CALGARY, Nov. 8, 2018 /CNW/ - Cequence Energy Ltd.
("Cequence" or the "Company") (TSX: CQE) is pleased to announce its
operating and financial results for the three and nine-month
periods ended September 30, 2018. The
Company's Condensed Consolidated Financial Statements and
Management's Discussion and Analysis are available at
cequence-energy.com and on SEDAR at www.sedar.com.
Third quarter and subsequent Company highlights include:
- Achieved average quarterly production of 6,734 boe/d (27%
liquids);
- Third quarter oil production was 1,198 bbbls/d up 209% from the
same period of 2017;
- Funds flow from operations for the third quarter was
$5.6 million or $0.38 per weighted average share ($0.23 per share based on the September 30, 2018 outstanding common shares of
24,553,000);
- Included within funds flow from operations for the third
quarter of 2018 is $948,000 of
non-recurring finance expenses for the renegotiation of the Senior
Notes ($0.06 per weighted average
share);
- As previously announced on July 27th,
2018, the Company entered into a series of transactions that
refinanced the Company's balance sheet;
- The Rights Offering closed on September
14, 2018 and raised $8.59
million of gross proceeds;
- The $60 million Senior Notes were
refinanced with a 5% interest rate and now mature in October 2022;
- On October 13, 2018, the Company
commenced its planned winter drilling program consisting of 2 gross
(2 net) Dunvegan oil wells;
and
- On October 22, 2018, the
Company's shareholders approved a share consolidation based on one
new common share for each 20 pre-consolidation shares.
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Three months
ended
September
30,
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Nine months
ended
September
30,
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(000's except per
share and per unit amounts)
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|
|
|
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2018
|
2017
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%
Change
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2018
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2017
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%
Change
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FINANCIAL
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|
|
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|
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Total
revenue(1), (5)
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17,680
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15,087
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17
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46,737
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52,251
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(11)
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Comprehensive income
(loss)
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573
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(3,076)
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119
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(5,897)
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(92,724)
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(94)
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Per share – basic and
diluted (6)
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0.04
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(0.25)
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116
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(0.45)
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(7.55)
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(94)
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Funds flow from
operations (2), (5)
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5,589
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3,619
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54
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11,016
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17,746
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(38)
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|
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Per share, basic and
diluted (6), (7)
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0.38
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0.29
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31
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0.84
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1.45
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(42)
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Capital expenditures,
before acquisitions (dispositions)
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1,119
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2,682
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(58)
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10,403
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20,264
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(49)
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Capital expenditures,
including acquisitions (dispositions)
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619
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2,682
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(77)
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8,474
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20,264
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(58)
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Net debt (3),
(5)
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61,675
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68,407
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(10)
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61,675
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68,407
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(10)
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Weighted average
shares outstanding – basic (6)
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14,545
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12,277
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18
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13,041
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12,277
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6
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Weighted average
shares outstanding – diluted (6)
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14,632
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12,277
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19
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13,041
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12,277
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6
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Common shares
outstanding – end of period
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24,553
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12,277
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100
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24,553
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12,277
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100
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OPERATING
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Production
volumes
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Natural gas
(Mcf/d)
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29,376
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40,729
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(28)
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30,924
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42,871
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(28)
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Crude oil
(bbls/d)
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1,198
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388
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209
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772
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364
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112
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Natural gas liquids
(bbls/d)
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259
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250
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4
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257
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253
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2
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Condensate
(bbls/d)
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382
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841
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(55)
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495
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858
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(42)
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Total
(boe/d)
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6,734
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8,266
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(19)
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6,679
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8,620
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(23)
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Sales
prices
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Natural gas,
including realized hedges ($/Mcf)
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2.20
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2.12
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4
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2.37
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2.59
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(8)
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Crude oil and
condensate, including realized hedges ($/bbl)
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73.57
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57.70
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28
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69.36
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60.13
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15
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Natural gas liquids
($/bbl)
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43.51
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27.86
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56
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39.02
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28.04
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39
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Total
($/boe)
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28.53
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19.84
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44
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25.63
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22.20
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15
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Netback
($/boe)
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Price, including
realized hedges
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28.53
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19.84
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44
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25.63
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22.20
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15
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Royalties
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(2.35)
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(0.61)
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285
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(1.77)
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(1.17)
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51
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Transportation
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(3.03)
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(2.09)
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45
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(2.77)
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(1.93)
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44
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Operating
costs
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(8.87)
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(9.21)
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(4)
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(10.22)
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(8.33)
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23
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Operating netback
(5)
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14.28
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7.93
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80
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10.87
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10.77
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1
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General and
administrative
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(2.24)
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(1.33)
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68
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(2.26)
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(1.38)
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64
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Interest(4)
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(1.58)
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(1.97)
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(20)
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(2.15)
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(1.97)
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9
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Cash netback
(5)
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10.46
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4.63
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126
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6.46
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7.42
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(13)
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(1)
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Total revenue is
presented gross of royalties and includes realized gains (loss) on
commodity contracts.
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(2)
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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.
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(3)
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Net debt is
calculated as working capital deficiency (excluding commodity
contracts) plus the principal value of the senior notes
and term
loan.
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(4)
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Represents finance
costs less refinancing expenses, amortization on transaction costs,
accretion expense on senior notes and
provisions.
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(5)
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Refer to Non-GAAP
Measures.
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(6)
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On October 22, 2018,
the Company's shareholders approved a share consolidation based on
one new common share for every 20
pre-consolidation
shares. This press release and all information relating to
issued and common shares, stock options, warrants,
restricted share
units and per share amounts, have been restated to reflect the
share consolidation for all periods presented.
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(7)
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Funds flow per share
calculated as if the ending 24,553,000 common shares at September
30, 2018 were outstanding for the
entire period would be $0.23 per share and $0.45 per
share for the three and nine-month periods ended September 30, 2018
respectively.
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Financial Highlights
Funds flow from operations for the third quarter was
$5.6 million, which reflects a 54
percent increase from the third quarter of 2017. Realized
sales prices (including hedging) was $28.53 which reflects a 44 percent increase from
the comparative period in 2017. Comprehensive income for the
quarter ended September 30, 2018 was
$0.6 million compared to a
comprehensive loss of $3.1 million in
the third quarter of 2017.
Beginning on April 1, 2018, the
Company has been selling 10,850 GJ/d of production in the Dawn
market. The Dawn marketing arrangement has provided the
Company diversification away from the volatile AECO prices for
approximately 1/3 of its gas production. For the three months
ended September 30, 2018, Dawn prices
averaged approximately $3.46/mcf
compared to AECO pricing of approximately $1.28/mcf.
On July 27, 2018 Cequence
announced a series of transactions to refinance the Company's
balance sheet and provide greater flexibility and liquidity to
execute the ongoing business plan of the Company. Cequence
entered into a third lien secured loan agreement for a $60 million term loan facility due October 3, 2022 to refinance the existing Senior
Notes which were due on October 3,
2018. At the same time Cequence launched a rights offering
for holders of its common shares as of August 9, 2018 to subscribe for 12,276,394 (post
consolidation) flow-through common shares of the Company for gross
proceeds of up to $8.6 million.
The rights offering was fully subscribed for and closed on
September 13, 2018. Finance
costs include refinancing expenses of $0.7
million non-cash warrant expense and legal, advisory and
professional fees of $1.0
million.
The Company has $61.7 million in
net debt as at September 30, 2018,
which is comprised of $60 million in
senior notes carrying a four-year term (refinanced and now maturing
in October 2022) and a working
capital deficiency of $1.7 million
(excluding commodity contracts). The senior credit facility of
$7 million remains undrawn other than
letters of credit of $1.6 million and
has a maturity date May 31, 2019.
Operational Update
Average production in the third quarter of 2018 was 6,734 boe/d
(27% liquids). The production increase was primarily
associated with the Company's recent 3 gross (2 net) Dunvegan oil wells that produced approximately
985 bbls/d of oil and 2.6 mmcf/d of gas (1,427 boe/d) net in the
quarter. Due to continued low AECO prices in the quarter,
approximately 2,500 mcf/d of gas has remained shut-in until higher
pricing is available.
The Company commenced its planned winter drilling program on
October 13, 2018 to drill 2.0 gross
Dunvegan oil wells (2.0 net) at
Simonette to be fund through proceeds from the Rights
Offering. It is anticipated the wells will come on at the
internal Corporate model of approximately 300 bbl/d per well.
Due to the wide light oil differentials forecast for December 2018, these new wells will not be
brought on production until the first quarter of 2019.
Cequence estimates that there are approximately 26.5 net
Dunvegan oil locations on its
land.
Operating costs for the third quarter were $8.87/boe down 4% from the third quarter of 2017
with reduced expenses associated with water handling and associated
long term field rentals. Subsequent to the third quarter
2018, Cequence successfully completed a second water disposal well
which will continue to reduce trucking and water disposal costs in
Simonette.
Outlook
The Company's guidance for the year ended December 31, 2018 includes the results of the
third quarter, the existing 3 gross (2.0 net) Dunvegan oil well results, the restructured
$60 million Senior Notes (with its 5%
interest rate), $8.59 million gross
proceeds from the rights offering, and an additional planned 2
gross (2 net) Dunvegan oil wells
drilled, completed, and tied in the fourth quarter.
Production from the new wells will not commence until the first
quarter of 2019 when oil differentials are expected to improve.
With volatility in the oil price differentials and AECO gas prices,
Cequence will not be providing 2019 guidance at this time. As
Management has demonstrated in the past, continued operating cost
improvement initiatives and maximizing netbacks in a volatile
commodity cycle will be a focus.
(000's, except per
share and per unit references)
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Guidance
year
ended
December 31,
2018
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Average production,
BOE/d (1)
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6,500
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Funds flow from
operations ($)(2)
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13,700
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Funds flow from
operations per share(2) (4)
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0.86
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Exploration and
development expenditures ($)
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20,000
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Net wells
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4.0
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Operating and
transportation costs ($/boe)
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14.00
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G&A costs
($/boe)
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2.75
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Royalties (%
revenue)
|
|
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8
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Crude – WTI
(US$/bbl)
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66.40
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Natural gas – AECO
(CDN$/GJ)
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|
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1.55
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Period end, net debt
($) (3)
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70,950
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Weighted average
basic shares outstanding
|
|
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15,942
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Common shares
outstanding end of period
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|
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24,553
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(1)
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Average production
estimates on a per BOE basis are comprised of 77% natural gas and
23% oil and natural gas liquids in 2018.
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(2)
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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. See Non-GAAP
Measures.
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(3)
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Net debt is
calculated as working capital deficiency (excluding commodity
contracts) plus the aggregate principal amount of the
term loan.
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(4)
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Weighted funds flow
per share calculated as if the ending 24,553,000 common shares at
September 30, 2018 were outstanding for
the entire period
would be $0.56 per share for the year ended December 31,
2018.
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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.
Advisories
Boe Conversions: Barrel of oil equivalent ("boe") amounts
have been calculated by using the conversion ratio of six thousand
cubic feet (6 Mcf) of natural gas to one barrel of oil (1 bbl). Boe
amounts may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf to 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.
Given that the value ratio based on the current price of oil as
compared to natural gas is significantly different from the energy
equivalent of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
Mcfe Conversions: Thousands of cubic feet of gas equivalent
("Mcfe") amounts have been calculated by using the conversion ratio
of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of
natural gas. Mcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of
natural gas as compared to oil is significantly different from the
energy equivalent of 1:6, utilizing a conversion on a 1:6 basis may
be misleading as an indication of value.
NON-GAAP MEASURES
This press release refers to terms and financial measures
commonly used in the oil and gas industry, including operating
netback, cash netback, net debt, funds flow from (used in)
operations and total revenue. These financial measures are
considered "non-GAAP measures", as they do not have a standardized
meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers.
Operating netback is not defined by IFRS in Canada and is referred to as a non-GAAP
measure. Operating netback equals per boe revenue less royalties,
operating costs and transportation costs. Management utilizes this
measure to analyze operating performance of its assets and
operating areas, compare results to peers and to evaluate drilling
prospects.
Cash netback is not defined by IFRS in Canada and is referred to as a non-GAAP
measure. Cash netback equals operating netback less per boe general
and administrative expenses and interest expense. Management
utilizes this measure to analyze the Company's per boe
profitability for future capital investment or repayment of debt
after considering cash costs not specifically attributable to its
assets or operating areas.
Net debt is a non-GAAP measure that is calculated as working
capital deficiency (excluding commodity contracts ) plus the
principal value of term loan (previously senior notes). Cequence
uses net debt as it provides an estimate of the Company's assets
and obligations expected to be settled in cash.
Funds flow from (used in) operations is a non-GAAP term that
represents cash flow from operating activities before adjustments
for decommissioning liabilities expenditures and net changes in
non-cash working capital. The Company evaluates its performance
based on earnings and funds flow from (used in) operations. The
Company considers funds flow from (used in) operations 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 (used in) operations may not be comparable to that
reported by other companies. Funds flow from (used in) operations
per share is calculated using the same weighted average number of
shares outstanding used in the calculation of comprehensive income
(loss) per share.
Total revenue equals production revenue gross of royalties
and including realized gain (loss) on commodity contracts.
Management utilizes this measure to analyze revenue and commodity
pricing and its impact on operating performance.
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, including the forward-looking financial information
under the Outlook heading, 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", "estimate", "expect", "forecast", "plan",
"intend", "estimate", "plan", "propose", "project", "schedule" 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 relating to
the Company's production and future performance expectations of the
recently completed Dunvegan wells,
the impact of higher oil volumes and lower gas volumes on operating
costs, the drilling results and future production of the planned
Dunvegan wells, the estimated
number of oil locations remaining on the Company's land and the
Company's outlook and guidance for 2018.
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 timely completion
of the Company's bank review relating of the Credit Facility; 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; the effectiveness of service rig work on
well clean-up over time; 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; the success of certain transactions
on refinancing the Company's balance sheet; the ability of the
Company to effectively identify and successfully pursue alternative
financing arrangements and recapitalization opportunities. 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 for the year
ended December 31, 2017 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.
The TSX has neither approved nor disapproved the contents of
this news release.
SOURCE Cequence Energy Ltd.