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Press release from PR Newswire

Perpetual Energy Inc. releases 2012 year-end reserves

Tuesday, February 05, 2013

Perpetual Energy Inc. releases 2012 year-end reserves23:55 EST Tuesday, February 05, 2013 CALGARY, Feb. 5, 2013 /PRNewswire/ - Perpetual Energy Inc. ("Perpetual", the "Corporation" or the "Company") is pleased to release a summary of the Company's year-end 2012 reserves as reported by the independent engineering firm McDaniel and Associates Consultants Ltd. ("McDaniel"). YEAR-END 2012 RESERVES 2012 Year-End Reserve Highlights Perpetual added 19.5 MMBoe of proved and probable reserves in 2012, excluding production, net dispositions and downward technical revisions related to lower commodity price forecasts. Reserve additions and net positive technical revisions due to performance offset 2012 production of 7.4 MMBoe by 265 percent. Reserve additions offsetting production were a result of total exploration and development capital spending of $79.8 million. After net dispositions of 11.3 MMBoe, production of 7.4 MMBoe and negative revisions due to commodity prices of 6.6 MMBoe in 2012, proved and probable reserves decreased just 5.8 MMboe (7 percent) from 80.8 MMBoe at year-end 2011 to 75.0 MMBoe. Proved reserves also decreased seven percent to 36.3 MMBoe at year-end 2012. The majority of the reserve additions were related to activities driven by Perpetual's asset base transformation and diversification strategy, adding natural gas and natural gas liquids ("NGL") reserves in the Alberta deep basin and heavy oil reserves in eastern Alberta. At year-end 2012, oil and NGL represent 13.4 percent of Perpetual's total proved and probable reserves (14.2 percent of proved), up from 10 percent (12 percent of proved) at year-end 2011. Negative revisions due to low natural gas prices of 6.6 MMBoe occurred throughout Perpetual's eastern Alberta shallow gas asset base but most significantly impacted probable undeveloped reserves recognized in the Viking formation. These negative reserve revisions also included the reduction of $63 million of future development capital ("FDC") to bring Viking reserves to production. Including changes in FDC; Perpetual realized finding and development costs ("F&D") of $11.15 per Boe on a proved and probable reserve basis in 2012. Since proceeds from dispositions exceeded exploration and development capital spending, Perpetual's realized finding, development and acquisition costs ("FD&A"), including changes in FDC, was ($13.11) per Boe on a proved and probable basis. Perpetual's reserve replacement ratio for 2012 was 237 percent on a proved and probable reserves basis. The reserve replacement ratio, including both performance and price related technical revisions was 175 percent on a proved and probable basis. Perpetual's reserve to production ratio ("reserve life index" or "RLI") increased to 11.0 years from 9.7 years on a proved and probable reserves basis (increased to 6.1 years from 5.3 years on a proved reserves basis) at year-end 2012. Perpetual's reserve-based net asset value ("NAV") at year-end 2012 was estimated at $1.84 per Share discounted at eight percent. Reserves Disclosure Company interest reserves included herein are before royalty burdens and including royalty interests. Reserves information is based on an independent reserves evaluation report prepared by McDaniel with an effective date of December 31, 2012 (the "McDaniel Report"), and has been prepared in accordance with National Instrument 51-101 ("NI 51-101") using McDaniel's forecast prices and costs. Complete NI 51-101 reserves disclosure including after-tax reserve values, reserves by major property and abandonment costs will be included in Perpetual's Annual Information Form ("AIF"), which will be filed in March 2013. 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. Perpetual's reserves at year-end 2012 are summarized below. Reserves at December 31, 2012           Company Interest (Working plus Royalty Interest) Light and Medium Crude Oil (Mbbl) Heavy Oil (Mbbl) Natural Gas (MMcf) Natural Gas Liquids (Mbbl) Oil Equivalent (MBoe) Proved Producing 74 1,359 119,980 903 22,332 Proved Non-Producing 3 8 16,929 252 3,084 Proved Undeveloped - 686 49,856 1,867 10,862 Total Proved 77 2,053 186,765 3,021 36,278 Probable Producing 32 752 41,051 301 7,926 Probable Non-Producing excluding Gas Over Bitumen 1 67 23,987 120 4,186 Probable Undeveloped - 1,116 118,242 2,519 23,342 Probable Shut-in Gas over Bitumen - - 19,896 - 3,316 Total Probable  33 1,934 203,176 2,940 38,770 Total Proved and Probable  110 3,987 389,941 5,961 75,048 The proved producing reserves of 22.3 MMBoe comprise 62 percent of the total proved reserves. Proved and probable developed reserves of 40.8 MMBoe represent 54 percent of the total proved and probable reserves. Total proved reserves account for 48 percent of the total proved and probable reserves. McDaniel estimates the FDC required to convert proved and probable non-producing and undeveloped reserves to prove producing reserves at $381.8 million. The table below summarizes the FDC estimated by McDaniel by play type to bring non-producing and undeveloped reserves to production. Future Development Capital ($ millions)             Play 2013 2014 2015 2016 2017 Remainder Total Conventional Shallow Gas 0.7 3.8 0.9 0.5 0.3 1.7 7.9 Eastern Alberta Viking 0.0 8.4 1.5 27.8 26.3 40.1 104.1 Mannville Heavy Oil 23.5 9.7 -   -   -   -   33.2 Greater Edson Wilrich 18.2 44.7 40.3 9.4 -   -   112.6 Elmworth Montney -   41.0 39.3 42.5 -   -   122.8 Deep Basin Other -   1.4 -   -   -   -   1.4 Total 42.4 108.9 82.0 80.2 26.6 41.8 381.8 On December 18, 2012, Perpetual announced the Company had entered into a definitive purchase and sale agreement, along with its partner, to jointly divest its Elmworth, Alberta property for gross proceeds of $155 million, $77.5 million net to Perpetual, subject to certain closing adjustments and transaction costs.  This transaction is currently expected to close on or prior to March 1, 2013. At year-end 2012, McDaniel estimated proved and probable undeveloped reserves of 10.6 MMBoe net to Perpetual at Elmworth. Furthermore, McDaniel estimated $122.5 million of FDC would be required to convert these undeveloped reserves to producing reserves. Reserves Reconciliation Company Interest (Working Interest + Royalty Interest)       Barrels of Oil Equivalent (MBoe) Proved Probable Proved and Probable Opening Balance December 31, 2011 39,175 41,609 80,784 Discoveries and Extensions 6,452 11,031 17,483 Technical Revisions 5,480 (3,449) 2,031 Dispositions, net of Acquisitions (6,321) (4,959) (11,281) Production (7,372) - (7,372) Economic Factors (1,135) (5,463) (6,598) Closing Balance December 31, 2012 36,278 38,770 75,048 In 2012, Perpetual executed a successful asset disposition program which resulted in net proceeds of $167.2 million. Reserve reductions as a result of dispositions were 11.3 MMBoe. Discoveries and extensions accounted for 17.5 MMBoe of reserve additions and were related to activities driven by Perpetual's asset base transformation and diversification strategy, adding natural gas and NGL reserves in the Alberta deep basin and heavy oil reserves in eastern Alberta. At year-end 2012, oil and NGL represent 13.4 percent of Perpetual's total proved and probable reserves (14.2 percent of proved), up from 10 percent (12 percent of proved) at year-end 2011. Year over year, McDaniel recorded net positive technical revisions related to performance totaling 2.0 MMBoe on a proved and probable basis. These net positive technical revisions were due to improved performance and reduced operating costs in a number of areas. Positive technical revisions were offset by a substantially reduced natural gas price forecast at year-end 2012 relative to year-end 2011, resulting in negative revisions due to economic factors of 6.6 MMBoe. Included in the downward price revisions are those future projects whose return on investment is negative at the current price forecast. This included approximately 5.4 MMBoe of proved and probable non-producing and undeveloped reserves that were no longer viewed as economic to develop, primarily in the Viking formation in eastern Alberta. The negative economic revisions also included a 1.2 MMBoe reduction in producing reserves where existing wells are now expected by McDaniel to reach the economic limits near their end of productive life earlier due to reduced future commodity price assumptions. Estimated FDC increased $64.3 million to $381.8 million at year-end 2012, from $317.5 million at year-end 2011. Relative to year-end 2011, additional future development capital of $148.3 million is estimated to be required to develop the increased heavy oil reserves at Mannville and liquids-rich gas reserves in the Wilrich in the greater Edson area and the Montney at Elmworth. This increase was offset by reductions in FDC totaling $84.0 million, primarily related to downward reserve revisions due to low commodity prices associated with the Eastern Alberta Viking play and dispositions. The decrease in FDC related to negative commodity price-driven reserve revisions is the result of projects being deemed to be uneconomic under the current McDaniel price forecast. Perpetual believes that the underlying resource is still present and those previously identified reserves will be recognized and classified as future reserve additions if natural gas prices increase in the future. McDaniel's price forecast utilized in the evaluation is summarized below. McDaniel January 1, 2013 Price Forecast               Year West Texas Intermediate Crude Oil ($US/Bbl)     Edmonton Light Crude Oil ($Cdn/Bbl)     Natural Gas at AECO ($Cdn/MMBtu)     Foreign Exchange ($US/$Cdn) 2013 92.50   87.50   3.35   1.000 2014 92.50   90.50   3.85   1.000 2015 93.60   92.60   4.35   1.000 2016 95.50   94.50   4.70   1.000 2017 97.40   96.40   5.10   1.000 2018 99.40   98.30   5.45   1.000 2019 101.40   100.30   5.55   1.000 2020 103.40   102.30   5.70   1.000 2021 105.40   104.30   5.80   1.000 2022 107.60   106.50   5.90   1.000 2023 109.70   108.50   6.00   1.000 2024 111.90   110.70   6.15   1.000 2025 114.10   112.90   6.25   1.000 2026 116.40   115.20   6.35   1.000 2027 118.80   117.50   6.50   1.000 RESERVE LIFE INDEX ("RLI") Perpetual's proved and probable reserves to production ratio, also referred to as reserve life index, was 11.0 years at year-end 2012 while the proved RLI was 6.1 years, based upon the 2013 production estimates in the McDaniel Report. The following table summarizes Perpetual's historical calculated RLI. Reserve Life Index (1)             2012 2011 2010 2009 2008 Total Proved 6.1 5.3 4.9 4.8 4.5 Proved and Probable 11.0 9.7 8.7 8.8 7.5 (1)      Calculated as year-end reserves divided by year one production estimate from the McDaniel Report. NET PRESENT VALUE ("NPV") OF RESERVES SUMMARY Perpetual's light and medium oil, natural gas and NGL reserves were evaluated by McDaniel using McDaniel's product price forecasts effective January 1, 2013 prior to provision for financial natural gas price hedges, income taxes, interest, debt service charges and general and administrative expenses. The following table summarizes the NPV of funds flows from recognized reserves at January 1, 2013, assuming various discount rates. It should not be assumed that the discounted future net funds flows estimated by McDaniel represent the fair market value of the potential future production revenue of the company. NPV of Funds Flow Using McDaniel January 1, 2013 Forecast Prices and Costs                                                     Discounted at ($ thousands) Undiscounted 5% 8% 10% Proved Producing $286,286 $244,960 $226,511 $216,004 Proved Non-Producing 40,621 32,226 28,840 26,996 Proved Undeveloped 106,911 49,150 30,248 21,028 Total Proved 433,818 326,337 285,600 264,027           Probable Producing 124,587 89,849 76,764 69,923 Probable Non-Producing excl GOB 53,348 39,817 34,288 31,258 Probable Undeveloped 281,837 157,077 121,628 104,756 Probable Shut-in Gas over Bitumen 60,875 36,711 27,628 23,024 Total Probable 520,648 323,455 260,308 228,961           Total Proved and Probable $954,466 $649,791 $545,908 $492,988 At a 10 percent discount factor, the proved producing reserves comprise 44 percent of the total proved and probable value, while proved and probable producing reserves represent 58 percent of the total proved and probable value. Total proved reserves account for 54 percent of the proved and probable value. NET ASSET VALUE ("NAV") The following net asset value table shows what is normally referred to as a "produce-out" NAV calculation under which the Corporation's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of Perpetual's Shares. The calculations below do not reflect the value of the Corporation's prospect inventory to the extent that the prospects are not recognized within the NI 51-101 compliant reserve assessment. Pre-tax NAV at December 31, 2012(1)                                                           Discounted at ($ millions except as noted) Undiscounted 5% 8% 10% Total Proved and Probable Reserves(2) $955 $650 $546 $493 Fair Market Value of Undeveloped Land(3) 161 161 161 161 Market Value of TriOil Resources Ltd. Shares 2 2 2 2 Warwick Gas Storage(4) 9 9 9 9 Net Bank Debt (unaudited)(1,5) (89) (89) (89) (89) Convertible Debentures (160) (160) (160) (160) Senior Notes (150) (150) (150) (150) Estimate of Additional Future Abandonment and Reclamation Costs(6) (104) (67) (48) (45) NAV $624 $356 $271 $221 Shares Outstanding (million) - basic 147 147 147 147 NAV per Share ($/Share) $4.24 $2.42 $1.84 $1.50 (1)      Financial information is per Perpetual's 2012 preliminary unaudited consolidated financial statements. (2)      Reserve values per McDaniel Report as at December 31, 2012, including Gas over Bitumen financial solution. (3)      Independent Third party estimate. (4)      Reflects 10% interest in Warwick Gas Storage valued at proportionate disposition value at April 25, 2012. (5)      Includes bank debt, net of working capital, excluding marketable securities. (6)      Amounts are in addition to amounts in the McDaniel report for future well abandonment costs, net of salvage value, related to developed reserves. See "ABANDONMENT AND RECLAMATION COSTS". In the absence of adding reserves to the Corporation, the NAV per Share will decline as the reserves are produced out. The above evaluation includes future capital expenditure expectations required to bring undeveloped reserves recognized by McDaniel that meet the criteria for booking under NI 51-101 on production. The fair market value of undeveloped land does not reflect the value of the Company's extensive prospect inventory which will be converted into reserves and production over time through future capital investment. FAIR MARKET VALUE OF UNDEVELOPED LAND Perpetual's independent third party estimate of the fair market value of its undeveloped acreage by region for purposes of the above net asset value calculation is based on recent Crown land sale activity adjusted for tenure and other considerations and is as follows: Fair Market Value of Undeveloped Land           ($ millions except as noted) Net Acres     Total Value     $/Acre North 709,955   $20.8   $29.30 South 416,981   45.3   108.64 West Central 116,709   35.2   301.60 Oil Sands 326,699   54.0   165.29 New Ventures 18,107   5.2   287.18 Totals 1,588,451   $160.6   $101.10 The fair market value of Perpetual's undeveloped land at year-end 2012 decreased by $27.9 million relative to year-end 2011. This was primarily a result of reduced acreage due to dispositions and lease expiries, offset by land acquisitions in Perpetual's priority exploration and development areas in greater Edson and Mannville. ABANDONMENT AND RECLAMATION COSTS In addition to the abandonment cost estimates provided by McDaniel inclusive in their reserve assessment, Perpetual compiles annually a detailed internal estimate of the Corporation's total future asset retirement obligation based on net ownership interest in all wells, facilities and pipelines, including estimated costs to abandon the wells, facilities and pipelines and reclaim the sites, and the estimated timing of the costs to be incurred in future periods. Pursuant to this evaluation, the estimated cost of future asset retirement obligations related to Perpetual's proved and probable reserves and other liabilities, net of the estimated salvage value of facilities and equipment and discounted at eight percent is $80 million as at December 31, 2012. The McDaniel Report includes an undiscounted amount of $61 million ($32 million, discounted at eight percent), with respect to expected future well abandonment costs related specifically to proved and probable reserves and such amount is included in the values captioned "Total Proved and Probable Reserves" in the NPV of Funds Flow table (see "NPV OF RESERVES SUMMARY"). The following table presents the estimated future asset retirement obligations and estimated net salvage values at various discount rates: Abandonment and Reclamation Costs                                                             Discounted at ($millions, net to Perpetual) Undiscounted 5% 8% 10% Well abandonment costs for developed reserves included in McDaniel Report 44 30 24 21 Well abandonment costs for undeveloped reserves included in McDaniel Report 17 10 8 6 Well abandonment costs for Total Proved and Probable reserves included in McDaniel Report 61 40 32 27 Estimate of other abandonment and reclamation costs not included in McDaniel Report 199 131 104 89 Total estimated future abandonment and reclamation costs  260 171 136 116 Salvage value (112) (74) (58) (50) Abandonment and reclamation costs , net of salvage 148 97 78 66 Well abandonment costs for developed reserves included in McDaniel Report (44) (30) (24) (21) Estimate of additional future abandonment and reclamation costs, net of salvage(1) 104 67 48 45 (1)      Future abandonment and reclamation costs not included in the McDaniel Report, net of salvage value. FINDING, DEVELOPMENT AND ACQUISITION ("FD&A") COSTS Under NI 51-101, the methodology to be used to calculate FD&A costs includes incorporating changes in future development capital required to bring the proved undeveloped and probable reserves to production. For continuity, Perpetual has presented herein FD&A costs calculated both excluding and including FDC. Changes in forecast FDC occur annually as a result of development activities, acquisitions and disposition activities, undeveloped reserve revisions and capital cost estimates that reflect the independent evaluator's best estimate of what it will cost to bring the proved and probable undeveloped reserves on production. The following table summarizes Perpetual's F&D cost as well as FD&A costs, before and after the inclusion of changes in FDC. F&D costs, including changes in FDC were $11.15 per Boe on a proved and probable basis in 2012. Since net proceeds on dispositions exceeded exploration and development capital expenditures and the year over year increase in FDC, Perpetual's FD&A costs were negative in 2012. With net dispositions of 11.3 MMBoe and net proceeds for disposition of $167.2 MM, Perpetual's realized FD&A costs calculate to ($13.11) per Boe on a proved and probable basis in 2012. 2012 FD&A Costs (1)     ($ millions (unaudited), except as noted) Proved Proved & Probable F&D Costs, Excluding FDC     Exploration and Development Capital Expenditures(2) $79.8 $79.8 Reserve Additions, Including Revisions - MMBoe 10.8 12.9 F&D - $/Boe $7.39 $6.18       F&D Costs, Including FDC     Exploration and Development Capital Expenditures(2) $79.8 $79.8 Total Change in FDC $66.7 $64.3 Total F&D Capital, Including Change in FDC $146.5 $144.1 Reserve Additions, Including Revisions - MMBoe 10.8 12.9 F&D Costs- $/Boe $13.57 $11.15       FD&A Costs, Excluding FDC     Exploration and Development Capital Expenditures(2) $79.8 $79.8 Net Acquisitions (Dispositions)(3) (165.5) (165.5) FD&A Capital Expenditures, Including Net Acquisitions ($85.7) ($85.7) Reserve Additions, Including Net Acquisitions(3) - MMBoe 4.5 1.6 FD&A Costs - $/Boe ($19.16) ($52.43)       FD&A Costs, Including FDC     FD&A Capital Expenditures, Including Net Acquisitions(2) ($85.7) ($85.7) Total Change in FDC $66.7 $64.3 Total FD&A Capital, Including Change in FDC ($19.0) $(21.4) Reserve Additions, Including Net Acquisitions(3) - MMBoe 4.5 1.6 FD&A Costs, Including FDC  - $/Boe ($4.25) ($13.11) (1)      Financial information is per Perpetual's 2012 preliminary unaudited consolidated financial statements. (2)      Exploration and development capital and reserves associated with Warwick Gas Storage have been excluded post disposition on April 25, 2012. (3)      Includes Warwick Gas Storage disposition proceeds of $81 million and disposed proved and probable reserves of 1.3 MMBoe. Additional Information Perpetual will release its 2012 annual audited financial statements and management's discussion and analysis ("MD&A") on or about March 11, 2013. Unaudited financial information Certain financial and operating information included in this press release for the quarter and year-ended December 31, 2012, such as capital expenditures, FD&A costs, funds flow and net debt are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under "Forward-Looking Information". These estimated amounts may change upon the completion of audited financial statements for the year-ended December 31, 2012 and changes could be material.  See "Non-IFRS Measures". Non-IFRS Measures This news release includes references to financial measures commonly used in the oil and gas industry such as "funds flow", "reserve life index" and "net debt", which do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). Management believes that in addition to net income, funds flow and net bank debt are useful supplemental measures as they are a measure of a company's ability to generate the cash necessary to repay debt or fund future growth through capital investment. However, investors are cautioned that these measures should not be construed as an alternative to net income determined in accordance with IFRS as an indication of Perpetual's performance. The method of calculating these measures may differ from other companies and, accordingly, they may not be comparable to similar measures used by other companies. For these purposes, "funds flow" is defined as cash provided by operations before changes in non-cash working capital gas over bitumen royalty adjustments not yet received, settlement of decommissioning obligations and certain exploration costs and "net bank debt is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments and future taxes). Readers are referred to advisories and further discussion on non-IFRS measures contained in the "Significant Accounting Policies and Non-GAAP Measures" section of Perpetual's MD&A for the year-end December 31, 2011. Forward-Looking Information Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking statements under applicable securities laws. The forward looking information includes, without limitation, anticipated amounts and allocation of capital spending; statements regarding estimated production and timing thereof; prospective drilling, forecast average production; completions and development activities; infrastructure expansion and construction; estimated FDC required to convert proved and probable non-producing and undeveloped reserves to proved producing reserves; anticipated effect of commodity prices on reserves; estimates of gross recoverable gas sales; estimated net asset value; prospective oil and natural gas liquids production capability; projected realized natural gas prices and funds flow; projected ending 2012 net debt; estimated asset retirement obligations; anticipated effect of commodity prices on future development capital and reserves; 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 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, 2011 and those included in 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.         SOURCE Perpetual Energy Inc.For further information: <p> Perpetual Energy Inc.<br/> Suite 3200, 605 - 5 Avenue SW Calgary, Alberta, Canada T2P 3H5<br/> Telephone: 403 269-4400 Fax: 403 269-4444<br/> Email: <a href="mailto:info@perpetualenergyinc.com">info@perpetualenergyinc.com </a><br/>  <br/> <br/> Susan L. Riddell Rose<br/> President and Chief Executive Officer </p> <p> Cameron R. Sebastian<br/> Vice President, Finance and Chief Financial Officer </p> <p> Claire A. Rosehill<br/> Business and Investor Relations Analyst<br/> <br/> </p>