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Cequence Lowers Capex for 2015

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   |    Friday,November 14,2014

Cequence Energy Ltd. has announced the financial and operating results for the three and nine months ended September 30, 2014 and to provide an update on its operational activities. 

During the quarter, Cequence divested one of its core producing assets at Ansell for $141 million providing the Company with financial capability to plan an active Montney development program at Simonette. Cequence has commenced drilling on two new padsites and expects to reach a production target of 15,000 boepd in the first quarter of 2015.

Paul Wanklyn, President and CEO said: "We are excited by the renewed pace of development at Simonette.

"Since last March we have brought on stream one Dunvegan and one Falher well. With the accelerated pace of the current program, we plan to bring on stream eight new Montney wells by the end of January 2015 . I am comfortable with our winter capital program and believe our aggressive growth target is achievable while maintaining the strength of our balance sheet."

Financial

The following are Cequence's financial highlights for the third quarter of 2014:

  • Increased quarterly funds flow from operations by 24 percent to $13.6 million from the third quarter of 2013 and by 56% to $56.9 million for the nine months ended September 30, 2014 ;
  • Recognized a gain before future income taxes of $91.8 million ( $68.8 million after tax) in the quarter on the sale of the Ansell property for $141 million ;
  • Recorded comprehensive income of $74.4 million or $0.35 per share; and
  • Strong balance sheet with flexibility established, with $29.9 million in net debt and working capital at September 30, 2014 .

Operating

The following are Cequence's operating highlights for the third quarter of 2014:

  • Successful completion of the first three wells from the 1-32 multi-well padsite with individual test rates after 96-hours of flow totaling 4,600 boe/d (27% condensate). The wells are currently being tied in and production is expected in early December;
  • Strong results from the third Dunvegan gas well with a 30-day IP rate of 9.6 MMcfd gas and 160 bbl/d condensate;
  • Three Montney wells drilled and awaiting completion on multi-well pads;
  • One additional Montney well currently drilling ahead in the lateral section; and
  • Facility expansion underway at 13-11-62-27W5 plant site.

Operational Update

Starting in June 2014 , Cequence initiated pad style development drilling in the Montney formation at Simonette. Two drilling rigs are currently operating in the field and will continue drilling through the 2014/2015 winter season.

1-32 Padsite

Five of the planned six Montney wells have been drilled at the 1-32 multi-well pad site since June. The first three wells were recently completed, tested, and are expected to be on-stream through Cequence facilities in early December. These wells were completed in a "zipper" technique utilizing tighter frac spacing and double the sand and water volumes per lateral length than the Company has historically deployed.

The initial cleanup and flow test of the first three wells is very encouraging. All three wells were each tested for a 96 hour period with substantial load water still left to be recovered. The table below summarizes the last test period for each well:

 

These test rates are above Cequence's current model of 5 MMcfd IP 30 gas rate and 21 bbl/MMcf condensate yield.

The next three wells on the 1-32 pad are scheduled for completion in early January 2015 .

12-26 Padsite

A drilling rig moved to this padsite on September 5 th and will rig release the 2nd of the 2 wells scheduled by November 15 th. These wells directly offset the 14-24-61-27W5 well which came on production in January, 2014 at a 30 day IP rate of 6.5 MMcfd and 129 bbl/d free condensate. These laterals are being drilled at 300 m inter-well distance and are planned to be completed in December with higher intensity fracs.

Dunvegan & Falher

The 11-12-61-2W6 Dunvegan (65% WI) well came on production on September 9 th with a gross 30 day IP rate of 9.6 MMcfd and 160 bbl/d of condensate. This well is performing at the Company's existing Dunvegan model rate and continues to enhance the economic nature of this play at Simonette.

A successful Falher (65% WI) well was drilled at 8-18-61-1W6M and completed in October. The well commenced production on November 1 st at an early rate of 3.4 MMcfd gas and 106 bbls/d of condensate.

Additional Dunvegan and Falher wells are being planned as part of the 2015 drilling program.

Facilities Expansion

Phase 6 of the Cequence Simonette facility expansion is underway and will increase the total capacity of the Company's 13-11 Compressor station from 70 mmcfd to 100 mmcfd with start-up expected in early January, 2015. An expansion of the existing condensate stabilizer from 2,500 bbls per day to 4,000 bbls per day is planned for the second quarter of 2015. The combined cost of the expansion is estimated to be $10.5 million with 85% of the expenditure spent in the fourth quarter of 2014.

A planned one week shutdown of the Simonette facility in order to complete the construction project will take place in January. This will affect 100% of the volumes produced through the plant for that duration.

Guidance

The following table adjusts the Company's guidance for changes in commodity prices and the nature and timing of the capital expenditures in the winter drilling program. In total, capital expenditures for the period from July 1, 2014 to March 31, 2015 are largely unchanged.

However, the timing of certain projects has been adjusted and the Company expects 2014 net capital expenditures including dispositions to increase by $12 million to $35 million and for Q1 2015 net capital expenditures to decrease by $13 million to $45 million .

Production guidance for 2014 is unchanged and Cequence expects the first quarter of 2015 to average 13,500 boepd with an exit production rate of 15,000 boepd.

Based on lower cash flow from declining commodity prices, Cequence expects net debt to be approximately $93 million at the end of Q1 2015, an increase from $82 million in previous guidance. Cequence plans to maintain its balance sheet flexibility and expects to have a March 31, 2015 debt to cash flow ratio of approximately 1.1 times using annualized first quarter 2015 cash flow.

The Company continues to hedge to protect future capital expenditures and to maintain its balance sheet strength. Cequence has hedged approximately 29,000 GJ/d for the remainder of 2014 at an average AECO price of $3.49 per GJ or $3.90 per mcf. For 2015, Cequence has hedged approximately 21,000 GJ/d at an average AECO price of $3.69 per GJ or $4.14 per mcf.

 


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