Cequence Energy Announces Third Quarter Financial Results
CALGARY, Alberta, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Cequence Energy Ltd. ("Cequence" or the "Company") (TSX: CQE) is pleased to announce its operating and financial results for the three and nine months ended September 30, 2019. The Company’s Management’s Discussion and Analysis (“MD&A”) and Condensed Consolidated Interim Financial Statements are available at cequence-energy.com and on SEDAR at www.sedar.com.
HIGHLIGHTS
- Production was 5,238 boe/d, 22% of which was comprised of crude oil and liquids in the third quarter 2019 compared to 6,734 boe/d, 27% of which was comprised of crude oil and liquids for the same period in 2018.
- Completed scheduled turnarounds at two facilities during the three months ended September 30, 2019 reducing third quarter production by approximately 365 boe/d.
- Shut in approximately 3,000 Mcf/d (500 boe/d) from June to September 1st, 2019 of non-core natural gas production in Northeastern British Columbia due to low prices.
- Capital expenditures of $3.6 million focused on Simonette natural gas lift optimization projects expecting to add approximately 500 boe/d in the fourth quarter 2019.
For the nine months ended September 30, 2019 funds flow from operations was $9.2 million, $1.9 million lower than the same prior year period. Production was 5,778 boe/d compared to 6,679 boe/d for the same prior year period. Lower funds flow from operations was due to production declines and higher transportation expenses. Lower royalty, operating and financing expenses year over year partially offset the declines.
SELECTED INFORMATION
| (in thousands of dollars except production volumes, per share and $/boe amounts) |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| Financial | |||||||||||||
| Total revenue(1) | $ | 11,018 | $ | 17,680 | $ | 40,620 | $ | 46,737 | |||||
| Net income (loss) and comprehensive income (loss) | (3,417 | ) | 573 | (9,696 | ) | (5,897 | ) | ||||||
| Per share – basic and diluted | (0.08 | ) | 0.04 | (0.32 | ) | (0.45 | ) | ||||||
| Funds flow from operations(1) | 1,994 | 5,589 | 9,163 | 11,016 | |||||||||
| Per share - basic and diluted | 0.05 | 0.38 | 0.30 | 0.84 | |||||||||
| Capital expenditures, before acquisitions (dispositions) | 3,632 | 1,119 | 6,979 | 10,403 | |||||||||
| Total assets | 270,058 | 277,616 | 270,058 | 277,616 | |||||||||
| Net debt(1) | 64,653 | 61,675 | 64,653 | 61,675 | |||||||||
|
Production volumes |
|||||||||||||
| Natural gas (Mcf/d) | 24,414 | 29,376 | 26,695 | 30,924 | |||||||||
| Crude oil (bbls/d) | 534 | 1,198 | 731 | 772 | |||||||||
| Natural gas liquids (bbls/d) | 195 | 259 | 188 | 257 | |||||||||
| Condensate (bbls/d) | 439 | 382 | 410 | 495 | |||||||||
| Total (boe/d) | 5,238 | 6,734 | 5,778 | 6,679 | |||||||||
|
Netback ($/boe) |
|||||||||||||
| Price, including realized hedges | $ | 22.86 | $ | 28.53 | $ | 25.75 | $ | 25.63 | |||||
| Operating netback(1) | $ | 7.83 | $ | 14.28 | $ | 9.81 | $ | 10.87 | |||||
1 Refer to “Non-IFRS Measures” section for further information.
BENCHMARK PRICING
|
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| AECO-C spot gas (CDN$/Mcf) | $ | 0.91 | $ | 1.28 | $ | 1.52 | $ | 1.50 | |||||||
| Ontario Dawn gas (CDN$/Mcf) | 2.80 | 3.46 | 3.27 | 3.62 | |||||||||||
| WTI crude oil (US$/bbl) | 56.45 | 69.76 | 57.06 | 66.70 | |||||||||||
| Edmonton City Gate oil (CDN$/bbl) | 68.21 | 80.64 | 69.41 | 77.14 | |||||||||||
| US$/CDN$ exchange rate | 0.76 | 0.78 | 0.75 | 0.78 | |||||||||||
Volatile and weak natural gas prices remain below thresholds where investment in natural gas wells is economically beneficial. AECO prices averaged $0.91/Mcf for the three months ended September 30, 2019 compared to $1.28/Mcf for the same prior year period. Oil prices were also volatile and lower in the third quarter 2019, compared with the same prior year period as increased U.S. supply and concerns of a slowing global economy limiting demand growth created an uncertain pricing environment.
OPERATIONS
|
Three months ended September 30, |
||||||||||||
| 2019 | 2018 | |||||||||||
| ($ thousands) | ($/boe) | ($ thousands) | ($/boe) | |||||||||
| Sales of natural gas, crude oil and condensate | $ | 10,226 | $ | 21.22 | $ | 18,207 | $ | 29.39 | ||||
| Realized gain (loss) on commodity contracts | 792 | 1.64 | (527 | ) | (0.86 | ) | ||||||
| Total revenue(1) | 11,018 | 22.86 | 17,680 | 28.53 | ||||||||
| Royalties expense | 578 | 1.20 | 1,453 | 2.35 | ||||||||
| 10,440 | 21.66 | 16,227 | 26.18 | |||||||||
| Operating expense | 4,404 | 9.14 | 5,493 | 8.87 | ||||||||
| Transportation expense | 2,263 | 4.70 | 1,876 | 3.03 | ||||||||
| Operating netback(1) | 3,773 | 7.83 | 8,858 | 14.28 | ||||||||
| General and administrative expense | 1,156 | 2.40 | 1,387 | 2.24 | ||||||||
| Finance expense | 858 | 1.78 | 3,122 | 5.04 | ||||||||
| Cash netback(1) | 1,759 | $ | 3.65 | 4,349 | $ | 7.00 | ||||||
| Unrealized loss (gain) on commodity contracts | 588 | (425 | ) | |||||||||
| Depletion and depreciation expense | 4,500 | 5,019 | ||||||||||
| Share-based payment expense | 118 | 46 | ||||||||||
| Other income | (30 | ) | (864 | ) | ||||||||
| Net income (loss) and comprehensive income (loss) | $ | (3,417 | ) | $ | 573 | |||||||
Production for the three months ended September 30, 2019 averaged 5,238 boe/d compared to 6,734 boe/d for the same prior year period. The decrease was due to the natural decline of the 3.0 gross (2.0 net) Dunvegan horizontal oil wells that were completed in the first quarter 2018, turnarounds completed at two facilities in September 2019 and shutting in non-core production in Northeastern British Columbia that was not economical. Crude oil and liquids production as a percentage of total production decreased to 22 percent in the three months ended September 30, 2019 from 27 percent for the same prior year period.
Operating netback(1) was $7.83 per boe for the three months ended September 30, 2019 compared to $14.28 per boe for the same prior year period. The decrease was due to lower realized prices and lower crude oil and natural gas production partially offset by lower royalty and operating expenses.
Operating expenses were lower for the three months ended September 30, 2019 compared to same prior year period due to lower than expected facility equalizations from prior periods partially offset by turnaround costs for the Simonette and George facilities in 2019 of approximately $0.7 million.
|
Nine months ended September 30, |
||||||||||||
|
2019 |
2018 | |||||||||||
| ($ thousands) | ($/boe) | ($ thousands) | ($/boe) | |||||||||
| Sales of natural gas, crude oil and condensate | $ | 38,515 | $ | 24.42 | $ | 47,605 | $ | 26.11 | ||||
| Realized gain (loss) on commodity contracts | 2,105 | 1.33 | (868 | ) | (0.48 | ) | ||||||
| Total revenue(1) | 40,620 | 25.75 | 46,737 | 25.63 | ||||||||
| Royalties expense | 2,164 | 1.37 | 3,233 | 1.77 | ||||||||
| 38,456 | 24.38 | 43,504 | 23.86 | |||||||||
| Operating expense | 16,036 | 10.17 | 18,640 | 10.22 | ||||||||
| Transportation expense | 6,950 | 4.41 | 5,044 | 2.77 | ||||||||
| Operating netback(1) | 15,470 | 9.81 | 19,820 | 10.87 | ||||||||
| General and administrative expense | 4,183 | 2.65 | 4,124 | 2.26 | ||||||||
| Finance expense | 2,793 | 1.77 | 6,899 | 3.78 | ||||||||
| Cash netback(1) | 8,494 | $ | 5.38 | 8,797 | $ | 4.83 | ||||||
| Unrealized loss on commodity contracts | 2,687 | 1,006 | ||||||||||
| Depletion and depreciation expense | 15,315 | 16,158 | ||||||||||
| Share-based payment expense | 345 | 186 | ||||||||||
| Other income | (157 | ) | (2,656 | ) | ||||||||
| Net loss and comprehensive loss | $ | (9,696 | ) | $ | (5,897 | ) | ||||||
Production for the nine months ended September 30, 2019 averaged 5,778 boe/d compared to production of 6,679 boe/d for the same prior year period.
Operating netback(1) was $9.81 per boe for the nine months ended September 30, 2019 compared to $10.87 per boe for the same prior year period. The decrease was primarily due to higher transportation expenses as the Company entered into transportation agreements for crude oil and natural gas. Crude oil transportation costs prior to entering into the oil transport agreement were included as part of realized price on the crude oil sale whereby previously the costs offset price. The natural gas marketing arrangement provided diversification away from volatile AECO prices for approximately 40 percent of the Company’s gas production to the Dawn, Ontario market. The toll on the Empress to Dawn hub is contracted at a cost of U.S.$0.77 per GJ for a period of 10 years expiring in 2028 with an early termination right that can be exercised following the initial five years of service.
Operating expenses for the nine months ended September 30, 2019 were $10.17 per boe compared to $10.22 per boe for the same prior year period. Lower water handling costs with the completion of a water disposal well in 2018 and reduced long-term field rentals expenses were partially offset in 2019 by workover, swabbing and chemical expenses to optimize and reactivate production and facility turnaround costs.
Finance expenses for the three and nine months ended September 30, 2019 were lower compared to the same prior year periods due to restructuring the senior loan in 2018 and replacing it with the Term Loan which reduced the interest rate on the debt from 9.7% to 5.0%.
CAPITAL EXPENDITURES
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||
| (in thousands of dollars) | 2019 | 2018 | 2019 | 2018 | ||||||||
| Land | $ | 159 | $ | 179 | $ | 602 | $ | 526 | ||||
| Geological & geophysical and capitalized overhead | 538 | 511 | 881 | 831 | ||||||||
| Drilling, completions and workovers | 283 | 90 | 2,212 | 6,783 | ||||||||
| Equipment, facilities and tie-ins | 2,645 | 339 | 3,269 | 2,263 | ||||||||
| Office furniture & equipment | 7 | - | 15 | - | ||||||||
| Capital expenditures | 3,632 | 1,119 | 6,979 | 10,403 | ||||||||
| Acquisitions | 1,518 | - | 1,518 | - | ||||||||
| Dispositions (i) | (1 | ) | (500 | ) | (39 | ) | (1,929 | ) | ||||
| Total capital expenditures | $ | 5,149 | $ | 619 | $ | 8,458 | $ | 8,474 | ||||
(i) Represent the cash proceeds from the sale of assets.
Capital expenditures for the nine months ended September 30, 2019 focused on Simonette. The Company completed and tied in the 2.0 gross (2.0 net) Dunvegan horizontal oil wells drilled in the fourth quarter of 2018 and in early 2019 and has invested in enhancing and optimizing existing well performance using gas lift solutions. The production volume increases from the gas lift investment are expected to be approximately 500 boe per day in the fourth quarter 2019.
During the three months ended September 30, 2019 the Company acquired a water disposal pipeline for $1.5 million. This allows the Company to operate and control the pipeline providing greater flexibility over water handling at Simonette and reducing future operating costs.
Cequence’s 2019 capital budget is approximately $12.0 million comprised of expenditures to enhance and optimize existing well performance using gas lift solutions. The capital budget will be funded from funds flow from operations(1) and proceeds from the Private Placement completed on June 27, 2019.
OUTLOOK
Cequence continues to monitor commodity price volatility and plans to spend within funds flow from operations(1) in executing its 2019 capital program and meeting its debt maintenance requirements.
Key guidance metrics for 2019 are as follows:
|
Guidance year ended December 31, 2019 |
Year ended December 31, 2018 |
|
| Average production, boe/d(i) | 5,800 | 6,507 |
| Funds flow from operations(1) ($ thousands) | 13,000 | 13,087 |
| Development expenditures ($ thousands) | 12,000 | 23,800 |
| Net wells | 1.0 | 4.0 |
| Operating and transportation expenses ($/boe) | 15.00 | 13.15 |
| Royalties (% revenue) | 7 | 7 |
| Crude – WTI (US$/bbl) | 56.75 | 65.20 |
| Natural gas – AECO (CDN$/GJ) | 1.68 | 1.44 |
- Average production estimates on a per boe basis are comprised of approximately 75% natural gas and 25% oil, condensate and natural gas liquids in 2019.
Forward-looking Statements or Information
Certain statements included 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 "believe", "expect", "plan", "estimate", "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: the Company’s guidance and forecasts for the year ended December 31, 2019 and its expectations regarding market access for the Company’s natural gas production; future drilling and capital expenditure expectations; expected netbacks to be derived from hedging activities and expected operating costs. 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, 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 manner; 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 on 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
(1) Non-IFRS Measures
Throughout this press release, certain terms that are not specifically defined in International Financial Reporting Standards (“IFRS”) are used to analyze Cequence’s operations. In addition to the primary measures of net income (loss) and comprehensive income (loss) and net income (loss) and comprehensive income (loss) per share in accordance with IFRS, Cequence believes that certain measures not recognized under IFRS assist both Cequence and the reader in assessing performance and understanding Cequence’s results. Each of these measures provides the reader with additional insight into the Company’s ability to fund principal debt repayments and capital programs. These terms and financial measures are therefore unlikely to be comparable to similar measures presented by other companies and should not be used to make comparisons between companies. These measures should not be considered alternatives to net income (loss) and comprehensive income (loss) and net income (loss) and comprehensive income (loss) per share as calculated in accordance with IFRS.
Cash netback is a measure used in the oil and gas industry to analyze profitability after general and administrative (“G&A”) and finance expenses. Cash netback equals operating netback less G&A and finance expenses. Management utilizes this measure to analyze the Company’s profitability for future capital investment or repayment of debt after considering costs not specifically attributable to its assets or operating areas. The “Operations” table reconciles cash netback to the IFRS measure net income (loss) and comprehensive income (loss).
Funds flow from operations is calculated as cash flow from operating activities before adjustments for decommissioning costs incurred and net change in non-cash working capital. The Company uses this measure to analyze operating performance and leverage and considers it 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. Funds flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of net income (loss) and comprehensive income (loss) per share.
The following table reconciles funds flow from operations, to the IFRS measure, cash flow from operating activities:
|
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||
| (thousands of dollars) | 2019 | 2018 | 2019 | 2018 | ||||||||||
| Cash flow from operating activities | $ | (444 | ) | $ | 2,130 | $ | 3,335 | $ | 6,557 | |||||
| Decommissioning costs incurred | 650 | 1,145 | 3,339 | 4,002 | ||||||||||
| Net change in non-cash working capital | 900 | 2,314 | 2,489 | 457 | ||||||||||
| Funds flow from operations | $ | 1,994 | $ | 5,589 | $ | 9,163 | $ | 11,016 | ||||||
Net debt is a measure that provides Cequence’s total indebtedness. It is calculated as working capital deficiency (excluding commodity contracts and lease liability) plus amounts outstanding in the Company’s Credit Facility plus the principal value of the Term Loan (previously Senior Notes). Cequence uses net debt as an estimate of the Company’s assets and obligations expected to be settled in cash. The “Liquidity and Capital Resources” table in the Company’s MD&A reconciles net debt.
Operating netback is a measure used in the oil and gas industry to analyze margin and cash flow. Operating netback equals revenue less royalties, operating and transportation expenses. Management utilizes this measure to analyze operating performance of its assets and operating areas, compare results to peers and to evaluate drilling prospects. The “Operations” table reconciles operating netback to the IFRS measure net income (loss) and comprehensive income (loss).
Total revenue equals production revenue gross of royalties and includes realized gains (losses) on commodity contracts. Management utilizes this measure to analyze revenue and commodity pricing and its impact on operating performance. The “Operations” table reconciles total revenue to the IFRS measure net income (loss) and comprehensive income (loss).
OVERVIEW OF CEQUENCE
Cequence is engaged in the exploration for and the development of oil and natural gas reserves. The Company’s primary focus is the development of its Simonette asset in the Alberta Deep Basin with other non-core assets in Northeast British Columbia and the Peace River Arch of Alberta. Further information can be found at www.cequence-energy.com.
The TSX has neither approved nor disapproved the contents of this news release.
For further information, please contact:
Todd Brown
Chief Executive Officer
Phone: (403) 806-4049
tbrown@cequence-energy.com
Allan Mowbray
Vice President, Finance and Chief Financial Officer
Phone: (403) 806-4041
amowbray@cequence-energy.com
