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Cequence Energy Announces First Quarter 2018 Financial and Operating Results


CALGARYMay 15, 2018 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to announce its operating and financial results for the three month period ended March 31, 2018. The Company’s Consolidated Financial Statements and Management’s Discussion and Analysis are available at cequence-energy.com and on SEDAR at www.sedar.com.

First quarter & subsequent Company highlights include:

  • Achieved average quarterly production of 6,970 boe/d (17% liquids), an increase of four percent from the fourth quarter 2017;
  • Funds flow from operations was $3.2 million or $0.01 per share;
  • Operating costs were $10.18/boe down from $12.91/boe in the fourth quarter of 2017 as the water transfer project nears completion;
  • Completed and tied in 3.0 gross (2.0 net) Dunvegan horizontal oil wells.  The wells have produced an average of 440 bbl oil per operating day per well since early April;
  • Entered into a transaction to dispose all of the Company’s B.C. assets for nominal consideration.  The transaction closed on April 18th with an effective date of April 1, 2018; and
  • On May 1st, the Company sold approximately 145 boe/d (90% gas) in the Gordondale area of Alberta for $1.5 million.

(000’s except per share and per unit amounts)

Three months ended

March 31,

2018

2017

%  Change

FINANCIAL

Total revenue(1)(5)

14,443

19,354

(25)

Comprehensive income (loss)

(3,725)

5,251

(171)

Per share – basic and diluted

(0.02)

0.02

(200)

Funds flow from operations  (2)(5)

3,236

7,346

(56)

Per share, basic and diluted

0.01

0.03

(67)

Capital expenditures, before acquisitions (dispositions)

7,454

15,046

(50)

Capital expenditures, including acquisitions (dispositions)

7,458

15,046

(50)

Net debt (3)(5)

(74,477)

(71,943)

4

Weighted average shares outstanding – basic

245,528

245,528

Weighted average shares outstanding – diluted

245,528

248,889

(1)

OPERATING

Production volumes

Natural gas (Mcf/d)

34,828

45,214

(23)

Crude oil (bbls/d)

245

481

(49)

Natural gas liquids (bbls/d)

274

270

1

Condensate (bbls/d)

647

814

(21)

Total (boe/d)

6,970

9,101

(23)

Sales prices

Natural gas, including realized hedges ($/Mcf)

2.70

2.79

(3)

Crude oil and condensate, including realized hedges ($/bbl)

62.59

62.50

Natural gas liquids ($/bbl)

38.30

29.92

28

Total ($/boe)

23.02

23.63

(3)

Netback ($/boe)

Price, including realized hedges

23.02

23.63

(3)

Royalties

(1.18)

(1.65)

(28)

Transportation

(2.30)

(1.60)

44

Operating costs

(10.18)

(8.28)

23

Operating netback(5)

9.36

12.10

(23)

General and administrative

(1.99)

(1.28)

55

Interest(4)

(2.36)

(1.95)

21

Cash netback(5)

5.01

8.87

(44)

(1)

Total revenue is presented gross of royalties and includes realized gains (loss) on commodity contracts.

(2)

Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning liabilities expenditures and net changes in non-cash working capital.

(3)

Net debt is calculated as working capital (deficiency) less the principal value of senior notes, and excluding assets held for sale and liabilities associated with assets held for sale.

(4)

Represents finance costs less amortization on transaction costs and accretion expense on senior notes and provisions.

(5)

Non-GAAP measure. See “Non-GAAP Measurements” below, for additional information.

Financial

Funds flow from operations for the first quarter was $3.2 million, which reflects increased production volumes from the fourth quarter of 2017, but lower volumes than the first quarter of 2017.  Realized sales prices (including hedging) decreased three percent from the comparative period in 2017. Comprehensive loss for the quarter ended March 31, 2018 was $3.7 million compared to income of $5.3 million in the first quarter of 2017.

Capital expenditures, net of dispositions, were $7.5 million in the first quarter primarily associated with the completion and tie-in of the Company’s winter drilling program of 3.0 gross (2.0 net) Dunvegan horizontal oil wells and drilling 1.0 gross (1.0 net) Dunvegan vertical well at Simonette.

Effective April 1, 2018, the Company disposed of its remaining British Columbia assets for nominal consideration.  Upon closing of this transaction, Cequence became a pure Alberta operating entity with an Alberta Energy Regulatory Licensee Liability Rating of 5.7.  In addition, on May 1st, 2018, the Company sold approximately 145 boe/d (90% gas) in the Gordondale area of Alberta for $1.5 million.  No changes were required to the Company’s borrowing base as a result of the above two transactions.

Beginning on April 1, 2018, the Company has been selling 10,850 GJ/d of production in the Dawn market.  Proforma to the above disclosed transactions, the Dawn marketing arrangement will provide the Company diversification away from AECO for approximately 1/3 of its gas production.

The Company has $74.5 million in net debt as at March 31, 2018, which is comprised of $60 million in senior notes carrying a five year term (maturing in October 2018) and a working capital deficiency of $14.5 million. The senior credit facility of $12 million remains undrawn other than letters of credit of $1.5 million.  The Company’s bank review is scheduled to be completed by the end of May 2018.

The challenging Canadian gas commodity pricing environment has affected the Company’s cash flows, liquidity and current debt. The Company’s financial statements show that there is significant doubt about the Company’s ability to continue as a going concern.  The Company is actively pursuing various strategies to improve its liquidity position including ongoing discussions with CPPIB Credit Investments Inc. as the sole noteholder, debt or equity financing, potential business combinations or other restructuring. Management is hopeful that it will be able to implement one or more of these strategies prior to the CPPIB senior notes maturing, although that is not guaranteed. Further details are set forth in the financial statements available on SEDAR.

Operational Update

Average production in the first quarter of 2018 of 6,970 boe/d (17% liquids) increased four percent from the fourth quarter of 2017. The production increase was primarily associated with reactivating production that was curtailed in the fourth quarter due to the low AECO gas commodity prices. Cequence is considering curtailing gas production as the low AECO prices have persisted into the second quarter of 2018.

The previously announced 3.0 gross (2.0 net) horizontal Dunvegan oil wells were completed and tied into permanent facilities in the quarter. The wells produced more consistently in April and have exhibited encouraging performance with the three wells averaging 440 bbl oil per operating day per well. The below table outlines the performance of the three wells:

Daily Operating

Average (gross)

Last 7 Operating days

(gross)

Well UWI

CQE
Interest
%

Reference

Date

Operating

Days

Oil

(bbl/d)

Gas

(mcf/d)

Oil

(bbl/d)

Gas

(mcf/d)

15-04-062-26W5

100%

April 11, 2018

23

699

600

909

1,200

12-14-062-26W5

50%

April 7, 2018

30

375

389

588

700

11-14-062-26W5

50%

April 17, 2018

17

262

220

359

333

Challenging spring break up conditions, trucking, and 3rd party infrastructure restrictions have prevented the three wells from producing at the same time.  In order to accommodate the increased oil volumes, the new wells have been rotationally produced, base Dunvegan oil production has been curtailed, and weight restricted trucking has occurred.  While management is very encouraged by the early production results from these wells, such results are not necessarily indicative of long-term performance or of ultimate recovery from the wells.

Cequence estimates there are approximately 26.5 net Dunvegan oil locations remaining on its land.

Operating costs for the quarter were $10.18/boe down 21% from the fourth quarter of 2017. The Company had previously disclosed that it had incurred increased costs associated with accelerating a water handling and disposal project in the second half of 2017.  Operating costs in the first quarter of 2018 decreased primarily as a result of the reduction in these water costs.

Outlook

The Company guidance for the first six months of 2018 includes the results of the first quarter, the $1.5 millionof divestitures completed, and results of the 3.0 gross (2.0 net) Dunvegan oil wells coming on at Simonette.  Volumes will be lower in the second quarter of 2018 as the Company divested approximately 750 boe/d of northeast British Columbia assets and 145 boe/d of Gordondale assets, while bringing on oil volumes at Simonette.  As a result, the liquids weighting of the Company’s production is expected to increase from approximately 17% in the first quarter of 2018 to a forecasted 27% in the second quarter of 2018.

Transportation costs are forecast to increase in the second quarter of 2018 as the Company’s gas transportation contract to the Dawn, Ontario market begins.

(000’s, except per share and per unit references)

Six Months

Ended

June 30, 2018

Average production, BOE/d (1)

6,300

Funds flow from operations ($)(2)(4)

5,200

Funds flow from operations per share(2)(4)

0.02

Capital expenditures, ($)

6,600

Operating and transportation costs ($/boe)

14.40

G&A costs ($/boe)

2.05

Royalties (% revenue)

6

Crude – WTI (US$/bbl)

65.00

Natural gas – AECO (CDN$/GJ)

1.45

Period end, net debt ($) (3)(4)

71,400

Weighted average basic shares outstanding

245,500

(1)

Average production estimates on a per BOE basis are comprised of 79% natural gas and 21% oil and natural gas liquids.

(2)

Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning liabilities expenditures and net changes in non-cash working capital.

(3)

Net debt is calculated as working capital (deficiency) less the aggregate principal amount of the senior notes.

(4)

Non-GAAP measure. See “Non-GAAP Measurements” below, for additional information.

About Cequence

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.



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