CALGARY, Nov. 9, 2017 /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, 2017. 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.
Operational and financial highlights of the Company from the
third quarter include:
- Funds flow from operations for the third quarter was
$3.6 million and $17.7 million year to date, an increase of 7% and
284% from the same periods in 2016, driven by higher oil and
condensate weighting and associated realized prices;
- Achieved average quarterly production of 8,266 boe/d,
approximately 700 boe/d of production was shut-in for the quarter
associated with low gas prices and pipeline restrictions.
- Increased oil and condensate production to 1,229 bbl/d, up 26%
from the same period in 2016;
- Completed the tie in of the 5-7 Dunvegan oil facility to improve well on
stream times and oil production netbacks;
- Completed the 100% working interest Dunvegan oil zone in the inactive
03/4-8-62-26W5 vertical well. The well has averaged
approximately 45 bbl/d of 39 API oil since early September and has
validated inventory on 100% Cequence lands.
- Secured firm gas transportation arrangements covering the
remainder of 2017 including successfully advancing 35 MMcf/d of
NGTL service to December
17th, 2017.
(000's except per
share and per unit amounts)
|
Three months
ended
September
30,
|
Nine months
ended
September
30,
|
|
|
|
|
|
|
|
|
2017
|
2016
|
%
Change
|
2017
|
2016
|
%
Change
|
FINANCIAL
|
|
|
|
|
|
|
Total
revenue(1)
|
15,087
|
14,707
|
3
|
52,251
|
41,821
|
25
|
Comprehensive
loss
|
(3,076)
|
(880)
|
250
|
(92,724)
|
(18,980)
|
389
|
Per share – basic and
diluted
|
(0.01)
|
(0.00)
|
n/a
|
(0.38)
|
(0.09)
|
322
|
Funds flow from
operations (2)(5)
|
3,619
|
3,385
|
7
|
17,746
|
4,625
|
284
|
Per share, basic and
diluted
|
0.01
|
0.02
|
(50)
|
0.07
|
0.02
|
250
|
Capital expenditures,
before acquisitions (dispositions)
|
2,682
|
2,810
|
(5)
|
20,264
|
11,130
|
82
|
Capital expenditures,
including acquisitions (dispositions)
|
2,682
|
(2,357)
|
214
|
20,264
|
5,890
|
244
|
Net debt
(3)
|
68,407
|
67,913
|
1
|
68,407
|
67,913
|
1
|
Weighted average
shares outstanding – basic & diluted
|
245,528
|
211,028
|
16
|
245,528
|
211,028
|
16
|
OPERATING
|
|
|
|
|
|
|
Production
volumes
|
|
|
|
|
|
|
Natural gas
(Mcf/d)
|
40,729
|
44,320
|
(8)
|
42,871
|
45,562
|
(6)
|
Crude oil
(bbls/d)
|
388
|
175
|
122
|
364
|
190
|
92
|
Natural gas liquids
(bbls/d)
|
250
|
261
|
(4)
|
253
|
247
|
2
|
Condensate
(bbls/d)
|
841
|
798
|
5
|
858
|
869
|
(1)
|
Total
(boe/d)
|
8,266
|
8,621
|
(4)
|
8,620
|
8,899
|
(3)
|
Sales
prices
|
|
|
|
|
|
|
Natural gas,
including realized hedges ($/Mcf)
|
2.12
|
2.28
|
(7)
|
2.59
|
2.05
|
26
|
Crude oil and
condensate, including realized hedges ($/bbl)
|
57.70
|
53.78
|
7
|
60.13
|
51.00
|
18
|
Natural gas liquids
($/bbl)
|
27.86
|
24.09
|
16
|
28.04
|
20.89
|
34
|
Total
($/boe)
|
19.84
|
18.54
|
7
|
22.20
|
17.15
|
29
|
Netback
($/boe)
|
|
|
|
|
|
|
Price, including
realized hedges
|
19.84
|
18.54
|
7
|
22.20
|
17.15
|
29
|
Royalties
|
(0.61)
|
(0.80)
|
(24)
|
(1.17)
|
(0.44)
|
166
|
Transportation
|
(2.09)
|
(1.26)
|
66
|
(1.93)
|
(1.18)
|
64
|
Operating
costs
|
(9.21)
|
(7.85)
|
17
|
(8.33)
|
(8.72)
|
(4)
|
Operating
netback
|
7.93
|
8.63
|
(8)
|
10.77
|
6.81
|
58
|
General and
administrative(5)
|
(1.33)
|
(2.49)
|
(47)
|
(1.38)
|
(3.08)
|
(55)
|
Interest(4)
|
(1.97)
|
(1.94)
|
2
|
(1.97)
|
(1.93)
|
2
|
Cash
netback
|
4.63
|
4.20
|
10
|
7.42
|
1.80
|
312
|
|
|
(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) less the principal value
of senior notes.
|
(4)
|
Represents finance
costs less amortization on transaction costs and accretion expense
on senior notes and provisions.
|
(5)
|
For the three and
nine months ended September 30, 2016, general and administrative
expenses and funds flow from operations includes $0.4 million and
$2.3 million in restructuring charges (2017 - $nil).
|
Financial
Funds flow from operations of $3.6
million for the third quarter and $17.7 million year to date increased the previous
year and reflects both improved crude oil and natural gas prices,
improved liquids yield and the Company's lower cost structure.
Despite a 28 percent decline in benchmark natural gas prices
compared to the third quarter of 2016, the Company's average
realized price increased by 7 percent. Realized hedging gains
in the quarter totalled $3.65/boe. Comprehensive loss for the
quarter ended September 30, 2017 was
$3.1 million compared to a loss of
$0.9 million in 2016. Year to date,
the Company recorded an loss of $92.7
million driven by a $96.2
million impairment charge in the second quarter from the
prolonged decline in its third party reserve evaluators' future oil
and natural gas price forecast over the life of the Company's
reserves.
Capital expenditures, net of dispositions, were $2.7 million in the third quarter and relate
primarily to a Dunvegan
recompletion and oil facility work at Simonette.
The Company has $68.4 million in
net debt at September 30, 2017 which
is comprised of $60 million in senior
notes and a working capital deficiency of $8.4 million. The working capital deficiency
includes $1.6 million in expenditures
on decommissioning liabilities that are expected to be incurred
over the next 12 months and does not include the current commodity
contract asset of $2.4 million.
The Company's senior credit facility of $20 million is currently undrawn with the next
scheduled bank review to be completed by the end of November 2017.
In the third quarter, the Company advanced the start date of
approximately 26 mmcf/d of natural gas transportation to
December 17, 2017 from April
2018. The contract reduces the Company's reliance on short
term and interruptible transportation contracts and is expected to
improve the netbacks by lowering the cost of transportation or
increasing sales prices. Beginning December 17, 2017, the Company will have firm
transportation to AECO on the NGTL pipeline system for
approximately 35 mmcf/d until March 2026. Since November 1st of 2015, Cequence has
been subcontracting 3rd party firm service
transportation on Alliance and/or NGTL's system which included
transportation or price offsets of $1.20/boe or higher than standard owned pipeline
tolls.
Operational Update
Average production in the third quarter of 2017 of 8,266 boe/d
was down 4 percent from the third quarter of 2016. Cequence either
shut in or curtailed between 1,000 and 1,500 boe/d through periods
of August & September associated with low AECO gas prices and
pipeline restrictions. Low AECO prices & pipeline
restrictions have continued into October with Cequence continuing
to shut-in volumes through the month. Beginning November 1, 2017, Cequence has begun bringing
wells back online with higher prices and improving pipeline
access.
Operating costs in the quarter increased to $9.21/boe compared to $7.85/boe 2016. The Company incurred
$0.8 million of incremental costs
associated with accelerating its water disposal efforts in the
Simonette field. The Company is utilizing infield trucking
and gas gathering pipelines to transfer water to its 100% owned
disposal well. This water disposal effort will be finalized
in the fourth quarter with an additional cost of $0.7 million over that same period. The
accelerated water disposal effort will reduce long term equipment
rentals and ongoing associated transfer costs by $2.5 million per year.
Oil and condensate production in the quarter increased by 26% or
256 bbl/d over the same period in 2016 with oil production up 122%
to 388 bbl/d. The two Dunvegan oil
wells (50% WI) brought on stream in January of 2017 continue their
strong performance, with the 9-11-62-26W5 well having produced
95,000 bbls to the end of October. The tie-in of the Cequence
operated 5-7-62-25 oil facility, which occurred in July, has
provided more reliable well operating times and
efficiencies.
In the third quarter, Cequence completed the 100% working
interest Dunvegan zone in an
inactive vertical well located at 03/4-8-62-26W5. The well
was brought on production September
4th and has produced approximately 45 bbl/d of 39
API oil since that time. This test has validated 100%
Cequence interest lands and supports the 24 net locations
previously identified on the play. An extension of the
Dunvegan oil play West of the 4-8
vertical well has been identified on seismic. This extension
may further increase the Cequence net inventory by 10 wells.
A 3 gross (2 net) Dunvegan oil
program is set to commence in the fourth quarter
2017.
Outlook
The Company has revised its full year guidance to include the
results of the first nine months of the year performance and the
current outlook for commodity prices. The revised guidance reflects
the impact of the low gas prices and pipeline related volume
restrictions experienced in the third and fourth quarter as well as
the associated capital program since that time. In light of
the current commodity pricing environment, the Company expects to
focus its winter drilling program on its Dunvegan oil asset.
(000's, except per
share and per unit references)
|
Revised
Guidance
Year
Ended
December 31,
2017
|
August 10,
2017 Guidance
Year
Ended
December 31,
2017
|
Average production,
boe/d (1)
|
8,250
|
8,500-8,700
|
Funds flow from
operations ($)(2)
|
20,000
|
23,000
|
Funds flow from
operations per share(2)
|
0.08
|
0.10
|
Capital expenditures,
($)
|
24,000
|
24,000
|
Operating and
transportation costs ($/boe)
|
10.50
|
10.25
|
G&A costs
($/boe)
|
1.50
|
1.60
|
Royalties (%
revenue)
|
6
|
8
|
Crude – WTI
(US$/bbl)
|
50.25
|
49.25
|
Natural gas – AECO
(CDN$/GJ)
|
2.08
|
2.50
|
Period end, net debt
($) (3)
|
68,000
|
65,000
|
Weighted average
basic shares outstanding
|
245,500
|
245,500
|
|
|
(1)
|
Average production
estimates on a per boe basis are comprised of 85% natural gas and
15% oil and natural gas liquids.
|
(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) less the aggregate
principal amount of the senior notes.
|
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
outlook: business strategy and objectives; the Company's 2017
capital program and operational and drilling plans; transportation
cost expectations; future production levels and productive
capacity; G&A and operating costs expectations; bank review
timing; the benefits to be derived from the Company's hedging
program; funds flows; debt levels; and expected future oil and gas
prices including marketing arrangements. 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
For the nine months ended September
30, 2017 the ratio between the average price of West Texas
Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was
approximately 16:1 ("Value Ratio"). The Value Ratio is obtained
using the nine months of 2017 WTI average price of $49.33 (US$/Bbl) for crude oil and the nine
months of 2017 NYMEX average price of $3.05 (US$/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.
"BOEs" or "barrels of oil equivalent", a term commonly used
in the oil & gas industry, may be misleading, particularly if
used in isolation. A BOE conversion ratio of six thousand cubic
feet of gas: one barrel of oil is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
Within the MD&A references are made to terms commonly
used in the oil and gas industry, including operating netback, cash
netback, net debt, funds flow from (used in) operations and total
revenue.
Operating netback is not defined by IFRS in Canada and is referred to as a non-GAAP
measure. Operating netback equals per boe revenue less royalties,
operating costs and transportation costs. Management utilizes this
measure to analyze operating performance of its assets and
operating areas, compare results to peers and to evaluate drilling
prospects.
Cash netback is not defined by IFRS in Canada and is referred to as a non-GAAP
measure. Cash netback equals operating netback less per boe general
and administrative expenses and interest expense. Management
utilizes this measure to analyze the Company's per boe
profitability for future capital investment or repayment of debt
after considering cash costs not specifically attributable to its
assets or operating areas.
Net debt is a non-GAAP measure that is calculated as working
capital (deficiency) less the principal value of senior
notes. For this calculation, Cequence uses the principal
value of the senior notes rather than the carrying value on the
statement of financial position as it reflects the amount that will
be repaid upon maturity. Cequence uses net debt as it provides an
estimate of the Company's assets and obligations expected to be
settled in cash.
Funds flow from (used in) operations is a non-GAAP term that
represents cash flow from operating activities before adjustments
for decommissioning liabilities expenditures and net changes in
non-cash working capital. The Company evaluates its performance
based on earnings and funds flow from (used in) operations. The
Company considers funds flow from (used in) operations 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 (used in) operations may not be comparable to that
reported by other companies. Funds flow from (used in) operations
per share is calculated using the same weighted average number of
shares outstanding used in the calculation of comprehensive income
(loss) per share.
Total revenue equals production revenue gross of royalties
and including realized gain (loss) on commodity contracts.
Management utilizes this measure to analyze revenue and commodity
pricing and its impact on operating performance.
Non-GAAP financial measures do not have a standardized
meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers.
SOURCE Cequence Energy Ltd.