Key Highlights:
- Natural gas production of 191 mmcf/day in the quarter
- Total production of 38,595 boe/day
- Petroleum and natural gas revenue of $77.1 million, an increase of $28.7 million or 59% compared to the same quarter in 2020
- Cash flow from operations of $6.9 million
- Net Operating Income1 (“NOI”) of $17.9 million and Adjusted Funds Flow from Operations (“AFFO”) of $11.0 million, an increase of 262% compared to the same period in 2020
- Formal process announced in the summer of 2021 to identify, examine and consider a range of strategic alternatives with a view to enhancing shareholder value continues to progress
Pieridae Energy Limited released its Q3 2021 financial and operating results today, highlighted by solid increases in petroleum and natural gas revenue and AFFO and the successful completion of the Company’s second major facility turnaround of 2021, at the Caroline Gas Complex.
“We maintained solid production and revenue in the quarter despite the scheduled shutdown of a second gas plant this year. I was pleased to see we were able to demonstrate our commitment to ‘safety first’ through this necessary maintenance, while keeping production up and taking advantage of increased commodity prices,” said Pieridae’s Chief Executive Officer Alfred Sorensen.
“The Strategic Review of the Company assisted by our advisor, Peters & Co., is progressing well and we remain hopeful it will result in a successful conclusion,” added Sorensen. “Pieridae formed a special Board committee in late July to oversee the identification, examination and consideration of a range of strategic alternatives with a view to enhancing shareholder value. We are advancing the review in a timely and constructive manner.
“Last quarter, the Company also announced it would analyze options that could make a reconfigured LNG initiative more compatible with the current environment. We are in the midst of a detailed analysis of a potential floating LNG Project, one that would produce net-negative GHG emissions, provide a bridge fuel to countries eager to switch from coal-fired to natural-gas-fuelled power facilities, provide an opportunity for Indigenous reconciliation and create much-needed jobs in Atlantic Canada and Alberta,” concluded Sorensen.
Pieridae deferred its Q2 earnings call due to the Strategic Review process and the analysis of alternatives for the Goldboro LNG Project. We will defer the call again this quarter but intend to schedule an update call for investors and analysts in late November should there be something material to report from the Strategic Review.
Q3 2021 Financial Highlights
Pieridae produced an average of 38,595 boe/day during the third quarter, a 1% increase from the prior quarter, and a 1% increase from the comparative quarter in 2020. Pieridae continues to cost-effectively minimize the impact of our natural reserve declines by optimizing field activities, exercising low investment quit claims and conducting other asset consolidation activities.
A scheduled major turnaround of the Company’s Caroline Gas Complex was successfully completed, the second major turnaround conducted on our midstream assets in 2021. The majority of Pieridae’s production normally processed through Caroline was redirected to a third-party facility for the duration of the shutdown.
Third party pipeline maintenance also required Pieridae’s Waterton Gas Plant to be shut down for eight days. We took advantage of that closure to complete previously deferred maintenance projects at the Plant.
The Company’s realized natural gas price was $2.70/mcf in the third quarter compared to an AECO benchmark of $3.59/mcf. While below benchmark as a result of our fixed-price forward sales hedge portfolio, realized prices for natural gas were 4% higher compared to the second quarter of 2021 and 59% higher than the comparative quarter in 2020.
Since May 2020, Pieridae’s senior secured lender Third Eye Capital Corporation has waived the requirement to hedge 60% of production on an 18-month rolling basis in order to allow the Company to benefit from strengthening crude and natural gas markets. As of September 30, 2021, Pieridae has hedged approximately 30% of production over the 18-month period ending March 2023. Natural gas hedges consist of roughly 65,231 GJ/d to March 2023 at an average of $2.59/GJ. Condensate hedges consist of 1,500bbl/day to December 2021 at an average price of USD $54.95/bbl.
In the third quarter of 2021, Pieridae generated cashflow from operating activities of $6.9 million and AFFO of $11.0 million, an increase of $17.8 million or 262% as compared to the same period in 2020. This was primarily due to the strength in revenues from higher commodity prices, partially offset by higher royalties and lower third- party processing income.
Petroleum and natural gas revenue in the third quarter of 2021 was $77.1 million, an increase of $28.7 million or 59% compared to the same quarter in 2020. Thus far this year, this revenue was $230.2 million, an increase of $62.8 million or 38% compared to the same period in 2020. The increase was primarily due to significant increases in year-to-date realized prices for natural gas (36%), condensate (21%) and NGLs (108%), as production was relatively consistent year over year in the third quarter.
Third party processing revenue is generated from fees charged to other companies for processing their production and sulphur volumes at our three sour gas plants and other facilities. This income adds significantly to the economic benefits at the facilities by helping offset their fixed operating costs. Q3 2021 third party processing income was $3.6 million, a decrease of $2.4 million or 40% compared to the same quarter in 2020. On a year-to- date basis, this revenue was $12.3 million, a decrease of $7.5 million or 38% compared to the same period in 2020. These decreases are due to third-party owned production assets being shut-in leading to lower throughput volumes, the Jumping Pound and Caroline turnarounds, and Pieridae’s fall 2020 acquisition of working interest ownership in Waterton which lowered third party processing revenue while increasing Pieridae’s own production volumes and revenues.
Q3 2021 Operations Highlights
Third quarter 2021 production mentioned above of 38,595 boe/d was an increase of 386 boe/day or 1% compared to the same quarter in 2020. The increase was primarily due to higher production from properties in the Northern area partially offset by scheduled downtime at Caroline and Waterton.
Additionally, as a result of market fundamentals, ethane was reinjected back into the natural gas sales stream at two of Pieridae’s gas processing facilities resulting in a 2% increase in natural gas heat content but negatively impacting production by 760 boe/day and 1,187 boe/day for the three and nine months ended September 30, 2021. Pieridae is compensated for the price differential when reinjecting ethane versus selling it, resulting in no material impact to revenue; however, production volume, and resulting per boe figures, are negatively impacted.
Through the first nine months of 2021, production has averaged 40,312 boe/d, a decrease of 748 boe/day or 2% compared to the same period in 2020. This was primarily due to downtime from the scheduled turnaround at the Jumping Pound Gas Complex and ethane reinjection into the natural gas stream, partially offset by incremental volumes from Pieridae’s fall 2020 acquisition of working interest ownership in Waterton.
Quarterly Highlights
COVID-19 Update
Pieridae remains committed to the health and safety of its employees as they continue to do a remarkable job operating our assets safely and reliably as the pandemic stretches into month 20.
In early July, a majority of Pieridae employees working from home returned to work following the Alberta Government lifting all restrictions. This return was short-lived, however, as many employees were back working from home in mid-September due to the provincial government re-introducing a mandated work from home policy.
The company continues to support health officials in urging vaccinations for all those who are able.
As a result of the ongoing vigilance by our staff, Pieridae has not suffered any significant loss of productivity due to COVID-19.
Q3 2021 Developments
Term Loan Deferred Fee Payment Date Delayed
Pieridae announced on October 12, 2021 it had reached an agreement with its senior secured lender Third Eye Capital Corporation (“TEC”) to delay payment of the $50.0 million deferred fee owing under Pieridae’s Credit Agreement signed with TEC in October 2019. The deferred fee was to have been paid by October 16, 2021. The payment deadline has now been extended to the first business day of January 2022.
“I am pleased we have achieved this payment extension and want to thank TEC for their continued support of the Company and the Strategic Review currently underway with Peters & Co. that is focused on enhancing shareholder value,” said Pieridae’s Chief Executive Officer Alfred Sorensen in a news release. “This extension to the beginning of 2022 gives us the time to continue to pursue the Strategic Review process with the goal of concluding a transaction that is beneficial to the Company.”
2021 Guidance
The Company’s guidance was adjusted in the second quarter of 2021, with an updated production forecast of 40,000-42,500 boe/day for the remainder of the year, compared to previous guidance of 40,000-45,000 boe/day. We also guided NOI in the range of $85-$100 million, down from the previous forecast of $100-$130 million. Heading into the remainder of 2021, we are now guiding to the higher end of that $85-$100 million NOI range. As well, the Company updated the expectation for adjusted operating expenses per boe from $9.50-$10.50 to $12.50-$13.00 primarily due to increased power prices and processing fees for the rest of the year. The bulk of the Company’s $35-$45 million upstream capital budget continues to be invested to ensure the safe, reliable operation of our assets, including the successful completion of the Caroline Gas Complex turnaround in the third quarter.
