Pieridae Energy Limited

Good day, ladies and gentlemen, and welcome to the PeriDay Energy Q3, 2024 Financial Results Conference call. Please be advised that today's conference is being recorded. 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 are viewing on webcast, please use the Ask a Question button in 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 1-1 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.

Thank you very much, Tanya, and good morning, everyone. I would like to welcome everyone to PeriDay Energy's third quarter 2024 conference call. With me today are our President and Chief Executive Officer Darcy Redding, Chief Financial Officer Adam Gray, Chief Commercial Officer Paul Kunkel, and Chief Operating Officer John Emry. 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 PeriDay with Canadian Securities Regulators 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. Good morning and thank you for your time today. As usual for those following along on the webcast, the PowerPoint slides will provide information you may find useful. The third quarter of 2024 was highlighted by the achievement of several key milestones in our corporate strategy at a time when our realized natural gas price continued to be plagued by ongoing eco-price weakness. As has been the theme in the company results for several consecutive quarters, our strong natural gas hedges continued to mitigate these poor natural gas prices. Additional details on pricing, commodity revenue and hedging will be discussed later in this session. We were extremely pleased to close the sale of our Goldboro, Nova Scotia liquefied natural gas assets during the quarter. Completing this transaction was a key event that effectively closes the chapter on PeriDay's LNG business and historical roots. We are extremely pleased with the $12 million of cash proceeds from the sale as these funds were instrumental in successfully achieving a second important milestone in our corporate strategy this quarter, repayment of the bridge loan. The bridge loan was scheduled to mature in December 2024, at which time any remaining amounts would be convertible to common share equity. With the Goldboro proceeds, assisted by a $4.5 million equity raise via a private placement of common shares, PeriDay was able to fully retire the bridge loan principal and accrued interest. Shedding the high 18% fixed interest rate on the bridge loan has decreased the company's cost of debt. Along with the Goldboro sale, achieving these two significant milestones has simplified PeriDay's business by reducing our lending complexity and providing an opportunity to structure, which is yet another part of our corporate strategy and an endeavor we have already initiated. Despite the eco-natural gas price averaging only $0.64 per gigajoule in the third quarter, the company realized net operating income of nearly $20 million, largely on the back of a healthy commodity hedging gain of nearly $27 million in the quarter. Although the company maintains a hedge position on condensate, this hedge gain is almost entirely attributed to our approximately 100,000 gigajoules per day of hedged natural gas. A particular note in the quarter, the company shut in additional volumes of natural gas production. In aggregate, with the shut-ins prior to the third quarter, PeriDay has now proactively shut in nearly 9,400 BOEs per day of uneconomic volumes. This is just over 25% of the company's total production capability. Nearly all of this is dry natural gas that produces to third-party gas processing facilities. Operating costs were favorably improved with these shut-in volumes, since a significant portion of operating expense is tied to the raw gas processing fees paid to third parties. In this low-eco gas price environment, these fees exceed the value of the sales gas and other products derived via the processing facility. These shut-in volumes are forecasted to remain shut-in through the end of 2024 and through 2025, based on current forward curve pricing. Keeping these uneconomic volumes shut-in will continue to enhance our net operating income while preserving the value of our hydrocarbon resource for our shareholders. Production volumes of approximately 23,100 BOEs per day in the quarter were affected significantly by the previously mentioned voluntary shut-ins, as well as our scheduled Waterton gas plant maintenance turnaround that kicked off in early September and was completed on budget in October. Lastly, our backstopped rights offering announced in the quarter raised $29 million in common share equity from existing shareholders, including officer and director insiders. This rights offering closed in early October, bringing in an aggregate of $33.5 million of new equity into the company, including the private placement that closed early in the third quarter. Providing additional detail now, prior to closing the rights offering at the end of the third quarter, the company's $207 million net debt, which includes cash and working capital deficit, contributed to an enterprise value of $250 million, as shown in the leftmost numerical column. The $29 million of equity raised through the rights offering was partially allocated to the company, reducing both the balance on our revolving loan and our working capital deficit, leaving approximately $15 million of available cash from the rights offering. Subsequent to the end of the third quarter and upon closing of the rights offering, the company's net debt on a pro forma basis was $178 million on an unchanged enterprise value of $250 million, which includes a $21 million cash position. This pro forma summary is shown in the far right column of this slide. Beginning immediately in the fourth quarter of 2024, approximately $15 million of this pro forma cash position is being allocated to investment into highly accretive, low risk optimization projects that will deliver an attractive combination of short payout, incremental net operating income, and a robust rate of return. These optimization investments will carry over into the first half of 2025 until the full allocation of funds is complete. These investments will deliver meaningful improvements to key performance indicators, including net operating income and leverage ratios. Deploying these funds, as described, enables acceleration of the corporate strategy, since the free cash flow from the business is anticipated to remain too low in 2025 under current forward curve pricing to fund these optimization opportunities without the additional funds from the rights offering. Turning now to our third quarter operating results, I'd like to start with a high level overview before I pass things off to Adam Gray, our Chief Financial Officer, for a more thorough review of quarterly performance. As previously mentioned, we initiated further action to shut in substantial volumes of dry uneconomic gas processed at third party facilities in the quarter. This greatly reduced our sales production, but at the same time reduced total operating cost expenditures, primarily due to the elimination of processing fees paid to these third parties. The resulting improvement to net operating income and net back in the quarter, as shown in the chart located in the lower right portion of this slide, illustrates the positive impact of these decisions to shut in. We continue to successfully execute on our strategy of growing our midstream raw gas processing business, and our third quarter delivered a year over year increase in third party processing volumes of 49% at the Caroline gas plant. The Caroline plant remains a focus area for midstream business growth because of the ongoing robust development drilling occurring in the region surrounding the gas plant. This drilling of liquids rich targets continues to provide attractive returns for a number of mineral rights lessors that are active in the area, and we anticipate continued growth opportunity for our processing business as a result. Capital expenditures for the quarter were directed almost exclusively towards completion of the Waterton gas plant turnaround project and a small de-bottlenecking project at the Caroline gas plant that enables the company to seamlessly accommodate the growth we anticipate in our processing business as just mentioned. I'd like to note that a portion of the approximately $15 million in total cost for the Waterton turnaround was invested in prior quarters for upfront planning and to procure long lead time materials. As we move forward, it is noteworthy that we have not scheduled, nor do we anticipate, any significant maintenance turnaround activity or expenditures at our large facilities in 2025. We will continue to explore options to reduce future turnaround costs while maintaining safe, responsible and regulatory compliant operations. At this time, I'd like to hand things over to Adam Gray for additional detail on our operating and financial results, guidance and commodity hedging status.

Thanks, Darcy, and good morning. I don't have too much to add this morning, but we'll begin by touching on a few key financial metrics from the quarter. During this multi-year low in gas pricing, we're pleased to have generated $0.12 per share in net operating income and $0.05 per share in operating funds flow. Both of these amounts are prior to the gain we realized on the sale of our Goldboro asset, which represented another one-time benefit of $0.045 per share for shareholders. There's no question that our ability to deliver net operating income was very influenced by our risk management contracts this quarter. However, by proactively shutting in high-cost production, we demonstrated meaningful reduction in operating expenses as well. During the quarter, we realized natural gas pricing of $3.43 per MCF on the approximately 115,000 MCF per day of produced gas. This realized price was 445% higher than the market price during the quarter and 6% higher than our realized price in the comparative quarter of 2023. In addition to natural gas, we produced just over 2,000 barrels per day of condensate and just under 2,000 barrels per day of natural gas liquids, primarily butane and propane. These amounts were down slightly during the third quarter, primarily because of the Waterton turnaround timing, but our production of liquids was not significantly impacted by the voluntary shut-ins with which Darcy discussed, as nearly all those shut-in properties produced dry or very nearly dry natural gas. Pricing on our WTI-linked liquids production was also influenced by the risk management contracts we have in place, but was closer to market at $84.61 per barrel for the quarter versus market of 92.13. I'll spend a couple minutes refreshing you on our hedge program on the next slide. I'll spend a bit of time talking about our operating expense results in more detail. We incurred $38.4 million in operating expenses during the third quarter, a reduction of $17 million or 30% from the comparative period in 2023. The savings from temporarily shutting in uneconomic properties during the quarter accounted for approximately $6 million of the $17 million in total savings. An additional $6 million in cost reduction was realized as we updated our -to-date carbon tax models to reflect ongoing improvements in our operations, which impact carbon emissions. These improvements include a number of initiatives to reduce the fuel gas burned in our operations and the positive impact on carbon intensity of increasing third-party processing volumes through our facilities. I believe in the next year or so, we have a real chance of driving carbon intensity efficiency sufficiently high that at least one of our facilities could begin earning carbon credits as opposed to paying carbon tax under the Alberta Tier Program. This reflects a significant change in prospects from around two years ago when we began these efforts. The remaining savings relate to ongoing initiatives to conduct field and facility optimization and cost reduction projects. Operating costs have also been reduced on a per BOE basis to $18.08, an improvement of just under 10% from the comparative period last year. A significant component of our strategy has been to change the way we conduct our operations in order to drive PARA-DAY's breakeven natural gas pricing down. These efforts will continue and are definitely starting to bear fruit. In addition to straight operating cost reductions, our efforts to improve profitability are focused around getting the most out of our three deep-cut sour gas operating processing facilities, which we, whether by our own volumes or by attracting third-party processing volumes, these facilities are more efficient and more profitable when they are full. The majority of our operating expenses represent costs to process our own and third-party volumes through these facilities. As third-party volumes increase as a percentage of total facility throughput, adjusted operating expense will continue to be a better measure of our cost efficiency, as the denominator includes all the volumes we process as opposed to just our own volumes. Adjusted operating expense on a per BOE basis was down 17% to $14.91 during the quarter. Finally, on financial results, we continue to make efforts to minimize G&A, which has been reduced by 16% in aggregate from the same time last year. G&A per BOE grew slightly this quarter, but that only reflects the volumes we had temporarily shut in. I'll turn your attention to the capitalization table at the bottom left of this slide. Again, as Darcy mentioned, we are very pleased to have repaid the bridge loan in full with the help of our Goldboro asset sale and an existing shareholder who contributed a $4.5 million private placement over the summer. That loan was the final legacy amount remaining from the original debt package structured to finance the 2019 acquisition of the Shell Foothills assets. We are also very pleased to have closed the $29 million rights offering, which Darcy spoke to subsequent to the end of the quarter. I'd like to personally thank the shareholders who participated in that rights offering. We consider it to have been a real success, and we are looking forward to working very hard to exceed your expectations in our delivery of return on those investments. Next slide. Turning your attention now to our hedge position and guidance update, I'll start with the chart on the lower left of this slide, which shows our natural gas hedge position and pricing in green versus the current multi-year ACO price strip in red. As you can see, the entirety of our gas hedge book is in the money, representing an unrealized gain of approximately $85 million between now and mid-2027. That -to-market is nearly exactly the same as it was at the end of Q2 this year after having realized over $26 million in hedge gain throughout the third quarter. That reflects the continued weakness in the ACO forward strip. At our current production level, we are very close to 100% hedged on gas at $3.32 per GJ or $3.50 per MCF, with a position of 110,000 GJs in place between now and mid-2026. Any currently shut-in production we choose to bring back on will be subject to market prices and will allow us to participate in the eventual recovery of ACO pricing. These gains are offset a bit by our liquids hedging program, where we have left a little bit of money on the table recently, as you can see in the chart on the bottom right. However, the pricing we have locked in on WTI supports our business, and we're happy to minimize the volatility on our WTI linked products, while leaving about half of our liquids production open to market pricing. Finally, I'll note that we have not made any changes to our guidance this quarter. You'll recall that we removed our production guidance last quarter, as we had started to proactively shut in on economic fields. Because we don't know when we'll choose to restart that production, it seemed prudent to withdraw that guidance at the time. That concludes my comments on the quarter, and I'll turn things back over to Dallas to wrap us up.

Thanks, Adam and Darcy. The conference operator will now manage the question and answer portion of the call. Darcy, Adam, Paul, and John will answer any questions that you have.

Certainly. We will now take questions. If you have a question and you are viewing on webcast, please use the Ask a Question button in the top right-hand corner to type your question. If you have a question and you are participating via telephone, please press star 1-1 on your telephone keypad. There will be a brief pause while the participants register. Thank you for your patience. And I'm showing no phone questions at this time. I'd like to turn the call back to Mr. McConnell.

Thank you. Just waiting now to see if there's any questions coming in over the webcast. We'll give folks a

couple minutes. Okay, there are no questions

at this time. I'd like to thank everyone for participating today. We very much appreciate your ongoing interest in Parity. If you have further questions, you can call us at -261-5900 or email at investors at paridayenergy.com. Thanks again and we look forward to speaking with you soon. Have a nice day.

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.