Cequence Energy announces 24% growth in reserves and Ansell update

CALGARY, Feb. 21, 2014 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: "CQE") is pleased to announce its 2013 year end reserves and an update of its preliminary drilling results at its Ansell property.

Reserve Highlights

Cequence's 2013 year end reserves reflect a continued successful delineation of its Simonette property in the Deep Basin of Alberta.  The growth in reserves further substantiates management's views that the Company's assets contain significant resource potential.  The following highlights are based on the reserve report dated February 20, 2014 and effective December 31, 2013 (the "GLJ Report") prepared by GLJ Petroleum Consultants ("GLJ"):

  • Increased proved reserves by 19% from the prior year to 55 MMBOE;
  • Increased proved plus probable reserves by 24% from the prior year to 113 MMBOE;
  • Increased total proved plus probable reserves at Simonette by 28% from the prior year to 98 MMBOE;
  • Achieved finding, development and acquisition costs (including changes to future development capital) of $11.17 per boe on a proved plus probable basis and $13.87 per boe on a proved basis;
  • Achieved finding and development costs (including changes to future development capital) of $10.10 per boe on a proved plus probable basis and $11.76 per boe on a proved basis;
  • Increased the net present value before income taxes of the Company's proved plus probable reserves by 30% from the prior year to $1.0 billion or $4.91 per share (using a discount rate of 10%); and
  • Replaced 691% of production with proven plus probable reserves.

Ansell

Cequence recently competed 2.0 (.98 net) Wilrich wells at Ansell with strong initial test rates.  The 1-25-50-18W5 well tested for 53 hours at a final rate of 17.7 mmcf/d at a flowing casing pressure of 2,270 psi.  The second well at 15-36-50-18W5 tested for 50 hours at a final rate of 15.9 mmcf/d at a flowing casing pressure of 1,473 psi.   These two wells were both drilled from the existing 1-36-50-18-W5 pad site. Cequence anticipates both wells will be on production before May 2014. In total 5 (2.45) net Wilrich wells are planned for the first quarter of 2014.  Four of the wells are subject to farm-out provisions whereby Cequence is paying 15% of the capital costs to drill and complete the well in exchange for a 49% working interest. Field production is currently restricted by facility capacity. Construction is underway on compression facilities with an initial capacity of approximately 40 mmcf/day.  The gathering system, also under construction, will have capacity for 100 mmcf/day. The expected capital cost of this facility project is approximately $15 million based on its 49% working interest.

Reserves

In accordance with NI 51‐101, GLJ prepared the GLJ Report for the oil, natural gas liquids and natural gas reserves attributable to the properties of Cequence.

The tables below are a summary of the oil, NGL and natural gas reserves attributable to the properties of Cequence and the net present value of future net revenue attributable to such reserves as evaluated in the GLJ Report based on forecast price and cost assumptions. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserves estimates of Cequence's crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.

Summary of Oil and Gas Reserves

     Light and Medium
Crude Oil
  NGL   Natural Gas     
        Total Oil Equivalent
Reserves Category   Gross   Net   Gross   Net   Gross   Net   Gross   Net
  (Mbbl)   (Mbbl)   (Mbbl)   (Mbbl)   (MMcf)   (MMcf)   (MBOE)   (MBOE)
Proved                                
  Developed Producing   1,231   902   950   781   83,375   74,404   16,076   14,083
  Developed Non-Producing   364   239   228   187   17,398   14,625   3,491   2,864
  Undeveloped   4,100   2,954   2,017   1,833   176,888   154,727   35,598   30,574
Total Proved   5,695   4,095   3,194   2,801   277,662   243,756   55,166   47,522
Probable   6,292   4,164   3,301   2,946   289,027   248,775   57,765   48,573
Total Proved plus Probable   11,987   8,259   6,495   5,747   566,689   492,531   112,931   96,094
                                 

Notes:  
(1) Columns may not add due to rounding.
(2) "Gross" reserves means the Company's working interest (operated and non‐operated) share before deduction of royalties payable to others and without including any royalty interests of the Company.
(3) "Net" reserves means the Company's working interest (operated and non‐operated) share after deduction of royalty obligations plus the Company's royalty interests in reserves.

Summary of Net Present Value of Future Net Revenue

                       
Reserves Category   Before Future Income Tax Expenses Discounted at (%/year)
  0   5   10   15   20
  (M$)   (M$)   (M$)   (M$)   (M$)
Proved                    
  Developed Producing   289,895   244,471   212,575   189,038   170,969
  Developed Non-Producing   64,311   49,812   40,729   34,510   29,968
  Undeveloped   595,533   407,301   293,409   218,791   166,972
Total Proved   949,738   701,583   546,713   442,339   367,909
Probable   1,173,651   718,226   489,238   355,930   270,292
Total Proved plus Probable   2,123,390   1,419,809   1,035,951   798,269   638,200
                     
                     
Reserves Category   After Future Income Tax Expenses Discounted at (%/year)
  0   5   10   15   20
  (M$)   (M$)   (M$)   (M$)   (M$)
Proved                    
  Developed Producing   293,876   248,356   216,371   192,750   174,603
  Developed Non-Producing   64,311   49,812   40,729   34,510   29,968
  Undeveloped   521,031   361,674   263,494   198,145   152,152
Total Proved   879,217   659,842   520,594   425,405   356,724
Probable   881,164   531,377   355,734   253,982   189,111
Total Proved plus Probable   1,760,382   1,191,219   876,328   679,387   545,835
                       

Notes:    
  (1) Columns may not add due to rounding.
  (2) It should not be assumed that the undiscounted and discounted future net revenues estimated by GLJ represent the fair market value of the reserves.

GLJ employed the following pricing, exchange rate and inflation rate assumptions as of January 1, 2014 in the GLJ Report in estimating Cequence's reserves data using forecast prices and costs:

                             
Year   Natural Gas   Light Crude Oil   Pentanes Plus   Inflation
Rates
  Exchange
Rate
  Henry Hub   AECO
Gas Price
  WTI   Edmonton   Edmonton    
  ($US/MMBtu)   ($Cdn/MMBtu)   ($US/bbl)   ($Cdn/bbl)   ($Cdn/bbl)   %/year   ($US/$Cdn)
Forecast                            
2014   4.25   4.03   97.50   92.76   105.20   2.00   0.95
2015   4.50   4.26   97.50   97.37   107.11   2.00   0.95
2016   4.75   4.50   97.50   100.00   107.00   2.00   0.95
2017   5.00   4.74   97.50   100.00   107.00   2.00   0.95
2018   5.25   4.97   97.50   100.00   107.00   2.00   0.95
2019   5.50   5.21   97.50   100.00   107.00   2.00   0.95
2020   5.63   5.33   98.34   100.77   107.82   2.00   0.95
2021   5.74   5.44   100.51   102.78   109.97   2.00   0.95
2022   5.86   5.55   102.52   104.83   112.17   2.00   0.95
2023   5.97   5.66   104.57   106.93   114.41   2.00   0.95
Thereafter escalation rate of 2%
                             

Finding, development and acquisition costs ("FD&A") and finding and development costs ("F&D") both including and excluding future development capital ("FDC") have been calculated in accordance with NI 51-101.  Cequence's finding, development and acquisition costs are as follows:

         
         
    Proved   Proved Plus
Probable
FD&A Including Change in FDC        
  2013 FD&A Costs ($000s)   132,744   132,744
  2013 Change in FDC ($000s)   40,525   152,663
  2013 Capital Expenditures including change in FDC ($000s)   173,269   285,407
  2013 Reserve Additions (MBOE)   12,490   25,557
  2013 FD&A Including Change in FDC ($/BOE)   13.87   11.17
  3 year average FD&A Including Change in FDC ($/BOE)   15.07   11.61
F&D Including Change in FDC        
  2013 F&D Costs ($000s)   117,909   117,909
  2013 Change in FDC ($000s)   29,275   120,788
  2013 Capital Expenditures including change in FDC ($000s)   147,184   238,697
  2013 Reserve Additions (MBOE)   12,516   23,624
  2013 F&D Including Change in FDC ($/BOE)   11.76   10.10
  3 year average F&D Including Change in FDC ($/BOE)   15.47   11.74
         
FDC - December 31, 2013 ($000s)   387,298   785,249
FDC - December 31, 2012 ($000s)   346,773   632,586
2013 Change in FDC ($000s)   40,525   152,663
FDC Related to 2013 Net Acquisitions (Dispositions) ($000s)   11,250   31,875
2013 Change in FDC Excluding FDC on Net Acquisitions (Dispositions) ($000s)   29,275   120,788
   

Notes:  
(1) In addition to F&D costs, Cequence also calculates FD&A costs which incorporate both the costs and associated reserve additions related to acquisitions net of any dispositions during the year. Since acquisitions can have a significant impact on Cequence's annual reserve replacement costs, the Company believes that FD&A costs provide a more meaningful portrayal of Cequence's cost structure.
(2) Capital expenditures used to calculate FD&A are based on unaudited numbers as at December 31, 2013.  Capital expenditures for the FD&A calculation include cash expenditures on property and equipment and exploration and evaluation expenditures of $117,909, net cash expenditures on property acquisition and dispositions of ($2,675) and the fair value of common shares and net oil and gas assets exchanged on acquisition of $17,510.

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.

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 and forecasts: business strategy and objectives; development, exploration, acquisition and disposition plans, including the anticipated benefits resulting therefrom and the timing thereof; operational decisions and the timing thereof, development, remediation and exploration plans and the timing thereof, including the likelihood that wells will become productive; future production rates and expected production volumes; the number and quality of future potential drilling locations; capital allocations; drilling plans; the derisking of Company acreage; and facility development, expansion and future capabilities reserve quantities and the discounted present value of future net cash flows from such reserves; future production levels.   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, however, 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. 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.

The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.

For the year ended December 31, 2013, the ratio between the average price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 27:1 ("Value Ratio"). The Value Ratio is obtained using the 2013 WTI average price of $97.97 (US$/Bbl) for crude oil and the 2013 NYMEX average price of $3.67 (US$/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.

A pressure transient analysis or well-test interpretation has not been carried out on certain wells and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Readers are cautioned that the foregoing well test results are not necessarily indicative of long-term performance or of ultimate recovery.

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