Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is
pleased to announce a proposed debt restructuring transaction,
private placement and credit facility renewal update.
Under the terms of a first amending agreement to
the Company’s $60.0 million Term Loan entered into between the
Company and the Term Loan debtholders, the Company has agreed to
pre-pay $10.0 million of the Company’s $60.0 million Term Loan plus
accrued and unpaid interest on such amount. In addition, the Term
Loan will be amended to:
- extend the maturity date from
October 3, 2022 to October 3, 2023,
- fix the interest rate at 5% by
removing the interest rate escalation to 10% when funds flow from
operations is equal to or greater than $40.0 million, and
- cancel all the issued and
outstanding 1.8 million warrants all of which warrants are held by
Term Loan debtholders.
Proforma net debt(1) following the debt
repayment of $10.0 million at March 31, 2019 would have been $61.8
million and the net debt(1) to trailing twelve month EBITDA(1)
ratio would decline from 3.6 times at March 31, 2019 to proforma
3.1 times at March 31, 2019. The transaction is expected to lower
annual finance costs and improve the Company’s cash flow by $0.5
million or $2.1 million over the new term.
In consideration of the Term Loan amendments,
the Company agreed to pay the Term Loan debtholders fees in the
amount of $1.2 million, which includes a restructuring fee and the
prepayment of due diligence costs payable in accordance with the
Term Loan agreement, eliminating a future obligation of the Company
under the agreement.
Prior to the Board of Directors approval of the
proposed transactions, the Term Loan debtholders repurchased all
interests in the Term Loan and warrants which were held by the two
Company directors. As of May 13, 2019, no directors or officers
held any interest in the Term Loan.
A number of the Term Loan debtholders have
entered into subscription agreements pursuant to which they have
agreed to purchase approximately 17.2 million common shares of the
Company at a price of $0.65 per share for aggregate gross proceeds
of $11.2 million. The shares will be issued on a Canadian
development expense “flow-through” basis. Upon completion of the
private placement the Company expects to have approximately 41.8
million common shares outstanding.
Following these transactions, Mr. G.A. Cumming
is expected to own approximately 25% percent or (10.3 million
common shares) of Cequence. Closing of the private placement is
subject to the receipt of shareholder approval as required under
the Rules of the TSX as a result of the number of shares proposed
to be issued and the percentage of shares held by Mr. Cumming
following the private placement. The Company’s shareholders will be
asked to vote on the private placement at the Company’s upcoming
annual and special meeting of shareholders on June 27, 2019 in
Calgary. The Company’s information circular in respect of this
meeting, which will include details of the proposed private
placement, will be mailed to shareholders in early June.
Don Archibald, Chairman of the Board of
Directors said, “the partial debt repayment, amendment of the debt
agreement, and subsequent equity private placement represents
another and important step in the recapitalization of
Cequence. The $50.0 million Term Loan is a very competitive
instrument with an attractive interest rate and the extended term
provides long term stability and certainty to the balance
sheet. These transactions not only improve the financial
strength of the company but also represent the cooperative approach
of the debt holders in working with the company to provide for its
future success.”
The Company’s credit facility, which has a
credit limit of $7.0 million and is undrawn except for $1.6 million
in letters of credit outstanding, expires on May 31, 2019.
Management and the Company’s lender are working on renewal of the
credit facility and have extended the expiry date to June 14,
2019.
1. See “Non-IFRS Measures” below
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 "believe", "expect", "plan",
"estimate", "project", “forecast”, 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: the
prepayment of the Term Loan and the amendments thereto, including
the cancellation of the outstanding warrants held by the holders of
the Term Loan, and the impact of these transactions on the
Company’s cash flow and balance sheet; the number and percentage of
common shares of the Company owned or controlled by Mr. G.A.
Cumming following the private placement; the conditions to which
completion of the private placement is subject; and the timing and
details of the Company’s annual and special meeting of
shareholders, and the timing for mailing the Company’s information
circular in respect of such meeting. 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.
Non-IFRS Measures
Throughout this press release, certain terms
that are not specifically defined in International Financial
Reporting Standards (“IFRS”) are used to analyze Cequence’s
operations. In addition to the primary measures of net loss and
comprehensive loss and net loss and comprehensive loss per share in
accordance with IFRS, Cequence believes that certain measures not
recognized under IFRS assist both Cequence and the reader in
assessing performance and understanding Cequence’s results. Each of
these measures provides the reader with additional insight into the
Company’s ability to fund principal debt repayments and capital
programs. These terms and financial measures are therefore unlikely
to be comparable to similar measures presented by other companies
and should not be used to make comparisons between companies. These
measures should not be considered alternatives to net loss and
comprehensive loss and net loss and comprehensive loss per share as
calculated in accordance with IFRS.
EBITDA is defined in the Company’s credit
facility agreement as net income (loss) plus finance costs,
share-based payment expense, income tax expense (recovery),
unrealized loss (gain) on commodity contracts, loss (gain) on sale
of property and equipment, depletion and depreciation less costs
related to onerous contracts. The Company’s management
discussion and analysis dated March 31, 2019 (the “MD&A”)
provides a reconciliation of EBITDA to the closest IFRS measure net
loss and comprehensive loss.
Net debt is a measure that provides Cequence’s
total indebtedness. It is calculated as working capital deficiency
(excluding commodity contracts and lease liability) plus amounts
outstanding in the Company’s Credit Facility plus the principal
value of the Term Loan. Cequence uses net debt as an estimate of
the Company’s assets and obligations expected to be settled in
cash. The “Liquidity and Capital Resources” table in the MD&A
reconciles net debt.
OVERVIEW OF CEQUENCE
Cequence is engaged in the exploration for and
the development of oil and natural gas reserves. The
Company’s primary focus is the development of its Simonette asset
in the Alberta Deep Basin with other non-core assets in Northeast
British Columbia and the Peace River Arch of Alberta. Further
information can be found at www.cequence-energy.com.
The TSX has neither approved nor disapproved the
contents of this news release.
For further information, please
contact:
Todd Brown Chief Executive Officer
Phone: (403) 806-4049 tbrown@cequence-energy.com
Allan Mowbray Vice President, Finance and Chief
Financial Officer Phone: (403) 806-4041
amowbray@cequence-energy.com