Pengrowth Announces Fourth Quarter 2018 Results, Provides Reserves Update and Launches Strategic Review
Press Release
March 06, 2019
Lindbergh Exits 2018 as Expected With Production Greater Than 19,000 Barrels per Day and Continued into 2019 at the Upper End of Our Guidance Despite Alberta’s Curtailment Program
CALGARY, Alberta, March 06, 2019 — Pengrowth Energy Corporation (“Pengrowth” or the “Company”) (TSX:PGF, OTCQX:PGHEF), today reported its results for the three and twelve months ended December 31, 2018 as well as its reserves as at December 31, 2018. Subsequent to the quarter the Company signed a letter of intent for third party development of a cogeneration facility to provide the electricity and steam required to expand production at our Lindbergh SAGD facility in two phases to 35,000 barrels per day (“bbl/d”) by the end of 2023. On March 5, 2019 the Board of Directors commenced a formal process to explore and develop strategic alternatives (the “Strategic Review”) with a view to strengthening the Company’s balance sheet and maximizing enterprise value. Pengrowth has retained Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. as advisers to assist in undertaking the Strategic Review. Unless otherwise indicated, financial figures are expressed in Canadian Dollars.
“I want to start by thanking our team for the strong operational performance we achieved through 2018. Fourth quarter production was down only 2.4% year-over-year after divesting 5,250 barrels of oil equivalent per day (“boe/d”) and investing $65 million in capital. Our ability to successfully maintain production following divestitures of such magnitude is an important achievement. That said, diluent costs and low crude oil prices made the fourth quarter challenging financially,” said Pete Sametz, President and Chief Executive Officer of Pengrowth. “During the fourth quarter we actively worked towards refinancing our outstanding term notes. While the markets were initially receptive to the refinancing initiatives being explored by the Company, the downward trajectory of West Texas Intermediate crude oil (“WTI”) pricing and the expanded discount on Western Canadian Select crude oil (“WCS”) through the fourth quarter created an extremely cautious atmosphere in the financial markets. The recovery in WTI and WCS pricing subsequent to the quarter is expected to be constructive for our first quarter results and refinancing and strategic initiatives.”
“Our Board of Directors has initiated the Strategic Review to evaluate various pathways to maximize Pengrowth’s enterprise value and align it to the value of our two long-life low-decline assets of Lindbergh (Lloydminster thermal oil project) and Groundbirch (Montney natural gas project). Each of these assets has a reserve life in excess of 50 years at current production levels and in aggregate represent 447 million boe (“MMboe”) in proved and probable reserves.”
STRATEGIC REVIEW
On March 5, 2019 Pengrowth’s Board of Directors commenced the Strategic Review and engaged Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. to explore the Company’s strategic options and alternatives with a view to improving the Company’s balance sheet, addressing upcoming debt maturities, and maximizing enterprise value. The Strategic Review is intended to explore a comprehensive range of strategic and transaction alternatives, including a sale, merger or other business combination; a disposition of all or certain assets of the Company; recapitalization and refinancing opportunities; sourcing new financing and equity capital; and other alternatives to improve the Company’s financial position and maximize value. In addition to Pengrowth’s long-life, low-decline assets, the Company also has potentially attractive tax attributes that complement its strong base operations. Pengrowth and its advisers expect to actively explore market interest in potential transactions and strategic initiatives with a range of interested parties and capital market participants.
There can be no guarantees as to whether the Strategic Review will result in a transaction or the terms or timing of any resulting transaction. Given the nature of the Strategic Review, the Company does not intend to provide updates until such time as the Board of Directors approves a definitive transaction or strategic alternative, or otherwise determines that further disclosure is necessary or appropriate.
CREDIT FACILITY EXTENSION
The Company is in discussions with the lending syndicate under its $330 million revolving bank credit facility (the “Credit Facility”) on arrangements to extend the maturity date of the Credit Facility through September 30, 2019 to support the Strategic Review. The Company’s objective is to finalize the extension agreement as soon as possible, and in advance of the current March 31, 2019 maturity date. While there can be no assurance or guarantee that an extension will be obtained by the Company or on what terms, management remains confident that an extension agreement will be executed in the near term, at which time Pengrowth will update the market accordingly.
ALBERTA CURTAILMENT PROGRAM
As one of the top 20 oil producers in Alberta, Pengrowth is subject to the Government of Alberta’s Curtailment Program which took effect on January 1, 2019. Even though Lindbergh is subject to mandatory curtailments, the asset produced more than 18,000 bbl/d in January and February 2019, and continues to deliver production at the upper end of the previously announced 2019 guidance. As a result, the Company has not changed its previously announced 2019 production guidance. Pengrowth remains in compliance with Alberta’s Curtailment Program.
CO-GENERATION
Securing a partner to build a cogeneration facility at Lindbergh is a cornerstone of our strategy to incrementally grow production to 35,000 bbl/d by the end of 2023 at Lindbergh. After several months of negotiations, in January 2019, Pengrowth reached agreement with Ironclad Energy Partners LLC (“Ironclad”), a wholly owned subsidiary of Stonepeak Infrastructure Partners, and signed a Letter of Intent (“LOI”) regarding the engineering, design, construction, commissioning, asset management, energy management and ownership of a new cogeneration facility at Lindbergh. This new facility would be funded and owned by Ironclad and operated and maintained by Pengrowth to efficiently provide the electricity and steam under a fee structure required to expand production at our Lindbergh SAGD facility. This LOI is non-binding and there are a number of conditions contained in the LOI making construction of the proposed cogeneration facility subject to the execution of definitive agreements between the parties.
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