Ms. Susan Riddell Rose reports

PERPETUAL ENERGY INC. ANNOUNCES RESOLUTION OF THE SEQUOIA LITIGATION, REPAYMENT OF ITS SECOND LIEN TERM LOAN AND EARLY REDEMPTION OF ITS SENIOR SECURED NOTES

Perpetual Energy Inc. has provided an update on the resolution of the previously announced Sequoia litigation, repayment of its existing $2.7-million second lien term loan and the early redemption of its secured third lien senior notes, with the opportunity for noteholders to elect to continue to hold such notes subject to certain amendments.

Resolution of Sequoia litigation

On Aug. 3, 2018, Perpetual received a statement of claim that was filed by PricewaterhouseCoopers Inc., LIT, in its capacity as trustee in bankruptcy of Sequoia Resources Corp., with the Alberta Court of King's Bench against Perpetual. The claim related to a transaction when, on Oct. 1, 2016, Perpetual closed the disposition of shallow conventional natural gas assets in eastern Alberta.

After several years of litigation, Perpetual has entered into an agreement with the trustee to resolve the Sequoia litigation without any party admitting liability, wrongdoing, or violation of law, regulations, public policy or fiduciary duties. A special committee of Perpetual's board of directors has determined that bringing closure to this long-standing contested litigation is in the best interests of all of Perpetual's stakeholders.

Pursuant to the settlement agreement, and subject to court approval, the company will make an aggregate payment of $30-million spread out over several years, consisting of an initial payment of $10-million and annual instalments of $3.75-million until the total amount of the settlement principal is paid. Subject to the payment of all amounts under the settlement agreement, interest prior to March 27, 2026, will accrue and be forgiven. As of March 28, 2026, interest will accrue and be payable on the outstanding settlement principal at an interest rate equal to the applicable Bank of Canada prime rate on the date of payment. The company is able to prepay all, or any portion, of the outstanding balance of the settlement principal at any time without bonus or penalty.

The certainty brought by the execution of the settlement agreement, and subsequent court approval, terminates what has been, and would otherwise continue to be, a lengthy litigation process and allows Perpetual to advance its business plans with significantly improved access to capital, affording the financial flexibility to pursue value enhancing opportunities. The company and the board of directors are pleased to put this matter behind them and move forward to unlock the inherent value potential of its asset base.

Term loan repayment

To simplify its capital structure, Perpetual has fully repaid and cancelled its existing second lien term loan provided by Alberta Investment Management Corp. due Dec. 31, 2024, in the principal amount of $2.7-million, plus all accrued and unpaid interest.

2025 senior note redemption

The company has also provided notice for the early redemption of all of the $33.2-million aggregate principal amount of 8.75 per cent senior secured third lien notes maturing Jan. 23, 2025, on April 25, 2024.

The redemption amount will be $1,000 for each $1,000 principal amount of 2025 senior notes, including interest paid in kind (PIK), and all accrued and unpaid interest. In connection with this early redemption, a holder may elect to, in lieu of receiving the redemption price on the redemption date, continue to hold their 2025 senior notes by agreeing to certain amendments to be made to such notes. Interest of $22.29 per $1,000 principal amount of 2025 senior notes, representing all accrued and unpaid interest, will be paid to 2025 senior noteholders on the redemption date, who do not make such an election to continue as a noteholder. All interest on the principal amount of 2025 senior notes that are redeemed shall cease to accrue and be payable from and after the redemption date.

Holders of 2025 senior notes who make an irrevocable election to amend the terms of their 2025 senior notes are required to do so no later than two business days prior to the redemption date. These amendments provide the company with continuation of committed capital and transactional flexibility, including the right to convert all or a portion of the 2025 senior notes into common shares of the company or other securities at its discretion at any time prior to the maturity date as well as to provide for the second lien security, which is required in connection with the resolution of the Sequoia litigation. Entities controlled or directed by the president and chief executive officer, holding $26.2-million of 2025 senior notes, have provided confirmation to Perpetual of their election to agree to the amended terms and to be a continuing holder of 2025 senior notes, as amended. These entities will be treated identically to, and have the same rights and benefits as, the other holders of 2025 senior notes on a per-security basis.

The company's existing first lien credit facility has been amended to provide for these matters, which includes the first lien lenders' consent to resolve the Sequoia litigation, conditional on completion of the senior notes redemption and court approval. The borrowing base under the credit facility remains unchanged at $30-million, with the next borrowing base redetermination date scheduled for on or before May 31, 2024. The credit facility and the second lien security provided in connection with the resolution of the Sequoia litigation contain certain restrictions on any potential refinancing and cash repayment of the 2025 senior notes.

About Perpetual Energy Inc.

Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alta. Perpetual owns a diversified asset portfolio, including liquids-rich conventional natural gas assets in the deep basin of west-central Alberta, heavy crude oil and shallow conventional natural gas in eastern Alberta, and undeveloped bitumen leases in Northern Alberta.

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