CALGARY, May 15, 2018 /CNW/ - Cequence Energy Ltd.
("Cequence" or the "Company") (TSX: CQE) is pleased to announce its
operating and financial results for the three month period ended
March 31, 2018. 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.
First quarter & subsequent Company highlights include:
- Achieved average quarterly production of 6,970 boe/d (17%
liquids), an increase of four percent from the fourth quarter
2017;
- Funds flow from operations was $3.2
million or $0.01 per
share;
- Operating costs were $10.18/boe
down from $12.91/boe in the fourth
quarter of 2017 as the water transfer project nears
completion;
- Completed and tied in 3.0 gross (2.0 net) Dunvegan horizontal oil wells. The wells
have produced an average of 440 bbl oil per operating day per well
since early April;
- Entered into a transaction to dispose all of the Company's B.C.
assets for nominal consideration. The transaction closed on
April 18th with an
effective date of April 1, 2018;
and
- On May 1st, the
Company sold approximately 145 boe/d (90% gas) in the Gordondale
area of Alberta for $1.5 million.
(000's except per
share and per unit amounts)
|
Three months
ended
March
31,
|
|
2018
|
2017
|
%
Change
|
FINANCIAL
|
|
|
|
Total
revenue(1)(5)
|
14,443
|
19,354
|
(25)
|
Comprehensive income
(loss)
|
(3,725)
|
5,251
|
(171)
|
Per share – basic and
diluted
|
(0.02)
|
0.02
|
(200)
|
Funds flow from
operations (2)(5)
|
3,236
|
7,346
|
(56)
|
Per share, basic and
diluted
|
0.01
|
0.03
|
(67)
|
Capital expenditures,
before acquisitions (dispositions)
|
7,454
|
15,046
|
(50)
|
Capital expenditures,
including acquisitions (dispositions)
|
7,458
|
15,046
|
(50)
|
Net debt
(3)(5)
|
(74,477)
|
(71,943)
|
4
|
Weighted average
shares outstanding – basic
|
245,528
|
245,528
|
-
|
Weighted average
shares outstanding – diluted
|
245,528
|
248,889
|
(1)
|
OPERATING
|
|
|
|
Production
volumes
|
|
|
|
Natural gas
(Mcf/d)
|
34,828
|
45,214
|
(23)
|
Crude oil
(bbls/d)
|
245
|
481
|
(49)
|
Natural gas liquids
(bbls/d)
|
274
|
270
|
1
|
Condensate
(bbls/d)
|
647
|
814
|
(21)
|
Total
(boe/d)
|
6,970
|
9,101
|
(23)
|
Sales
prices
|
|
|
|
Natural gas,
including realized hedges ($/Mcf)
|
2.70
|
2.79
|
(3)
|
Crude oil and
condensate, including realized hedges ($/bbl)
|
62.59
|
62.50
|
-
|
Natural gas liquids
($/bbl)
|
38.30
|
29.92
|
28
|
Total
($/boe)
|
23.02
|
23.63
|
(3)
|
Netback
($/boe)
|
|
|
|
Price, including
realized hedges
|
23.02
|
23.63
|
(3)
|
Royalties
|
(1.18)
|
(1.65)
|
(28)
|
Transportation
|
(2.30)
|
(1.60)
|
44
|
Operating
costs
|
(10.18)
|
(8.28)
|
23
|
Operating
netback(5)
|
9.36
|
12.10
|
(23)
|
General and
administrative
|
(1.99)
|
(1.28)
|
55
|
Interest(4)
|
(2.36)
|
(1.95)
|
21
|
Cash
netback(5)
|
5.01
|
8.87
|
(44)
|
|
|
(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, and excluding assets held for sale and
liabilities associated with assets held for sale.
|
(4)
|
Represents finance
costs less amortization on transaction costs and accretion expense
on senior notes and provisions.
|
(5)
|
Non-GAAP measure. See
"Non-GAAP Measurements" below, for additional
information.
|
Financial
Funds flow from operations for the first quarter was
$3.2 million, which reflects
increased production volumes from the fourth quarter of 2017, but
lower volumes than the first quarter of 2017. Realized sales
prices (including hedging) decreased three percent from the
comparative period in 2017. Comprehensive loss for the quarter
ended March 31, 2018 was $3.7 million compared to income of $5.3 million in the first quarter of 2017.
Capital expenditures, net of dispositions, were $7.5 million in the first quarter primarily
associated with the completion and tie-in of the Company's winter
drilling program of 3.0 gross (2.0 net) Dunvegan horizontal oil wells and drilling 1.0
gross (1.0 net) Dunvegan vertical
well at Simonette.
Effective April 1, 2018, the
Company disposed of its remaining British
Columbia assets for nominal consideration. Upon
closing of this transaction, Cequence became a pure Alberta operating entity with an Alberta
Energy Regulatory Licensee Liability Rating of 5.7. In
addition, on May 1st,
2018, the Company sold approximately 145 boe/d (90% gas) in the
Gordondale area of Alberta for
$1.5 million. No changes were
required to the Company's borrowing base as a result of the above
two transactions.
Beginning on April 1, 2018, the
Company has been selling 10,850 GJ/d of production in the Dawn
market. Proforma to the above disclosed transactions, the
Dawn marketing arrangement will provide the Company diversification
away from AECO for approximately 1/3 of its gas
production.
The Company has $74.5 million in
net debt as at March 31, 2018, which
is comprised of $60 million in senior
notes carrying a five year term (maturing in October 2018) and a working capital deficiency of
$14.5 million. The senior credit
facility of $12 million remains
undrawn other than letters of credit of $1.5
million. The Company's bank review is scheduled to be
completed by the end of May 2018.
The challenging Canadian gas commodity pricing environment has
affected the Company's cash flows, liquidity and current debt. The
Company's financial statements show that there is significant doubt
about the Company's ability to continue as a going concern.
The Company is actively pursuing various strategies to improve its
liquidity position including ongoing discussions with CPPIB Credit
Investments Inc. as the sole noteholder, debt or equity financing,
potential business combinations or other restructuring. Management
is hopeful that it will be able to implement one or more of these
strategies prior to the CPPIB senior notes maturing, although that
is not guaranteed. Further details are set forth in the financial
statements available on SEDAR.
Operational Update
Average production in the first quarter of 2018 of 6,970 boe/d
(17% liquids) increased four percent from the fourth quarter of
2017. The production increase was primarily associated with
reactivating production that was curtailed in the fourth quarter
due to the low AECO gas commodity prices. Cequence is considering
curtailing gas production as the low AECO prices have persisted
into the second quarter of 2018.
The previously announced 3.0 gross (2.0 net) horizontal
Dunvegan oil wells were completed
and tied into permanent facilities in the quarter. The wells
produced more consistently in April and have exhibited encouraging
performance with the three wells averaging 440 bbl oil per
operating day per well. The below table outlines the performance of
the three wells:
|
|
|
|
Daily
Operating
Average
(gross)
|
Last 7 Operating
days
(gross)
|
Well
UWI
|
CQE
Interest
%
|
Reference
Date
|
Operating
Days
|
Oil
(bbl/d)
|
Gas
(mcf/d)
|
Oil
(bbl/d)
|
Gas
(mcf/d)
|
15-04-062-26W5
|
100%
|
April 11,
2018
|
23
|
699
|
600
|
909
|
1,200
|
12-14-062-26W5
|
50%
|
April 7,
2018
|
30
|
375
|
389
|
588
|
700
|
11-14-062-26W5
|
50%
|
April 17,
2018
|
17
|
262
|
220
|
359
|
333
|
Challenging spring break up conditions, trucking, and
3rd party infrastructure restrictions have prevented the
three wells from producing at the same time. In order to
accommodate the increased oil volumes, the new wells have been
rotationally produced, base Dunvegan oil production has been curtailed,
and weight restricted trucking has occurred. While management
is very encouraged by the early production results from these
wells, such results are not necessarily indicative of long-term
performance or of ultimate recovery from the wells.
Cequence estimates there are approximately 26.5 net Dunvegan oil locations remaining on its
land.
Operating costs for the quarter were $10.18/boe down 21% from the fourth quarter of
2017. The Company had previously disclosed that it had incurred
increased costs associated with accelerating a water handling and
disposal project in the second half of 2017. Operating costs
in the first quarter of 2018 decreased primarily as a result of the
reduction in these water costs.
Outlook
The Company guidance for the first six months of 2018 includes
the results of the first quarter, the $1.5
million of divestitures completed, and results of the 3.0
gross (2.0 net) Dunvegan oil wells
coming on at Simonette. Volumes will be lower in the second
quarter of 2018 as the Company divested approximately 750 boe/d of
northeast British Columbia assets
and 145 boe/d of Gordondale assets, while bringing on oil volumes
at Simonette. As a result, the liquids weighting of the
Company's production is expected to increase from approximately 17%
in the first quarter of 2018 to a forecasted 27% in the second
quarter of 2018.
Transportation costs are forecast to increase in the second
quarter of 2018 as the Company's gas transportation contract to the
Dawn, Ontario market
begins.
(000's, except per
share and per unit references)
|
Six
Months
Ended
June 30,
2018
|
Average production,
BOE/d (1)
|
6,300
|
Funds flow from
operations ($)(2)(4)
|
5,200
|
Funds flow from
operations per share(2)(4)
|
0.02
|
Capital expenditures,
($)
|
6,600
|
Operating and
transportation costs ($/boe)
|
14.40
|
G&A costs
($/boe)
|
2.05
|
Royalties (%
revenue)
|
6
|
Crude – WTI
(US$/bbl)
|
65.00
|
Natural gas – AECO
(CDN$/GJ)
|
1.45
|
Period end, net debt
($) (3)(4)
|
71,400
|
Weighted average
basic shares outstanding
|
245,500
|
|
(1)
|
Average production
estimates on a per BOE basis are comprised of 79% natural gas and
21% 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.
|
(4)
|
Non-GAAP measure. See
"Non-GAAP Measurements" below, for additional
information.
|
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.
Advisories
Boe Conversions: Barrel of oil equivalent ("boe") amounts
have been calculated by using the conversion ratio of six thousand
cubic feet (6 Mcf) of natural gas to one barrel of oil (1 bbl). Boe
amounts may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf to 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.
Given that the value ratio based on the current price of oil as
compared to natural gas is significantly different from the energy
equivalent of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
Mcfe Conversions: Thousands of cubic feet of gas equivalent
("Mcfe") amounts have been calculated by using the conversion ratio
of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of
natural gas. Mcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of
natural gas as compared to oil is significantly different from the
energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may
be misleading as an indication of value.
NON-GAAP MEASUREMENTS
This press release refers 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. These
financial measures are considered "non-GAAP measures", as they do
not have a standardized meaning prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented
by other issuers.
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 and
excluding assets held for sale and liabilities associated with
assets held for sale. 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.
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, including the forward-looking financial information
under the Outlook heading, 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 include, but are not limited to,
statements relating to the Company's production and future
performance expectations of the recently completed Dunvegan wells, the possible curtailing of gas
production due to low AECO prices, the estimated number of
oil locations remaining on the Company's land, and management's
hope to implement a debt or equity financing, potential business
combinations or other restructuring prior to the maturity date of
the CPPIB senior notes. 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.
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.
The TSX has neither approved nor disapproved the contents of
this news release.
SOURCE Cequence Energy Ltd.