction.

COVID-19 Response
As businesses grapple with the realities of working through an ongoing pandemic, we remain committed to the health and safety of our employees as they continue to do a remarkable job operating our assets safely and reliably through COVID-19 and, at times, an extremely harsh and cold winter.

We, along with the vast majority of companies and businesses, remain vigilant in preventing the spread of the virus by following government and health safety restrictions at all of our offices and facilities.

While many at Pieridae returned to the office and our facilities in the summer of 2020, they went back to working from home when restrictions were re-imposed in November 2020. Since that time, office staff have successfully done their jobs remotely while activity in our field operations has restricted access to only essential personnel and prevent unnecessary travel. Due to the focused efforts of all of our employees to limit the risk of the outbreak, Pieridae has not suffered any measurable loss of productivity due to COVID-19during the fourth quarter and year ended December 31, 2020.

2020 Developments

Uniper Deadline Extensions
On May 5, 2020, the Company announced that it and energy company Uniper Global Commodities agreed to extend key deadlines under their joint, 20-year agreement. The deadline extensions included expected commercial deliveries of gas to Uniper to start between August 31, 2025 and February 28, 2026; and the extension to June 30, 2021 of the deadline to make a positive final investment decision for the Company’s proposed Goldboro LNG Facility. The 20-year agreement with Uniper is for all of the liquefied natural gas produced at Goldboro Train 1 or 4.8 MMTPA.

Alberta Energy Regulator Decision
On May 13, 2020, the Alberta Energy Regulator (“AER”) made the decision to deny Shell’s application to transfer the licenses associated with the South Foothills Assets to Pieridae. This denial was as a result of the AER’s concerns regarding the application structure to split the liability associated with Jumping Pound and Waterton gas processing facilities, whereby Shell will retain the liability associated with subsurface sulfinol contamination. Pieridae continues to own and operate the assets. Shell submitted a re-application for license transfer approval from the AER January 4, 2021. Statements of Concern responses from Pieridae to residents must be submitted to the regulator by March 30, 2021. The AER will then take 30 days to review and comment further.

Pieridae Graduates to the TSX
On June 1, 2020 Pieridae’s common shares were approved for listing on the TSX and began trading on the TSX at the opening of the market on July 3, 2020 under the symbol “PEA.TO”. Concurrent with the TSX listing, the common shares of Pieridae were de-listed from the TSXV. Being a member of the TSX allows Pieridae to tell its story to a bigger investor audience, including the Canadian institutional investment community, which should improve liquidity in the stock over time.

Guarantee Facility from Export Development Canada (“EDC”)
In July 2020, Pieridae received approval from EDC for a $6.0 million guarantee facility as part of the EDC’s Account Performance Security Guarantee (“APSG”) program. This guarantee facility bears interest at 0.29% and provides a 100% guarantee to the issuing bank of certain of the Company’s existing and future letters of credit (“LCs”). The APSG allows Pieridae to release existing and future cash collateral requirements provided as security for certain existing and potential future LCs.

New SVP LNG Hired
On August 27, 2020, we were excited to welcome Andy Mukherjee P. Eng. as Senior Vice-President LNG to lead the development of the multi-billion-dollar Goldboro LNG Project. Mr. Mukherjee is a veteran LNG industry professional with worldwide expertise in front-end engineering and design; and EPCC contracts. He worked on modular design and execution of four major global LNG projects: Qatargas NFE LNG, Cameron LNG, INPEX-Ichthys LNG and British Gas QCLNG, with additional experience working with EPCC contractors Jacobs, FLOUR, Wood Group and JGC.

Pieridae Engages EPCC Contractor Bechtel
On September 29, 2020, Pieridae signed a services agreement with respected global engineering firm Bechtel related to the LNG Project. Bechtel has been focused on: reviewing scope and design of the Goldboro LNG Facility and developing a comprehensive EPCC execution plan by March 31, 2021; delivering a final lump sum, turnkey EPCC contract price proposal by May 31, 2021; and conducting meaningful engagement with the Nova Scotia Mi’kmaq including their participation in the construction of a workforce lodge at the LNG site. Bechtel has a proven track record of delivering projects throughout the world on time and on budget.

Nova Scotia Mi’kmaq, Black Diamond Group Given Opportunity to Build Large-Scale Workforce Lodge

On October 1, 2020, all 13 Nova Scotia Mi’kmaq communities and Black Diamond Group had received a Letter of Award from Pieridae which gives them the exclusive right to negotiate the contract to build a $720 million workforce lodge during the four-year construction phase of the Goldboro LNG Facility. The lodge will be home to 4,500-5,000 workers who will build the multi-billion-dollar LNG Facility. Black Diamond will be responsible for the lodge, the Mi’kmaq would provide hospitality services such as catering, housekeeping and guest services.

“We are excited about what this Project means to the Mi’kmaw communities and the benefits it will bring to all of Atlantic Canada. A key component of reconciliation in Canada is the ability to have meaningful involvement in projects happening within our territories,” said Chief PJ Prosper and Chief Terence Paul.

Reserves

Highlights
Pieridae’s reserves have decreased from 2019 year-end (“YE”) numbers as a function of production depletion, forecasted commodity prices and lack of drilling or completion operations designed to add production and replace reserves. Reserves were added by the corporation via two acquisitions within the Southern Alberta asset base, as well as the tie-in of a standing gas well in the central Alberta asset area. Overall, PDP base decline of the corporation is now at approximately 10% (based on 2021 PDP forecasts), which is one of the lowest in the industry. This decline will provide a very reliable base production from which the corporation will grow significantly in the next few years to supply the Goldboro LNG Facility in Eastern Canada.

PDP gas reserves are 613.2 Bcf (102.2 Mmboe), down 140 Bcf from 2019 YE PDP reserve numbers. This reduction is due to annual production depletion and early economic termination of some wells, due to lower forecast commodity prices, as compared to 2020.

Total PDP reserves are 53% of the total reserves, which, amongst our peer companies, would be considered conservative. Our Proved Undeveloped (“PUD”) category represents only 17% of the total proved (“TP”) reserves’ category (29.4 Mmboe out of 175.8 Mmboe), which could also be considered to be very conservative amongst our peers.

Net Present Value (NPV10) decreased 15% in the PDP reserves category, 1% in TP and 8% in total proved plus probable (“TPP”) categories from 2019 YE numbers. The corporation’s PDP NPV10 is $505.2 million, down from 2019 YE PDP NPV10 of $593 million. TP NPV10 is $718.5 million, down slightly from 2019 YE TP NVP10 of $725 million and TPP NPV10 is $976.1 million, down from 2019 YE TPP of $1,062.5 million.

2020 Independent Reserves Evaluation
Deloitte conducted an independent Reserves Evaluation effective December 31, 2020, which was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NI 51-101. The Reserves Evaluation was based on four Independent Consultant Evaluators (“IC4”) average price, including Deloitte, McDaniel, Sproule and GLJ and foreign exchange rates at January 1, 2021 as outlined in this news release.

Stated reserves are company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted. In addition to the information disclosed in this news release, more detailed information will be included in the corporation’s AIF for the year ended December 31, 2020.

Reserve Life Index ("RLI")
Based on these latest reserves updates for the 2020-year-end process, Pieridae’s 2P RLI is 13.2 years.

Net Present Value Summary
Pieridae’s crude oil, natural gas and NGLs reserves were evaluated using the IC4 forecast pricing and foreign exchange rates at January 1, 2021, as described above. The NPV value is prior to the provision for interest, debt service charges and general and administrative (“G&A”) expense. It should not be assumed that the NPV of future net revenue estimated by Deloitte represents the fair market value of Pieridae’s reserves.

Reserve Volume
The corporation was able to protect base production throughout the year due to optimization and maintenance programs, the results of which provide one of the lowest corporate declines amongst our peers. Incremental volumes were added via two acquisitions and the tie in of one well adding a PDP volume of 7,753 Mmboe and an NPV10 of $24.6 million.

2021 Guidance:
In 2021 Pieridae is guiding to an increase in NOI primarily due to higher anticipated natural gas prices as well as continued optimization of our assets, higher third-party processing fees, increased overall volumes and cost saving initiatives. Pieridae anticipates NOI in the range of $100-$130 million, AFFO increasing to $80-$110 million, adjusted operating expenses of $9.50-10.50/boe, commodities hedging of 55-65% on an 18-month rolling basis, and corporate and upstream G&A expense of $1.10-$1.30/boe.

An upstream capital budget of $45-55 million has been approved that includes funds to continue investing in our assets to ensure their safety and reliability, as well as funding to maintain our current level of production. Specifically, for Goldboro LNG, we have budgeted $15-$20 million for development expenses. And assuming FID is declared by the end of June 2021, a further $250-$350 million capital expenditure budget for Goldboro would be triggered.


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