Perpetual Energy has for a couple of years grown very slowly .It's production has stayed around 19,000 to 21,000 boe/day.It's production hasn't exceeded 22,000 barrels per day for the last four years.One of the reasons that it has not grown past 21,000 barrels per day of production is that it has sold off non-core producing assets.On October 27 it announced that it had signed a purchase and sale agreement to divest of several non-core properties in eastern Alberta for $21.6 million.This deal will close on November 7.
This property has 870 Mboe of heavy oil reserves and 4026 net acres of undeveloped Mannville heavy oil rights.It was expected to produce 400 to 415 boe/day of heavy oil for Q4 2014.The money received will be used to establish a bank and working capital surplus and the ability to redeem convertible debentures that mature in December31,2015.It is Perpetual Energy's main strategic priority to reduce it's debt.However Perpetual will soon need capital for the waterflooding of several large pools in the Mannville area and the Edson area.So in order to keep increases in debt down they thought it prudent to sell these properties.
East Edson update
This is the most interesting discovery that Perpetual Energy has come across.It made a joint venture with an unknown partner that gave it $70 million to develop the property although money had to be put into an escrow account.9 wells have been developed so far ;7 in the northeast area and 2 in the southwest area.4 of these 9 wells have been completed and tied-in to their existing gas compression station and 2 through the new Rosevear gas plant.Both are producing above 10MMcf/day plus the accompanying liquids.2 more wells are starting initial flow back but it is too early to estimate final production.It is not clear from reading the Joint Venture Agreement if production from the South west area is covered by the joint venture agreement.Most,if not all of the production in this area might be considered as Perpetual production.Whereas it looks like the North east area has a royalty payment of 5.6MMcf/day.Any production beyond this amount goes totally to Perpetual Energy.Here( the N.E and S.W. area) is where Perpetual Energy has a chance to boost production to the 25,000 boe/day by the end of 2015.
Operations are on track for 6 new wells to be drilled before year-end.2 wells are to be drilled in the North east area and 4 in the South west area.Including production from the first 2 wells, total production from East Edson is about 25,000 MMcf/day or about 6,250 boe/day.With the 4 other wells coming onstream in Q4 Perpetual will likely have total production close to 23,000 boe/day.If not in Q4 then in Q1 2015.Also Perpetual has all regulatory approvals for the new East Edson gas plant and it will be built before September,2015.Pipeline has already been ordered to connect to the Alliance gas Pipeline.
West Edson properties
Since the end of Q2, 9 wells have been drilled and production here has exceded expectation;7 were completed and tied-in and 2 are in progress.Production at full capacity is expected to be 64mmcf/day or almost 11,000 boe/day.
Conclusion
For the last two or three years Perpetual Energy has been troubled by having too much debt;over this period it has pared down it's debt.But Perpetual is one of the busiest and most active drillers ,especially for junior producers.Now it has three drilling rigs that are active on it's properties.It has gotten some cash from it's joint venture and is using it for neighbouring ,contiguous properties.However Perpetual continues to lose production by selling off properties,especially around it's heavy oil property in the Mannville area.That aside,Q4 2014 or Q1 2015 are seen as the quarter that Perpetual will break out of this range and start to move towards 25,000 boe/day and $25 million in earnings for the quarter.
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