CALGARY, Feb. 4, 2016 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce its recent operating highlights.
Simonette 16-33 Montney Well
The Company’s recent Simonette Montney well at 16-33-61-27W5 utilized a new completion design and was highly successful based on initial results. The average production rate for the last seven days was 1,800 boe/d (7.5 mmcf/d and 550 bbl/d of condensate). The well continues to clean up and after 21 days is producing approximately 500 bbl/d of frac-water with a total of 28% of the load water recovered to date. The 16-33 well was drilled in an area of the Simonette property with limited existing reserve bookings. The strong production rate combined with a high initial condensate yield of 75 bbl/mmcf is a very encouraging indication of potential for this area. It is expected that over time the condensate yield will stabilize at approximately 40 bbl/mmcf which is significantly higher than the Company’s current Montney forecast model of 20 bbl/mmcf.
The well is the longest Simonette Montney well drilled by Cequence at 6,100 meters measured depth with a completed lateral length of 3,050 meters. Despite the length of the well, the spud to on-stream time was only 55 days. The completion utilized a 70 stage cemented coil shift frac system, 3,150 tonnes of proppant, and 13,900 m3 of slick-water. Although the 16-33 well was executed as a one off Montney well, it was drilled and cased for a cost of $4.1 million ($1,345/m of lateral) and completed for $4.5 million ($1,475per meter) for a total of $8.6 million. The new well design doubled the frac intensity but cost approximately 30% less per completed meter compared to the Company’s 2014 program average.
Given the success of the 16-33 well, Cequence has increased the average length of future wells in its development plan by approximately 25% to an average of 2,500 meters. The efficiencies gained by drilling longer laterals from multi-well padsites are significant and Cequence is confident that this newly designed drilling and completion technique can more effectively stimulate future longer wells at an average drilling, complete, and tie-in cost of $7.7 million per well or under $3,100 per meter of lateral length.
The 16-33 well has de-risked approximately 8-10 sections of land on the western side of the Company’s acreage and is expected to add 3 locations to our reserve booking. Management believes that the higher expected liquids yield, combined with efficiencies expected through an improved well design and new completion technique will result in wells that are more economic than the Company’s field average.
Simonette Dunvegan Oil
The 7-11-62-26W5 Dunvegan well (50% WI) has produced 47,000 bbls of 41 API oil in its first 150 operating days for an average 313 bbl/d of oil. The well has exceeded the Company’s forecast model and continues to flow at an oil rate of 270 bbl/d at a 97% oil cut.
The 4-11 offset well (50% WI) was drilled to a lateral length of 3,000 meters and successfully completed with a 47 stage cemented coil shift frac system. The well came on production January 31, 2016 through permanent facilities and is producing 148 bbl/d of oil, 115 bbl/d of water (56% oil cut) and cleaning up. A total of 9,200 m3 of frac water remains in the well.
A 2,000 bbl/d oil facility (50% WI) was completed in Q4 along with a tank vapour recovery system. All solution gas is tied in to the Company’s joint gas gathering infrastructure and the 13-11-62-27W5M gas plant (50% WI).
Cequence is confident in the development plan for the pool with a total potential of 28 wells (24 net wells) at a planned average lateral length of 1,900 meters. Cequence maps a total net oil in place of approximately 60 mmbbls and believes that a 10% recovery factory is achievable on primary recovery.
Facilities and Gas Marketing
The shallow cut refrigeration addition (120 mmcf/d) at the 13-11 facility was commissioned on January 21, 2016 and is estimated to have been completed at approximately 14% under budget. The facility has been making a C3+ NGL mix under various temperature set points during the commissioning phase. Construction of the meter station and tie-in to the NGTL system is under way and expected to be completed by the previously announced April 2016 in-service date, at which time the plant will be connected to both the Alliance and NGTL systems. The planned shut-down of the facility was a total of 2.5 weeks and spread out through the months of November and January in order to facilitate the connection of the refrigeration units.
Cequence has increased its firm gas delivery contracts on the Alliance system commencing in December, 2015 to 55,000 GJ/d from 40,000 GJ/d with a new marketing arrangement. These contracts step down when the NGTL meter station becomes operational.
State of Readiness
Cequence currently has 26 Simonette padsites constructed and pipeline connected with more than 200 potential horizontal wells available to drill from these sites. With the completion of the 13-11 gas plant and dual connection to both major pipeline systems inAlberta, all the required infrastructure is in place to begin full field development when prices support further drilling activity.
Cequence remains focused on preserving the strength of its balance sheet. With the continuation of low commodity prices, the Company has deferred the drilling of 2 (1.5 net) Dunvegan oil wells in the first quarter. Capital expenditures in the first half of 2016 are expected to be approximately $8.5 million and will be limited to the completion of the 13-11 plant addition and NGTL meter station and the tie-in of the most recent wells at Simonette. The Company has continued its hedging program and has approximately 50 percent of its expected 2016 natural gas production (net of royalties) hedged at an average AECO price of $2.71 /GJ or $3.20/mcf based on the estimated heat content of the Company’s gas. In addition, the Company has 400 bbl/d of crude oil hedged at $65.35CAD/bbl.
Based on field estimates, 2015 production averaged 9,500 boe/d which is in line with the Company’s guidance. With the success of the recent Montney well and current estimated productive capacity of 13,000 boe/d, Cequence estimates that 2016 production will average 9,200-9,500 boe/d without any additional drilling activity in 2016.
The Company’s previously announced formal process to explore strategic alternatives with a view to enhancing shareholder value is ongoing. Given the nature of the process, the Company does not intend to provide updates until such time as the Board of Directors approves a definitive transaction or strategic alternative, or otherwise determines that further disclosure is advisable. Cequence cautions that there are no guarantees that the review of strategic alternatives will result in a transaction, or if a transaction is undertaken, as to its terms or timing.
Paul Wanklyn, President and CEO said, “The Company’s recent Simonette Montney well at 16-33 utilized a new well/completion design and was highly successful. We believe that the commerciality of the Montney at Simonette is significantly enhanced by this result and that further cost savings will be achieved when pad drilling is employed during full scale development. The higher liquids content is very encouraging and opens up new potential in the western portion of Simonette.
The Dunvegan oil discovery made last summer continues to perform well at Simonette. This project piggybacks on much of the existing infrastructure and will add significant liquids production when development begins. Cequence remains undrawn on its bank line of credit at year end, and minimal capital spending is planned in the near term to protect our balance sheet. Our midstream partnership and the completion of our gas plant in January satisfies our future infrastructure requirements. Cequence remains well positioned to weather the current storm in the energy business and we will continue to examine all options to maximize shareholder value.”
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.