Press release from CNW Group
CEQUENCE ENERGY ANNOUNCES YEAR END FINANCIAL AND OPERATING RESULTS
Friday, March 11, 2011
CEQUENCE ENERGY ANNOUNCES YEAR END FINANCIAL AND OPERATING RESULTS01:15 EST Friday, March 11, 2011CALGARY, March 10 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the fourth quarter and the year ended December 31, 2010.The Company's 2010 operating results are highlighted by:Completed a series of transactions throughout 2010 to focus the Company's asset base in the Simonette area of the Deep Basin;Executed a successful winter drilling program to date with initial drilling successes targeting the Montney and Wilrich formations;Increased proved plus probable reserves by 284% from prior year to 48.9 MMBOE and proved reserves by 266% from the prior year to 27.3 MMBOE, as estimated by GLJ Petroleum Consultants Ltd. ("GLJ");Increased proved reserves by 15% and proved plus probable reserves by 14% from the amounts set forth in independent reserve reports dated effective July 1, 2010;Increased the net present value of the Company's proved plus probable reserves by 233% to $525.6 million (using a discount rate of 10%) as estimated by GLJ;Achieved finding, development and acquisition costs including changes to future development capital of $12.67 per BOE on a proved plus probable basis and $18.25 per BOE on a proved basis;Increased average fourth quarter production by 258% to 7,485 BOE/d; and annual production by 174% to 4,451 BOE/d; andBased on fourth quarter production of 7,485 BOE/d, Cequence has a reserve life index of 10.0 years on a proven basis and 17.9 years on a proved plus probable basis.Recent DevelopmentsCompleted six wells to date in the first quarter of 2011 with 100% success;Accelerated facilities development at Simonette to increase production capacity to accommodate long term development with expected start-up in May 2011;Awaiting completion of one Montney horizontal well and one Wilrich horizontal well at Simonette and the drilling and completion of one Montney horizontal oil well in the Peace River Arch with all three projects expected to be completed prior to spring break-up;Continued the rationalization of the Company's asset base by entering into agreements to dispose of non-core assets in Garrington and Virginia Hills for total proceeds of approximately $29.5 million prior to adjustments. The assets disposed of accounted for approximately 520 boepd of average oil and natural gas production in December 2010; andAnnounced a bought deal financing at the end of February 2011 to issue 11.65 million common shares and 2.1 million common shares to be issued on a flow through basis pursuant to the Income Tax Act (Canada) for total gross proceeds of approximately $40.6 million, excluding the over-allotment option which entitles the underwriters to acquire an additional 1.75 million common shares.FINANCIAL AND OPERATIONAL HIGHLIGHTSFinancial Highlights(000's except per share amounts)Three months endedDecember 31 Year endedDecember 31 2010 2009%Change 2010 2009%ChangeFinancial ($) Production revenue, including realized hedge$ 22,352$ 8,847153%$ 54,570$ 27,98395%Net loss (6,122) (2,656)130% (14,518) (8,654)68%Per share, basic and diluted (0.05) (0.07)(29)% (0.21) (0.41)(49)%Funds flow from operations (1) 8,029 3,161154% 19,065 3,927385%Per share, basic and diluted 0.06 0.08(25)% 0.27 0.1942%Production volumes Natural gas (Mcf/d) 38,702 10,696262% 22,956 8,348175%Crude oil (bbls/d) 478 230108% 333 151121%Natural gas liquids (bbls/d) 557 76633% 292 85244%Total (BOE/d) 7,485 2,089258% 4,451 1,627174%Sales prices Natural gas, including realized hedges ($/Mcf)$ 4.40$ 6.97(37)%$ 4.63$ 7.46(38)%Crude oil ($/bbl) 77.24 71.658% 74.12 65.0914%Natural gas liquids ($/bbl) 64.13 68.82(7)% 63.88 53.9118%Total ($/BOE)$ 32.46$ 46.05(30)%$ 33.59$ 47.12(29)%Operating Netbacks ($/BOE) Price$ 32.46$ 46.05(30)%$ 33.59$ 47.12(29)%Royalties (3.80) (4.21)(10)% (3.55) (5.33)(33)%Transportation (2.25) (4.07)(45)% (2.68) (2.65)1%Operating costs (10.20) (14.06)(27)% (10.90) (16.52)(34)%Operating Netback$ 16.21$ 23.71(32)%$ 16.46$ 22.62(27)% Capital Expenditures$ 24,392$ 16,52648%$ 64,120$ 24,836158%Corporate Acquisitions (2) 1,444 380280% 173,309 38N/AProperty Acquisitions (net) (4,707) 5,994(179)% 43,297 21,75799%Total capital expenditures$ 21,129$ 22,900(8)%$280,726$ 46,631502%Net debt and working capital (deficiency) (3) (73,125) 6,010N/A (73,125) 6,010N/ALong-term debt related to investments (4) - (18,054)(100)% - (18,054)(100)%Weighted average shares outstanding (basic and diluted) 127,258 38,152234% 69,713 21,085231%Undeveloped land (net acres) 293,800 145,200102% 293,800 145,200102%Notes:(1) Funds flow from operations is calculated as cash flow from operating activities before adjustments for asset retirement expenditures, proceeds from sale of commodity contracts and net changes in non-cash working capital.(2) Corporate acquisitions for the year ended December 31, 2010 include $29,319 related to the acquisition of Peloton Exploration Corp. ("Peloton") ($645 cash) and $143,990 related to the acquisition of Temple Energy Inc. ("Temple") ($2,838 cash).(3) Net debt and working capital (deficiency) is calculated as cash, net working capital less commodity contract asset, demand credit facilities and excluding the current portion of future income taxes.(4) The long-term debt related to investments was a stand-alone credit facility with Cequence's lender to provide short term liquidity to the Company in light of the restructuring of the Company's asset backed MAV II notes. During the year ended December 31, 2010 the Company's MAV II notes were sold and the proceeds, in addition to available cash, were used to pay down the long-term debt related to investments and to close the stand-alone credit facility.Fourth Quarter Financial HighlightsThe fourth quarter represented the first full quarter of operations following the merger with Temple and the Simonette property acquisition, both of which closed in September 2010. The highlights of these acquisitions are as follows:Increased average production from the fourth quarter of 2009 by 258% to 7,485 BOE/d and by 62% from production of 4,619 in the third quarter of 2010;Spent $24.4 million on drilling, recompletions and land and completed the disposition of certain non-core assets for $4.5 million;Reduced operating costs by 27% from the fourth quarter of 2009 to $10.20 per BOE and transportation costs by 45% to $2.25 per BOE;Reduced general and administrative costs by 81% to $3.23 per BOE;Monetized a 2011 hedge position for total proceeds of $3.4 million; andRecorded fourth quarter funds flow from operations of $8.0 million or $0.06 per share, a decrease of $0.02 per share from 2009 largely as a result of a decrease in commodity hedge revenue.For the quarter ended December 31, 2010, Cequence reported funds flow from operations of $8.0 million compared to $3.2 million in the fourth quarter of 2009. The increase in funds flow from operations is a result of increased production volumes and lower operating, transportation and royalty costs from the prior period. Sales prices decreased 30% from the prior period due to lower commodity prices and lower hedging revenues. Cequence recorded a loss of $6.1 million for the fourth quarter of 2010 compared to a loss of $2.7 million in 2009 primarily due to lower commodity prices and higher depletion charges, although depletion charges per BOE has decreased by $4.41 per BOE. Capital expenditures in the fourth quarter of 2010 totalled $24.4 million and were focused on drilling, facility and land acquisitions in the Deep Basin.Year End Financial HighlightsFor the year ended December 31, 2010, Cequence recorded significant increases in revenue, funds flow from operations and capital expenditures from the prior period. During the year, Cequence completed a series of acquisitions and dispositions that significantly increased the size of the Company. Corporate acquisitions totalled $173.3 million and included a merger with Temple in the third quarter of 2010 for total consideration of $109.6 million and the acquisition of Peloton in second quarter of 2010 for total consideration of $30.9 million. Property acquisitions for the year included the $85 million property acquisition in the Company's new core area of Simonette and the disposition of certain non-producing properties at Sinclair for total proceeds of $36.9 million, both subject to adjustments. For the year ended December 31, 2010, Cequence reported a loss of $14.5 million compared to a loss of $8.7 million in 2009 primarily due to a decrease in natural gas prices and higher depletion charges, although depletion charges per BOE has decreased by $4.20 per BOE. Funds flow from operations for the year ended December 31, 2010 increased to $19.1 million from $3.9 million in the prior year due to higher production volumes and lower operating, general and administrative and royalty costs on a per BOE basis.The Company exited 2010 with net debt of $73.1 million and bank lines totalling $110 million. Subsequent to year-end the Company announced the bought deal financing for total gross proceeds of approximately $40.6 million (assuming the over-allotment option is not exercised). In addition, the Company disposed of certain assets in the first quarter of 2011 for total proceeds of $29.5 million. As a result of the foregoing, Cequence intends to fund its 2011 capital program from forecasted cash flow and existing bank lines.The Company's financial statements and management's discussion and analysis for the periods ended December 31, 2010 and the annual information form for the year ended December 31, 2010, which includes information concerning the reserves and other oil and gas information in the form required by National Instrument 51-101 ("NI 51-101"), have been filed on the SEDAR system and are accessible through Cequence's public filings under "Search for Public Company Documents" within the "Search Database" module at sedar.com.ReservesIn accordance with NI 51-101, GLJ prepared a reserve report as at December 31, 2010 for the oil, natural gas liquids ("NGL") and natural gas reserves attributable to the properties of Cequence (the "GLJ Report").The tables below are a summary of the oil, NGL and natural gas reserves attributable to the properties of Cequence and the net present value of future net revenue attributable to such reserves as evaluated in the GLJ Report based on forecast price and cost assumptions. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserves estimates of Cequence's crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.Summary of Oil and Gas Reserves Light and MediumCrude Oil NGLs Natural Gas Total Oil EquivalentReserves Category Gross Net Gross Net Gross Net Gross Net(Mbbl) (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (MBOE) (MBOE)Proved Developed Producing 717 585 1,101 756 67,203 58,955 13,018 11,168 Developed Non-Producing 146 115 267 203 15,702 13,701 3,029 2,602 Undeveloped - 1 1,134 868 60,904 53,715 11,285 9,821Total Proved 862 701 2,501 1,828 143,809 126,371 27,332 23,590Probable 531 417 2,094 1,497 113,436 97,846 21,531 18,222Total Proved plus Probable 1,393 1,118 4,595 3,325 257,244 224,216 48,863 41,812Notes:(1) Columns may not add during rounding.(2) "Gross" reserves means the Company's working interest (operated and non-operated) share before deduction of royalties payable to others and without including any royalty interest of the Company.(3) "Net" reserves means the Company's working interest (operated and non-operated) share after deduction of royalty obligations plus the Company's royalty interests in reserves. Summary of Net Present Value of Future Net Revenue (Forecast Prices and Costs) Reserves Category Before Future Income Tax Expenses Discounted at (%/year) 0 5 10 15 20 (M$) (M$) (M$) (M$) (M$)Proved Developed Producing 279,949 219,778 181,163 154,552 135,199 Developed Non-Producing 53,791 40,558 32,729 27,344 23,390 Undeveloped 191,339 131,180 93,573 68,590 51,216Total Proved 525,080 391,516 307,465 250,486 209,805Probable 517,054 319,281 218,170 159,281 121,740Total Proved plus Probable 1,042,134 710,797 525,635 409,768 331,544 Reserves Category After Future Income Tax Expenses Discounted at (%/year) 0 5 10 15 20 (M$) (M$) (M$) (M$) (M$)Proved Developed Producing 279,949 219,778 181,163 154,552 135,199 Developed Non-Producing 51,677 38,495 30,713 25,373 21,460 Undeveloped 188,893 129,950 92,838 68,068 50,792Total Proved 520,519 388,222 304,714 247,993 207,451Probable 388,420 245,428 172,141 129,025 101,124Total Proved plus Probable 908,939 633,650 476,855 377,018 308,575Notes:(1) Columns may not add due to rounding .(2) It should not be assumed that the undiscounted and discounted future net revenues estimated by GLJ represent the fair market value of the reservesGLJ employed the following pricing, exchange rate and inflation rate assumptions as of January 1, 2011 in the GLJ Report in estimating Cequence's reserves data using forecast prices and costs:Year Natural Gas Light Crude Oil Pentanes Plus InflationRates ExchangeRate Henry Hub AECO Gas Price WTI Edmonton Edmonton ($US/MMBtu) ($Cdn/MMBtu) ($US/bbl) ($Cdn/bbl) ($Cdn/bbl) %/year ($US/$Cdn)Forecast 2011 4.50 4.16 88.00 86.22 90.54 2.0 0.982012 5.15 4.74 89.00 89.29 91.96 2.0 0.982013 5.75 5.31 90.00 90.92 92.74 2.0 0.982014 6.25 5.77 92.00 92.96 94.82 2.0 0.982015 6.75 6.22 95.17 96.19 98.12 2.0 0.982016 7.10 6.53 97.55 98.62 100.59 2.0 0.982017 7.32 6.76 100.26 101.39 103.42 2.0 0.982018 7.47 6.90 102.74 103.92 106.00 2.0 0.982019 7.62 7.06 105.45 106.68 108.82 2.0 0.982020 7.77 7.21 107.56 108.84 111.01 2.0 0.98Finding, development and acquisition costs ("FD&A") and finding and development costs ("F&D") both including and excluding future development capital ("FDC") have been calculated in accordance with NI 51-101. Cequence's finding, development and acquisition costs are as follows: Capital Expenditures Proved Reserve Additions Proved Costs Proved PlusProbable Reserve Additions Proved PlusProbable Costs ($000s) (MBOE) ($/BOE) (MBOE) ($/BOE)FD&A Including Change in FDC 2010 Proved392,267 21,495 18.25 N/A N/A 2010 Proved Plus Probable478,503 N/A N/A 37,772 12.67 3 year average Proved166,086 8,688 19.12 N/A N/A 3 year average Proved Plus Probable200,708 N/A N/A 15,102 13.29F&D Including Change in FDC 2010 Proved84,067 428 196.42 N/A N/A 2010 Proved Plus Probable89,644 N/A N/A 63 1,422.92 3 year average Proved53,937 1,030 52.38 N/A N/A 3 year average Proved Plus Probable61,672 N/A N/A 1,598 38.60Notes:(1) FD&A including change in FDC in respect of 2009 Proved, 2009 Proved plus Probable, 2008 Proved and 2008 Proved plus Probable is included in the Company's annual information form for the year ended December 31, 2009 dated March 29, 2010 (the "2009 AIF") which is available at sedar.com.(2) F&D including change in FDC in respect of 2009 Proved, 2009 Proved plus Probable, 2008 Proved and 2008 Proved plus Probable is included in the 2009 AIF.(3) The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.(4) In addition to F&D costs, Cequence also calculates FD&A costs which incorporate both the costs and associated reserve additions related to acquisitions net of any dispositions during the year. Since acquisitions can have a significant impact on Cequence's annual reserve replacement costs, the Company believes that FD&A costs provide a more meaningful portrayal of Cequence's cost structure.Substantially all of the Company's drilling expenditures during the year were on assets acquired during the year in the Peloton, Temple and North Bigstone acquisitions or disposed of in the Sinclair disposition. The GLJ Report classifies all reserve changes due to discoveries, extensions, improved recoveries, technical revisions, acquisitions and economic factors on properties acquired or disposed of during the year as "Acquisitions" or "Dispositions". This definition includes the results of drilling operations before or after an acquisition or disposition is closed. The result is the F&D calculation included in the table above which is based on the information contained in the GLJ reserve reconciliation.To provide F&D information that better isolates the effect of drilling expenditures, Cequence has performed a supplementary finding and development calculation as follows: Proved Reserves FDC on ProvedReserves Proved PlusProbable Reserves FDC on Proved PlusProbable Reserves (MBOE) ($000s) (MBOE) ($000s)December 31, 201027,333 141,710 48,864 250,831December 31, 20097,463 30,169 12,717 53,054Change19,870 111,541 36,147 197,777Subtract Acquisitions: Peloton(2,785) (17,876) (4,421) (21,453)Temple(8,725) (56,597) (17,732) (112,169)North Bigstone (Simonette) Assets(6,010) (31,717) (10,997) (70,451)Change net of Acquisitions2,350 5,351 2,997 (6,296)Add: Sinclair Disposition1,772 14,596 3,897 31,820Add: 2010 Production1,625 - 1,625 -Net related to F&D5,747 19,947 8,519 25,524 CapitalExpenditures Change in FDC F&D Costsincluding changein FDC Reserve Additions F&D includingchange in FDC ($000s) ($000s) ($000s) (MBOE) ($/BOE)F&D Calculation - Proved64,120 19,947 84,067 5,747 14.63F&D Calculation - Proved Plus Probable64,120 25,524 89,644 8,519 10.52The Company expects to announce guidance for the 2011 year following completion of the winter drilling program.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 InformationCertain statements included or incorporated by reference 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, anticipated events or results 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 forecasts; business strategy and objectives; development, exploration, acquisition and disposition plans and the timing thereof; capital expenditures; reserve quantities and the discounted present value of future net cash flows from such reserves; future production 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 manor; 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 which 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 at 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-GAAP Measures The press release contains references to terms commonly used in the oil and gas industry. These measures include "netbacks" and "funds flow from operations". These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. Certain of these measures are not necessarily comparable to a similarly titled measure of another company. When these measures are used, they have been footnoted and the footnote to the applicable measure notes that the measure is "non-GAAP" and contains a description of how to reconcile the measure to the applicable financial statements. These measures should be given careful consideration by the investor.Specifically, management of Cequence uses netbacks and funds flow from operations as they are non-GAAP measures used extensively in the Canadian energy sector for comparative purposes. Netbacks are calculated through total revenue less royalties, operating costs and transportation costs. Management utilizes this measure to analyze operating performance. Cequence defines the term "funds flow from operations" as cash flow from operating activities before adjustments for asset retirement expenditures, proceeds from sale of commodity contracts and net changes in non-cash working capital. Cequence evaluates its performance based on earnings and funds flow from operations. Cequence considers funds flow from operations a key measure as it demonstrates Cequence's ability to generate the cash flow necessary to fund future growth through capital investment and to repay debt. Cequence's calculation of funds flow from operations may not be comparable to that reported by other companies.Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.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 further information: Paul Wanklyn, Chief Executive Officer, (403) 218-8850, firstname.lastname@example.org David Gillis, Chief Financial Officer, (403) 806-4041, email@example.com.