Press release from CNW Group
Cequence Energy Ltd. Announces Third Quarter Results and First Half 2012 Capital Budget
Thursday, November 10, 2011
CALGARY, Nov. 10, 2011 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the third quarter ended September 30, 2011. Selected financial and operational information is outlined below and should be read in conjunction with the interim financial statements and the related management's discussion and analysis ("MD&A") which have been filed on Sedar at www.sedar.com.
Financial and Operating Highlights
|(000's except per share amounts)||
Three months ended
Nine months ended
Production revenue, gross of royalties
and including realized hedge
|$ 27,144||$ 12,951||110%||$ 78,469||$ 32,218||144%|
|Comprehensive loss (1)||(1,884)||(10,598)||(82)%||(4,560)||(29,143)||(84)%|
|Per share, basic and diluted||(0.01)||(0.15)||(93)%||(0.03)||(0.58)||(95)%|
|Funds flow from operations (1) (2)||10,438||1,672||524%||32,260||8,368||286%|
|Per share, basic and diluted||0.07||0.02||250%||0.23||0.17||35%|
|Natural gas (Mcf/d)||52,694||23,674||123%||48,035||17,649||172%|
|Crude oil (bbls/d)||514||332||55%||599||285||110%|
|Natural gas liquids (bbls/d)||536||342||57%||449||202||122%|
|Natural gas, including realized hedges ($/Mcf)||$ 4.04||$ 4.13||(2)%||$ 4.18||$ 4.79||(13)%|
|Crude oil ($/bbl)||87.65||70.47||24%||91.31||72.36||26%|
|Natural gas liquids ($/bbl)||69.34||57.33||21%||71.54||63.65||12%|
|Total ($/boe)||$ 30.00||$ 30.47||(2)%||$ 31.75||$ 34.42||(8)%|
|Operating Netbacks ($/boe)|
|Price||$ 30.00||$ 30.47||(2)%||$ 31.75||$ 34.42||(8)%|
|Operating Netback||$ 14.30||$ 14.06||2%||$ 16.02||$ 16.64||(4)%|
|Capital Expenditures||$ 31,222||$ 8,258||278%||$ 93,266||$ 39,728||135%|
|Corporate Acquisitions (1)||-||128,968||N/A||-||155,602||N/A|
|Property Acquisitions (net)||(15,513)||47,585||N/A||(23,023)||47,864||N/A|
|Total capital expenditures||$ 15,709||$ 184,811||(91)%||$ 70,243||$ 243,194||(71)%|
|Net debt and working capital (deficiency) (3)||(7,745)||(68,332)||(89)%||(7,745)||(68,332)||(89)%|
Weighted average shares outstanding
(basic and diluted)
|Undeveloped land (net acres)||262,000||300,800||(13)%||262,000||300,800||(13)%|
|(1)||2010 figures have been restated from previously reported amounts resulting from the application of IFRS. See 'Adoption of International Financial Reporting Standards' in the interim MD&A for the third quarter ended September 30, 2011.|
|(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.|
The third quarter of 2011 was highlighted by the following:
- Increased average production to 9,833 boepd for the quarter (52.7 mmcf/d of natural gas plus 1,050 bbls/d of oil and NGL's), a 113 percent increase over the third quarter of 2010 and an 8 percent increase over the second quarter of 2011;
- Proceeded with phase II of the field gathering and facility expansion project at Simonette (expected completion in late November, 2011) which provides for an additional 20 mmcf/d of capacity, and is expected to result in total Company capacity through the Simonette plant of approximately 57 mmcf/d;
- Disposed of non-core properties in British Columbia and Alberta effective September 8, 2011 for $16.0 million, comprising 450 boepd of production;
- Increased funds flow from operations to $10.4 million or $0.07 per share from $1.7 million or $0.02 per share in the third quarter of 2010;
- Reduced operating costs per boe to $9.36, an improvement of 10 percent from the third quarter of 2010;
- Reduced general and administrative expenses by 34 percent to $2.10 per boe from $3.19 per boe in the third quarter of 2010;
- Maintained a strong balance sheet with $7.7 million of net debt at quarter end on a bank facility of $110 million, resulting in an annualized third quarter debt to cash flow ratio of 0.2:1.
Capital expenditures in the third quarter of 2011 were $31.2 million, consisting primarily of drilling and completion expenditures related to the commencement of the Company's fall/winter drilling program of $21.1 million, equipment and facilities expenditures related mainly to phase II of the field gathering and expansion project at Simonette of $3.1 million and land acquisitions in the Deep Basin of $6.2 million.
Production for the third quarter of 2011 averaged 9,833 boepd, representing an increase of 113 percent from the third quarter of 2010, and an increase of 8 percent from the second quarter of 2011. Production growth compared to the second quarter of 2011 resulted from the success of the Company's drilling program and facility expansions completed in 2011.
An extended well shut-in at 1-11-62-27W5 to allow for drilling of the 14-12 Wilrich well resulted in over 500 boepd of shut-in production for the period from August 30, 2011 to October 30, 2011. The effect of this shut-in, as well as unscheduled plant outages, is expected to reduce fourth quarter production by approximately 290 boepd. These operational delays, coupled with lower than expected results at the Company's 1-10 location, has resulted in a revision downward to Cequence's forecasted 2011 average production from 9,400 boepd to approximately 9,050 boped. Cequence is maintaining its previously disclosed exit target production at 11,000 boepd for 2011.
Drilling and Completions
Simonette encountered wet weather in the early part of the third quarter resulting in a one month delay to the Company's fall/winter drilling program. Drilling activity since August, 2011 has been largely directed at the exploratory evaluation of the Company's block at Simonette. As freeze-up occurs, drilling activity is expected to shift to the southeast to delineate the existing successful wells drilled in the Montney and Wilrich. This is expected to represent a shift in risk perspective as the winter drilling program progresses. Cequence plans to keep three drilling rigs active in Simonette through the balance of the winter drilling season.
The Simonette/Resthaven area has emerged as one of the most prolific resource plays in the Deep Basin. Cequence is excited about its strong presence in this area and the fall/winter drilling program has been specifically designed to evaluate the potential of the Company's position at Simonette.
Cequence's fall/winter drilling program commenced in the third quarter of 2011 and was highlighted by the following:
One Wilrich horizontal well was drilled and completed in the third quarter of 2011 at 1-10-62-27W5. This well tested the edge of the Company's pool and drilled into a regional tight facies in the Wilrich. An open fracture was encountered while drilling the horizontal lateral, resulting in the decision to terminate drilling early and complete the approximately 1,268 meters of reservoir with a 14 stage slick-water frac. The 30 day average production rate of this well was approximately 1.0 mmcf/d with a flowing pressure of 409 psi tubing and 696 psi casing.
A second Wilrich horizontal well was drilled at 14-12-62-27W5 to a total depth of 4,588 meters and was completed in late October, 2011. 1,628 meters of reservoir were completed with 14 stages using a slick-water frac and current production through a test unit in-line is 3.5 mmcf/d with a flowing pressure of 420 psi tubing and 985 psi casing, after 6 days.
Both Wilrich wells are at 100% working interest and liquids yields on these wells are expected to be similar to the Company's other Wilrich wells, at approximately 15 to 20 barrels of liquids per million cubic feet of gas.
A 50% working interest well was drilled and completed in late October, 2011 at 1-22-61-1W6, approximately 7 kilometres west of the Company's initial discovery at 1-22-61-27W5. This well is currently testing at approximately 512 boepd, consisting of 1.5 mmcf/d of natural gas and 265 bpd of oil and condensate at a flowing pressure of 135 psi tubing and 1,465 psi casing, after a three day test.
Current Drilling and Completions
Cequence is currently drilling two wells and completing a third well. The first well being drilled is located at 4-27-61-1W6 (50% working interest) and is a horizontal test of the Dunvegan formation. The second well being drilled is located at 4-10-62-27W5 (100% working interest) and is a horizontal test of the Montney formation. The third well is currently being completed at 13-34-62-1W6 (100% working interest) and is a horizontal exploratory step-out test of the Wilrich formation.
Gathering and Facilities
Phase II of Cequence's expansion of the compression and dehydration facility at 13-11-62-27W6 is proceeding as planned. Start-up is scheduled for the third week of November, 2011 and is expected to result in an additional 20 mmcf/d of capacity to the Company's gathering system, bringing total Company capacity to approximately 57 mmcf/d of raw gas at Simonette.
A new seven kilometre, 8-inch extension to the southwest leg of Cequence's gathering system was also completed in early November, 2011. New volumes of gas are anticipated to flow to Cequence's 13-11 facility from the Company's recently completed Montney well at 1-22, which is expected to be on-stream in the third week of November, 2011. If successful, the currently drilling Dunvegan exploration test well will also be tied into the system as soon as possible.
Significant capital is being allocated up front to pipelines, facilities and drilling pad sites capable of holding up to 16 wells per pad. Incurring this capital in advance is expected to achieve significant future cost savings as the project at Simonette moves to the development stage in the summer of 2012.
In the third quarter, Cequence added to its land base in the Deep Basin with an additional 13.0 net sections of land acquired for a total cost of $6.2 million.
The Company 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 third quarter of 2011, Cequence closed the previously announced disposition of properties in Northwest Alberta and Northeast British Columbia for proceeds of $16.0 million. These assets represent approximately 450 boepd of production and, based on an independent reserve report dated December 31, 2010, 3.2 mmboe of reserves on a proved plus probable basis. Operating costs and transportation expense for the first three quarters of 2011 related to these properties was greater than $20 per boe.
GAS DELIVERY ARRANGEMENTS
Cequence is pleased to announce an agreement in principle with Aux Sable Canada LP and Alliance Pipeline Limited Partnership to construct a 120 mmcf/d meter station at the Simonette field. The meter station will provide for the delivery of Cequence gas to the Alliance System and the payment of a premium to Cequence with respect to liquids-rich gas volumes delivered to the Alliance System.
The project, which also includes additional compression, dehydration and looping of existing pipelines, is currently underway and is expected to be completed in the first quarter of 2012. Cequence's capital costs related to the project are estimated at approximately $7.5 million in total. Cequence is bound by a confidentiality agreement with Aux Sable and the agreement is subject to ratification by the Aux Sable Board of Directors later this month.
The Aux Sable agreement is expected to result in an increase to operating netbacks of approximately 15 percent at the Simonette field through higher liquids yields and lower operating costs. Cequence anticipates significant future benefits from the agreement with Aux Sable.
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 10 percent, 28 percent and 34 percent, respectively, as compared to the third quarter of 2010.
Funds flow from operations increased to $10.4 million or $0.07 per share from $1.7 million or $0.02 per share in the third quarter of 2010. The Company recorded a comprehensive loss of $1.9 million compared to a comprehensive loss of $10.6 million in the third quarter of 2010.
Net debt and working capital deficiency at the end of the third quarter totalled $7.7 million and the annualized third quarter debt to cash flow ratio was 0.2:1.
The Company's financial statements and MD&A for the three and nine months ended September 30, 2011 are available on SEDAR at www.sedar.com.
The Company's 2011 capital budget is essentially unchanged however, some capital projects have been shifted from 2011 to the first half of 2012 as a result of a deployment of capital towards the Aux Sable project discussed above and delays to the Company's planned fall drilling program. 16 gross (12.3 net) horizontal wells are now expected to be drilled in 2011 and 15 gross (13.5 net) horizontal wells are now planned for the first half of 2012. Forecast net debt remains in the $45-$50 million range for year end 2011 and net debt at September 30, 2011 was $7.7 million.
The board of Directors has approved a capital budget of $100 million for the first half of 2012, resulting in forecasted production averaging approximately 12,000 boepd for the first half of 2012 (comprised of an estimated 63 mmcf/d of natural gas and 1,700 boepd of oil and NGL's). The Company's capital budget assumes a gas price of $3.50 CAD per gj and a crude oil price of $88 USD per bbl WTI for 2012. Under this scenario, Cequence is capitalized to execute this program with existing bank facilities and forecasted cashflow.
Forward looking Statements or Information
Certain 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; drilling, development, exploration, acquisition and disposition plans and the timing and results thereof; future net debt and cashflow; commodity pricing; future production levels, including the composition thereof. 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 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 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.
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, email@example.com
David Gillis, Chief Financial Officer, (403) 806-4041, firstname.lastname@example.org