Cequence Energy Announces Second Quarter Financial and Operating Results
CALGARY, Aug. 11, 2016 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the three and six month periods ended June 30, 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.
Second Quarter 2016 Highlights
Second quarter Company highlights include:
- Executed its cost reduction strategy and compared to the first quarter of 2015 the Company has reduced operating expense per boe by 18% and G&A expenses prior to restructuring charges by 21%.
- Continued strong performance from the recent 16-33 Montney well that utilized a new completion design. The IP 180 field production rate was 1,110 boe/d, including 260 bbls/d of condensate.
- Achieved average quarterly production of 7,857 boe/d while shutting in volumes due to low commodity prices. Second quarter productive capability was approximately 11,800 boe/d.
- Commenced the drilling of a water disposal well at Simonette with expected water management savings to be realized in the fourth quarter of 2016.
- Subsequent to June 30, 2016 the Company closed a disposition of facilities for proceeds of $5 million, prior to closing adjustments.
| Three months ended |
Six months ended |
|||||||||
| June 30, |
June 30, |
|||||||||
| (000's except per share and per unit amounts) |
||||||||||
| 2016 |
2015 |
% Change |
2016 |
2015 |
% Change |
|||||
| FINANCIAL |
||||||||||
| Production revenue |
8,637 |
18,489 |
(53) |
20,878 |
37,406 |
(44) |
||||
| Total revenue(1) |
11,342 |
21,802 |
(48) |
27,115 |
45,396 |
(40) |
||||
| Comprehensive income (loss) |
(12,212) |
246 |
(5,064) |
(18,100) |
(4,416) |
(310) |
||||
| Per share – basic and diluted |
(0.06) |
0.00 |
n/a |
(0.09) |
(0.02) |
(350) |
||||
| Funds flow from operations (2)(5) |
1,554 |
7,283 |
(79) |
1,240 |
15,566 |
(92) |
||||
| Per share, basic and diluted |
0.01 |
0.03 |
(67) |
0.01 |
0.07 |
(86) |
||||
| Capital expenditures, before acquisitions |
958 |
19,848 |
(95) |
8,320 |
42,430 |
(80) |
||||
| Capital expenditures, including acquisitions |
1,096 |
(23,230) |
105 |
8,247 |
(3,583) |
330 |
||||
| Net debt (3) (6) |
(73,507) |
(52,240) |
41 |
(73,507) |
(52,240) |
41 |
||||
| Weighted average shares outstanding – basic |
211,028 |
211,028 |
- |
211,028 |
211,028 |
- |
||||
| Weighted average shares outstanding – diluted |
211,028 |
212,317 |
(1) |
211,028 |
211,028 |
- |
||||
| OPERATING |
||||||||||
| Production volumes |
||||||||||
| Natural gas (Mcf/d) |
40,127 |
48,665 |
(18) |
46,190 |
52,364 |
(12) |
||||
| Crude oil (bbls/d) |
178 |
100 |
78 |
198 |
108 |
83 |
||||
| Natural gas liquids (bbls/d) |
244 |
562 |
(57) |
240 |
558 |
(57) |
||||
| Condensate (bbls/d) |
748 |
953 |
(22) |
904 |
1,074 |
(16) |
||||
| Total (boe/d) |
7,857 |
9,726 |
(19) |
9,040 |
10,468 |
(14) |
||||
| Sales prices |
||||||||||
| Natural gas, including realized hedges ($/Mcf) |
1.73 |
3.35 |
(48) |
1.94 |
3.34 |
(42) |
||||
| Crude oil and condensate, including realized hedges |
54.01 |
63.18 |
(15) |
49.76 |
55.98 |
(11) |
||||
| Natural gas liquids ($/bbl) |
21.50 |
17.49 |
23 |
19.13 |
17.30 |
11 |
||||
| Total ($/boe) |
15.86 |
24.63 |
(36) |
16.48 |
23.96 |
(31) |
||||
| Netback ($/boe) |
||||||||||
| Price, including realized hedges |
15.86 |
24.63 |
(36) |
16.48 |
23.96 |
(31) |
||||
| Royalties |
0.17 |
(1.15) |
(115) |
(0.27) |
(1.60) |
(83) |
||||
| Transportation |
(1.08) |
(1.99) |
(46) |
(1.13) |
(1.93) |
(41) |
||||
| Operating costs |
(8.13) |
(8.99) |
(10) |
(9.13) |
(8.32) |
10 |
||||
| Operating netback |
6.82 |
12.50 |
(45) |
5.95 |
12.11 |
(51) |
||||
| General and administrative (5) |
(2.51) |
(2.17) |
16 |
(3.37) |
(2.06) |
64 |
||||
| Interest(4) |
(2.24) |
(2.12) |
6 |
(1.93) |
(1.84) |
5 |
||||
| Cash netback |
2.07 |
8.21 |
(75) |
0.65 |
8.21 |
(92) |
||||
| (1) |
Total 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 is calculated as working capital (deficiency) less the aggregate principal amount of the senior notes. |
| (4) |
Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions. |
| (5) |
For the three and six months ended June 30, 2016, general and administrative expenses and funds flow from operations includes $201 ($0.28) and $1,931 ($1.17/ boe) in restructuring charges, respectively. |
| (6) |
Prior period amounts have been adjusted to confirm to current period presentation. |
Financial
Funds flow from operations for the second quarter was $1.6 million which reflects low natural gas prices in the quarter. Realized sales prices of $15.86 /boe (including hedging) decreased 36 percent from the comparative period in 2015. Comprehensive loss for the second quarter was $12.2 million compared to income of $0.2 million for the same period in 2015.
The Company incurred restructuring charges of $1.9 million in 2016 associated with the restructuring of the Company's management and a strategic reduction in Company staff concurrent with reduced drilling activity. The Company is beginning to realize costs savings from these measures as Q2 2016 G&A expenses, prior to restructuring charges, was $1,596 representing a 17% decrease from prior year.
In the second quarter, the Company reduced operating costs to $8.13/boe from $9.90 /boe in the first quarter of 2016. The costs savings were achieved by managing a number of higher cost wells that were not economic at low natural gas prices while also reducing key field expenses. The Company has engaged with its stakeholders to improve efficiency and reduce costs with a focus on chemical usage, trucking, equipment rentals, maintenance and water management.
Capital expenditures, net of dispositions, were $1.1 million in the second quarter and $8.2 million year to date. The Company is taking a cautious approach to capital spending as commodity prices remain low, with a focus of cost reduction strategies and we anticipate further reductions with the expiry of its current office lease in September 2016.
The Company has $73.5 million in net debt at June 30, 2016 which is comprised of $60 million in senior notes carrying a five year term (October 2018) and a working capital deficiency of $13.5 million. The Company's senior credit facility of $20 million was renewed in June 2016 and is expected to provide the Company with sufficient liquidity to execute its 2016 capital program. Subsequent to June 30, 2016, the Company disposed of certain pipelines and facilities in the Simonette area for proceeds of $5.1 million prior to closing adjustments.
Cequence has continued its efforts to protect its balance sheet with an active hedging program. Approximately 50 percent of its remaining 2016 natural gas production net of royalties is hedged at an average price of $2.60/GJ and approximately 30 percent of 2017 natural gas production hedged at an average price of $2.63/GJ.
Operations and Production
Production averaged 7,857 boe/d in the second quarter of 2016 and 9,040 boe/d year to date. With AECO gas prices averaging $1.40 in the second quarter, Cequence maintained production at approximately 8,000 boe/d to preserve value. The Company's guidance anticipates holding production in the 8,000 boe/d range for the remainder of 2016. With spot natural gas prices increasing in recent weeks, the Company is evaluating bringing on additional volumes in the third quarter.
Cequence has undertaken several strategic operating initiatives to improve corporate cash flow during this low commodity price cycle. The Company is on track to 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.
Simonette 16-33 Montney Well
The Company's recent Simonette Montney well at 16-33-61-27W5 continues to exhibit strong performance. The field production rate for the first 180 days after tie-in to permanent facilities on January 25th has averaged 5.1 MMcf/d gas, 260 bbl/d field condensate (1,110 boe/d) with a Q2 exit rate of 4.1 MMcf/d gas and 192 bbl/d field condensate (875 boe/d). In the first 180 days of production the 16-33 well has produced approximately 55% more cumulative gas and 190% more cumulative field condensate when compared to Company's historic average Simonette production model.
Outlook
Natural gas prices were weak for the first half 2016 and the Company has actively taken measures to manage its balance sheet and improve its cost structure. The Company has achieved G&A savings, prior to restructuring charges, of 17 percent compared to the second quarter of 2015.
Planned capital expenditures, net of dispositions, for 2016 are expected to be approximately $7 million and will be directed towards long term cost reduction projects. A majority of the future 2016 Simonette capital will be directed to the drilling of a water disposal well and related infrastructure to handle produced and completion flow-back water. The disposal well was spud in July 2016 with full disposal operation anticipated in the fourth quarter.
The Company estimated its productive capacity was approximately 11,800 boe/d in the second quarter. Based on low natural gas prices, Cequence has shut in production that is considered marginal to uneconomic resulting in annual average production of 8,500 boe/d. Recently natural gas prices are showing signs of improvement and the Company is evaluating bringing on additional volumes.
| (000's, except per share and per unit references) |
Guidance 2016 |
|||||
| Average production, BOE/d (1) |
8,500 |
|||||
| Funds flow from operations ($)(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 is calculated as working capital (deficiency) less the aggregate principal amount of the senior notes |
| (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 capital spending plans; future production levels and productive capacity; expected cost savings; funds flows; debt levels; 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.
Operating netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Operating netback equals per boe revenue less royalties, operating costs and transportation costs. Management utilizes this measure to analyze operating performance of its assets and operating areas, compare results to peers and to evaluate drilling prospects.
Cash netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Cash netback equals operating netback less per boe general and administrative expenses and interest expense. Management utilizes this measure to analyze the Company's per boe profitability for future capital investment or repayment of debt after considering cash costs not specifically attributable to its assets or operating areas.
Net debt is a non-GAAP term that is calculated as working capital (deficiency) less the principal value of senior notes. For this calculation, Cequence uses the principal value of the senior notes rather than the carrying value on the statement of financial position as it reflects the amount that will be repaid upon maturity. Cequence uses net debt as it provides an estimate of the Company's assets and obligations expected to be settled in cash.
Funds flow from (used in) operations is a non-GAAP term that represents cash flow from operating activities before adjustments for decommissioning liabilities expenditures and net changes in non-cash working capital. The Company evaluates its performance based on earnings and funds flow from (used in) operations. The Company considers funds flow from (used in) operations 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 (used in) operations may not be comparable to that reported by other companies. Funds flow from (used in) operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of comprehensive income (loss) per share.
Total revenue equals production revenue gross of royalties and including realized gain (loss) on commodity contracts. Management utilizes this measure to analyze revenue and commodity pricing and its impact on operating performance.
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 six months ended June 30, 2016 the ratio between the average price of West Texas Intermediate ("WTI") crude oil at Cushing and NYMEX natural gas was approximately 19:1 ("Value Ratio"). The Value Ratio is obtained using the first six months of 2016 WTI average price of $39.47 (US$/Bbl) for crude oil and the first six months 2016 NYMEX average price of $2.11 (US$/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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