CALGARY, Nov. 8, 2018 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce its operating and financial results for the three and nine-month periods ended September 30, 2018. The Company’s Condensed Consolidated Financial Statements and Management’s Discussion and Analysis are available at cequence-energy.com and on SEDAR at www.sedar.com.
Third quarter and subsequent Company highlights include:
- Achieved average quarterly production of 6,734 boe/d (27% liquids);
- Third quarter oil production was 1,198 bbbls/d up 209% from the same period of 2017;
- Funds flow from operations for the third quarter was $5.6 million or $0.38 per weighted average share ($0.23 per share based on the September 30, 2018 outstanding common shares of 24,553,000);
- Included within funds flow from operations for the third quarter of 2018 is $948,000 of non-recurring finance expenses for the renegotiation of the Senior Notes ($0.06 per weighted average share);
- As previously announced on July 27th, 2018, the Company entered into a series of transactions that refinanced the Company’s balance sheet;
- The Rights Offering closed on September 14, 2018 and raised $8.59 million of gross proceeds;
- The $60 million Senior Notes were refinanced with a 5% interest rate and now mature in October 2022;
- On October 13, 2018, the Company commenced its planned winter drilling program consisting of 2 gross (2 net) Dunvegan oil wells; and
- On October 22, 2018, the Company’s shareholders approved a share consolidation based on one new common share for each 20 pre-consolidation shares.
Three months ended September 30, |
Nine months ended September 30, |
|||||||||
(000’s except per share and per unit amounts) |
||||||||||
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
|||||
FINANCIAL |
||||||||||
Total revenue(1), (5) |
17,680 |
15,087 |
17 |
46,737 |
52,251 |
(11) |
||||
Comprehensive income (loss) |
573 |
(3,076) |
119 |
(5,897) |
(92,724) |
(94) |
||||
Per share – basic and diluted (6) |
0.04 |
(0.25) |
116 |
(0.45) |
(7.55) |
(94) |
||||
Funds flow from operations (2), (5) |
5,589 |
3,619 |
54 |
11,016 |
17,746 |
(38) |
||||
Per share, basic and diluted (6), (7) |
0.38 |
0.29 |
31 |
0.84 |
1.45 |
(42) |
||||
Capital expenditures, before acquisitions (dispositions) |
1,119 |
2,682 |
(58) |
10,403 |
20,264 |
(49) |
||||
Capital expenditures, including acquisitions (dispositions) |
619 |
2,682 |
(77) |
8,474 |
20,264 |
(58) |
||||
Net debt (3), (5) |
61,675 |
68,407 |
(10) |
61,675 |
68,407 |
(10) |
||||
Weighted average shares outstanding – basic (6) |
14,545 |
12,277 |
18 |
13,041 |
12,277 |
6 |
||||
Weighted average shares outstanding – diluted (6) |
14,632 |
12,277 |
19 |
13,041 |
12,277 |
6 |
||||
Common shares outstanding – end of period |
24,553 |
12,277 |
100 |
24,553 |
12,277 |
100 |
||||
OPERATING |
||||||||||
Production volumes |
||||||||||
Natural gas (Mcf/d) |
29,376 |
40,729 |
(28) |
30,924 |
42,871 |
(28) |
||||
Crude oil (bbls/d) |
1,198 |
388 |
209 |
772 |
364 |
112 |
||||
Natural gas liquids (bbls/d) |
259 |
250 |
4 |
257 |
253 |
2 |
||||
Condensate (bbls/d) |
382 |
841 |
(55) |
495 |
858 |
(42) |
||||
Total (boe/d) |
6,734 |
8,266 |
(19) |
6,679 |
8,620 |
(23) |
||||
Sales prices |
||||||||||
Natural gas, including realized hedges ($/Mcf) |
2.20 |
2.12 |
4 |
2.37 |
2.59 |
(8) |
||||
Crude oil and condensate, including realized hedges ($/bbl) |
73.57 |
57.70 |
28 |
69.36 |
60.13 |
15 |
||||
Natural gas liquids ($/bbl) |
43.51 |
27.86 |
56 |
39.02 |
28.04 |
39 |
||||
Total ($/boe) |
28.53 |
19.84 |
44 |
25.63 |
22.20 |
15 |
||||
Netback ($/boe) |
||||||||||
Price, including realized hedges |
28.53 |
19.84 |
44 |
25.63 |
22.20 |
15 |
||||
Royalties |
(2.35) |
(0.61) |
285 |
(1.77) |
(1.17) |
51 |
||||
Transportation |
(3.03) |
(2.09) |
45 |
(2.77) |
(1.93) |
44 |
||||
Operating costs |
(8.87) |
(9.21) |
(4) |
(10.22) |
(8.33) |
23 |
||||
Operating netback (5) |
14.28 |
7.93 |
80 |
10.87 |
10.77 |
1 |
||||
General and administrative |
(2.24) |
(1.33) |
68 |
(2.26) |
(1.38) |
64 |
||||
Interest(4) |
(1.58) |
(1.97) |
(20) |
(2.15) |
(1.97) |
9 |
||||
Cash netback (5) |
10.46 |
4.63 |
126 |
6.46 |
7.42 |
(13) |
||||
(1) |
Total 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 is calculated as working capital deficiency (excluding commodity contracts) plus the principal value of the senior notes and term loan. |
(4) |
Represents finance costs less refinancing expenses, amortization on transaction costs, accretion expense on senior notes and provisions. |
(5) |
Refer to Non-GAAP Measures. |
(6) |
On October 22, 2018, the Company’s shareholders approved a share consolidation based on one new common share for every 20 pre-consolidation shares. This press release and all information relating to issued and common shares, stock options, warrants, restricted share units and per share amounts, have been restated to reflect the share consolidation for all periods presented. |
(7) |
Funds flow per share calculated as if the ending 24,553,000 common shares at September 30, 2018 were outstanding for the entire period would be $0.23 per share and $0.45 per share for the three and nine-month periods ended September 30, 2018 respectively. |
Financial Highlights
Funds flow from operations for the third quarter was $5.6 million, which reflects a 54 percent increase from the third quarter of 2017. Realized sales prices (including hedging) was $28.53 which reflects a 44 percent increase from the comparative period in 2017. Comprehensive income for the quarter ended September 30, 2018 was $0.6 millioncompared to a comprehensive loss of $3.1 million in the third quarter of 2017.
Beginning on April 1, 2018, the Company has been selling 10,850 GJ/d of production in the Dawn market. The Dawn marketing arrangement has provided the Company diversification away from the volatile AECO prices for approximately 1/3 of its gas production. For the three months ended September 30, 2018, Dawn prices averaged approximately $3.46/mcf compared to AECO pricing of approximately $1.28/mcf.
On July 27, 2018 Cequence announced a series of transactions to refinance the Company’s balance sheet and provide greater flexibility and liquidity to execute the ongoing business plan of the Company. Cequence entered into a third lien secured loan agreement for a $60 million term loan facility due October 3, 2022 to refinance the existing Senior Notes which were due on October 3, 2018. At the same time Cequence launched a rights offering for holders of its common shares as of August 9, 2018 to subscribe for 12,276,394 (post consolidation) flow-through common shares of the Company for gross proceeds of up to $8.6 million. The rights offering was fully subscribed for and closed on September 13, 2018. Finance costs include refinancing expenses of $0.7 million non-cash warrant expense and legal, advisory and professional fees of $1.0 million.
The Company has $61.7 million in net debt as at September 30, 2018, which is comprised of $60 million in senior notes carrying a four-year term (refinanced and now maturing in October 2022) and a working capital deficiency of $1.7 million (excluding commodity contracts). The senior credit facility of $7 million remains undrawn other than letters of credit of $1.6 million and has a maturity date May 31, 2019.
Operational Update
Average production in the third quarter of 2018 was 6,734 boe/d (27% liquids). The production increase was primarily associated with the Company’s recent 3 gross (2 net) Dunvegan oil wells that produced approximately 985 bbls/d of oil and 2.6 mmcf/d of gas (1,427 boe/d) net in the quarter. Due to continued low AECO prices in the quarter, approximately 2,500 mcf/d of gas has remained shut-in until higher pricing is available.
The Company commenced its planned winter drilling program on October 13, 2018 to drill 2.0 gross Dunvegan oil wells (2.0 net) at Simonette to be fund through proceeds from the Rights Offering. It is anticipated the wells will come on at the internal Corporate model of approximately 300 bbl/d per well. Due to the wide light oil differentials forecast for December 2018, these new wells will not be brought on production until the first quarter of 2019. Cequence estimates that there are approximately 26.5 net Dunvegan oil locations on its land.
Operating costs for the third quarter were $8.87/boe down 4% from the third quarter of 2017 with reduced expenses associated with water handling and associated long term field rentals. Subsequent to the third quarter 2018, Cequence successfully completed a second water disposal well which will continue to reduce trucking and water disposal costs in Simonette.
Outlook
The Company’s guidance for the year ended December 31, 2018 includes the results of the third quarter, the existing 3 gross (2.0 net) Dunvegan oil well results, the restructured $60 million Senior Notes (with its 5% interest rate), $8.59 million gross proceeds from the rights offering, and an additional planned 2 gross (2 net) Dunvegan oil wells drilled, completed, and tied in the fourth quarter. Production from the new wells will not commence until the first quarter of 2019 when oil differentials are expected to improve. With volatility in the oil price differentials and AECO gas prices, Cequence will not be providing 2019 guidance at this time. As Management has demonstrated in the past, continued operating cost improvement initiatives and maximizing netbacks in a volatile commodity cycle will be a focus.
(000’s, except per share and per unit references) |
Guidance year ended December 31, 2018 |
||||||
Average production, BOE/d (1) |
6,500 |
||||||
Funds flow from operations ($)(2) |
13,700 |
||||||
Funds flow from operations per share(2) (4) |
0.86 |
||||||
Exploration and development expenditures ($) |
20,000 |
||||||
Net wells |
4.0 |
||||||
Operating and transportation costs ($/boe) |
14.00 |
||||||
G&A costs ($/boe) |
2.75 |
||||||
Royalties (% revenue) |
8 |
||||||
Crude – WTI (US$/bbl) |
66.40 |
||||||
Natural gas – AECO (CDN$/GJ) |
1.55 |
||||||
Period end, net debt ($) (3) |
70,950 |
||||||
Weighted average basic shares outstanding |
15,942 |
||||||
Common shares outstanding end of period |
24,553 |
(1) |
Average production estimates on a per BOE basis are comprised of 77% natural gas and 23% oil and natural gas liquids in 2018. |
(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. See Non-GAAP Measures. |
(3) |
Net debt is calculated as working capital deficiency (excluding commodity contracts) plus the aggregate principal amount of the term loan. |
(4) |
Weighted funds flow per share calculated as if the ending 24,553,000 common shares at September 30, 2018 were outstanding for the entire period would be $0.56 per share for the year ended December 31, 2018. |
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.