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Cequence Energy Announces Closing of Strategic Disposition and Revised Guidance
CALGARY, July 7, 2014 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce that it has completed the previously announced disposition (the "Transaction") of its entire interest in its non-operated assets located in the Ansell area (the "Ansell Assets") for total consideration of approximately $141 million, prior to customary closing adjustments. The Ansell Assets consist of 18,800 net acres of land, 1,600 boepd of current production and a 49% working interest in the field infrastructure.
Proceeds from the Transaction will be used to accelerate growth at the Company's Simonette property in the Deep Basin of Alberta. Cequence expects to maintain an active two rig drilling program through March 2015 and grow production from the current rate of 10,400 boe/d to exit the first quarter of 2015 at 15,000 boe/d. Capital expenditures for the nine month period beginning July 1, 2014 and ended March 31, 2015 are budgeted to be $160 million, prior to dispositions, and include 17 gross (16.3 net) wells and a facility expansion at Simonette. The budget includes 15 Montney wells, one Dunvegan well and one Falher well all at Simonette. This program will effectively double the number of completed gas wells in the Simonette field drilled to date.
"Our team is excited to begin a development program to capitalize on the efficiencies of multi-well pad drilling and established field infrastructure" said Paul Wanklyn, President and Chief Executive Officer. "Production is expected to increase by 44 percent over the next nine months while maintaining an excellent balance sheet and an expected debt to cash flow ratio of less than 1X. Single well economics in the Montney are compelling, and offer an approximate 60 percent rate of return driven by condensate yields of 27 Bbls/MMcf and field operating costs of approximately $5.50 per boe. Using our budgeted 2014 Simonette field operating netback of $29 per boe and historical finding costs of $11.61 per BOE, this results in a recycle ratio of 2.5 X. The added synergy of uphole targets in the Falher and Dunvegan formations makes the Simonette project truly exceptional."
Pad drilling results in staged future production growth as multiple wells are drilled prior to completion; however, management believes this development strategy is now appropriate for the Company given it is expected to result in greater efficiencies and ultimately cost savings for this program. Cequence has prepared the field for this development and has constructed 23 padsites tied-in to Cequence operated facilities with an additional 12 pad-sites approved for construction. Cequence expects to continue to complete its Montney wells using open-hole slick water multi-stage fracturing. Average condensate yields in the field have increased over the past year to 27 Bbls/MMcf, a 29 percent increase to the current base case model assumption.
Cequence has commenced drilling on its first six well Montney pad at 1-32-61-26W5. Cequence expects to complete the first three wells from this pad in October 2014 followed by the remaining three wells in the first quarter of 2015. A second drilling rig has begun operations on a 65% working interest Dunvegan location at 13-11-61-2W6. This rig is then scheduled to drill a Falher well at Simonette before beginning operations on the multi-well Montney padsite at 12-26-61-27W5.
Cequence currently has production capacity of approximately 70 mmcf/d through its facility at 13-11. Incremental capacity can be added to accommodate production growth through the expansion of the existing plant. The capital expenditure budget includes the expansion of the 13-11 facility to 95 mmcfd at a cost of $10 million.
Cequence is pleased to provide the following updated guidance for 2014 and the first quarter of 2015:
| 2014 |
| Q1 2015 |
|Land, seismic and G&G||$9 million||$3 million|
|Drilling and completions||$118 million||$43 million|
|Equipment, facilities and tie-ins||$43 million||$12 million|
|Capital expenditures, prior to dispositions (1)||$170 million||$58 million|
|Net dispositions||$147 million||N/A|
|Net capital expenditures, including dispositions||$23 million||$58 million|
|Financial and Operational|
|Average production, boe/d (2)||11,000||13,500|
|Exit production, boe/d||12,000||15,000|
|Funds flow from operations(3)||$83 million||$27million|
|Funds flow from operations per share||$0.39||$0.13|
|Operating and transportation costs ($/BOE)||9.00||8.20|
|G&A Expense ($/BOE)||1.95||1.55|
|Royalties (% revenue)||10||8|
|Crude - WTI (US$/Bbl)||$99.75||$97.00|
|Natural gas - AECO (Cdn$/GJ)||$4.60||$3.85|
|End of period, net debt and working capital deficiency (4)||$51 million||$82 million|
|Basic shares outstanding||211 million||211 million|
|(1) Includes an estimated $24.1 million of capital expenditures incurred to date in 2014 on the Ansell property prior to disposition.|
|(2)Average production estimates on a per BOE basis are comprised of 84% natural gas and 16% oil and natural gas liquids.|
|(3) 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.|
|(4) Net debt and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets and liabilities, demand credit facilities and the aggregate principal amount of the senior notes and excluding other liabilities.|
The Company's lenders have completed a borrowing base review in connection with the Transaction and have revised the senior credit facility from $155 million to $135 million. On closing of the Transaction, Cequence estimates that it currently has net cash of approximately $10 million comprised of $70 million in positive net working capital and cash less $60 million of indebtedness under its senior subordinated five year notes. Based on budgeted capital expenditures for 2014, Cequence expects the senior credit facility to remain undrawn through December 2014.
Cequence will remain disciplined in its approach to capital spending and intends to manage its balance sheet accordingly. To protect the capital program against fluctuating commodity prices, Cequence has hedged a portion of its future natural gas production. Currently, Cequence has hedged approximately 60 percent of its remaining 2014 natural gas production volumes, net of estimated royalties at an average price of $3.90 per Mcf and 30% of its first quarter 2015 natural gas production volumes net of royalties at an average price of $4.25 per Mcf.
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 guidance and related assumptions; business strategy and objectives; development, exploration, acquisition and disposition plans, including the anticipated benefits resulting therefrom and the timing thereof; drillings plans, including the availability of drilling rigs; capital expenditure plans; commodity prices and related royalties; future production levels; future cash flow expectations; expected rates of return; condensate yields; field operating costs; operating netback expectations and finding costs required to achieve certain recycle rates; hedging objectives; and the anticipated use of proceeds of the disposition and expected debt levels. 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, however, 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.
The press release contains references to terms commonly used in the oil and gas industry. Netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Netbacks equal total revenue less royalties, operating costs and transportation costs. Management utilizes this measure to analyze operating performance.
Funds flow from operations is a non-GAAP term that represents cash flow from operating activities before adjustments for decommissioning liability expenditures and changes in working capital. The Company evaluates its performance based on earnings and funds flow from operations. The Company considers funds flow from operations to be 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 operations may not be comparable to that reported by other companies. Funds flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income (loss) per share.
Recycle ratio is calculated as operating netback divided by FD&A costs (proved plus probable including FDC). Operating netback is calculated as revenue (including realized hedging gains and losses) minus royalties, operating expenses and transportation expenses. Recycle ratio is a measure of profitability in the oil and gas industry as it identifies overall capital efficiency. Additional information on the calculation of FD&A and FDC is contained in the Company's Annual Information Form.
The foregoing outlook and guidance has been provided to assist readers in analyzing the Company's anticipated development strategies and prospects and it may not be appropriate for other purposes and actual results could differ from the guidance provided above. Cequence refers to initial production rates which may not be indicative of long term well performance.
BOEs are presented on the basis of one BOE for six Mcf of natural gas. Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: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.
For the first quarter of 2014, the ratio between the acreage price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 22:1 ("Value Ratio"). The Value Ratio is obtained using the first three months 2014 WTI average price of $98.65 (US$/Bbl) for crude oil and the first three months 2014 NYMEX average price of $4.72 (US$/MMbtu) for natural gas. This Value Ratio is significantly different from the energy equivalency ration of 6:1 and using a 6:1 ratio would be misleading as an indication of value.
The TSX has neither approved nor disapproved the contents of this news release.
SOURCE Cequence Energy Ltd.
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