More Very Detailed News @ 2:59 AMNothing like a 3 AM News Release
Pacific E&P enters confidentiality deals
2016-04-21 02:59 ET - News Release
Mr. Frederick Kozak reports
PACIFIC RELEASES CERTAIN PROJECTED FINANCIAL INFORMATION
Pacific Exploration & Production Corp. has entered into confidentiality agreements with certain members of the ad hoc committee of holders of the company's senior unsecured notes to facilitate discussions about a possible restructuring transaction. Pursuant to the Confidentiality Agreements, the Company disclosed information, including certain non-public information (the "Non-Public Information"), through the Ad Hoc Committee's legal and financial advisors to those holders of Notes (the "Restricted Noteholders") who entered into the Confidentiality Agreements. This information was provided to Restricted Noteholders in order to consider their support of, and possible participation in, a potential restructuring and by agreeing to be restricted, such Restricted Noteholders were prohibited from trading in the securities of the Company or using the Non-Public Information for any other purpose than considering a potential restructuring.
This news release contains the Non-Public Information that is required to be disclosed to satisfy the Company's obligations under the Confidentiality Agreements to now disclose such Non-Public Information.
As described in the Company press releases on April 19, 2016 and April 20, 2016, the Company has entered into an agreement with The Catalyst Capital Group Inc., certain members of the Ad Hoc Committee and certain of the Company's lenders under its credit facilities to effect a comprehensive financial restructuring (the "Restructuring Transaction") that will significantly reduce debt, improve liquidity, and best position the Company to navigate the current oil price environment.
The Company does not, as a matter of course, publish its business plans, budgets or strategies or make external projections or forecasts of its anticipated financial position, capital expenditures, capital requirements, cash flow, production plans and costs, or results of operations or the assumptions forming the basis for such projections or forecasts. The Non-Public Information provided to certain holders of Notes is included in this news release only because such information was made available to these holders of Notes; therefore, the inclusion of any Non-Public Information in this news release should not be regarded as an indication that the Company or any other person considered, or now considers, this information to be necessarily predictive of actual future results, and does not constitute an admission or representation by any person that such information is material, or that the expectations, beliefs, opinions, and assumptions that underlie such information remain the same as of the date of this news release. The Company has not made any determination as to whether the Non-Public Information disclosed pursuant to the Confidentiality Agreements may be, or may be deemed to be, in whole or in part, material to a person in making an investment decision or for any other purpose.
The Non-Public Information was, when provided to certain holders of Notes, and continues to be, speculative by its nature and was, and is, based upon numerous expectations, beliefs, opinions, and assumptions, as further described below, and it does not necessarily reflect current estimates, expectations, beliefs, opinions, or assumptions and may not reflect current results or expected future performance. The Non-Public Information provided to certain holders of Notes, and therefore contained herein, may be incomplete or may no longer be accurate and is subject to interpretation. Accordingly investors are cautioned not to place undue reliance on such information or forward-looking statements.
The Non-Public Information has not been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and therefore does not have any standardized meaning prescribed by the IASB and is therefore unlikely to be comparable to similar measures presented by other issuers. Neither the independent auditor of the Company nor any other independent accountant has examined, compiled, or performed any procedures with respect to the Non-Public Information contained herein and, accordingly, none has expressed any opinion or any other form of assurance on such information or its achievability and none assumes any responsibility for the prospective financial information.
Subject to applicable securities law, the Company does not intend to or anticipate that it will, and disclaims any obligation to, furnish updated business plans, budgets, strategies, projections or forecasts or similar forward-looking information to holders of securities issued by the Company or to include such information in documents required to be filed with the applicable Canadian regulators. These considerations should be taken into account in reviewing the forward-looking information included herein, which was prepared as of an earlier date.
While presented in this news release with numeric specificity, the projections and other forward-looking financial information were not, when made, and are not historical facts, but represent forward-looking statements about the objectives, plans, strategies, goals, financial conditions, results of operations, activities and businesses of the Company at the time prepared and are subject to important risks, uncertainties and assumptions. The forward-looking statements set out in this news release are based upon the Company's reasonable estimates, assumptions and expectations about its business, operations, financial condition, and the markets in which it operates, and upon other third party information and data such as analyst reports, market studies and government projections, in each case available at the time such information was prepared and are subject to significant business, operational, economic, competitive and other uncertainties and contingencies (including those set out under the heading "Risk Factors" and elsewhere in the Company's Annual Information Form dated March 18, 2016 and filed on SEDAR and available at www.sedar.com).
Forward-looking statements are subjective in many respects and reflect numerous assumptions by the Company with respect to future events, economic, competitive and regulatory conditions, financial market conditions and future business decisions, including, but not limited to, the following key assumptions: (i) no material adverse impact on the Company's business on a going forward basis resulting from the Restructuring Transaction or otherwise; (ii) a continuation of business arrangements on substantially the same basis as existed prior to the Restructuring Transaction (other than as those business arrangements that may be impacted by the implementation of the Restructuring Transaction); (iii) the future price of oil and natural gas, fluctuations in inflation and exchange rates, and other economic matters; and (iv) the Company's ongoing operations, including its costs to extract oil and natural gas, production rates, availability of labour and equipment, the possibility of labour strikes or work stoppages, or governmental intervention or regulation relating to production, exploration and development, environmental protection, health and safety and other matters.
The results, estimates, projections, events or other forward-looking information predicted in any forward-looking statements may differ materially from actual results or events if known or unknown risks, trends or uncertainties affect the Company's business, or if the Company's estimates or assumptions turn out to be inaccurate. Some assumptions may not materialize, and results, estimates, projections, events and circumstances occurring subsequent to the date on which the information was prepared may be different from those assumed or may be unanticipated, and thus may affect the forward-looking statements in a material manner. In addition, the information in this news release does not contemplate outcomes where the Company is unable to complete the Restructuring Transaction. Accordingly, it is expected that there will be differences between actual and projected amounts and results, and actual amounts and results may be materially different from those in this news release and there can be no assurance that any projection, estimate or forecast will materialize.
All dollar amounts set out below are in U.S. dollars, unless otherwise stated.
The Company regularly generates internal cash flow forecasts, which it updates from time to time as circumstances change. On or about February 29, 2016, one such internal forecast was provided to the advisors to the Ad Hoc Committee for distribution to Restricted Noteholders (the "13 Week Cash Flow Forecast"). The 13 Week Cash Flow Forecast covers the period from February 6, 2016 to May 28, 2016. The 13 Week Cash Flow Forecast showed that, assuming a crude oil price based on Brent of $33.40 in February 2016, $36.55 in March 2016, $37.18 in April 2016 and $37.77 in May 2016, and assuming production of oil during that same period was 146,873 bbl/d in February 2016, 143,454 bbl/d in March 2016, 139,159 bbl/d in April 2016 and 135,427 bbl/d in May 2016, the Company expected, based upon these and other assumptions, that it would have a gross closing cash balance of approximately $75.5 million at the end of the period covered by the 13 Week Cash Flow Forecast and that during this same period total disbursements (including capital expenditures) would be greater than total receipts by $247.1 million. Note that in the 13 Week Cash Flow Forecast, the projected Brent crude oil prices for Februrary and March were higher than the projected realized Brent crude oil prices utilized therein to project receipts.
A summary of the 13 Week Cash Flow Forecast is set out below:
LIQUIDITY FORECAST DATED FEBRUARY 29, 2016 March April May Memo: Brent Price $36.55 $37.18 $37.77 Receipts Oil and Gas Exports $104.4 $117.4 $107.6 Hedge 0.0 0.0 0.0 Others 25.5 0.0 0.0 Total Receipts $129.9 $117.4 $107.6 Disbursements Debt: Bonds, Fees ($1.9) ($0.4) $0.0 Pipelines (60.2) (61.2) (61.1) Cash Calls Colombia (49.2) (32.7) (13.5) Cash Call Peru (14.3) (5.7) (19.5) Other (97.9) (90.8) (93.7) Total Disbursements ($223.5)($190.8)($187.8) Total Receipts less Total Disbursements (93.6) (73.4) (80.2) Cash and Cash Equivalents Cash and Cash Equivalents in Cash Operating Accounts Beginning $249.2 $155.6 $82.2 (+) Total Receipts less Total Disbursements (93.6) (73.4) (80.2) Ending $155.6 $82.2 $2.0 JVA Cash and Cash Equivalents (Local + Peru + Midstream ) $23.0 $23.0 $23.0 Others Cash and Cash Equivalents 20.8 20.8 20.8 Restricted Cash and Cash Equivalents 29.6 29.6 29.6 GROSS CLOSING CASH AND CASH EQUIVALENTS $229.0 $155.7 $75.5 Memo: Disbursements - Other Third-Party Oil/Fuels ($0.4) ($0.3) ($0.3) Thinner (8.0) (9.9) (9.7) Royalties & ANH (4.6) (1.6) (1.6) Ground Transportation (7.9) (9.0) (11.1) Endorsements (TR14 & Estimated) (0.9) (0.0) (0.0) Suppliers (Mandatory TR14) (6.0) (2.9) (3.3) Payroll (13.5) (12.2) (11.7) Taxes (8.4) (8.1) (19.2) Payments to Suppliers under Special Agreement (8.9) (7.6) (7.2) Other: Corporate Payments and Supplier Payments upon Contract End(0.7) 0.0 0.0 Suppliers (Non-Mandatory) (12.6) (26.4) (23.7) Other Cash Calls (excluding Colombia and Peru) (16.4) (7.6) (3.8) Fees (Legal and Financial Advisors) (9.6) (5.1) (2.2) Total Disbursements - Other (97.9) (90.8) (93.7)
As of April 8, 2016, the Company had issued letters of credit for a total of $197 million. Pacific's management team has ongoing negotiations with its exploration partners and various banks to manage its exploration commitments and collateralization of letters of credit. The Company's projected cash collateralization of letters of credit through the end of 2016 is listed below.
(USD) Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov -16 Dec-16 Total RCF Banks Bladex1 - - - - - - - - - - BofA2 8,003,314- 2,697,112 - - - - - - 10,700,425 Citibank - 1,649,520 - - - - - 600,000 - 2,249,520 Corpbanca 300,000 116,000 8,900,000 - - - - 779,389 2,018,74312,114,132 Davivienda - - 12,962,707- - 300,000200,000- 360,000 13,822,707 Santander - - - - - - - - - - Non RCF Banks Bancolombia3 - 9,413,125 - - - - - - - 9,413,125 BBVA - - 1,200,762 - - 611,398- - - 1,812,160 BCP 300,000 - - 1,560,000- - - - - 1,860,000 Occidente 112,080 184,444 - - 1,909,251- - - - 2,205,775 BBVA Continental- - - - - - - - - - GNB Sudameris - - - - - - - - - - Total 8,715,39411,363,08925,760,5811,560,0001,909,251911,398200,0001,379,3892,378,74354,177,844 (1)Bladex LC will be renewed for 6 months (2)BofA exposure was reduced given the reduction on the OB Transportation Tariff (3)Bancolombia SBLC currently guarantees the Block CPO-14, the Company is currently negotiating to reduce this SBLC
The Company also regularly generates internal business plans, which it updates from time to time as circumstances change. On or about February 29, 2016, one such internal business plan was provided to the advisors to the Ad Hoc Committee for distribution to the Restricted Noteholders (the "February Business Plan"). Attached hereto as Appendix A is substantially the form of the February Business Plan. In March 2016, the Company provided to the Ad Hoc Committee for distribution to the Restricted Noteholders an Additional Scenarios Addendum to the February Business Plan (the "March Business Plan" and, collectively with the February Business Plan, the "Business Plan"). Attached hereto as Appendix B is substantially the form of the March Business Plan. The Business Plan covered the calendar years 2016 to 2020.
The Business Plan reflected possible outcomes under two distinct pricing assumptions, as follows (note that the pricing in the Company's Base Case for the years 2016 and 2017 reflects a discount to the Brent Benchmark that causes the Base Case realized price to be lower than the Strip Case realized price for these years):
Pricing ($/boe) 2016E2017E2018E2019E2020E Brent Benchmark 37.3943.2264.9767.1167.69 Base Case (realized price) 26.2931.3953.5154.7754.00 Strip Case (realized price)30.9336.9353.5154.7754.00
The Business Plan used the following assumptions with respect to production:
Production (boe/d) 2016E 2017E 2018E 2019E 2020E Oil 98,322 70,81169,48161,47347,263 Gas 11,067 11,90915,91116,42716,139 Net Production (boe/d)109,38982,72085,39277,90063,401
The Business Plan also relied upon the following additional key assumptions:
All hedges are unwound and settled by February 2016;
Total hedge cash proceeds are $195 million in 2016, including collection of $67 million for December 2015 hedges;
Operating expenses increase from $27.98/boe to $30.79/boe from 2016 to 2020;
SG&A of $167 million in 2016 and $140 million per year thereafter;
The Company had $207 million of withholding tax receivable at December 31, 2015. $61 million would be collected in 2016 and $135 million would be collected in 2017. The remaining $11 million would not be collected during the forecast period;
Outstanding VAT receivables at December 31, 2015 of $109 million;
Equity tax payments of $27 million in 2016;
A required minimum cash balance of $100 million;
An unrestricted cash balance of $250 million existed as of December 31, 2015;
Professional fees were assumed to be $10 million per month in 2016, payable one month after incurrence; and
OBC Pipeline is available 48% of the time ("OBC 48").
Based upon the foregoing assumptions, among others, a summary of the Business Plan, based upon the Base Case pricing assumption is set out below (note that the pricing in the Company's Base Case for the years 2016 and 2017 reflects a discount to the Brent Benchmark that causes the Base Case realized price to be lower than the Strip Case realized price for these years):
2016 - 2020 Annual Period Ending 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 (all figures in USD thousands, unless otherwise stated) Production (boe/d) 109,389 82,720 85,392 77,900 63,401 Average Realized Price ($/boe) 26.29 31.39 53.51 54.77 54.00 Discount to Brent Benchmark ($/boe) 4.99 5.30 11.44 12.33 13.69 Starting Cash Balance $250,000 $100,000 $100,000 $100,000 $100,000 Total Revenues 1,087,450988,668 1,732,2791,624,1661,320,570 Production & Operating Costs 1,154,278860,562 937,301 884,755 779,777 SG&A Cost 167,000 140,000 140,000 140,000 140,000 Total Costs 1,321,2781,000,5621,077,3011,024,755919,777 EBITDA (233,828)(11,894) 654,978 599,411 400,793 Capital Expenditures 118,577 435,154 558,313 306,371 250,926 EBITDA - Capex (352,404)(447,048)96,666 293,040 149,866 Hedging Cash Impacts 194,701 - - - - Asset Sales 162,200 - - - - Midstream Cash Dividends 37,079 - - - - Equity Tax Payments (26,546) - - - - Capital Lease Payments (17,474) (6,787) (6,778) (6,778) (6,797) Other One-Time Items (32,316) (6,000) - - - Other Inflows / (Outflows) 317,643 (12,787) (6,778) (6,778) (6,797) Changes in Accounts Receivable 126,377 (4,968) (45,651) 4,793 18,498 Changes in Tax Receivables 41,500 144,164 (20,371) (8,792) (9,522) Changes in Inventory (15,469) 2,578 (3,148) 904 2,546 Changes in Accounts Payable (448,741)91,802 57,800 (79,783) (30,281) One-Time Working Capital Impacts (93,152) - - - - Net Change in Working Capital (389,486)233,576 (11,370) (82,878) (18,759) Cash Flow Before Restructuring Costs (424,246)(226,260)78,517 203,383 124,310 Professional Fees 110,000 10,000 - - - Restructuring Costs 110,000 10,000 - - - Aggregate Cash Flow (534,246)(236,260)78,517 203,383 124,310 DIP Draw / (Repayment) 384,246 236,260 (78,517) (203,383)(124,310) Ending Cash Balance 100,000 100,000 100,000 100,000 100,000 Cumulative DIP Draw 384,246 620,506 541,989 338,605 214,295
Under the Base Case OBC 48 scenario, the maximum DIP draw in 2016 is $429.6 million, occurring in November 2016.
Based upon the foregoing assumptions, among others, a summary of the Business Plan, based upon the Strip + Consensus Case pricing assumption is set out below:
2016 - 2020 Annual Period Ending 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 (all figures in USD thousands, unless otherwise stated) Production (boe/d) 109,389 82,720 85,392 77,900 63,401 Average Realized Price ($/boe) 30.93 36.93 53.51 54.77 54.00 Discount to Brent Benchmark ($/boe) 5.87 6.24 11.44 12.33 13.69 Starting Cash Balance $250,000 $100,000 $100,000 $100,000 $114,359 Total Revenues 1,273,1831,155,9001,732,2791,624,1661,320,570 Production & Operating Costs 1,154,278860,562 937,301 884,755 779,777 SG&A Cost 167,000 140,000 140,000 140,000 140,000 Total Costs 1,321,2781,000,5621,077,3011,024,755919,777 EBITDA (48,095) 155,338 654,978 599,411 400,793 Capital Expenditures 118,577 435,154 558,313 306,371 250,926 EBITDA - Capex (166,672)(279,816)96,666 293,040 149,866 Hedging Cash Impacts 194,701 - - - - Asset Sales 162,200 - - - - Midstream Cash Dividends 37,079 - - - - Equity Tax Payments (26,546) - - - - Capital Lease Payments (17,474) (6,787) (6,778) (6,778) (6,797) Other One-Time Items (32,316) (6,000) - - - Other Inflows / (Outflows) 317,643 (12,787) (6,778) (6,778) (6,797) Changes in Accounts Receivable 117,897 (5,845) (36,294) 4,793 18,498 Changes in Tax Receivables 41,500 144,164 (20,371) (8,792) (9,522) Changes in Inventory (15,469) 2,578 (3,148) 904 2,546 Changes in Accounts Payable (448,741)91,802 57,800 (79,783) (30,281) One-Time Working Capital Impacts (93,152) - - - - Net Change in Working Capital (397,965)232,699 (2,014) (82,878) (18,759) Cash Flow Before Restructuring Costs (246,993)(59,905) 87,874 203,383 124,310 Professional Fees 110,000 10,000 - - - Restructuring Costs 110,000 10,000 - - - Aggregate Cash Flow (356,993)(69,905) 87,874 203,383 124,310 DIP Draw / (Repayment) 206,993 69,905 (87,874) (189,024)- Ending Cash Balance 100,000 100,000 100,000 114,359 238,669 Cumulative DIP Draw 206,993 276,898 189,024 - -
Under the Strip + Consensus OBC 48 scenario, the maximum DIP draw in 2016 is $264.5 million, occurring in November 2016.
The Company has also prepared two additional cases limiting 2017 and 2018 development capital expenditures to $500 million. Both cases are based on the pricing assumptions outlined above.
Based upon the foregoing assumptions, among others, a summary of the Business Plan in the Base Case Reduced Capex OBC 48 scenario is set out below (note that the pricing in the Company's Base Case for the years 2016 and 2017 reflects a discount to the Brent Benchmark that causes the Base Case realized price to be lower than the Strip Case realized price for these years):
2016 - 2020 Annual Period Ending 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 (all figures in USD thousands, unless otherwise stated) Production (boed) 109,389 78,387 63,932 57,969 58,309 Average Realized Price ($/boe) 26.29 31.37 54.13 54.86 54.73 Discount to Brent Benchmark 4.99 5.32 10.82 12.24 12.96 Starting Cash Balance $250,000 $100,000 $100,000 $100,000 $100,000 Total Revenues 1,087,450938,580 1,327,6541,227,5381,235,516 Production & Operating Costs 1,125,848821,498 716,673 650,276 669,896 SG&A Cost 167,000 140,000 140,000 140,000 140,000 Total Costs 1,292,848961,498 856,673 790,276 809,896 EBITDA (205,397)(22,918) 470,981 437,262 425,620 Capital Expenditures 118,577 313,887 277,390 317,223 365,953 EBITDA - Capex (323,974)(336,805)193,592 120,038 59,667 Hedging Cash Impacts 194,701 - - - - Asset Sales 162,200 - - - - Midstream Cash Dividends 37,079 - - - - Equity Tax Payments (26,546) - - - - Capital Lease Payments (17,474) (6,787) (6,778) (6,778) (6,797) Other One-Time Items (32,316) (6,000) - - - Other Inflows / (Outflows) 317,643 (12,787) (6,778) (6,778) (6,797) Changes in Accounts Receivable 126,377 (1,870) (24,754) 4,734 (403) Changes in Tax Receivables 41,500 147,811 (9,649) (11,318) (13,659) Changes in Inventory (15,440) 3,366 859 1,322 (430) Changes in Accounts Payable (449,232)51,624 (10,771) 2,831 16,385 One-Time Working Capital Impacts (93,152) - - - - Net Change in Working Capital (389,948)200,932 (44,315) (2,431) 1,893 Cash Flow Before Restructuring Costs (396,799)(148,661)142,498 110,829 54,763 Professional Fees 110,000 10,000 - - - Restructuring Costs 110,000 10,000 - - - Aggregate Cash Flow (506,279)(158,661)142,498 110,829 54,763 DIP Draw / (Repayment) 356,279 158,661 (142,498)(110,829)(54,763) Ending Cash Balance 100,000 100,000 100,000 100,000 100,000 Cumulative DIP Draw 356,279 514,940 372,442 261,612 206,850
Under the Base Case Reduced Capex OBC 48 scenario, the maximum DIP draw in 2016 is $402.2 million, occurring in November 2016.
Based upon the foregoing assumptions, among others, a summary of the Business Plan in the Strip + Consensus Reduced Capex OBC 48 scenario is set out below:
2016 - 2020 Annual Period Ending 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 (all figures in USD thousands, unless otherwise stated) Production (boe/d) 109,389 78,387 63,932 57,969 58,309 Average Realized Price ($/boe) 30.93 36.91 54.13 54.86 54.73 Discount to Brent Benchmark ($/boe) 5.87 6.26 10.82 12.24 12.96 Starting Cash Balance $250,000 $100,000 $100,000 $100,000 $182,513 Total Revenues 1,273,1831,096,9731,327,6541,227,5381,235,516 Production & Operating Costs 1,125,848821,498 716,673 650,276 669,896 SG&A Cost 167,000 140,000 140,000 140,000 140,000 Total Costs 1,292,848961,498 856,673 790,276 809,896 EBITDA (19,665) 135,475 470,981 437,262 425,620 Capital Expenditures 118,577 313,887 277,390 317,223 365,953 EBITDA - Capex (138,241)(178,412)193,592 120,038 59,667 Hedging Cash Impacts 194,701 - - - - Asset Sales 162,200 - - - - Midstream Cash Dividends 37,079 - - - - Equity Tax Payments (26,546) - - - - Capital Lease Payments (17,474) (6,787) (6,778) (6,778) (6,797) Other One-Time Items (32,316) (6,000) - - - Other Inflows / (Outflows) 317,643 (12,787) (6,778) (6,778) (6,797) Changes in Accounts Receivable 117,897 (2,200) (15,945) 4,734 (403) Changes in Tax Receivables 41,500 147,811 (9,649) (11,318) (13,659) Changes in Inventory (15,440) 3,366 859 1,322 (430) Changes in Accounts Payable (449,232)51,624 (10,771) 2,831 16,385 One-Time Working Capital Impacts (93,152) - - - - Net Change in Working Capital (398,428)200,602 (35,506) (2,431) 1,893 Cash Flow Before Restructuring Costs (219,026)9,402 151,307 110,829 54,763 Professional Fees 110,000 10,000 - - - Restructuring Costs 110,000 10,000 - - - Aggregate Cash Flow (329,026)(598) 151,307 110,829 54,763 DIP Draw / (Repayment) 179,026 598 (151,307)(28,317) - Ending Cash Balance 100,000 100,000 100,000 182,513 237,275 Cumulative DIP Draw 179,026 179,624 28,317 - -
Under the Strip + Consensus Reduced Capex OBC 48 scenario, the maximum DIP draw in 2016 is $237.0 million, occurring in November 2016.
We seek Safe Harbor