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Seven Generations Production Surpasses 100,000 Boe/d in April; Record Quarterly Production of 88,525 Boe/d in Q1

May 04, 2016

First Quarter Funds from Operations $111 Million

CALGARY, ALBERTA--(BUSINESS WIRE)-- Ltd. (TSX:VII) delivered record production of 88,525 barrels of oil equivalent per day (boe/d) in the first quarter of 2016, up 82 per cent from the same period one year earlier. With the new Cutbank processing plant on-stream, April production averaged more than 105,000 boe/d, putting 7G on track to achieve 2016 production guidance of 100,000 to 110,000 boe/d.

First quarter funds from operations were about $111 million, up 27 percent compared to the same period in 2015, despite benchmark commodity prices that were about 30 percent lower. First quarter capital investment was $267 million, 27 percent lower than during the first quarter of 2015. 7G's 2016 capital investment program is weighted towards the early part of the year and is in line with the planned investment range of $900 million to $950 million.

2016 growth ramping up with the addition of new processing capacity

"We are continuing to execute our growth as planned. We now have sufficient liquids-rich natural gas processing to meet our Alliance Pipeline transportation volumes which increase to 500 million cubic feet per day (MMcf/d) by late 2018," said Marty Proctor, 7G's President and Chief Operating Officer.

"Near the end of the first quarter, we started up our second large natural gas processing plant - Cutbank, about a week ahead of schedule. The capital cost was about 25 percent under budget, largely due to optimization and lessons learned from building the Lator 2 plant in 2015, plus favourable weather for construction. When Cutbank's 250 MMcf/d of new processing capacity is combined with our Lator complex, we have 510 MMcf/d of natural gas processing capacity. We have five drilling rigs in the field, two completion spreads, and are increasing production as in-field facilities construction projects are complete," Proctor said.

Drilling faster and cheaper wells, with fewer rigs

"We are drilling wells faster and at a lower cost. We started the year with ten rigs and plan to run five through the remainder of 2016, which we expect will be sufficient to achieve our planned production growth this year. Compared to the first quarter of 2015, our drilling days per well are down 25 percent, and per well costs are down 31 percent. Drilling costs averaged $4.3 million with the horizontal length averaging 2,694 metres in the first quarter of 2016," Proctor said.

"Our strategic focus on innovation and operational effectiveness in drilling, completions, construction, facilities installation, and the development of our core resource under our Nest 2 lands, put us right on track to profitably grow production. We now have a very large and sophisticated production network built, from our Montney resource to two receipt points on the transcontinental Alliance Pipeline," said Pat Carlson, 7G's Chief Executive Officer.

Capturing stronger natural gas prices in the U.S. Midwest

Before December 2015, 7G's natural gas price was based on an Alberta price at AECO, which often trades at a significant discount to U.S. Midwest prices. With 7G's natural gas now sold into the Chicago market via Alliance Pipeline, where it receives a Chicago Citygate price, the Company has been able to realize stronger prices than those available in Alberta.

"In 2014 we contracted a ramp up of delivery to 500 MMcf/d, which is approximately 30 percent of the capacity on Alliance Pipeline, by the end of 2018. Anticipating a weak market in Alberta due to production from deferred LNG projects, we contracted delivery of our liquids-rich natural gas all the way to Chicago, and have avoided the congestion and resulting depressed prices in the Alberta market. By reaching the U.S. Midwest region, our first quarter realized natural gas price was $3.24 per thousand cubic feet (Mcf), up 24 percent from a year ago. This higher price, which is partially offset by increased transportation costs to the Chicago area, reflects the stronger U.S. Midwest market. With the grossly over-supplied natural gas market in North America, access to the best markets remains among the toughest obstacles to profitable growth. Matching marketing opportunities with our resource capacity has been our focus for several years and we are seeing the benefits now. However, competition for markets is likely to remain a dominant force in North America's natural gas business and we are continuing to prioritize the search for superior market arrangements," Carlson said.

Strengthened financial standing

On February 24, 2016, 7G closed a private placement of 21,428,600 common shares at $14 per share, resulting in gross proceeds of $300 million that continued to strengthen the Company's balance sheet. Seven Generations had $448 million of adjusted working capital at March 31, 2016. When 7G's $813 million revolving credit facility is combined with adjusted working capital, the Company has about $1.3 billion of available funding. 7G expects to fund its 2016 capital program, between $900 million and $950 million, with cash on hand and funds from operations.

HIGHLIGHTS FOR THE QUARTER ENDED MARCH 31, 2016

  • Continued strong production growth averaging 88,525 boe/d, leading to an average in April of more than 105,000 boe/d. First quarter production consisting of 58 percent liquids, with a liquids-to-gas ratio of approximately 227 barrels (bbls) per MMcf of sales gas. Production increased 82 percent from the first quarter of 2015, and was up 14 percent from the fourth quarter of 2015.
  • Funds from operations were about $111 million in the first quarter, up 27 per cent compared to the first quarter of 2015, despite a drop in benchmark oil and natural gas prices of about 30 percent.
  • Compared to the first quarter of 2015, 7G increased production per share by 76 percent and funds from operations per share by 24 percent during the first quarter of 2016. The Company's diluted share count increased by 13 percent largely due to the $300 million equity financing in February.
  • First quarter capital investment of $267 million, down 27 percent compared to first quarter 2015 and consistent with planned 2016 capital investments of between $900 million and $950 million.
  • Operating expenses were $3.85 per barrel, down 21 percent from the first quarter of 2015 as 7G captured economies of scale and improved operating efficiencies.
  • Realized natural gas prices increased to $3.24 per Mcf, up 24 percent compared to the first quarter of 2015.
  • Seven Generations drilled 15 wells and completed 18 wells, taking the number of producing Montney wells to 117. At the end of the first quarter, approximately 72 wells were in various stages of construction between drilling and tie-in. This inventory of in-progress wells represents significant productive capacity that will be brought on-stream throughout 2016.
  • The Cutbank natural gas plant, built and commissioned to process 250 MMcf/d, came online about a week ahead of schedule and capital costs were about 25 percent lower than budgeted.
  • 7G completed the 24-inch Cutbank sales pipeline, a 29-kilometre connection to deliver liquids-rich natural gas on the Alliance Pipeline.
  • At the Karr condensate stabilization facility, construction was nearly complete at the end of March on the 18,000-barrel tank farm with ten truck loading stations. Commissioning was completed in April.
2016 FIRST QUARTER FINANCIAL AND OPERATING RESULTS
  Three months ended
March 31,
  2016     2015   %
Change
Operational Highlights                
($ thousands, except per share and volume data)                
                 
Production                
Condensate (bbls/d)   28,423       15,810   80
NGLs (bbls/d)   22,611       12,042   88
Natural gas (MMcf/d)   225       125   80
Total (boe/d)   88,525       48,768   82
Liquids ratio   58 %     57 % 1
                 
Realized prices                
Condensate and oil ($/bbl)   39.92       47.59   (16)
NGLs ($/bbl)   8.96       10.41   (14)
Natural gas ($/Mcf)   3.24       2.62   24
Total ($/boe)   23.34       24.73   (6)
                 
OPERATING NETBACK (1) ($/boe)                
Liquids and natural gas revenues $ 23.34     $ 24.73   (6
Royalties   (1.61)       (3.46   (53)
Operating expenses   (3.85)       (4.89   (21)
Transportation expenses   (4.95)       (2.95   68
Netback prior to hedging   12.93       13.43   (4)
Realized hedging gain   4.50       11.54   (61)
Operating netback after hedging $ 17.43     $ 24.97   (30)
General and administrative expenses per boe $ 0.99     $ 1.51   (34
                 
Selected financial information                
Liquids and natural gas revenue   187,996       108,540   73
Funds from operations (1)   110,654       86,889   27
Per share - diluted   0.40       0.32   25
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