CEQUENCE ENERGY ANNOUNCES YEAR END FINANCIAL AND OPERATING RESULTS
CALGARY, March 10 /CNW/ --
CALGARY, March 10 /CNW/ - Cequence Energy Ltd. ('Cequence' or the
'Company') (TSX: CQE) is pleased to announce its operating and
financial results for the fourth quarter and the year ended December
31, 2010.
The Company's 2010 operating results are highlighted by:
-- Completed a series of transactions throughout 2010 to focus the
Company's asset base in the Simonette area of the Deep Basin;
-- Executed a successful winter drilling program to date with
initial drilling successes targeting the Montney and Wilrich
formations;
-- Increased proved plus probable reserves by 284% from prior year
to 48.9 MMBOE and proved reserves by 266% from the prior year
to 27.3 MMBOE, as estimated by GLJ Petroleum Consultants Ltd.
('GLJ');
-- Increased proved reserves by 15% and proved plus probable
reserves by 14% from the amounts set forth in independent
reserve reports dated effective July 1, 2010;
-- Increased the net present value of the Company's proved plus
probable reserves by 233% to $525.6 million (using a discount
rate of 10%) as estimated by GLJ;
-- Achieved finding, development and acquisition costs including
changes to future development capital of $12.67 per BOE on a
proved plus probable basis and $18.25 per BOE on a proved
basis;
-- Increased average fourth quarter production by 258% to 7,485
BOE/d; and annual production by 174% to 4,451 BOE/d; and
-- Based on fourth quarter production of 7,485 BOE/d, Cequence has
a reserve life index of 10.0 years on a proven basis and 17.9
years on a proved plus probable basis.
Recent Developments
-- Completed six wells to date in the first quarter of 2011 with
100% success;
-- Accelerated facilities development at Simonette to increase
production capacity to accommodate long term development with
expected start-up in May 2011;
-- Awaiting completion of one Montney horizontal well and one
Wilrich horizontal well at Simonette and the drilling and
completion of one Montney horizontal oil well in the Peace
River Arch with all three projects expected to be completed
prior to spring break-up;
-- Continued the rationalization of the Company's asset base by
entering into agreements to dispose of non-core assets in
Garrington and Virginia Hills for total proceeds of
approximately $29.5 million prior to adjustments. The assets
disposed of accounted for approximately 520 boepd of average
oil and natural gas production in December 2010; and
-- Announced a bought deal financing at the end of February 2011
to issue 11.65 million common shares and 2.1 million common
shares to be issued on a flow through basis pursuant to the
Income Tax Act (Canada) for total gross proceeds of
approximately $40.6 million, excluding the over-allotment
option which entitles the underwriters to acquire an additional
1.75 million common shares.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Financial Highlights
(000's except Three months ended Year ended
per share December 31 December 31
amounts)
% %
2010 2009 Change 2010 2009 Change
Financial ($)
Production $ $ $ $
revenue,
including
realized hedge 22,352 8,847 153% 54,570 27,983 95%
Net loss
(6,122) (2,656) 130% (14,518) (8,654) 68%
Per share,
basic and
diluted (0.05) (0.07) (29)% (0.21) (0.41) (49)%
Funds flow
from
operations (
(1)) 8,029 3,161 154% 19,065 3,927 385%
Per share,
basic and
diluted 0.06 0.08 (25)% 0.27 0.19 42%
Production
volumes
Natural gas
(Mcf/d) 38,702 10,696 262% 22,956 8,348 175%
Crude oil
(bbls/d) 478 230 108% 333 151 121%
Natural gas
liquids
(bbls/d) 557 76 633% 292 85 244%
Total (BOE/d) 7,485 2,089 258% 4,451 1,627 174%
Sales prices
Natural gas, $ $ $ $
including
realized
hedges ($/Mcf) 4.40 6.97 (37)% 4.63 7.46 (38)%
Crude oil
($/bbl) 77.24 71.65 8% 74.12 65.09 14%
Natural gas
liquids
($/bbl) 64.13 68.82 (7)% 63.88 53.91 18%
Total ($/BOE) $ $ $ $
32.46 46.05 (30)% 33.59 47.12 (29)%
Operating
Netbacks
($/BOE)
Price $ $ $ $
32.46 46.05 (30)% 33.59 47.12 (29)%
Royalties (3.80) (4.21) (10)% (3.55) (5.33) (33)%
Transportation (2.25) (4.07) (45)% (2.68) (2.65) 1%
Operating
costs (10.20) (14.06) (27)% (10.90) (16.52) (34)%
Operating $ $ $ $
Netback 16.21 23.71 (32)% 16.46 22.62 (27)%
Capital $ $ $ $
Expenditures 24,392 16,526 48% 64,120 24,836 158%
Corporate
Acquisitions (
(2)) 1,444 380 280% 173,309 38 N/A
Property
Acquisitions
(net) (4,707) 5,994 (179)% 43,297 21,757 99%
Total capital $ $ $ $
expenditures 21,129 22,900 (8)% 280,726 46,631 502%
Net debt and
working
capital
(deficiency) (
(3)) (73,125) 6,010 N/A (73,125) 6,010 N/A
Long-term debt
related to
investments (
(4)) - (18,054) (100)% - (18,054) (100)%
Weighted
average shares
outstanding
(basic and
diluted) 127,258 38,152 234% 69,713 21,085 231%
Undeveloped
land (net
acres) 293,800 145,200 102% 293,800 145,200 102%
Notes:
(1) Funds flow from operations is calculated as cash flow from
operating activities before adjustments for asset retirement
expenditures, proceeds from sale of commodity contracts and
net changes in non-cash working capital.
(2) Corporate acquisitions for the year ended December 31, 2010
include $29,319 related to the acquisition of Peloton
Exploration Corp. ('Peloton') ($645 cash) and $143,990 related
to the acquisition of Temple Energy Inc. ('Temple') ($2,838
cash).
(3) Net debt and working capital (deficiency) is calculated as
cash, net working capital less commodity contract asset,
demand credit facilities and excluding the current portion of
future income taxes.
(4) The long-term debt related to investments was a stand-alone
credit facility with Cequence's lender to provide short term
liquidity to the Company in light of the restructuring of the
Company's asset backed MAV II notes. During the year ended
December 31, 2010 the Company's MAV II notes were sold and the
proceeds, in addition to available cash, were used to pay down
the long-term debt related to investments and to close the
stand-alone credit facility.
Fourth Quarter Financial Highlights
The fourth quarter represented the first full quarter of operations
following the merger with Temple and the Simonette property
acquisition, both of which closed in September 2010. The highlights of
these acquisitions are as follows:
-- Increased average production from the fourth quarter of 2009 by
258% to 7,485 BOE/d and by 62% from production of 4,619 in the
third quarter of 2010;
-- Spent $24.4 million on drilling, recompletions and land and
completed the disposition of certain non-core assets for $4.5
million;
-- Reduced operating costs by 27% from the fourth quarter of 2009
to $10.20 per BOE and transportation costs by 45% to $2.25 per
BOE;
-- Reduced general and administrative costs by 81% to $3.23 per
BOE;
-- Monetized a 2011 hedge position for total proceeds of $3.4
million; and
-- Recorded fourth quarter funds flow from operations of $8.0
million or $0.06 per share, a decrease of $0.02 per share from
2009 largely as a result of a decrease in commodity hedge
revenue.
For the quarter ended December 31, 2010, Cequence reported funds flow
from operations of $8.0 million compared to $3.2 million in the fourth
quarter of 2009. The increase in funds flow from operations is a
result of increased production volumes and lower operating,
transportation and royalty costs from the prior period. Sales prices
decreased 30% from the prior period due to lower commodity prices and
lower hedging revenues. Cequence recorded a loss of $6.1 million for
the fourth quarter of 2010 compared to a loss of $2.7 million in 2009
primarily due to lower commodity prices and higher depletion charges,
although depletion charges per BOE has decreased by $4.41 per BOE.
Capital expenditures in the fourth quarter of 2010 totalled $24.4
million and were focused on drilling, facility and land acquisitions in
the Deep Basin.
Year End Financial Highlights
For the year ended December 31, 2010, Cequence recorded significant
increases in revenue, funds flow from operations and capital
expenditures from the prior period. During the year, Cequence
completed a series of acquisitions and dispositions that significantly
increased the size of the Company. Corporate acquisitions totalled
$173.3 million and included a merger with Temple in the third quarter
of 2010 for total consideration of $109.6 million and the acquisition
of Peloton in second quarter of 2010 for total consideration of $30.9
million. Property acquisitions for the year included the $85 million
property acquisition in the Company's new core area of Simonette and
the disposition of certain non-producing properties at Sinclair for
total proceeds of $36.9 million, both subject to adjustments.
For the year ended December 31, 2010, Cequence reported a loss of $14.5
million compared to a loss of $8.7 million in 2009 primarily due to a
decrease in natural gas prices and higher depletion charges, although
depletion charges per BOE has decreased by $4.20 per BOE. Funds flow
from operations for the year ended December 31, 2010 increased to $19.1
million from $3.9 million in the prior year due to higher production
volumes and lower operating, general and administrative and royalty
costs on a per BOE basis.
The Company exited 2010 with net debt of $73.1 million and bank lines
totalling $110 million. Subsequent to year-end the Company announced
the bought deal financing for total gross proceeds of approximately
$40.6 million (assuming the over-allotment option is not exercised).
In addition, the Company disposed of certain assets in the first
quarter of 2011 for total proceeds of $29.5 million. As a result of
the foregoing, Cequence intends to fund its 2011 capital program from
forecasted cash flow and existing bank lines.
The Company's financial statements and management's discussion and
analysis for the periods ended December 31, 2010 and the annual
information form for the year ended December 31, 2010, which includes
information concerning the reserves and other oil and gas information
in the form required by National Instrument 51-101 ('NI 51-101'), have
been filed on the SEDAR system and are accessible through Cequence's
public filings under 'Search for Public Company Documents' within the
'Search Database' module at sedar.com.
Reserves
In accordance with NI 51-101, GLJ prepared a reserve report as at
December 31, 2010 for the oil, natural gas liquids ('NGL') and natural
gas reserves attributable to the properties of Cequence (the 'GLJ
Report').
The tables below are a summary of the oil, NGL and natural gas reserves
attributable to the properties of Cequence and the net present value of
future net revenue attributable to such reserves as evaluated in the
GLJ Report based on forecast price and cost assumptions. It should not
be assumed that the estimates of future net revenues presented in the
tables below represent the fair market value of the reserves. There is
no assurance that the forecast prices and cost assumptions will be
attained and variances could be material. The recovery and reserves
estimates of Cequence's crude oil, natural gas liquids and natural gas
reserves provided herein are estimates only and there is no guarantee
that the estimated reserves will be recovered. Actual crude oil,
natural gas and natural gas liquids reserves may be greater than or
less than the estimates provided herein.
Summary of Oil and Gas Reserves
Light and
Medium Total Oil
Crude Oil NGLs Natural Gas Equivalent
Gross Net Gross Net Gross Net Gross Net
Reserves
Category (Mbbl) (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (MBOE) (MBOE)
Proved
Developed 717 585 1,101 756 67,203 58,955 13,018 11,168
Producing
Developed 146 115 267 203 15,702 13,701 3,029 2,602
Non-Producing
Undeveloped - 1 1,134 868 60,904 53,715 11,285 9,821
Total Proved 862 701 2,501 1,828 143,809 126,371 27,332 23,590
Probable 531 417 2,094 1,497 113,436 97,846 21,531 18,222
Total Proved 1,393 1,118 4,595 3,325 257,244 224,216 48,863 41,812
plus Probable
Notes:
(1) Columns may not add during rounding.
(2) 'Gross' reserves means the Company's working interest
(operated and non-operated) share before deduction of
royalties payable to others and without including any royalty
interest of the Company.
(3) 'Net' reserves means the Company's working interest (operated
and non-operated) share after deduction of royalty obligations
plus the Company's royalty interests in reserves.
Summary of Net Present Value of Future Net Revenue (Forecast Prices and
Costs)
Before Future Income Tax Expenses Discounted at
(%/year)
0 5 10 15 20
Reserves
Category (M$) (M$) (M$) (M$) (M$)
Proved
Developed 279,949 219,778 181,163 154,552 135,199
Producing
Developed 53,791 40,558 32,729 27,344 23,390
Non-Producing
Undeveloped 191,339 131,180 93,573 68,590 51,216
Total Proved 525,080 391,516 307,465 250,486 209,805
Probable 517,054 319,281 218,170 159,281 121,740
Total Proved 1,042,134 710,797 525,635 409,768 331,544
plus Probable
After Future Income Tax Expenses Discounted at
(%/year)
0 5 10 15 20
Reserves
Category (M$) (M$) (M$) (M$) (M$)
Proved
Developed 279,949 219,778 181,163 154,552 135,199
Producing
Developed 51,677 38,495 30,713 25,373 21,460
Non-Producing
Undeveloped 188,893 129,950 92,838 68,068 50,792
Total Proved 520,519 388,222 304,714 247,993 207,451
Probable 388,420 245,428 172,141 129,025 101,124
Total Proved 908,939 633,650 476,855 377,018 308,575
plus Probable
Notes:
(1) Columns may not add due to rounding .
(2) It should not be assumed that the undiscounted and discounted
future net revenues estimated by GLJ represent the fair market
value of the reserves
GLJ employed the following pricing, exchange rate and inflation rate
assumptions as of January 1, 2011 in the GLJ Report in estimating
Cequence's reserves data using forecast prices and costs:
Natural Gas Light Crude Oil Pentanes
Plus
Henry Hub AECO Gas WTI Edmonton Edmonton Inflation Exchange
Price Rates Rate
Year ($US/MMBtu) ($Cdn/MMBtu) ($US/bbl) ($Cdn/bbl) ($Cdn/bbl) %/year ($US/$Cdn)
Forecast
2011 4.50 4.16 88.00 86.22 90.54 2.0 0.98
2012 5.15 4.74 89.00 89.29 91.96 2.0 0.98
2013 5.75 5.31 90.00 90.92 92.74 2.0 0.98
2014 6.25 5.77 92.00 92.96 94.82 2.0 0.98
2015 6.75 6.22 95.17 96.19 98.12 2.0 0.98
2016 7.10 6.53 97.55 98.62 100.59 2.0 0.98
2017 7.32 6.76 100.26 101.39 103.42 2.0 0.98
2018 7.47 6.90 102.74 103.92 106.00 2.0 0.98
2019 7.62 7.06 105.45 106.68 108.82 2.0 0.98
2020 7.77 7.21 107.56 108.84 111.01 2.0 0.98
Finding, development and acquisition costs ('FD&A') and finding and
development costs ('F&D') both including and excluding future
development capital ('FDC') have been calculated in accordance with NI
51-101. Cequence's finding, development and acquisition costs are as
follows:
Proved
Plus
Proved Probable Proved Plus
Capital Reserve Proved Reserve Probable
Expenditures Additions Costs Additions Costs
($000s) (MBOE) ($/BOE) (MBOE) ($/BOE)
FD&A
Including
Change in
FDC
2010
Proved 392,267 21,495 18.25 N/A N/A
2010
Proved
Plus
Probable 478,503 N/A N/A 37,772 12.67
3 year
average
Proved 166,086 8,688 19.12 N/A N/A
3 year
average
Proved
Plus
Probable 200,708 N/A N/A 15,102 13.29
F&D
Including
Change in
FDC
2010
Proved 84,067 428 196.42 N/A N/A
2010
Proved
Plus
Probable 89,644 N/A N/A 63 1,422.92
3 year
average
Proved 53,937 1,030 52.38 N/A N/A
3 year
average
Proved
Plus
Probable 61,672 N/A N/A 1,598 38.60
Notes:
(1) FD&A including change in FDC in respect of 2009 Proved, 2009
Proved plus Probable, 2008 Proved and 2008 Proved plus
Probable is included in the Company's annual information form
for the year ended December 31, 2009 dated March 29, 2010 (the
'2009 AIF') which is available at sedar.com.
(2) F&D including change in FDC in respect of 2009 Proved, 2009
Proved plus Probable, 2008 Proved and 2008 Proved plus
Probable is included in the 2009 AIF.
(3) The aggregate of the exploration and development costs
incurred in the most recent financial year and the change
during that year in estimated future development costs
generally will not reflect total finding and development costs
related to reserve additions for that year.
(4) In addition to F&D costs, Cequence also calculates FD&A costs
which incorporate both the costs and associated reserve
additions related to acquisitions net of any dispositions
during the year. Since acquisitions can have a significant
impact on Cequence's annual reserve replacement costs, the
Company believes that FD&A costs provide a more meaningful
portrayal of Cequence's cost structure.
Substantially all of the Company's drilling expenditures during the year
were on assets acquired during the year in the Peloton, Temple and
North Bigstone acquisitions or disposed of in the Sinclair
disposition. The GLJ Report classifies all reserve changes due to
discoveries, extensions, improved recoveries, technical revisions,
acquisitions and economic factors on properties acquired or disposed of
during the year as 'Acquisitions' or 'Dispositions'. This definition
includes the results of drilling operations before or after an
acquisition or disposition is closed. The result is the F&D calculation
included in the table above which is based on the information contained
in the GLJ reserve reconciliation.
To provide F&D information that better isolates the effect of drilling
expenditures, Cequence has performed a supplementary finding and
development calculation as follows:
FDC on Proved
Proved Plus Plus
Proved FDC on Proved Probable Probable
Reserves Reserves Reserves Reserves
(MBOE) ($000s) (MBOE) ($000s)
December 31,
2010 27,333 141,710 48,864 250,831
December 31,
2009 7,463 30,169 12,717 53,054
Change 19,870 111,541 36,147 197,777
Subtract
Acquisitions:
Peloton (2,785) (17,876) (4,421) (21,453)
Temple (8,725) (56,597) (17,732) (112,169)
North
Bigstone
(Simonette)
Assets (6,010) (31,717) (10,997) (70,451)
Change net of
Acquisitions 2,350 5,351 2,997 (6,296)
Add: Sinclair
Disposition 1,772 14,596 3,897 31,820
Add: 2010
Production 1,625 - 1,625 -
Net related
to F&D 5,747 19,947 8,519 25,524
F&D Costs F&D
including including
Capital Change change Reserve change in
Expenditures in FDC in FDC Additions FDC
($000s) ($000s) ($000s) (MBOE) ($/BOE)
F&D
Calculation
- Proved 64,120 19,947 84,067 5,747 14.63
F&D
Calculation
- Proved
Plus
Probable 64,120 25,524 89,644 8,519 10.52
The Company expects to announce guidance for the 2011 year following
completion of the winter drilling program.
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 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, anticipated events or
results 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 forecasts; business
strategy and objectives; development, exploration, acquisition and
disposition plans and the timing thereof; capital expenditures; reserve
quantities and the discounted present value of future net cash flows
from such reserves; future production levels. 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, 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 manor; 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 which 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.
Non-GAAP Measures
The press release contains references to terms commonly used in the oil
and gas industry. These measures include 'netbacks' and 'funds flow
from operations'. These measures are not defined under GAAP and should
not be considered in isolation or as an alternative to conventional
GAAP measures. Certain of these measures are not necessarily comparable
to a similarly titled measure of another company. When these measures
are used, they have been footnoted and the footnote to the applicable
measure notes that the measure is 'non-GAAP' and contains a description
of how to reconcile the measure to the applicable financial statements.
These measures should be given careful consideration by the investor.
Specifically, management of Cequence uses netbacks and funds flow from
operations as they are non-GAAP measures used extensively in the
Canadian energy sector for comparative purposes. Netbacks are
calculated through total revenue less royalties, operating costs and
transportation costs. Management utilizes this measure to analyze
operating performance. Cequence defines the term 'funds flow from
operations' as cash flow from operating activities before adjustments
for asset retirement expenditures, proceeds from sale of commodity
contracts and net changes in non-cash working capital. Cequence
evaluates its performance based on earnings and funds flow from
operations. Cequence considers funds flow from operations a key measure
as it demonstrates Cequence's ability to generate the cash flow
necessary to fund future growth through capital investment and to repay
debt. Cequence's calculation of funds flow from operations may not be
comparable to that reported by other companies.
Non-GAAP measures do not have a standardized meaning prescribed by GAAP
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.
To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/March2011/10/c2037.html
Paul Wanklyn, Chief Executive Officer, (403) 218-8850, pwanklyn@cequence-energy.com
David Gillis, Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com.
