Quarterly / Earnings Reports | Second Quarter (2Q) Update

7Gen Touts First 'Triple-Stacked Pad' in the Montney; Talks Q2 Results

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   |    Wednesday,July 31,2019

Seven Generations Energy reported its Q2 2019 results. The company highlighted its results in the lower Montney, where it has found a third layer to develop.

Highlights:

• 7G’s cash provided by operating activities totaled $422 million. At current strip prices 7G anticipates free cash flow of $100-150 million for full-year 2019, demonstrating meaningful potential for shareholder returns in the current commodity price environment.

• Total capital investments were $311 million, with 57 percent of the 2019 capital budget invested year to date. Nest 3 Super Pad and gathering system connections were completed on time and budget such that the company is positioned for a lower proportion of infrastructure spending in the balance of the year. The company remains committed to its full-year capital guidance of $1.25 billion.

• Sales volumes averaged 201,800 boe/d, ahead of the company’s guidance and up 8 percent year over year. Condensate sales of 75,900 bbl/d represent an increase of 10 percent compared to condensate sales during the same period in 2018.

• The company successfully tied-in production from its first full triple-stack pad. Initial 60-day lower Montney rates averaged 1,467 boe/d (67 percent condensate). Production from upper and middle Montney wells on this pad averaged 1,753 boe/d (60 percent condensate). The company is highly encouraged by these results and continues to evaluate future development potential of the lower Montney for its 2020 development program and beyond.

• 7G has purchased the maximum number of shares initially permitted under its normal course issuer bid (NCIB) by retiring a total of 18.1 million class A common shares (common shares) as of July 31, 2019, or 5 percent of its common shares outstanding as at October 30, 2018. The company has received approval from the Toronto Stock Exchange (TSX) for an expansion of the NCIB to a total of 30.4 million common shares, or 10 percent of its public float as at October 30, 2018, by November 4, 2019.

• Operating costs averaged $5.00 per boe in the quarter. With significant planned maintenance events now largely completed, 7G is modifying its original annual 2019 operating cost guidance to a range of $5.00 - $5.25 per boe, from $5.00 - $5.50 per boe, to reflect an improving cost structure.

• The company’s trailing 12-month return on capital employed was 10.4 percent. Cash return on invested capital was 16.2 percent.

Free cash flow growth accelerating, with capital discipline and inventory replenishment

7G continues to rapidly evolve from one of Canada’s highest growth E&Ps into a sustainable free cash flow generating entity. Meaningful progress has been made on this strategic initiative on several fronts. In 2019, the company invested a portion of its discretionary capital to de-risking future development plans in Nest 1 and evaluating the potential of its liquids-rich lower Montney resource. Results to date are very encouraging. In addition, the company’s successful efforts to manage operating costs and capital costs, and complete strategically important infrastructure improves the company’s resilience to commodity price volatility, accelerates free cash flow growth and enhances the long-term sustainability of returns.

Consistent with this strategic evolution, 7G has received approval to expand its normal course issuer bid that efficiently drives per-share earnings and volume growth. The company anticipates free cash flow in the second half of the year and into 2020 in the current commodity price environment.

Ops Update - Triple Stacked Montney Pad

Lower Montney

The company’s first full triple-stack pad came on production during the middle of the second quarter.

Over the first 60 days, production rates averaged 1,467 boe/d (67 percent condensate) per well in the lower Montney, and 1,753 boe/d (60 percent condensate) per well in the upper and middle Montney zones.

These encouraging initial results will guide future development planning and help improve long-term capital efficiencies as a third layer of resource can be targeted for development, utilizing the same surface infrastructure. This improves returns on capital, maintains low operating costs and can lengthen the useful life of other facility investments. In addition to demonstrating the potential for co-development of all three layers, this pad also tested completion designs with increased intra-stage clusters, which can be considered in future development programs.

Nest 3 update

The company invested $140 million into initial Nest 3 infrastructure during the first half of 2019, enabling future development of this emerging region of the Nest. 7G has drilled 17 wells in Nest 3 this year, with plans to complete and tie-in these locations during the second half of 2019. As this new region reaches productive capacity through 2020 and beyond, it is expected to evolve into a generator of significant free cash flow.

Management Update

7G is pleased to announce Ms. Karen Nielsen joined the company as Chief Development Officer in June of 2019. The role connects the company’s subsurface, business development and capital planning with its core operations activities. Most recently, Nielsen held a key senior leadership position as Senior Vice President and General Manager, Generation at ATCO Group. Before her time at ATCO, she held technical and executive roles since 2005 with well-known E&P companies in Calgary, including leading full-cycle development of multiple regions of the Montney. Nielsen earned a Bachelor of Science degree in Engineering from the University of Saskatchewan and is a professional engineer with APEGA and APEGBC.

Outlook - Guidance Unchanged

Operations continue to track in-line with budget expectations set at the beginning of the year. With the first and second quarters now complete, and with planned maintenance events largely completed, Seven Generations is updating its operating cost guidance for the year to a range of $5.00-$5.25 per boe (previously $5.00-$5.50 per boe). Other components of 2019 guidance remain unchanged.