CALGARY, May 12 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the first quarter ended March 31, 2011.


As of January 1, 2011, Cequence prepares its interim consolidated financial statements and comparative information in accordance with International Financial Reporting Standards ("IFRS") 1, "First-time Adoption of International Financial Reporting Standards", and with International Accounting Standard 34, "Interim Financial Reporting," as issued by the International Accounting Standards Board. Previously, Cequence's financial statements were prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). Reconciliations between Canadian GAAP and IFRS financial information can be found in the consolidated financial statements available on the Company's website at www.cequence-energy.com and on www.sedar.com.

Financial and Operating Highlights

(000's except per share amounts)       Three months ended
March 31
        2011     2010     %
Financial ($)                    
Production revenue, gross of royalties and including realized hedge       $ 24,032           $  10,093     138%
Comprehensive loss (1)       (1,975)                 (14,517)     (86)%
Per share, basic and diluted       (0.02)     (0.37)     (95)%
Funds flow from operations (1) (2)       9,780           4,498     117%
Per share, basic and diluted       0.07     0.11     (32)%
Production volumes                    
Natural gas (Mcf/d)       42,514                 12,592     238%
Crude oil (bbls/d)       686                 268     156%
Natural gas liquids (bbls/d)       413                 78     429%
Total (boe/d)       8,185                 2,444     235%
Sales prices                    
Natural gas, including realized hedges ($/Mcf)       $    4.21           $ 6.83     (38)%
Crude oil ($/bbl)       88.38                 76.80     15%
Natural gas liquids ($/bbl)       66.12                 71.81     (8)%
Total ($/boe)       $ 32.62           $ 45.88     (29)%
Operating Netbacks ($/boe)                    
Price       $32.62           $ 45.88     (29)%
Royalties       (4.40)                 (5.06)     (13)%
Transportation       (2.48)                 (3.38)     (27)%
Operating costs       (9.15)                 (13.07)     (30)%
Operating Netback       $16.59           $ 24.37     (32)%
Capital Expenditures       $45,574           $ 26,412     73%
Property Acquisitions (net)       (21,644)           279     N/A
Total capital expenditures       $23,930           $  26,691     (10)%
Net debt and working capital (deficiency) (3)       (45,629)     (16,289)     (180)%
Long-term debt related to investments (4)       -                 (18,000)     (100)%
Weighted average shares outstanding (basic and diluted)       131,161          39,530     232%
Undeveloped land (net acres)       266,000                 143,200     86%
(1)          2010 figures have been restated from previously reported amounts resulting from the application of IFRS discussed above.
(2)          Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning liability expenditures and net changes in non-cash working capital.
(3)          Net debt and working capital (deficiency) is calculated as cash, net working capital less commodity contract asset and demand credit facilities.
(4)          The long-term debt related to investments was a stand-alone credit facility with Cequence's lender to provide short term liquidity to the Company in light of the restructuring of the asset backed MAV II notes.  During the year ended December 31, 2010, the MAV II notes were sold and the proceeds, in addition to available cash, were used to pay down the long-term debt related to investments and close the facility.


The first quarter of 2011 was highlighted by:

  • Established the economic viability of two separate resource plays in the Montney and Wilrich at Simonette. Two Wilrich horizontal wells, two Montney horizontal wells and two vertical delineation wells were completed in the quarter;
  • Increased average production by 235 percent over the first quarter of 2010 and 9 percent over the fourth quarter of 2010.  Average production in the first quarter of 2011 was 8,185 boepd;
  • Reduced operating costs per boe to $9.15, an improvement of 30 percent from the first quarter of 2010;
  • Reduced general and administrative expenses per boe by 31 percent to $2.43 per boe from $3.52 per boe in the first quarter of 2010;
  • Increased funds flow from operations by 117 percent to $9.8 million or $0.07 per share from $4.5 million or $0.11 per share in the first quarter of 2010;
  • Expenditures of $45.6 million on drilling, facilities and land in the first quarter of 2011, focused at Simonette;
  • Maintained a strong balance sheet with $45.6 million of net debt at quarter end resulting in an annualized first quarter debt to cash flow ratio of 1.2:1;
  • Increased 2011 capital spending and production guidance following the success of the winter drilling program;
  • Disposal of non-core assets for proceeds of $22 million, prior to adjustments, and issued equity for net proceeds of $43.0 million; and
  • Completed facility work at Simonette in April 2011 to increase productive capacity to 37 mmcf/d through the Keyera Simonette gas plant.


Capital expenditures in the first quarter of 2011 of $45.6 million were focused on the Simonette area of the Deep Basin. Drilling and completion expenditures of $30.6 million were designed to test the potential of both the Wilrich and Montney resource plays at Simonette. In total, Cequence drilled 2.0 (1.8 net) Montney horizontal wells; 2.0 (2.0 net) Wilrich wells and 2.0 (2.0 net) vertical delineation wells. In addition, Cequence drilled 1.0 (0.5 net) horizontal well in the Peace River Arch, targeting Montney oil and 2.0 (0.6 net) vertical wells at Fir.  In 2011, Cequence continued to add to its landbase at Simonette with 7,200 net acres acquired, resulting in current landholdings at Simonette of 72,400 net undeveloped acres.

Production for the first quarter of 2011 averaged 8,185 boepd representing an increase of 9 percent from the fourth quarter of 2010. Production additions from the winter drilling program were restricted by existing gathering systems and compression at Simonette. The initial phase of facility expansion was completed and Cequence began to produce additional volumes in May 2011. Cequence is on track to meet or exceed its average production guidance for 2011 of 9,200 boepd and an exit production rate of 10,000 boepd.

Facilities expenditures in the first quarter of 2011 were $12.7 million and included the first phase of a new compression and dehydration facility and more than 40 kilometres of gathering system. As a result, Cequence has increased processing capacity at Simonette by 15 mmcf/d to 37 mmcf/d.  The first phase of facilities expenditures was designed to accommodate larger scale future development at Simonette and is expected to reduce facility expenditures on subsequent expansions. The second phase of facility expansion is being evaluated and is anticipated to cost $4 million and expand capacity by 20 mmcf/d.

Cequence continued to rationalize assets in the first quarter of 2011 by disposing of non-core assets at Garrington for proceeds of $21.6 million. In addition, Cequence closed the disposition of its Virginia Hills assets in April 2011 for proceeds of $7.5 million. Proceeds from both dispositions will be directed towards the expanded drilling program at Simonette.


The first quarter was highlighted by an increase in oil and natural gas production of 235 percent over the first quarter of 2010 and an increase of 9 percent over the fourth quarter of 2010.  Production growth compared to the first quarter of 2010 resulted from acquisitions completed in 2010 and the success of the Company's drilling program.

Cequence achieved another successful quarter in terms of improving the Company's cost structure with reductions in per boe operating costs, transportation expense and general and administrative expense of 30 percent, 27 percent and 31 percent, respectively, as compared to the first quarter of 2010.

Funds flow from operations increased 117 percent from the first quarter of 2010 to $9,780 or $0.07 per share.  The Company recorded a comprehensive loss of $1,975 compared to a comprehensive loss of $14,517 in the first quarter of 2010.

Cequence completed an equity issue totalling 15.5 million shares for gross proceeds of $45.5 million which closed on March 17, 2011. Additionally, the Company disposed of assets in the first quarter for proceeds of $22 million, prior to adjustments. Cequence exited the first quarter of 2011 with net debt of $45.6 million and an existing bank line of $110.0 million.

With a strong balance sheet, the 2011 capital budget was recently expanded to $100 million from $55 million. Additional sources of funding for capital expenditures in 2011 will be available from a share issuance related to the Company's CDE "flow-through" warrants expected to close in August 2011 at a price set as a 10 percent premium to the Company's weighted average stock price on the TSX prior to the issuance.

The Company's financial statements and management's discussion and analysis for the period ended March 31, 2011 are available on SEDAR at www.sedar.com.

Outlook and Guidance

For the remainder of 2010, the drilling program will be focused on the continued horizontal and vertical delineation of our resource base at Simonette, with a minimum of four to five wells targeting the Montney and Wilrich zones, and two wells targeting new prospects. Drilling is expected to resume in early July, following spring breakup.

Results from the initial horizontal wells completed in the winter drilling program are very encouraging. Based on observed initial production rates and natural gas liquids yields of our Montney and Wilrich wells, management believes strong economic returns can be generated at current natural gas prices. Liquids yields of 45 barrels per mmcf in the Montney and 25 barrels per mmcf in the Wilrich are expected.

Following the disposition of non-core properties and the equity offering closed in March, management believes that the Company's balance sheet and growing drilling inventory will continue to generate growth in production, funds flow and reserves.

Cequence's 2011 guidance is as follows:

Average 2011 production, BOE/d (2)                                             9,200
Exit 2011 production, BOE/d                                             10,000
Capital expenditures 2011 ($) (3)                                             100,000
Planned dispositions ($)(2)                                             (29,000)
Equity issued ($) (1)                                             51,500
Operating costs ($)                                             $9.60
Royalties (% revenue)                                             12
Crude - WTI (Cdn$/bbl)                                             $95.00
Natural gas - AECO (Cdn$/GJ)                                             $3.50
Funds flow ($)                                             $45-50 million
December 31, 2011 Net debt ($)                                             $40-45 million
Basic shares outstanding, Dec 31 2011(1)                                             146.5 million


    (1)          Equity issues include estimated proceeds of $8.75 million from the expected exercise of 2.25 million CDE flow-through Warrants due in August 2011 and proceeds from the bought deal financing which closed on March 17, 2011 pursuant to which the Company issued 13.4 million common shares and 2.1 million CEE flow-through common shares for total gross proceeds of approximately $45.5 million.
    (2)          Includes the dispositions of two properties with combined production as of December 31, 2010 of approximately 520 BOE/d.
    (3)          Excludes the $29.5 million disposition of non-core assets.

Annual Meeting

The annual meeting of the Cequence shareholders will be held on Tuesday, May 24th at 3:00 p.m. in the Devonian Room at the Petroleum Club, located at 319 - 5th Avenue S.W., Calgary, AB T2P 0L5.

Forward looking Statements or Information

Certain statements included or incorporated by reference 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 concerning Cequence in this press release may include, but are not limited to, statements or information with respect to: guidance and forecasts; business strategy and objectives; development, exploration, acquisition and disposition plans and the timing and results thereof; 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 manor; 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 at 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 and changes in 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.

The foregoing outlook and guidance has been provided to assist readers in analyzing the Company's anticipated development strategies and prospects and it may not be appropriate for other purposes and actual results could differ from the guidance provided above.

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.


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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