Perpetual Energy -perpetual poster boy for central Alberta

 Perpetual Energy is an Alberta company(a junior gas producer) that I have followed for several years.For seven or eight quarters it had constant(or perpetual production) at 19,000 to 21,000  boe/day.But it always had an active and productive drilling program.It bought land and discovered significant natural gas reservoirs in the Edson structure in central Alberta.This is a little known structure in central Alberta.At first it seemed like there was only natural gas in the East Edson area but later liquids were found in the West Edson area also.This changed everything about Perpetual Energy.
       The Swap
    On April1, 2015 PMT announced that it had swapped all joint interest lands in West Edson together with the wells with a production of 5,750 boe/day of natural gas production for 6.75 million Tourmaline Oil and Gas shares (TOU).It previously announced that it had a joint venture with Tourmaline for only a portion of the West Edson production.At the time of the April announcement Tourmaline shares were selling for about $38 a share.The deal was worth about $250 million.This however reduced Perpetual's production from 22,819 boe/day in the first quarter to 16,621 boe/day in the second quarter.Natural gas production at 86 MMcf/day was down while natural gas liquid production was only marginally lower than that in 2014.In addition, crude oil production was down almost 15% from 2014.
     The Remaining Operation
  Exploration and development spending for Q2 2015 was $13 million.$12 million of this total was spent to complete construction of the East Edson gas plant.Total expenditures were about $31 million on the processing plant along with gathering systems and tie-in operations of the wells.Also on April 10,2015 they sold land in east central Alberta  for $21 million to reduce debt.However  funds from operations(FFO) fell from $25 million in Q2 2014 to $3 million which was partly affected by the West Edson swap.Operating netbacks in Q2 were $10.16 boe which was 64% higher than Q1.This partly reflected cost savings and partly a small increase in prices.PMT also recorded gains of $135 million on other asset swaps and asset dispositions.So total debt was down from $360 million to $120 million.This aside from the TOU shares  they had valued at $253 million.
    The East Edson property
  The original discovery in the Edson structure was at East Edson.It is not known how far west Perpetual still owns.But next West Edson was discovered and then PMT made a joint venture to develop it faster.Now most of it has been sold but there may be the southwest corner that remains with PMT.Development at East Edson is continuing on the construction of a gas processing plant.It opened in July,2015 but PMT expects to expand it another 50% in the third quarter.It may drill another two well pad here as there are another 87 undeveloped drilling locations and a further 22 future development locations.East Edson seems to be a large property and the Tourmaline shares may only be used to develop this land.
      Outlook
 The outlook for Perpetual Energy  looks brighter now than it did at the start  of the year.It's total assets have increased from $747  in 2014 to $845 million in 2015 while debt has fallen from $359 million to $120 million in 2015.Perpetual has 5 wells and one being converted in a pool at their Mannville heavy oil property.But they will not develop this with the present oil prices.They have a substantial capital expenditure program and will spend almost it all on East Edson.Their gas processing plant will be soon expanded  by 50% and allow for increased production.Perpetual says that with the present size of the gas plant that they have replaced all lost production from West Edson.If this is true then when the processing plant has been expanded in the third quarter they will finally see production go higher than 22,000 boe/day.Two questions remain for investors.(1) Did they keep the southwest corner of West Edson for their own production? and (2) How far west does their East Edson property extend?This will determine whether Perpetual Energy goes back up beyond $1.00 per share.Either way Perpetual Energy is a successful driller in a little known area -the Edson structure and made it work.