CALGARY, July 27, 2018 /CNW/ - Cequence Energy Ltd. (TSX:
CQE) ("Cequence" or the "Company"), is very pleased
to announce a series of transactions that will refinance the
Company's balance sheet, and thereby provide greater flexibility
and liquidity to execute the ongoing business plan of the
Company.
Firstly, Cequence has entered into a refinancing agreement with
CPPIB Credit Investments Inc. ("CII") providing for a $60 million second lien senior secured term loan
facility due October 3, 2022 (the
"Term Loan"). This facility will bear interest at 5% and
will be used to retire the existing $60
million in senior notes held by CII.
Concurrently with the Term Loan, Cequence announces that that it
plans to complete an exempt market rights offering pursuant to
which holders of the Company's common shares will be issued rights
to purchase flow-through common shares of Cequence at a price of
$0.035 per share for gross proceeds
of not less than $5 million (pursuant
to the backstop described further herein) and up to $8.6 million (the "Rights Offering").
Cequence expects that the Rights Offering is expected to close on
or about September 13, 2018.
Additionally, Cequence has received commitments from its lenders
to extend its senior secured revolving credit facilities (the
"Credit Facility") until September
28, 2018. The existing Credit Facility has a borrowing base
of $9 million, and with the exception
of letters of credit outstanding of approximately $1.5 million, there are currently no amounts
drawn under the Credit Facility. Upon closing of the Rights
Offering and Term Loan, the Company has received a commitment from
its lender to further extend the maturity date of the Credit
Facility to May 31, 2019 with a
borrowing base of $7
million.
Together, the Term Loan, renewed Credit Facility and proceeds
from the planned Rights Offering will allow Cequence to more
actively develop its high impact Dunvegan light oil play which has continued to
generate economic well results that are in excess of management's
expectations. The Dunvegan
operating results, recent increase in oil pricing, and Cequence's
netback initiatives have all had a positive impact on funds flow
from operations. As a result, the reduction in the Credit Facility
borrowing base is not an impediment to Cequence's planned capital
expenditures and cash flow growth initiatives.
"Cequence has maintained a focused effort on minimizing risk and
maximizing value for its shareholders and other stakeholders" said
Todd Brown, Chief Executive Officer,
and "the Term Loan is a highly attractive outcome for the Company
as, compared to its existing senior notes, it provides an
additional four-year term and significantly reduces the annual
interest cost to the Company by approximately $2.8 million per year, giving us the ability to
further invest in the Company's assets."
"The Board of Directors of Cequence is very excited about the
future of the Company with the flexibility that the Term Loan and
Rights Offering will afford it" said Don
Archibald, Executive Chairman, "Howard Crone and I are demonstrating our
personal commitment by agreeing to fully backstop the $5 million minimum amount of the planned Rights
Offering. Cequence is very appreciative of the opportunity to
continue to work with CII in a collaborative fashion, in support of
the best interests of CII and the Company's various
stakeholders."
Term Loan
Under the terms of the loan agreement dated July 26, 2018 (the "Loan Agreement"),
Cequence's existing $60 million
senior notes due October 3, 2018 held
by CII will be refinanced with the Term Loan. Interest payable
pursuant to the Loan Agreement will be paid quarterly at the rate
of: i) 5% per annum if 12-month trailing Funds Flow from Operations
is equal to or less than $40 million;
and ii) 10% per annum if 12-month trailing Funds Flow from
Operations is greater than $40
million. The definition of "Funds Flow from Operations" is
defined in the Loan Agreement. At any time prior to maturity,
Cequence may prepay all or any portion of the Term Loan without
penalty, subject to certain restrictions placed on the Company
under its Credit Facility.
Cequence has agreed to grant CII security over all the Company's
present and after-acquired real and personal property (with the
exception of its Simonette JV property), which will rank junior in
priority to the security securing the obligations under the
Company's Credit Facility pursuant to an intercreditor agreement
which will be concurrently entered into among the Company, its
subsidiaries, CII, and the Company's senior secured lender upon
closing of the Rights Offering and Term Loan. Under the terms of
the refinancing, Cequence has also agreed to issue CII share
purchase warrants entitling CII to purchase common shares of the
Company representing approximately 36.8 million shares or 15%
of the fully diluted common shares of the Company, prior to giving
effect to the planned Rights Offering, at a price of $0.10 per common share, exercisable for 4 years
from the date of issuance. The Loan Agreement is subject to the
successful closing of not less than $5
million under the Rights Offering.
Planned Rights Offering
Under the terms of the Rights Offering, Cequence is
planning to offer a total of 245,527,882 rights and each eligible
holder will receive one right for each common share held and will
be entitled to receive renunciations of Canadian development
expenses from the Company as contemplated under the Income Tax
Act (Canada). The Company
expects to have standby commitments in place from two of its
directors, Messrs. Archibald and Crone, that will, collectively,
guarantee that at least $5,000,000
will be raised under the Rights Offering. More details on the
Rights Offering will be set out in a rights offering notice and
rights offering circular, both of which will be available under
Cequence's SEDAR profile at www.sedar.com once they have been
finalized after consultation with the TSX. The rights offering
notice and accompanying rights certificate will be mailed to
eligible shareholders as at a record date to be determined by the
Company.
The Rights Offering will be conducted in Canada only. However, certain approved
eligible holders of the Company's common shares in jurisdictions
outside of Canada may be able to
participate in the Rights Offering. Information about how holders
of Cequence's common shares that reside outside of Canada will be included in the rights offering
notice and rights offering circular.
Operational Update
As previously announced, the Company's recent 3 gross (2 net)
Dunvegan oil wells continue their
strong performance with the Company's June 2018's monthly field
estimate averaging 1,245 bbls of oil per calendar day up from 245
bbls of oil per day reported in the first quarter of 2018. The 100%
working interest 15-4 well and the 50% working interest 12-14 well
had gross field estimated production of 893 bbl/d and 363 bbl/d
respectively for the month of June. The new 11-14 well (50% working
interest) remains down awaiting a service rig and is expected to be
back online by the end of July. The last seven-day operating
average production rate for the 11-14 well was 430 bbls of oil per
day. All three of the new wells have produced above the Company's
internal Dunvegan oil model
forecast of 300 bbls oil per day. The Company has identified an
additional drilling inventory of 26.5 net Dunvegan locations on its land.
Since April 1, 2018, the Company
has been selling 10,850 GJ/d of gas in the Dawn, Ontario market. The Dawn marketing arrangement
has provided the Company diversification away from the volatile
AECO prices for approximately 1/3 of its gas production. In the
month of June, the average AECO 5A price of gas was approximately
$0.96 Canadian per GJ while Dawn
averaged approximately $3.44 Canadian
per GJ.
The previously announced April 19,
2018 north east British
Columbia asset disposition is in process of being reversed.
A post-closing assessment by the B.C. Oil and Gas Commission of the
specific purchaser's asset transfer deposit requirement increased
seven (7) fold. As such, the regulatory aspect of the asset
transfer has been frustrated. Cequence's British Columbia assets produced approximately
715 boe/d in the first quarter of 2018 and have a current LMR of at
least 1.0. No incremental deposit requirement is needed by Cequence
for these assets. Cequence will continue to seek opportunities to
divest its British Columbia
assets, as they remain non-core to the Company's long-term
strategy.
Outlook and Guidance
The Company's guidance for the year ended December 31, 2018 includes the results of the
first quarter, the 3 gross (2.0 net) Dunvegan oil well results, the restructured
$60 million CII Term Loan (with its
5% interest rate), a minimum Rights Offering equity raise of
$5 million, the inclusion of the
north east B.C. asset operating results, and an additional planned
2 gross (2 net) Dunvegan oil wells
drilled and on production in the fourth quarter of 2018, and 4
gross (4 net) Dunvegan oil wells
drilled and on production in 2019. As a result, oil production
increases from 245 bbl/d in the first quarter of 2018 to an
expected average second half 2018 rate of 1,050 to 1,150 bbl/d. The
increase in oil production combined with improved oil prices and
the Dawn, Ontario gas contract
provide an estimated second half 2018 funds flow from operations of
approximately $12.5
million.
(000's, except per
share and per unit references)
|
|
|
Guidance year
ended December 31,
2018
|
|
|
Guidance year
ended
December 31,
2019
|
|
|
|
|
|
|
|
Average production,
BOE/d (1)
|
|
|
6,850
|
|
|
6,800
|
Funds flow from
operations ($)(2)
|
|
|
17,000
|
|
|
22,000
|
Funds flow from
operations per share(2) (4)
|
|
|
0.06
|
|
|
0.06
|
Exploration and
development expenditures, ($)
|
|
|
19,500
|
|
|
20,000
|
Net wells
|
|
|
4.0
|
|
|
4.0
|
Operating and
transportation costs ($/boe)
|
|
|
14.50
|
|
|
14.00
|
G&A costs
($/boe)
|
|
|
2.60
|
|
|
2.00
|
Royalties (%
revenue)
|
|
|
6
|
|
|
8
|
Crude – WTI
(US$/bbl)
|
|
|
65.40
|
|
|
62.25
|
Natural gas – AECO
(CDN$/GJ)
|
|
|
1.50
|
|
|
1.60
|
Period end, net debt
($) (3)
|
|
|
66,500
|
|
|
64,000
|
Weighted average
basic shares outstanding(4)
|
|
|
287,800
|
|
|
388,400
|
|
(1)
Average production estimates on a per BOE
basis are comprised of 76% natural gas and 24% oil and natural gas
liquids in 2018.
Oil and natural gas liquids are estimated at 27% for
2019.
|
(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 (excluding commodity contracts) plus the aggregate
principal amount of
the senior notes and is calculated based on the minimum standby
commitment of $5 million received less estimated costs of
$125,000.
|
(4)
Weighted average basic shares outstanding
is based on the minimum standby commitment of $5 million received
and 142,857,000
of incremental shares issued on September 13, 2018. Assuming
that the rights offering is fully subscribed for at $8.6 million
and 245,528,000
of incremental common shares are issued the weighted average shares
would be 318,177,000 and 491,056,000 for December 31, 2018 and
2019 respectively and funds flow from operations would be $0.05 and
$0.04 for December 31, 2018 and 2019 respectively.
|
Executive Team Update
Cequence is pleased to announce that Kevin Nielsen, CPA, CA, has joined the company
as Contract Interim Chief Financial Officer. Mr. Nielsen has 19
years of public accounting, financial reporting and leadership
experience and was most recently an Audit and Assurance Partner at
a major international accounting firm, where he specialized in
serving upstream oil and gas companies. Mr. Nielsen's background
and experience will be a significant asset to Cequence as the
organization completes the transactions described above and
continues to pursue various strategies for the benefit of the
Company and its stakeholders.
The Board of Directors of the Company would like to thank
Howard Crone for his additional
efforts and responsibilities in assuming the role of Interim CFO
during this transition period. Mr. Crone will continue serving in
the previously announced role of Executive Vice President.
Advisors
Peters & Co. Limited acted as financial advisor to Cequence.
Norton Rose Fulbright Canada LLP acted as legal counsel to
Cequence.
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, the impact of the completion of Cequence's debt refinancing and
the terms thereof; the Company's lender's support for the extension
and the new borrowing base of the Company's Credit Facility; the
Company's intention to complete the Rights Offering and the timing
thereof; the exercise price of the rights offered under the Rights
Offering; the guaranteed minimum proceeds from the Rights Offering;
and the Company's outlook and guidance for 2018. 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 Company's lender's support for the extension and the
new borrowing base of the Credit Facility; the ability of the
Company to satisfy the conditions precedent to the Loan Agreement
and any other closing conditions relating to the Term Loan or the
extension of the Credit Facility; 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.
SOURCE Cequence Energy Ltd.