Cequence Energy announces strategic disposition of Ansell Assets to create a well capitalized Montney focused company
CALGARY, June 18, 2014 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce that it has entered into a purchase and sale agreement (the "Agreement") for the sale of its entire interest in its non-operated assets located in the Ansell area (the "Ansell Assets") for total consideration of approximately $141 million, prior to customary closing adjustments (the "Transaction"). The Transaction is expected to close on or about July 7, 2014, subject to the satisfaction of standard industry closing conditions.
The Ansell Assets consist of 18,800 net acres of land, current production of 1,600 boepd (90% natural gas) and a 49% working interest in a 120 mmcf/d sales pipeline and a 30 mmcf/d compressor station. The cash proceeds of $141 million represent approximately 18 percent of Cequence's current enterprise value while representing 3.6 percent of Cequence's year end proved plus probable reserves and 3.1 percent of the Company's December 31, 2013 NPV 10% proved plus probable reserve value. As of December 31, 2013, Cequence had a reserve net asset value per share of $4.38 (based on the NPV10% of the Company's proved plus probable reserves, net debt of $111 million at December 31, 2013 and excluding the value of undeveloped land).
Cequence entered into a farm out agreement in 2013 in an effort to accelerate the development of the Ansell property in a period of challenging natural gas prices. To date, Cequence estimates that it has invested $49.1 million, capital expenditures net of operating cashflow from the property, on the Ansell property accumulating land, building production facilities and participating in 7 gross (3.43 net) wells. The Transaction demonstrates the Company's ability to identify emerging opportunities and to strategically unlock value. The Transaction serves to immediately increase the Company's financial flexibility and ultimately shareholder value.
The proceeds of the Transaction provide Cequence with a non-dilutive source of funding to accelerate its growth at Simonette and explore opportunities to build a new core area. Simonette is operated by Cequence and has a multiyear inventory of economic locations as highlighted by recent drilling success and proved plus probable reserves at December 31, 2013 of 113 million boe.
Upon closing of the Transaction, Cequence expects to increase its Simonette drilling program, with continued focus on its Montney, Falher and Dunvegan drilling inventory. Cequence is currently operating one rig at Simonette that is drilling it's first six well Montney pad. A second rig is expected to begin drilling a Dunvegan well in the coming week. Cequence intends to provide a detailed update to its guidance on closing of the Ansell disposition.
Although the Transaction will result in a short term reduction in Cequence's production volumes, Cequence anticipates that the longer term production growth profile will be stronger with the reallocation of capital to Simonette where Cequence can strategically control the pace of development and production facilities. Pro forma the Transaction, Cequence's estimated current production is 10,400 boepd.
Initially, the proceeds from the Transaction will be used by the Company to repay its bank indebtedness drawn under the Company's credit facility of $47 million and to fund its current working capital deficit. On closing of the Transaction, Cequence estimates that it will have net cash of approximately $10 million comprised of $70 million in positive net working capital including cash, and senior subordinated 5 year notes of $60 million.
The Company's lenders are conducting a pro forma borrowing base review in connection with the Transaction.
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 the completion of the disposition and timing thereof; business strategy and objectives; development, exploration, acquisition and disposition plans, including the anticipated benefits resulting therefrom and the timing thereof; drillings plans, including the availability of drilling rigs; the Company's lenders review of the Company's borrowing base; and the anticipated use of proceeds of the disposition and expected debt 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.
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 first quarter of 2014, the ratio between the acreage price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 22:1 ("Value Ratio"). The Value Ratio is obtained using the first three months 2014 WTI average price of $98.65 (US$/Bbl) for crude oil and the first three months 2014 NYMEX average price of $4.72 (US$/MMbtu) for natural gas. This Value Ratio is significantly different from the energy equivalency ration of 6:1 and using a 6:1 ratio would be misleading as an indication of value.
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