PMT-T almost hit target to bottom-fish.
Perpetual closes Elmworth sale for $77.5-million
March 12, 2013 - News Release
Perpetual Energy Inc. has closed the previously announced sale of its Elmworth property for net proceeds to Perpetual of $77.5-million, subject to certain closing adjustments and transaction costs.
The Elmworth property consists of three gross (1.5 net) non-producing horizontal Montney gas wells at Elmworth, one vertical well at Wapiti and undeveloped land, including 20,256 net acres of Montney rights. At year-end 2012, McDaniel estimated total proved and probable reserves of 13.1 million barrels of oil equivalent, net to Perpetual at Elmworth. Furthermore, McDaniel estimated $122.8-million of future development capital would be required to convert these undeveloped reserves to producing reserves. There is currently no production or funds flow from operations at the Elmworth property. This disposition will have no negative effect on Perpetual's 2013 projected production or funds flow, and interest expense will be reduced by approximately $4.0-million on an annual basis, assuming that the proceeds are used to reduce bank debt permanently.
Proceeds from this disposition will initially be applied to reduce outstanding bank debt and, along with the interest savings on reduced bank debt, will significantly bolster Perpetual's financial flexibility to continue to deploy capital to its chosen key commodity-diversifying growth strategies in Mannville heavy oil and Edson liquids-rich Wilrich gas development. It will also allow Perpetual to continue to advance the corporation's portfolio of medium- and long-term value and growth plays with risk-managed investment. In addition, this transaction provides added optionality for managing the corporation's long-term debt obligations.
Upon closing, net bank debt is estimated to be approximately $21-million, reflecting funds flow and capital program spending to date since year-end 2012. Pro forma for the disposition and the corporation's planned first quarter 2013 capital spending program and assuming the current forward markets for commodity prices, Perpetual expects to exit the first quarter of 2013 drawn approximately $35-million to $40-million on its credit facility. Although there was no lending value associated with the Elmworth property, upon closing of the Elmworth sale, Perpetual's lenders have limited availability under the credit facility to $110-million, pending conclusion of the annual borrowing base review, which is under way and expected to be completed by April 30, 2013.
Net asset value
The attached table shows a pro forma adjustment to the corporation's Dec. 31, 2012, NAV for the Elmworth disposition. The attached table shows what is normally referred to as a produce-out NAV calculation, under which the corporation's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions, including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of Perpetual's shares. The calculations do not reflect the value of the corporation's prospect inventory as the prospects are not recognized within the NI 51-101-compliant reserve assessment.
The evaluation includes future capital expenditure expectations required to bring undeveloped reserves recognized by McDaniel that meet the criteria for booking under NI 51-101 on production. The fair market value of undeveloped land does not reflect the value of the company's prospect inventory, which will be converted into reserves and production over time through future capital investment.
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