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, 2017. 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 Company highlights include:
Funds flow used in operations for the first quarter was $7.3 million which reflects the improved crude oil and natural gas prices in the first quarter of 2017 and the benefit of the Company's lower cost structure. Realized sales prices (including hedging) increased 39 percent from the comparative period in 2016. Comprehensive income for the quarter ended March 31, 2017 was $5.3 million compared to a loss of $5.9 million in 2016. The Company recorded an unrealized hedging gain in the quarter of $5.5 million as forward natural gas prices declined from December 31, 2016.
Capital expenditures, net of dispositions, were $15.0 million in the first quarter and relate primarily to the completion of the Company's winter drilling program of 4.0 gross (3.0 net) wells at Simonette.
The Company has $71.9 million in net debt at March 31, 2017 which is comprised of $60 million in senior notes carrying a five year term (October 2018) and a working capital deficiency of $11.9 million. The Company's senior credit facility of $20 million was undrawn at March 31, 2017. The Company's scheduled bank review is scheduled to be completed by the end of May 2017. Cequence has hedged approximately 50 percent of 2017 production net of royalties and will continue to actively hedge production to protect future cash flows and balance sheet.
Average production in the first quarter of 2017 of 9,101 boe/d was up 6 percent from the fourth quarter of 2016 while oil production increased by 341 bbl/d over the same period. The production increase was primarily associated with the previously announced two gross (50% WI) Dunvegan oil wells which were brought on stream in January of 2017. These wells continue their strong performance with March oil production rates of 296 bbls/d and 574 bbls/d gross with corresponding solution gas rates of 2.2 and 2.7 MMcf/d respectively. The solution gas is collected and routed into the 50% owned Cequence gas gathering and processing system. As break up road conditions set in, these wells were shut-in around the middle of April. Cequence is working on longer term tie-in scenarios to reduce truck out restrictions for the Dunvegan wells.
A total of 24 potential net Dunvegan oil locations have been identified on Cequence lands. (1)
Operating costs for the quarter were $8.28/boe down 16% from the same period of 2016 while the operating netback improved by $10.32/boe to $12.40/boe. Although fluid hauling costs increased with the Dunvegan oil production, the sustainable cost reduction initiatives established through 2016 continue to be realized.
Montney Operations Update
The Company's recent West Simonette Montney wells at 8-36-61-1W6 and 16-25-61-1W6 have encountered a higher liquids rich section of the Simonette area then the historical Cequence programs. The production rates for the first 30 operating days averaged 892 boe/d (36% condensate) and 804 boe/d (35% condensate), respectively, compared to historical Cequence Montney wells of 12-20% condensate. Early in flow back, condensate to gas ratio was 150 bbls/MMcf and have since stabilized to between 80 and 90 bbls/MMcf. These wells were drilled at an average lateral length of approximately 2,850 meters and utilized an average of 82 frac stages and 1.2 tonnes proppant per meter of lateral. The higher liquids ratio observed during the first 30 days of production is estimated to double the operating netback of the new wells compared to historical average Cequence Montney wells under the same commodity price.
Spring break up conditions initially hampered the start and clean up of the wells but both wells have been producing continuously since early April.
The Company provided guidance for the first half of 2017 in November 2016 which has been revised to include the results of the first quarter and of the winter drilling program that consisted of two Montney wells and one net Dunvegan well at Simonette. The revised guidance is within the expectations set out in the November guidance, including for production, funds flow and net debt. Capital expenditures are $2 million higher due to some additional minor projects in the quarter and some operations that were completed in break up conditions.
The annual capital expenditure program of $29 million has been planned to approximate expected annual funds flow. Two net Dunvegan wells are expected to be drilled in early winter with production coming on late 2017.
While spending within cash flow, 2017 production volumes are expected to increase approximately 4 percent from 2016 to average between 9,000 to 9,200 boe/d. The Company may adjust its capital expenditure program should commodity prices increase or decrease significantly.
The Company expects recent improvement to operating and general and administrative costs to continue throughout 2017. Based on forecasted commodity prices of US$ 50/bbl WTI and CDN$ 2.75/GJ natural gas, Cequence expects funds flow from operations of $28 to 29 million.
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.
SOURCE: Cequence Energy Ltd.
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