Cequence Energy Announces Second Quarter Financial and Operating Results

CALGARY, Aug. 13, 2015 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the second quarter of 2015. The Company's Consolidated Financial Statements and Management's Discussion and Analysis are available at cequence-energy.com and on SEDAR at www.sedar.com.

Second Quarter 2015 Highlights

  • Successfully drilled and completed a Dunvegan Oil well (50% WI) at 7-11-62-26W5M.  The well tested 516 bbl/d 40o API oil and 1.2 MMcfd gas in a 6 day flow test.
  • Executed a $54 MM midstream transaction selling 50% of existing Simonette facilities & related infrastructure to Kanata Energy Group Ltd.
  • Kicked off the jointly funded Simonette 120 MMcfd refrigeration facility and TCPL pipeline connection. The refrigeration facility is expected to be operational in Q1 of 2016.
  • Maintained a strong balance sheet with June 30, 2015 net debt of $51.9 million or 1.8 times debt to cash flow.

Second Quarter 2015 Industry Challenges

  • Continued NGTL maintenance outages have sustained downward pressure on Alliance CREC pricing. The average CREC price offset to AECO in Q2 was -$1.04/GJ vs. the Q2 average AECO spot price of approximately $2.50/GJ. This caused Cequence to shut-in or curtail 3,100 boed (16.5 mmcfd gas and 350 bbl/d NGL's) average for the quarter to preserve value. 
  • On August 7, 2015, Cequence was informed that an operational event had occurred on the Alliance pipeline that would suspend deliveries for an indeterminate period of timeThe Company has resumed deliveries on Alliance as of August 13, 2015.

(000's except per share and per unit amounts)

Three months ended

June 30,

Six months ended

June 30,



2015

2014

% Change

2015

2014

%  Change

Financial ($)








Production revenue (1)


21,802

41,219

(47)

45,396

82,314

(45)

Comprehensive income (loss)


246

8,876

(97)

(4,416)

9,388

(147)

Per share – basic and diluted


0.00

0.04

(100)

(0.02)

0.04

(150)

Funds flow from operations  (2)


7,283

20,235

(64)

15,566

43,317

(64)

Per share, basic


0.03

0.10

(70)

0.07

0.21

(67)

Per share, diluted


0.03

0.09

(67)

0.07

0.20

(65)

Production volumes








Natural gas (Mcf/d)


48,665

64,810

(25)

52,364

62,368

(16)

Crude oil (bbls/d)


100

100

-

108

128

(16)

Natural gas liquids (bbls/d)


562

753

(25)

558

636

(12)

Condensate (bbls/d)


953

1,080

(12)

1,074

1,018

6

Total (boe/d)


9,726

12,735

(24)

10,468

12,177

(14)

Sales prices








Natural gas, including realized hedges ($/Mcf)


3.35

4.60

(27)

3.34

4.92

(32)

Crude oil ($/bbl)


61.06

97.59

(37)

51.99

95.69

(46)

Natural gas liquids ($/bbl)


17.49

42.28

(59)

17.30

47.20

(63)

Condensate ($/bbl)


63.41

104.76

(39)

56.38

103.45

(46)

Total ($/boe)


24.63

35.57

(31)

23.96

37.35

(36)

Netback ($/boe)








Price, including realized hedges


24.63

35.57

(31)

23.96

37.35

(36)

Royalties


(1.15)

(4.06)

(72)

(1.60)

(4.09)

(61)

Transportation


(1.99)

(1.47)

35

(1.93)

(1.49)

30

Operating costs


(8.99)

(8.55)

5

(8.32)

(8.00)

4

Operating netback


12.50

21.49

(42)

12.11

23.77

(49)

General and administrative


(2.17)

(2.12)

2

(2.06)

(2.23)

(8)

Interest(5)


(2.12)

(1.86)

14

(1.84)

(1.83)

1

Cash netback


8.21

17.51

(53)

8.21

19.71

(58)

Capital expenditures ($)








Capital expenditures


19,848

15,957

24

42,430

74,504

(43)

Net acquisitions (dispositions) (4)


(43,078)

(3,138)

1,273

(46,013)

(6,367)

623

Total capital expenditures


(23,230)

12,819

(281)

(3,583)

68,137

(105)

Net debt and working capital (deficiency) (3)


(51,887)

(136,040)

(62)

(51,887)

(136,040)

(62)

Weighted average shares outstanding








Basic


211,028

210,986

-

211,028

210,952

-

Diluted


212,317

217,801

(3)

211,028

215,497

(2)










(1)

Production 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 and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets

and liabilities, demand credit facilities, principal value of senior notes and excluding other liabilities.

(4)

Represents the cash proceeds from the sale of assets and cash paid for the acquisition of assets, as applicable.

(5)

Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions. 

FINANCIAL

Funds flow from operations decreased to $7.3 million for the second quarter of 2015 compared to $20.2 million for 2014. The decrease in funds flow from operations is due largely to lower oil and natural gas prices in 2015. Realized sales prices (including hedging) decreased 31 percent from the comparative period. Comprehensive income for the quarter ended June 30, 2015 was $0.2 million compared to income of $8.9 million in 2014. The reduction is largely due to a decrease in commodity prices and production volumes, offset partially by a gain recognized on the disposition in the quarter.

Capital expenditures were $19.8 million in the second quarter and related primarily to the refrigeration expansion at the Company's 13-11 facility at Simonette. Dispositions in the quarter totalled $43.1 million as the Company disposed of 50 percent of its existing Simonette facilities, adjusted to reflect the amounts incurred in respect of the the ongoing expansion. As a result, the Company exited the second quarter with significant financial flexibility. The Company has available credit facilities of $180 million compared to June 30, 2015 net debt of $51.9 million. Net debt is comprised of $60 million in senior notes carrying a five year term and positive working capital of $8.1 million. Management believes that the Company is well positioned to continue with its Simonette development project.

For the remainder of 2015, Cequence has hedged approximately 70 percent of its natural gas production (net of royalties) at an average price of $3.38/GJ or $3.98/mcf based on the historical heat content of the Company's natural gas. The Company will continue to actively hedge production with a view towards protecting future capital spending programs.

Cequence signed a firm gas delivery contract commencing in December 2015 to market natural gas through the Alliance system. This 11 month contract starts at 40,000 GJ/day for the first 4 months and reduces to 20,000 GJ/day for the next 7 months and is staged to the startup of the TCPL meter station and access to that system.

OPERATIONS AND PRODUCTION

Production averaged 9,726 boepd in the second quarter which was 13 percent lower than first quarter production. Production performance from new wells has met expectations; however Cequence continues to restrict its natural gas production due to high price differentials for CREC gas prices. Cequence is exposed to both AECO and CREC natural gas prices. For the second quarter of 2015, CREC traded at a discount to AECO of $1.04/GJ.  Cequence has proactively managed weekly production levels during periods of low prices to reduce exposure to these low prices. As a result, Cequence estimates that production curtailments impacted quarterly average production volumes by 2,600 boepd.  CREC differentials have increased due to major pipeline maintenance in Alberta and the situation is now expected to persist until November 2015. An additional 500 boepd of production was shut-in on the NGTL system as a direct impact of the maintenance program. As a result, Cequence has reduced its estimate of annual average production to 10,200 boepd.

A Dunvegan "E" light oil discovery was drilled in June and the solution gas is now tied-in to Cequence-owned gas gathering facilities with production starting up on August 13, 2015.  The 7-11 well (50% WI) tested at strong rates averaging over 700 boepd (74% oil) during a six day cleanup test. The well was completed with a 31 stage slick water frac over 2,000 meters.

Cequence owns 148 sections of Dunvegan rights at Simonette and has enjoyed previous success in a Dunvegan "D" gas pool in the western portion of its land base. The newly drilled 7-11 well is located on the eastern portion of its land, at depth of 2,000 m TVD. Based on existing well control and 3D seismic mapping, Cequence believes that it has identified approximately 9  gross (7.5 net) sections adjacent to the 7-11 well that have potential for Dunvegan oil development.

Paul Wanklyn, President and CEO said, "The economics of this light oil prospect are robust at current strip prices and the future development of this pool will be enhanced by existing infrastructure at Simonette. We plan to modify our capital program in the coming months to more fully evaluate the oil potential at Simonette and will continue to dedicate capital to projects that produce the highest return for our shareholders."

Outlook and Revised Guidance

Cequence will allocate funds to the most economic projects in its portfolio but will remain focused on maintaining its financial flexibility and keeping its balance sheet intact. The Company is committed to adding shareholder value at Simonette and will endeavor to expand its resource base there if it meets economic hurdles.

Planned capital expenditures for 2015 have been reduced to $23,000, net of dispositions. Second half capital expenditures are forecast to be focused on the Simonette refrigeration plant construction and the drilling of 5.0 (2.5 net) wells at Simonette. Drilling is expected to initially focus on the Dunvegan with 3 gross wells (1.5 net) expected to be completed prior to year end. Montney drilling is expected to commence with 2 gross (1 net) wells expected to be drilled in the fourth quarter.

Funds flow is expected to be $30,000, reflecting lower production volumes that previously forecasted. Operating costs have increased on a per unit basis due to lower production volumes and higher first half transportation charges due to increased trucking expenses.

Due to ongoing production curtailments and sustained low commodity prices, the Company is reducing its estimate for 2015 average production to 10,200 boe/d.  The previously discussed ongoing major pipeline maintenance in Alberta has caused high price differentials on gas sold relative to CREC pricing. Rather than produce into low realized prices, the Company has shut in volumes and expects the situation to persist into the fourth quarter of 2015. 

The Company plans to exit 2015 with approximately $65 million in net debt, leaving the Company with ample liquidity on its $180 million in total available credit facility.

(000's, except per share and per unit references)


Previous

Guidance 2015

May 26, 2015

Revised

Guidance

2015

Average production, BOE/d (1)


11,500

10,200

Funds flow from operations ($)(2)


38,500

30,000

Funds flow from operations per share(2)


0.18

0.14

Capital expenditures, prior to dispositions ($)


75,000

69,000

Capital expenditures, net of dispositions ($)


40,000

23,000

Operating and transportation costs ($ per boe)


9.20

10.15

G&A costs ($ per boe)


2.50

2.50

Royalties (% revenue)


10

8

Crude – WTI (US$/bbl)


50.00

51.00

Natural gas – AECO (Cdn$/GJ) 


2.65

2.70

Period end, net debt and working capital deficiency ($) (3)


73,000

65,000

Basic shares outstanding


211,000

211,000

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", "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: the Company's guidance and forecasts; business strategy and objectives; the Company's 2015 capital program; the Company's plans to actively hedge to protect future capital spending programs; funds flow; net debt; future production levels; drillings plans; well tie-in and completions, including the anticipated benefits resulting therefrom; facility construction and timing for completion thereof;expected future oil and gas prices and CREC differentials. 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, 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.

Operating and cash netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Operating netback equals total revenue less royalties, operating costs and transportation costs. Cash netback equals the operating netback less general and administrative expenses and interest expense. Management utilizes these measures to analyze operating performance. 

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.

For six months ended June 30, 2015, the ratio between the average price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 19:1 ("Value Ratio"). The Value Ratio is obtained using the first six months of 2015 WTI average price of $53.17 (US$/Bbl) for crude oil and the first six months 2015 NYMEX average price of $2.77 (US$/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.

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

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www.cequence-energy.com

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