Pengrowth Recorded Positive Adjusted Funds Flow in the Third Quarter of 2019 of $10.7 million Despite Lower Commodity Prices and Restructuring Costs

by ahnationtalk on November 8, 2019137 Views

CALGARY, Alberta, Nov. 06, 2019 — Pengrowth Energy Corporation (“Pengrowth” or the “Company”) (TSX:PGF, OTCQX:PGHEF), today reported its results for the three and nine months ended September 30, 2019. Unless otherwise indicated, financial figures are expressed in Canadian dollars.

“Negotiations with our lenders on an amendment and extension of our notes and credit facility as discussed in our September 30th press release broke down in October,” said Pete Sametz, President and Chief Executive Officer of Pengrowth. “While we are disappointed in the impact this has had on our shareholders, the transaction with Cona Resources Ltd. announced on November 1st represents the best value for our stakeholders after a comprehensive strategic review process, and the only available path to provide any value to our shareholders.”

Third Quarter 2019 Summary:

  • Pengrowth third quarter 2019 adjusted funds flow of $10.7 million decreased 31% year-over-year and included $8.9 million in restructuring costs related to legal and advisory fees for the strategic review and lender negotiations.
  • Lindbergh SAGD bitumen production increased 7% year-over-year to 17,603 barrels per day (“bbl/d”) compared with 16,408 bbl/d. Compared with the second quarter of 2019, production decreased due to multiple lightning strikes at the end of July that temporarily disabled Lindbergh’s electrical grid resulting in reduced production.
  • Cash G&A expenses per barrel of oil equivalent (“/boe”) decreased 19% to $3.24/boe compared with $3.99/boe in the prior year.
  • Adjusted operating expenses per boe increased 2% to $10.89/boe compared with $10.72/boe in the prior year as a result of pump replacements related to the disruption of the electrical grid at the end of July.
  • Debt increased $3.0 million to $705.2 million at September 30, 2019 compared with $702.2 million at June 30, 2019 due to the impact of a weaker Canadian dollar at the end of the period which increased the Canadian dollar equivalent value of foreign denominated debt, partially offset by lower Credit Facility drawings.
  • Pengrowth recorded a $100.0 million non-cash impairment in the quarter which included $39.0 million related to the change in future development plans for the Groundbirch natural gas property, and $61 million related to certain non-core assets.

Cona Resources Ltd. Transaction
On November 1, 2019 Pengrowth announced that it entered into a definitive arrangement agreement (the “Arrangement Agreement”) with Cona Resources Ltd. (the “Purchaser”) pursuant to which the Purchaser has agreed to repay the outstanding principal amount and accrued interest to the date of the Arrangement Agreement owing under the Company’s credit facility and secured notes (collectively the “Secured Debt”) and acquire all of the outstanding common shares for cash consideration of CDN $0.05 per share and a potential Contingent Value Payment for each Pengrowth Share. The proposed transaction (the “Transaction”) is to be completed by way of plan of arrangement under the Business Corporations Act (Alberta).

The aggregate value of the Transaction, including the repayment of the Secured Debt and the assumption of the Transaction costs by the Purchaser, is approximately $740 million. The total consideration being offered to lenders and noteholders (collectively the “Secured Debtholders”) represents a discount on the aggregate amount owing to the Secured Debtholders. The consideration paid to Secured Debtholders will be allocated pro rata amongst individual holders pursuant to the intercreditor agreement between the Secured Debtholders.

In the event that Secured Debtholders representing a majority in number of Secured Debtholders holding at least 66 2/3% of the Secured Debt have not executed and delivered support agreements on or before November 15, 2019, the Purchaser may terminate the Arrangement Agreement. There is no certainty support agreements will be obtained in that time frame. In such circumstance, the Purchaser may seek within ten days of the termination of the Arrangement Agreement, to negotiate with Pengrowth an Alternative Transaction where Pengrowth shareholders may not receive any consideration in exchange for their shares.

Summary of Financial & Operating Results

Three months ended
(monetary amounts in millions except per boe and per share
Sept 30, 2019 June 30, 2019 % Change Sept 30, 2018 % Change
Average daily production (boe/d) 21,460 22,707 (5) 21,807 (2)
Oil and gas sales $118.2 $144.4 (18) $147.2 (20)
Capital expenditures $2.7 $1.9 42 $6.8 (60)
Cash proceeds from dispositions $0.4 $(0.1) (500) $9.6 (96)
Interest and financing charges $14.2 $14.9 (5) $12.3 15
Cash flow from operating activities (1) $9.2 $30.9 (70) $21.8 (58)
Adjusted funds flow (1, 2) $10.7 $29.1 (63) $15.6 (31)
Weighted average number of shares outstanding (000’s) 560,114 560,022 556,117 1
Adjusted funds flow per share (2) $0.02 $0.05 (60) $0.03 (33)
Produced petroleum revenue per boe (2) $38.14 $41.52 (8) $47.10 (19)
Operating expenses per boe $9.98 $8.32 20 $10.17 (2)
Adjusted operating expenses per boe (2) $10.89 $9.24 18 $10.72 2
Royalty expenses per boe $3.04 $3.63 (16) $3.69 (18)
Operating netback before realized commodity risk
management per boe (2)
$21.47 $25.70 (16) $29.85 (28)
Cash G&A expenses per boe (2) $3.24 $2.47 31 $3.99 (19)
Net income (loss) $(119.9) $(76.5) 57 $(1.6) 7,394
Net income (loss) per share $(0.21) $(0.14) 50 $—
Total debt before working capital (3) $705.2 $702.2 $672.2 5

(1) Includes $8.9 million in restructuring costs related to legal and advisory fees for the strategic review and lender negotiations.
(2) See definition in our MD&A under section “Non-GAAP Financial Measures”.
(3) Includes Credit Facility, current and long term portions of term notes, as applicable, and bank indebtedness. Excludes letters of credit and finance leases.

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