Pieridae Energy Limited (“Pieridae” or the “Company”)
(PEA.TO) released its Q2 2021 financial and operating
results today, highlighted by solid production in spite of the
Jumping Pound Gas Complex turnaround which meant the facility was
not operating and providing cash flow for five weeks, impacting
3,309 boe/day of production during the quarter. The Company was
also pleased with the release of its inaugural ESG Report this
quarter and continues to look at viable options for an LNG Project.
“I was pleased the Company released its
first-ever ESG Report in late June, highlighted by our commitment
to achieving net zero emissions, continuing to build respectful
relationships with Indigenous Peoples and communities, and
enhancing diversity along with progressive governance,” said
Pieridae’s Chief Executive Officer Alfred Sorensen. “We have
received positive feedback from other stakeholders and government
on the quality of our Report and the direction we are taking to do
our part in recognizing the movement toward a lower carbon world as
we deliver the energy people rely on each day.
“We recently announced a step change in our approach to the
Goldboro LNG Project as we analyze options that could make a
reconfigured LNG initiative more compatible with the current
environment. Those options might include a floating LNG Project,
one with proven technology that drastically reduces GHG emissions;
involves clean, electric-drive turbines and reduces capital costs
substantially compared to our former project, while maintaining a
projected healthy rate of return,” concluded Sorensen.
Q2 2021 Financial & Operations
HighlightsPieridae produced an average of 38,404 boe/day
during the second quarter, down slightly from the previous quarter
and comparative period of 2020, yet a resilient result considering
Pieridae safely and successfully completed an $18.5 million,
five-week scheduled turnaround at the Jumping Pound Gas Complex
during the quarter, impacting 3,309 boe/day of production during
that period. By the end of May, production was back on stream after
the work was completed. Additionally, production was slightly
impacted by other minor scheduled workover projects in the
Limestone and Caroline fields.
Realized natural gas prices were consistent
compared to the first quarter of 2021 and 39% higher than Q1 2020.
Our realized natural gas price was $2.59/mcf in the second quarter
versus the AECO benchmark of $3.11/mcf as a result of hedges in
place.
The Company continues to have a robust hedging
program to insulate itself from volatile commodity prices.
Pieridae’s senior secured lender has temporarily amended its
requirement to have 60% of production hedged on an 18-month rolling
average boe basis in order to allow the Company to take advantage
of strengthening crude and natural gas markets. As of June 30,
2021, 77,538 GJ/d of fixed price physical sales contracts of
natural gas were in place at a weighted-average price of $2.54/GJ,
and 1,500 bbl/day of 2021 condensate production was hedged at a
weighted average price of $54.95/bbl, representing a hedge
percentage of 49% on a modified 18-month, forward-looking
basis.
In the second quarter of 2021, Pieridae
generated cashflow from operating activities of $12.1 million and
AFFO of $8.5 million. Higher operating costs per boe and royalties
offset the comparative strength in revenues, primarily as a result
of higher power prices and increased third-party processing fees,
both of which are partially tied to natural gas price indexes.
Additionally, net income was impacted by Pieridae’s continued
investment in the Goldboro LNG Project. As noted in our news
release of July 2, 2021, the Company was not able to meet all the
key conditions necessary to reach FID, thus, the majority of
Goldboro LNG spending has been suspended.
Petroleum and natural gas revenue in the second
quarter of 2021 was $71.4 million, an increase of $17.1 million or
32% compared to the same quarter in 2020. On a year-to date basis,
petroleum and natural gas revenue was $153.1 million, an increase
of $34.1 million or 29% compared to the same period in 2020. The
increase was primarily due to higher realized price for natural gas
(27% increase), condensate (13% increase) and NGLs (combined 117%
increase), offset by slightly reduced volumes as previously
described.
Third party processing revenue comes from fees
charged to third parties for processing their production and
sulphur volumes through Pieridae’s three sour gas processing
facilities. This income adds significantly to the economic benefits
realized from these facilities by offsetting highly fixed operating
costs. Third party processing income in the second quarter of 2021
was $3.8 million, a decrease of $3.1 million or 45% compared to the
same quarter in 2020. The decreases are due to lower throughput
volumes from third parties as a result of shut-ins of certain
third-party owned production assets during the year, the Jumping
Pound turnaround which restricted third-party throughput capacity
for 38 days during the quarter, as well as Pieridae’s fall 2020
acquisition of working interest ownership in Waterton which lowered
third party processing revenue while increasing Pieridae’s own
production volumes.
Quarterly Highlights
|
2021
2020
2019 |
($ 000s unless otherwise noted) |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Production |
|
|
|
|
|
|
|
|
Natural gas (mcf/day) |
194,232 |
215,179 |
212,220 |
184,080 |
208,689 |
199,234 |
204,262 |
86,884 |
Condensate (bbl/day) |
2,950 |
3,158 |
3,259 |
2,807 |
3,166 |
2,850 |
2,840 |
121 |
NGLs (bbl/day) |
3,083 |
4,975 |
6,171 |
4,722 |
5,843 |
5,156 |
5,253 |
55 |
Sulphur (ton/day) |
1,710 |
1,713 |
1,829 |
2,232 |
1,970 |
1,906 |
938 |
269 |
Total production (boe/d) |
38,404 |
43,997 |
44,800 |
38,209 |
43,791 |
41,211 |
42,137 |
14,657 |
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
Net loss |
(10,058) |
(19,547) |
(45,968) |
(29,845) |
(13,396) |
(11,484) |
(25,873) |
(13,178) |
Net loss per share, basic and diluted |
(0.06) |
(0.12) |
(0.29) |
(0.19) |
(0.09) |
(0.07) |
(0.18) |
(0.15) |
Net operating income (loss) (1) |
14,444 |
20,876 |
12,829 |
(646) |
19,301 |
19,239 |
24,470 |
(2,699) |
Cashflow provided by (used in) |
12,093 |
11,000 |
1,037 |
(4,541) |
(2,013) |
6,426 |
(17,748) |
(238) |
operating activities |
Adjusted funds flow from operations (1) |
8,516 |
14,877 |
8,535 |
(6,779) |
12,466 |
12,644 |
14,448 |
(7,665) |
Total assets |
575,690 |
557,696 |
612,651 |
583,942 |
588,415 |
609,437 |
602,474 |
364,095 |
Working capital (deficit) surplus |
(47,862) |
(28,314) |
(19,615) |
(9,164) |
15,109 |
15,596 |
19,105 |
(88,430) |
Capital expenditures |
15,171 |
7,797 |
8,926 |
6,033 |
264 |
2,020 |
165,764 |
1,914 |
Development expenses |
(4,862) |
8,604 |
8,682 |
2,472 |
4,129 |
3,459 |
805 |
504 |
(1) Refer to the “Non-GAAP measures” section on pages 13&14 of
the Company’s Q2 2021 MD&A. |
COVID-19 UpdatePieridae remains committed to
the health and safety of its employees as they continue to do a
remarkable job operating our assets safely and reliably.
As of July 2, with the Alberta Government
lifting all restrictions, the majority of Pieridae employees
working from home returned to work.
The company supports health officials in urging
all those who are able to get vaccinated. We still encourage our
employees to maintain physical distancing along with regular hand
washing and sanitizing to ensure we keep our workplaces safe.
As a result of the ongoing vigilance by our
employees, Pieridae has not suffered any significant loss of
productivity related to the pandemic.
Q2 2021 Developments
Peters & Co. Strategic
ReviewOn July 26, 2021, the company announced it had
initiated a formal process to identify, examine and consider a
range of strategic alternatives with a view to enhancing
shareholder value. Such strategic alternatives may include, but are
not limited to, a corporate sale, merger, a sale of a material
portion of Pieridae’s assets or other transactions.
Pieridae’s Board of Directors authorized the
creation of a special committee, chaired by Board member Andrew
Judson, that will review and evaluate potential strategic
alternatives and transactions.
Peters & Co. Limited has been engaged as
financial advisor to advise the special committee on this
comprehensive review and analysis of strategic alternatives.
McCarthy Tétrault LLP will also provide advice to the
committee.
Pieridae has not set a definitive schedule to
complete its identification, examination and consideration of
strategic alternatives. It is the Company’s current intention not
to disclose developments with respect to the process unless and
until its Board of Directors has approved a specific transaction or
otherwise determines that disclosure is necessary or appropriate.
We caution that there are no assurances or guarantees that the
process will result in a transaction or, if a transaction is
undertaken, the terms or timing of such a transaction.
Shareholders and the Company have invested
heavily in the Goldboro LNG Project for a number of years and
Pieridae has acquired and consolidated a large base of Foothills
upstream assets, so it is prudent for the company to look for ways
to ensure an appropriate return is found for the investments made
to date.
Chief Financial Officer
ChangesOn July 26, 2021, the Company was pleased to
announce that the Board of Directors had approved the appointment
of Adam Gray as Interim Chief Financial Officer. Mr. Gray has been
with Pieridae since January 2020, acting as Vice-President and
Controller. He brings nearly 15 years of experience to the role,
including five years with PwC, then eight managing accounting,
commercial finance and operational readiness for the
multi-billion-dollar North West Redwater Partnership, and providing
financial modelling and analysis to the Government of Alberta’s
Department of Energy. Mr. Gray holds a Bachelor of Commerce degree
(BCom) from the University of Calgary, a Graduate Diploma in
Leadership from Royal Roads University and is a Chartered
Professional Accountant (CPA).
On July 5, 2021, we announced the resignation of
Pieridae’s former CFO Rob Dargewitcz. Mr. Dargewitcz’s departure
was not related to any issues or disagreements regarding Pieridae’s
financial disclosures or accounting policies and practices. We
thank Mr. Dargewitcz for his service.
Goldboro LNGOn July 2, 2021,
the Company announced it was not able to meet all the key
conditions necessary to make an FID for the Goldboro LNG
Project.
Following consultation with the Board, Pieridae
decided to move Goldboro LNG in a new direction. It became apparent
that cost pressures and time constraints due to COVID-19 made
building the current version of the LNG Project impractical.
We are now assessing options and analyzing
strategic alternatives that could make an LNG Project more
compatible with the current environment. In addition, the Company
continues its work to further optimize the operation and
development of our extensive Foothills resources and midstream
assets, including our carbon capture and sequestration and blue
power development.
The LNG Project’s fundamentals remain strong:
robust LNG demand from Europe and high global LNG prices,
Indigenous participation, a net-zero emissions pathway forward, and
support from jurisdictions across Canada. This speaks to our
ongoing efforts to find a partner to take advantage of these
opportunities.
Pieridae continues looking for innovative ways
of supplying the world with the clean natural gas it requires as a
reliable bridge fuel and providing the energy to fuel people’s
lives while supporting the environment and the transition to a
lower-carbon economy.
Alberta Energy Regulator (“AER”) Licence
TransferThe Alberta Energy Regulator sent Pieridae and
Shell a letter on May 14, 2021, informing us that they have decided
to hold a hearing with respect to the re-application to transfer
Shell’s Foothills assets licences to Pieridae.
On July 9, 2021, Shell sent a letter to the AER
asking for a pause in the process due to Pieridae announcing it was
moving the Goldboro LNG Project in a new direction.
With this development, Shell felt it prudent to
consider how this fundamental change would impact the current
licence transfer application, thus the pause.
On July 20, 2021, the AER granted this request
and notified both parties that the public hearing process is
adjourned until September 30, 2021.
Pieridae continues to own the Foothills assets
and has responsibility for their continued safe operation. Shell
remains the licensee of record.
Inaugural Environmental, Social &
Governance (“ESG”) Report ReleasedWe were pleased to
release Pieridae Energy’s inaugural ESG Report on June 22, 2021.
The report is the continuation of our sustainability journey to
demonstrate the Company’s commitment to achieving an authentic ESG
outcome through caring deeply about what we stand for and by
responding to our stakeholders’ needs and concerns.
The Report’s release was the culmination of more
than 14 months of effort to develop an ESG framework and strategy
before producing and finalizing the document.
We have defined the top material ESG risks and
opportunities to be prioritized over the coming months and have
made a number of commitments the Company will focus on delivering
such as net zero emissions by 2050; Indigenous Peoples
reconciliation; constructive community and stakeholder engagement;
a focus on health, safety and the environment; and building a
diverse culture and workplace.
Caroline Carbon Capture Power Complex
AnnouncedOn May 27, 2021, we were pleased to let
stakeholders know about the creation of the Caroline Carbon Capture
Power Complex. This large-scale carbon capture and sequestration
and blue power production complex will be located at Pieridae’s
very own Caroline Gas Complex in Alberta.
The Complex will capture and store underground
up to three million tonnes of CO2 annually from the gas processing
facility, power production and third parties. Sequestering three
million tonnes of CO2 per year would be the equivalent of taking
more than 650,000 cars off the road each year or eliminating 4.4
billion kilowatt-hours of coal-fired power annually.
This ‘made in Canada’ solution positions
Pieridae to play a key role in helping to lower overall Canadian
greenhouse gas emissions. We know the world is looking for ways to
transition to a lower-carbon intensity economy. By capturing and
storing carbon on such a large scale, we move further down the
strategic path of ensuring Pieridae is net carbon negative.
Phase One of the Complex will sequester one
million tonnes of CO2 and produce enough blue power to power
approximately 112,000 households each year.2021
GuidanceThe Company’s guidance has been adjusted, with
production forecast to be 40,000-42,500 boe/day for the remainder
of 2021, compared to previous guidance of 40,000-45,000 boe/day. We
are guiding to a lower NOI in the range of $85-$100 million, down
from the previous forecast of $100-$130 million. As well, adjusted
operating expenses per boe are expected to increase from
$9.50-$10.50 to $12.50-$13.00 primarily reflecting the increase in
power prices and processing fees expected for the remainder of the
year. A previously stated development budget of $15-$20 million for
the Goldboro LNG Project is no longer being considered. The bulk of
the Company’s $35-$45 million upstream capital budget will continue
to be invested to ensure the safe-reliable operation of our assets,
including a fall turnaround at our Caroline Gas Complex.
Board Member ResignsYesterday
morning, Mark Horrox tendered his resignation from Pieridae’s Board
of Directors, effective immediately.
“We have had a number of discussions with Mark
recently and jointly decided that with the strategic review of the
Company underway and Mark being a Principal with our main, senior
secured lender Third Eye Capital, it was best for him to resign his
position with Pieridae’s Board to avoid any potential conflicts of
interest,” said Pieridae CEO Alfred Sorensen.
About PieridaePieridae is a
majority Canadian-owned corporation based in Calgary that was
founded in 2011. The Company is focused on the exploration,
extraction and processing of natural gas as well as analyzing
options for a reconfigured LNG Project that fits with the current
environment and would supply Europe and other markets. Pieridae
provides the energy to fuel people’s daily lives while supporting
the environment and the transition to a lower-carbon economy. After
completion of all the transactions disclosed in this news release,
Pieridae has 157,641,871 common shares issued and outstanding which
trade on the TSX (PEA.TO).
For further information please
contact:
Alfred Sorensen, Chief Executive
Officer
James
Millar, Director, External
Relations Telephone:
(403) 261-5900
Telephone: (403)
261-5900
Forward-Looking
StatementsCertain statements contained herein may
constitute "forward-looking statements" or "forward-looking
information" within the meaning of applicable securities laws
(collectively "forward-looking statements"). Words such as "may",
"will", "should", "could", "anticipate", "believe", "expect",
"intend", "plan", "potential", "continue", "shall", "estimate",
"expect", "propose", "might", "project", "predict", "forecast" and
similar expressions may be used to identify these forward-looking
statements.
Forward-looking statements involve significant
risk and uncertainties. A number of factors could cause actual
results to differ materially from the results discussed in the
forward-looking statements including, but not limited to, risks
associated with oil and gas exploration, development, exploitation,
production, marketing and transportation, loss of markets,
volatility of commodity prices, currency fluctuations, imprecision
of resources estimates, environmental risks, competition from other
producers, incorrect assessment of the value of acquisitions,
failure to realize the anticipated benefits or synergies from
acquisitions, delays resulting from or inability to obtain required
regulatory approvals and ability to access sufficient capital from
internal and external sources and the risk factors outlined under
"Risk Factors" and elsewhere herein. The recovery and resources
estimate of Pieridae's reserves provided herein are estimates only
and there is no guarantee that the estimated resources will be
recovered. As a consequence, actual results may differ materially
from those anticipated in the forward-looking statements.
Forward-looking statements are based on a number
of factors and assumptions which have been used to develop such
forward-looking statements, but which may prove to be incorrect.
Although Pieridae believes that the expectations reflected in such
forward-looking statements are reasonable, undue reliance should
not be placed on forward-looking statements because Pieridae can
give no assurance that such expectations will prove to be correct.
In addition to other factors and assumptions which may be
identified in this document, assumptions have been made regarding,
among other things: the impact of increasing competition; the
general stability of the economic and political environment in
which Pieridae operates; the timely receipt of any required
regulatory approvals; the ability of Pieridae to obtain qualified
staff, equipment and services in a timely and cost efficient
manner; the ability of the operator of the projects which Pieridae
has an interest in, to operate the field in a safe, efficient and
effective manner; the ability of Pieridae to obtain financing on
acceptable terms; the ability to replace and expand oil and natural
gas resources through acquisition, development and exploration; the
timing and costs of pipeline, storage and facility construction and
expansion and the ability of Pieridae to secure adequate product
transportation; future commodity prices; currency, exchange and
interest rates; the regulatory framework regarding royalties, taxes
and environmental matters in the jurisdictions in which Pieridae
operates; timing and amount of capital expenditures, future sources
of funding, production levels, weather conditions, success of
exploration and development activities, access to gathering,
processing and pipeline systems, advancing technologies, and the
ability of Pieridae to successfully market its oil and natural gas
products.
Readers are cautioned that the foregoing list of
factors is not exhaustive. Additional information on these and
other factors that could affect Pieridae's operations and financial
results are included in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR
website (www.sedar.com), and at Pieridae's website
(www.pieridaeenergy.com). Although the forward-looking statements
contained herein are based upon what management believes to be
reasonable assumptions, management cannot assure that actual
results will be consistent with these forward-looking statements.
Investors should not place undue reliance on forward-looking
statements. These forward-looking statements are made as of the
date hereof and Pieridae assumes no obligation to update or review
them to reflect new events or circumstances except as required by
Applicable Securities Laws.
Forward-looking statements contained herein
concerning the oil and gas industry and Pieridae's general
expectations concerning this industry are based on estimates
prepared by management using data from publicly available industry
sources as well as from reserve reports, market research and
industry analysis and on assumptions based on data and knowledge of
this industry which Pieridae believes to be reasonable. However,
this data is inherently imprecise, although generally indicative of
relative market positions, market shares and performance
characteristics. While Pieridae is not aware of any misstatements
regarding any industry data presented herein, the industry involves
risks and uncertainties and is subject to change based on various
factors.
Barrels of oil equivalent (“boes”) may be
misleading, particularly if used in isolation. A boe conversion
ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
Neither TSX nor its Regulation Services
Provider (as that term is defined in policies of the TSX) accepts
responsibility for the adequacy or accuracy of this
release.
1 Refer to the “Non-GAAP measures” section on pages 13&14 of
the Company’s Q2 2021 MD&A.
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