Montney, Simonette Area
Cequence’s fall/winter drilling program includes four Montney wells at Simonette with initial results as follows:
- A 100 percent working interest well at 3-18-61-26W5 has tested for 2.5 days at a final flow rate of 12.9 mmcf/d of natural gas plus liquids at a flowing pressure of 1775 psi. The well is expected to be producing into the Cequence gathering system by mid February 2013.
- A 100 percent working interest horizontal well at 10-16-61-27-W5 has been on production for two months and is currently producing 1.2 mmcf/d of natural gas and 40 bbls/d of free condensate. A 24 stage completion was planned for the 2,400 m horizontal wellbore. It is estimated that 15 stages were completed successfully prior to a casing failure in the horizontal wellbore. Cequence believes that current productivity is restricted by the failed casing. Cequence is reviewing alternatives to complete the section of the horizontal wellbore that has not been stimulated.
- A 100 percent working interest horizontal well at 8-21-61-26W5 was drilled to a total measured depth of 5,546 m. A 25 stage completion was planned for the 2500 m lateral section. Cequence successfully executed two frac stages on the first day of the completion operation. The well was flowed back overnight with promising initial test rates of approximately 4 mmcf/d at a pressure of 695 psi. Subsequent frac stages 3 through 25 were compromised due to a downhole completion tool failure. Completion operations were halted.
Cequence observed encouraging results from the two successful fracs and encountered high quality reservoir and fast penetration rates while drilling. Based on management’s evaluation of the encouraging information of the first two fracs, the horizontal section of the wellbore is currently being redrilled and is expected to be completed in February 2013.
- An additional 100% working interest Montney horizontal well at 4-21-61-26W5 is expected to spud in February and be completed before spring break up.
Dunvegan and Falher, Resthaven Area
Cequence is completing a Dunvegan horizontal well at 10-02-62-01W6. Initial completion results are expected within the next week. Cequence is drilling a Falher horizontal well at 02-06-61-01W6 as a follow up to the exploration success announced in September 2012. A 22 stage completion is planned for February 2013. Both the Dunvegan and Falher wells are expected to be on production prior to the end of March when the expansion of the Simonette field gathering system and compression station is expected to be complete.
Both wells are part of a farm-in whereby Cequence pays 100 percent of the drill and complete costs to earn a 65 percent working interest in the well and three sections of land. The Falher well is the third and final earning well under this farm-in arrangement.
Wilrich, Ansell Area
Over the past two years Cequence has acquired 31 sections of 100% land in Ansell, Alberta. The primary target zone is the Wilrich formation where significant discoveries have been recently announced by other companies on adjacent lands.
Cequence completed a farmout agreement with an intermediate Canadian oil and gas company (“the “Farmee”) that will accelerate the development of this property (the “Farmout lands”). The Farmee has committed to drill two horizontal wells targeting the Wilrich formation in the next 8 months. The Farmee will pay 85% of the drilling, completion and tie-in capital to earn a 51% interest in three sections of the Farmout Lands for each of the commitment wells. After the commitment wells are drilled, the Farmee will have the continuing option to earn a 51% interest in the remaining 25 sections. The Farmee will pay 85% of the drilling and completion capital to earn a 51% interest in 4 sections for each option well drilled. For all Farmout Lands earned, the residual interest for Cequence will be 49%. The first commitment well is currently drilling.
Cequence provided updated 2012 guidance and first half 2013 guidance in November 2012. Based on equipment availability and drilling performance, Cequence accelerated the drilling of the 10-02 Dunvegan well and the completion of the 8-21 well to the fourth quarter of 2012 from the first quarter of 2013. As a result, net capital spending for 2012 is expected to increase to approximately $80 million and year end net debt is expected to be approximately $48 million.
Cequence is in the process of redrilling the horizontal section of the 8-21 Montney well. This operation is expected to increase first half 2013 capital spending by approximately $6 million. In addition, Cequence intends to participate in a Wilrich well at Ansell in the first quarter and has adjusted the winter drilling program to replace a 50% working interest Montney well with a 100% well. In total, first half capital is expected to increase by $7 million to $49 million. Net debt at June 30, 2013 is forecast to be $71 million.
Cequence has hedged approximately 40 percent of its 2013 natural gas production at an average price of $3.62 per mcf ($3.12 per GJ).
Management provides the following updated guidance for the six months ending June 30, 2013:
|Average production, BOE/d (1)||10,000|
|Capital expenditures ($)||$49 million|
|Operating costs ($ per boe)||$6.75|
|Royalties (% revenue)||8|
|Crude – WTI (US$/bbl)||$91.00|
|Natural gas – AECO (Cdn$/GJ)||$3.00|
|Funds flow from operations ($) (2)||$26 million|
|Annualized funds flow from operations ($)||$52 million|
|June 30, 2013 net debt and working capital deficiency ($) (3) (4)||$71 million|
|Basic shares outstanding (4)||200.6 million|
|(1)||Comprised of 51.8 mmcf/d of natural gas and 1,370 boe/d of oil and liquids|
|(2)||Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning liabilities expenditures and net changes in non-cash working capital.|
|(3)||Net debt and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets and liabilities and demand credit facilities and excluding other liabilities.|
|(4)||Net debt and common shares outstanding has been adjusted from previous guidance to include the flow through financing closed in December 2012.|
Cequence expects to disseminate a press release describing its year end reserves and financial and operating results on March 7, 2012, after close of markets.
A new corporate presentation is available at cequence-energy.com.
Cequence is a publicly traded Canadian energy company involved in the acquisition, exploitation, exploration, development and production of natural gas and crude oil in western Canada. Further information about Cequence may be found in its continuous disclosure documents filed with Canadian securities regulators at www.sedar.com.
The press release includes test rate information that management used to form an initial opinion as to the future productivity of a well. Test rates disclose herein are of a short duration are not necessarily indicative of future performance.
Forward Looking Statements or Information
Certain statements included or incorporated by reference in this press release constitute forward-looking statements or forward-looking information under applicable securities legislation. Such forward-looking statements or information are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information concerning Cequence in this press release may include, but are not limited to, statements or information with respect to: guidance and forecasts; capital spending; hedging objectives; business strategy and objectives; drilling, development, exploration, operational acquisition and disposition plans and the timing, associated costs and results thereof; future net debt and fundsflow; commodity pricing and expected royalties; future production levels, including the composition thereof. Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. The Company believes that the expectations reflected in such forward-looking statements or information are reasonable, however, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding, among other things: the impact of increasing competition; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of operating the Company’s business; and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties may cause actual results to differ materially from the forward-looking statements or information. The material risk factors affecting the Company and its business are contained in the Company’s Annual Information Form which is available at SEDAR at www.sedar.com.
The forward-looking statements or information contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise unless required by applicable securities laws. The forward looking statements or information contained in this press release are expressly qualified by this cautionary statement.
The press release contains references to terms commonly used in the oil and gas industry. Netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Netbacks equal total revenue less royalties, operating costs and transportation costs. Management utilizes this measure to analyze operating performance.
Funds flow from operations is a non-GAAP term that represents cash flow from operating activities before adjustments for decommissioning liability expenditures and changes in working capital. The Company evaluates its performance based on earnings and funds flow from operations. The Company considers funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate the cash flow necessary to fund future growth through capital investment and to repay debt. The Company’s calculation of funds flow from operations may not be comparable to that reported by other companies. Funds flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income (loss) per share.
The foregoing outlook and guidance has been provided to assist readers in analyzing the Company’s anticipated development strategies and prospects and it may not be appropriate for other purposes and actual results could differ from the guidance provided above. Cequence refers to initial production rates which may not be indicative of long term well performance.
Boes are presented on the basis of one Boe for six Mcf of natural gas. Disclosure provided herein in respect of Boes may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 Boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas 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.