CALGARY, May 13, 2014 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce the financial and operating results for the first quarter of 2014.
The following are Cequence’s financial and operating highlights for the first quarter of 2014:
Financial and Operating
| (000’s except per share and per unit amounts) | Three months ended March 31, |
|||||||||||
| 2014 | 2013 | % Change | ||||||||||
| Financial ($) | ||||||||||||
| Production revenue (1) | 41,095 | 22,005 | 87 | |||||||||
| Comprehensive income (loss) | 512 | (5,439) | 109 | |||||||||
| Per share, basic and diluted | 0.00 | (0.03) | 100 | |||||||||
| Funds flow from operations (2) | 23,082 | 10,652 | 117 | |||||||||
| Per share, basic and diluted | 0.11 | 0.05 | 120 | |||||||||
| Production volumes | ||||||||||||
| Natural gas (Mcf/d) | 59,898 | 46,306 | 29 | |||||||||
| Crude oil (bbls/d) | 992 | 608 | 63 | |||||||||
| Natural gas liquids (bbls/d) | 638 | 496 | 29 | |||||||||
| Total (boe/d) | 11,613 | 8,822 | 32 | |||||||||
| Sales prices | ||||||||||||
| Natural gas, including realized hedges ($/Mcf) | 5.28 | 3.51 | 50 | |||||||||
| Crude oil ($/bbl) | 101.65 | 91.90 | 11 | |||||||||
| Natural gas liquids ($/bbl) | 62.08 | 52.84 | 17 | |||||||||
| Total ($/boe) | 39.32 | 27.72 | 42 | |||||||||
| Netback ($/boe) | ||||||||||||
| Price | 39.32 | 27.72 | 42 | |||||||||
| Royalties | (4.13) | (2.63) | 57 | |||||||||
| Transportation | (1.52) | (1.59) | (4) | |||||||||
| Operating costs | (7.40) | (7.24) | 2 | |||||||||
| Operating netback | 26.27 | 16.26 | 62 | |||||||||
| General and administrative | (2.34) | (2.02) | 16 | |||||||||
| Interest(5) | (1.79) | (0.48) | 273 | |||||||||
| Cash netback | 22.14 | 13.76 | 61 | |||||||||
| Capital expenditures ($) | ||||||||||||
| Capital expenditures | 58,547 | 43,659 | 34 | |||||||||
| Net acquisitions (dispositions) (4) | (3,229) | 18 | (180) | |||||||||
| Total capital expenditures | 55,318 | 43,677 | 27 | |||||||||
| Net debt and working capital (deficiency) (3) | (143,536) | (78,365) | 83 | |||||||||
| Weighted average shares outstanding | ||||||||||||
| Basic | 210,918 | 200,610 | 5 | |||||||||
| Diluted | 212,964 | 200,610 | 6 | |||||||||
| (1) | Production revenue is presented gross of royalties and includes realized gains (loss) on commodity contracts. |
| (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, demand credit facilities, principal value of senior notes and excluding other liabilities. |
| (4) | Represents the cash proceeds from the sale of assets and cash paid for the acquisition of assets, as applicable. |
| (5) | Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions. |
Canadian benchmark natural gas prices averaged $5.59 per mcf in the first quarter of 2014, up 75 percent from the same time period in 2013. AECO prices increased significantly in 2014 as inventory levels decreased in response to a cold North American winter. Cequence realized an increase in natural gas sales prices comparable to the increase in benchmark prices as it sells most of its natural gas on the AECO 5A daily index. Cequence realized an average natural gas price, before hedging, of $6.24 per mcf for the three months ended March 31, 2014 up 79 percent from the comparable period in 2013. After realized hedging losses of $5.2 million Cequence realized an average natural gas price of $5.28 per mcf.
Both funds flow from operations and net earnings increased from the prior year driven by the increase in production volumes of 32 percent and an increase in realized sales prices from the prior year. Funds flow from operations increased to $23.1 million for three months ended March 31, 2014 compared to $10.7 million for the three months ended March 31, 2013. Cequence recorded comprehensive income of $0.5 million for the first quarter of 2014 compared to a comprehensive loss of $5.4 million in the same period in 2013.
Net capital expenditures in the first quarter were $55.3 million including net dispositions of $4.2 million from the sale of 230 boepd of non-core production. Capital expenditures included the drilling of 7.0 gross (3.9 net) horizontal wells and the completion of 11.0 gross (7.1 net) horizontal wells. The wells drilled in the first quarter included 4.0 gross (0.9 net) Wilrich wells at Ansell, and 2.0 gross (2.0 net) Montney wells at Simonette and 1.0 gross (1.0 net) Wilrich well at Simonette. Equipment and facility expenditures in the three months ended March 31, 2014 of $22.5 million were mainly directed towards the construction of a gathering system and compression facility at Ansell, and additional compression and liquids handling capacity at Simonette along with wellsite facilities. The Ansell facilities were completed in the second quarter and increased Cequence’s net production capacity at Ansell to 20 mmcf/d with up to 50 mmcf/d of capacity in the gathering system. At Simonette, a fifth compressor was added to the main production facility at 13-11 increasing its capacity to approximately 70 mmcf/d.
Current budgeted capital expenditures for 2014 are $120 million with approximately $60 million planned for the second half of the year.
Net debt and working capital deficiency at March 31, 2014 was $143.5 million comprised of $60 million in senior notes carrying a five year term, $26.7 million drawn on the Company’s credit facility and a $56.8 million working capital deficiency. The Company has a credit facility borrowing base of $120 million with the next scheduled review expected to be completed by the end of May 2014. Cequence anticipates an increase in the borrowing base as a result of this review.
Operations Update
In the first quarter, Cequence achieved average production of 11,613 boepd, a 32 percent increase from the first quarter of 2013. Production additions over the past year are largely from the Simonette property which averaged 8,250 boe/d in the first quarter, an increase of 54 percent from 5,350 boe/d in the first quarter of 2013. Prior to hedging, the Simonette property achieved an operating netback of $34.96 per boe in the first quarter. Cequence is also actively drilling Wilrich horizontal wells at Ansell and participated in 7 gross (3.4 net) wells in the past year of which only two wells produced in the first quarter due to facility restrictions. A new facility was commissioned at Ansell in April with significant expansion capability allowing for future development of this new discovery. Subsequent to quarter end, Cequence achieved peak production levels of 14,000 boe/d with the tie in of all of the wells drilled in the winter and with the completion of the Ansell facilities.
Three Montney horizontal wells were deferred from the Simonette drilling program in the first quarter due to a reallocation of funds to the Ansell facility project.
Capital expenditures for the remainder of 2014 are currently budgeted to be $60 million. Cequence is currently reviewing the second half capital program and believes that in light of the drilling success at Simonette, the field is ready for transition to full development utilizing pad drilling for the Montney. Drilling operations are currently scheduled to commence in July following spring break up. An active drilling program at Ansell is also expected with current plans including approximately 8.0 gross (4.0 net) wells to be drilled in the second half of 2014. Two of the 8.0 gross wells will be partially carried by Cequence’s partner in the Ansell project and represent the final earning wells of the Ansell farm out.
About Cequence
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.
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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: expected capital expenditures, operating costs, business strategy and objectives; future development, exploration, drilling, acquisition and disposition plans, including the anticipated benefits resulting therefrom and the timing thereof; future production levels; facility construction and timing for completion therof; 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 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.
Additional Advisories
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 quarter of 2014, the ratio between the average price of West Texas Intermediate (“WTI”) crude oil at Cushing and NYMEX natural gas was approximately 21:1 (“Value Ratio”). The Value Ratio is obtained using the first three months 2014 WTI average price of $98.65 (US$/Bbl) for crude oil and the first three months 2014 NYMEX average price of $4.72 (US$/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.
Paul Wanklyn, President and Chief Executive Officer, (403) 218-8850, pwanklyn@cequence-energy.com
David Gillis, Vice President, Finance and Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com[/expand]