Pengrowth Energy (NYSE: PGH) slumped on Friday, with its stock falling more than 13% by 11:15 a.m. EST. Driving the downdraft was the company's third-quarter results and the glimpse it provided on what lies ahead.
Pengrowth reported that funds flow, which is a common metric Canadian energy companies use to measure cash flow, was a negative 0.3 million Canadian dollars ($0.24 million) in the third quarter. That's significantly less than the CA$122.7 million ($96.7 million) in funds flow the company produced in the year-ago period. The culprit was the nearly CA$1 billion ($790 million) in assets it sold over the past year as well as a reduction in gains from commodity price hedges.
Those asset sales were part of Pengrowth's transformation plan, which shored up its balance sheet via debt repayment while also sharpening its focus on two core assets: the Lindbergh thermal oil facility and its Montney shale gas properties. However, in the interim, these sales will result in the company producing significantly less oil and gas. It noted that output would be down to just 20,000 barrels of oil equivalent per day (BOE/D) next month, which is less than half what it was earlier in the year. Though, the company anticipates that it can increase BOE/D by 18% next year.
Meanwhile, it sees even more growth in the forecast after its lenders agreed to amend the terms of its credit facility. That deal gives the company more breathing room and should enable it to access the debt needed to support phase two of its Lindbergh expansion, which would increase output from that facility up to 40,000 barrels per day. Meanwhile, full future development at Lindbergh could push it past 50,000 barrels per day, with additional volume growth coming from the Montney play.
While Pengrowth shored up its financial situation with a boatload of asset sales this year, the company appears poised to tack on more debt by gearing up to move forward with phase two of Lindbergh. That's a concern because the company could drill itself into another hole since oil needs to stay above $55 to make that project work. Meanwhile, most rivals plan on living within cash flow at current prices, not borrowing more money to fuel growth. Because of its divergent plan, and still fragile financial situation, Pengrowth's stock could remain under pressure until the oil market is on stronger ground.