Cequence Energy Announces First Quarter Financial and Operating Results

CALGARY, May 14, 2015 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the three month period ended March 31, 2015. The Company's Consolidated Financial Statements and Management's Discussion and Analysis are available at cequence-energy.com and on SEDAR at www.sedar.com.

First Quarter 2015 Highlights

• Successfully completed the 13 well winter drilling program including facility expansion at Simonette.
• The last two Montney wells of the winter from the 15-15 padsite (50 % WI) achieved strong IP 30 rates of 6.0 mmcf/d and 32 bbls/mmcf of free condensate.
• Achieved average production of 11,217 boepd despite shut in and curtailed volumes of 1,700 boepd, an increase of 15 percent from the fourth quarter of 2014.
• Maintained a flexible balance sheet with $82.7 million in net debt at the end of the first quarter with the senior credit facility undrawn.

(000's except per share and per unit amounts)						Three months ended March 31,
					2015		2014	%  Change
Financial ($)
Production revenue ^(1)					23,594		41,095	(43)
Comprehensive income (loss)					(4,662)		512	(1,011)
Per share – basic and diluted					(0.02)		0.00	n/a
Funds flow from operations ^(2)					8,283		23,082	(64)
Per share, basic and diluted					0.04		0.11	(64)
Production volumes
Natural gas (Mcf/d)					56,105		59,898	(6)
Crude oil (bbls/d)					115		157	(27)
Natural gas liquids (bbls/d)					554		517	7
Condensate (bbls/d)					1,197		956	25
Total (boe/d)					11,217		11,613	(3)
Sales prices
Natural gas, including realized hedges ($/Mcf)					3.33		5.28	(37)
Crude oil ($/bbl)					44.03		94.47	(53)
Natural gas liquids ($/bbl)					17.10		54.44	(69)
Condensate ($/bbl)					50.72		101.95	(50)
Total ($/boe)					23.37		39.32	(41)
Netback ($/boe)
Price, including realized hedges					23.37		39.32	(41)
Royalties					(2.00)		(4.13)	(52)
Transportation					(1.88)		(1.52)	24
Operating costs					(7.74)		(7.40)	5
Operating netback					11.75		26.27	(55)
General and administrative					(1.97)		(2.34)	(16)
Interest^(5)					(1.60)		(1.79)	(11)
Cash netback					8.18		22.14	(63)
Capital expenditures ($)
Capital expenditures					22,582		58,547	(61)
Net acquisitions (dispositions) ^(4)					(2,935)		(3,229)	(9)
Total capital expenditures					19,647		55,318	(64)
Net debt and working capital (deficiency) ^(3)					(82,667)		(143,536)	(42)
Weighted average shares outstanding
Basic					211,028		210,918	1
Diluted					211,028		212,964	(1)

(1)	Production revenue is presented gross of royalties and includes realized gains (loss) on commodity contracts.
(2)	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.
(3)	Net debt and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets and liabilities, demand credit facilities, principal value of senior notes and excluding other liabilities.
(4)	Represents the cash proceeds from the sale of assets and cash paid for the acquisition of assets, as applicable.
(5)	Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions.

FINANCIAL

Funds flow from operations decreased to $8.3 million for the first quarter of 2015 compared to $23.1 million for 2014.  The decrease in funds flow from operations is due largely to lower oil and natural gas prices compared to the first quarter of 2014.  Realized sales prices (including hedging) decreased 41 percent from the comparative period.  Comprehensive loss for the quarter ended March 31, 2015 was ($4.7) million compared to income of $0.5 million in 2014. 

In the current commodity price environment Cequence has proactively implemented steps to reduce corporate costs in a drive for greater efficiency.  Total G&A expenses were $0.5 million lower in the first quarter compared to prior year representing an 18 percent improvement.  G&A costs were $1.97 per boe which is below previous expectations of $2.50 per boe. 

Capital expenditures, net of dispositions, were $19.6 million in the first quarter and included the completion of 5 net wells and expansion the Company's 13-11 facility at Simonette. Cequence reduced its capital budget in the quarter from $45 million to protect the balance sheet as commodity prices declined. As a result, the Company exited the first quarter with significant financial flexibility.  The Company has available credit facilities of $195 million compared to March 31, 2015 net debt of $82.7 million.  Net debt is comprised of $60 million in senior notes carrying a five year term and a working capital deficiency of $22.7 million.   The Company's senior credit facility of $135 million was undrawn at March 31, 2015 and the Company is well positioned to continue with its Simonette development project when industry conditions improve.

Cequence has hedged approximately 65 percent of 2015 natural gas production net of royalties at an average price of $3.37/GJ or $3.97/mcf based on the historical heat content of the Company's natural gas.  The Company will continue to actively hedge production to protect future capital spending programs.

OPERATIONS AND PRODUCTION

Production averaged 11,217 boepd in the first quarter which was approximately 2 percent lower than the Company's recent guidance of 11,500 boepd.  Production performance from new wells has met expectations; however Cequence restricted its first quarter natural gas production due to high price differentials that resulted from pipeline maintenance on the main NGTL system in Alberta. Cequence has proactively managed weekly production levels during periods of low prices.  

Corporate production averaged 12,350 boepd for the months of February and March with approximately 1,100 boepd shut in due to pricing and TCPL transportation issues.  This temporary situation is expected to correct itself in the coming months as TransCanada proceeds with its maintenance program. Annual production is anticipated to increase to 11,500 boepd, an increase of 5 percent from 2014. If high natural gas price differentials on natural gas continue, Cequence may continue to curtail production volumes to preserve value.  This could negatively impact annual average production volumes.   

In February, Cequence completed its last two Montney pad wells (50 % WI) of the winter from the 15-15 site.  Production is strong from these wells with average IP 30 rates of 6.0 mmcf/d and 32 bbls/mmcf of condensate.  In addition, the Company's Dunvegan well (65% WI) at 2-11 has an IP 30 of 7.2 mmcf/d with 18 bbls/mmcf of condensate.

Outlook

Balance sheet strength remains critical to the Company.  The balance sheet remains flexible with the Company senior credit facility of $135 million undrawn at March 31, 2015.  In response to weak commodity prices, the Company reduced capital spending in the first half of 2015 to $19.6 million. Full year capital expenditures are budgeted at $60 million and the Company will continue to monitor fluctuations in commodity prices and may adjust capital spending based on the Company's hedge position and short to medium term crude oil and natural gas prices.

Cequence is planning to drill a Dunvegan oil well (50% WI) at Simonette this summer.  Although Montney drilling is economic at strip prices, Cequence believes that balance sheet strength is a priority and has deferred further Montney drilling until commodity prices and market access improve.   The Company expects the economics at Simonette to further improve with declines in service costs and efficiencies gained through its recent pad drilling program.  Cequence does not subscribe to growth at any cost, but will continue to grow its production base at a return which is attractive to shareholders.

About Cequence

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 its guidance and forecasts: business strategy and objectives; the Company's 2015 capital program; the Company's plans to actively hedge to protect future capital spending programs; future production levels; drillings plans; the timing of the impacts of the TransCanada Pipeline system; and expected future oil and gas prices. 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

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, proceeds from the sale of commodity contracts and changes in non-cash 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.

Operating and cash netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Operating netback equals total revenue less royalties, operating costs and transportation costs. Cash netback equals the operating netback less general and administrative expenses and interest expense. Management utilizes these measures to analyze operating performance. 

Non-GAAP measures do not have a standardized meaning prescribed by IFRS 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 three months ended March 31, 2015, the ratio between the average price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 17:1 ("Value Ratio"). The Value Ratio is obtained using the first quarter 2015 WTI average price of $48.49 (US$/Bbl) for crude oil and the first quarter 2015 NYMEX average price of $2.81 (US$/MMbtu) for natural gas. This Value Ratio is significantly different from the energy equivalency ratio 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.

Paul Wanklyn, Chief Executive Officer, [phone], [email protected]; David Gillis, Chief Financial Officer, [phone], [email protected]