Pieridae Energy Limited has released its 2Q20 results, highlighted by the fact the Company continues to deliver solid results quarter after quarter, achieving strong metrics in overall revenue, NOI, AFFO and daily production.
“We achieved these strong results through our positive hedging strategy, limiting non-essential capital and operating spending and taking active steps to reduce administrative costs,” said Pieridae’s Chief Executive Officer, Alfred Sorensen. “As a result of the Alberta Foothills asset acquisition, revenue was up more than 400% y/y on a 2Q basis, production climbed 185%, and we continued to operate our assets safely and reliably.
“I am also pleased to report that we have reached a resolution with KBR following its earlier announcement that it was no longer prepared to negotiate and conclude a lump sum turnkey engineering, procurement, construction and commissioning (EPCC) contract for our Goldboro LNG Facility,” added Sorensen. “As part of the resolution, Pieridae acquires the right to transition all of KBR’s work product created to date to a replacement EPCC contractor. We are in the midst of discussions with other firms that have expressed strong interest in concluding a lump sum turnkey EPCC contract for the LNG Facility with Pieridae.”
Sorensen concluded by saying that progress is also being made for Shell and Pieridae to reapply to the Alberta Energy Regulator (AER) for the license transfers of its Southern Alberta Foothills assets to Pieridae.
“We continue to build our solid base business as one of the largest Foothills producers in North America,” said Sorensen. “Layer on our multi-billion-dollar Goldboro LNG Project, which remains a shovel-worthy, significant Canadian job-creator that will help our country recover economically post COVID-19, and you have an upstream/midstream company with a large upside.”
2Q20 financial and operations highlights
Revenue (net of royalties) of US$68.6 million in the three months ended 30 June 2020 increased by US$55.2 million or 412% as compared to the same period in 2019 (US$13.1 million). This includes NGL and condensate revenue of US$16.9 million, as well as third party processing fees of US$6.9 million. Petroleum and natural gas revenue in the 2Q20 increased by US$42.0 million or 341% compared to the same quarter in 2019. On a year-to-date basis, petroleum and natural gas revenue increased by US$83.4 million or 234% compared to the same period in 2019.
Similarly, revenue (net of royalties) of US$142.6 million in the six months ended 30 June 2020 increased by US$106.2 million or 292% as compared to the same period in 2019. Increases in both the three and six months ended 30 June when compared to the same period in 2019 are due to full quarters of operations, including expanded production of natural gas, condensate and NGL from the Southern Alberta Foothills assets and the addition of third party processing revenue of US$6.9 million for the current quarter and US$13.7 million on a year to date basis.
NOI increased by US$21.2 million or 1101% compared to 2Q19 due to the acquisition of the Southern Alberta Foothills assets in October 2019. 2Q20 NOI of US$19.3 million was consistent with NOI in the previous quarter. Similarly, AFFO increased by US$19.0 million or 291% y/y, and working capital increased 119% from a deficit of -US$77.9 million in 2Q19 to US$15.1 million in 2Q20, providing further financial flexibility.
Operating netback in 2Q20 increased by US$6.26/boe or 441% (to US$4.84/boe) as compared to 2Q19 (-US$1.42). This was the result of a combination of higher average realised pricing and more diversified revenue streams, offset by higher operating expenses primarily because of our complex gas processing facilities.
This continuation of the transformational growth demonstrated in the year ended 31 December 2019 will provide Pieridae the liquidity it needs to continue to operate its assets, as well as to further de-risk the development work required for the Goldboro LNG Project to get to a positive final investment decision.
As previously highlighted, 2Q20 production increased 185% or 28 423 boe/d to 43 791 boe/d compared to 2Q19. Production was up 6% compared to 1Q20. This increase is primarily due to the Southern Alberta Foothills assets acquisition, partially offset by unplanned outages in the first two months of 2020 at two gas processing facilities during the coldest weeks of the year, which was rectified during 2Q20. The significant growth in condensate and NGL production in the quarter reflects the deep cut capacity of the processing facilities acquired last fall.
The Company continues to have a strong hedging program in place to partially insulate itself from volatile commodity prices, which has proven successful at providing a degree of pricing certainty and revenue stability during these uncertain and challenging times. The pressure on realised prices was partially mitigated through the company’s hedging programme, resulting in a realised gain of US$8.2 million during the quarter, for a total of US$12.7 million on a year to date basis.
Realised natural gas prices were US$1.87/million ft3 compared to benchmark prices of US$1.88 during the quarter.
The impact from the COVID-19 pandemic began to show early signs of recovery in the latter part of the quarter due to the easing of government restrictions to limit the spread of COVID-19, and the commitment by OPEC and non-OPEC countries to reduce production levels.
Markets are gradually recovering, and as mentioned, the Company’s hedging programme is continuing to help Pieridae’s bottom line. As announced in the previous quarter, the Company has implemented a 20% reduction for Board of Directors and CEO compensation and has taken further steps to reduce administrative costs including temporarily reducing salaries and other discretionary spending.
Pieridae remains committed to the health and safety of all personnel and to the safety and continuity of operations. Respecting government guidelines to limit the risk of the outbreak, the Company has implemented measures such as self-quarantine policies, travel restrictions, enhanced sanitation measures and social distancing requirements, which have resulted in a majority of office staff currently working remotely. Pieridae has not suffered any significant loss of productivity for the three and six months ended 30 June 2020, and had zero lost time incidents.
Uniper deadlines extensions
5 May 2020, the Company announced that it and energy company Uniper Global Commodities agreed to extend key deadlines under their joint, 20-year agreement. The deadline extensions included expected commercial deliveries of gas to Uniper to start between 31 August 2025 and 28 February 2026; and the extension to 30 June 2021 of the deadline to make a positive final investment decision for the Company’s proposed Goldboro LNG Facility. The 20-year agreement with Uniper is for all the LNG produced at Goldboro Train 1 or 4.8 million tpy.
Alberta Energy Regulator decision
On 13 May 2020, the AER made the decision to deny Shell’s application to transfer the licences associated with the Southern Alberta Foothills assets to Pieridae. This denial is due to concerns regarding the application to split the liability associated with Jumping Pound and Waterton gas processing facilities where Shell would have retained the liability associated with subsurface sulfolane contamination. Pieridae and Shell are working together to resolve the AER's concerns, and management does not anticipate any changes to its financial position or future cash flows because of this decision. The Company continues to own and operate the assets.
Subsequent to 2Q: KBR Goldboro LNG EPCC contract resolution reached
On 13 July 2020, Pieridae announced it had received written notice from Kellogg Brown & Root Limited (KBR) stating KBR was no longer prepared to negotiate and conclude a lump sum turnkey EPCC contract in relation to the proposed Goldboro LNG Facility. KBR’s altered position was in apparent contravention of its obligation under the terms of a 27 March 2019 signed services agreement between Pieridae and KBR.
As stated above, Pieridae and KBR have agreed in principle to amend the services agreement in order to resolve their respective claims and allow Pieridae to transition the work KBR has done on the Goldboro LNG Facility to a replacement EPCC contractor.
There are other reputable and experienced firms who have the expertise to provide EPCC services, and we are currently having positive discussions with five of them who have expressed a strong interest in negotiating a lump sum turnkey EPCC contract.
The Goldboro LNG Project remains solid with many key elements in place: the majority of key permits, a 20-year contract with German energy company Uniper Global Commodities to buy half of Goldboro’s gas, confirmation of eligibility in principle of an untied loan guarantee of up to US$4.5 billion from the German Government, a signed benefits agreement with the Nova Scotia Mi’kmaq, and Pieridae has the majority of the gas needed, when developed, to supply Goldboro’s Train 1.
Subsequent to 2Q: Guarantee facility from Export Development Canada (EDC)
On 29 July 2020, Pieridae announced it had received approval from EDC for a US$6 million guarantee facility as part of the EDC’s Account Performance Security Guarantee (APSG) programme. This guarantee facility bears interest at 0.29% and provides a 100% guarantee to the issuing bank of certain of the Company’s existing and future letters of credit (LCs). The APSG will allow Pieridae to release existing and future cash collateral requirements provided as security for certain existing and potential future LCs. This facility from EDC sends a strong signal to the market that we continue to gain momentum and key support for the Company and its strategic direction. It also establishes the start of what is hoped to be a strong and ongoing partnership with EDC.
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