RE:Q1 released today after market closeClearly a quarter where their hedging is working against them, at current oil price of 70, they had to book a big unrealized loss on future production, they have around 1200/bbls swapped at 57 throughout 2018, and 1300 bbl/day at around 67, the latter is ok. In 2019 and 2020 they have around 900 bbl/day at around 53 see pages 7- 8 in MD&A. Operating netbacks are meaningfully higher obviously, but pressured by negative hedging and the lower production increases the fixed cost/barrel. On the positive, they have good hedges on the gas production. We should move our way in Q2.
It is clear what the CEO is trying to do, they are speeding up production to get more unhedged barrels and lower fixed cost/barrel. The lower production giving lower scale economy and the hedging is what drags the results, compared to Q1’2017 where it was the exact opposite ie positive hedging and higher production and thus lower fixed cost/barrel. In Q1, out of their 3100bbl/day oil production, only around 1 800bbl/day got to benefit from the oil price recovery, so getting 1000bbl/day-1500bbl/day more in short future will make difference and more later this year is obviously vital.
Financial borrowings was actually lower at 49,4m, but working capital effectively helped financing their accelerated capex together with cash flow and cash balance.
On the positive their accreage is much more valuable ie the NPV10 of its accreage its just that the hedging is delaying the cash flow benefits of the price recovery. This explains why share price have been lagging the market so brutally. Well, I look forward to NAFTA verdict and Quebec regulations, which i believe is due this quarter and is the immidiate upside. I also believe that the CEO expects good outcomes as he seems confident to spend now.
When Quebec regulations come, I believe PPR should shift focus on Quebec and its premium gas prices and take in a partner there, and keep the core property in Alberta against a balanced fixed cost base. The majority of NAFTA proceeds should be returned to the shareholders. Mr Granger must do fine without that cash.