Cequence Energy: Midstream Partnership Reduces Debts, Enhance Flexibility

After market closed on Tuesday, Cequence Energy Ltd (TSE:CQE) stated a midstream partnership arrangement.  Company sells a stake while increasing NGL Recovery. CQE will sell a 50% interest in its Simonette facilities to Kanata Energy Group Ltd. (Private) for $34 million. The companies will then jointly fund (CQE’s share: $20 million) the addition of a 120 millions of cubic feet per day refrigeration system and NGTL tie-in at CQE’s 13-11 facility (upgrade anticipated online in first quarter of 2016; CQE anticipates a 15% gain in condensate recoveries).

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.

About

Bertram Valentin, MS in Financial Analysis (from Columbia University, New York), is research analyst and covers Consumer Goods, Technology and Healthcare sectors. Prior joining Market Cash Cow, Bertram Valentin worked with Cleveland Research. If you have a great story idea for Bertram Valentin, you can write at [bertram.valentin@marketcashcow.com ].

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