The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from CNW Group

Cequence Energy Ltd. Announces Second Quarter Results

Thursday, August 11, 2011

Cequence Energy Ltd. Announces Second Quarter Results17:46 EDT Thursday, August 11, 2011CALGARY, Aug. 11, 2011 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the second quarter ended June 30, 2011. Selected financial and operational information is outlined below and should be read in conjunction with the interim financial statements and the related MD&A which have been filed on Sedar at www.sedar.com.Financial and Operating Highlights(000's except per share amounts)Three months endedJune 30Six months endedJune 30 20112010% Change20112010% ChangeFinancial ($)      Production revenue, gross of royalties and including realized hedge$  27,293$    9,174198%$   51,325$  19,267166%Comprehensive loss (1)(701)(4,029)(83)%(2,676)(18,545)(86)%Per share, basic and diluted(0.00)(0.10)(100)%(0.02)(0.45)(96)%Funds flow from operations (1) (2)12,0422,197448%21,8226,696226%Per share, basic and diluted0.080.0560%0.160.160%Production volumes       Natural gas (Mcf/d)48,78516,559195%45,66714,587213%Crude oil (bbls/d)599253137%642260147%Natural gas liquids (bbls/d)396184115%404131208%Total (boe/d)9,1253,197185%8,6582,823207%Sales prices      Natural gas, including realized hedges ($/Mcf)$      4.30$      4.212%$       4.26$      5.34(20)%Crude oil ($/bbl)97.8070.2239%92.8073.5926%Natural gas liquids ($/bbl)80.1572.0711%73.0271.991%Total ($/boe)$    32.87$    31.534%$     32.75$    37.71(13)%Operating Netbacks ($/boe)      Price$    32.87$    31.534%$     32.75$    37.71(13)%Royalties(4.29)(2.40)79%(4.34)(3.55)22%Transportation(2.27)(2.88)(21)%(2.37)(3.10)(24)%Operating costs(8.96)(11.66)(23)%(9.05)(12.27)(26)%Operating Netback$    17.35$    14.5919%$     16.99$    18.79(10)%Capital Expenditures$  16,470$    5,057226%$   62,044$  31,46997%Corporate Acquisitions (1)-26,634N/A-26,634N/AProperty Acquisitions (net)14,134-N/A(7,510)279N/ATotal capital expenditures$  30,604$  31,691(3)%$  54,534 $  58,382(7)%Net debt and working capital (deficiency) (3)(65,147)(25,226)158%(65,147)(25,226)158%Long-term debt related to investments (4)-(18,000)N/A-(18,000)N/AWeighted average shares outstanding  (basic and diluted)144,31442,048243%137,77440,796238%Undeveloped land (net acres)280,000179,00056%280,000179,00056%(1)   2010 figures have been restated from previously reported amounts resulting from the application of IFRS discussed below.(2)Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning liability expenditures and net changes in non-cash working capital.(3)Net debt and working capital (deficiency) is calculated as cash, net working capital less commodity contract asset and demand credit facilities and excluding obligations on flow-through shares included with accounts payable and accrued liabilities in the consolidated balance sheet.(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 asset backed MAV II notes.  During the year ended December 31, 2010, the 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 close the facility.HIGHLIGHTSThe second quarter of 2011 was highlighted by the following:Increased average production to 9,125 boepd for the quarter (48.8 mmcf/d of natural gas plus 995 bbls/d of oil and ngl's), a 185 percent increase over the second quarter of 2010 and an 11 percent increase over the first quarter of 2011;Achieved a production milestone in July with average monthly production of approximately 10,200 boepd;Completed phase I of the field gathering and facility expansion project at Simonette providing for approximately 37 mmcf/d of total current capacity through the Simonette plant and commenced phase II of the facility expansion;Acquired approximately 1,000 boepd of mostly operated production for $22 million in a new area of the Deep Basin in mid June, 2011. Cequence intends to expand its operations in this area in the future;Subsequent to quarter end, negotiated agreements to dispose of non-core properties in British Columbia and Alberta for $16.4 million. The transactions are expected to close in September 2011;Increased funds flow from operations to $12.0 million or $0.08 per share from $2.2 million or $0.05 per share in the second quarter of 2010;Reduced operating costs per boe to $8.96, an improvement of 23 percent from the second quarter of 2010;Reduced general and administrative expenses by 42 percent to $2.37 per boe from $4.09 per boe in the second quarter of 2010;Maintained a strong balance sheet with $65.1 million of net debt at quarter end on a bank facility of $110 million resulting in an annualized second quarter debt to cash flow ratio of 1.4:1;Positive pro forma June 30, 2011 net debt and working capital balance of $8.6 million, as calculated in the 'Financial' section below.OPERATIONS REVIEWCapital expenditures in the quarter were $16.5 million, relating primarily to facility expenditures and land acquisition at Simonette. Facilities expenditures in the second quarter of 2011 were $8.3 million and included completion of the first phase of a new compression and dehydration facility at Simonette and the commencement of phase two of the facility expansion. Upon completion of the first phase, Cequence has increased processing capacity at Simonette by 15 mmcf/d to 37 mmcf/d. The first phase of facilities expenditures was designed to accommodate larger scale future development and to reduce facility expenditures on subsequent expansions. The second phase of facility expansion is underway to expand capacity by an additional 20 mmcf/d. Second quarter capital expenditures include $3.0 million related to the second phase of facility expansion and the total cost of the expansion is estimated at $4.0 million.Cequence continued to add to its land base at Simonette with an additional 12.7 net sections of land acquired for a total cost of $4 million.Cequence has continued to rationalize its asset base by disposing of high cost, non-core assets and redeploying the capital to lower cost assets in the Deep Basin. In the second quarter, Cequence closed the previously announced disposition of its Virginia Hills assets in April 2011 for proceeds of $7.5 million. Subsequent to the second quarter, the Company agreed to the sale of other non-core, high operating cost assets for total proceeds of approximately $16.4 million, which are expected to close in the third quarter. These assets represent 500 boepd of production and, based on an independent reserve report dated December 31, 2010, 3.3 mmboe of reserves on a proved plus probable basis. Operating costs and transportation expense for the first half of 2011 related to these properties was greater than $20 per boe. In total, approximately 1,020 boepd of production will have been sold since the beginning of 2011 for total proceeds of approximately $45.9 million.In the second quarter of 2011, Cequence acquired assets in a new area of the Deep Basin for total consideration of $22 million with mostly operated production of approximately 1,000 boepd. Based on an independent engineering report dated March 31, 2011, proved developed producing reserves attributed to the acquisition total 2.0 mmboe and proved plus probable reserves are 2.3 mmboe. Total operating costs of the property are $6.00 per boe. Cequence intends to expand its operations in this area in the future.Production for the second quarter of 2011 averaged 9,125 boepd, after taking into account planned turnarounds and minor weather related disruptions, representing an increase of 185 percent from the second quarter of 2010, and an increase of 11 percent from the first quarter of 2011.FINANCIAL The second quarter was highlighted by an increase in oil and natural gas production of 185 percent over the second quarter of 2010 and an increase of 11 percent over the first quarter of 2011. Production growth compared to the first quarter of 2011 resulted from the success of the Company's drilling program and facility expansions completed in 2011.Cequence achieved another successful quarter in terms of improving the Company's cost structure with reductions in per boe operating costs, transportation expense and general and administrative expense of 23 percent, 21 percent and 42 percent, respectively, as compared to the second quarter of 2010.Funds flow from operations increased to $12,042 or $0.08 per share. The Company recorded a comprehensive loss of $701 compared to a comprehensive loss of $4,029 in the second quarter of 2010.Subsequent to quarter end, Cequence entered into a bought deal underwriting agreement with a syndicate of underwriters to raise gross proceeds of $50.1 million through the issuance of 10.4 million common voting shares at $3.85 per share, as well as 2.1 million CEE flow-through shares at $4.75 per share. The offering is expected to close on August 18, 2011. The underwriters have an over-allotment option to purchase 1.6 million common voting shares at $3.85 per share, exercisable up to 30 days following the closing.Cequence also expects to close a private placement of 2.25 million CDE flow through shares for $4.36 per share before August 15, 2011, pursuant to the exercise of previously disclosed share purchase warrants for total proceeds of $9.8 million.Net debt and working capital deficiency at the end of the second quarter totalled $65.1 million. The pro forma net debt and working capital balance at the end of the second quarter would be a positive figure of approximately $8.6 million, calculated as follows:($000's)Net debt and working capital (deficiency) - June 30, 2011 (1)          $ (65,147)August 2011 bought-deal financing (2)47,559August 2011 private placement (3)9,810Third quarter  2011 property dispositions (4)16,420Pro forma net debt and working capital - June 30, 2011$     8,642(1)   Net debt and working capital (deficiency) is calculated as cash, net working capital less commodity contract asset and demand credit facilities and excluding obligations on flow-through shares included with accounts payable and accrued liabilities in the consolidated balance sheet.(2)Amount relates to the expected net proceeds of $47.6 million from the recently announced equity offering, excluding the over-allotment option, as discussed above.(3)Amount relates to the expected proceeds of $9.8 million on the exercise of the CDE flow through share warrants, as discussed above.(4)Amount relaters to expected proceeds of $16.4 million related to the disposition of properties in the third quarter of 2011, as discussed above.The Company's financial statements and management's discussion and analysis for the three and six months ended June 30, 2011 are available on SEDAR at www.sedar.com.Outlook Production from the company's six initial horizontal wells at Simonette continue to display decline profiles which are, on average, above management's model production profile. Cequence will continue to closely monitor these producing profiles and the production data from the ongoing drilling program before it determines if adjustments are required to the existing model decline profiles for the Company's Wilrich and Montney wells.For the remainder of 2011, the drilling program will be focused on the continued horizontal and vertical delineation of the Company's resource base at Simonette. Drilling is now underway and continuous operations are expected through to spring breakup. In the next month, Cequence anticipates being in a position to update its capital program and production guidance.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 or statements regarding an outlook. Forward-looking statements or information concerning Cequence in this press release may include, but are not limited to, statements or information with respect to: guidance and forecasts; business strategy and objectives; development, exploration, acquisition and disposition plans and the timing and results thereof; 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. 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 or 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 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.Additional Advisories 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.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.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 Boe 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, pwanklyn@cequence-energy.com David Gillis, Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com