The recent British Columbia election, which enabled the NDP and Greens to join forces in an attempt to unseat the incumbent Liberals, is in fact “the best thing” for providing absolute clarity for the Trans Mountain expansion project, says the head of Pengrowth Energy Corporation.

“What it has done is it has put the prime minister [Justin Trudeau] in an absolutely untenable position,” Derek Evans, president and chief executive officer, told Tuesday’s annual general meeting.

“The prime minister is now hearing that the elected provincial government is threatening treasonous activity — it is threatening to stand up in front of a national approval to build that pipeline, and he has no other course of action other than to stand up and make that [project] happen.”

With an NDP-Green pledge to block Kinder Morgan Inc.’s C$7.4 billion oil pipeline expansion, Trudeau has to ensure the federally-sanctioned project is built, he said. If Trudeau does not do so, he loses any authority as a leader, denigrating the entire function of the federal government, said the Pengrowth CEO.

Canada needs to make sure it has the infrastructure necessary to fully support its resource sectors, said Evans.

“I actually welcome that election. I think this is going to bring to the table and really sharpen the whole point about this being a national responsibility.”

Evan also told the meeting that energy producers are transitioning to the long-term reality of lower commodity prices and are starting to reset their expectations and adjust their economic decisions in response.

“I do think that as an industry we have been at this in this downturn for almost three years, and that we are getting to the point where we are all starting to accept that the reality for the next 10 to 15 years is going to be a price of [US] $50 [per bbl] or $60 [per bbl] WTI.”

He added: “I don’t think that as an oil and gas business we are anywhere near as hard done by or challenged as we were back at this time last year, and part of that is because we are adapting and getting used to the reality of those things going forward.”

Earlier this month, Pengrowth announced it had completed repayment of the remaining outstanding US$100 million of 6.35 per cent senior term notes scheduled for July 26, 2017, maturation, which leaves the company with no outstanding debt due until August of next year (DOB, June 2, 2017).

“We are continuing to execute on what we can control,” said Evans. “You should expect to see from us that we are continuing to work to reduce our debt, we will continue to target additional asset sales where they make sense, and at a price point that makes sense. You should expect to see us continue to reduce our cost structures.”

He added: “One of the key things you should expect from your management of any company is that when we have low commodity prices, and when we are not putting capital back to work, we should be exerting the same sort of available time trying to find innovative ways to reduce our cost structure.”

Pengrowth reduces debt

Pengrowth ended 2016 with about $1.7 billion in debt, but has since reduced its debt to about $1.15 billion thanks to approximately $530 million of debt reduction via dispositions in the first quarter, noted Evans. For example, PrairieSky Royalty Ltd. bought four per cent gross overriding royalty on Lindbergh’s current and future phases, as well as seismic over certain lands in B.C. and Alberta, for $250 million total cash consideration (DOB, Jan. 6, 2017).

In the second quarter, Pengrowth sold non-producing Montney lands in B.C. at Bernadet for $92 million (DOB, April 11, 2017). The company continues its focused efforts to further reduce its outstanding debt and expects an additional $365 million of cash proceeds (before closing adjustments) from the recent Swan Hills asset sales (DOB, April 26, 2017).

To put it another way, we have reduced our debt by approximately $994 million, or 60 per cent, since the beginning of the year,” Evans said. “The astounding fact here, from my perspective, is not only the magnitude of debt reduction, but also the fact we managed to do that while only selling 11 per cent of those 2P [proved plus probable] reserves.”

He added: “Our relentless focus on debt reduction is not driven out of a desire to bring the debt down to a de minimis amount, but is driven by our desire to get after the large growth opportunities that exist in our portfolio.”

Capital spending

This year’s $125 million capital budget includes $70 million for optimization of the Lindbergh SAGD Phase 1 project, increasing production to 4,000 bbls per day and drilling seven new well pairs, two infill wells and expanding associated infrastructure.

It is primarily focused on putting drilling capital back to work at Lindbergh for the first time in 24 months,” Evans said, adding when that when people hear of the “spectacular performance at Lindbergh,” they may not realize it comes without any drilling capital since the wells started operating.

“As we look to some of our strategic objectives in 2017, clearly we are half way through the year, and one of the key priorities was to execute on asset sales. We want to materially reduce our debt and improve that balance sheet, and we want to position the company to be in a strong position to get out there and execute on Lindbergh Phase 2.”

Pengrowth is in fact spending $10 million this year on Phase 2 engineering and design work, adding incremental 17,500-bbl-per-day nameplate capacity. The company expects to complete about 70 per cent of the thermal project’s design work by the end of this year.

The company is also spending about $45 million in 2017 towards its continued focus on safety, asset integrity and maintenance of conventional assets, as well as support for operations across its conventional portfolio. In general, the company’s executives are pleased with recent accomplishments and what opportunities lie ahead.

“When many thought we were not going to be able to do asset dispositions, we had a substantial track record of actually getting asset dispositions done, and we successfully resolved some of the high debt levels in the company,” Evans told the AGM.

“We have a plan for the remaining debt that sits on our books, and we are excited to finally have what I would call a ‘clear path forward,’ allowing us to grow the company and start creating the shareholder value implicit in the $9 billion worth of opportunities inside of our asset base.”