Financial and Operating Highlights
The following are Cequence’s financial and operating highlights for the second quarter of 2013:
- Increased average production by 29 percent from the prior year to 11,205 boepd and by 27 percent from Q1 2013;
- Increased funds flow from operations by 225 percent from the prior year to $14.8 million;
- Reduced total cash costs(5) from the prior year by 13 percent to $12.11 per boe;
- Reduced operating costs by 7 percent to $7.71 per boe from the prior year;
- Increased the operating netback by 80 percent from the prior year to $17.56 per boe;
- Increased the credit facility to $125 million;
- Increased its working interest from 50 percent to 100 percent in 33 net sections of contiguous Montney rights at Simonette; and
- Maintained a strong balance sheet with trailing second quarter debt to cash flow ratio of 1.1 times.
Financial and Operating
|(000’s except per share and per unit
|Three months ended
|Six months ended
|Production revenue (1)||29,803||16,032||86||51,808||35,896||44|
|Comprehensive income (loss)||4,170||(6,579)||163||(1,269)||(14,515)||(91)|
|Per share, basic and diluted||0.02||(0.04)||150||(0.01)||(0.09)||(89)|
|Funds flow from operations (2)||14,831||4,563||225||25,484||11,318||125|
|Per share, basic and diluted||0.07||0.03||133||0.12||0.07||71|
|Natural gas (Mcf/d)||58,153||45,042||29||52,262||47,483||10|
|Crude oil (bbls/d)||874||618||41||742||651||14|
|Natural gas liquids (bbls/d)||639||535||19||568||497||14|
|Natural gas, including realized
|Crude oil ($/bbl)||90.56||79.92||13||91.11||85.00||7|
|Natural gas liquids ($/bbl)||38.23||59.54||(36)||44.57||67.43||(34)|
|Operating Netback ($/boe)|
|Capital Expenditures ($)|
|Net acquisitions (dispositions) (3)||(2,641)||(2,980)||(11)||(2,623)||(13,922)||(81)|
|Total capital expenditures||2,082||6,929||(70)||45,759||36,921||24|
|Net debt and working capital
|Weighted average shares
|Undeveloped land (net acres)||203,387||223,200||(9)||203,387||223,200||(9)|
|(1)||Production revenue is presented gross of royalties and realized gain (loss) on commodity
|(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
|(3)||Represents the cash proceeds from the sale of assets and cash paid for the acquisition
of assets, as applicable.
|(4)||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
|(5)||Cash costs is defined as operating expense, transportation expense, interest and general
and administrative expense and is expressed on a unit of production basis.
Funds flow from operations increased to $14.8 million for three months ended June 30, 2013 compared to $4.6 million for the three months ended June 30, 2012. The increase in funds flow from operations, as defined above, is due largely to an 82 percent increase in natural gas prices and a 29 percent increase in production volumes compared to the second quarter of 2012. In addition, the Company benefitted from lower per unit costs for operating expenses, transportation and general and administrative expenses.
When compared to 2012, Cequence has reduced operating expenses by 7 percent to $7.71 per boe and total cash costs by 13 percent to $12.11 per boe. Second quarter operating costs of $7.71 per boe increased $0.47 from first quarter of 2013 due to costs associated with wet break-up conditions and plant turnaround costs.
Cequence recorded comprehensive income of $4.2 million for the second quarter of 2013 compared to a comprehensive loss of $6.6 million in the same period in 2012. The increase from prior year relates to higher natural gas revenue as a result of higher production volumes and natural gas prices.
Net capital expenditures in the second quarter were $2.1 million and $45.8 million year to date. Capital expenditures were minimal during the second quarter due to spring break-up conditions and included minor dispositions for proceeds of $2.8 million. Current budgeted capital expenditures for 2013 are $97 million with $51 million planned for the second half of the year.
Net debt and working capital deficiency at June 30, 2013 was $66.0 million compared to $43.9 million at June 30, 2012. The Company’s credit facilities increased to $125 million effective May 31, 2013 by the Company’s lenders. Based on second quarter annualized cash flow, the Company has a debt to cash flow ratio of 1.1 times.
For the remainder of 2013, Cequence has hedged approximately 50 percent of its estimated natural gas production, net of expected royalties, at an average price of $3.64 per mcf. Cequence has also hedged approximately 11.9 mmcfd of natural gas production for 2014 at an average price of $4.09 per mcf.
Cequence achieved record Q2 2013 average production of 11,205 boepd, a 27% increase quarter-over-quarter. In April 2013, Cequence completed pipeline work and the expansion of the Simonette compression and de-hydration facility at 13-11. Upon completion, the Company was able to add production from the successful winter drilling program at Simonette. The last Montney well of the winter program at 9-21-61-26W5 did not commence production until late July following the installation of surface equipment. Cequence expects to optimize the well within the next few weeks.
Drilling operations commenced in July following winter break-up. The first two wells of the program will target the Montneyand be drilled and completed consecutively off the same pad site. Cequence anticipates that pad drilling will increase the efficiency of the Company’s drilling operations and reduce per well costs as the Company shifts from an exploration emphasis to a development program. The wells are expected to be completed and on production in the fourth quarter of 2013. Cequence intends to keep this drilling rig active through winter with a Wilrich well and a Montney well at Simonette planned for the fourth quarter of 2013.
Cequence expects to add a second drilling rig for the winter in September 2013. The rig will drill a Montney well and a step out to the Company’s highly successful Dunvegan well completed in Q1 2013. To date, the well has been producing for 130 days and has cumulative gross production of 1.6 bcf and is currently producing 8.0 mmcfd plus 200 bbls/d of NGLs.
At Edson, Cequence participated in one well (49% working interest) which shows encouraging performance at a first month restricted rate of 5.7 mmcfd of natural gas plus 82 bbls per day of natural gas liquids. Cequence expects to drill the first follow-up location to this discovery in the third quarter.
Cequence is planning an active second half of 2013. The Company has maintained a strong balance sheet with a current debt to cash flow ratio of 1.1 times. The Company has shown a record increase in production and cash flow from historical levels. This coupled with a solid 2013 hedge position at an average gas price of $3.64 per mcf gives the management team confidence in planning the Company’s capital program. Cequence has discovered a significant resource base at Simonette and is starting to shift some capital to pad-style development drilling in the Montney formation to demonstrate our ability to continue to increase production and cash flow. As the Company grows, we are confident that the Company will be able to maintain our position in the top quartile of low cost gas producers in Canada.
I want to thank our staff and board for showing their continued commitment to Cequence, and to building a top performing natural gas company in Canada.
Cequence is a publicly traded Canadian energy company involved in the exploration, exploitation, acquisition, 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.
Forward looking Statements or Information
Certain statements included 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 in this press release may include, but are not limited to, statements or information with respect to its guidance and forecasts: business strategy and objectives; development, exploration, acquisition and disposition plans, including the anticipated benefits resulting therefrom and the timing thereof; and future production levels and facility capabilities. 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. Although 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 of exploration; the timing and costs of pipeline, storage and facility construction and expansion 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 on SEDAR atwww.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, proceeds from the sale of commodity contracts and changes in non-cash 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.
Non-GAAP measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
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 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
For the first six months of 2013, the ratio between the average price of West Texas Intermediate (“WTI”) crude oil atCushing and NYMEX natural gas was approximately 25:1 (“Value Ratio”). The Value Ratio is obtained using the first six months 2013 WTI average price of $94.22 (US$/Bbl) for crude oil and the first six months 2013 NYMEX average price of$3.75 (US$/MMbtu) for natural gas. This Value Ratio is significantly different from the energy equivalency ratio of 6:1 and using a 6:1 ratio would be misleading as an indication of value.
The TSX has neither approved nor disapproved the contents of this news release.
SOURCE Cequence Energy Ltd.
For further information:
Paul Wanklyn, President and Chief Executive Officer, (403) 218-8850, email@example.com
David Gillis, Vice President, Finance and Chief Financial Officer, (403) 806-4041, firstname.lastname@example.org