CALGARY, Nov. 13, 2014 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce the financial and operating results for the three and nine months ended September 30, 2014 and to provide an update on its operational activities. The Company’s financial statements and management’s discussion and analysis are available at cequence-energy.com and at sedar.com.
During the quarter, Cequence divested one of its core producing assets at Ansell for $141 million providing the Company with financial capability to plan an active Montney development program at Simonette. Cequence has commenced drilling on two new padsites and expects to reach a production target of 15,000 boepd in the first quarter of 2015.
“We are excited by the renewed pace of development at Simonette,” commented Paul Wanklyn, President and CEO. “Since last March we have brought on stream one Dunvegan and one Falher well. With the accelerated pace of the current program, we plan to bring on stream eight new Montney wells by the end of January 2015. I am comfortable with our winter capital program and believe our aggressive growth target is achievable while maintaining the strength of our balance sheet.”
Financial
The following are Cequence’s financial highlights for the third quarter of 2014:
Operating
The following are Cequence’s operating highlights for the third quarter of 2014:
| (000’s except per share and per unit amounts) | Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||||
| Financial ($) | |||||||||||||||||||
| Production revenue (1) | 29,013 | 25,325 | 15 | 111,327 | 77,134 | 44 | |||||||||||||
| Comprehensive income (loss) | 74,402 | (517) | 14,491 | 83,790 | (1,786) | 4,791 | |||||||||||||
| Per share, basic | 0.35 | (0.00) | n/a | 0.40 | (0.01) | 4,100 | |||||||||||||
| Per share, diluted | 0.35 | (0.00) | n/a | 0.39 | (0.01) | 4,000 | |||||||||||||
| Funds flow from operations (2) | 13,588 | 10,973 | 24 | 56,905 | 36,457 | 56 | |||||||||||||
| Per share, basic | 0.06 | 0.05 | 20 | 0.27 | 0.18 | 50 | |||||||||||||
| Per share, diluted | 0.06 | 0.05 | 20 | 0.26 | 0.18 | 44 | |||||||||||||
| Production volumes | |||||||||||||||||||
| Natural gas (Mcf/d) | 49,515 | 52,848 | (6) | 58,036 | 52,459 | 11 | |||||||||||||
| Crude oil (bbls/d) | 118 | 134 | (12) | 125 | 127 | (2) | |||||||||||||
| Natural gas liquids (bbls/d) | 523 | 542 | (4) | 598 | 508 | 18 | |||||||||||||
| Condensate (bbls/d) | 801 | 808 | (1) | 945 | 733 | 29 | |||||||||||||
| Total (boe/d) | 9,694 | 10,292 | (6) | 11,340 | 10,112 | 12 | |||||||||||||
| Sales prices | |||||||||||||||||||
| Natural gas, including realized hedges ($/Mcf) | 4.19 | 3.08 | 36 | 4.71 | 3.49 | 35 | |||||||||||||
| Crude oil ($/bbl) | 90.77 | 97.54 | (7) | 94.09 | 88.96 | 6 | |||||||||||||
| Natural gas liquids ($/bbl) | 38.34 | 38.69 | (1) | 44.59 | 37.93 | 18 | |||||||||||||
| Condensate ($/bbl) | 96.02 | 97.09 | (1) | 101.33 | 94.02 | 8 | |||||||||||||
| Total ($/boe) | 32.53 | 26.75 | 22 | 35.96 | 27.94 | 29 | |||||||||||||
| Netback ($/boe) | |||||||||||||||||||
| Price, including realized hedges | 32.53 | 26.75 | 22 | 35.96 | 27.94 | 29 | |||||||||||||
| Royalties | (4.35) | (2.44) | 78 | (4.17) | (2.48) | 68 | |||||||||||||
| Transportation | (1.44) | (1.65) | (13) | (1.48) | (1.60) | (8) | |||||||||||||
| Operating costs | (7.65) | (8.29) | (8) | (7.90) | (7.78) | 2 | |||||||||||||
| Operating netback | 19.09 | 14.37 | 33 | 22.41 | 16.08 | 39 | |||||||||||||
| General and administrative | (2.12) | (2.02) | 5 | (2.20) | (2.06) | 7 | |||||||||||||
| Interest(5) | (1.99) | (0.69) | 188 | (1.87) | (0.63) | 197 | |||||||||||||
| Cash netback | 14.98 | 11.66 | 28 | 18.34 | 13.39 | 37 | |||||||||||||
| Capital expenditures ($) | |||||||||||||||||||
| Capital expenditures | 49,239 | 17,949 | 174 | 123,743 | 66,331 | 87 | |||||||||||||
| Net acquisitions (dispositions) (4) | (142,034) | (5) | n/a | (148,401) | (2,628) | 5,547 | |||||||||||||
| Total capital expenditures | (92,795) | 17,944 | (617) | (24,658) | 63,703 | (139) | |||||||||||||
| Net debt and working capital (deficiency) (3) | (29,911) | (72,984) | (59) | (29,911) | (72,984) | (59) | |||||||||||||
| Weighted average shares outstanding – Basic | 211,028 | 210,918 | – | 210,978 | 206,951 | 2 | |||||||||||||
| Weighted average shares outstanding – Diluted | 214,569 | 210,918 | 2 | 215,339 | 206,951 | 4 | |||||||||||||
| (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. |
Operational Update
Starting in June 2014, Cequence initiated pad style development drilling in the Montney formation at Simonette. Two drilling rigs are currently operating in the field and will continue drilling through the 2014/2015 winter season.
1-32 Padsite
Five of the planned six Montney wells have been drilled at the 1-32 multi-well pad site since June. The first three wells were recently completed, tested, and are expected to be on-stream through Cequence facilities in early December. These wells were completed in a “zipper” technique utilizing tighter frac spacing and double the sand and water volumes per lateral length than the Company has historically deployed.
The initial cleanup and flow test of the first three wells is very encouraging. All three wells were each tested for a 96 hour period with substantial load water still left to be recovered. The table below summarizes the last test period for each well:
| Legal Description |
Flowing Tubing Pressure psi |
Gas Rate MMcfd |
Condensate (bbl/d) |
Yield (bbl/MMcfd) |
Load Water bbl/d |
| 02-28-61-26 | 766 | 6.2 | 278 | 45 | 747 |
| 01-28-61-26 | 890 | 7.5 | 551 | 73 | 941 |
| 09-28-61-26 | 783 | 6.6 | 430 | 65 | 679 |
These test rates are above Cequence’s current model of 5 MMcfd IP 30 gas rate and 21 bbl/MMcf condensate yield.
The next three wells on the 1-32 pad are scheduled for completion in early January 2015.
12-26 Padsite
A drilling rig moved to this padsite on September 5th and will rig release the 2nd of the 2 wells scheduled by November 15th. These wells directly offset the 14-24-61-27W5 well which came on production in January, 2014 at a 30 day IP rate of 6.5 MMcfd and 129 bbl/d free condensate. These laterals are being drilled at 300 m inter-well distance and are planned to be completed in December with higher intensity fracs.
Dunvegan & Falher
The 11-12-61-2W6 Dunvegan (65% WI) well came on production on September 9th with a gross 30 day IP rate of 9.6 MMcfd and 160 bbl/d of condensate. This well is performing at the Company’s existing Dunvegan model rate and continues to enhance the economic nature of this play at Simonette.
A successful Falher (65% WI) well was drilled at 8-18-61-1W6M and completed in October. The well commenced production on November 1st at an early rate of 3.4 MMcfd gas and 106 bbls/d of condensate.
Additional Dunvegan and Falher wells are being planned as part of the 2015 drilling program.
Facilities Expansion
Phase 6 of the Cequence Simonette facility expansion is underway and will increase the total capacity of the Company’s 13-11 Compressor station from 70 mmcfd to 100 mmcfd with start-up expected in early January, 2015. An expansion of the existing condensate stabilizer from 2,500 bbls per day to 4,000 bbls per day is planned for the second quarter of 2015. The combined cost of the expansion is estimated to be $10.5 million with 85% of the expenditure spent in the fourth quarter of 2014.
A planned one week shutdown of the Simonette facility in order to complete the construction project will take place in January. This will affect 100% of the volumes produced through the plant for that duration.
Guidance
The following table adjusts the Company’s guidance for changes in commodity prices and the nature and timing of the capital expenditures in the winter drilling program. In total, capital expenditures for the period from July 1, 2014 to March 31, 2015 are largely unchanged. However, the timing of certain projects has been adjusted and the Company expects 2014 net capital expenditures including dispositions to increase by $12 million to $35 million and for Q1 2015 net capital expenditures to decrease by $13 million to $45 million.
Production guidance for 2014 is unchanged and Cequence expects the first quarter of 2015 to average 13,500 boepd with an exit production rate of 15,000 boepd.
Based on lower cash flow from declining commodity prices, Cequence expects net debt to be approximately $93 million at the end of Q1 2015, an increase from $82 million in previous guidance. Cequence plans to maintain its balance sheet flexibility and expects to have a March 31, 2015 debt to cash flow ratio of approximately 1.1 times using annualized first quarter 2015 cash flow.
The Company continues to hedge to protect future capital expenditures and to maintain its balance sheet strength. Cequence has hedged approximately 29,000 GJ/d for the remainder of 2014 at an average AECO price of $3.49 per GJ or $3.90 per mcf. For 2015, Cequence has hedged approximately 21,000 GJ/d at an average AECO price of $3.69 per GJ or $4.14 per mcf.
| Previous 2014 (12 months) |
Revised 2014 (12 months) |
Previous 2015 (3 months) |
Revised 2015 (3 months) |
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| Average production, BOE/d (1) | 11,000 | 11,000 | 13,500 | 13,500 | |||||||||
| Exit production, BOE/d | 12,000 | 12,000 | 15,000 | 15,000 | |||||||||
| Funds flow from operations ($)(2) | $83 million | $76 million | $27 million | $22 million | |||||||||
| Funds flow from operations per share(2) | $0.39 | $0.36 | $0.13 | $0.12 | |||||||||
| Capital expenditures, prior to dispositions ($)(3) | $170 million | $185 million | $58 million | $45 million | |||||||||
| Net capital expenditures, including dispositions ($) | $23 million | $35 million | $58 million | $45 million | |||||||||
| Wells drilled | 19(15.2) | 20(14.9) | 6(6.0) | 5(4.7) | |||||||||
| Operating and transportation costs ($ per boe) | $9.00 | $9.00 | $8.20 | $8.20 | |||||||||
| G&A costs ($ per boe) | $1.95 | $1.95 | $1.55 | $1.90 | |||||||||
| Royalties (% revenue) | 10 | 10 | 8 | 10 | |||||||||
| Crude – WTI (US$/bbl) | $99.75 | $93.50 | $97.00 | $78.00 | |||||||||
| Natural gas – AECO (Cdn$/GJ) | $4.60 | $4.33 | $3.85 | $4.00 | |||||||||
| Period end, net debt and working capital deficiency ($) (4) | $51 million | $70 million | $82 million | $93 million | |||||||||
| Basic shares outstanding | 211 million | 211 million | 211 million | 211 million |
| Notes: | |
| (1) | Average production estimates on a per BOE basis are comprised of 84% natural gas and 16% oil and natural gas 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) | Includes an estimated $24.4 million of capital expenditures incurred to date in 2014 on the Ansell property prior to disposition. |
| (4) | Net debt and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets and liabilities, demand credit facilities and the aggregate principal amount of the senior notes and excluding other liabilities. |
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.
[expand title=”Advisories & Contact”]
Production Tests
Any references in this release to IP rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue to produce and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.
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: the Company’s guidance and forecasts; expected capital expenditures, business strategy and objectives; and future development, and drilling plans, including the anticipated benefits resulting therefrom and the timing 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. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable. 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 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 nine months of 2014, the ratio between the average price of West Texas Intermediate (“WTI”) crude oil at Cushing and NYMEX natural gas was approximately [23:1] (“Value Ratio”). The Value Ratio is obtained using the first nine months 2014 WTI average price of $99.77 (US$/Bbl) for crude oil and the first nine months 2014 NYMEX average price of $4.42 (US$/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]