Pengrowth Delivers Record Quarterly Production
CALGARY, ALBERTA -- (Marketwire) -- 11/01/12 -- Pengrowth Energy
Corporation (TSX:PGF) (NYSE:PGH) is pleased to report its unaudited
financial and operating results for the three and nine months ended
September 30, 2012. All figures are in Canadian dollars, unless
Pengrowth's unaudited Condensed Consolidated Financial Statements for
the three and nine months ended September 30, 2012 and related
Management's Discussion and Analysis can be viewed on Pengrowth's
website at www.pengrowth.com. They have been filed on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml.
Third Quarter Highlights
-- Successfully integrated NAL Energy Corporation ("NAL"), adding more than
35 percent to production while increasing staff count by less than 10
percent, expanding Pengrowth's inventory of oil and liquids-rich
drilling locations to over 700 and welcoming a complement of skilled
technical personnel to the Pengrowth family.
-- Record quarterly average production of 94,284 boe per day ("boe/d"),
representing the first full quarter in which Pengrowth production
-- Funds flow from operations of $141.1 million ($0.28 per share), an
increase of 49 percent compared to second quarter 2012 funds flow of
$94.4 million ($0.23 per share). Funds flow is a key measure for
Pengrowth, as the company continues to shift its production mix toward
higher netback barrels.
-- Continued positive results from the Lindbergh thermal pilot, where
production from the two well pairs continues to exceed expectations,
averaging approximately 650 barrels of bitumen per day ("bbpd") each,
and with an average Instantaneous Steam Oil Ratio ("ISOR") of 1.6 for
-- Improved cash General and Administrative costs per boe by 15 percent
compared to the third quarter of 2011 as synergies from the NAL
acquisition took effect.
"We are pleased that Pengrowth achieved record production in the
third quarter and will continue to focus on maximizing the cash flow
generated by our operations and moving the Lindbergh thermal bitumen
project forward to sanctioning," said Derek Evans, Pengrowth's
President and Chief Executive Officer.
Production during the third quarter climbed to a record 94,284 boe/d,
up from 74,568 boe/d in the third quarter of 2011, a 26 percent
increase mainly attributable to a full quarter of volumes from the
NAL acquisition. Volumes were reduced by several extended maintenance
outages in September, one at the Sable Offshore Energy Project (SOEP)
and one at Swan Hills, combined with several smaller unplanned third
party outages, which reduced anticipated third quarter production by
approximately 1,300 boe/d. A further 1,000 boe/d of gas production
remained shut-in for economic reasons. Shut in production was dry gas
and therefore had negligible impact on cash flow.
During the third quarter, Pengrowth's development capital spending
totaled $108.1 million, with $88.2 million spent on drilling,
completions and facilities. In light of the weakness in natural gas
prices that have prevailed over recent years, Pengrowth continues to
invest in oil and liquids-rich projects that offer the highest
Operating expenses of $15.22 per boe were higher than expected as a
result of higher power prices in September and higher maintenance
costs. Contributing to maintenance costs were power outages and
increased subsurface maintenance that resulted from wet conditions in
Western Canada, as well as extra required maintenance identified
during planned turnarounds at Swan Hills and SOEP.
In the Swan Hills area, drilling was focused in Judy Creek South and
Virginia Hills. To supplement Pengrowth's ongoing drilling program,
the company is investing significant capital in optimizing production
and recoverable reserves from its oil pools in the Swan Hills area,
which held 2.3 billion barrels of original oil in place. This is the
logical next step following an extensive drilling program that has
seen Pengrowth invest approximately $700 million over the past four
years. Optimization projects have added 3,100 boe/d over that period
through the continued development of Pengrowth's enhanced oil
recovery and water flood schemes, as well as gathering system and
artificial lift enhancement projects. Pengrowth remains focused on
efficient exploitation of the resources in the existing and new pool
extensions in the greater Swan Hills region.
With the successful completion of the NAL transaction, Pengrowth now
has a significant land position in the Deep Basin fairway, extending
from Cochrane to Sylvan Lake. The Deep Basin is characterized by
stacked productive horizons and limited water production. The anchor
play for this area is the Cardium, a 40 degree API light oil play
with over 300 drilling locations in the Lochend and Garrington areas,
providing Pengrowth with a multi-year development program that will
continue to attract significant capital investment.
Pengrowth's large land position in Lochend/Garrington/Olds (600 net
sections) and extensive infrastructure, including gathering systems,
oil batteries and gas plants, will reduce capital costs and ensure
low operating costs, maximizing the value of this area for
shareholders. Pengrowth will continue also to develop and expand its
Elkton and Mannville plays in this area. Activity in the Cardium
continued during the third quarter, with seven (4.0 net) successful,
operated wells drilled in Garrington/Westward Ho and Lochend.
Pengrowth also participated in seven (2.2 net) additional Cardium
wells drilled by partners. Of the seven operated wells, five came on
stream in the quarter, with aggregate, initial five day average gross
production of approximately 1,400 boe/d. The remaining two wells
should be completed and placed on production in early Q4.
Funds Flow and Income
Funds flow from operations was $141.1 million ($0.28 per share), an
increase of 49 percent compared to the second quarter of 2012 funds
flow of $94.4 million ($0.23 per share). Adjusted net loss was $18.7
million in the third quarter, an improvement of $70.9 million from
the adjusted net loss of $89.6 million in the second quarter,
primarily due to an impairment charge recognized in the second
quarter. An adjusted net loss was recorded in the third quarter as a
result of low gas prices having a negative impact on operating
netbacks. Adjusted net income or loss is an income measure preferred
to net income or loss by Pengrowth as it excludes the after tax
effect of various non-cash items.
Third Quarter Strategic Context
Pengrowth believes that as industry continues to focus on
unconventional opportunities in the Western Canada Sedimentary Basin
(WCSB), operating scale and financial flexibility will be crucial to
success in the WCSB. The third quarter of 2012 solidified Pengrowth's
transformation to a dividend-paying E&P company, with the successful
integration of NAL assets and people. The acquisition provides
Pengrowth with an improved balance sheet, an expanded, high quality
inventory of drill-ready, light oil locations and reinforces
Pengrowth's conservative reserve profile. The result is a stronger
Pengrowth, with an inventory comprising over 700 drillable oil and
In view of discounts for Canadian light oil, high decline rates in
the light, tight oil business, the risk of overcapitalizing "hot"
plays and the existence of ample heavy o
il refining capacity on the
U.S. Gulf Coast, Pengrowth is determined to use cash flow from its
current business, coupled with dispositions, to fund its increasing
focus on the thermal oil business. In management's view, thermal oil
and bitumen offer lower declines, longer reserve life and better
capital efficiency than many conventional and unconventional plays.
The best thermal bitumen opportunity in Pengrowth's portfolio is the
Lindbergh project near Cold Lake, Alberta.
Lindbergh Thermal Project
Current production rates of 750 barrels of bitumen per day per well
pair and low ISORs of 1.6 for the Lindbergh pilot have been very
encouraging, as steam oil ratio is an excellent proxy for profitable
project economics. The Lindbergh thermal bitumen project is poised to
drive profitable growth at Pengrowth for decades to come.
In light of the success achieved thus far at the Lindbergh pilot,
Pengrowth is encouraged and is evaluating ways to advance the timing
and increase the scope of the project. In addition, management will
continue to seek opportunities to expand Pengrowth's thermal project
inventory. Management expects to be able to release a 2013 capital
expenditure budget early in 2013, as well as detailed plans for
Lindbergh once that project is sanctioned for commercial development.
Pengrowth remains committed to ensuring its financial sustainability
in the face of a challenging commodity price environment. The company
has taken several measures intended to safeguard its financial and
balance sheet strength and provide additional flexibility to ensure
that it has the financial means and discipline to develop the
Lindbergh thermal bitumen project. These include:
-- Monetizing non-core, liquid assets
-- Expanding the commodity hedging program
-- Managing interest costs through varied debt maturities
-- Fixing foreign exchange rates on existing term debt
During the third quarter, Pengrowth announced the further
rationalization of its asset base through a targeted disposition
program, the proceeds of which would be used to fund Lindbergh.
Pengrowth's 10 percent interest in Weyburn, a non-operated, net 2,500
boe/d asset in southeast Saskatchewan, is currently for sale.
Pengrowth has expanded its hedging program in order to manage its
exposure to commodity price fluctuations. Increased hedging activity
should provide a measure of stability and predictability to monthly
cash flows. Pengrowth recently received Board of Directors approval
to hedge up to 65 percent of its production out two years, 30 percent
in the third year and up to a maximum of 25 percent in the fourth and
The company undertook additional hedges for 2013, 2014 and 2015
during the quarter. An updated summary of Pengrowth's risk management
contracts in place for the remainder of 2012, 2013 and 2014 is
outlined in the notes to the unaudited Condensed Consolidated
Financial Statements in the third quarter report. Pengrowth continues
to seek additional cash flow certainty through its hedging program
and will continue to hedge additional oil and natural gas volumes for
2013, 2014 and 2015 as opportunities in the forward markets emerge.
At the end of the third quarter, Pengrowth's net debt was
approximately $1.71 billion.
Foreign exchange risk has been mitigated by fixing foreign exchange
rates on existing term debt. At September 30th the foreign exchange
rate on US $250 million of Pengrowth's future principal repayments
had been fixed via foreign exchange swap contracts.
Subsequent to the end of the third quarter, Pengrowth issued U.S.
$385 million equivalent in long-term notes. The proceeds were used to
repay outstanding debt on Pengrowth's revolving bank credit facility
and increase working capital. As of October 31, Pengrowth had
approximately $850 million of available capacity on its $1.0 billion
(expandable to $1.25 billion) credit facilities, with a remaining
term of approximately three years.
Pengrowth remains on track to achieve its estimated full year 2012
average production target of approximately 86,000 to 89,000 boe/d.
Pengrowth now expects average Q4, 2012 production to be between
93,000 and 96,000 boe/d, compared to previous guidance of 96,000
boe/d to 100,000 boe/d. The reduction in fourth quarter guidance
results from the continued impact of shut-in gas volumes and extended
maintenance outages at Swan Hills and SOEP.
Pengrowth now anticipates 2012 average operating costs per boe to be
about $14.60 per boe, up from prior guidance of $13.75 per boe, due
to subsurface and surface maintenance costs, power costs and lower
than expected volumes.
Pengrowth expects to be in a position to update shareholders on
Lindbergh milestones and 2013 capital expenditure plans in early
2013, at which point the company will provide 2013 production
Pengrowth will host a conference call on November 1 at 6:45 AM
Mountain Time (8:45 AM Eastern Time) to discuss these results.
Participants may dial in at 416-340-2216 or toll free 1-866-226-1792.
A live audio webcast will be accessible through
A replay of the conference call will be made available shortly after
the conclusion of the call and can be accessed by dialing
905-694-9451 or toll free 1-800-408-3053. The passcode is 1478682.
The replay will be available until midnight eastern time on November
Pengrowth Energy Corporation is a dividend-paying, intermediate
Canadian producer of oil and natural gas, headquartered in Calgary,
Alberta. Pengrowth's focus is on the development of conventional and
unconventional resource-style plays in the Western Canadian
Sedimentary Basin. Pengrowth's projects include the Swan Hills light
oil play, the Cardium light oil play and the Lindbergh thermal
bitumen project. Pengrowth's shares trade on both the Toronto Stock
Exchange under the symbol "PGF" and on the New York Stock Exchange
under the symbol "PGH".
PENGROWTH ENERGY CORPORATION
Derek Evans, President and Chief Executive Officer
Advisory Regarding Reserves and Production Information
All amounts are stated in Canadian dollars unless otherwise
specified. All reserves, reserve life index, and production
information herein is based upon Pengrowth's company interest
(Pengrowth's working interest share of reserves or production plus
Pengrowth's royalty interest, being Pengrowth's interest in
production and payment that is based on the gross production at the
wellhead), before royalties.
Caution Regarding Engineering Terms
When used herein, the term "boe" means barrels of oil equivalent on
the basis of one boe being equal to one barrel of oil or NGL or 6,000
cubic feet of natural gas (6 Mcf: 1 bbl). Barrels of oil equivalent
may be misleading, particularly if used in isolation. A conversion
ratio of six Mcf of natural gas to one 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. In
addition, given that the value ratio based on the current price of
crude oil as compared to the current price of natural gas 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
imates of reserves and future net revenue for individual
properties may not reflect the same confidence level as estimates of
reserves and future net revenue for all properties, due to the
effects of aggregation.
In addition, Pengrowth uses the following frequently-recurring
industry terms in this press release: "bbls" refers to barrels,
"Mbbls" refers to a thousand barrels, "MMbbls" refers to a million
barrels, "Mboe" refers to a thousand barrels of oil equivalent,
"MMboe" refers to a million barrels of oil equivalent, "Mcf" refers
to thousand cubic feet, "MMcf" refers to million cubic feet, and
"Bcf" refers to billion cubic feet.
Caution Regarding Well Test Results, Initial Production (IP) Rates
and Steam/Oil Ratios
This news release makes references to well test results, IP rates and
instantaneous steam/oil ratios for certain properties. These rates
are not necessarily representative of long-term well performance or
ultimate recoveries and are subject to various performance factors
including geological formation, duration of test, pressure and
production declines. Some wells will experience immediate and
significant declines in production.
Caution Regarding Forward Looking Information
This press release contains forward-looking statements within the
meaning of securities laws, including the "safe harbour" provisions
of Canadian securities legislation and the United States Private
Securities Litigation Reform Act of 1995. Forward-looking information
is often, but not always, identified by the use of words such as
"anticipate", "believe", "expect", "plan", "intend", "forecast",
"target", "project", "guidance", "may", "will", "should", "could",
"estimate", "predict" or similar words suggesting future outcomes or
language suggesting an outlook. In particular, forward-looking
statements in this press release include, but are not limited to,
statements with respect to: well completions and tie-ins, increased
focus and investment in thermal oil and bitumen opportunities,
decline rates, reserve life, capital efficiency, average and exit
2012 production expectations, anticipated fourth quarter 2012
production, 2013 capital budget release, pilot results and production
volumes from the Lindbergh project, ability to finance the Lindbergh
project, potential disposition of the Company's Weyburn interest,
hedging strategy and future hedging activity and future
profitability, available credit facilities, drilling inventory and
commodity risk management agreements. Statements relating to reserves
are forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions that the
reserves described exist in the quantities predicted or estimated and
can profitably be produced in the future.
Forward-looking statements and information contained in this press
release are based on Pengrowth's current beliefs as well as
assumptions made by, and information currently available to,
Pengrowth concerning general economic and financial market
conditions; anticipated financial performance; business prospects,
strategies; regulatory developments; including in respect of
taxation; royalty rates and environmental protection; future capital
expenditures and the timing thereof; future oil and natural gas
commodity prices and differentials between light, medium and heavy
oil prices; future oil and natural gas production levels; future
exchange rates and interest rates; the proceeds of anticipated
divestitures; the amount of future cash dividends paid by Pengrowth;
the cost of expanding our property holdings; our ability to obtain
labour and equipment in a timely manner to carry out development
activities; our ability to market our oil and natural gas
successfully to current and new customers; the impact of increasing
competition; our ability to obtain financing on acceptable terms and
our ability to add production and reserves through our development
and exploration activities. Although management considers these
assumptions to be reasonable based on information currently available
to it, they may prove to be incorrect.
By their very nature, the forward-looking statements included in this
press release involve inherent risks and uncertainties, both general
and specific, and risks that predictions, forecasts, projections and
other forward-looking statements will not be achieved. We caution
readers not to place undue reliance on these statements as a number
of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations and
anticipations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not
limited to: the volatility of oil and gas prices; production and
development costs and capital expenditures; the imprecision of
reserve and resource estimates and estimates of recoverable
quantities of oil, natural gas and liquids; Pengrowth's ability to
replace and expand oil and gas reserves; environmental claims and
liabilities; incorrect assessments of value when making acquisitions;
increases in debt service charges; the loss of key personnel; the
marketability of production; defaults by third party operators;
unforeseen title defects; fluctuations in foreign currency and
exchange rates; inadequate insurance coverage; changes in
environmental or other legislation applicable to our operations, and
our ability to comply with current and future environmental and other
laws and regulations; actions by governmental or regulatory
authorities including changes in royalty structures and programs and
income tax laws or changes in tax laws and incentive programs
relating to the oil and gas industry; our ability to access external
sources of debt and equity capital, various risks associated with our
Lindbergh thermal project, and the implementation of greenhouse gas
emissions legislation. Further information regarding these factors
may be found under the heading "Risk Factors" in our most recent
Annual Information Form under the heading "Business Risks" in our
most recent year-end Management's Discussion and Analysis and in our
most recent consolidated financial statements, management information
circular, quarterly reports, material change reports and news
releases. Copies of our Canadian public filings are available on
SEDAR at www.sedar.com. Our U.S. public filings, including our most
recent Form 40-F as supplemented by our filings on form 6-K, are
available at www.sec.gov.edgar.shtml.
Readers are cautioned that the foregoing list of factors that may
affect future results is not exhaustive. When relying on our
forward-looking statements to make decisions with respect to
Pengrowth, investors and others should carefully consider the
foregoing factors and other uncertainties and potential events.
Furthermore, the forward-looking statements contained in this press
release are made as of the date of this press release and we do not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
The forward-looking statements contained in this press release are
expressly qualified by this cautionary statement.
Additional Information - Supplemental Non-IFRS Measures
In addition to providing measures prepared in accordance with
International Financial Reporting Standards (IFRS), Pengrowth
presents supplemental non-IFRS measures, Adjusted Net Income,
operating netbacks and Operating Funds Flow. These measures do not
have any standardized meaning prescribed by IFRS and therefore are
unlikely to be comparable to similar measures presented by other
companies. These supplemental non-IFRS measures are provided to
assist readers in determining Pengrowth's ability to generate cash
from operations. Pengrowth believes these measures are useful in
assessing operating performance and liquidity of Pengrowth's ongoing
business on an overall basis.
es should be considered in addition to, and not as a
substitute for, net income, funds flow from operating activities and
other measures of financial performance and liquidity reported in
accordance with IFRS.
Note to US Readers
Current SEC reporting requirements permit oil and gas companies, in
their filings with the SEC, to disclose probable and possible
reserves, in addition to the required disclosure of proved reserves.
Under current SEC requirements, net quantities of reserves are
required to be disclosed, which requires disclosure on an after
royalties basis and does not include reserves relating to the
interests of others. Because we are permitted to prepare our reserves
information in accordance with Canadian disclosure requirements, we
have included contingent resources, disclosed reserves before the
deduction of royalties and interests of others and determined and
disclosed our reserves and the estimated future net cash therefrom
using forecast prices and costs. See "Presentation of our Reserve
Information" in our most recent Annual Information Form or Form 40-F
for more information.
We report our production and reserve quantities in accordance with
Canadian practices and specifically in accordance with NI 51-101.
These practices are different from the practices used to report
production and to estimate reserves in reports and other materials
filed with the SEC by companies in the United States.
We incorporate additional information with respect to production and
reserves which is either not generally included or prohibited under
rules of the SEC and practices in the United States. We follow the
Canadian practice of reporting gross production and reserve volumes;
however, we also follow the United States practice of separately
reporting these volumes on a net basis (after the deduction of
royalties and similar payments). We also follow the Canadian practice
of using forecast prices and costs when we estimate our reserves. The
SEC permits, but does not require, the disclosure of reserves based
on forecast prices and costs.
We include herein estimates of proved, 2P and possible reserves, as
well as contingent resources. The SEC permits, but does not require
the inclusion of estimates of probable and possible reserves in
filings made with it by United States oil and gas companies. The SEC
does not permit the inclusion of estimates of contingent resources in
reports filed with it by United States companies.
(403) 233-0224 or Toll Free: 1-888-744-1111
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