CEQUENCE ENERGY LTD. ANNOUNCES FIRST QUARTER RESULTS
CALGARY, May 12 /CNW/ --
CALGARY, May 12 /CNW/ - Cequence Energy Ltd. ('Cequence' or the
'Company') (TSX: CQE) is pleased to announce its operating and
financial results for the first quarter ended March 31, 2011.
IMPORTANT INFORMATION
As of January 1, 2011, Cequence prepares its interim consolidated
financial statements and comparative information in accordance with
International Financial Reporting Standards ('IFRS') 1, 'First-time
Adoption of International Financial Reporting Standards', and with
International Accounting Standard 34, 'Interim Financial Reporting,' as
issued by the International Accounting Standards Board. Previously,
Cequence's financial statements were prepared in accordance with
Canadian generally accepted accounting principles ('Canadian GAAP').
Reconciliations between Canadian GAAP and IFRS financial information
can be found in the consolidated financial statements available on the
Company's website at www.cequence-energy.com and on www.sedar.com.
Financial and Operating Highlights
(000's except per Three months ended
share amounts) March 31
%
2011 2010 Change
Financial ($)
Production revenue,
gross of royalties
and including
realized hedge $ 24,032 $ 10,093 138%
Comprehensive loss
((1)) (1,975) (14,517) (86)%
Per share, basic
and diluted (0.02) (0.37) (95)%
Funds flow from
operations ((1)
(2)) 9,780 4,498 117%
Per share, basic
and diluted 0.07 0.11 (32)%
Production volumes
Natural gas (Mcf/d) 42,514 12,592 238%
Crude oil (bbls/d) 686 268 156%
Natural gas liquids
(bbls/d) 413 78 429%
Total (boe/d) 8,185 2,444 235%
Sales prices
Natural gas,
including realized
hedges ($/Mcf) $ 4.21 $ 6.83 (38)%
Crude oil ($/bbl) 88.38 76.80 15%
Natural gas liquids
($/bbl) 66.12 71.81 (8)%
Total ($/boe) $ 32.62 $ 45.88 (29)%
Operating Netbacks
($/boe)
Price $32.62 $ 45.88 (29)%
Royalties (4.40) (5.06) (13)%
Transportation (2.48) (3.38) (27)%
Operating costs (9.15) (13.07) (30)%
Operating Netback $16.59 $ 24.37 (32)%
Capital
Expenditures $45,574 $ 26,412 73%
Property
Acquisitions (net) (21,644) 279 N/A
Total capital
expenditures $23,930 $ 26,691 (10)%
Net debt and
working capital
(deficiency) ((3)) (45,629) (16,289) (180)%
Long-term debt
related to
investments ((4)) - (18,000) (100)%
Weighted average
shares outstanding
(basic and diluted) 131,161 39,530 232%
Undeveloped land
(net acres) 266,000 143,200 86%
(1) 2010 figures have been restated from previously reported
amounts resulting from the application of IFRS discussed
above.
(2) Funds flow from operations is calculated as cash flow from
operating activities before adjustments for
decommissioning liability expenditures and net changes in
non-cash working capital.
(3) Net debt and working capital (deficiency) is calculated as
cash, net working capital less commodity contract asset
and demand credit facilities.
(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 asset backed MAV II notes.
During the year ended December 31, 2010, the 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 close the facility.
HIGHLIGHTS
The first quarter of 2011 was highlighted by:
-- Established the economic viability of two separate resource
plays in the Montney and Wilrich at Simonette. Two Wilrich
horizontal wells, two Montney horizontal wells and two vertical
delineation wells were completed in the quarter;
-- Increased average production by 235 percent over the first
quarter of 2010 and 9 percent over the fourth quarter of 2010.
Average production in the first quarter of 2011 was 8,185
boepd;
-- Reduced operating costs per boe to $9.15, an improvement of 30
percent from the first quarter of 2010;
-- Reduced general and administrative expenses per boe by 31
percent to $2.43 per boe from $3.52 per boe in the first
quarter of 2010;
-- Increased funds flow from operations by 117 percent to $9.8
million or $0.07 per share from $4.5 million or $0.11 per share
in the first quarter of 2010;
-- Expenditures of $45.6 million on drilling, facilities and land
in the first quarter of 2011, focused at Simonette;
-- Maintained a strong balance sheet with $45.6 million of net
debt at quarter end resulting in an annualized first quarter
debt to cash flow ratio of 1.2:1;
-- Increased 2011 capital spending and production guidance
following the success of the winter drilling program;
-- Disposal of non-core assets for proceeds of $22 million, prior
to adjustments, and issued equity for net proceeds of $43.0
million; and
-- Completed facility work at Simonette in April 2011 to increase
productive capacity to 37 mmcf/d through the Keyera Simonette
gas plant.
OPERATIONS REVIEW
Capital expenditures in the first quarter of 2011 of $45.6 million were
focused on the Simonette area of the Deep Basin. Drilling and
completion expenditures of $30.6 million were designed to test the
potential of both the Wilrich and Montney resource plays at Simonette.
In total, Cequence drilled 2.0 (1.8 net) Montney horizontal wells; 2.0
(2.0 net) Wilrich wells and 2.0 (2.0 net) vertical delineation wells.
In addition, Cequence drilled 1.0 (0.5 net) horizontal well in the
Peace River Arch, targeting Montney oil and 2.0 (0.6 net) vertical
wells at Fir. In 2011, Cequence continued to add to its landbase at
Simonette with 7,200 net acres acquired, resulting in current
landholdings at Simonette of 72,400 net undeveloped acres.
Production for the first quarter of 2011 averaged 8,185 boepd
representing an increase of 9 percent from the fourth quarter of 2010.
Production additions from the winter drilling program were restricted
by existing gathering systems and compression at Simonette. The initial
phase of facility expansion was completed and Cequence began to produce
additional volumes in May 2011. Cequence is on track to meet or exceed
its average production guidance for 2011 of 9,200 boepd and an exit
production rate of 10,000 boepd.
Facilities expenditures in the first quarter of 2011 were $12.7 million
and included the first phase of a new compression and dehydration
facility and more than 40 kilometres of gathering system. As a result,
Cequence has increased processing capacity at Simonette by 15 mmcf/d to
37 mmcf/d. The first phase of facilities expenditures was designed to
accommodate larger scale future development at Simonette and is
expected to reduce facility expenditures on subsequent expansions. The
second phase of facility expansion is being evaluated and is
anticipated to cost $4 million and expand capacity by 20 mmcf/d.
Cequence continued to rationalize assets in the first quarter of 2011 by
disposing of non-core assets at Garrington for proceeds of $21.6
million. In addition, Cequence closed the disposition of its Virginia
Hills assets in April 2011 for proceeds of $7.5 million. Proceeds from
both dispositions will be directed towards the expanded drilling
program at Simonette.
FINANCIAL
The first quarter was highlighted by an increase in oil and natural gas
production of 235 percent over the first quarter of 2010 and an
increase of 9 percent over the fourth quarter of 2010. Production
growth compared to the first quarter of 2010 resulted from acquisitions
completed in 2010 and the success of the Company's drilling program.
Cequence achieved another successful quarter in terms of improving the
Company's cost structure with reductions in per boe operating costs,
transportation expense and general and administrative expense of 30
percent, 27 percent and 31 percent, respectively, as compared to the
first quarter of 2010.
Funds flow from operations increased 117 percent from the first quarter
of 2010 to $9,780 or $0.07 per share. The Company recorded a
comprehensive loss of $1,975 compared to a comprehensive loss of
$14,517 in the first quarter of 2010.
Cequence completed an equity issue totalling 15.5 million shares for
gross proceeds of $45.5 million which closed on March 17, 2011.
Additionally, the Company disposed of assets in the first quarter for
proceeds of $22 million, prior to adjustments. Cequence exited the
first quarter of 2011 with net debt of $45.6 million and an existing
bank line of $110.0 million.
With a strong balance sheet, the 2011 capital budget was recently
expanded to $100 million from $55 million. Additional sources of
funding for capital expenditures in 2011 will be available from a share
issuance related to the Company's CDE 'flow-through' warrants expected
to close in August 2011 at a price set as a 10 percent premium to the
Company's weighted average stock price on the TSX prior to the
issuance.
The Company's financial statements and management's discussion and
analysis for the period ended March 31, 2011 are available on SEDAR at
www.sedar.com.
Outlook and Guidance
For the remainder of 2010, the drilling program will be focused on the
continued horizontal and vertical delineation of our resource base at
Simonette, with a minimum of four to five wells targeting the Montney
and Wilrich zones, and two wells targeting new prospects. Drilling is
expected to resume in early July, following spring breakup.
Results from the initial horizontal wells completed in the winter
drilling program are very encouraging. Based on observed initial
production rates and natural gas liquids yields of our Montney and
Wilrich wells, management believes strong economic returns can be
generated at current natural gas prices. Liquids yields of 45 barrels
per mmcf in the Montney and 25 barrels per mmcf in the Wilrich are
expected.
Following the disposition of non-core properties and the equity offering
closed in March, management believes that the Company's balance sheet
and growing drilling inventory will continue to generate growth in
production, funds flow and reserves.
Cequence's 2011 guidance is as follows:
Guidance
Average 2011
production, BOE/d (
(2)) 9,200
Exit 2011
production, BOE/d 10,000
Capital
expenditures 2011
($) ((3)) 100,000
Planned
dispositions ($)(
(2)) (29,000)
Equity issued ($) (
(1)) 51,500
Operating costs ($) $9.60
Royalties (%
revenue) 12
Crude - WTI
(Cdn$/bbl) $95.00
Natural gas - AECO
(Cdn$/GJ) $3.50
$45-50
Funds flow ($) million
December 31, 2011 $40-45
Net debt ($) million
Basic shares
outstanding, Dec 31 146.5
2011((1)) million
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 dispositions of two properties with
combined production as of December 31, 2010 of
approximately 520 BOE/d.
(3) Excludes the $29.5 million disposition of non-core
assets.
Annual Meeting
The annual meeting of the Cequence shareholders will be held on Tuesday,
May 24(th) at 3:00 p.m. in the Devonian Room at the Petroleum Club, located at 319
- 5(th) Avenue S.W., Calgary, AB T2P 0L5.
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 concerning Cequence
in this press release may include, but are not limited to, statements
or information with respect to: guidance and forecasts; business
strategy and objectives; development, exploration, acquisition and
disposition plans and the timing and results thereof; 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 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.
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 and changes in 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.
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.
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Paul Wanklyn, Chief Executive Officer, (403) 218-8850, pwanklyn@cequence-energy.com
David Gillis, Chief Financial Officer, (403) 806-4041, dgillis@cequence-energy.com
