CQE-T active. Cequence Energy arranges $60-million note offering with Canada Pension Plan Investment Board (CPPIB)
Oct 3rd 2013 - News Release
Cequence Energy Inc. has entered into definitive documentation and expects to complete later today a transaction with CPPIB Credit Investments Inc. (CII), a wholly owned subsidiary of Canada Pension Plan Investment Board (CPPIB), for an initial investment by CII of $60-million in unsecured five-year notes with a further $60-million of notes available at a future date, subject to the approval of both CII and Cequence on terms to be confirmed at the time of issuance. In addition, Cequence has granted CII three million warrants to purchase common shares. The investment will allow Cequence to capitalize on its recent successes at Simonette and accelerate the development of this project.
Paul Wanklyn, the president and chief executive officer of Cequence, commented: "We are extremely pleased to have executed this investment transaction with CPPIB. The notes are expected to provide us with liquidity and financial flexibility which will allow us to prudently accelerate the development of our world-class Simonette project in the Deep basin. We are very pleased to have CPPIB as a strategic financial partner in assisting us to achieve this growth without unduly diluting shareholders, who will benefit from this accelerated development. We believe that the notes are an important and appropriate step in capitalizing Cequence as a larger, more self-sustaining exploration and development company."
The notes carry a 9-per-cent coupon rate and were issued at par. The notes, which have make whole and other change of control provisions, have been issued pursuant to a trust indenture with a Canadian trust company, which will be available under the company's profile on SEDAR. The indenture contains certain covenants regarding the incurrence of additional debt, the creation of liens in connection with indebtedness, dividends and other distributions, asset sales and other matters, and customary events of default. The warrants will expire on Oct. 3, 2020, and were issued with an exercise price of $2.03 which was based at a 30-per-cent premium to the 30-trading-day volume-weighted average trading price of the Cequence common shares on the TSX ending on the day immediately preceding the closing date.
The proceeds from the notes issuance will be used for non-permanent repayment of indebtedness, capital expenditures and general corporate purposes. The company's credit facility borrowing base has been redetermined and is now $120-million and will be undrawn after giving effect to the issuance of the notes. The majority of the company's capital expenditures are discretionary and can be adjusted upward or downward in light of prevailing market conditions.
With respect to the transaction, Peters & Co. Ltd. acted as financial adviser to Cequence and Cormark Securities Inc., GMP Securities LP and CIBC World Markets acted as strategic advisers to Cequence.
Guidance
The financial flexibility afforded by the notes will allow Cequence to accelerate the development of the company's development of its Simonette project beginning in the fourth quarter of 2013. Capital expenditures are budgeted to increase by $13-million to $110-million for 2013 with an additional three (2.5 net) wells scheduled to be drilled prior to year-end. Average 2013 production guidance for the year will not be affected as Cequence does not expect the additional wells to be producing before year-end. The 2013 exit production rate is expected to increase to 12,000 barrels of oil equivalent per day (boepd). The company currently has two rigs operating at Simonette and one non-operated rig drilling at Ansell.
Capital expenditures for 2014 are budgeted to be $120-million which the company expects will increase average production to approximately 13,500 to 14,000 boepd, representing approximately 40-per-cent growth over guidance provided earlier in the year. The capital program will consist of 11.0 Montney wells at Simonette, one Wilrich well at Simonette and four (two net) Wilrich wells at Ansell.
UPDATED GUIDANCE 2013 2014
Average production, boe/d 10,000 13,500 -- 14,000
Average production per share 47 65
Exit production, boe/d 12,000 15,000
Funds flow from operations $50-million $85-million
Funds flow from operations per share $0.24 $0.39
Capital (expenditures) $110-million $120-millionWells drilled 16 (13.8) 16 (14)
Operating costs ($ per boe) $7.00 $6.85
Royalties (% revenue) 9 8Crude -- WTI (US$/bbl) $95.75 $95.75
Natural gas -- AECO (Cdn$/GJ) $3.00 $3.50
Dec. 31, net debt and working capital deficiency $110-million $145-million
Cequence will remain disciplined in its approach to capital spending and intends to manage its balance sheet accordingly. To protect against fluctuating commodity prices Cequence anticipates increasing its existing hedge positions. Currently, Cequence has hedged approximately 50 per cent of its remaining 2013 natural gas production volumes at an average price of $3.63 per 1,000 cubic feet and 27 per cent of its 2014 natural gas production volumes net of royalties at an average price of $4.06 per 1,000 cubic feet.
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