Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is
pleased to announce its operating and financial results for the
three and six months ended June 30, 2019. The Company’s
Management’s Discussion and Analysis (“MD&A”) and Condensed
Consolidated Interim Financial Statements are available at
cequence-energy.com and on SEDAR at www.sedar.com.
HIGHLIGHTS
- Optimization projects implemented
in the second quarter 2019 increased production to 6,142 boe/d
compared to 5,964 boe/d for the first quarter of 2019.
- Completed the repayment of $10.0
million of the $60.0 million Term Loan and amended the Term Loan
agreement extending the maturity to October 2023, fixing the
interest rate at 5% and cancelling the 1.8 million warrants held by
the Term Loan holders.
- Issued 17.2 million common shares
at a price of $0.65 per share for gross proceeds of $11.2 million
on a Canadian development expense flow-through basis. Issued at a
$0.31 per share premium to Cequence’s closing price on June 27,
2019.
- Renewed the credit facility
agreement on June 14, 2019 extending it to June 16, 2020 and
maintaining the $7.0 million borrowing base.
For the six months ended June 30, 2019 funds
flow from operations was $7.2 million, $1.7 million higher than the
same prior year period. Production was 6,053 boe/d compared to
6,651 boe/d for the same prior year period. The increased funds
flow was due to higher crude oil production and realized pricing,
higher natural gas pricing and lower finance expenses.
SELECTED INFORMATION
(in thousands of dollars except production volumes, per share and
$/boe amounts) |
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Financial |
|
|
|
|
|
Total revenue(1) |
|
$12,966 |
|
$14,613 |
|
$29,603 |
|
$29,057 |
|
Net loss and comprehensive loss (ii) |
|
|
(2,464 |
) |
|
(2,745 |
) |
|
(6,278 |
) |
|
(6,470 |
) |
Per share – basic and diluted(i) |
|
|
(0.10 |
) |
|
(0.22 |
) |
|
(0.25 |
) |
|
(0.53 |
) |
Funds flow from operations(1) (ii) |
|
|
1,806 |
|
|
2,191 |
|
|
7,170 |
|
|
5,427 |
|
Per share - basic and diluted(i) |
|
|
0.07 |
|
|
0.18 |
|
|
0.29 |
|
|
0.44 |
|
Capital expenditures, before acquisitions (dispositions) |
|
|
1,163 |
|
|
1,830 |
|
|
3,347 |
|
|
9,284 |
|
Total assets |
|
|
|
|
270,645 |
|
|
272,669 |
|
Net debt(1) |
|
|
|
|
61,236 |
|
|
73,486 |
|
Production volumes |
|
|
|
|
|
Natural gas (Mcf/d) |
|
|
29,007 |
|
|
28,628 |
|
|
27,854 |
|
|
31,711 |
|
Crude oil (bbls/d) |
|
|
747 |
|
|
864 |
|
|
831 |
|
|
556 |
|
Natural gas liquids (bbls/d) |
|
|
186 |
|
|
240 |
|
|
184 |
|
|
257 |
|
Condensate (bbls/d) |
|
|
374 |
|
|
459 |
|
|
396 |
|
|
553 |
|
Total (boe/d) |
|
|
6,142 |
|
|
6,334 |
|
|
6,053 |
|
|
6,651 |
|
Netback ($/boe) |
|
|
|
|
|
Price, including realized hedges |
|
$23.20 |
|
$25.35 |
|
$27.02 |
|
$24.14 |
|
Operating netback(1) |
|
$7.92 |
|
$8.82 |
|
$10.67 |
|
$9.11 |
|
(i) |
Prior period common shares, stock options,
warrants, restricted share units and per share amounts have been
restated to reflect the 2018 share consolidation where one
post-consolidation common share was equal to 20 pre-consolidation
common shares. |
(ii) |
During
the three and six months ended June 30, 2019 Cequence incurred $0.5
million of due diligence fees paid to the Term Debt holders. |
1 |
Refer to “Non-IFRS Measures” section for further
information. |
OPERATIONS
|
|
Three months ended June 30, |
|
|
|
2019 |
|
2018 |
|
|
|
|
($ thousands) |
|
($/boe) |
($ thousands) |
|
($/boe) |
|
Sales of natural gas, oil and condensate |
$12,639 |
|
$22.61 |
$15,720 |
|
$27.27 |
|
Realized gain (loss) on commodity contracts |
327 |
|
|
0.59 |
|
(1,107 |
) |
|
(1.92 |
) |
Total revenue(1) |
|
12,966 |
|
|
23.20 |
|
14,613 |
|
|
25.35 |
|
Royalties expense |
|
704 |
|
|
1.26 |
|
1,043 |
|
|
1.81 |
|
|
|
|
12,262 |
|
|
21.94 |
|
13,570 |
|
|
23.54 |
|
Operating expense |
|
5,501 |
|
|
9.84 |
|
6,758 |
|
|
11.72 |
|
Transportation expense |
|
2,337 |
|
|
4.18 |
|
1,728 |
|
|
3.00 |
|
Operating netback(1) |
|
4,424 |
|
|
7.92 |
|
5,084 |
|
|
8.82 |
|
General and administrative expense (i) |
|
1,871 |
|
|
3.35 |
|
1,487 |
|
|
2.58 |
|
Finance expense |
|
953 |
|
|
1.71 |
|
1,881 |
|
|
3.26 |
|
Cash netback(1) |
|
1,600 |
|
$2.86 |
|
1,716 |
|
$2.98 |
|
Unrealized gain on commodity contracts |
|
(691 |
) |
|
|
(216 |
) |
|
Depletion and depreciation expense |
|
4,739 |
|
|
|
6,310 |
|
|
Share-based payment expense |
|
92 |
|
|
|
75 |
|
|
Other income |
|
(76 |
) |
|
|
(1,708 |
) |
|
Net loss and comprehensive loss |
$(2,464 |
) |
|
$(2,745 |
) |
|
(i) |
During the three months ended June 30, 2019
Cequence incurred $0.5 million of due diligence fees paid to the
Term Debt holders included in general and administrative
expenses. |
Production for the three months ended June 30, 2019 averaged
6,142 boe/d compared to production of 6,334 boe/d for the same
prior year period. The decrease was due to the natural decline of
the 3.0 gross (2.0 net) Dunvegan horizontal oil wells that were
completed in the first quarter 2018. Crude oil and liquids
production as a percentage of total production decreased to 21
percent in the three months ended June 30, 2019 from 25 percent for
the same prior year period.
Operating netback(1) was $7.92 per boe for the
three months ended June 30, 2019 compared to $8.82 per boe for the
same prior year period. The decrease was due to lower realized
prices and crude oil and liquids production. Decreased crude oil
and liquids production was due to natural decline rates on the
Dunvegan horizontal oil wells completed in 2018.
Operating expenses for the three months ended
June 30, 2019 were $9.84 per boe compared to $11.72 per boe for the
same prior year period. Lower operating expenses per boe were due
to reduced use of rental equipment, lower trucking and water
disposal costs at Simonette where a water disposal well was
completed in 2018 and costs incurred in 2018 to start up the 3
gross (2 net) Dunvegan horizontal oil wells.
|
|
Six months ended June 30, |
|
|
|
2019 |
|
2018 |
|
|
|
($ thousands) |
|
($/boe) |
($ thousands) |
|
($/boe) |
|
Sales of natural gas, oil and condensate |
$28,290 |
|
$25.82 |
$29,398 |
|
$24.42 |
|
Realized gain (loss) on commodity contracts |
|
1,313 |
|
|
1.20 |
|
(341 |
) |
|
(0.28 |
) |
Total revenue(1) |
|
29,603 |
|
|
27.02 |
|
29,057 |
|
|
24.14 |
|
Royalties expense |
|
1,586 |
|
|
1.45 |
|
1,780 |
|
|
1.48 |
|
|
|
|
28,017 |
|
|
25.57 |
|
27,277 |
|
|
22.66 |
|
Operating expense |
|
11,632 |
|
|
10.62 |
|
13,147 |
|
|
10.92 |
|
Transportation expense |
|
4,687 |
|
|
4.28 |
|
3,168 |
|
|
2.63 |
|
Operating netback(1) |
|
11,698 |
|
|
10.67 |
|
10,962 |
|
|
9.11 |
|
General and administrative expense (i) |
|
3,027 |
|
|
2.76 |
|
2,737 |
|
|
2.27 |
|
Finance expense |
|
1,935 |
|
|
1.77 |
|
3,777 |
|
|
3.14 |
|
Cash netback(1) |
|
6,736 |
|
$6.14 |
|
4,448 |
|
$3.70 |
|
Unrealized loss on commodity contracts |
|
2,099 |
|
|
|
1,431 |
|
|
Depletion and depreciation expense |
|
10,815 |
|
|
|
11,139 |
|
|
Share-based payment expense |
|
227 |
|
|
|
140 |
|
|
Other income |
|
(127 |
) |
|
|
(1,792 |
) |
|
Net loss and comprehensive loss |
$(6,278 |
) |
|
$(6,470 |
) |
|
(i) |
During the six months ended June 30, 2019 Cequence incurred $0.5
million of due diligence fees paid to the Term Debt holders
included in general and administrative expenses. |
Production for the six months ended June 30, 2019 averaged 6,053
boe/d compared to production of 6,651 boe/d for the same prior year
period. Crude oil production partially offset natural declines in
natural gas, condensate and natural gas liquids production.
Operating netback(1) was $10.67 per boe for the
six months ended June 30, 2019 compared to $9.11 per boe for the
same prior year period. The increase was due to higher realized
natural gas and crude oil prices and increased oil production.
Higher realized natural gas prices were due to AECO prices that
were supported by cold weather during the first quarter 2019 and
the Company entering into a marketing arrangement for fixed
transportation effective April 1, 2018, to sell 10,850 GJ/d of gas
in the Dawn, Ontario market. Higher oil production for the six
months ended June 30, 2019 was due to completing and tying in 5.0
gross (4.0 net) Dunvegan horizontal oil wells in 2018 and early
2019.
Transportation expense for the six months ended
June 30, 2019 increased per boe compared to the same prior year
period due to the Company entering into agreements to secure
service for natural gas and crude oil transportation that are
recognized as transportation expense where this was previously
included as part of the realized price on the commodity sale.
Operating expenses for the six months ended June
30, 2019 were $10.62 per boe compared to $10.92 per boe for the
same prior year period. Lower water handling costs with the
completion of a water disposal well in 2018 and reduced long-term
field rentals expenses were partially offset in the first quarter
2019 by workover, swabbing and chemical expenses to optimize and
reactivate production.
Finance expenses for the six months ended June
30, 2019 were lower compared to the same prior year period due to
restructuring the Senior loan in 2018 and replacing it with the
Term Loan which reduced the interest rate on the debt from 9.7% to
5.0%.
CAPITAL EXPENDITURES
|
|
|
|
|
|
Three months ended June 30, |
|
Six months endedJune 30, |
|
(in thousands of dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Land |
$291 |
|
$149 |
|
$443 |
|
$347 |
|
Geological & geophysical and capitalized overhead |
|
151 |
|
|
151 |
|
|
343 |
|
|
320 |
|
Drilling, completions and workovers |
|
495 |
|
|
866 |
|
|
1,929 |
|
|
6,693 |
|
Equipment, facilities and tie-ins |
|
221 |
|
|
664 |
|
|
624 |
|
|
1,924 |
|
Office furniture & equipment |
|
5 |
|
|
- |
|
|
8 |
|
|
- |
|
Capital expenditures |
|
1,163 |
|
|
1,830 |
|
|
3,347 |
|
|
9,284 |
|
Property dispositions (i) |
|
(39 |
) |
|
(1,433 |
) |
|
(38 |
) |
|
(1,429 |
) |
Total capital expenditures |
$1,124 |
|
$397 |
|
$3,309 |
|
$7,855 |
|
(1) Represent the cash proceeds from the sale of assets. |
Capital expenditures for the six months ended June 30, 2019
focused on Simonette where the Company completed and tied in the
2.0 gross (2.0 net) Dunvegan horizontal oil wells drilled in the
fourth quarter of 2018 and completed in early 2019.
Cequence’s 2019 capital budget is approximately
$13.0 million comprised of expenditures to enhance and optimize
existing well performance using artificial lift solutions and costs
to drill 2.0 gross (2.0 net) Dunvegan horizontal oil wells in 2019.
The capital budget will be funded from funds flow from
operations(1) and proceeds from the private placement completed on
June 27, 2019.
TERM LOAN AND PRIVATE
PLACEMENT
On June 27, 2019, the Company completed the
repayment of $10.0 million of its $60.0 million term loan facility
and certain amendments to the Loan Agreement governing the Term
Loan, including extending the maturity date from October 3, 2022 to
October 3, 2023, fixing the interest rate at 5%, removing the
interest rate escalation to 10% when funds flow from
operations(1) is equal to or greater than $40.0 million, and
canceling the warrants held by the Term Loan holders. In
consideration for the amendments, the Company agreed to pay the
holders of the Term Loan fees in the amount of $1.2 million, which
included a modification 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.
On June 27, 2019, the Company also completed a
private placement (the “Private Placement”) of 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 were issued on a
Canadian development expense “flow-through” basis at a premium of
$0.31 per share compared to the closing price on that date. Upon
completion of the private placement the Company had 41.8 million
common shares outstanding.
OUTLOOK
Cequence continues to monitor commodity price
volatility and plans to spend within funds flow from operations(1)
in executing its 2019 capital program and meeting its debt
maintenance requirements. The Company plans to drill 2.0 gross (2.0
net) Dunvegan horizontal oil wells in 2019 and bring them on to
production in early 2020. Key guidance metrics for 2019 are as
follows:
|
|
Guidance year ended
December 31, 2019 |
Year ended December 31, 2018 |
Average production, boe/d(i) |
5,800 |
6,507 |
Funds flow from operations(1) (ii) ($ thousands) |
13,000 |
13,087 |
Development expenditures ($ thousands) |
13,000 |
23,800 |
Net wells |
2.0 |
4.0 |
Operating and transportation expenses ($/boe) |
15.00 |
13.15 |
Royalties (% revenue) |
7 |
7 |
Crude – WTI (US$/bbl) |
56.85 |
65.20 |
Natural gas – AECO (CDN$/GJ) |
1.56 |
1.44 |
(i) |
Average production estimates on a per BOE basis are comprised of
approximately 75% natural gas and 25% oil, condensate and natural
gas liquids in 2019. |
(ii) |
Cequence incurred $0.5 million of due diligence fees paid to the
Term Debt holders included in general and administrative
expenses. |
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" 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 Company’s
guidance and forecasts for the year ended December 31, 2019 and its
expectations regarding market access for the Company’s natural gas
production; future drilling and capital expenditure expectations;
expected netbacks to be derived from hedging activities and
expected operating costs. 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
(1) 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.
Cash netback is a measure used in the oil and
gas industry to analyze profitability after general and
administrative (“G&A”) and finance expenses. Cash netback
equals operating netback less G&A and finance expenses.
Management utilizes this measure to analyze the Company’s
profitability for future capital investment or repayment of debt
after considering costs not specifically attributable to its assets
or operating areas. The “Operations” table reconciles cash netback
to the IFRS measure net loss and comprehensive loss.
Funds flow from operations is calculated as cash
flow from operating activities before adjustments for
decommissioning costs incurred and net change in non-cash working
capital. The Company uses this measure to analyze operating
performance and leverage and considers it 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. Funds flow from operations per share is calculated
using the same weighted average number of shares outstanding used
in the calculation of net loss and comprehensive loss per
share.
The following table reconciles funds flow from
operations, to the IFRS measure, cash flow from operating
activities:
|
|
Three months endedJune 30, |
|
|
Six months endedJune 30, |
|
(thousands of dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
2018 |
|
Cash flow from operating activities |
$2,649 |
|
$4,379 |
|
$2,892 |
$4,427 |
|
Decommissioning costs incurred |
|
211 |
|
|
301 |
|
|
2,689 |
|
2,857 |
|
Net change in non-cash working capital |
|
(1,054 |
) |
|
(2,489 |
) |
|
1,589 |
|
(1,857 |
) |
Funds flow from operations |
$1,806 |
|
$2,191 |
|
$7,170 |
$5,427 |
|
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 (previously Senior Notes). 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 Company’s MD&A reconciles net debt.
Operating netback is a measure used in the oil
and gas industry to analyze margin and cash flow. Operating netback
equals revenue less royalties, operating and transportation
expenses. Management utilizes this measure to analyze operating
performance of its assets and operating areas, compare results to
peers and to evaluate drilling prospects. The “Operations” table
reconciles operating netback to the IFRS measure net loss and
comprehensive loss.
Total revenue equals production revenue gross of
royalties and includes realized gains (losses) on commodity
contracts. Management utilizes this measure to analyze revenue and
commodity pricing and its impact on operating performance. The
“Operations” table reconciles total revenue to the IFRS measure net
loss and comprehensive loss.
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