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Seven Generations Energy Ltd. Announces Third Quarter 2014 Results

November 12, 2014

CALGARY, ALBERTA--(BUSINESS WIRE)-- Seven Generations Energy Ltd. ("7G" or the "Company") (TSX: VII) is pleased to report its third quarter 2014 operating and financial results.

Highlights

  • Third quarter production averaged a record 35,820 boe/d, an increase of 406% from the third quarter of 2013 and a 49% increase over the second quarter of 2014, with a September 2014 average production rate of 39,690 boe/d (59% liquids).
  • The third quarter of 2014 established a record funds from operations for the quarter of $106.3 million or $0.48 per share on a diluted basis. On a per share basis, this is a 1,500% increase over the third quarter of 2013, and a 55% increase over the second quarter of 2014.
  • The Company has the financial capacity to execute its 2015 business plan:
    • On September 15, 2014, the Company and its lending syndicate agreed to an amendment to the senior secured revolving credit arrangement that increased the borrowing capacity from $150.0 million to $480.0 million and extended the maturity date of the credit facility to September 2017.
    • At September 30, 2014 the Company's adjusted working capital was $67.7 million.
    • Subsequent to the third quarter of 2014, 7G completed an initial public offering of common shares with net proceeds to the Company of approximately $882 million. As a result of the offering, the Company has access to liquidity in excess of $1.4 billion.
  • During the third quarter of 2014 independent evaluator, McDaniel & Associates Consultants Ltd., updated the Company's Total Best Estimate Contingent Resources to 728 million barrels gross (637 million barrels net) oil equivalent ("MMboe") and Total Best Estimate Prospective Resources to 1,096 MMboe gross (986 MMboe net). The corresponding before tax net present values, using a discount rate of ten percent per annum, are $4.6 billion for Total Best Estimate Contingent Resources and $4.2 billionfor Total Best Estimate Prospective Resources.

Corporate Update

  • As a result of significant increases in production volumes, revenue increased 599% in the third quarter of 2014 versus the same period last year, and 35% over the second quarter of 2014.
  • 7G achieved operating netbacks of $35.79 per boe in the third quarter of 2014, a 56% increase over the third quarter of 2013 and a 10% decrease relative to the second quarter of 2014 due to a weaker commodity price environment in the third quarter of 2014.
  • During the third quarter of 2014, 7G increased its contracted volumes of condensate and other natural gas liquids (NGLs) with Pembina Pipeline Corporation and its affiliates on Pembina's Peace Pipeline Phase III Expansion by 91% to 40,695 bbl/d. This service is set to commence upon the completion of Pembina's Phase III Expansion expected in late 2016 to mid 2017. 7G has also increased its contracted volumes at Pembina's fractionation expansion project (RFS3) near Fort Saskatchewanby 143% to 8,806 bbl/d.
  • Net capital investments for the quarter totaled $328.4 million with approximately 72% invested on drilling and completions and 28% on facilities and well equipment.
    • The Company increased its active drilling rig count to ten rigs during the quarter from seven rigs at the beginning of the year.
    • During the third quarter of 2014, 7G rig-released ten wells with an average horizontal lateral length of approximately 2,838 meters and completed ten wells with an average of 32.8 stages and 3,796 tonnes of proppant per well.
Three months ended

September 30

  Nine months ended

September 30

2014   2013   % Change 2014   2013   % Change
 
OPERATIONAL
Total land holdings(1)
  Gross acres 367,520 275,680 33 367,520 275,680 33
Net acres 358,238 268,537 33 358,238 268,537 33
Undeveloped land holdings(1)
Gross acres 290,236 223,196 30 290,236 223,196 30
Net acres 284,442 219,245 30 284,442 219,245 30
 
Rig count(1) 10 5 100 10 5 100
 
Production
Oil and NGL (bbl/d) 20,869 3,253 542 15,527 4,904 217
Natural gas (MMcf/d) 89.7 23.0 290 67.3 19.5 245
Total (boe/d) 35,820 7,084 406 26,739 6,505 311
Liquids ratio 58% 46% 26 58% 50% 16
 
Product prices (2)
Oil and NGL ($/bbl) 66.33 60.52 10 70.16 57.09 23
Natural gas ($/Mcf) 4.62 2.64 75 5.14 3.38 52
 
Operating expense ($/boe) 4.32 6.91 (38) 4.83 6.86 (30)
 
Transportation expense ($/boe) 3.89 3.82 2 4.65 4.03 15
 
Operating netback ($/boe) (3) (4) 35.79 23.00 56 37.74 25.99 45
 
General and administrative expenses ($/boe) (5) 1.35 3.08 (56) 1.76 3.42 (49)
 
FINANCIAL ($000s, except for per share amounts)
Revenue 165,501 23,692 599 391,828 68,681 471
Funds from operations(4) 106,294 4,780 2,124 226,430 27,159 734
Funds from operations per share – diluted(6) 0.48 0.03 1,500 1.02 0.16 538
 
Net income (loss) 30,482 (955) 3,292 75,572 (8,533) 986
Net income (loss) per share – diluted(6) 0.14 (0.01) 1,500 0.34 (0.05) 780
 
Capital investments, net of dispositions 328,423 142,185 131 740,596 396,090 87
 
Weighted average shares outstanding – diluted (6) 222,151 173,237 28 222,098 172,328 29
 
Adjusted working capital (4)(7) 67,700 129,586 (48) 67,700 129,586 (48)
 
Senior notes (8) 784,000 412,120 90 784,000 412,120 90
 
(1) As of September 30
(2) Prices exclude realized gains and losses on risk management contracts.
(3) Operating netback is calculated on a per-boe basis and is defined as revenue (including realized hedging gains and losses plus third party income) less royalties, operating expenses and transportation costs.
(4) Operating netback, funds from operations and adjusted workin g capital do not have any standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable with the calculation of similar measures presented by other entities. Please refer to the Non-IFRS Financial Measures section of this press release for additional information.
(5) Excludes interest and financing charges.
(6) On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements on a retroactive basis. Only dilutive stock options and performance warrants have been included.
(7) Adjusted working capital excludes unrealized risk management contracts and deferred credits.
(8) Senior notes as reported represent US$700.0 million principal converted to Canadian dollars at the closing exchange rate for the period end.

Outlook

  • 7G expects 2014 average production to meet previous estimates of 27,000 – 30,000 boe/d.

The Company previously announced that 2014 capital investments were estimated to total $1.038 billion. Presently, 2014 capital is expected to be $1.067 billion. The difference is primarily due to higher than expected costs for well completions partly as a result of drilling longer than expected laterals and logistical challenges associated with the supply of nitrogen and other resources required for fracture treatments. The previously announced dedicated frac spread and systematic improvements in our stimulation technique are expected to improve the Company's capital efficiency going forward.

  • In the third quarter of 2014, the Board of Directors approved a 2015 capital budget of $1.6 billion which is designed to generate average annual production in 2015 of 55,000 to 60,000 boe/d. The 2015 capital budget includes discretionary capital for delineation drilling and facility project pre-investment, equating to approximately 15% of the total capital budget. In the event that commodity prices remain low into 2015, the discretionary projects could be deferred to preserve the Company's strong balance sheet.
  • 7G plans on increasing the active rig count to 15 drilling rigs during the first half of 2015.
  • Construction of the Karr 7-11 to Lator condensate pipeline and the Lator to Pembina pipeline was mechanically complete in third quarter of 2014. Commissioning and start-up is expected in the fourth quarter.
  • Field construction of the 25,000 bbl/d stabilizer project at the Karr 7-11 battery commenced during the third quarter. The project is estimated to be mechanically complete in the fourth quarter of 2014 with commissioning anticipated in early 2015.
  • Procurement and engineering for the Lator 2 gas plant expansion continued throughout the third quarter. Construction kickoff is planned for the first quarter of 2015, subject to regulatory approvals, and start-up is expected by the fourth quarter of 2015. 7G anticipates that the Lator 2 gas plant expansion will increase the Company's natural gas processing capacity to 250 MMcf/d by December 2015, consistent with its marketing commitments.
SELECTED QUARTERLY INFORMATION      
Q3 2014 Q2 2014 Q1 2014 YTD 2014
FINANCIAL ($ thousands, except per share amounts)
Oil and natural gas liquids revenues 127,343 93,742 76,338 297,423
Natural gas revenues 38,158 29,254 26,993 94,405
Total revenues 165,501 122,996 103,331 391,828
Realized hedging loss (148) (6,873) (5,405) (12,426)
Processing and third party income 571 243 285 1,099
Interest and other income 512 782 626 1,920
Royalties (20,925) (9,434) (5,386) (35,745)
Operating expenses (14,245) (9,659) (11,391) (35,295)
Transportation expenses (12,814) (9,940) (11,220) (33,974)
General and administrative expense (4,457) (5,233) (3,175) (12,865)
Interest expense (16,037) (16,262) (13,746) (46,045)
Foreign exchange 8,367 (618) 223 7,972
Other (31) (30) 22 (39)
Funds from operations (1) 106,294 65,972 54,164 226,430
  Per share – basic (2) 0.55 0.35 0.29 1.19
Per share –diluted (2) 0.48 0.31 0.25 1.02
Net income 30,482 43,926 1,164 75,572
Per share – basic (2) 0.16 0.23 0.01 0.40
Per share – diluted (2) 0.14 0.20 0.01 0.34
Capital investments, net of dispositions
Land 1,408 28,137 1,519 31,064
Drilling and completions 234,879 155,284 124,294 514,457
Facilities and equipment 90,447 34,172 65,806 190,425
Other 1,689 1,531 1,430 4,650
Total capital investments 328,423 219,124 193,049 740,596
Adjusted working capital (1) 67,700 277,222 424,581 67,700
Senior notes (3) 784,000 746,900 773,850 784,000
 
OPERATING
Average daily production
Oil and natural gas liq uids (bbls/d) 20,869 14,005 11,608 15,527
Natural gas (MMcf/d) 89.7 60.0 51.7 67.3
Total (boe/d) 35,820 23,999 20,231 26,739
 
Realized prices
Oil and natural gas liquids ($/bbl) 66.33 73.55 73.07 70.16
Natural gas ($/mcf) 4.62 5.36 5.80 5.14
(1) See "Non-IFRS Financial Measures"
(2) On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.
(3) Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.
SELECTED QUARTERLY INFORMATION - continued    
  Q4 2013   Q3 2013   Q2 2013 Q1 2013 YE 2013
FINANCIAL ($ thousands, except per share amounts)
Oil and natural gas liquids revenues 39,900 18,110 15,745 16,817 90,572
Natural gas revenues 10,921 5,582 7,039 5,388 28,930
Total revenues 50,821 23,692 22,784 22,205 119,502
Realized hedging gain 49 17 53 160 279
Processing and third party income 356 501 347 407 1,611
Interest and other income 272 506 274 233 1,285
Royalties (3,188) (2,227) (318) (2,120) (7,853)
Operating expenses (8,425) (4,502) (4,168) (3,520) (20,615)
Transportation expenses (5,623) (2,486) (2,529) (2,141) (12,779)
General and administrative expense (2,052) (2,006) (2,175) (1,884) (8,117)
Interest expense (8,970) (8,691) (5,051) (194) (22,906)
Foreign exchange (133) (24) 6 10 (141)
Other 7 - - - 7
Funds from operations (1) 23,114 4,780 9,223 13,156 50,273
  Per share – basic (2) 0.14 0.03 0.06 0.08 0.30
Per share – diluted (2) 0.12 0.03 0.05 0.08 0.27
Net income (loss) (5,625) (955) (8,454) 876 (14,158)
Per share – basic (2) (0.03) (0.01) (0.05) 0.01 (0.08)
Per share – diluted (2) (0.03) (0.01) (0.05) 0.01 (0.08)
Capital investments, net of dispositions
Land 2,925 8,991 35,875 13,507 61,298
Drilling and completions 129,231 102,314 44,697 45,568 321,810
Facilities and equipment 44,717 29,707 39,806 72,464 186,694
Other 1,365 1,173 1,058 930 4,526
Total capital investments 178,238 142,185 121,436 132,469 574,328
Adjusted working capital (1) 214,877 129,586 268,137 (23,559) 214,877
Senior notes (3) 425,440 412,120 420,720 - 425,440
 
OPERATING
Average daily production
Oil and natural gas liquids (bbls/d) 6,771 3,253 2,994 3,509 4,139
Natural gas (MMcf/d) 28.9 23.0 19.1 16.4 21.9
Total (boe/d) 11,585 7,084 6,182 6,240 7,786
 
Realized prices
Oil and natural gas liquids ($/bbl) 64.05 60.52 57.78 53.25 59.96
Natural gas ($/mcf) 4.11 2.64 4.04 3.65 3.62
 

(1) See "Non-IFRS Financial Measures"

(2) On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.

(3) Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.

 

SELECTED QUARTERLY INFORMATION - continued    
Q4 2012   Q3 2012   Q2 2012 Q1 2012 YE 2012
FINANCIAL ($ thousands, except per share amounts)
Oil and natural gas liquids revenues 10,994 11,308 9,269 7,047 38,618
Natural gas revenues 5,820 4,636 3,707 2,844 17,007
Total revenues 16,814 15,944 12,976 9,891 55,625
Realized hedging gain 224 520 655 404 1,803
Processing and third party income 405 485 575 568 2,033
Interest and other income 433 431 223 93 1,180
Royalties (2,922) (959) (859) (793) (5,533)
Operating expenses (3,233) (2,227) (2,204) (2,101) (9,765)
Transportation expenses (641) (625) (503) (400) (2,169)
General and administrative expense (1,808) (1,491) (1,324) (1,304) (5,927)
Interest expense (50) (51) (117) (49) (267)
Foreign exchange - - - - -
Other (618) - - - (618)
Funds from operations (1) 8,604 12,027 9,422 6,309 36,362
  Per share – basic (2) 0.05 0.07 0.07 0.05 0.25
Per share – diluted (2) 0.05 0.07 0.07 0.05 0.24
Net loss (379) (247) (875) (1,073) (2,574)
Per share – basic (2) - - (0.01) (0.01) (0.02)
Per share – diluted (2) - - (0.01) (0.01) (0.02)
Capital investments, net of dispositions
Land 16,775 21,461 10,916 10,584 59,736
Drilling and completions 43,007 25,545 13,169 21,196 102,917
Facilities and equipment 42,346 14,331 3,496 10,033 70,206
Other 669 477 522 442 2,110
Total capital investments 102,797 61,814 28,103 42,255 234,969
Adjusted working capital (1) 95,089

189,336

 

195,286 16,605 95,089
Senior notes (3) - - - - -
 
OPERATING
Average daily production
Oil and natural gas liquids (bbls/d) 1,439 1,528 1,355 912 1,309
Natural gas (MMcf/d) 17.3 19.4 18.9 13.3 17.2
Total (boe/d) 4,316 4,763 4,512

3,123

4,180
 
Realized prices
Oil and natural gas liquids ($/bbl) 83.07 80.44 75.19 84.90 80.59
Natural gas ($/mcf) 3.66 2.60 2.15 2.36 2.70
(1) See "Non-IFRS Financial Measures"
(2) On September 8, 2014, the Company amended its articles of incorporation to divide the issued and outstanding Class A Common Voting Shares on a two-for-one basis. The share split has been reflected in the condensed interim statements for the three and nine months ended September 30, 2014 and on a retroactive basis.
(3) Senior notes as reported represent US$ principal converted to Canadian dollars at the closing exchange rate for the period.

Conference Call

7G will host a conference call on Thursday, November 13, 2014 at 9AM MST (11AM EST) to discuss third quarter results and address investor questions. To participate please dial 416-623-0333 or toll free in North America 1-855-353-9183 and enter access code 36248#. A replay will be made available after the call and can be accessed by dialing 1-855-201-2300 and entering conference reference number 1168291 # followed by participant access code 36248#.

Non-IFRS Financial Measures

In this press release, the Company uses the terms "funds from operations", "operating netback" and "adjusted working capital". These terms do not have any standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable with the calculation of similar measures presented by other entities.

"Funds from operations" is a financial measure not presented in accordance with IFRS and is equal to cash flow from operating activities, the most directly comparable financial measure presented in accordance with IFRS, adjusted for changes in non-cash operating working capital and decommissioning expenditures. The Company has presented funds from operations because it uses funds from operations as an integral part of its internal reporting to measure its performance. Funds from operations is considered an important indicator of the operational strength of the Company's business. Funds from operations is a measure of the cash flow generated by the Company's activities and eliminates the effect of changes in non-cash working capital, which is included in cash flow from operating activities. Funds from operations is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either net income as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. In addition, funds from operations is not intended to represent funds available for dividends, reinvestment or other discretionary uses.

The following table presents a reconciliation of the non-IFRS financial measure of funds from operations to the IFRS financial measure of cash flow from operating activities.

Three months
ended Sept 30
  Nine months
ended June 30
2014   2013 2014   2013
($000) ($000)
Cash flow from operating activities 118,070 14,666 221,242 41,131
Decommissioning expenditures - - 206 -
Changes in non-cash operating working capital (11,776) (9,886) 4,982 (13,972)
Funds from operations 106,294 4,780 226,430 27,159

"Operating netback" is calculated on a per boe basis and is determined by deducting royalties, operating and transportation expenses from petrole um and natural gas revenue and, except where otherwise indicated, after adjusting for hedging gains or losses and processing and third party income. Operating netback is utilized by the Company to better analyze the operating performance of its petroleum and natural gas assets against prior periods.

"Adjusted working capital" is calculated as current assets less current liabilities as they appear on the balance sheets, and excludes current unrealized risk management contracts and deferred credits.

The following table presents a calculation of adjusted working capital as presented in this press release.

As at Sept 30
2014   2013
($000)
Total current assets 286,738 239,699
Total current liabilities (204,634) (110,781)
Current risk management contracts (14,527) 668
Current deferred credits 123 -
Adjusted working capital 67,700 129,586

Advisories

Any "financial outlook" or "future oriented financial information' in this press release, as defined by applicable securities legislation, has been approved by management of the Company. Such financial outlook or future oriented financial information is 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.

Certain statements contained in this press release constitute "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 and "forward looking information" for the purposes of Canadian securi ties regulation. Any statements included in this press release that address activities, events or developments that the Company "expects," "believes," "plans," "projects," "estimates" or "anticipates" will or may occur in the future are forward-looking statements. Statements relating to "reserves" and "resources" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and that the reserves and resources can be profitably produced in the future. Actual reserve and resource values may be greater than or less than the estimates provided herein. Actual results may differ materially due to a variety of important factors. Among other items, such factors might include: planned and unplanned capital expenditures; changes in general economic conditions; uncertainties in reserve, resource and production estimates; unanticipated recovery or production problems; weather-related interference with business operations; the effects of delays in completion of, or shut-ins of, natural gas and liquids gathering systems, pipelines and processing facilities; potential costs associated with complying with new or modified regulations; oil and natural gas prices and competition; the impact of derivative positions; production expense estimates; cash flow and cash flow estimates; drilling and operating risks; the Company's ability to replace oil and gas reserves; volatility in the financial and credit markets or in oil and natural gas prices; effects of regulation by governmental agencies including changes in environmental regulations, tax laws and royalties. Except as required by law, the Company undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change. Do not place undue reliance on forward-looking information. Additional factors are disclosed in the Company's Supplemented PREP Prospectus dated October 29, 2014 under the headings "Forward-Looking Statements" and "Risk Factors".

Seven Generations has adopted the standard of 6 Mcf:1 bbl when converting natural gas to oil equivalent. Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf: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 the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilizing a conversion ratio at 6 Mcf: 1 bbl may be misleading as an indication of value.

Unless otherwise noted, "$" refers to Canadian dollars.

About Seven Generations

Seven Generations Energy Ltd. is an independent petroleum company focused on the acquisition, development and value optimization of high quality tight and shale hydrocarbon resource plays. Presently, the Company has a single focus area, the Kakwa River Project, a large-scale, tight, liquids-rich natural gas property located in the Kakwa area of northwest Alberta. 7G has a corporate headquarters in Calgary, Alberta and an operations headquarters in Grande Prairie, Alberta. Seven Generations shares are traded on the Toronto Stock Exchange under the symbol VII.

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Emergency Number

403-444-1471

7G

Contact Us

info@7genergy.com

Corporate Headquarters
Calgary, AB

Operations Headquarters
Grande Prairie, AB

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