Pieridae Energy Limited

Good day, ladies and gentlemen, and welcome to the Para Day Energy Q4 and Full Year 2023 Financial Results Conference Call. Please be advised that today's conference is being recorded, and at this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you have a question and you're viewing on the webcast, please use the Ask a Question button on the top right-hand corner to type your question at any time during the presentation. If you are participating via telephone and would like to ask a question, please dial star 11 at any time. You will then be in the queue for the question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance. Please go ahead, Mr. McConnell.

Thanks very much, Daniel, and good morning. I would like to welcome everyone to Paraday Energy's fourth quarter and full year 2023 conference call. With me today are President and Chief Executive Officer Darcy Redding, Chief Financial Officer Adam Gray, Chief Operating Officer John Emery, and Chief Commercial Officer Paul Kunkel. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Paraday with Canadian Securities Regulator on CDARplus.ca. With that, I will now turn the call over to our President and CEO, Darcy Redding, who will provide more detail on our performance last quarter, along with recent corporate developments.

Thank you, Dallas, and good morning. We appreciate your time and interest as we close out our 2023 results and look forward to 2024 and some of the exciting opportunities that we have in front of us. The 2023 year was one where we achieved a number of milestones on our strategic journey, while at the same time successfully managed through unexpected and challenging events that I'll elaborate on more in a few minutes. In the first half of 2023, we successfully refinanced our long-term debt with a US$150 million funding that provided a material reduction in our cost of capital and added financial flexibility with both the revolver and delayed draw component. Commensurate with this financing, we entered into significant hedge positions on our natural gas and condensate production that span approximately a four-year time period ending in mid-2027. Of note, and as a reference point, the 2024 calendar year component of our hedge position sees approximately 65% of our budgeted natural gas sales volume hedged at an attractive average price of approximately $3.32 per gigajoule. This natural gas hedge has added a significant layer of protection to our 2024 cash flow and is largely responsible for a material mark-to-market hedge gain given the sustained low ACO natural gas pricing expectation through most of 2024. Adam will provide additional commentary on our hedges later in our call. Our intent to divest our LNG business was previously communicated, and we advanced the planned sale of the Goldboro Nova Scotia LNG assets in the fourth quarter of 2023. While we are unable to disclose more specific information at this time, we remain confident in the probability of closing a successful sale transaction in the first half of 2024, as we communicated in our last quarterly investor call back in November 2023. Consistent with our strategic plan and prior communications, disposition of our LNG assets reinforces our commitment to growing our natural gas processing business and enables focus on the continued maturation of our upstream and new venture business opportunities. 2023 also brought a few unexpected challenges. In what was arguably an unprecedented wildfire season in northern Alberta and northeast British Columbia, the company experienced both intermittent and sustained voluntary production outages in these regions as we prioritized the safety of our workers and shut down our production operations in these areas. By October, the imminent wildfire threat had passed, but it left us with damaged infrastructure in our Equan property in Northeast BC. We have since repaired and replaced most of the damaged equipment and resumed most production at Equan, and we are working within our insurance coverage as it relates to business interruption and property damage. Low natural gas pricing also drove our decision to shut in approximately 750 BOEs a day of uneconomic dry gas production in West Central Alberta in the fourth quarter. This production is tied into a third-party gas plant, so there is no impact to our own processing facilities. With persistent low natural gas pricing, this production remains shut in so far in 2024. Adam will speak to our 2024 corporate guidance in a few minutes. The scheduled Waterton gas plant maintenance turnaround concluded in the fourth quarter of 23. The turnaround inspections identified unexpected repairs in the sulfur unit's waste heat boiler which extended the turnaround time by approximately one month, detrimentally impacting anticipated 2023 production and cash flow. However, catching these repairs and addressing them at the time the facility was shut down for its turnaround has significantly mitigated the risk of a future unexpected outage at the Waterton facility. We also experienced an unplanned outage spanning parts of Q2 and Q3 at the Caroline gas plant due to a sulfur unit condenser failure. Consistent with our strategy of looking for opportunity in unexpected events, we utilized that unplanned outage to address additional maintenance requirements that would normally be done during a scheduled turnaround. This gave us the ability to extend the next scheduled Caroline gas plant maintenance turnaround by two years to 2026. Despite these challenges, we generated a respectable $131 million of net operating income supported by our aforementioned strong hedge position. Turning now to our fourth quarter 2023 operating results, average production was just over 33,300 BOE per day with $53 million of operating expense delivering a net operating income of $25 million. which was bolstered by a $10 million hedging gain. These Q4 numbers were negatively impacted by the previously discussed unplanned outages, but our December exit rate production was significantly higher at approximately 37,500 BOEs per day. This exit rate is a strong indicator of our corporate production capability when abnormal outages are eliminated. Our strong production volumes have continued through early 2024, and even the cold snap of January proved to be far less impactful to the company than what was experienced by other operators in our core areas. A quick look at our operating expense trends, as shown by the graph in the lower right corner of the slide for those that are video connected, highlights the relatively flat trend of our costs over the past two years despite significant inflationary cost pressures coming out of the COVID pandemic. As we move into 2024, we have further sharpened our focus on cost structure and are confident that as the year progresses, we will report additional cost improvements as general optimization and fuel gas reduction initiatives attract even more scrutiny in a low natural gas pricing and escalating carbon tax environment. As always, We believe it is worth noting our adjusted operating expense depicted by the red line on this same chart. Adjusted operating cost accounts for the additional complexity of our deep cut sulfur recovery gas plants that have significant capacity to provide custom processing services. By including sulfur revenue and custom processing revenue to offset operating expenses, our resulting adjusted operating expense in the fourth quarter was under $13 per BOE, a nearly $5 per BOE improvement compared to our reported operating expense. As we expand our timeframe and look at full year 2023 results now, production volumes of approximately 32,800 BOE per day with operating expense of $224 million resulted in the $131 million net back I mentioned earlier. which included a sizable hedge gain of $61 million. Capital expenditures of $59 million were dominated by maintenance investments in our facilities, including our Waterton gas plant turnaround, and finishing the drilling completions and tie-in work associated with our two-well drilling program in the Brown Creek area of central Alberta that was kicked off in late 2022 and carried into 2023. Worth mentioning is that we spent approximately $7 million of capital on optimization opportunities in 2023. This successful investment yielded a return on capital in excess of 200% and contributed to the strong exit production of 37,500 BOEs per day that I previously mentioned. We continue to see the benefit of these optimization efforts in the first quarter of 2024. This result also puts an exclamation mark on why we are excited to continue our focus on optimization as a means to mitigate our already low base decline of approximately 8% down to approximately 5%, which is amongst the lowest decline rate of all well production owners in Western Canada. I'd like to spend a few minutes now on our net asset value and year end 2023 independent reserve evaluation completed by Deloitte. For those able to view our slide showing the supporting data, the right hand side shows our current market capitalization of approximately $55 million. Our net debt of $204 million and a resulting financial liability calculation of $198 million. Further down the right side of the slide, the NPV10 of our Deloitte reserves evaluation shows a PDP value of $614 million and a 2P value of nearly $1.4 billion. By offsetting those reserve values with the full accounting of our corporate ARO, along with the previously mentioned financial liability, we calculate a net asset value of $267 million on a PDP basis and just over $1 billion on a 2P basis. Converting that calculated net asset value to a per share equivalent shows a PDP value of $1.68 per share and a 2P value in excess of $6 per share. These values are slightly reduced on a fully diluted basis as shown in the chart. Similarly, Our current share price as a ratio to this net asset value results in approximately a 0.2 share price to NAV ratio falling to a paltry 0.05 on a 2P NAV basis. From our analysis, we believe it is clear our current share price is extremely undervalued and does not adequately reflect the underlying value of our reserves, infrastructure, and additional unbooked upside opportunities. The chart in the middle of the left-hand side of this slide shows our success in largely maintaining our reserves and the associated net present value of those reserves over the past several years. I'd ask you to make a mental note of that chart, as I would like to come back to it in my concluding remarks in a few minutes. So at this time, I would like to hand the floor over to Adam Gray, our Chief Financial Officer, for a financial overview of the Q4 and full year 23 results, along with some additional detail and commentary on our corporate hedges and guidance.