CEQUENCE ENERGY ANNOUNCES OPERATIONS UPDATE AND REVISED 2011 GUIDANCE
CALGARY, March 23 /CNW/ -- CALGARY, March 23 /CNW/ - Cequence Energy Ltd. ('Cequence' or the 'Company') (TSX: CQE) is pleased to announce the results of its winter drilling program at Simonette, Alberta and its expanded 2011 capital budget and guidance.
Montney, Simonette
Cequence has successfully completed its second Montney horizontal well at Simonette (100 % working interest). The initial post frac clean-up rate after 75 hours up casing was approximately 2,715 boepd (14.7 mmcf/d of natural gas and 265 bbl/d of free condensate) at a flowing casing pressure of 1,750 psi. The well was then put on final test for 24 hours up tubing with a rate of approximately 2,700 boepd (15 mmcf/d of natural gas and 195 bbls/d of free condensate) at a flowing tubing pressure of 1,600 psi and a shut-in casing pressure of 2,300 psi. Liquids recoveries observed during the flow test are similar to the flow test of Cequence's first Montney horizontal well that is currently producing 33 bbls/mmcf of free condensate and 12 bbls/mmcf of natural gas liquids. Based on the Company's existing facility plans at Simonette, production from the well is expected to commence May 1, 2011 at a restricted rate of approximately 6 mmcf/d.
The well is the second successful Montney horizontal well drilled at Simonette and is located 6.5 kilometres from Cequence's initial horizontal discovery well (75% BPO/50% APO) working interest). Cequence's first Montney horizontal well has flowed at an rate of 670 boepd (3.1 mmcf/d of natural gas and 150 bpd of natural gas liquids) over the initial 30 day period. In addition, Cequence has 4 vertical test wells at Simonette that have encountered significant natural gas pay in the Montney similar to the pay in both horizontal wells drilled. Based on these initial results, the Company believes the Montney to be prospective in approximately 50 net sections of Cequence land at Simonette.
Wilrich, Simonette
At the completion of the winter drilling program, Cequence has drilled three successful horizontal wells, one horizontal well which encountered a partial mechanical failure and three step-out vertical wells.
Results from the two successful wells currently on stream have yielded average initial production rates of 6.5 MMcf/d and 25 bbls/mmcf of natural gas liquids. The final horizontal well of the winter program at 16-15-62-27W5 was recently completed and tested at a rate of 400 boepd (2.3 mmcf/d of natural gas and 9 bbls/mmcf of free condensate) at a flowing pressure of 660 psi. The well is expected to begin production in April 2011. Cequence encountered a partial mechanical failure at the other Wilrich well at 13-16-62-27W5 that was completed in January. Initial production from 13-16 well was 1.8 MMcf/d with 25 bbl/mmcf of natural gas liquids.
Three vertical wells were also drilled to delineate the Wilrich pool. All three encountered full Wilrich pay sections and one well at 13-36-61-27W5 was completed at a test rate of 1 mmcf/d while the other two are Montney horizontal wells.
Cequence has approximately 20 sections of 100% working interest lands surrounding its initial discovery. Future well spacing will ultimately depend on longer term performance but Cequence estimates that two to three wells per section or approximately 40 to 50 horizontal wells will be required. Cequence plans to test further potential extensions to the play in the second half of 2011.
Facilities
The first phase of a new compressor station and dehydration facility with an initial capacity of 15 MMcf/d is under construction. When completed, Cequence will have the ability to process 37 mmcf/d of natural gas to the Simonette gas plant which currently has 90 mmcf/d of unutilized capacity. Planned completion for this phase of development is May 2011. Production at Simonette is currently restricted to 22 mmcf/d.
Outlook and Guidance
Cequence provided 2011 capital budget guidance on November 10, 2010. The primary goals of the capital program were to establish the viability of both the Wilrich and Montney liquids rich natural gas resource plays. Subsequent to that release, Cequence has executed a successful winter drilling program that supports further development at Simonette. In the opinion of Cequence management, both the Wilrich and Montney resource plays yield positive economics at prevailing natural gas and natural gas liquids prices. This success has given management and the Board of Directors the confidence to increase the capital program for 2011 with the following objectives:
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- Accelerate Simonette drilling in the first quarter of 2011 with the
addition of 2 horizontal wells and 1 vertical well;
- Accelerate facilities expenditures in the first quarter of 2011 by
approximately $7 million to increase productive capability at
Simonette to an expected 37 mmcf/day;
- Resume the drilling program following spring break-up with 12 wells
(8 net) to be drilled in the remainder of 2011; and
- Extend the boundaries of the Wilrch and Montney developments and test
new, potentially high impact plays on the Company's land in both the
Simonette and Peace River Arch.
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Execution of the 2011 budget is currently expected by management to provide for average daily production of approximately 9,200 BOE/d (47.8 MMcf/d natural gas and 1,197 bbl/d oil and natural gas liquids) which represents an increase of 107% from 2010 average production and a 7% increase from the Company's previous guidance despite planned dispositions of approximately 520 BOE/d. Approximately 80% of the budget is expected to be allocated to Simonette development, 6% to Montney light oil development in the Peace River Arch and 14% to land, seismic and other expenditures. In total, Cequence expects to drill 18 gross (14 net) wells in 2011. Capital expenditures for 2011 are currently expected to be $100 million and dispositions are expected to be approximately $29.5 million. Cequence closed the disposition of the Garrington assets on March 23, 2011 for proceeds of $22 million, prior to adjustments. The disposition of the Virginia Hills assets for $7.5 million is expected to close in April 2011.
The Company continues to have a strong balance sheet with forecast net debt to exit 2011 of approximately $45 million. Included in the 2011 budget are net proceeds from its recently completed current bought deal financing of approximately $43 million and anticipated proceeds of $8.75 million from flow through warrants due in August 2011.
Cequence's management believes that the Company's strong balance sheet and drilling inventory will continue to generate growth in production, funds flow and reserves. Management provides the following guidance which was approved by the Cequence board of directors on March 23, 2011.
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Old Guidance New Guidance
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Average 2011 production, BOE/d(2) 8,600 9,200
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Exit 2011 production, BOE/d 9,000 10,000
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Capital expenditures 2011 ($)(3) 55,000 100,000
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Planned dispositions ($)(2) - (29,000)
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Equity issued ($)(1) 4,500 51,500
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Operating costs ($) $9.60 $9.60
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Royalties (% revenue) 13 12
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Crude - WTI (Cdn$/bbl) $81.00 $95.00
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Natural gas - AECO (Cdn$/GJ) $4.00 $3.50
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Funds flow ($) $45-50million $45-50million
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December 31, 2011 Net debt ($) $75-80million $40-45million
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Basic shares outstanding,
Dec 31 2011(1) 131 million 144.75 million
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Notes:
(1) Equity issues include estimated proceeds of $8.75 million from the
expected exercise of 2.25 million CDE flow-through Warrants due in
August 2011 and proceeds from the bought deal financing which closed
on March 17, 2011 pursuant to which the Company issued 13.4 million
common shares and 2.1 million CEE flow-through common shares for
total gross proceeds of approximately $45.5 million.
(2) Includes the planned dispositions of two properties with combined
production as of December 31, 2010 of approximately 520 BOE/d.
(3) Excludes the planned $29.5 million disposition of non-core assets.
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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. Cequence's corporate presentation has been revised and can be viewed at Cequence-energy.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 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; 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; 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.
The Company's outlook and guidance for 2011 has been provided to assist readers in analyzing the Company's anticipated development strategies and prospects such outlook and guidance it may not be appropriate for other purposes and actual results could differ from the guidance provided above and is expressly qualified by the risks and assumptions set forth under 'Forward looking Statements and Information'.
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.
Paul Wanklyn, Chief Executive Officer, (403) 218-8850, pwanklyn@cequence-energy.com; David Gillis, Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com
