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Seven Generations Energy Ltd. Announces Third Quarter 2014 Results

November 12, 20149:49 PM CNW

CALGARY, Nov. 12, 2014 /CNW/ – Seven Generations Energy Ltd. (“7G” or the “Company”) (TSX: VII) is pleased to report its third quarter 2014 operating and financial results.

Highlights

  • Third quarter production averaged a record 35,820 boe/d, an increase of 406% from the third quarter of 2013 and a 49% increase over the second quarter of 2014, with a September 2014 average production rate of 39,690 boe/d (59% liquids).
  • The third quarter of 2014 established a record funds from operations for the quarter of $106.3 million or $0.48 per share on a diluted basis. On a per share basis, this is a 1,500% increase over the third quarter of 2013, and a 55% increase over the second quarter of 2014.
  • The Company has the financial capacity to execute its 2015 business plan:
    • On September 15, 2014, the Company and its lending syndicate agreed to an amendment to the senior secured revolving credit arrangement that increased the borrowing capacity from $150.0 million to $480.0 million and extended the maturity date of the credit facility to September 2017.
    • At September 30, 2014 the Company’s adjusted working capital was $67.7 million.
    • Subsequent to the third quarter of 2014, 7G completed an initial public offering of common shares with net proceeds to the Company of approximately $882 million. As a result of the offering, the Company has access to liquidity in excess of $1.4 billion.
  • During the third quarter of 2014 independent evaluator, McDaniel & Associates Consultants Ltd., updated the Company’s Total Best Estimate Contingent Resources to 728 million barrels gross (637 million barrels net) oil equivalent (“MMboe”) and Total Best Estimate Prospective Resources to 1,096 MMboe gross (986 MMboe net). The corresponding before tax net present values, using a discount rate of ten percent per annum, are $4.6 billion for Total Best Estimate Contingent Resources and $4.2 billion for Total Best Estimate Prospective Resources.

Corporate Update

  • As a result of significant increases in production volumes, revenue increased 599% in the third quarter of 2014 versus the same period last year, and 35% over the second quarter of 2014.
  • 7G achieved operating netbacks of $35.79 per boe in the third quarter of 2014, a 56% increase over the third quarter of 2013 and a 10% decrease relative to the second quarter of 2014 due to a weaker commodity price environment in the third quarter of 2014.
  • During the third quarter of 2014, 7G increased its contracted volumes of condensate and other natural gas liquids (NGLs) with Pembina Pipeline Corporation and its affiliates on Pembina’s Peace Pipeline Phase III Expansion by 91% to 40,695 bbl/d. This service is set to commence upon the completion of Pembina’s Phase III Expansion expected in late 2016 to mid 2017. 7G has also increased its contracted volumes at Pembina’s fractionation expansion project (RFS3) near Fort Saskatchewan by 143% to 8,806 bbl/d.
  • Net capital investments for the quarter totaled $328.4 million with approximately 72% invested on drilling and completions and 28% on facilities and well equipment.
    • The Company increased its active drilling rig count to ten rigs during the quarter from seven rigs at the beginning of the year.
    • During the third quarter of 2014, 7G rig-released ten wells with an average horizontal lateral length of approximately 2,838 meters and completed ten wells with an average of 32.8 stages and 3,796 tonnes of proppant per well.

Three months ended

September 30

Nine months ended

September 30

2014

2013

% Change

2014

2013

% Change

OPERATIONAL               

Total land holdings(1)

Gross acres

367,520

275,680

33

367,520

275,680

33

Net acres

358,238

268,537

33

358,238

268,537

33

Undeveloped land holdings(1)

Gross acres

290,236

223,196

30

290,236

223,196

30

Net acres

284,442

219,245

30

284,442

219,245

30

Rig count(1)

10

5

100

10

5

100

Production

Oil and NGL (bbl/d)

20,869

3,253

542

15,527

4,904

217

Natural gas (MMcf/d)

89.7

23.0

290

67.3

19.5

245

Total (boe/d)

35,820

7,084

406

26,739

6,505

311

Liquids ratio

58%

46%

26

58%

50%

16

Product prices (2)

Oil and NGL ($/bbl)

66.33

60.52

10

70.16

57.09

23

Natural gas ($/Mcf)

4.62

2.64

75

5.14

3.38

52

Operating expense ($/boe)

4.32

6.91

(38)

4.83

6.86

(30)

Transportation expense ($/boe)

3.89

3.82

2

4.65

4.03

15

Operating netback ($/boe) (3) (4)

35.79

23.00

56

37.74

25.99

45

General and administrative expenses ($/boe) (5)

1.35

3.08

(56)

1.76

3.42

(49)

FINANCIAL ($000s, except for per share amounts)

Revenue

165,501

23,692

599

391,828

68,681

471

Funds from operations(4)

106,294

4,780

2,124

226,430

27,159

734

Funds from operations per share – diluted(6)

0.48

0.03

1,500

1.02

0.16

538

Net income (loss)

30,482

(955)

3,292

75,572

(8,533)

986

Net income (loss) per share – diluted(6)

0.14

(0.01)

1,500

0.34

(0.05)

780

Capital investments, net of dispositions

328,423

142,185

131

740,596

396,090

87

Weighted average shares outstanding – diluted (6)

222,151

173,237

28

222,098

172,328

29

Adjusted working capital (4)(7)

67,700

129,586

(48)

67,700

129,586

(48)

Senior notes (8)

784,000

412,120

90

784,000

412,120

90

(1)

As of September 30

(2)

Prices exclude realized gains and losses on risk management contracts.

(3)

Operating netback is calculated on a per-boe basis and is defined as revenue (including realized hedging gains and losses plus third party income) less royalties, operating expenses and transportation costs.

(4)

Operating netback, funds from operations and adjusted working capital do not have any standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable with the calculation of similar measures presented by other entities.  Please refer to the Non-IFRS Financial Measures section of this press release for additional information.

(5)

Excludes interest and financing charges.

(6)

On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements on a retroactive basis. Only dilutive stock options and performance warrants have been included.

(7)

Adjusted working capital excludes unrealized risk management contracts and deferred credits.

(8)

Senior notes as reported represent US$700.0 million principal converted to Canadian dollars at the closing exchange rate for the period end.

Outlook

  • 7G expects 2014 average production to meet previous estimates of 27,000 – 30,000 boe/d.
  • The Company previously announced that 2014 capital investments were estimated to total $1.038 billion. Presently, 2014 capital is expected to be $1.067 billion. The difference is primarily due to higher than expected costs for well completions partly as a result of drilling longer than expected laterals and logistical challenges associated with the supply of nitrogen and other resources required for fracture treatments. The previously announced dedicated frac spread and systematic improvements in our stimulation technique are expected to improve the Company’s capital efficiency going forward.
  • In the third quarter of 2014, the Board of Directors approved a 2015 capital budget of $1.6 billion which is designed to generate average annual production in 2015 of 55,000 to 60,000 boe/d. The 2015 capital budget includes discretionary capital for delineation drilling and facility project pre-investment, equating to approximately 15% of the total capital budget. In the event that commodity prices remain low into 2015, the discretionary projects could be deferred to preserve the Company’s strong balance sheet.
  • 7G plans on increasing the active rig count to 15 drilling rigs during the first half of 2015.
  • Construction of the Karr 7-11 to Lator condensate pipeline and the Lator to Pembina pipeline was mechanically complete in third quarter of 2014. Commissioning and start-up is expected in the fourth quarter.
  • Field construction of the 25,000 bbl/d stabilizer project at the Karr 7-11 battery commenced during the third quarter. The project is estimated to be mechanically complete in the fourth quarter of 2014 with commissioning anticipated in early 2015.
  • Procurement and engineering for the Lator 2 gas plant expansion continued throughout the third quarter. Construction kickoff is planned for the first quarter of 2015, subject to regulatory approvals, and start-up is expected by the fourth quarter of 2015. 7G anticipates that the Lator 2 gas plant expansion will increase the Company’s natural gas processing capacity to 250 MMcf/d by December 2015, consistent with its marketing commitments.

SELECTED QUARTERLY INFORMATION

Q3 2014

Q2 2014

Q1 2014

YTD 2014

FINANCIAL ($ thousands, except per share amounts)

Oil and natural gas liquids revenues

127,343

93,742

76,338

297,423

Natural gas revenues

38,158

29,254

26,993

94,405

Total revenues

165,501

122,996

103,331

391,828

Realized hedging loss

(148)

(6,873)

(5,405)

(12,426)

Processing and third party income

571

243

285

1,099

Interest and other income

512

782

626

1,920

Royalties

(20,925)

(9,434)

(5,386)

(35,745)

Operating expenses

(14,245)

(9,659)

(11,391)

(35,295)

Transportation expenses

(12,814)

(9,940)

(11,220)

(33,974)

General and administrative expense

(4,457)

(5,233)

(3,175)

(12,865)

Interest expense

(16,037)

(16,262)

(13,746)

(46,045)

Foreign exchange

8,367

(618)

223

7,972

Other

(31)

(30)

22

(39)

Funds from operations (1)

106,294

65,972

54,164

226,430

Per share – basic (2)

0.55

0.35

0.29

1.19

Per share –diluted (2)

0.48

0.31

0.25

1.02

Net income

30,482

43,926

1,164

75,572

Per share – basic (2)

0.16

0.23

0.01

0.40

Per share – diluted (2)

0.14

0.20

0.01

0.34

Capital investments, net of dispositions

Land

1,408

28,137

1,519

31,064

Drilling and completions

234,879

155,284

124,294

514,457

Facilities and equipment

90,447

34,172

65,806

190,425

Other

1,689

1,531

1,430

4,650

Total capital investments

328,423

219,124

193,049

740,596

Adjusted working capital (1)

67,700

277,222

424,581

67,700

Senior notes (3)

784,000

746,900

773,850

784,000

OPERATING

Average daily production

Oil and natural gas liquids (bbls/d)

20,869

14,005

11,608

15,527

Natural gas (MMcf/d)

89.7

60.0

51.7

67.3

Total (boe/d)

35,820

23,999

20,231

26,739

Realized prices

Oil and natural gas liquids ($/bbl)

66.33

73.55

73.07

70.16

Natural gas ($/mcf)

4.62

5.36

5.80

5.14

(1)

See “Non-IFRS Financial Measures”

(2)

On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.

(3)

Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.

SELECTED QUARTERLY INFORMATION – continued

Q4 2013

Q3 2013

Q2 2013

Q1 2013

YE 2013

FINANCIAL ($ thousands, except per share amounts)

Oil and natural gas liquids revenues

39,900

18,110

15,745

16,817

90,572

Natural gas revenues

10,921

5,582

7,039

5,388

28,930

Total revenues

50,821

23,692

22,784

22,205

119,502

Realized hedging gain

49

17

53

160

279

Processing and third party income

356

501

347

407

1,611

Interest and other income

272

506

274

233

1,285

Royalties

(3,188)

(2,227)

(318)

(2,120)

(7,853)

Operating expenses

(8,425)

(4,502)

(4,168)

(3,520)

(20,615)

Transportation expenses

(5,623)

(2,486)

(2,529)

(2,141)

(12,779)

General and administrative expense

(2,052)

(2,006)

(2,175)

(1,884)

(8,117)

Interest expense

(8,970)

(8,691)

(5,051)

(194)

(22,906)

Foreign exchange

(133)

(24)

6

10

(141)

Other

7

–

–

–

7

Funds from operations (1)

23,114

4,780

9,223

13,156

50,273

Per share – basic (2)

0.14

0.03

0.06

0.08

0.30

Per share – diluted (2)

0.12

0.03

0.05

0.08

0.27

Net income (loss)

(5,625)

(955)

(8,454)

876

(14,158)

Per share – basic (2)

(0.03)

(0.01)

(0.05)

0.01

(0.08)

Per share – diluted (2)

(0.03)

(0.01)

(0.05)

0.01

(0.08)

Capital investments, net of dispositions

Land

2,925

8,991

35,875

13,507

61,298

Drilling and completions

129,231

102,314

44,697

45,568

321,810

Facilities and equipment

44,717

29,707

39,806

72,464

186,694

Other

1,365

1,173

1,058

930

4,526

Total capital investments

178,238

142,185

121,436

132,469

574,328

Adjusted working capital (1)

214,877

129,586

268,137

(23,559)

214,877

Senior notes (3)

425,440

412,120

420,720

–

425,440

OPERATING

Average daily production

Oil and natural gas liquids (bbls/d)

6,771

3,253

2,994

3,509

4,139

Natural gas (MMcf/d)

28.9

23.0

19.1

16.4

21.9

Total (boe/d)

11,585

7,084

6,182

6,240

7,786

Realized prices

Oil and natural gas liquids ($/bbl)

64.05

60.52

57.78

53.25

59.96

Natural gas ($/mcf)

4.11

2.64

4.04

3.65

3.62

(1)

See “Non-IFRS Financial Measures”

(2)

On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.

(3)

Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.

SELECTED QUARTERLY INFORMATION – continued

Q4 2012

Q3 2012

Q2 2012

Q1 2012

YE 2012

FINANCIAL ($ thousands, except per share amounts)

Oil and natural gas liquids revenues

10,994

11,308

9,269

7,047

38,618

Natural gas revenues

5,820

4,636

3,707

2,844

17,007

Total revenues

16,814

15,944

12,976

9,891

55,625

Realized hedging gain

224

520

655

404

1,803

Processing and third party income

405

485

575

568

2,033

Interest and other income

433

431

223

93

1,180

Royalties

(2,922)

(959)

(859)

(793)

(5,533)

Operating expenses

(3,233)

(2,227)

(2,204)

(2,101)

(9,765)

Transportation expenses

(641)

(625)

(503)

(400)

(2,169)

General and administrative expense

(1,808)

(1,491)

(1,324)

(1,304)

(5,927)

Interest expense

(50)

(51)

(117)

(49)

(267)

Foreign exchange

–

–

–

–

–

Other

(618)

–

–

–

(618)

Funds from operations (1)

8,604

12,027

9,422

6,309

36,362

Per share – basic (2)

0.05

0.07

0.07

0.05

0.25

Per share – diluted (2)

0.05

0.07

0.07

0.05

0.24

Net loss

(379)

(247)

(875)

(1,073)

(2,574)

Per share – basic (2)

–

–

(0.01)

(0.01)

(0.02)

Per share – diluted (2)

–

–

(0.01)

(0.01)

(0.02)

Capital investments, net of dispositions

Land

16,775

21,461

10,916

10,584

59,736

Drilling and completions

43,007

25,545

13,169

21,196

102,917

Facilities and equipment

42,346

14,331

3,496

10,033

70,206

Other

669

477

522

442

2,110

Total capital investments

102,797

61,814

28,103

42,255

234,969

Adjusted working capital (1)

95,089

189,336

195,286

16,605

95,089

Senior notes (3)

–

–

–

–

–

OPERATING

Average daily production

Oil and natural gas liquids (bbls/d)

1,439

1,528

1,355

912

1,309

Natural gas (MMcf/d)

17.3

19.4

18.9

13.3

17.2

Total (boe/d)

4,316

4,763

4,512

3,123

4,180

Realized prices

Oil and natural gas liquids ($/bbl)

83.07

80.44

75.19

84.90

80.59

Natural gas ($/mcf)

3.66

2.60

2.15

2.36

2.70

(1)

See “Non-IFRS Financial Measures”

(2)

On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.

(3)

Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.

Conference Call

7G will host a conference call on Thursday, November 13, 2014 at 9AM MST (11AM EST) to discuss third quarter results and address investor questions.  To participate please dial 416-623-0333 or toll free in North America 1-855-353-9183 and enter access code 36248#.  A replay will be made available after the call and can be accessed by dialing 1-855-201-2300 and entering conference reference number 1168291# followed by participant access code 36248#.

Non-IFRS Financial Measures

In this press release, the Company uses the terms “funds from operations”, “operating netback” and “adjusted working capital”.  These terms do not have any standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable with the calculation of similar measures presented by other entities.

“Funds from operations” is a financial measure not presented in accordance with IFRS and is equal to cash flow from operating activities, the most directly comparable financial measure presented in accordance with IFRS, adjusted for changes in non-cash operating working capital and decommissioning expenditures. The Company has presented funds from operations because it uses funds from operations as an integral part of its internal reporting to measure its performance. Funds from operations is considered an important indicator of the operational strength of the Company’s business. Funds from operations is a measure of the cash flow generated by the Company’s activities and eliminates the effect of changes in non-cash working capital, which is included in cash flow from operating activities. Funds from operations is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either net income as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. In addition, funds from operations is not intended to represent funds available for dividends, reinvestment or other discretionary uses.

The following table presents a reconciliation of the non-IFRS financial measure of funds from operations to the IFRS financial measure of cash flow from operating activities.

Three months
ended Sept 30

Nine months
ended June 30

2014

2013

2014

2013

($000)

($000)

Cash flow from operating activities

118,070

14,666

221,242

41,131

Decommissioning expenditures

–

–

206

–

Changes in non-cash operating working capital

(11,776)

(9,886)

4,982

(13,972)

Funds from operations

106,294

4,780

226,430

27,159

“Operating netback” is calculated on a per boe basis and is determined by deducting royalties, operating and transportation expenses from petroleum and natural gas revenue and, except where otherwise indicated, after adjusting for hedging gains or losses and processing and third party income. Operating netback is utilized by the Company to better analyze the operating performance of its petroleum and natural gas assets against prior periods.

“Adjusted working capital” is calculated as current assets less current liabilities as they appear on the balance sheets, and excludes current unrealized risk management contracts and deferred credits.

The following table presents a calculation of adjusted working capital as presented in this press release.

As at Sept 30

2014

2013

($000)

Total current assets

286,738

239,699

Total current liabilities

(204,634)

(110,781)

Current risk management contracts

(14,527)

668

Current deferred credits

123

–

Adjusted working capital

67,700

129,586

Advisories & Contact
Advisories

Any “financial outlook” or “future oriented financial information’ in this press release, as defined by applicable securities legislation, has been approved by management of the Company. Such financial outlook or future oriented financial information is 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.

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 and “forward looking information” for the purposes of Canadian securities regulation. Any statements included in this press release that address activities, events or developments that the Company “expects,” “believes,” “plans,” “projects,” “estimates” or “anticipates” will or may occur in the future are forward-looking statements. Statements relating to “reserves” and “resources” are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and that the reserves and resources can be profitably produced in the future. Actual reserve and resource values may be greater than or less than the estimates provided herein. Actual results may differ materially due to a variety of important factors. Among other items, such factors might include: planned and unplanned capital expenditures; changes in general economic conditions; uncertainties in reserve, resource and production estimates; unanticipated recovery or production problems; weather-related interference with business operations; the effects of delays in completion of, or shut-ins of, natural gas and liquids gathering systems, pipelines and processing facilities; potential costs associated with complying with new or modified regulations; oil and natural gas prices and competition; the impact of derivative positions; production expense estimates; cash flow and cash flow estimates; drilling and operating risks; the Company’s ability to replace oil and gas reserves; volatility in the financial and credit markets or in oil and natural gas prices; effects of regulation by governmental agencies including changes in environmental regulations, tax laws and royalties. Except as required by law, the Company undertakes no obligation to update forward-looking information if circumstances or management’s estimates or opinions should change.  Do not place undue reliance on forward-looking information. Additional factors are disclosed in the Company’s Supplemented PREP Prospectus dated October 29, 2014 under the headings “Forward-Looking Statements” and “Risk Factors”.

Seven Generations has adopted the standard of 6 Mcf:1 bbl when converting natural gas to oil equivalent. Boe 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. Given the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilizing a conversion ratio at 6 Mcf: 1 bbl may be misleading as an indication of value.

Unless otherwise noted, “$” refers to Canadian dollars.

About Seven Generations

Seven Generations Energy Ltd. is an independent petroleum company focused on the acquisition, development and value optimization of high quality tight and shale hydrocarbon resource plays. Presently, the Company has a single focus area, the Kakwa River Project, a large-scale, tight, liquids-rich natural gas property located in the Kakwa area of northwest Alberta. 7G has a corporate headquarters in Calgary, Alberta and an operations headquarters in Grande Prairie, Alberta.  Seven Generations shares are traded on the Toronto Stock Exchange under the symbol VII.

SOURCE Seven Generations Energy Ltd.

For further information: Brian Newmarch, Manager Investor Relations or Chris Law, Vice President Corporate Planning, Phone: 403-718-0700, Email: investors@7genergy.com

Seven Generations Energy

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