Monthly Activity Updates
2020
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December 2020 production averaged 6,095 boe/d, compared to 6,320 boe/d in November. Volumes were comprised of 16% light oil and 32% total liquids. Production volumes were lower in the month due to natural declines.
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Estimated November 2020 average production is 6,320 boe/d, consistent with October production levels. Volumes were comprised of 16% light oil and 32% total liquids.
Limited capital expenditure activity in the month consisted largely of non-discretionary spending. The Company did resume drilling activity late in the third quarter as management accelerated a planned fourth quarter drilling operation to take advantage of favorable fall weather conditions. Tie in of this well is expected in December and will make up the remainder of capital expenditures for 2020.
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Estimated October 2020 average production is 6,339 boe/d, a 5% increase over September production levels. Volumes were comprised of 16% light oil and 32% total liquids.
The Company did resume drilling activity late in the third quarter as management accelerated a planned fourth quarter drilling operation to take advantage of favorable fall weather conditions. The completion of this well comprised the majority of the $1.6 million in capital spending in October. With the high level of control afforded by operated assets and ownership of key infrastructure, the Company can adjust liquids content in the natural gas stream to maximize profitability of all products as well as adjust production rates quickly to respond to changing market conditions. With current pricing, new wells drilled in Petrus' core area of Ferrier can deliver payouts in under one year.
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Petrus resumed drilling activity in September as favourable fall weather conditions encouraged management to accelerate planned Q4 activity into late September. Drilling operations were completed on time and under budget. The completion and tie in of this well will take place in the fourth quarter and comprise the bulk of the $2.5 MM in capital spending planned for the remainder of the year.
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Since March 2020, there has been unprecedented stress on both oil and natural gas prices as the world adjusts to the global COVID-19 pandemic. Accordingly, many energy companies in North America, and around the world, have dramatically reduced their capital budgets. As debt repayment remains Petrus’ top priority, the Company also reduced its second and third quarter capital budgets to only include non-discretionary maintenance capital, with no drilling operations in either quarter.
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Petrus benefited from continued gradual improvement in both oil and natural gas pricing in July and continues to apply free cash flow to lower net debt during a period of lower capital spending in Q2 and Q3 2020.
The Company has been producing two new wells drilled at Ferrier in Q1/2020 at significantly restricted rates given the lower pricing environment but with recent improved pricing, the Company has begun to increase production from these wells in July.
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June commodity pricing showed greater stability following significant volatility in 2020 to date. Petrus continued to realize strong hedging gains in June which supported cash flow, allowing further reductions to debt levels.
Petrus has been producing two new wells drilled at Ferrier in Q1/2020 at significantly restricted rates given the lower pricing environment but with recent improved pricing, the Company has begun to increase production from these wells in July.
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During May world oil prices showed gradual improvement as markets continued to respond to the fallout of the COVID-19 pandemic. Hedging gains supported cash flow over the period and with the current price strip, the Company expects to realize hedging gains through the remainder of 2020, which will be utilized to continue debt repayment.
Petrus’ Board of Directors has approved a second quarter 2020 capital budget of $0.5 million, which provides for non-discretionary maintenance capital only. No drilling or completion activities are expected to take place in the second quarter. By the end of March, Petrus had brought on production the two 100% WI wells drilled in the first quarter. The company has been producing these wells at significantly restricted rates to date in order to conserve value in the current low pricing environment.
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April was the most volatile month for WTI pricing on record, including the first ever negative pricing quotes, as the market continues to manage the impact of the COVID-19 pandemic and the significant disruption to oil demand globally. Due largely to a strong hedging portfolio as well as a natural gas weighting to the production base, Petrus was much less impacted than many of our peers, but continues to take a cautious approach to the managing the balance sheet. At the beginning of 2019, Petrus’ Board of Directors moved away from setting a capital budget on an annual basis, and instead chose to determine its capital budget on a quarterly basis. The philosophy was to reduce capital commitments to shorter time frames given the increasing volatility in the energy industry. This approach allows Petrus to protect its balance sheet in real-time to focus on our primary objective of quarterly debt reductions.
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With the recent extreme collapse in oil prices, Petrus is actively assessing its future capital plans, similar to other energy companies worldwide. At the beginning of 2019, Petrus’ Board of Directors moved away from setting a capital budget on an annual basis, and instead chose to determine its capital budget on a quarterly basis. The philosophy was to reduce capital commitments to shorter time frames given the increasing volatility in the energy industry. This approach allows Petrus to protect its balance sheet in real-time to focus on our primary objective of quarterly debt reductions.
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With the recent extreme collapse in oil prices, Petrus is actively assessing its future capital plans, similar to other energy companies worldwide. At the beginning of 2019, Petrus’ Board of Directors moved away from setting a capital budget on an annual basis, and instead chose to determine its capital budget on a quarterly basis. The philosophy was to reduce capital commitments to shorter time frames given the increasing volatility in the energy industry. This approach allows Petrus to protect its balance sheet in more real-time and allows us to focus on our primary objective of quarterly debt reductions.
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Reduction of debt is the Company's first and foremost priority. Since December 31, 2015 Petrus has repaid $103 million (45%) of net debt. This includes a $55 million reduction of the Company's second lien term loan ("Term Loan") which was $90 million in 2014 and currently has $35 million outstanding. The Company's revolving credit facility ("RCF") and Term Loan are due in 2020 and therefore were reclassified to current liabilities in the December 31, 2019 consolidated financial statements. The RCF maturity date is May 31, 2020 which was set prior to the Term Loan maturity of October 8, 2020 due to the inter-creditor relationship between the RCF and the Term Loan. The Company requires an extension of its Term Loan before the syndicate of lenders will contemplate an extension to the RCF. Management is currently in discussion with the Term Loan lender and continues to focus on its disciplined debt reduction strategy.