Pengrowth Second Quarter 2019 Adjusted Funds Flow Increased 188% Year-over-year to $29 Million

Press Release

Lindbergh Proved Reserves Increased 34% While Proved and Probable Reserves Increased 25%

CALGARY, Alberta, Aug. 08, 2019  — Pengrowth Energy Corporation (“Pengrowth” or the “Company”) (TSX:PGF, OTCQX:PGHEF), today reported its results for the three and six months ended June 30, 2019. The Company also announced that GLJ Petroleum Consultants Ltd. (“GLJ”) has provided an updated report (Dated: August 7, 2019) of Pengrowth’s bitumen reserves estimate based on the performance of the Lindbergh thermal oil project effective June 30, 2019. Unless otherwise indicated, financial figures are expressed in Canadian Dollars.

“I want to thank our teams who continued to demonstrate operational excellence and discipline by delivering an exceptional second quarter,” said Pete Sametz, President and Chief Executive Officer of Pengrowth. “As of mid-year 2019, Pengrowth has reduced operating costs, reduced general and administrative costs, and paid down debt with adjusted funds flow generated in excess of capital requirements. The overhaul of the corporate and cultural model that started last year has yielded results and we are performing well on the things we can control. What we cannot control is the deterioration in forecast commodity pricing for natural gas which has led to a non-cash impairment of $95 million on our Groundbirch asset. Without this non-cash accounting impairment, we would have reported positive net income this quarter.”

“The strong performance of the Lindbergh thermal oil project has led to a 34% increase in Lindbergh’s proved reserves, and a 25% increase in proved and probable reserves which extends Lindbergh’s reserve life index to 30 years and 54 years from 24 years and 48 years respectively. The independent report further increases the size and value of our core asset to the benefit of all of our stakeholders. As we continue to generate positive adjusted funds flow, pay off debt and grow our reserve base, Pengrowth’s capacity to generate value from our long-life low-decline Lindbergh project at current prices should become increasingly clear to our banks, note holders, and equity investors alike.”

Second Quarter 2019 Summary:

• Delivered strongest quarterly adjusted funds flow in two years with a 188% year-over-year increase to $29.1 million through:• Pengrowth’s leaner cost structure which resulted in a 42% decrease in Cash G&A expenses per boe and a 9% decrease in adjusted operating expenses per boe year-over-year;• A $13 million decrease in realized losses on commodity risk management;• A 14% year-over-year increase in Lindbergh SAGD bitumen production to 18,036 barrels per day (“bbl/d”) at a steam-oil ratio (“SOR”) of 2.80 in the second quarter compared with 15,876 bbl/d at an SOR of 3.12 for the same period in the prior year;
• Increased Lindbergh’s proved reserves by 34% and proved and probable reserves by 25% at June 30, 2019 compared with January 1, 2019.
• Debt decreased $19.3 million to $702.2 million at June 30, 2019 compared with $721.5 million at March 31, 2019 partly due to repayment of $9.0 million with cash flow from operations and a $10.3 million advantageous swing in foreign exchange rates.
• The decrease in forecast gas prices led to a $95.0 million non-cash impairment of Groundbirch.
• For every US$1.00/bbl change in the price of West Texas Intermediate crude oil, the estimated impact on 12-month Adjusted Funds Flow is CA$7.9 million (Please refer to this quarter’s MD&A for more information).
• The Company continues to advance the Strategic Review process announced March 6, 2019 with a view to strengthening the Company’s balance sheet, addressing upcoming debt maturities, and maximizing overall value for the benefit of its stakeholders.

Summary of Financial & Operating Results

	Three months ended
(monetary amounts in millions except per boe and per share amounts)	Jun 30, 2019	Mar 31, 2019	% Change	Jun 30, 2018	% Change
PRODUCTION
Average daily production (boe/d)	22,707	22,764	—	22,600	—
FINANCIAL
Oil and gas sales	$144.4	$128.3	13	$147.4	(2)
Capital expenditures	$1.9	$11.4	(83)	$23.1	(92)
Cash proceeds from dispositions	$(0.1)	$5.4	(102)	$3.5	(103)
Interest and financing charges	$14.9	$14.6	2	$12.6	18
Cash flow from operating activities	$30.9	$(7.8)	(496)	$12.8	141
Adjusted funds flow (1)	$29.1	$16.0	82	$10.1	188
Weighted average number of shares outstanding (000’s)	560,022	556,594	1	556,117	1
Adjusted funds flow per share (1)	$0.05	$0.03	67	$0.02	150
OPERATIONAL
Produced petroleum revenue per boe (1)	$41.52	$36.27	14	$42.59	(3)
Operating expenses per boe	$8.32	$8.93	(7)	$9.34	(11)
Adjusted operating expenses per boe (1)	$9.24	$10.54	(12)	$10.11	(9)
Royalty expenses per boe	$3.63	$2.73	33	$3.99	(9)
Operating netback before realized commodity risk management per boe (1)	$25.70	$19.97	29	$25.82	—
Cash G&A expenses per boe (1)	$2.47	$3.22	(23)	$4.28	(42)
STATEMENT OF INCOME (LOSS)
Net income (loss)	$(76.5)	$(31.6)	142	$(27.5)	178
Net income (loss) per share	$(0.14)	$(0.06)	133	$(0.05)	180
DEBT
Total debt before working capital (2)	$702.2	$721.5	(3)	$701.5	—

⁽¹⁾         See definition in our MD&A under section “Non-GAAP Financial Measures”.
⁽²⁾         Includes Credit Facility, current and long term portions of term notes, as applicable, and bank indebtedness. Excludes letters of credit and finance leases.
Alberta Production Curtailment Program
As one of the top 20 oil producers in Alberta, Pengrowth is subject to the Government of Alberta’s production curtailment program which took effect on January 1, 2019. Even though Lindbergh is subject to mandatory curtailments, the asset produced 18,036 bbl/d in the second quarter of 2019 and 18,193 in the first quarter of 2019 while remaining in compliance.

Year-to-Date 2019 Actual Results vs. 2019 Guidance
The following table provides a summary of Pengrowth’s actual results for the six months ended June 30, 2019 compared with full year guidance:

	Actual YTD June 30, 2019	2019 Guidance (1)
Average oil equivalent production (boe/d)	22,736	22,500 – 23,500
Lindbergh average bitumen production (bbl/d)	18,114	17,750 – 18,250
Capital expenditures ($ millions)	13.3	45
Royalty expenses (% of produced petroleum revenue) (2) (3)	8.2	7.0 – 8.0
Adjusted operating expenses ($/boe)(2)	9.89	9.25 – 10.00
Cash G&A expenses ($/boe) (2)	2.84	2.50 – 2.75

⁽¹⁾         Per boe estimates based on high and low ends of production Guidance.
⁽²⁾         See definition under section “Non-GAAP Financial Measures”.
⁽³⁾         Excludes financial commodity risk management activities.
Year to date 2019 daily production of 22,736 boe/d was within 2019 Guidance despite low capital spending and the Alberta Government’s mandatory production curtailment program. Total corporate oil-equivalent volumes are expected to be between 22,500 boe/d to 23,500 boe/d.

Year to date 2019 actual royalty expenses as a percent of produced petroleum revenue were slightly above full year Guidance; however Pengrowth anticipates royalty expense as a percent of produced petroleum revenue to fall within 2019 Guidance by the end of the year.

Year to date 2019 Cash G&A expenses per boe were above full year 2019 Guidance due to compensation related expenses. Cash G&A expenses per boe decreased from $3.22/boe in the first quarter of 2019 to $2.47/boe in the second quarter of 2019. Pengrowth anticipates full year 2019 cash G&A expenses to reach 2019 Guidance as expenses in the second quarter of 2019 are more representative of future cost expectations.

Co-Generation Project:
As previously disclosed, Pengrowth is working with a third party Co-Generation provider to build a cogeneration facility at Lindbergh. The addition of this cogeneration facility is expected to provide the steam required to incrementally grow production at Lindbergh to 35,000 bbl/d by the end of 2023. Subsequent to the end of the quarter, working alongside our partner, Pengrowth has submitted an application to amend Lindbergh’s current approvals in support of the new co-generation facility (D78 and EPEA). In addition, we are continuing to progress the Alberta Electric System Operator (AESO) interconnection process and accompanying Alberta Utilities Commission applications.

Second Quarter Operational Review
Average daily production for the second quarter decreased 0.3% to 22,707 boe/d compared with 22,764 boe/d in the first quarter of 2019 primarily as a result of Alberta’s production curtailment program, the disposition of Fenn Big Valley, offset by a 5% increase in production at Groundbirch compared to the prior quarter. Production increased 0.5% in the second quarter compared with the same period in the prior year due to a 14% increase in production from Lindbergh offset by  the absence of natural gas production from the Sable Offshore Energy Project (“SOEP”), decreased natural gas production from Groundbirch, and the disposition of Fenn Big Valley.

	Three months ended
PRODUCTION	Jun 30, 2019	Mar 31, 2019	% Change	Jun 30, 2018	% Change
Bitumen (bbl/d)	18,036	18,193	(1)	15,876	14
Natural gas (Mcf/d)	25,294	23,988	5	34,064	(26)
Light oil (bbl/d)	336	514	(35)	769	(56)
Natural gas liquids (NGL) (bbl/d)	120	59	103	278	(57)
Total boe/d	22,707	22,764	(0.3)	22,600	0.5

Despite lower year-over-year capital spending, Lindbergh average daily bitumen production only decreased 1% to 18,036 bbl/d in the second quarter compared with 18,193 bbl/d in the prior quarter. Lindbergh contributed 79% of Pengrowth’s total production in the second quarter. The SOR for the second quarter decreased nominally to 2.80 compared with 2.83 in the prior quarter, partly due to the relaxing of production curtailments. We expect the SOR to drop further if production curtailments ease further. The cumulative SOR as at June 30, 2019 was 2.69.

Financial Results
Lindbergh’s second quarter operating netbacks increased 30% to $32.57/bbl compared with $25.00/bbl in the prior quarter due to a 16% increase in realized diluted bitumen prices, an 18% decrease in energy related operating expenses, a 6% decrease in non-energy operating expenses partially offset by a 38% increase in royalties due to higher commodity prices and a 4% increase in diluent costs.

	Three months ended
Lindbergh Operating Netbacks ($/bbl) (1)	Jun 30, 2019	Mar 31, 2019	% Change	Jun 30, 2018	% Change
Diluted Bitumen Revenue (2)	58.87	50.65	16	63.94	(8)
Diluent Costs (Inc. transportation)	(9.88)	(9.46)	4	(11.47)	(14)
Bitumen revenue (2)	48.99	41.19	19	52.47	(7)
Royalties	(4.39)	(3.19)	38	(4.57)	(4)
Adjusted Operating expenses – Non-energy(1)	(5.54)	(5.92)	(6)	(7.54)	(27)
Adjusted Operating expenses – Energy(1)	(3.26)	(3.97)	(18)	(3.25)	—
Transportation expenses	(3.23)	(3.11)	4	(2.91)	11
Operating netbacks before realized commodity risk management	32.57	25.00	30	34.20	(5)

⁽¹⁾         See definition in our MD&A under section “Non-GAAP Financial Measures”.
⁽²⁾         Net of Fixed Price Differential Physical Delivery Contracts
Corporate operating netbacks before realized commodity risk management in the second quarter increased 29% to $25.70/boe compared with $19.97/boe in the first quarter of 2019 due to increased realized commodity prices, lower operating expenses, lower transportation expenses, partially offset by a 33% increase in royalties.  Corporate operating netbacks after realized commodity risk management in the second quarter increased 27% to $22.26/boe compared with $17.48/boe in the first quarter of 2019 despite a 38% increase in realized commodity risk management losses.

Corporate operating netbacks before realized commodity risk management were relatively flat year-over-year. However, corporate operating netbacks after realized commodity risk management increased 39% year-over-year to $22.26/boe  compared with $16.00/boe during the same period of last year due to lower realized commodity risk management losses.

	Three months ended
Corporate Operating Netbacks ($/boe) (1)	Jun 30, 2019	Mar 31, 2019	% Change	Jun 30, 2018	% Change
Produced petroleum revenue (1)	41.52	36.27	14	42.59	(3)
Royalties	(3.63)	(2.73)	33	(3.99)	(9)
Adjusted operating expenses (1)	(9.24)	(10.54)	(12)	(10.11)	(9)
Transportation expenses	(2.95)	(3.03)	(3)	(2.67)	10
Operating netbacks before realized commodity risk management  (1)	25.70	19.97	29	25.82	—
Realized commodity risk management	(3.44)	(2.49)	38	(9.82)	(65)
Operating netbacks ($/boe)	22.26	17.48	27	16.00	39

⁽¹⁾         See definition in our MD&A under section “Non-GAAP Financial Measures”.
Cash Flow from Operating Activities
Cash flow from operating activities in the second quarter of 2019 was $30.9 million compared with $7.8 million of cash used in operating activities in the prior quarter due to a $11.5 million increase in oil and gas sales, a $4.0 million decrease in operating and cash G&A expenses, a $6.4 million decrease in remediation expenditures, partially offset by a $2.0 million increase in realized losses on commodity risk management and $1.9 million increase in royalties.

Year-over-year, cash flow from operating activities in the second quarter increased 141% to $30.9 million compared with $12.8 million in the same period last year primarily due to lower realized losses on commodity risk management, increased bitumen production and lower cash G&A expenses partially offset by lower realized bitumen prices and higher spending on remediation.

Read More

NT4