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Cequence Energy Reports Lower Cash Flow and On Track Production in 3Q11

Calgary-based junior exploration and production company Cequence Energy Ltd. (CQE:TSX) reported cash flow per share (CFPS) of C$0.07 for 3Q11 and production of 9,745 barrels of oil equivalent per day.

While production was in line with the estimates of Canadian brokerage Canaccord Genuity, CFPS was below both the estimates of the Canaccord (C$0.09) and a consensus prediction of C$0.07. The shortfall caused the Canadian brokerage to lower its rating to HOLD from BUY and reduce its target price to C$4.25 from C$5.40.

The exploration and production company lowered its production estimate for the year to 9,050 barrels of oil equivalent per day from 9,400 barrels of oil equivalent per day. This downgrade was primarily blamed on challenges to production. Cequence is suffering from unplanned downtime in its plants. The company's 1-10 Wilrich well has hit an open fracture and is currently experiencing a IP30 rate of 1.0 million cubic feet per day.

Cequence is experiencing a production shut in of 500 barrels of oil equivalent per day to make up for pad drilling.

In contrast to the negative metrics released regarding cash flow and production, Cequence has announced positive news surrounding its infrastructure projects. The company announced that it built a seven kilometer 8-inch gathering line, along with an early agreement with Alliance Pipeline and Aux Sable to build a 120 Mmcf/d metering station at Simonette. Phase II of Cequence's Simonette facility is expected to be completed soon.

Cequence Energy Ltd. has frequently focused its drilling activities in the Montney formation and the Wilrich formation in the Montney  at Simonette, Alberta. The target share price that Canaccord has provided for the exploration and production company was based a on a six times multiple of 2012 estimated EV/DACF supplemented by C$2.47 in risked upside from Simonette Montney and Wilrich. Cequence's stock closed at C$3.67 on November 16 and hit a 52-week high/low of C$4.70 and C$1.55, respectively.  

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