CALGARY, ALBERTA–(Marketwired – Nov. 2, 2017) – Seven Generations’ strong production growth drove funds from operations to $284.3 million or 78 cents per share in the third quarter of 2017, representing a 22 percent increase in funds from operations per share compared to the same period one year ago. Production averaged 183,920 boe/d in the third quarter of 2017, up 39 percent from the third quarter of 2016, with liquids making up 59 percent of 7G’s total production.
THIRD QUARTER HIGHLIGHTS
- Production averaged 183,920 boe/d, up 39 percent, or 26 percent per share, from the third quarter of 2016, comprised of 59 percent liquids and a condensate-to-gas ratio of 128 barrels per MMcf.
- Funds from operations were $284.3 million, or 78 cents per share, up 34 percent and 22 percent respectively compared to the third quarter of 2016.
- Operating income was $63.4 million or 17 cents per share, up 33 percent and 21 percent respectively compared to the third quarter of 2016.
- 7G commenced a refinancing transaction to issue US$700 million of 5.375% senior unsecured notes due in 2025. These new notes retired US$700 million of 8.25% senior unsecured notes due in 2020. This refinancing will save about $25 million per year in interest. The new issuance was completed subsequent to quarter end on October 2nd and the 2020 note redemption was completed October 25th.
“We grew production and cash flow per share consistent with our plans and we reduced per unit operating and well construction costs. Our diversified market access helped capture attractive natural gas prices, which, combined with our high liquids yields, generated strong returns on capital. We remain focused on improving our operational performance and executing a development program that achieves industry-leading returns,” said Marty Proctor, 7G’s President and Chief Executive Officer.
7G’s market access strategy contributes to record funds from operations
7G’s natural gas marketing portfolio provides geographic takeaway capacity and natural gas pricing optionality across North America – the U.S. Midwest, Gulf of Mexico, Alberta and Eastern Canada. 7G’s third quarter realized natural gas price prior to hedging was $3.46 per Mcf, significantly higher than Alberta prices.
Per unit operating costs down 13 percent; drilling and completions costs track lower
7G’s cost focus reduced third quarter operating costs to $5.43 per boe, down from $6.24 per boe in the second quarter of 2017. Operating costs are expected to trend to historical levels by early 2018. Third quarter drilling and completing costs were also lower, down 7 percent to $11 million per well compared to the second quarter of 2017, while drilling longer wells and completing them with more fracture stages and sand per well.
2017 THIRD QUARTER FINANCIAL AND OPERATING RESULTS
|Three months ended
|Nine months ended
|2017||2016||% Change||2017||2016||% Change|
|($ millions, except per share and volume data)|
|Natural gas (MMcf/d)||453.2||314.0||44||416.0||276.0||51|
|Condensate and oil ($/bbl)||$ 54.75||49.93||10||$ 58.77||48.16||22|
|Natural gas ($/Mcf)||3.46||3.92||(12||)||3.94||3.29||20|
|Liquid and natural gas sales||$||31.30||29.64||6||$||33.33||$||27.06||23|
|Royalty (expense) recovery||(0.86||)||(0.04||)||nm||(0.89||)||0.17||nm|
|Transportation, processing and other(2)||(6.07||)||(6.12||)||(1||)||(5.62||)||(5.39||)||4|
|Netback prior to hedging||18.94||19.63||(4||)||21.25||17.87||19|
|Realized hedging gain (loss)||0.84||1.58||(47||)||0.19||2.75||(93||)|
|Operating netback after hedging||$||19.78||21.21||(7||)||$||21.44||$||20.62||4|
|General and administrative expenses per boe||$||0.65||1.21||(46||)||$||0.75||$||1.06||(29||)|
|Selected financial information|
|($ millions, except per share and volume data)|
|Liquids and natural gas revenue||529.5||361.7||46||1,524.0||837.1||82|
|Per share – diluted||$||0.17||$||0.14||21||$||0.54||$||0.37||46|
|Net income (loss) for the period||85.7||(2.2||)||nm||479.0||78.8||nm|
|Per share – diluted||$||0.24||$||(0.01||)||nm||$||1.31||$||0.26||nm|
|Funds from operations(1)||284.3||211.8||34||824.5||520.0||59|
|Per share – diluted||$||0.78||$||0.64||22||$||2.26||$||1.72||31|
|Cash provided by operating activities||314.1||169.2||86||844.2||465.9||81|
|Total capital investments(3)||454.3||207.7||119||1,329.1||694.2||91|
|Adjusted working capital(1)||77.7||629.3||(88||)||77.7||629.3||(88||)|
|Weighted average shares – basic||354.4||309.8||14||352.8||283.9||24|
|Weighted average shares – diluted||364.0||329.8||10||364.6||303.1||20|
|(1)||Operating netback, operating income, funds from operations, adjusted working capital, available funding and net debt are not defined under IFRS. See “Non-IFRS Financial Measures” in Management’s Discussion and Analysis dated November 1, 2017 for the three and nine months ended September 30, 2017.|
|(2)||Certain comparative figures have been reclassified to conform to current period presentation.|
|(3)||Excluding acquisitions and equity investments.|
DRILLING AND COMPLETIONS
|Three months ended
|Three months ended
|Nine months ended
|Nest Activity||2017||2016||% Change||2017||% Change||2017||2016||% Change|
|Horizontal wells rig released||15||13||15||30||(50||)||68||38||79|
|Average measured depth (m)||5,905||5,557||6||5,867||1||5,878||5,716||3|
|Average horizontal length (m)||2,756||2,464||12||2,614||5||2,657||2,614||2|
|Average drilling days per well||33||29||14||36||(8||)||35||36||(3||)|
|Average drill cost per lateral metre ($)(2)||1,472||1,402||5||1,642||(10||)||1,542||1,624||(5||)|
|Average well cost ($ millions)(2)||4.0||3.4||18||4.2||(5||)||4.0||4.0||–|
|Average number of stages per well||45||33||36||38||18||41||30||37|
|Average tonnes pumped per well||6,425||5,366||20||5,961||8||6,236||4,917||27|
|Average cost per tonne($)(2)||1,094||1,145||(4||)||1,282||(15||)||1,190||1,115||7|
|Average well cost ($ millions)(2)||7.0||6.2||13||7.6||(8||)||7.4||5.5||35|
|Total D&C cost per well ($ millions)(2)||11.0||9.6||15||11.8||(7||)||11.4||9.5||20|
|(1)||The drilling and completion counts include only horizontal Montney wells in the Nest. The drilling counts and metrics exclude wells that are re-drilled or abandoned. No wells were abandoned in 2017.|
|(2)||Information provided is based on field estimates and is subject to change.|
Drilling costs per well down 5 percent compared to the second quarter
7G’s average drilling cost per well was $4 million in the third quarter of 2017, down from $4.2 million in the second quarter of 2017. 7G’s key drilling metric of dollars per lateral metre drilled averaged $1,472 in the third quarter, representing a 10 percent improvement compared to the second quarter of 2017.
Completion costs per well down 8 percent compared to the second quarter
7G’s average completion cost per well was $7 million in the third quarter of 2017, down from $7.6 million in the second quarter of 2017. Completions efficiencies were driven by improved water sourcing logistics and a deliberate move to work with fewer and more efficient business partners. Seven Generations is incorporating higher stage counts per well in its completion design, with a third quarter average per well of 45 stages and approximately 6,400 tonnes of proppant. 7G has observed a strong positive relationship between well productivity and stage count, therefore these higher stage count wells are expected to result in above average production rates and economics.
The total average drilling and completion cost per well was $11.0 million in the third quarter of 2017, down from $11.8 million in the second quarter of 2017. Seven Generations continues to pursue ways to drive down costs in both drilling and completions to maximize capital efficiencies.
With an average of seven drilling rigs running in the third quarter, Seven Generations drilled 18 wells, completed 25 wells and brought 39 wells on production. At the end of the third quarter, 7G had 56 wells in various stages of construction between drilling, completion and tie-in. This well inventory reflects the 2017 plan and the number of rigs running at various times during the year.
Seven Generations maintained a strong financial position with available funding of $1.4 billion and net debt of $1.9 billion as of September 30, 2017. 7G plans to fund the remainder of its 2017 capital program through a combination of cash on hand, funds from operations and draws on its credit facility. Reaching a self-funding state, where cash flow is equivalent to or greater than capital investment, remains a key focus for 7G.
Seven Generations continues to deliver on its disciplined, rolling three-year hedging program with a significant portion of its AECO-exposed volumes currently hedged at a minimum price of $2.50 per gigajoule. 7G had the following risk management contracts as at September 30, 2017:
|Crude Oil||Natural Gas||Foreign Exchange|
|WTI Collars||WTI 3 Way Collars||Chicago Citygate Swaps||AECO 7A Collars||CAD/USD Swaps|
|Period||bbl/d||C$/bbl||bbl/d||C$/bbl||MMBtu/d||US$/ MMBtu||GJ/d||C$/GJ||USD $MM||US$/C$|
|2017 remainder||15,000||$63.94 – $77.39||9,000||$41.11/$56.67/$76.83||220,000||$2.96||60,000||$2.50 – $3.03||59.9||1.3085|
|2018||15,250||$61.69 – $78.23||12,000||$40.83/$56.25/$75.54||185,000||$2.89||50,000||$2.50 – $2.99||195.3||1.3165|
|2019||12,000||$59.38 – $77.81||7,500||$41.00/$56.33/$75.92||100,000||$2.88||50,000||$2.50 – $2.99||105.0||1.2992|
|2020||3,000||$57.50 – $73.33||1,500||$40.00/$55.00/$70.98||12,500||$2.77||–||–||12.6||1.3039|
Debt refinancing will save 7G about $25 million per year
In September, 7G commenced a refinancing transaction to issue US$700 million of 5.375% senior unsecured notes due in 2025. This refinancing, which was completed in October, also retired US$700 million of 8.25% senior unsecured notes due in 2020. The debt refinancing will result in annual interest savings of about $25 million and extend the note’s maturity by five years.
The improved terms and costs will provide 7G with greater financial flexibility in the years ahead with 7G’s currently undrawn $1.4 billion credit facility maturing in 2021 and its earliest senior unsecured note maturity now in 2023.
As 7G continues evolving, it is vital to the success of the organization that all aspects of strategy be carefully led, including the management of risks around core development, the delineation of future inventory opportunities and the evaluation of processing, infrastructure and market development. In order to place increasing focus on the management of 7G’s strategic objectives, Chris Law will take on a new role as Executive Vice President, Strategy Management. Chris will serve as Chief Financial Officer until a new CFO is appointed.
“Chris is an important member of the Seven Generations leadership team. He has played a key role in devising and financing the strategy that has helped bring 7G to where we are today. As we move forward, Chris will help increase our focus on the key strategic initiatives that are crucial to advancing our business and our future success,” Proctor said.
Capital investments were $454.3 million in the third quarter, totaling $1.3 billion year to date. As previously announced, Seven Generations experienced well cost inflation in the first half of the year. 7G has also proactively placed early orders for compressors for Super Pad construction to avoid installation delays in 2018 due to the increasing delivery times for field equipment. In order to combat cost creep, 7G has taken several focused steps in the second half of the year as discussed in the operations highlights section and will focus on efficiencies in well cycle times. Expected capital expenditures on the base investment program have moved to the high end of 7G’s annual capital investment guidance of $1.5 to $1.6 billion.
Beyond that, opportunities exist for advancement of key 2018 investments, which combined with the base investment program, are expected to result in fourth quarter capital spending of $300 to $350 million, bringing full-year 2017 capital investment to approximately $1.65 billion. Key initiatives added to 2017 include the development of a five-well pad in 7G’s core Nest 1 area. This pad is designed to provide important tests in both inter-well spacing and an upgraded completions design. In addition, expanded investments in water infrastructure related to 2018 completions are anticipated to be completed in the fourth quarter. 7G is also adding new pipe infrastructure that interconnects several gas gathering systems. This connection is expected to be completed in the second quarter of 2018 and will provide 7G with the option to send natural gas into either the Alliance pipeline system or the NGTL pipeline system to optimize natural gas and natural gas liquids price realizations as well as build contingent market access options should there be processing plant disruptions.
The 2018 capital budget is expected to be approved and announced on Wednesday, November 15, 2017. An investor day will be held on Thursday, November 16, 2017 from 8:30 a.m. to 12:30 p.m. at the Metropolitan Centre in Calgary. Details are available on www.7genergy.com.
7G management will hold a conference call to discuss results and address investor questions today, November 2, 2017 at 9 a.m. MT (11 a.m. ET).
|Participant Dial-In Numbers|
|Toll Free:||(877) 390-7644|
|Conference Call ID:||90497992|
|Encore Dial In:||(855) 859-2056 or (404) 537-3406|
|Available:||November 2 – 9, 2017|
Seven Generations is a low-supply-cost, high-growth Canadian energy developer generating long-life value from its liquids-rich Kakwa River Project, located about 100 kilometres south of its operations headquarters in Grande Prairie, Alberta. 7G’s corporate headquarters are in Calgary and its shares trade on the TSX under the symbol VII.
Further information on Seven Generations is available on the company’s website: www.7genergy.com.
Non-IFRS Financial Measures and Other Measures
This news release includes certain terms or performance measures commonly used in the oil and natural gas industry that are not defined under IFRS, including “funds from operations”, “operating income”, “operating netback”, “available funding”, “net debt” and “adjusted working capital”. Operating netback has been calculated on a per boe basis and is determined by deducting royalties, operating and transportation, processing and other expenses from oil and natural gas revenue and, except where otherwise indicated, after adjusting for realized hedging gains or losses. Operating netback is utilized by the company and others to better analyze the operating performance of its oil and natural gas assets. The data presented are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures should be read in conjunction with the company’s financial statements and accompanying notes. Readers are cautioned that the non-IFRS measures do not have any standardized meaning and should not be used to make comparisons between the company and other companies without also taking into account any differences in the way the calculations were prepared.
For more information regarding “funds from operations”, “operating income”, “operating netback”, “available funding”, “net debt” and “adjusted working capital” see “Non-IFRS Financial Measures” in the company’s Management’s Discussion and Analysis dated November 1, 2017.
All dollar amounts are presented in Canadian Dollars unless otherwise specified. Per share amounts are presented on a diluted basis.