Revised fully funded budget proactively maintains the company’s balance sheet strength and corporate resilience at current futures pricing
CALGARY, Alberta — In response to the significant decline in global energy prices, Seven Generations has reduced its previously announced 2020 capital investment budget by 18%, or $200 million, to $900 million. Effective immediately, the company will meaningfully reduce its activity levels to align investments to expected cash flow.
DETAILS
2020 capital investment budget is reduced to $900 million from the previously announced $1.1 billion program and remains fully funded at current futures pricing. This reduction reflects a temporary deferral of planned activity in the present commodity price environment that will afford the company the opportunity to high-grade drilling locations and improve efficiencies.
As a result of this deferred capital investment, 7G expects annual 2020 production to average between 185,000 and 190,000 boe/d. This updated guidance anticipates a similar condensate and total liquids mix to the prior budget.
The company will continue to refine its production, capital allocation and cost structure throughout the year in the context of prevailing market conditions. These efforts, alongside reduced production levels and moderating decline rates are anticipated to improve sustaining capital requirements.
7G’s disciplined hedging program continues to effectively mitigate risks associated with the current low-price environment. Condensate production remains approximately 50% hedged for the balance of 2020 with a WTI floor price above US$50/bbl. Natural gas production is approximately 35% hedged at an equivalent price of US$2.60/MMBtu Henry Hub for the balance of the year.
The reduced capital program for 2020 maintains the company’s strong financial position and liquidity. 7G’s $1.4 billion credit facility was renewed for 5 years at year-end 2019, with a 2024 maturity. The company’s fixed-coupon, senior unsecured notes mature in 2023 and 2025.
“During this time of unprecedented volatility, we have several options available to us to maintain our profitability and financial strength,” said Marty Proctor, 7G’s President and Chief Executive Officer. “Strong local condensate pricing, infrastructure ownership, flexible service contracts and our low cost structure gives us the ability to prioritize financial strength over production volumes. Today’s reduced capital and production guidance does not reflect additional cost savings and other optimizations that we are actively pursuing. The company will demonstrate its resilience and emerge from this downturn stronger and better-positioned than ever before.”
REVISED 2020 BUDGET
7G’s revised 2020 capital budget and production estimates are provided below. The company anticipates providing a detailed update of additional guidance metrics with its first quarter 2020 release.
2020 Capital Budget & Production Estimates
March 2020 Revision
Original Budget
Total Capital Investment
$900 million
$1.1 billion
Average Production(1)
185 -190 Mboe/d
200 – 205 Mboe/d
H1 Production(1)
180 – 190 Mboe/d
190 – 200 Mboe/d
H2 Production(1)
185 – 195 Mboe/d
205 – 215 Mboe/d
Percent Liquids(1)
56 – 60%
56 – 60%
Percent Condensate(1)
34 – 38%
34 – 38%
1) See “Note Regarding Product Types” and “Forward-Looking Information Advisory” in the Reader Advisory in this news release.
Seven Generations Energy
Seven Generations is a low supply cost energy producer dedicated to stakeholder service, responsible development and generating strong returns from its liquids-rich Kakwa River Project in northwest Alberta. 7G’s corporate office is in Calgary, its operations headquarters is in Grande Prairie and its shares trade on the TSX under the symbol VII.
Further information on Seven Generations is available on the company’s website, www.7genergy.com.
Reader Advisory
Forward-Looking Information Advisory
This news release contains certain forward-looking information and statements that involve various risks, uncertainties and other factors. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “should”, “believe”, “plans”, and similar expressions are intended to identify forward looking information or statements. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: the expectation that the revised 2020 capital budget will be fully funded and will maintain the company’s balance sheet strength and corporate resilience at current futures pricing; the expectation that the planned deferral of activity will afford the company the opportunity to high-grade drilling locations and improve efficiencies; expected average annual production; anticipated condensate and liquids yields; plans to continue to refine production, capital allocation and cost forecasts throughout the year in the context of prevailing market conditions; anticipated improvements in sustaining capital requirements with reduced production and moderating production decline rates; continued strong financial positioning and liquidity; options available to maintain profitability and financial strength; potential cost savings and optimizations; plans to emerge from the current economic downturn better positioned than ever before; plans to provide a detailed update of additional guidance metrics with the company’s first quarter 2020 release; the details and forecasts described under the heading “Revised 2020 Budget”, including: total capital investment in 2020, average daily production for the first half and second half of the year in 2020, liquids yield and condensate yield.
With respect to forward-looking information contained in this document, assumptions have been made regarding, among other things: future oil, NGLs and natural gas prices being consistent with current commodity price forecasts after factoring in quality adjustments at the company’s points of sale; the company’s continued ability to obtain qualified staff and equipment in a timely and cost-efficient manner; drilling and completion techniques; infrastructure and facility design concepts that have been successfully applied by the company elsewhere in its Kakwa River Project may be successfully applied to other properties within the Kakwa River Project; the consistency of the regulatory regime and framework governing royalties, taxes and environmental matters in the jurisdictions in which the company conducts its business and any other jurisdictions in which the company may conduct its business in the future; the company’s ability to market production of oil, NGLs and natural gas successfully to customers; the company’s future production levels and amount of future capital investment will be consistent with the company’s current development plans and budget; new technologies for recovery and production of the company’s reserves and resources may improve capital and operational efficiencies in the future; the recoverability of the company’s reserves and resources; sustained future capital investment by the company; future cash flows from production; taxes and royalties will remain consistent with the company’s calculated rates; the future sources of funding for the company’s capital program; the company’s future debt levels; geological and engineering estimates in respect of the company’s reserves and resources; the geography of the areas in which the company is conducting exploration and development activities, and the access, economic, regulatory and physical limitations to which the company may be subject from time to time; the impact of competition on the company; and the company’s ability to obtain financing on acceptable terms.
Actual results could differ materially from those anticipated in the forward-looking information that is contained herein as a result of the risks and risk factors that are set forth in the AIF, which is available on SEDAR, including, but not limited to: volatility in market prices and demand for oil, NGLs and natural gas and hedging activities related thereto; general economic, business and industry conditions; variance of the company’s actual capital costs, operating costs and economic returns from those anticipated; the ability to find, develop or acquire additional reserves and the availability of the capital or financing necessary to do so on satisfactory terms; risks related to the exploration, development and production of oil and natural gas reserves and resources; negative public perception of oil sands development, oil and natural gas development and transportation, hydraulic fracturing and fossil fuels; actions by governmental authorities, including changes in government regulation, royalties and taxation; political changes; potential legislative and regulatory changes; the rescission, or amendment to the conditions, of groundwater licenses of the company; management of the company’s growth; the ability to successfully identify and make attractive acquisitions, joint ventures or investments, or successfully integrate future acquisitions or businesses; the availability, cost or shortage of rigs, equipment, raw materials, supplies or qualified personnel; the adoption or modification of climate change legislation by governments; potential impacts of climate change on the company’s operations; uncertainty associated with estimates of oil, NGLs and natural gas reserves and resources and the variance of such estimates from actual future production; dependence upon compressors, gathering lines, pipelines and other facilities, certain of which the company does not control; the ability to satisfy obligations under the company’s firm commitment transportation and processing arrangements; the export and sale of natural gas to the United States; the uncertainties related to the company’s identified drilling locations; the high-risk nature of successfully stimulating well productivity and drilling for and producing oil, NGLs and natural gas; operating hazards and uninsured risks; the risks of fires, floods and natural disasters, which could become more frequent or of a greater magnitude as a result of climate change; the possibility that the company’s drilling activities may encounter sour gas; execution risks associated with the company’s business plan; failure to acquire or develop replacement reserves; the concentration of the company’s assets in the Kakwa area; unforeseen title defects; Indigenous claims; failure to accurately estimate abandonment and reclamation costs; development and exploratory drilling efforts and well operations may not be profitable or achieve the targeted return; horizontal drilling and completion technique risks and failure of drilling results to meet expectations for reserves or production; limited intellectual property protection for operating practices and dependence on employees and contractors; third-party claims regarding the company’s right to use technology and equipment; expiry of certain leases for the undeveloped leasehold acreage in the near future; failure to realize the anticipated benefits of acquisitions or dispositions; failure of properties acquired now or in the future to produce as projected and inability to determine reserve and resource potential, identify liabilities associated with acquired properties or obtain protection from sellers against such liabilities; government regulations; changes in the application, interpretation and enforcement of applicable laws and regulations; environmental, health and safety requirements; restrictions on development intended to protect certain species of wildlife; potential conflicts of interests; actual results differing materially from management estimates and assumptions; seasonality of the company’s activities and the Canadian oil and gas industry; alternatives to and changing demand for petroleum products; extensive competition in the company’s industry; changes in the company’s credit ratings; third party credit risk; dependence upon a limited number of customers; lower oil, NGLs and natural gas prices and higher costs; failure of seismic data used by the company to accurately identify the presence of oil and natural gas; risks relating to commodity price hedging instruments; terrorist attacks or armed conflict; cyber security risks, loss of information and computer systems; inability to dispose of non-strategic assets on attractive terms; the potential for security deposits to be required under provincial liability management programs; reassessment by taxing and royalty authorities of the company’s prior transactions and filings; variations in foreign exchange rates and interest rates; risks associated with counterparties in risk management activities related to commodity prices and foreign exchange rates; sufficiency of insurance policies; potential for litigation; variation in future calculations of non-IFRS measures; breach of and potential enforceability issues in contracts; impact of expansion into new activities on risk exposure; inability of the company to respond quickly to competitive pressures; and the risks related to the common shares that are publicly traded and the company’s senior notes and other indebtedness.
Any financial outlook and future-oriented financial information contained in this document regarding prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action based on management’s assessment of the relevant information that is currently available. Projected operational information contains forward-looking information and is based on a number of material assumptions and factors, as are set out above. These projections may also be considered to contain future oriented financial information or a financial outlook. The actual results of the company’s operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. Actual results will vary from projected results. Readers are cautioned that any such financial outlook and future-oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The forward-looking information and statements contained in this document speak only as of the date hereof and the company does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
Note Regarding Barrels of Oil Equivalent
Seven Generations has adopted the standard of 6 Mcf:1 bbl when converting natural gas to boes. Condensate and other NGLs are converted to boes at a ratio of 1 bbl:1 bbl. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based roughly on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the Company’s sales point. Given the value ratio based on the current price of oil as compared to natural gas and NGLs is significantly different from the energy equivalency of 6 Mcf: 1 bbl and 1 bbl: 1 bbl, respectively, utilizing a conversion ratio at 6 Mcf: 1 bbl for natural gas and 1 bbl: 1 bbl for NGLs, may be misleading as an indication of value.
Note Regarding Product Types
This news release makes reference to company’s revised forecasted total average daily production of 185 – 190 Mboe/d for 2020. Seven Generations expects that approximately 34% – 38% of that production will be comprised of condensate, 37% – 41% will be comprised of shale gas, 22% will be comprised of other NGLs and 3% will be comprised of conventional natural gas. Other NGLs refers to all natural gas liquids, except for condensate, which is reported separately. Liquids refers to condensate and other NGLs combined.
Abbreviations
AIF
annual information form dated February 26, 2020 for the year ended December 31, 2019
bbl or bbls
barrel or barrels
boe
barrels of oil equivalent
d
day
G&A
general and administrative expenses
GAAP
generally accepted accounting practices
H1
first half of the year
H2
second half of the year
Mboe
thousand barrels of oil equivalent
mcf
thousand cubic feet
MMbtu
million British thermal units
MMcf
million cubic feet
NGLs
natural gas liquids
TSX
Toronto Stock Exchange
WTI
West Texas Intermediate
Seven Generations Energy Ltd. is also referred to as Seven Generations, Seven Generations Energy, 7G, we, us, our and the company.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
