Pengrowth gets ready for the Lindberg project
On October 30 Pengrowth Energy released it's third quarter operational and financial performance.It's Q3 daily production was 72,472 boe/day and had funds flow of $129 million or $.24 per share.Production fell from 73,823 boe/day in the second quarter and from 83,275 boe/day in the same quarter of 2013.Also funds flow went from $455 million to $390 million for nine months but still should be close to guidance given for the year of $540 million.This should produce earnings of about $1.00 per share and even $.75 per share for nine months.It had strong production from it's Cardium wells in the Olds,Garrington area.It also stated that it has a large percentage of it's 2014 and 2015 oil and gas production already hedged at good prices,that is prices above present the spot price.
The Lindberg project
For the Lindberg project the completion of the first phase is just around the cash corner.Pengrowth expects a positive cash flow in Q1 of 2015 and first steam of the heavy oil plant in December, 2014.Pengrowth expects commercial production of 12,500 bbl/day in January,2015.They also state that the pipeline will be completed in Q4 2014 ;this pipeline will presumably connect them to one of the other main pipelines.Pengrowth expects it to be profitable right away and says that it could even produce a 10% return at a WTI oil price of $50 a barrel.However these projects that have so many variables often are late to start or overestimate their original success.This blog has repeatedly warned that a small acquisition would allow them to not rely so much on Lindberg;there are a few small Alberta-based companies would fit into their stable of assets.
Capital Expenditures
The capital expenditures for 9 months went from $645 million to $456 million and that included $29 million from the disposition of non-core assets.While total debt went from$1,609 million to $1,719 million $62 million was spent on non-thermal or conventional business.Most of the capital expenditures were spent on the Lindberg project but the $62 million spent on conventional assets produced 23 wells with 100% success.It now has opportunities in the Mannville and Swan Hills areas that already provide cash flow.In addition, they have drilled 2 wells in Lloydminster area and two in the Montney area plus 3 in the Judy Creek area.No estimate was given of present or expected production.But it is fairly clear that more expenditures and drilling must be done in the Mannville and Swan Hills areas.These are proven areas and Pengrowth must increase it's overall production in the fourth quarter.Lloydminster and Montney and Judy Creek are proven areas but Pengrowth has little history there.The Mannville area will produce heavy oil and may require less expenditure to produce a commercial resource.Once this occurs they would only need a pipeline to connect with the Lindberg heavy oil.
The fourth quarter
Pengrowth has seen it's production fall from Q3 of last year and from Q2 of this year.This has lead to a reduction in the price from the $7.50 area to the present $4.50 area in about two months.Pengrowth has already stated that Lindberg will not be making positive cash flow until Q1 2015 but maybe it will only be in Q2 2015.Both Mannville and Swan Hills need a local pipeline to connect to the main pipelines.If Pengrowth doesn't have some positive news on production increases or an acquisition the price may fall again.Then a delay in the Lindberg project profitability will hurt even though the company has production of around 70,000 barrels a day.Investors have to realize this is only short term panic because after all Pengrowth still will have earnings per share of about $1.00 per share in Q4 and a Price/Earnings ratio of about 4 times earnings.This makes the Lindberg project worth waiting for.
The Lindberg project
For the Lindberg project the completion of the first phase is just around the cash corner.Pengrowth expects a positive cash flow in Q1 of 2015 and first steam of the heavy oil plant in December, 2014.Pengrowth expects commercial production of 12,500 bbl/day in January,2015.They also state that the pipeline will be completed in Q4 2014 ;this pipeline will presumably connect them to one of the other main pipelines.Pengrowth expects it to be profitable right away and says that it could even produce a 10% return at a WTI oil price of $50 a barrel.However these projects that have so many variables often are late to start or overestimate their original success.This blog has repeatedly warned that a small acquisition would allow them to not rely so much on Lindberg;there are a few small Alberta-based companies would fit into their stable of assets.
Capital Expenditures
The capital expenditures for 9 months went from $645 million to $456 million and that included $29 million from the disposition of non-core assets.While total debt went from$1,609 million to $1,719 million $62 million was spent on non-thermal or conventional business.Most of the capital expenditures were spent on the Lindberg project but the $62 million spent on conventional assets produced 23 wells with 100% success.It now has opportunities in the Mannville and Swan Hills areas that already provide cash flow.In addition, they have drilled 2 wells in Lloydminster area and two in the Montney area plus 3 in the Judy Creek area.No estimate was given of present or expected production.But it is fairly clear that more expenditures and drilling must be done in the Mannville and Swan Hills areas.These are proven areas and Pengrowth must increase it's overall production in the fourth quarter.Lloydminster and Montney and Judy Creek are proven areas but Pengrowth has little history there.The Mannville area will produce heavy oil and may require less expenditure to produce a commercial resource.Once this occurs they would only need a pipeline to connect with the Lindberg heavy oil.
The fourth quarter
Pengrowth has seen it's production fall from Q3 of last year and from Q2 of this year.This has lead to a reduction in the price from the $7.50 area to the present $4.50 area in about two months.Pengrowth has already stated that Lindberg will not be making positive cash flow until Q1 2015 but maybe it will only be in Q2 2015.Both Mannville and Swan Hills need a local pipeline to connect to the main pipelines.If Pengrowth doesn't have some positive news on production increases or an acquisition the price may fall again.Then a delay in the Lindberg project profitability will hurt even though the company has production of around 70,000 barrels a day.Investors have to realize this is only short term panic because after all Pengrowth still will have earnings per share of about $1.00 per share in Q4 and a Price/Earnings ratio of about 4 times earnings.This makes the Lindberg project worth waiting for.
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