Perpetual Energy Inc. ("Perpetual", or the "Company") is pleased to release its second quarter 2022 financial and operating results and update its 2022 guidance. Select financial and operational information is outlined below, and should be read in conjunction with Perpetual's unaudited condensed interim consolidated financial statements and related Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2022, which are available through the Company's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
SECOND QUARTER 2022 HIGHLIGHTS
• Second quarter average production of 6,123 boe/d, up 20% from the comparative period of 2021 (Q2 2021 – 5,099 boe/d; Q1 2022 – 6,804 boe/d) increased due to the success of the 2021 East Edson drilling program which drilled and placed onstream nine (4.5 net) wells, including four (2.0 net) wells in the fourth quarter of 2021. Second quarter average production declined from the first quarter of 2022, in line with expectations as no new natural gas wells at East Edson came on production in the first half of 2022 with drilling resuming at the end of the second quarter. Second quarter oil and NGL production represented 19% of production as two (2.0 net) new multi-lateral heavy oil wells at Mannville began to contribute to sales volumes during the quarter.
• Oil and natural gas revenue for the second quarter of 2022 was $33.3 million, more than 2.5 times higher than revenue in the comparative period of 2021 due to significantly higher reference prices for all products and the 20% increase in production.
• Adjusted funds flow(1) in the second quarter of 2022 was $10.5 million ($0.16/share), up $8.2 million (356%) from the prior year period of $2.3 million ($0.04/share). Adjusted funds flow on a unit-of-production basis was $18.85/boe in the second quarter of 2022, an increase from the prior year period of $4.96/boe driven by the increase in commodity prices.
• Net cash flows from operating activities in the second quarter of 2022 were $11.6 million, up $8.7 million (305%) from the prior year period (Q2 2021 – $2.9 million). The increase was due to higher realized prices for all products and the increase in production, partially offset by higher cash costs due to a one-time $1.2 million gas cost allowance ("GCA") royalty adjustment and cash interest payments. Cash finance expense was $0.9 million higher than the prior year period despite a 56% ($55.1 million) reduction to debt outstanding, as Term Loan and 2025 Senior Note interest was paid in cash in 2022 relative to 2021 when Perpetual elected to pay the interest in-kind and add to the principal amount owing.
• Net income for the second quarter of 2022 was $4.5 million, (Q2 2021 – $27.0 million). Net income in the second quarter of 2021 was positively impacted by a non-cash impairment reversal of $30.1 million.
• Approximately $4.4 million was invested in exploration and development capital expenditures(1), excluding acquisitions and dispositions, during the second quarter of 2022. This was attributable to the remaining drilling, completion and tie-in operations for the two (2.0 net) well multi-lateral horizontal drilling program at Mannville targeting conventional heavy oil in the Sparky formation, as well as the startup of drilling operations at East Edson, where three (1.5 net) wells were spud prior to the end of June.
• Cash costs(1) were $15.3 million or $27.46/boe in the second quarter of 2022, up 42% from the prior year period (Q2 2021 – $9.0 million or $19.34/boe). The increase was due to the impact of higher production, combined with the GCA adjustment and cash interest payments.
• Total net debt(1) outstanding as at June 30, 2022 was $47.3 million, down 20% from $59.3 million at December 31, 2021, as adjusted funds flow exceeded capital expenditures and other obligations during the first half of 2022.
• During the second quarter of 2022, the borrowing limit for Perpetual's first lien credit facility borrowing limit was increased to $30.0 million (December 31, 2021 - $17.0 million). Perpetual had available liquidity(1) at June 30, 2022 of $23.8 million, comprised of the $30.0 million credit facility borrowing limit, less current borrowings and letters of credit of $5.2 million and $1.0 million, respectively.
2022 OUTLOOK
Perpetual forecasts exploration and development capital expenditures(1) of $29 – $32 million for full year 2022, up slightly from previous guidance of $28 to $30 million released on May 4, 2022, to be fully funded from adjusted funds flow(1).
At Mannville in Eastern Alberta, preliminary performance of the recent two (2.0 net) well, multi-lateral horizontal drilling program in the first quarter of 2022 which targeted heavy oil in the Sparky formation has been positive. To follow up this success, the first horizontal multi-lateral well of a three (3.0 net) well program targeting development of the Mannville Sparky ("B") pool spud on July 11, 2022. Perpetual will also continue to be focused on waterflood optimization, with one injector conversion planned in Q3, continued battery consolidation projects, as well as shallow gas recompletions and abandonment and reclamation activities in the Mannville property.
The East Edson drilling program kicked off in late June, targeting to drill, complete, equip and tie-in six (3.0 net) extended reach horizontal wells in the Wilrich formation as well as one (0.5 net) additional horizontal well targeting the Notikewin formation to begin evaluating the potential of secondary zones at East Edson. One (0.5 net) Wilrich well was rig released at the end of the second quarter, with one (0.5 net) Wilrich well and one (0.5 net) Notikewin horizontal well spud on the same pad and rig released in beginning of the third quarter. The remaining four well pad in the program spud in mid-July. The seven (3.5 net) well drilling program is expected to fill the West Wolf gas plant to maximize natural gas and NGL sales through next winter. Additional capital is being spent on facility optimizations to reduce emissions and increase NGL recoveries.
Total Company average production for the second quarter of 2022 of 6,123 boe/d (19% oil and NGL) was at the high end of forecast guidance of 5,900 to 6,200 boe/d. Average production volumes are forecast to grow to exceed 7,000 boe/d during the second half of 2022 as seven (3.5 net) new wells are drilled and come onstream at East Edson and the three (3.0 net) well follow-up drilling program at Mannville begins to contribute to heavy oil production volumes. Full year average production is forecast to grow approximately 25% from 2021 levels, in accordance with guidance on May 4, 2022 of 6,500 to 6,750 boe/d. Cash costs(1) are expected to average between $20.00 and $22.00 per boe for the calendar year, up slightly from previous guidance of $17.00 to $20.00 per boe, reflecting cost inflation pressures being experienced by Industry.
2022 Updated Guidance assumptions are as follows:
Perpetual continues its environmental, social, and corporate governance ("ESG") focus, with total abandonment and reclamation expenditures of up to $2.0 million planned in 2022, with an estimated $0.6 million to be funded through Alberta's Site Rehabilitation Program ("SRP"). The remaining $1.4 million will more than satisfy the Company's annual area-based closure spending requirement of $0.9 million.
