CALGARY, Nov. 7, 2017 /CNW/ - (TSX:PMT) – Perpetual
Energy Inc. ("Perpetual", the "Corporation" or the "Company") is pleased to release its third quarter 2017 financial and
operating results. A complete copy of Perpetual's unaudited condensed interim consolidated financial statements and related
Management Discussion and Analysis ("MD&A") for the three and nine months ended September 30,
2017 can be obtained through the Company's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.
The strategic focusing of our asset base, strengthening of our balance sheet, and steady execution of our growth-oriented
capital program delivered attractive results in the third quarter. Adjusted funds flow of $8.2
million ($0.14 per share) was up 56% ($3.0 million) over the
second quarter and $8.8 million over the comparative period in 2016. The main drivers of improved
performance were a combination of production growth of 12%, despite voluntary shut-ins, and significant cost improvements in all
aspects of our business, particularly at East Edson where operating costs were driven down
another 22% to $2.42/boe during the third quarter. Furthermore, proactive natural gas price
optimization strategies mitigated the impact of extremely low and volatile natural gas prices in Alberta and translated into an average realized natural gas sales price of $3.11/Mcf, more than 50% higher than AECO monthly index prices.
THIRD QUARTER 2017 HIGHLIGHTS
Production and Operations
- Exploration and development spending totaled $25.4 million in the third quarter ($53.9 million year to date), a significant increase over prior year spending of $1.4
million ($7.0 million year to date).
- Drilling and completion activity was focused in West Central Alberta at East Edson during
the third quarter of 2017, and included the drilling of four (4.0 net) Wilrich horizontal wells and the completion of seven
(7.0 net) wells, four of which were drilled in the first half of 2017. An additional one (0.4 net) exploration well was rig
released in the third quarter in the Columbia/Brazeau area within West Central Alberta, with frac and follow on evaluation
activities taking place in October.
- Third quarter average production of 10,330 boe/d was driven by positive results from the Company's focused capital program
to develop Wilrich reserves, and more than offset the average 450 boe/d of voluntary shut-ins that the Company
opportunistically implemented to maximize value with minimal impact on adjusted funds flow. This price optimization strategy
was set up by transportation constraints created by pipeline maintenance activities in Alberta
during the quarter and has continued into the fourth quarter.
- Production growth was focused in West Central, which comprised 80% of total production, and increased 17% (1,190 boe/d)
over the second quarter. New wells are performing at or above projected type curves. West Central production was constrained by
Perpetual's firm transportation capacity as well as the voluntary shut-ins implemented through temporary restriction of select
wells. Third quarter exit production rates were more than 40% higher than second quarter exit rates.
- Oil and natural gas liquid ("NGL") production averaged 1,711 bbl/d, virtually flat to the second quarter and representing
16% of total production.
- Perpetual's average realized natural gas price in the third quarter of $3.11/Mcf decreased by
2% from second quarter prices compared to a 27% decrease in the average AECO Monthly Index for the same period. Key factors
contributing to the premium to AECO include:
-
- Approximately 50% of third quarter production was sold under contracted physical and financial arrangements at an
average price of $3.14/GJ;
- Price optimization strategies were applied to prompt month physical settlements which included a $0.10/GJ contribution to Perpetual's average realized price associated with the voluntary shut-in of
production during the quarter to take advantage of temporary situations when natural gas could be purchased at nominal cost
and delivered against pre-sold volume commitments at attractive margins while retaining reserves; and
- Over 80% of Perpetual's natural gas is produced from East Edson which yields higher
heat content gas, (GJ to Mcf ratio of 1.17) translating into higher realized natural gas prices.
- Realized oil prices during the third quarter of $43.01/bbl were relatively consistent with
prices realized during the second quarter of 2017 while NGL prices declined 12% over the same period to $39.06/bbl.
- Total production and operating expenses decreased 28% relative to the second quarter to $3.3
million ($3.50/boe). This decrease reflected continued diligent cost management, and
$0.9 million ($0.95/boe) of non-recurring adjustments associated
with third party processing facilities that were sold as part of the Shallow Gas Disposition. When excluding the $0.95/boe impact of non-recurring adjustments, third quarter operating costs on a unit of production basis
were $4.45/boe, down 19% from the second quarter of 2017. Operating costs per unit of production
at East Edson averaged $2.42/boe and are expected to continue to
decrease due to the impact of increased production on a substantially fixed operating cost base.
Financial Highlights
- Realized revenue of $20.7 million was up 4% from $19.9 million
in the second quarter, reflecting strong production growth and commodity price management performance despite lower AECO
Monthly Index natural gas prices. Natural gas revenue represented 66% of total petroleum and natural gas revenue in the third
quarter of 2017 (Q3 2016 – 76%), despite reflecting 84% of average production.
- Perpetual demonstrated significant improvement in its per unit cost structure in the third quarter. Compared to the second
quarter of 2017, royalties, production and operating expenses, and general and administrative expenses decreased by
$1.55/boe (36%), $1.07/boe (19%) and $0.74/boe (20%), respectively, due to the impact of increasing production across the high percentage of fixed
costs combined with prudent cost control.
- Adjusted funds flow reached $8.2 million ($0.14/share) in the
third quarter, up 56% ($3.0 million) over second quarter adjusted funds flow of $5.2 million ($0.09/share) and $8.8 million over
the comparative period in 2016. Adjusted funds flow per boe was $8.62/boe, an increase of
$2.38/boe (38%) from the second quarter of 2017 as improved operating performance significantly
outpaced the 8% ($1.93/boe) decrease in realized revenue per boe. The 12% quarter over quarter
increase in production in the third quarter contributed the remaining increase in adjusted funds flow.
- The Company recorded a net loss for the third quarter of 2017 of $8.1 million, compared to a
net loss of $7.2 million in the previous quarter. Improved quarter over quarter adjusted funds
flow was more than offset by additional unrealized losses related to the decline in market value of its investment of 1.67
million shares of Tourmaline Oil Corp. (TSX – "TOU").
- Perpetual continued to take steps to strengthen its financial position during the third quarter which included the
following:
-
- On July 4, 2017, the Company announced that it had doubled its borrowing capacity
available under its reserve based credit facility (the "Credit Facility") to $40 million and
extended its repayment term to two years, at lower borrowing costs.
- On July 31, 2017, the Company also completed the refinancing of the $36.5 million of margin loans secured by the Company's TOU shares, with $18.7
million of proceeds from a replacement one-year margin loan, and borrowings under its Credit Facility.
- In mid-July, $1.0 million face value of senior notes due to mature on July 23, 2019 (the "2019 Senior Notes") were re-purchased at 96.75% of face value and retired.
- On July 7, 2017, Moody's Investor Service upgraded Perpetual's corporate credit rating to
Caa1 stable. As at September 30, 2017, 45% of Perpetual's debt matures in 2021 or later.
OUTLOOK
Success in advancing the Company's strategic priorities has established a foundation for strong growth in production and
adjusted funds flow in 2017 and 2018. The Company expects to continue to drive capital efficiency improvements and reductions in
operating, financing and administrative costs to improve upon the sustainable cost structure achieved through strategic decisions
implemented over the past two years.
Based on the total capital spending plan in 2017 of $73 to $78 million, Perpetual continues to
expect to exit 2017 at a production rate approaching 13,000 boe/d (85% natural gas). This represents growth in exit rate based on
average December production of approximately 60% compared to the prior year.
Capital spending during the remainder of 2017 will be funded through adjusted funds flow generation, the final $10 million drawdown of the Term Loan and borrowings under the Credit Facility. Perpetual is currently in
discussions with its Credit Facility lenders regarding the redetermination of its borrowing limit effective November 30, 2017, and anticipates an increase to the Credit Facility borrowing base.
Based on these assumptions and the current forward market for oil and natural gas prices, Perpetual forecasts 2017 adjusted
funds flow of approximately $28 to $32 million. Incorporating the current market value of 1.67
million TOU shares, the Company estimates year-end 2017 total net debt of approximately $100 to $105
million, with a corresponding estimated net debt to trailing twelve months adjusted funds flow ratio of approximately 3.4
at year end 2017.
For 2018, Perpetual is planning a capital program that will be funded by adjusted funds flow. Annual production in 2018 is
anticipated to increase by approximately 30% over 2017.
The Company will continue to monitor commodity market fundamentals closely over the coming months and adjust activities as
required, balancing the positive momentum that is translating into operational excellence in executing our East Edson development program with spending within our means to maintain adequate liquidity and balance
sheet strength.
2017 STRATEGIC PRIORITIES
During the third quarter of 2017, significant progress was made to advance Perpetual's top four strategic priorities for 2017
which include:
- Grow value of Greater Edson liquids-rich gas;
- Optimize value potential of Eastern Alberta assets;
- Advance high impact opportunities; and
- Optimize balance sheet for growth.
Grow value of Greater Edson liquids-rich gas
- Perpetual's single rig drilling program at East Edson has continued through the third
quarter with the rig release of four (4.0 net) Wilrich horizontal wells and the completion and frac of seven (7.0 net) wells,
four of which were drilled in the first half of 2017. New wells are performing at or above expected type curve.
- Drilling and completion costs continue to show a 35 to 40% improvement over prior year costs as a result of well design
changes. Ten monobore wells with an average 1,700 metre horizontal section have now been drilled, completed and tied-in at
an average cost of $4.1 million per well, with the most recent two-well pad coming in at
$3.7 million per well, equating to $2,400 per horizontal metre.
Going forward, extended reach horizontal ("ERH") wells with horizontal laterals of more than 3,000 metres are expected to
further improve costs to $2,000 per horizontal metre and drive capital efficiencies to less than
$8,000 per boe/d average for the first year of production.
- During the fourth quarter of 2017, the Company plans to drill four (4.0 net) wells at East
Edson, and evaluate the execution viability and production capability from ERH wells of varying lengths. With the
completion and frac of these wells, production capability at East Edson will continue to
exceed the company-owned infrastructure capacity and matching firm transportation capacity of 60 to 65 MMcf/d plus associated
liquids.
- Additional compression will be installed at the West Wolf Lake plant during the fourth quarter to increase total
East Edson natural gas processing capacity to 78 MMcf/d to match the increase in its firm
transportation capacity scheduled on or before April 1, 2018.
- Third quarter production at East Edson comprised 80% of total production, and increased
17% over the second quarter, driven by the East Edson capital program despite production
constraints caused by firm transportation capacity and voluntary shut-ins averaging 450 boe/d in the third quarter as part of
Perpetual's price optimization strategy.
- Perpetual continues to achieve a top quartile operating cost structure at East Edson and
further improved to average $2.42/boe (Q3 2016 – $3.20/boe; Q2 2017
– $3.11/boe) as a result of increased production and additional savings realized through diligent
cost management. Operating costs per unit of production are expected to continue to decrease due to the impact of increased
production at East Edson on a substantially fixed operating cost base.
Optimize value potential of Eastern Alberta assets
- Capital spending in Eastern Alberta was minimal during the third quarter with operations
primarily directed to abandonment and reclamation projects. Perpetual has received two reclamation certificates in the third
quarter (29 reclamation certificates year-to-date) which enable reduced property tax and surface lease rental costs going
forward. Abandonment and reclamation expenditures over the remainder of 2017 of up to $0.8
million supporting continued cost reduction initiatives are anticipated.
- Crude oil production in eastern Alberta declined 7% quarter over quarter to 956 bbl/d,
reflecting minimal capital spending and natural declines. Capital spending is expected to increase in the fourth quarter of
2017 as waterflood optimization resumes with the conversion of two new injectors.
- Gas production in eastern Alberta was effectively flat at 6.4 MMcf/d quarter over quarter
as recompletion and workover activities offset natural declines. Low variable operating costs and synergy with well abandonment
programs in the Mannville area result in gas recompletions paying out within 6 to 12 months at
current commodity prices. These will continue during the fourth quarter of 2017 with up to ten additional recompletions
planned.
- Production and operating expenses in eastern Alberta were $7.43/boe during the third quarter (Q3 2016 – $10.57/boe; Q2 2017 –
$13.28/boe). Lower quarter over quarter costs related to $0.9
million of non-recurring 13 month adjustments associated with third party processing facilities that were sold as part
of the Shallow Gas Disposition. The Company continues to prioritize cost reductions on its eastern Alberta assets, including a focus on municipal property taxes which represent a significant portion of
fixed operating costs as the tax base assessment is dramatically misrepresentative of the actual tangible property value.
Advance high impact opportunities
- The two horizontal wells drilled during the fourth quarter of 2016 and the first quarter of 2017 to advance the evaluation
of the shallow shale gas play in the Viking and Colorado formations are on production at low
rates. Fracture stimulation of the Viking gas well has not been fully executed to date and additional spending has been delayed
pending further learnings from performance monitoring and stronger natural gas prices.
- In the Columbia/Brazeau area of West Central Alberta, Perpetual participated for its 40% working interest in a third-party
operated exploratory horizontal well targeting the Fahler formation. The well was rig released at the end of the third quarter
with frac and follow-on evaluation activities currently underway.
- Limited spending during the third quarter was allocated to Perpetual's Panny bitumen project. Plans are underway to advance
the evaluation of solvent technology in the Bluesky reservoir at Panny, utilizing important
learnings from the cyclic heat stimulation pilot project to date. Solvent technology is expected to increase capital
efficiencies and at the same time may positively enhance environmental performance through reduced emissions.
Optimize balance sheet for growth
- On July 4, 2017, the Company announced that it had doubled its borrowing capacity available
under its reserve based credit facility (the "Credit Facility") to $40 million and extended its
repayment term to two years, at lower borrowing costs.
- On July 31, 2017, Perpetual entered into a new $18.7 million
margin loan secured by 1.67 million TOU shares that matures in July 2018. Proceeds from the new
margin loan along with borrowings under the Credit Facility were used to repay the TOU share put option margin loans that were
scheduled to mature in August and November of 2017. Proceeds of $1.0 million were realized from
the sale of underlying put options.
- In mid-July, $1.0 million face value of 2019 Senior Notes were purchased at 96.75% of face
value and retired. This reduction, in addition to the senior note transactions executed during the first half of 2017,
contributed to a 46% decrease in senior note principal balance outstanding from year end with the next maturity due in Q3 2019.
- Total net debt at September 30, 2017 stood at $92.7 million
which was an increase of 36% from June 30, 2017 of $68.3 million.
Approximately $52.9 million, representing 46% of Perpetual's debt and 57% of net debt, matures in
2021 or later.
- On October 5, 2017 Perpetual borrowed the remaining $10 million
under the Term Loan, increasing the total balance outstanding to $45 million.
- Incorporating net debt at September 30, 2017, adjusted for the $10
million drawn under the Term Loan in early October 2017, Perpetual has access to draw
approximately $16 million under the Credit Facility. Combined with the current market value of
the Company's TOU share investment, net of the new margin loan, total current available liquidity is approximately $30 million. Perpetual is currently in discussions with its Credit Facility lenders regarding the
redetermination of its borrowing limit effective November 30, 2017, and anticipates an increase
to the borrowing limit.
- In light of the positive financing transactions, in early July, Moody's Investor Service upgraded Perpetual's corporate
credit rating to Caa1 stable.
- In order to protect a base level of adjusted funds flow, Perpetual has commodity price contracts in place for the remainder
of 2017 comprised of forward month physical and financial natural gas contracts at AECO hub on a net 27,500 GJ/d to
December 2017 at an average price of $3.16/GJ and 12,500 GJ/d for
November 2017 through March 2018 at an average price of
$2.94/GJ. Perpetual also has oil sales arrangements on 750 bbl/d protecting a WTI floor price of
$USD50.00/bbl for the remainder of 2017.
- During the third quarter, Perpetual diversified its natural gas price exposure from AECO by entering into arrangements to
shift the sales point of 34.1 MMcf/d to a basket of five North American natural gas hub pricing points (Chicago, Dawn, Empress, Malin and Mich Con) for a five year period commencing November 1, 2017 (39.0 MMcf/d commencing April 1, 2018). Based on current
futures prices, Perpetual expects these gas price diversification contracts will provide a significant premium over AECO prices
for the November 2017 to December 2018 time frame.
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual operates a diversified asset portfolio, including liquids-rich natural gas
assets in the deep basin of west central Alberta, heavy oil and shallow natural gas in eastern
Alberta, with longer term opportunities through undeveloped oil sands leases in northern
Alberta. Additional information on Perpetual can be accessed at www.sedar.com or from the Corporation's website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
FINANCIAL AND OPERATING HIGHLIGHTS
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
(Cdn$ thousands except volume and per share amounts)
|
2017
|
2016
|
% Change
|
2017
|
2016
|
% Change
|
Financial
|
|
|
|
|
|
|
Oil and natural gas revenue
|
20,026
|
22,268
|
(10)
|
57,912
|
63,463
|
(9)
|
Cash flow from (used in) operating activities
|
5,778
|
(1,710)
|
N/A
|
8,217
|
(11,876)
|
N/A
|
Adjusted funds flow(1)
|
8,199
|
(602)
|
N/A
|
18,552
|
(2,406)
|
N/A
|
|
Per share(1)(2)
|
0.14
|
(0.01)
|
N/A
|
0.32
|
(0.05)
|
N/A
|
Net income (loss)
|
(8,082)
|
(10,919)
|
26
|
(29,473)
|
86,770
|
(134)
|
|
Per share - basic(2)
|
(0.14)
|
(0.21)
|
33
|
(0.51)
|
1.74
|
(129)
|
|
Per share - diluted(2)
|
(0.14)
|
(0.21)
|
33
|
(0.51)
|
1.65
|
(131)
|
Total assets
|
356,449
|
471,185
|
(24)
|
356,449
|
471,185
|
(24)
|
Revolving bank debt
|
29,262
|
10,632
|
175
|
29,262
|
10,632
|
175
|
Term Loan, at principal amount
|
35,000
|
–
|
N/A
|
35,000
|
-
|
N/A
|
TOU share margin loans, at principal amount
|
18,740
|
22,623
|
(17)
|
18,740
|
22,623
|
(17)
|
Senior notes, at principal amount
|
32,490
|
60,573
|
(46)
|
32,490
|
60,573
|
(46)
|
Carrying value of TOU share investment
|
(42,304)
|
(65,659)
|
(36)
|
(42,304)
|
(65,659)
|
(36)
|
Adjusted working capital deficiency
|
19,556
|
2,031
|
863
|
19,556
|
2,031
|
863
|
Net debt(1)
|
92,744
|
30,200
|
207
|
92,744
|
30,200
|
207
|
Net capital expenditures
|
|
|
|
|
|
|
|
Capital expenditures
|
25,392
|
1,411
|
1,700
|
53,988
|
7,511
|
619
|
|
Geological and geophysical costs
|
–
|
–
|
–
|
(22)
|
26
|
N/A
|
|
Net payments (proceeds) on acquisitions and dispositions
|
680
|
(988)
|
N/A
|
1,452
|
(7,756)
|
N/A
|
Net capital expenditures
|
26,072
|
423
|
6,064
|
55,418
|
(219)
|
N/A
|
Common shares outstanding
(thousands)(3)
|
|
|
|
|
|
|
End of period
|
59,316
|
52,327
|
13
|
59,316
|
52,327
|
13
|
Weighted average – basic
|
59,152
|
52,253
|
13
|
57,572
|
49,997
|
15
|
Weighted average – diluted
|
59,152
|
52,253
|
13
|
57,572
|
52,529
|
10
|
Operating
|
|
|
|
|
|
|
Average production
|
|
|
|
|
|
|
|
Natural gas (MMcf/d)(4)
|
51.8
|
75.5
|
(31)
|
45.9
|
86.3
|
(47)
|
|
Oil and NGL (bbl/d)(4)
|
1,711
|
1,528
|
12
|
1,595
|
1,764
|
(10)
|
Total (boe/d)(4)
|
10,330
|
14,123
|
(27)
|
9,240
|
16,146
|
(43)
|
Average prices
|
|
|
|
|
|
|
|
Natural gas ($/Mcf)
|
3.11
|
2.12
|
47
|
3.65
|
2.42
|
51
|
|
Oil ($/bbl)
|
43.01
|
38.90
|
11
|
39.86
|
37.21
|
7
|
|
NGL ($/bbl)
|
39.06
|
35.80
|
9
|
43.59
|
32.72
|
33
|
Drilling (wells drilled gross/net)
|
|
|
|
|
|
|
|
Gas
|
5/4.4
|
–
|
|
12/11.4
|
1/1.0
|
|
|
Oil
|
–
|
–
|
|
4/3.3
|
-
|
|
|
Total
|
5/4.4
|
–
|
|
16/14.7
|
1/1.0
|
|
|
|
|
|
|
|
|
(1)
|
These are non-GAAP measures. Please refer to "Non-GAAP Measures"
below.
|
(2)
|
Based on weighted average basic or diluted common shares outstanding for
the period.
|
(3)
|
Common shares are net of shares held in trust.
|
(4)
|
Production amounts are based on the Corporation's interest before royalty
expense.
|
Forward-Looking Information
Certain information regarding Perpetual in this news release including management's assessment of future plans and
operations may constitute forward-looking information or statements under applicable securities laws. The forward looking
information includes, without limitation, statements made under the heading "Outlook"; anticipated amounts and allocation
of capital spending; statements pertaining to adjusted funds flow levels, future development and capital efficiencies; statements
regarding estimated production and timing thereof; forecast year end exit and average production rates; completions and
development activities; infrastructure expansion and construction; prospective oil and natural gas liquids production capability;
projected realized natural gas prices and adjusted funds flow; commodity prices and foreign exchange rates; and gas price
management. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the
forward-looking information contained in this press release, which assumptions are based on management's analysis of historical
trends, experience, current conditions and expected future developments pertaining to Perpetual and the industry in which it
operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current
expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some
instances to differ materially from those anticipated by Perpetual and described in the forward-looking information contained in
this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance
and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in
Perpetual's MD&A for the year ended December 31, 2016 and those included in other reports on
file with Canadian securities regulatory authorities which may be accessed through the SEDAR website ( www.sedar.com ) and at Perpetual's website ( www.perpetualenergyinc.com ). Readers are
cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and
opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to
update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other
than as expressly required by applicable securities law.
The forward-looking information and statements contained in this news release speak only as of the date of this news
release and neither the Corporation nor any of it subsidiaries assumes any obligation to publicly update or revise them to
reflect new events or circumstances, unless expressly required to do so by applicable securities laws.
Financial Outlook
Also included in this news release are estimates of Perpetual's 2017 adjusted funds flow, total net debt and net debt to
trailing twelve months adjusted funds flow ratio, which are based on, among other things, the various assumptions as to
production levels, capital expenditures, and other assumptions disclosed in this news release. To the extent such estimates
constitute a financial outlook, they were approved by management and the Board of Directors of Perpetual on November 6, 2017 and are included to provide readers with an understanding of Perpetual's anticipated adjusted
funds flow, total net debt and net debt to trailing twelve months adjusted funds flow ratio based on the capital expenditure,
production and other assumptions described herein and readers are cautioned that the information may not be appropriate for other
purposes.
Initial Production Rates
Any references in this news release to initial clean up and flow back rates are useful in confirming the presence of
hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline
thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are
cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on
field estimates and may be based on limited data available at this time.
BOE Equivalents
Perpetual's aggregate proved and probable reserves are reported in barrels of oil equivalent (boe). Boe may be misleading,
particularly if used in isolation. In accordance with NI 51-101 a boe conversion ratio for natural gas of 6 Mcf: 1 boe has been
used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily
represent a value equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices
of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis
may be misleading as an indication of value.
Non-GAAP Financial Measures
This press release includes references to financial measures commonly used in the oil and gas industry of realized revenue,
adjusted funds flow, operating netback and net debt, which do not have a standardized meaning prescribed by International
Financial Reporting Standards ( "GAAP"). Accordingly, the Company's use of these terms may not be comparable to similarly
defined measures presented by other companies. Realized revenue is used by management to calculate the Corporation's net realized
commodity prices taking into account monthly settlements on financial crude oil and natural gas forward sales, collars and basis
differentials. Management uses the term " adjusted funds flow " for its own performance measures and to
provide shareholders and potential investors with a measurement of the Company's efficiency and its ability to generate the cash
necessary to fund a portion of its future growth expenditures or to repay debt. Perpetual considers operating netback an
important performance measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are
calculated by deducting royalties, operating costs, and transportation from realized revenue. Operating netbacks are also
calculated on a per boe basis using average boe production for the period. Operating netbacks on a per boe basis can vary
significantly for each of the Company's operating areas. Net debt includes adjusted working capital deficiency (surplus), the TOU
share margin loans and the principal amount of the term loan and senior notes reduced for the mark-to-market value of TOU shares
held. Net debt is used by management to analyze borrowing capacity. Investors are cautioned that non-GAAP measures should not be
construed as alternatives to measures of financial performance determined in accordance with GAAP as an indication of the
Company's performance. See Non-GAAP Financial Measures in the Management's Discussion and Analysis for the definition and
description of these terms.
SOURCE Perpetual Energy Inc.
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