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Perpetual Energy Inc. confirms closing of East Edson Joint Venture and announces intention to issue $100 million of Senior Unsecured Notes

July 18, 2014



ENP Newswire - 18 July 2014

Release date- 17072014 - CALGARY - Perpetual Energy Inc. is pleased to announce that it has successfully closed the previously announced East Edson Joint Venture.

Proceeds to Perpetual include $50 million for the sale of a 50 percent gross overriding royalty on existing producing assets (the 'Producing Royalty') and an additional $70 million to fund Wilrich development activities to earn a second royalty (the 'Drilling Royalty').

In combination, in exchange for the total acquisition and funding commitment of $120 million, the Drilling and Producing Royalties entitle the joint venture partner to receive on a priority basis 5.6 MMcf/d of natural gas from the East Edson Property plus oil and associated natural gas liquids ('NGL') from July 1, 2014 to December 31, 2022 and declining thereafter at 10 percent per year until the Drilling Royalty and the Producing Royalty terminate on December 31, 2034.

NGL yields are expected to average approximately 23 bbl/MMcf for the duration of the East Edson JV. Upon closing, $100 million of the total proceeds was placed in escrow accounts for the committed development of the East Edson JV properties. Activities are underway to execute close to $70 million in capital projects utilizing the escrowed funds prior to the end of 2014, with the remaining funds from escrow expected to be spent in 2015.

The capital injected by the East Edson JV is expected to increase the operating cash flow from the East Edson property to a level where the full development can be self-funded, thereby allowing reserve bookings to increase to the technical level warranted. Upon closing of the East Edson JV, the pending changes to Perpetual's Company reserves announced on June 25, 2014 to reflect the illustrative report prepared by McDaniel and Associates Consultants Ltd. were adopted, adding an estimated 36.3 MMboe of additional proven and probable reserves and increasing total Company reserves by 60 percent.

Perpetual is also pleased to announce that it intends to issue $100 million of 5-year Senior Unsecured Notes (the 'Notes'). The Notes will be direct senior unsecured obligations of Perpetual ranking pari passu with all other present and future unsecured and unsubordinated indebtedness of the Company.

The Notes are being offered in each Province of Canada and in the United States on a private placement basis through a syndicate of investment dealers, without the filing of a prospectus or registration statement. Closing is expected to occur on or about July 23, 2014 following a limited marketing process and determination of pricing.

The net proceeds from this offering will be used for general corporate purposes and to redeem with cash Perpetual's $100 million 7.25% convertible debentures, due to mature on January 31, 2015. The 7.25% convertible debentures trade on the Toronto Stock Exchange under the symbol PMT.DB.D. Perpetual intends to provide notice for the early redemption of the 7.25% convertible debentures shortly after closing of the Notes offering.

This offering not only provides Perpetual with the ability to repay these debentures earlier than their maturity on January 31, 2015, but benefits the Company by reducing exposure of Perpetual's credit capacity to future commodity prices. Moreover, the issuance of the Notes significantly extends the term of approximately one-third of the Company's total debt to provide increased certainty for funding planned capital investment projects which are expected to grow future funds flow.

Perpetual's lenders under its credit facility have approved issuance of the Notes, subject to an adjustment to the borrowing base from $120 million to $100 million to account for future interest payment obligations on the Notes.

Pro forma the Notes issuance and subsequent repayment of the 7.25% convertible debenture series, Perpetual expects to have net bank debt outstanding of approximately $31 million, as well as $100 million of joint venture cash on hand held in escrow accounts to be drawn exclusively for the development activities Perpetual has committed to execute in 2014 and 2015 in the East Edson JV area. Furthermore, close to 75 percent of Perpetual's total outstanding debt will have a term extending into 2018 and beyond.

Forward-Looking Information

Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking statements under applicable securities laws. The forward looking information includes, without limitation, completion of the offering and the use of proceeds and potential benefits to be derived therefrom.

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 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, 2013 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.

Contact:

Perpetual Energy Inc.

Suite 3200, 605 5 Avenue SW

Calgary, Alberta T2P 3H5

Canada

Tel: (403) 269-4400

Toll free: 1-800-811-5522

Fax: (403) 269-4444


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Source: ENP Newswire


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