Cequence Energy Announces $54 Million Midstream Transaction

CALGARY, May 26, 2015 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce it has entered into agreements with Kanata Energy Group Ltd. (“KANATA”) pursuant to which Cequence will sell a 50% interest in its existing Simonette facilities and related infrastructure and Cequence and KANATA will jointly fund an enhancement of the 13-11-62-27W5M Simonette gas compression and dehydration facility (“Facility”). The Facility enhancement includes adding a shallow cut refrigeration system and sales connection to TransCanada’s NGTL system.  The refrigeration plant will be capable of processing 120 mmcf/d of liquids rich natural gas which is expected to be sufficient to cover Cequence’s development drilling plans for several years.

The expected benefits of this transaction to Cequence include:

• KANATA’s commitment to build and fund 50% of the expected $40 MM for the NGTL tie-in and refrigeration facility construction.
• The enhanced Facility provides dual access capabilities to both TCPL (NGTL) and Alliance transportation systems.
• The new shallow cut refrigeration process is expected to allow Cequence to directly recover an additional 15% of condensate volumes at Simonette for sale in the Alberta market.
• With proceeds of $34 million at closing for the sale of the existing Simonette facilities and infrastructure, the Company’s balance sheet is strengthened, resulting in March 31, 2015 adjusted net debt of $49 million. ⁽¹⁾
• The retention of 50% ownership provides the potential for substantial future third party revenue and allows the Company to retain long term strategic value and flexibility.
• Cequence will continue to operate the related facilities on behalf of KANATA.
• The parties have included a future mechanism for KANATA to fund projects under similar joint venture terms.

Cequence will retain priority rights and ownership privileges in the gas plant and gathering system with a minimum volume commitment of 40 mmcf/d in 2015 and 42 mmcf/d commencing in March 2016. Cequence will receive 50% of third party processing revenues generated by the plant, which is expected to attract additional volumes as drilling activity in the area continues.  In February and March of 2015, Cequence produced 50 mmcf/d through the plant.

“Cequence is pleased with this midstream partnership and believes KANATA’s responsive, flexible and customer-focused approach to midstream services will provide area growth opportunities for both parties.” said Paul Wanklyn, President and CEO of Cequence.

Simonette Dual Connection Egress & Marketing Options:

Management of Cequence believes that enhancing the Company’s long term strategic flow assurance and marketing optionality in the Simonette area is critical.  The new Simonette NGTL meter station and connection is underway with an expected in service date of Q1 2016.  Once operational, the meter station will have capacity up to 200 mmcf/d with connection to both of the NGTL main trunk lines in the right of way.  The existing 120 mmcf/d Alliance meter station and connection will remain intact which is intended to provide the Simonette Facility, and customers, flow options on the two major gas infrastructure systems in Alberta.

Located in Calgary, Alberta, KANATA is a privately funded midstream infrastructure and service company with equity financing from a group of leading private investors including ARC Financial Corp., Energy Spectrum Capital and Teachers’ Private Capital. KANATA is focused on the acquisition, construction and operation of gathering, processing and liquids extraction facilities in Western Canada.  The transaction will be effective May 1, 2015 and is expected to close on or before June 23, 2015

Outlook and Guidance

The Company is providing the following updated outlook and guidance contingent on the closing of the transaction with KANATA.

Balance sheet strength remains critical to Cequence.  Pro forma the transaction, full year capital expenditures, net of dispositions, have been reduced to $40 million and will include $17 million towards the shallow cut refrigeration system and sales connection to TransCanada’s NGTL pipeline.  The project is anticipated to be completed in the first quarter of 2016.  Year end 2015 net debt is expected to be $73 million based on the Company’s anticipated funds flow of $38.5 million.

The Company will continue to monitor fluctuations in commodity prices and may adjust capital spending based on the Company’s hedge position and short to medium term crude oil and natural gas prices.

About Cequence

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.

[expand title=”Advisories & Contact”]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: forecasts and related assumptions; the anticipated timing and closing of the transaction with KANATA and use of proceeds; business strategy and objectives; costs of the Facility expansion; plant capabilities and expected improved condensate volume recoveries; third party processing revenue; future potential funding terms with KANATA; timing of the meter station completion and capacity; future production levels; the facility expansion and anticipated benefits;  drilling plans and anticipated benefits; the timing of the impacts of the TransCanada Pipeline system; expected future oil and gas prices; and the timing of well completions. 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 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. 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.  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 three months ended March 31, 2015, the ratio between the average price of West Texas Intermediate (“WTI”) crude oil at Cushing and NYMEX natural gas was approximately 17:1 (“Value Ratio”). The Value Ratio is obtained using the first quarter 2015 WTI average price of $48.49 (US$/Bbl) for crude oil and the first quarter 2015 NYMEX average price of $2.81 (US$/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, Chief Executive Officer, (403) 218-8850, pwanklyn@cequence-energy.com; David Gillis, Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com[/expand]