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Perpetual Energy Inc. Releases Second Quarter 2017 Financial and Operating Results

August 10, 2017

CALGARY, Aug. 10, 2017 /CNW/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual", the "Corporation" or the "Company") is pleased to release its second quarter 2017 financial and operating results. A complete copy of Perpetual's unaudited condensed interim consolidated financial statements and related Management Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2017 can be obtained through the Company's website at www.perpetualenergyinc.com and SEDAR at www.sedar.com.

Perpetual is on track for profitable growth in 2017. Strategic focusing of the asset base and active balance sheet management positioned the Company for the renewal of capital investment through the first half of 2017 to grow operations in key plays in East Edson and Mannville. At the same time, attention on cost reductions in every component of the business is further boosting returns and translating into an increasingly solid platform for sustainable value creation.

SECOND QUARTER 2017 HIGHLIGHTS

Production and Operations

  • Extremely wet spring break up conditions persisted over much of the second quarter, limiting capital activity. Perpetual's exploration and development spending in the second quarter of 2017 totaled just $4.0 million, primarily for the drilling of one (1.0 net) horizontal gas well and preparatory work for frac activities for the three standing horizontal first quarter drills awaiting completion at East Edson.

  • Average production of 9,223 boe/d was up 13% compared to the first quarter as natural declines were more than offset by increased production driven by the ramp up of capital investment. Production was down 42% from the second quarter of 2016, almost entirely related to the disposal of the vast majority of the Company's shallow gas assets on October 1, 2016 (the "Shallow Gas Disposition").

  • Total production and operating expenses were relatively flat at $4.6 million as compared to the first quarter of 2017, but were down 51% compared to $9.5 million recorded during the same period in 2016. This decrease reflected the impact of the Shallow Gas Disposition and continued efficiencies realized through the Company-owned and operated gas plant at East Edson, offset somewhat by higher costs incurred for extra road and lease maintenance due to wet weather conditions throughout the quarter. Production and operating expenses on a unit-of-production basis were down 15% from the comparative 2016 quarter to $5.52/boe, (Q2 2016 - $6.53/boe; Q1 2017 - $6.28/boe) due to the strategic high grading of assets and are expected to continue to decrease through the remainder of 2017 as production grows through focused capital investment.
     
  • With the completion of five wells at East Edson since the end of the second quarter, current production capability has now reached the Company's forecast exit rate for year end 2017 of close to 13,000 boe/d.

Financial Highlights

  • Realized revenue of $19.9 million was virtually flat as compared to the second quarter of 2016, despite the 42% decrease in production, due to increased realized commodity prices. Quarter over quarter in 2017, realized revenue increased 5% driven by strong production growth, offset by weaker prices for natural gas and natural gas liquids ("NGL").

  • Increased AECO Monthly Index prices were reflected in Perpetual's natural gas price, including derivatives, of $3.18/Mcf for the second quarter of 2017, up 72% from $1.85/Mcf for the same period in 2016 (Q1 2017 - $5.04/Mcf) and 15% higher than the second quarter AECO Monthly Index price of $2.77/Mcf (Q2 2016 – $1.25/Mcf; Q1 2017 – $2.94/Mcf). Higher heat content gas (1.16 GJ:1 Mcf), as well as price optimization strategies applied to prompt month physical settlements, contributed to improved realized prices over the AECO Monthly Index price.

  • Perpetual's 2017 second quarter oil price, including derivatives, of $43.91/bbl increased 12% compared to the same period in 2016, due primarily to the 20% increase in Western Canadian Select ("WCS") pricing driven by both higher benchmark West Texas Intermediate ("WTI") prices, lower WCS differentials and a weaker Canadian dollar.

  • Perpetual's realized average NGL price for the second quarter of 2017 reached $44.28/bbl, up 28% from the second quarter of 2016, reflecting an increase in all NGL component prices as excess North American inventory levels began to stabilize as well as an adjustment for prior period sales.

  • Royalty expenses for the quarter were $3.6 million, representing an increase in the effective combined average royalty rate on revenue to 18.3% (Q2 2016 - 11.3%; Q1 2017 – 17.1%). Average crown royalty rates increased to 3.8% in the second quarter of 2017 compared to 3.2% in the second quarter of 2016 (Q1 2017 – 2.6%), due to the completion of the initial reduced royalty period for several East Edson wells and disposition of lower net royalty assets sold as part of the Shallow Gas Disposition, combined with higher Alberta natural gas reference prices and higher oil prices. Freehold and overriding royalty rates increased from 8.1% in the second quarter of 2016 to 14.5% in the 2017 period (Q1 2017 – 14.5%), reflecting both the increase in natural gas prices and reduced total revenue following the Shallow Gas Disposition, leaving a larger percentage of total production sourced from East Edson wells in the second quarter of 2017. As the East Edson gross overriding royalty is a fixed volume of 5.6 MMcf/d plus associated liquids, royalties as a percentage of revenue are expected to decrease as production at East Edson grows in 2017 with renewed capital investment.

  • Perpetual's operating netback of $12.42/boe in the second quarter of 2017 increased 172% from $4.56/boe in the comparative period of 2016. This increase was due to the 71% increase in realized revenue per boe due to higher commodity prices and higher average heat content gas sales combined with the positive impact of the 15% reduction in unit production and operating expenses, offset by higher royalties. Quarter over quarter, operating netbacks were down slightly from $13.91/boe in the first quarter of 2017.

  • Cash interest expense in the quarter decreased 57% to $1.9 million (Q2 2016 – $4.5 million; Q1 2017 - $1.9 million), primarily driven by the reduction of $214.4 million principal amount of 8.75% senior notes that were exchanged for 4.4 million of the Company's shares of Tourmaline Oil Corp. ("TOU") during the second quarter of 2016, combined with the early cash repayment on April 17, 2017 of $27.1 million of 8.75% senior notes due to mature on March 15, 2018 (the "2018 Senior Notes"). These cash interest expense reductions were partially offset by the $0.7 million in interest charged on the 8.1% $35 million term loan that was initially drawn on March 14, 2017 (the "Term Loan").

  • Despite the 42% drop in production, adjusted funds flow grew to $5.2 million, compared to negative $1.9 million in the second quarter of 2016 (Q1 2017 - $5.1 million).

  • The Company recorded a net loss for the second quarter of 2017 of $7.2 million, compared to net income of $64.9 million in the comparative period of 2016 (Q1 2017 - $14.2 million loss). The gain in the 2016 period was primarily driven by the $81.6 million gain on the exchange of senior notes for TOU shares and a $21.4 million gain in the mark-to-market value of its TOU share investment.

2017 STRATEGIC PRIORITIES

During the second quarter of 2017, significant progress was made to advance Perpetual's top four strategic priorities for 2017 which include:

  1. Grow value of Greater Edson liquids-rich gas;
  2. Optimize value potential of Eastern Alberta assets;
  3. Advance high impact opportunities; and
  4. Optimize balance sheet for growth.

Grow value of Greater Edson liquids-rich gas

  • Despite higher than typical costs for road and site maintenance created by the excessive rain and wet conditions during the second quarter, Perpetual's top quartile operating cost structure at East Edson further improved to average $3.11/boe (Q2 2016 – 3.29/boe; Q1 2017 3.63/boe). Road upgrades later in 2017 are budgeted to reduce future road maintenance costs and minimize access risks for NGL trucking.

  • Drilling recommenced in early June, with one (1.0 net) new well drilled and rig released during the second quarter. The continuous, single rig drilling program has continued into the third quarter. Two additional wells on the current four-well pad are now rig released and drilling operations are ongoing on the fourth well post breakup.

  • Plans are in place to continue the consecutive drilling program through to the first quarter of 2018, with the drilling of up to nine Wilrich horizontal development wells during the second half of 2017. Several of the locations will evaluate extended reach horizontals as well as progressive drilling and frac design changes, with the goal to continue to improve on capital efficiencies in the Wilrich play.

  • Extremely wet conditions delayed planned completion and frac operations on three drilled first quarter wells to early July. The three wells tested inline as expected at an average level commensurate with the type curve and are now successfully tied-in and on production.

  • Additionally, two of the new wells drilled post spring breakup were completed in early August and each tested on initial clean up and flow back at over 15 MMcf/d plus associated liquids, significantly exceeding the type curve for the Wilrich formation.

  • The completion of the five wells since the end of the quarter has now established production capability in excess of the capacity of the Company-owned infrastructure of 60 to 65 MMcf/d plus associated liquids. With continuation of the drilling program, this production level is anticipated to be maintained for the remainder of 2017, subject to reductions related to several firm transportation outages anticipated in August.

  • The Company continues to pursue activities to be positioned to step up natural gas sales at East Edson to the higher contracted firm transportation capacity of 78 MMcf/d in April 2018.

  • With the building inventory of drilled wells as the one rig drilling program continues at East Edson, timing of completion activities will be managed to balance the optimization of field activities with availability of take away transportation.

Optimize value potential of Eastern Alberta assets

  • Capital spending in Eastern Alberta amounted to $0.5 million during the second quarter and consisted of additional completion and equipping costs on the Q1 heavy oil drilling program, two oil well reactivations and eight gas recompletions.

  • The development well targeting banked oil from waterflood, as well as two of the three exploratory oil pool tests in Q1, have established oil production and performance monitoring is ongoing. Follow on development drilling originally budgeted for the second half of 2017 will be deferred until higher commodity prices can be realized, allowing capital spending to be strategically high-graded for East Edson growth.

  • Crude oil production in eastern Alberta grew 20% quarter over quarter to 1,032 bbl/d, reflecting the full impact from wells drilled in the first quarter as well as positive waterflood response and diligent operations reducing operational downtime.

  • Waterflood activities to arrest production declines, increase heavy oil recoveries and improve netbacks continued to be optimized during the second quarter of 2017. Positive waterflood response is being observed in several heavy oil pools where producing gas-oil ratios are declining and oil production decline rates have stabilized and in some cases production is inclining with pressure support.

  • Gas production in eastern Alberta was effectively flat at 6.4 MMcf/d quarter over quarter as recompletion and workover activities offset natural declines. Low variable operating costs in Mannville result in recompletions paying out within 6 months even at low commodity prices and these will continue during the second half of 2017 with up to 23 additional recompletions planned.

  • Production and operating expenses in eastern Alberta were $15.74/boe during the second quarter (Q2 2016 - $10.44/boe; Q1 2017 - $16.18/boe), reflecting the increased downhole work to replace pumps and rods to restore production from several heavy oil wells that went down during the quarter. The Company continues to prioritize cost reductions on its eastern Alberta assets, including a focus on municipal property taxes which represent a significant portion of fixed operating costs as the tax base assessment is dramatically misrepresentative of the actual tangible property value.

  • Perpetual spent $0.5 million on abandonment and reclamation projects during the first half of 2017, primarily in eastern Alberta. Plans are in place to execute an internally-managed asset-retirement program at Mannville in the second half of 2017 targeting well abandonments, pipeline discontinuations and abandonments, as well as reclamation work to reduce mineral and surface lease rental payments, maintenance costs and high municipal taxes associated with the linear property in the Mannville area. Anticipated expenditures over the remainder of 2017 are $1.5 million to $2.0 million.

Advance high impact opportunities

  • The two horizontal wells drilled during the fourth quarter of 2016 and the first quarter of 2017 to advance the evaluation of the shallow shale gas play in the Viking and Colorado formations are on production at low rates and are being evaluated. Fracture stimulation of the Viking gas well has not been fully executed to date and additional spending has been delayed pending further learnings from performance monitoring and stronger natural gas prices.

  • Perpetual turned down its cyclic heat stimulation ("CHS") test at Panny during the second quarter after its fourth cycle of production. The CHS test provided high quality data and important knowledge to advance phase 1 of its low pressure electro-thermally assisted drive ("LEAD") process pilot project targeting bitumen recovery from the Bluesky formation. The CHS test yielded valuable insights regarding reservoir performance, the functionality of the electrical heating cable, preliminary solvent opportunities and other operational considerations. Interpretation of the CHS test data will be refined over the coming months and learnings will be integrated into next steps to advance the assessment of the commercial development potential of this large scope Bluesky resource.

  • In the Columbia area of west central Alberta, Perpetual will participate for its 40% working interest in a third-party operated horizontal well targeting the Notikewin formation. The well is expected to spud during the third quarter of 2017.

Optimize balance sheet for growth

  • On April 17, 2017 Perpetual exchanged $0.5 million 2018 Senior Notes for new 8.75% senior notes maturing on January 23, 2022 (the "2022 Senior Notes") and completed the early cash repayment of the remaining $27.1 million 2018 Senior Notes. In mid-July, $1.0 million face value of Senior Notes due to mature on July 23, 2019 ("2019 Senior Notes") were purchased at 96.75% of face value and also retired.

  • On July 4, 2017, the Company announced that it had doubled its borrowing capacity available under its reserve-based credit facility (the "Credit Facility") to $40 million and extended its repayment term to two years, at lower borrowing costs.

  • On July 31, 2017, Perpetual entered into a new $18.7 million margin loan secured by 1.67 million TOU shares that matures in July 2018. Proceeds on the new margin loan along with borrowings under the Credit Facility were used to repay the TOU share put option margin loans that were scheduled to mature in August and November of 2017. Proceeds of $1.0 million were realized from the sale of underlying put options.

  • Total net debt at June 30, 2017 stood at $68.3 million, net of the market value of TOU shares held. Approximately $52.9 million, representing 49% of Perpetual's debt and 77% of net debt, matures in 2021 or later.

  • Incorporating net debt at June 30, 2017, adjusted for the financing transactions completed in July 2017, Perpetual has access to draw approximately $24 million under the Credit Facility and Term Loan. Combined with the current market value of the Company's TOU share investment, net of the new margin loan, total current available liquidity is approximately $48 million.

  • In light of the positive financing transactions, in early July, Moody's Investor Service upgraded Perpetual's corporate credit rating to Caa1 stable.

  • To protect a base level of adjusted funds flow, Perpetual has commodity price contracts in place for the second half of 2017 on an estimated 45% of forecast production for the remainder of the year. These include a combination of forward month physical and financial natural gas contracts at AECO hub on a net 27,500 GJ/d to December 2017 at an average price of $3.15/GJ and 12,500 GJ/d for November 2017 through March 2018 at an average price of $2.94/GJ. Perpetual also has oil sales arrangements on 750 bbl/d for the remainder of 2017 securing a WTI floor price of $USD50.00/bbl.

  • The Company has diversified its natural gas price exposure from AECO by entering into arrangements to sell 25,000 MMBtu/d priced using a basket of five North American natural gas hub pricing points (Chicago, Dawn, Empress, Malin and Mich Con) for a five year period, commencing November 1, 2017.

OUTLOOK

Success in advancing the Company's strategic priorities has established a foundation for strong growth in production and adjusted funds flow in 2017. Financing transactions closed during 2017 have ensured sufficient liquidity to execute the planned growth-oriented capital program. The Company will continue its diligent focus on capital efficiency improvements and reductions in operating, financing and administrative costs to improve upon the sustainable cost structure driven by strategic decisions implemented over the past two years.

Based on the total capital spending plan in 2017 of $65 to $70 million, Perpetual expects to exit 2017 at a production rate of approximately 13,000 boe/d. This represents growth in exit rate based on average December production of approximately 60% compared to the prior year. Full year 2017 production is expected to average 10,000 to 11,000 boe/d (85% natural gas). Capital spending during the remainder of 2017 will be funded through adjusted funds flow generation, the final $10 million drawdown of the Term Loan and borrowings under the Credit Facility.

The forward market for oil and natural gas prices for the remainder of 2017 and 2018 has deteriorated over the past several months, eroding adjusted funds flow forecasts with these commodity price assumptions and increasing corresponding forecast debt balances. Based on current operating and financing assumptions, commodity price hedges in place and the forward market for oil and natural gas prices, Perpetual forecasts 2017 adjusted funds flow of approximately $28 to $32 million. Incorporating the current market value of 1.67 million TOU shares held, year end 2017 total net debt of approximately $90 to $100 million is forecast, with a corresponding net debt to trailing twelve months adjusted funds flow ratio of approximately 3.2 at year end 2017.

The Company will continue to monitor commodity market fundamentals closely over the coming months and adjust activities as required, balancing the positive momentum that is translating into operational excellence in executing our East Edson development program with spending within our means to maintain adequate liquidity and balance sheet strength.

About Perpetual

Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual operates a diversified asset portfolio, including liquids-rich natural gas assets in the deep basin of west central Alberta, heavy oil and shallow natural gas in eastern Alberta, with longer term opportunities through undeveloped oil sands leases in northern Alberta. Additional information on Perpetual can be accessed at www.sedar.com or from the Corporation's website at www.perpetualenergyinc.com.

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

FINANCIAL AND OPERATING HIGHLIGHTS










Three Months Ended June 30,

Six Months Ended June 30,

(Cdn$ thousands except volume and per share amounts)


2017

2016

% Change

2017

2016

% Change

Financial








Oil and natural gas revenue


19,728

16,501

20

37,886

41,195

(8)

Cash flow from (used in) operating activities


4,728

(3,396)

(239)

2,439

(10,166)

(124)

Adjusted funds flow(1)


5,243

(1,852)

(383)

10,353

(1,804)

(674)


Per share(1)(2)


0.09

(0.04)

(325)

0.18

(0.04)

(550)

Net earnings (loss)


(7,219)

64,925

(111)

(21,391)

97,689

(122)


Per share - basic(2)


(0.12)

1.25

(110)

(0.38)

2.00

(119)


Per share - diluted(2)


(0.12)

1.23

(110)

(0.38)

1.91

(120)

Total assets


343,751

477,438

(28)

343,751

477,438

(28)

Credit Facility outstanding


4,404

­–

100

4,404

100

Term Loan, at principal amount


35,000

100

35,000

100

Carrying amount of TOU share margin loans


35,543

31,794

12

35,543

31,794

12

Senior notes, at principal amount


33,490

60,573

(45)

33,490

60,573

(45)

Carrying value of TOU share investment


(46,489)

(62,830)

(26)

(46,489)

(62,830)

(26)

Adjusted working capital deficiency (surplus)


6,389

(717)

(991)

6,389

(717)

(991)

Total net debt(1)


68,337

28,820

137

68,337

28,820

137

Net capital expenditures









Capital expenditures


4,006

1,286

212

28,596

6,100

369


Geological and geophysical expenditures


(22)

11

(300)

(22)

26

(185)


Dispositions, net of acquisitions


609

(302)

(302)

772

(6,768)

(111)


Disposition of gas storage facility investment


(19,750)

(100)

(19,750)

(100)

Net capital expenditures


4,593

(18,755)

(124)

29,346

(20,392)

(244)

Common shares outstanding (thousands)(3)








End of period


59,035

52,209

13

59,035

52,209

13

Weighted average – basic


59,045

52,140

13

56,769

48,856

16

Weighted average – diluted


59,045

52,904

12

56,769

51,169

11

Operating








Average production









Natural gas (MMcf/d)(4)


45.1

85.2

(47)

42.9

91.7

(53)


Oil and NGL (bbl/d)(4)


1,714

1,755

(2)

1,535

1,883

(18)

Total (boe/d)(4)


9,223

15,959

(42)

8,686

17,169

(49)

Average prices









Natural gas, before derivatives ($/Mcf)


3.09

1.37

126

3.25

1.84

77


Natural gas, including derivatives ($/Mcf)


3.18

1.85

72

4.05

2.55

59


Oil, before derivatives ($/bbl)


45.92

38.47

19

44.93

29.91

50


Oil, including derivatives ($/bbl)


43.91

39.17

12

38.24

36.42

5


NGL ($/bbl)


44.28

34.71

28

46.54

31.75

47

Drilling (wells drilled gross/net)









Gas


1/1.0


7/7.0

         1/1.0



Oil



4/3.3



Observation/Service





Total


1/1.0


11/10.3

1/1.0



Success rate (%)


100/100


100/100

100/100


(1)  

These are non-GAAP measures. Please refer to "Non-GAAP Measures" below.

(2)  

Based on weighted average basic or diluted common shares outstanding for the period.

(3)  

Common shares are net of shares held in trust.

(4)  

Production amounts are based on the Corporation's interest before royalty expense.

Forward-Looking Information

Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking information or statements under applicable securities laws. The forward looking information includes, without limitation, statements made under the heading "Outlook"; anticipated amounts and allocation of capital spending; statements pertaining to adjusted funds flow levels, future development and capital efficiencies; statements regarding estimated production and timing thereof; forecast year end exit and average production rates; completions and development activities; infrastructure expansion and construction; prospective oil and natural gas liquids production capability; projected realized natural gas prices and adjusted funds flow; commodity prices and foreign exchange rates; and gas price management. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management's analysis of historical trends, experience, current conditions and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward-looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in Perpetual's MD&A for the year ended December 31, 2016 and those included in other reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities law.

The forward-looking information and statements contained in this news release speak only as of the date of this news release and neither the Corporation nor any of it subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, unless expressly required to do so by applicable securities laws.

Financial Outlook

Also included in this news release are estimates of Perpetual's 2017 adjusted funds flow, total net debt and net debt to trailing twelve months adjusted funds flow ratio, which are based on, among other things, the various assumptions as to production levels, capital expenditures, and other assumptions disclosed in this news release. To the extent such estimates constitute a financial outlook, they were approved by management and the Board of Directors of Perpetual on August 10, 2017 and are included to provide readers with an understanding of Perpetual's anticipated adjusted funds flow, total net debt and net debt to trailing twelve months adjusted funds flow ratio based on the capital expenditure, production and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

Initial Production Rates

Any references in this news release to initial clean up and flow back rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.

BOE Equivalents

Perpetual's aggregate proved and probable reserves are reported in barrels of oil equivalent (boe). Boe may be misleading, particularly if used in isolation. In accordance with NI 51-101 a boe conversion ratio for natural gas of 6 Mcf: 1 boe has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Non-GAAP Financial Measures

This press release includes references to financial measures commonly used in the oil and gas industry of realized revenue, adjusted funds flow, operating netback and net debt, which do not have a standardized meaning prescribed by International Financial Reporting Standards ("GAAP"). Accordingly, the Company's use of these terms may not be comparable to similarly defined measures presented by other companies. Realized revenue is used by management to calculate the Corporation's net realized commodity prices taking into account monthly settlements on financial crude oil and natural gas forward sales, collars and basis differentials. Management uses the term "adjusted funds flowfor its own performance measures and to provide shareholders and potential investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund a portion of its future growth expenditures or to repay debt. Perpetual considers operating netback an important performance measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by deducting royalties, operating costs, and transportation from realized revenue. Operating netbacks are also calculated on a per boe basis using average boe production for the period. Operating netbacks on a per boe basis can vary significantly for each of the Company's operating areas. Net debt includes adjusted working capital deficiency (surplus), the TOU share margin loans and the principal amount of the term loan and senior notes reduced for the mark-to-market value of TOU shares held. Net debt is used by management to analyze borrowing capacity. Investors are cautioned that non-GAAP measures should not be construed as alternatives to measures of financial performance determined in accordance with GAAP as an indication of the Company's performance. See Non-GAAP Financial Measures in the Management's Discussion and Analysis for the definition and description of these terms.

SOURCE Perpetual Energy Inc.

For further information: Perpetual Energy Inc., Suite 3200, 605 - 5 Avenue SW Calgary, Alberta, Canada T2P 3H5, Telephone: 403 269-4400, Fax: 403 269-4444, Email: info@perpetualenergyinc.com; Susan L. Riddell Rose, President and Chief Executive Officer; W. Mark Schweitzer, Vice President, Finance and Chief Financial Officer