Cequence Energy Announces First Quarter Financial and Operating Results
CALGARY, May 10, 2016 /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, 2016. 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 2016 Highlights
First quarter Company highlights include:
- Achieved average quarterly production of 10,223 boe/d, an increase of 24% from the fourth quarter.
- Completed construction of shallow cut refrigeration addition at the 13-11 facility (120 mmcf/d). Plant was commissioned January 21, 2016 at approximately 14 % under budget.
- Continued strong performance from the recent 16-33 Montney well that utilized a new completion design. The Q1 2016 exit production rate of 1,100 boe/d, including 260 bbls/d of condensate.
- Initiated a number of G&A cost reductions with expected annualized savings of approximately $2.7 million. Pro forma the G&A initiatives, annual G&A expense is expected to decrease by 30% to $6.0 million per year.
- Commenced a number of Simonette operating cost efficiency projects which will result in $5 million savings from 2015 field costs (22% reduction).
- Modernized Royalty Framework in Alberta is expected to result in positive net present value changes for Montney and Dunvegan wells at Simonette under expected pricing scenarios.
| (000's except per share and per unit amounts) |
Three months ended March 31, |
||||
| 2016 |
2015 |
% Change |
|||
| FINANCIAL |
|||||
| Production revenue (1) |
15,772 |
23,594 |
(33) |
||
| Comprehensive loss |
(5,888) |
(4,662) |
26 |
||
| Per share – basic and diluted |
(0.03) |
(0.02) |
50 |
||
| Funds flow from (used in) operations (2)(5) |
(314) |
8,283 |
(104) |
||
| Per share, basic and diluted |
(0.00) |
0.04 |
(100) |
||
| Funds flow from operations, prior to restructuring charges (5) |
1,416 |
8,283 |
(83) |
||
| Capital expenditures, before acquisitions (dispositions) |
7,362 |
22,582 |
(67) |
||
| Capital expenditures, including acquisitions (dispositions) |
7,151 |
19,647 |
(64) |
||
| Net debt and working capital deficiency (3) |
(72,941) |
(82,667) |
(12) |
||
| Weighted average shares outstanding – basic and diluted |
211,028 |
211,028 |
- |
||
| OPERATING |
|||||
| Production volumes |
|||||
| Natural gas (Mcf/d) |
52,253 |
56,105 |
(7) |
||
| Crude oil (bbls/d) |
218 |
115 |
90 |
||
| Natural gas liquids (bbls/d) |
235 |
554 |
(58) |
||
| Condensate (bbls/d) |
1,061 |
1,197 |
(11) |
||
| Total (boe/d) |
10,223 |
11,217 |
(9) |
||
| Sales prices |
|||||
| Natural gas, including realized hedges ($/Mcf) |
2.10 |
3.33 |
(37) |
||
| Crude oil and condensate, including realized hedges ($/bbl) |
46.69 |
50.13 |
(7) |
||
| Natural gas liquids ($/bbl) |
16.68 |
17.10 |
(2) |
||
| Total ($/boe) |
16.95 |
23.37 |
(27) |
||
| Netback ($/boe) |
|||||
| Price, including realized hedges |
16.95 |
23.37 |
(27) |
||
| Royalties |
(0.61) |
(2.00) |
(70) |
||
| Transportation |
(1.17) |
(1.88) |
(38) |
||
| Operating costs |
(9.90) |
(7.74) |
28 |
||
| Operating netback |
5.27 |
11.75 |
(55) |
||
| General and administrative, prior to restructuring charges (5) |
(2.17) |
(1.97) |
105 |
||
| Restructuring charges (5) |
(1.86) |
-- |
nm |
||
| Interest(4) |
(1.69) |
(1.60) |
6 |
||
| Cash netback |
(0.45) |
8.18 |
(106) |
||
| (1) |
Production revenue is presented gross of royalties and includes realized gains (loss) on commodity contracts. |
| (2) |
Funds flow from (used in) 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 share based payment liability and provisions. |
| (4) |
Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions. |
| (5) |
For the quarter ended March 31, 2016, general and administrative expenses and funds flow used in operations includes $1,730 in restructuring charges. |
Financial
Funds flow used in operations for the first quarter was $(0.3) million which reflects low crude oil and natural gas prices in the quarter and costs associated with corporate restructuring. Realized sales prices (including hedging) decreased 27 percent from the comparative period in 2015. Comprehensive loss for the quarter ended March 31, 2016 was $5.9 million compared to $4.7 million in 2015.
The Company incurred restructuring charges of $1.7 million in the first quarter associated with the restructuring of the Company's management. The Company expects $0.2 in additional severance charges for the remainder of 2016 as the Company adjusts its staff for the current market. Several other G&A initiatives have been enacted, including a reduction in board of director fees of 50%.
Capital expenditures, net of dispositions, were $7.2 million in the first quarter and relate primarily to the completion of the Company's 13-11 gas plant at Simonette. Cequence eliminated the final two wells from its winter drilling program to protect the balance sheet as commodity prices declined.
The Company has $73 million in net debt at March 31, 2016 which is comprised of $60 million in senior notes carrying a five year term (October 2018) and a working capital deficiency of $13 million. The Company's senior credit facility of $60 million was undrawn at March 31, 2016. The Company's scheduled bank review is scheduled to be completed by the end of May.
Cequence has hedged approximately 50 percent of 2015 natural gas production net of royalties at an average price of $2.65/GJ. The Company will continue to actively hedge production to protect future cash flows and balance sheet.
Operations and Production
Production averaged 10,223 boe/d in the first quarter of 2016, up 2,010 boe/d from Q4 2015 as the company produced into a higher marketing arrangement on the Alliance system during this period. With falling AECO gas prices and a corresponding reduction in the marketing commitment on April 1st, Cequence deliberately reduced volumes to approximately 8,000 boe/d to preserve value. The Company anticipates holding production flat in the 8,000 boe/d range for the remainder of 2016.
The 120 MMcf/d refrigeration plant at 13-11-62-27W5 (50% WI) was commissioned the end of January, 2016. Correspondingly as of April 1, 2016, the 13-11 NGTL meter station became operational providing the facility dual access to both the Alliance and NGTL gas transportation systems.
Simonette 16-33 Montney Well
The Company's recent Simonette Montney well at 16-33-61-27W5 continues to exhibit strong performance. The production rate for the first 90 days after tie-in to permanent facilities on January 25th has averaged 5.8 MMcf/d gas, 310 bbl/d condensate (1,270 boe/d) with a Q1 exit rate of 5.1 MMcf/d gas and 260 bbl/d condensate (1,110 boe/d). 16-33 was completed using 70 frac stages over a horizontal lateral length of 3,050 m. The results of this well provide strong encouragement for the Western portion of the Cequence Simonette lands where limited booked wells and activity have occurred.
Netback Improvement Initiatives
Cequence has undertaken several strategic field operating initiatives to improve corporate cash flow during this low commodity price cycle. It is expected the combined projects will reduce Simonette 2017 full year operating costs by $5 million (22%) from 2015 levels. Some of these projects include: establishing an infield water disposal scheme, minimizing tank and compressor rental costs, reducing chemical treating use, optimization of field labour schedules, and re-bidding all services.
Marketing
The Company's average natural gas price realization in the first quarter of 2016 was an 11 percent discount to AECO compared to a premium of two percent in 2015. The Company's marketing contracts at Simonette expired in the fourth quarter of 2015 and Cequence has negotiated short term sales contracts for 2016 at fixed differentials to AECO. In the first quarter, the Company realized an average price discount to AECO of $0.54 prior to adjustments for heat content. For the second and third quarters of 2016, Cequence has contracts on Alliance that average 32,800 GJ/d at an average discount to AECO of $0.52. In April 2016, the Company completed a sales connection to the TransCanada NGTL pipeline providing egress options from the Simonette property on both the Alliance and NGTL systems. The Company expects to improve its natural gas pricing relative to AECO with its recent connection to NGTL and the increased availability and cost of marketing contracts on Alliance observed so far in 2016.
Outlook
The current outlook for natural gas prices for the remainder of 2016 remains challenged and the Company has actively taken measures to manage its balance sheet and improve its cost structure. Planned capital expenditures, net of dispositions, for 2016 are expected to be approximately $7 million and will be directed towards long term cost reduction projects. A majority of the future 2016 Simonette capital will be directed to the drilling of a water disposal well and related infrastructure to handle produced and completion flow back water. The disposal well is expected to be spud in the second quarter of 2016 with full disposal operation anticipated in the fourth quarter.
The Company has taken steps to reduce its general and administrative costs through a reduction in staff and employee compensation. G&A expenses in the first quarter include $1.7 million in severance expense associated with the staff reductions. Further cost reductions are expected in the fourth quarter when the Company's current office lease expires. After taking into account all of the expected changes in G&A, management expects fourth quarter run rate G&A expense to be approximately $6 million per year representing a 30 percent decrease from 2015.
The Company estimates its current productive capacity to be approximately 12,000 boe/d. Based on low natural gas prices, Cequence has shut in production that is considered marginal to uneconomic. The Company expects these volumes to be shut-in through the remainder of 2016 and is targeting to maintain production at approximately 8,000 boe/d for the remainder of 2015. This will result in annual average production of approximately 8,500 boe/d.
| (000's, except per share and per unit references) |
Guidance 2016 |
|||
| Average production, BOE/d (1) |
8,500 |
|||
| Funds flow from operations ($)(2)(4) |
2,000 |
|||
| Funds flow from operations per share(2) |
0.01 |
|||
| Capital expenditures, prior to dispositions ($) |
14,000 |
|||
| Capital expenditures, net of dispositions ($) |
7,000 |
|||
| Operating and transportation costs ($ per boe) |
11.30 |
|||
| G&A costs ($) (4) |
8,500 |
|||
| Royalties (% revenue) |
6 |
|||
| Crude – WTI (US$/bbl) |
43.00 |
|||
| Natural gas – AECO (Cdn$/GJ) |
1.90 |
|||
| Period end, net debt and working capital deficiency ($) (3) |
70,000 |
|||
| Basic shares outstanding |
211,000 |
| (1) Average production estimates on a per BOE basis are comprised of 85% natural gas and 15% oil and natural gas liquids. |
| (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 and the aggregate principal amount of the senior notes and excluding share based payment liability and provisions. |
| (4) Annual G&A costs include $2.0 million in total restructuring charges |
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 outlook: business strategy and objectives; the Company's 2016 capital program; future production levels and productive capacity; expected G&A savings; bank review timing; funds flows; debt levels; and expected future oil and gas prices including marketing arrangements. 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, 2016 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 three months of 2016 WTI average price of $33.41 (US$/Bbl) for crude oil and the first three months 2016 NYMEX average price of $1.98 (US$/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.
Todd Brown, Chief Executive Officer, (403) 806-4049, [email protected]; David Gillis, Executive Vice President and Chief Financial Officer, (403) 806-4041, [email protected]
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