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To: Goose94 who wrote (10198)

5/27/2015 2:11:18 PM

From: Goose94

Read Replies (1) | Respond to of 202720

Cequence Energy (CQE-V) May 26, '15 is pleased to announce it has entered into agreements with Kanata Energy Group Ltd. ("KANATA") pursuant to which Cequence will sell a 50% interest in its existing Simonette facilities and related infrastructure and Cequence and KANATA will jointly fund an enhancement of the 13-11-62-27W5M Simonette gas compression and dehydration facility ("Facility"). The Facility enhancement includes adding a shallow cut refrigeration system and sales connection to TransCanada's NGTL system. The refrigeration plant will be capable of processing 120 mmcf/d of liquids rich natural gas which is expected to be sufficient to cover Cequence's development drilling plans for several years.

The expected benefits of this transaction to Cequence include:

KANATA's commitment to build and fund 50% of the expected $40 MM for the NGTL tie-in and refrigeration facility construction.

The enhanced Facility provides dual access capabilities to both TCPL (NGTL) and Alliance transportation systems.

The new shallow cut refrigeration process is expected to allow Cequence to directly recover an additional 15% of condensate volumes at Simonette for sale in the Alberta market.

With proceeds of $34 million at closing for the sale of the existing Simonette facilities and infrastructure, the Company's balance sheet is strengthened, resulting in March 31, 2015 adjusted net debt of $49 million. (1)

The retention of 50% ownership provides the potential for substantial future third party revenue and allows the Company to retain long term strategic value and flexibility.

Cequence will continue to operate the related facilities on behalf of KANATA.

The parties have included a future mechanism for KANATA to fund projects under similar joint venture terms.

Cequence will retain priority rights and ownership privileges in the gas plant and gathering system with a minimum volume commitment of 40 mmcf/d in 2015 and 42 mmcf/d commencing in March 2016. Cequence will receive 50% of third party processing revenues generated by the plant, which is expected to attract additional volumes as drilling activity in the area continues. In February and March of 2015, Cequence produced 50 mmcf/d through the plant.

"Cequence is pleased with this midstream partnership and believes KANATA's responsive, flexible and customer-focused approach to midstream services will provide area growth opportunities for both parties." said Paul Wanklyn, President and CEO of Cequence.

(1)

March 31, 2015 adjusted net debt is calculated as March 31, 2015 cash and net working capital less commodity contract assets and liabilities, demand credit facilities, principal value of the senior notes and excluding other liabilities adjusted for expected proceeds of $34 million for the sale of a 50% working interest of the Simonette infrastructure on closing.

Simonette Dual Connection Egress & Marketing Options:

Management of Cequence believes that enhancing the Company's long term strategic flow assurance and marketing optionality in the Simonette area is critical. The new Simonette NGTL meter station and connection is underway with an expected in service date of Q1 2016. Once operational, the meter station will have capacity up to 200 mmcf/d with connection to both of the NGTL main trunk lines in the right of way. The existing 120 mmcf/d Alliance meter station and connection will remain intact which is intended to provide the Simonette Facility, and customers, flow options on the two major gas infrastructure systems in Alberta.

Located in Calgary, Alberta, KANATA is a privately funded midstream infrastructure and service company with equity financing from a group of leading private investors including ARC Financial Corp., Energy Spectrum Capital and Teachers' Private Capital. KANATA is focused on the acquisition, construction and operation of gathering, processing and liquids extraction facilities in Western Canada. The transaction will be effective May 1, 2015 and is expected to close on or before June 23, 2015

Outlook and Guidance

The Company is providing the following updated outlook and guidance contingent on the closing of the transaction with KANATA.

	Previous 2015 Guidance	Revised 2015 Guidance
Average production, BOE/d (1)	11,500	11,500
Funds flow from operations ($)(2)	$40,000	$38,500
Funds flow from operations per share(2)	$0.19	$0.18
Capital expenditures, net of dispositions ($)(3)	$60,000	$40,000
Wells drilled	10(9.2)	10(9.2)
Operating and transportation costs ($ per boe)	$8.80	$9.20
G&A costs ($ per boe)	$2.50	$2.50
Royalties (% revenue)	10	10
Crude – WTI (US$/bbl)	$50.00	$50.00
Natural gas – AECO (Cdn$/GJ)	$2.65	$2.65
Period end, net debt and working capital deficiency ($) (4)	$90,000	$73,000
Basic shares outstanding	211,000	211,000

Notes:

(1) Average production estimates on a per boe basis are comprised of 84% natural gas and 16% oil and natural gas liquids.

(2) 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.

(3) Net debt and working capital (deficiency) is calculated as cash and net working capital less commodity contract assets and liabilities, demand credit facilities and the aggregate principal amount of the senior notes and excluding other liabilities.

Balance sheet strength remains critical to Cequence. Pro forma the transaction, full year capital expenditures, net of dispositions, have been reduced to $40 million and will include $17 million towards the shallow cut refrigeration system and sales connection to TransCanada's NGTL pipeline. The project is anticipated to be completed in the first quarter of 2016. Year end 2015 net debt is expected to be $73 million based on the Company's anticipated funds flow of $38.5 million.

The Company will continue to monitor fluctuations in commodity prices and may adjust capital spending based on the Company's hedge position and short to medium term crude oil and natural gas prices.

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.

SOURCE Cequence Energy Ltd.

Paul Wanklyn, Chief Executive Officer,
(403) 218-8850,
pwanklyn@cequence-energy.com ;

David Gillis, Chief Financial Officer,
(403) 806-4041,
dgillis@cequence-energy.com