Has Pengrowth Energy hit the bottom?
On August 6,2015 Pengrowth Energy released it's 3 and 6 month quarterly report.Results were down from the same quarter in 2014 but up from the last quarter.For example, daily production was 74,113 boe/day which is a 7% increase from Q1 2015.Most of the increase came from the Lindberg heavy oil project.Originally it (when it came onstream)it produced 12,500 barrels per day,now it is producing 14,600 barrels per day and it should produce 16,000 barrels per day at year end.Funds flow was unchanged over Q1; it was $112 million versus $113 million in Q1.This was a result of an active risk management program.They also had a small reduction in the capital spending program;it went from$220 to $240 million to $190 to $210 million for the year.On the positive side their operational netback was the same as in Q1.It also announced that it would have around $600 million in non core asset sales.In addition, there will be a 7% reduction in head office staff.Importantly they announced that they will do more hedging in the next half.
Summary
Pengrowth's operational statistics seem adequate given the falling price of oil.Funds flow has been constant over the last quarter,capital spending has been pared down slightly and production is almost stable.More importantly their operational netback is slightly higher than for the same quarter last year.There has been an increase in heavy oil production in this quarter and an expected increase by year end.This is important because the netback on oil produced from Lindberg is higher than their overall netback. Future capital spending for 2015 and even for 2016 can be kept at a reduced level.That is because the main SAGD (heavy oil) plant has been built and a sales pipeline to Husky has been installed.Also 15 downhole pumps have been installed.However there will be future spending (probably in 2016) for the second phase expansion.The second phase will allow production at Lindberg to increase to 30,000 barrels per day. This increase in production may allow Pengrowth to have an increase in funds flow in 2016.But it must be stressed that the second phase must be built as efficiently as the first phase.Even with increased production it is true that Pengrowth will not have positive net income in 2016.
Lindberg's production will likely rise every quarter until the end of 2016.Also because of it's efficient operation the netback for Lindberg is higher than their overall netback.This should make their funds flow increase steadily through 2016.In other words it looks like Pengrowth is getting close to the bottom.However the average price per barrel in the third quarter will be lower than the average price in the second quarter.So the overall netback in the next quarter may drop slightly again.Consequently the price of Pengrowth shares may drop below the present level temporarily but should rise again quickly.The present price range will persist thoughout 2015 or until the price of oil moves back above $50 per barrel.
Summary
Pengrowth's operational statistics seem adequate given the falling price of oil.Funds flow has been constant over the last quarter,capital spending has been pared down slightly and production is almost stable.More importantly their operational netback is slightly higher than for the same quarter last year.There has been an increase in heavy oil production in this quarter and an expected increase by year end.This is important because the netback on oil produced from Lindberg is higher than their overall netback. Future capital spending for 2015 and even for 2016 can be kept at a reduced level.That is because the main SAGD (heavy oil) plant has been built and a sales pipeline to Husky has been installed.Also 15 downhole pumps have been installed.However there will be future spending (probably in 2016) for the second phase expansion.The second phase will allow production at Lindberg to increase to 30,000 barrels per day. This increase in production may allow Pengrowth to have an increase in funds flow in 2016.But it must be stressed that the second phase must be built as efficiently as the first phase.Even with increased production it is true that Pengrowth will not have positive net income in 2016.
Lindberg's production will likely rise every quarter until the end of 2016.Also because of it's efficient operation the netback for Lindberg is higher than their overall netback.This should make their funds flow increase steadily through 2016.In other words it looks like Pengrowth is getting close to the bottom.However the average price per barrel in the third quarter will be lower than the average price in the second quarter.So the overall netback in the next quarter may drop slightly again.Consequently the price of Pengrowth shares may drop below the present level temporarily but should rise again quickly.The present price range will persist thoughout 2015 or until the price of oil moves back above $50 per barrel.
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