Cequence Energy Ltd. Announces Second Quarter Results
CALGARY, Aug. 11, 2011 /CNW/ --
CALGARY, Aug. 11, 2011 /CNW/ - Cequence Energy Ltd. ('Cequence' or the
'Company') (TSX: CQE) is pleased to announce its operating and
financial results for the second quarter ended June 30, 2011. Selected
financial and operational information is outlined below and should be
read in conjunction with the interim financial statements and the
related MD&A which have been filed on Sedar at www.sedar.com.
Financial and Operating Highlights
(000's except Three months ended Six months ended
per share June 30 June 30
amounts)
2011 2010 % Change 2011 2010 % Change
Financial ($)
Production $ 27,293 $ 9,174 198% $ 51,325 $ 19,267 166%
revenue, gross
of royalties
and including
realized hedge
Comprehensive (701) (4,029) (83)% (2,676) (18,545) (86)%
loss ((1))
Per share, (0.00) (0.10) (100)% (0.02) (0.45) (96)%
basic and
diluted
Funds flow 12,042 2,197 448% 21,822 6,696 226%
from
operations (
(1) (2))
Per share, 0.08 0.05 60% 0.16 0.16 0%
basic and
diluted
Production
volumes
Natural gas 48,785 16,559 195% 45,667 14,587 213%
(Mcf/d)
Crude oil 599 253 137% 642 260 147%
(bbls/d)
Natural gas 396 184 115% 404 131 208%
liquids
(bbls/d)
Total (boe/d) 9,125 3,197 185% 8,658 2,823 207%
Sales prices
Natural gas, $ 4.30 $ 4.21 2% $ 4.26 $ 5.34 (20)%
including
realized
hedges ($/Mcf)
Crude oil 97.80 70.22 39% 92.80 73.59 26%
($/bbl)
Natural gas 80.15 72.07 11% 73.02 71.99 1%
liquids
($/bbl)
Total ($/boe) $ 32.87 $ 31.53 4% $ 32.75 $ 37.71 (13)%
Operating
Netbacks
($/boe)
Price $ 32.87 $ 31.53 4% $ 32.75 $ 37.71 (13)%
Royalties (4.29) (2.40) 79% (4.34) (3.55) 22%
Transportation (2.27) (2.88) (21)% (2.37) (3.10) (24)%
Operating (8.96) (11.66) (23)% (9.05) (12.27) (26)%
costs
Operating $ 17.35 $ 14.59 19% $ 16.99 $ 18.79 (10)%
Netback
Capital $ 16,470 $ 5,057 226% $ 62,044 $ 31,469 97%
Expenditures
Corporate - 26,634 N/A - 26,634 N/A
Acquisitions (
(1))
Property 14,134 - N/A (7,510) 279 N/A
Acquisitions
(net)
Total capital $ 30,604 $ 31,691 (3)% $ 54,534 $ 58,382 (7)%
expenditures
Net debt and (65,147) (25,226) 158% (65,147) (25,226) 158%
working
capital
(deficiency) (
(3))
Long-term debt - (18,000) N/A - (18,000) N/A
related to
investments (
(4))
Weighted 144,314 42,048 243% 137,774 40,796 238%
average shares
outstanding
(basic and
diluted)
Undeveloped 280,000 179,000 56% 280,000 179,000 56%
land (net
acres)
(1) 2010 figures have been restated from previously reported amounts
resulting from the application of IFRS discussed below.
(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 and excluding obligations on flow-through
shares included with accounts payable and accrued liabilities in
the consolidated balance sheet.
(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 second quarter of 2011 was highlighted by the following:
-- Increased average production to 9,125 boepd for the quarter
(48.8 mmcf/d of natural gas plus 995 bbls/d of oil and ngl's),
a 185 percent increase over the second quarter of 2010 and an
11 percent increase over the first quarter of 2011;
-- Achieved a production milestone in July with average monthly
production of approximately 10,200 boepd;
-- Completed phase I of the field gathering and facility expansion
project at Simonette providing for approximately 37 mmcf/d of
total current capacity through the Simonette plant and
commenced phase II of the facility expansion;
-- Acquired approximately 1,000 boepd of mostly operated
production for $22 million in a new area of the Deep Basin in
mid June, 2011. Cequence intends to expand its operations in
this area in the future;
-- Subsequent to quarter end, negotiated agreements to dispose of
non-core properties in British Columbia and Alberta for $16.4
million. The transactions are expected to close in September
2011;
-- Increased funds flow from operations to $12.0 million or $0.08
per share from $2.2 million or $0.05 per share in the second
quarter of 2010;
-- Reduced operating costs per boe to $8.96, an improvement of 23
percent from the second quarter of 2010;
-- Reduced general and administrative expenses by 42 percent to
$2.37 per boe from $4.09 per boe in the second quarter of 2010;
-- Maintained a strong balance sheet with $65.1 million of net
debt at quarter end on a bank facility of $110 million
resulting in an annualized second quarter debt to cash flow
ratio of 1.4:1;
-- Positive pro forma June 30, 2011 net debt and working capital
balance of $8.6 million, as calculated in the 'Financial'
section below.
OPERATIONS REVIEW
Capital expenditures in the quarter were $16.5 million, relating
primarily to facility expenditures and land acquisition at Simonette.
Facilities expenditures in the second quarter of 2011 were $8.3 million
and included completion of the first phase of a new compression and
dehydration facility at Simonette and the commencement of phase two of
the facility expansion. Upon completion of the first phase, 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 and to reduce facility
expenditures on subsequent expansions. The second phase of facility
expansion is underway to expand capacity by an additional 20 mmcf/d.
Second quarter capital expenditures include $3.0 million related to the
second phase of facility expansion and the total cost of the expansion
is estimated at $4.0 million.
Cequence continued to add to its land base at Simonette with an
additional 12.7 net sections of land acquired for a total cost of $4
million.
Cequence has continued to rationalize its asset base by disposing of
high cost, non-core assets and redeploying the capital to lower cost
assets in the Deep Basin. In the second quarter, Cequence closed the
previously announced disposition of its Virginia Hills assets in April
2011 for proceeds of $7.5 million. Subsequent to the second quarter,
the Company agreed to the sale of other non-core, high operating cost
assets for total proceeds of approximately $16.4 million, which are
expected to close in the third quarter. These assets represent 500
boepd of production and, based on an independent reserve report dated
December 31, 2010, 3.3 mmboe of reserves on a proved plus probable
basis. Operating costs and transportation expense for the first half of
2011 related to these properties was greater than $20 per boe. In
total, approximately 1,020 boepd of production will have been sold
since the beginning of 2011 for total proceeds of approximately $45.9
million.
In the second quarter of 2011, Cequence acquired assets in a new area of
the Deep Basin for total consideration of $22 million with mostly
operated production of approximately 1,000 boepd. Based on an
independent engineering report dated March 31, 2011, proved developed
producing reserves attributed to the acquisition total 2.0 mmboe and
proved plus probable reserves are 2.3 mmboe. Total operating costs of
the property are $6.00 per boe. Cequence intends to expand its
operations in this area in the future.
Production for the second quarter of 2011 averaged 9,125 boepd, after
taking into account planned turnarounds and minor weather related
disruptions, representing an increase of 185 percent from the second
quarter of 2010, and an increase of 11 percent from the first quarter
of 2011.
FINANCIAL
The second quarter was highlighted by an increase in oil and natural gas
production of 185 percent over the second quarter of 2010 and an
increase of 11 percent over the first quarter of 2011. Production
growth compared to the first quarter of 2011 resulted from the success
of the Company's drilling program and facility expansions completed in
2011.
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 23
percent, 21 percent and 42 percent, respectively, as compared to the
second quarter of 2010.
Funds flow from operations increased to $12,042 or $0.08 per share. The
Company recorded a comprehensive loss of $701 compared to a
comprehensive loss of $4,029 in the second quarter of 2010.
Subsequent to quarter end, Cequence entered into a bought deal
underwriting agreement with a syndicate of underwriters to raise gross
proceeds of $50.1 million through the issuance of 10.4 million common
voting shares at $3.85 per share, as well as 2.1 million CEE
flow-through shares at $4.75 per share. The offering is expected to
close on August 18, 2011. The underwriters have an over-allotment
option to purchase 1.6 million common voting shares at $3.85 per share,
exercisable up to 30 days following the closing.
Cequence also expects to close a private placement of 2.25 million CDE
flow through shares for $4.36 per share before August 15, 2011,
pursuant to the exercise of previously disclosed share purchase
warrants for total proceeds of $9.8 million.
Net debt and working capital deficiency at the end of the second quarter
totalled $65.1 million. The pro forma net debt and working capital
balance at the end of the second quarter would be a positive figure of
approximately $8.6 million, calculated as follows:
($000's)
Net debt and working capital (deficiency) - June 30, 2011 ( $ (65,147)
(1))( )( )( )( )( )( )( )( )( )( )
August 2011 bought-deal financing ((2)) 47,559
August 2011 private placement ((3)) 9,810
Third quarter 2011 property dispositions ((4)) 16,420
Pro forma net debt and working capital - June 30, 2011 $ 8,642
(1) Net debt and working capital (deficiency) is calculated as cash,
net working capital less commodity contract asset and demand
credit facilities and excluding obligations on flow-through
shares included with accounts payable and accrued liabilities in
the consolidated balance sheet.
(2) Amount relates to the expected net proceeds of $47.6 million
from the recently announced equity offering, excluding the
over-allotment option, as discussed above.
(3) Amount relates to the expected proceeds of $9.8 million on the
exercise of the CDE flow through share warrants, as discussed
above.
(4) Amount relaters to expected proceeds of $16.4 million related to
the disposition of properties in the third quarter of 2011, as
discussed above.
The Company's financial statements and management's discussion and
analysis for the three and six months ended June 30, 2011 are available
on SEDAR at www.sedar.com.
Outlook
Production from the company's six initial horizontal wells at Simonette
continue to display decline profiles which are, on average, above
management's model production profile. Cequence will continue to
closely monitor these producing profiles and the production data from
the ongoing drilling program before it determines if adjustments are
required to the existing model decline profiles for the Company's
Wilrich and Montney wells.
For the remainder of 2011, the drilling program will be focused on the
continued horizontal and vertical delineation of the Company's resource
base at Simonette. Drilling is now underway and continuous operations
are expected through to spring breakup. In the next month, Cequence
anticipates being in a position to update its capital program and
production guidance.
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. 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 or 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
Boe 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/August2011/11/c3315.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
