CEQUENCE ENERGY LTD. ANNOUNCES THIRD QUARTER RESULTS AND 2011 CORPORATE
GUIDANCE
CALGARY, Nov. 11 /CNW/ - Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: "CQE") is pleased to announce its operating and financial results for the quarter ended September 30, 2010. The unaudited consolidated financial statements, notes thereto and management's discussion and analysis are available on the Company's website at www.cequence-energy.com and on SEDAR at www.sedar.com.
Financial and operating results include the operations of the Deep Basin Assets ("Deep Basin Assets") and of Temple Energy Inc. ("Temple") following the close of these transactions on September 8, 2010 and September 10, 2010, respectively.
Financial and Operating Highlights
(000's except per Three months ended Nine months ended
share amounts) September 30 September 30
-------------------------------------------------------------------------
% %
2010 2009 Change 2010 2009 Change
-------------------------------------------------------------------------
Financial ($)
Production revenue,
including realized
hedge $ 12,951 $ 5,962 117% $ 32,218 $ 19,136 68%
Net loss (3,620) (6,994) -48% (8,396) (5,998) 40%
Per share, basic
and diluted (0.05) (0.26) -81% (0.17) (0.39) -56%
Funds flow from
operations(1) 3,695 (2,663) 239% 11,036 766 1,341%
Per share, basic
and diluted 0.05 (0.10) 150% 0.22 0.05 340%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production volumes
Natural gas (Mcf/d) 23,674 6,734 252% 17,649 7,556 134%
Crude oil (bbls/d) 332 128 159% 285 124 130%
Natural gas liquids
(bbls/d) 342 67 410% 202 88 130%
Total (boe/d) 4,619 1,317 251% 3,428 1,471 133%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales prices
Natural gas,
including realized
hedges ($/Mcf) $ 4.13 $ 7.69 -46% $ 4.79 $ 7.70 -38%
Crude oil ($/bbl) 70.47 66.85 5% 72.36 61.00 19%
Natural gas liquids
($/bbl) 57.33 66.76 -14% 63.65 49.42 29%
Total ($/boe) $ 30.47 $ 49.20 -38% $ 34.42 $ 47.64 -28%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Netbacks
($/boe)
Price $ 30.47 $ 49.20 -38% $ 34.42 $ 47.64 -28%
Royalties (3.15) (9.66) -67% (3.37) (5.86) -42%
Transportation (2.88) (2.55) 13% (3.00) (1.98) 52%
Operating costs (10.38) (21.53) -52% (11.41) (17.69) -36%
-------------------------------------------------------------------------
Operating Netback $ 14.06 $ 15.46 -9% $ 16.64 $ 22.11 -25%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
Expenditures $ 8,309 $ 3,334 149% $ 39,728 $ 8,310 378%
Corporate
Acquisitions(4) 142,496 320 N/A 171,865 320 N/A
Property
Acquisitions (net) 47,725 15,763 203% 48,004 15,763 205%
-------------------------------------------------------------------------
Total capital
expenditures $ 198,530 $ 19,416 923% $ 259,597 $ 24,393 964%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total debt and
working capital
(deficiency)(2) (68,857) 5,768 N/A (68,857) 5,768 N/A
Weighted average
shares outstanding
(basic and diluted) 69,060 26,577 160% 50,321 15,333 228%
Undeveloped land
(net acres) 300,800 155,400 94% 300,800 155,400 94%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Funds flow from operations is calculated as cash flow from operating
activities before adjustments for asset retirement expenditures and
net changes in non-cash working capital.
(2) Total debt and working capital is calculated as cash, long term debt
and net working capital less commodity contract asset.
(3) Corporate acquisitions for the nine months ended September 30, 2010
includes $29,319 related to the acquisition of Peloton Exploration
Corp. ($645 cash) and $142,546 related to the acquisition of Temple
Energy Inc. ($2,438 cash).
ACCOMPLISHMENTS
The third quarter transformed Cequence with a series of transactions that strengthened the technical team and senior management, and consolidated a large new focus area for future growth in the Deep Basin area of Northwest Alberta. The result is a concentrated asset base which will provide Cequence a competitive cost structure and a significant prospect inventory for future growth. Accomplishments from this quarter include:
- On September 8, 2010, Cequence closed the acquisition of certain
properties located in the Deep Basin for $85 million;
- On September 10, 2010, Cequence acquired all of the issued and
outstanding shares of Temple in exchange for Cequence shares by way
of a Plan of Arrangement;
- The acquisitions were funded by the sale of non-producing interest in
the Sinclair area of Northwest Alberta for cash consideration of
$36.9 million and equity financings totaling approximately
$60 million in gross proceeds, and;
- An initial Wilrich horizontal well at Simonette in the Deep Basin was
successfully drilled and completed at a restricted flow rate of
8.5 mmcf/d; 2 to 3 follow up wells are planned for the winter
beginning in the fourth quarter of 2010.
Financial and operating results for the third quarter are highlighted by Cequence's continued production growth and cost improvements. Some of the highlights include:
- Increased average production by 251 percent over the third quarter of
2009 to 4,619 boe/d;
- Improved operating costs per boe for the fourth consecutive quarter.
Operating costs in the third quarter were $10.38, an improvement of
52 percent from the third quarter of 2009;
- Reduced general and administrative expenses per boe were reduced by
48 percent to $3.19/boe from $6.15/boe in the third quarter of 2009;
- Realized funds flow of $3.7 million or $0.05 per share for the third
quarter;
- Incurred $8.3 million on drilling, recompletions and land in the
third quarter of 2010; and
- Increased undeveloped land holdings from 179,000 net acres at the end
of the second quarter of 2010 to 300,800 net acres at the end of the
third quarter of 2010.
OPERATIONS REVIEW
Third Quarter Operations Summary
In the third quarter of 2010, Cequence expanded its business strategy in a new area in the Deep Basin of Alberta to include the exploration, acquisition, exploitation and development of high-quality, long life, oil and liquids rich natural gas properties.
Cequence's production averaged 4,619 boe/d during the third quarter 2010, a 251 percent increase over the third quarter of 2009. During the quarter, the Company participated in the drilling of 4 wells (3.5 net) with a 100 percent success rate.
Deep Basin (Simonette), Alberta
Cequence drilled its 100% working interest initial Wilrich horizontal well ("1-11 Well") in the Simonette area of Alberta. The 1-11 Well flowed at a restricted rate of 8.5 mmcf/d and an estimated 210 bbls of natural gas liquids per day at a wellhead flowing pressure of 1,075 psi.
Management estimates that a Wilrich horizontal well will cost approximately $4.5 million to drill and complete and is expected to earn approximately $3.2 million in Deep Royalty Credits. Wilrich horizontal economics compare favorably to all natural gas resource plays in the Western Canadian Sedimentary Basin and provide Cequence with a developable resource, even in the current depressed natural gas price environment. Cequence is currently drilling a follow up horizontal well 2 miles northwest of the initial horizontal well targeting the Wilrich at 100% working interest to help delineate the potential of the prospect area. Cequence budgeted an additional two Wilrich horizontal delineation wells this winter and four more in the second half of 2011. Cequence believes there are 18 net prospective sections at 100% working interest surrounding the initial horizontal well and an additional 30 net sections with similar potential on other land owned by Cequence. The play should ultimately be developed with two to three horizontal wells per section depending on individual well performance. This could yield a development inventory of approximately 45 wells surrounding our existing discovery.
Cequence has acquired more than 50 net sections of Montney rights at Simonette and plans to drill its first Montney horizontal well in the fourth quarter. This well will follow up on a successful vertical well drilled in December 2009. Management believes that success in the Montney has the potential to add a second large scale resource play at Simonette with the potential for up to 200 net drilling locations surrounding its initial vertical discovery.
Cequence is currently installing field compression to de-bottleneck the gas gathering system and anticipates all currently shut-in Simonette production will produce unrestricted by mid-December 2010.
Garrington, Alberta
Cequence is also pleased to announce that it has successfully drilled and completed its first Cardium horizontal oil well ("Cardium Discovery Well") at Garrington, Alberta. The Cardium Discovery Well flowed for 9 days at a final rate of 260 bbls/day of crude oil and 425 mcf/day of natural gas with a wellhead flowing pressure of 30 psi. The Company has identified 10 net potential horizontal locations targeting the Cardium formation on lands directly offsetting the Cardium Discovery Well.
FINANCIAL
For the quarter ended September 30, 2010, Cequence reported funds flow from operations of $3.7 million compared to a negative funds flow of $2.7 million in the third quarter of 2009. The increase in funds flow relates to higher production volumes and lower per barrel operating expenses, general and administrative expenses and interest expense. Compared to the third quarter of 2009, the Company improved operating costs by 52 percent to $10.38/boe.
The Company exited the third quarter of 2010 with a consolidated net debt and working capital deficiency of $69 million and retains $41 million available for draws under its credit facilities. This financial flexibility is expected to allow the Company to continue to execute and deliver on its 2010 planned activity using estimated cash flow and existing credit facilities.
On October 15, 2010, Cequence monetized its 2011 fixed price commodity contracts for cash proceeds of $3.4 million. Previously, the Company had 4,000 GJ's per day hedged for 2011 at an average price of $6.025 CAD per GJ.
On November 2, 2010, Cequence announced that it will issue an aggregate of 2.25 million units at a price of $2.00 per unit for proceeds of $4.5 million. Each unit will be comprised of (i) one CDE flow through common share; (ii) one CDE flow through common share purchase warrant expiring in 2011 ("2011 Warrant"); and (iii) one CDE flow through common share purchase warrant expiring in 2012 ("2012 Warrants"). The 2011 Warrants and the 2012 Warrants, if exercised, will be priced at a 10 percent premium to the prevailing market price based on the 10 day volume weighted average trading price ending on July 29, 2011 and July 31, 2012, respectively. As the pricing of the warrants will be determined based on the future market price of Cequence common shares, total proceeds of the issue cannot be determined at this time.
As previously stated, the Company's unaudited consolidated financial statements and management's discussion and analysis for the three and nine month periods ended September 30, 2010 are available on SEDAR at www.sedar.com.
OUTLOOK
A re-organized Cequence intends to execute a business plan which creates per share growth in reserves, production and cash flow while maintaining balance sheet strength through the currently depressed cycle of natural gas prices and oversupply. With the successful acquisition of Temple and the Deep Basin property acquisition, Cequence now has a significant land position in a liquids rich area of the Deep Basin of Alberta and will focus its near term capital program on the evaluation and delineation of Wilrich and Montney resource potential at Simonette. In management's opinion, these prospects have the potential to add significant reserves, production and value to Cequence shareholders. With prudent use of the Company's balance sheet, Cequence will maintain the ability to continue to expand our opportunity base during these challenging times. We have the technical and financial strength to continually grow Cequence to the next level but we intend to remain cautious with capital spending as we await signs of improving natural gas market fundamentals.
Cequence budgets capital expenditures of $22 million in the fourth quarter of 2010, highlighted by two Wilrich horizontal wells and one Montney horizontal well. Cequence's estimated net debt for December 31, 2010, after the sale of the previously announced fixed price commodity contracts and private placement, is $75 million.
The Board of Directors of Cequence has approved a budget for 2011 that includes a $55 million capital expenditure program resulting in 15 percent growth in production over current levels. A total of 12 wells will be drilled in 2011 including four additional Wilrich horizontal wells, one Montney horizontal well and two Cardium horizontal oil wells.
-------------------------------------------------------------------------
2011
-------------------------------------------------------------------------
Capital expenditures $55 million
Wells (No.) 12
Average production (boe/d)(1) 8,600
Exit production (boe/d) 9,200
Debt (December 31, 2011) $ 75-80 million
Funds flow $45-50 million
AECO - $CDN/GJ $4.00
Crude - $WTI $81.00
Operating Costs $9.60
Shares outstanding(2) 131,000
-------------------------------------------------------------------------
(1) 45 mmcf/d natural gas and 1,100 bbls/day oil & liquids
(2) Assumes the exercise of the 2011 Warrants.
Forward-Looking Information
Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Such forward-looking information is 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 information typically contains statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project", "potential" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking 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; development, exploration, acquisition and disposition plans and the timing thereof; reserve quantities and the discounted present value of future net cash flows from such reserves; costs estimates; and future production levels.Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect. Although Cequence believes that the expectations reflected in such forward-looking information is reasonable, undue reliance should not be placed on forward-looking information because Cequence 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 and are implicit in, among other things: field production rates and decline rates; the ability of Cequence to secure adequate product transportation; the ability of Cequence to obtain qualified staff, equipment and services in a timely and cost efficient manner to develop its business; Cequence's ability to operate the properties in a safe, efficient and effective manner; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of drilling, completion, pipeline, storage and facility construction and expansion; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; and the ability of Cequence 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 information is 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 Cequence and described in the forward-looking information. The material risk factors affecting Cequence and its business are contained in Cequence's Annual Information Form which is available under Cequence's issuer profile on SEDAR at www.sedar.com.
The forward-looking information contained in this press release is made as of the date hereof and Cequence undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward looking information contained in this press release is expressly qualified by this cautionary statement.
Additional Advisories
This press release contains references to terms commonly used in the oil and gas industry. Netback is not defined by GAAP 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 asset retirement expenditures 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 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 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.
%SEDAR: 00023788E
For further information: Paul Wanklyn, President and Chief Executive Officer, (403) 218-8850, [email protected] or David Gillis, Chief Financial Officer, (403) 806-4041, [email protected]
Share this article