Legacy Oil + Gas Inc. Announces Third Quarter 2012 Results
CALGARY, Nov. 8, 2012 /CNW/ - Legacy Oil + Gas Inc. ("Legacy" or the "Company") (TSX:LEG) is pleased to announce it has filed on SEDAR its interim financial statements and related Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2012. Selected financial and operational information is outlined below and should be read in conjunction with the interim financial statements and the related MD&A which are available for review at www.legacyoilandgas.com or www.sedar.com.
|FINANCIAL + OPERATIONAL HIGHLIGHTS OF LEGACY EXCLUDING LGX OIL + GAS INC. ("LGX")(1)|
|Three Months Ended||Nine Months Ended|
|September 30||September 30|
|Unaudited (Cdn $000's, except per share amounts)||2012||2011||% change||2012||2011||% change|
|Petroleum and natural gas sales, net of royalties||90,325||72,617||24||266,118||206,233||29|
|Funds generated by operations (2)||55,692||44,160||26||163,681||128,542||27|
|Per share basic||0.39||0.31||26||1.14||0.92||19|
|Per share diluted (3)||0.38||0.31||23||1.12||0.90||24|
|Net income (loss)||(2,047)||7,905||(126)||(1,457)||11,936||(112)|
|Per share basic||(0.01)||0.06||(117)||(0.01)||0.09||(111)|
|Per share diluted (3)||(0.01)||0.05||(120)||(0.01)||0.08||(113)|
|Capital expenditures (excluding acquisitions)||75,328||101,783||(26)||243,752||217,029||12|
|Net acquisitions (cash consideration) (5)||192||11,668||(98)||5,096||111,546||(95)|
|Net debt and working capital surplus (deficit) (2)||(464,637)||(317,190)||46||(464,637)||(317,190)||46|
|Crude oil (Bbls per day)||12,719||8,822||44||12,155||8,270||47|
|Heavy oil (Bbls per day)||170||229||(26)||181||292||(38)|
|Natural gas (Mcf per day)||13,193||14,284||(8)||13,222||13,402||(1)|
|Natural gas liquids (Bbls per day)||1,220||1,210||1||1,380||1,102||25|
|Barrels of oil equivalent (Boe per day) (4)||16,308||12,642||29||15,919||11,898||34|
|Average realized price|
|Crude oil ($ per Bbl)||83.59||89.40||(6)||85.55||91.66||(7)|
|Heavy oil ($ per Bbl)||62.53||67.02||(7)||69.44||69.24||-|
|Natural gas ($ per Mcf)||2.75||3.99||(31)||2.59||4.10||(37)|
|Natural gas liquids ($ per Bbl)||49.38||65.38||(25)||53.84||66.62||(19)|
|Barrels of oil equivalent ($ per Boe) (4)||71.77||74.37||(3)||72.93||76.20||(4)|
|Netback ($ per Boe) (1)|
|Petroleum and natural gas sales||71.77||74.37||(3)||72.93||76.20||(4)|
|Operating Netback ($ per Boe) (2)||42.91||43.60||(2)||43.38||45.76||(5)|
|Undeveloped land holdings (gross acres)||483,446||654,785||(26)||483,446||654,785||(26)|
|Common Shares (000's)|
|Common shares outstanding, end of period||143,325||143,256||-||143,325||143,256||-|
|Weighted average common shares (basic)||143,325||143,256||-||143,325||140,105||2|
|Weighted average common shares (diluted) (3)||145,149||144,211||1||145,584||143,151||2|
|(1)||Financial and operating highlights for Legacy Oil + Gas Inc. ("Legacy" or the "Company") excluding LGX Oil + Gas Inc.|
|(2)||Management uses funds generated by operations, net debt and working capital surplus (deficit) and operating netback to analyze operating performance and leverage. These terms, as presented, do not have a standardized meaning prescribed by International Financial Reporting Standards and therefore it may not be comparable with the calculation of similar measures for other entities.|
|(3)||In calculating the net income (loss) per share diluted, Legacy excludes the effect of outstanding stock options and share warrants outstanding and uses the weighted average common shares (basic) where the Company has a net loss for the period. In calculating, funds generated by operations per share diluted, the Company includes the effect of outstanding stock options and share warrants using the treasury stock method.|
|(4)||Boe means barrel of oil equivalent. All Boe conversions in this report are derived by converting natural gas to oil equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent. Boe may be misleading, particularly if used in isolation. A Boe conversion rate of 1 Boe: 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.|
|(5)||For the three and nine months ended September 30, 2012, the Company issued no common shares as part consideration for acquisitions (no common shares for the three months ended September 30, 2011 and 6.2 million common shares valued at $102.7 million for the nine months ended September 30, 2011).|
- Increased average production from 12,642 Boe per day in the third quarter of 2011 to 16,308 Boe per day (87 percent oil and NGL's) in the third quarter of 2012 (29 percent increase). Third quarter average production represents an increase of 8 percent compared to second quarter 2012 volumes. On a year-to-date basis, average production for the nine months ended September 30, 2012 of 15,919 Boe per day represents an increase of 34 percent over the nine months ended September 30, 2011. This growth demonstrates the strength of Legacy's organic capital program.
- Increased oil and NGL's weighting from 81 percent in the third quarter of 2011 to 87 percent in the third quarter of 2012.
- Current production of approximately 17,400 Boe per day, 87 percent oil and NGL's (based on field estimates) represents an increase of 14 percent over second quarter 2012 average volumes and demonstrates Legacy's organic program is delivering strong results and is on-track to reach the Company's previously announced 2012 average production target and exit production target of 16,300 Boe per day and 17,900 Boe per day, respectively.
- Drilled 46 (36.2 net) wells with a 100 percent drilling success in the third quarter of 2012.
- Legacy's most recent horizontal well at Herriman #5 is an example of the progression of positive production results as the Turner Valley completion practices are further refined. The well has increased from 100 Boe per day to peak rates of 400 Boe per day in its first weeks of production, while still producing at approximately 64 percent water cut and carrying a high fluid level.
- Continued success at the Company's operated pilot waterflood projects at Taylorton and Heward.
- At Alameda/Steelman, five of the wells drilled in the third quarter of 2012 have average 30 day initial production rates of 440 Boe per day per well.
- Increased funds generated by operations from $44.2 million in the third quarter of 2011 to $55.7 million in the third quarter of 2012 (26 percent increase). Increased funds flow from operations per share (basic) from $0.31 in the third quarter of 2011 to $0.39 in the third quarter of 2012 (26 percent increase).
- On a year-to-date basis, funds generated by operations increased 27 percent year-over-year to $163.7 million.
- Operating costs were reduced to $13.91 per Boe in the third quarter of 2012 from $16.08 per Boe in the third quarter of 2011 (13 percent reduction). This reduction also represents a 3 percent reduction since the second quarter of 2012.
- On November 1, 2012, the Company entered into a subscription agreement with CPPIB Credit Investments Inc., ("CII"), a wholly-owned subsidiary of the CPP Investment Board ("CPPIB") for an investment by CII in Legacy, subject to final documentation. The initial investment will be in the form of US$200 million of unsecured, five year term notes with a 7.5 percent coupon, to be issued pursuant to a trust indenture with a Canadian trust company, with an additional US$100 million of notes available at a future date, subject to the approval of both CII and Legacy on terms to be confirmed at the time of issuance.
- In a recent scheduled review, Legacy's borrowing base was maintained at $525 million, while taking into consideration the effect of the recently announced Notes.
Legacy participated in the drilling of 46 gross (36.2 net) wells targeting light oil with a 100 percent success rate. The Company spent $75.3 million on capital expenditures in the quarter: $61.3 million on drilling and completions and $14.0 million on equipping and facilities.
At Pierson, Manitoba, the Company continues to deliver excellent production results in the Spearfish compared to both the previous operator's drilling and the type curve used in the 2011 year-end independent engineering report. Legacy has achieved these rates while constraining production to maximize ultimate recovery. All recent wells carry significant fluid levels, with some wells having fluid just below surface. The Company estimates that initial productive capability of a number of these Pierson wells would range from 120 to 280 Boe per day; well in excess of the currently constrained rates. The Company believes these achievements will lead to superior long term performance, higher per well reserve bookings plus additional locations booked.
Legacy has continued to improve capital efficiencies in the Spearfish play in Pierson. Through a combination of reduced day rates for both drilling and stimulation services and improved operations execution, wells drilled in Pierson over the first nine months of 2012 have drill, complete, equip and tie-in costs of less than $1.5 million. Wells drilled in the most recent quarter have all-in capital costs between $1.2 million to $1.3 million. The average number of drilling days has been reduced from 10 days in 2011 to 6 to 7 days in the most recent quarter. This excellent performance has been on "long" horizontal wells which are typically drilled across an entire section. Operating costs continue to be reduced as additional wells are tied-in to the central oil battery. Current operating costs in Pierson are down 35 percent in the third quarter of 2012 from the third quarter of 2011.
At Bottineau County, North Dakota, no new operated wells were brought on production in the quarter, however, the Company anticipates having 6 (4.5 net) additional wells on production in the fourth quarter of 2012. The first four wells of this recent program have come on production at an average production rate of more than 150 Boe per day per well. Legacy has achieved these rates while constraining production to maximize ultimate recovery as all wells carry fluid levels.
Legacy has also continued to improve capital efficiencies in the Spearfish play in Bottineau County. Through a combination of reduced day rates for both drilling and stimulation services and improved operations execution, wells drilled in Bottineau County in the last half of 2012 have drill, complete, equip and tie-in costs of less than $1.6 million. Wells drilled in the most recent quarter have all-in capital costs between $1.4 million to $1.5 million on an all-in basis. Average number of drilling days has been reduced from 12 days in 2011 to 7 to 8 days in the most recent quarter. Similar to Pierson, this excellent performance has been on "long" horizontal wells that are typically drilled across an entire section.
The total Spearfish play development drilling inventory of 440 net potential locations (88 percent unbooked) is based on eight wells per section. Based on other operators' results in the play, Legacy's location count could increase by 50 percent through downspacing. In addition, the Company is evaluating the waterflood potential in the play and anticipates recovery factors of up to 14 percent, based on analogous pools.
At Star Valley, Legacy has applied its leading fracture stimulation design developed in Heward to this area with good success. Legacy brought 11 (7.8 net) wells on production since the start of the third quarter of 2012 and these wells have average 30 day initial rates of 200 Boe per day per well. As previously disclosed, the Company believes the Bakken play boundaries have expanded and has increased its drilling location inventory to more than 50 net wells in Star Valley.
At Taylorton, the Company has continued to observe improved waterflood response in the original pilot area. The 91/12-29 horizontal well has seen its oil production rate increase to nearly 50 Bbl per day, with a corresponding increase in fluid rate, fluid level and reduction in water cut. The pilot was expanded into section 28 in July 2012. Continuous improvement of drilling and completion practices has resulted in a reduction in capital costs in Taylorton, with drilling, completion, equip and tie-in costs for recent wells being 15 percent less than historical costs.
At Heward, the pilot waterflood project initiated in December 2011 continues to demonstrate waterflood response as the oil production rate in eight offsetting wells has increased since the commencement of the pilot. Individual well oil production rates are up 50 to 500 percent from prior to initiation of the waterflood. Plans are underway for expansion of the pilot waterflood project in the latter part of 2012
Legacy has remained active drilling conventional Mississippian horizontal wells throughout its SE Saskatchewan properties. These wells typically cost approximately $1 million to drill, complete, equip and tie-in as they generally are not fracture stimulated and have excellent rates of return and quick payouts.
At Alameda/Steelman, Legacy's recent wells targeting the Frobisher and Midale have achieved tremendous production results. Five of the wells drilled in the third quarter of 2012 have average 30 day initial production rates of 440 Boe per day per well. The majority of these wells carry high fluid levels. The Company has identified a significant number of follow-up locations in both areas.
At Turner Valley, Legacy has continued to evolve drilling and completion practices to optimize both production rate and capital costs. Drilling to-date has targeted infill locations testing areas of varying water cut, reservoir pressure, proximity to water injection and three different stratigraphic horizons. As previously disclosed, horizontal wells in Turner Valley have typically come on production with a high water cut and as load fluid is recovered, the water cuts decrease and the oil rates increase. This phenomenon has been observed in the 22 previously drilled unfrac'd horizontal wells and in the wells drilled by Legacy. In turn, the Company expects the Turner Valley horizontal wells to produce at stable, low decline rates based on the production profile demonstrated by both the previously drilled and Legacy drilled wells.
The Hartell #6 well and Boyd #1 well continue to deliver excellent performance. Hartell #6 has produced nearly 50 MBoe in 11 months of production and Boyd #1 has produced nearly 40 MBoe in six months of production and has averaged 250 Boe per day for the last four months. Both wells did not reach peak rates until considerably after first production date. Production has continued to trend higher on the remainder of the Turner Valley wells as artificial lift optimization has taken place, production run times have improved and recovery of load fluid has resumed.
Legacy's most recent horizontal well at Herriman #5 is an example of the progression of positive production results as the Turner Valley completion practices are further refined. The well has increased from 100 Boe per day to peak rates of 400 Boe per day in its first weeks of production, while still producing at approximately 67 percent water cut and carrying a high fluid level. Offset producers have water cuts between 16 and 45 percent and it is anticipated Herriman #5 will continue to trend lower in water cut and higher in oil rate.
The Company has made great strides in reducing capital costs since the end of 2011/early 2012. With an ongoing program, refinement of mud programs and bit selection, Legacy continues to improve its drilling performance in Turner Valley, leading to decreased capital costs. The recent dual lateral horizontal wells have cost approximately $6 million for drilling, completion, equip and tie-in, driving much improved capital efficiencies. Legacy believes there is potential for additional capital cost reductions on future wells.
EVENTS AFTER THE REPORTING PERIOD - TERM NOTE ISSUE AND MAINTENANCE OF BANK LINE
On November 1, 2012, Legacy announced that it has entered into a subscription agreement with CII, a wholly-owned subsidiary of the CPPIB for an investment by CII in Legacy, subject to final documentation. The initial investment will be in the form of US$200 million of unsecured, five year term notes with a 7.5% coupon (the "Notes"), to be issued pursuant to a trust indenture with a Canadian trust company, with an additional US$100 million of notes available at a future date, subject to the approval of both CII and Legacy on terms to be confirmed at the time of issuance.
In addition, the Company also announced that its syndicate of lenders, led by BMO Capital Markets as Administration Agent, and The Bank of Nova Scotia and National Bank of Canada as Co-Syndication Agents and including BMO Capital Markets, The Bank of Nova Scotia, Alberta Treasury Branches, National Bank of Canada, Canadian Imperial Bank of Commerce, The Toronto-Dominion Bank and JP Morgan Chase Bank NA as lenders, has maintained the borrowing base at C$525 million after taking into account the issue of the Notes, subject to final documentation. The next annual borrowing base review is scheduled for on or before April 30, 2013.
Legacy will use the net proceeds of the Notes to reduce borrowings under its syndicated credit facility. The Company has no intent to increase overall leverage, but has pursued the investment by CII for the purposes of increasing liquidity, improving financial flexibility and diversifying its sources of capital. The introduction of the Notes improves the long term sustainability of Legacy's business model. Although no specific agreements have been reached, CPPIB and the Company may consider equity investments at some time in the future, subject to terms negotiated at that time. Closing of the investment is anticipated to occur on or about November 15, 2012. Closing is subject to the satisfaction of all of the conditions to closing set out in the subscription agreement and to the finalization and execution of all required documentation.
OUTLOOK - SUSTAINABILITY + GROWTH
Legacy's business plan has remained unchanged since our inception in July 2009. Our focus on high quality, high netback, light oil assets comprised of large in-place oil resources with low recovery factors and a multi-dimensional opportunity inventory, supported by a predictable production and cash flow base and strong balance sheet, has been maintained.
Throughout 2012, the Company has remained focused on improving well results, improving capital efficiencies and reducing operating costs. Attainment of these goals has been demonstrated by another strong quarterly operational and financial performance. In the third quarter of 2012, Legacy has grown production per share 29 percent and cash flow per share 26 percent from the same period last year. The Company has not completed an equity financing or major acquisition for 21 months and has generated these results through the strength of our organic capital program.
Through continuous improvement of drilling and completion operations and proactively working with our service providers, we have seen capital cost reductions of up to 15 percent in some areas. Operating costs are at a level not seen since late 2010. We are aggressively pursuing additional potential cost savings and efficiencies.
Legacy has more than 1,200 net development locations for light oil that represent ten years of drilling inventory and number more than our oil weighted, mid-cap peers combined. These development locations are in well-established and understood large, light oil in-place reservoirs. Our inventory does not include the more than 340 net Bakken infill locations, the potential 240 net Spearfish infill locations and the potential 260 net locations at Maxhamish.
Legacy has dramatically strengthened our balance sheet and liquidity through the recently announced a term debt deal and maintenance of our bank line. The Company has continued to improve its ability to weather commodity price volatility and capital markets turbulence without limiting our significant upside potential. Furthermore, as a result of the strategic transaction with LGX, Legacy retains a significant share and technical control in a potential high impact light oil resource play without any capital obligation.
From the beginning, the Company has been a leader in promoting a sustainable, light oil weighted business model. Legacy has proactively managed its corporate decline by acquiring strategic assets with both lower base declines and secondary recovery potential. Legacy has pioneered industry leading completion and production practices that enhance the sustainability of the company and the capability to deliver solid per share growth. Our disciplined approach, impressive light oil resource capture and significant development/waterflood inventory, provides optionality to pursue the best strategy to maximize returns for shareholders; whether it is growth, dividend or a combination of growth plus dividend. This flexibility differentiates Legacy from its peers.
Our team at Legacy has always applied a consistent technical approach and resolute perseverance to deliver positive results on our capital initiatives. The benefits of our strategy, diligence and successful execution will continue to show positive results in the remainder of 2012 and beyond.
CONFERENCE CALL DETAILS
Management will be holding a conference call for investors, financial analysts, media and any interested persons on Friday November 9, 2012 at 9:00 a.m. (MDT) (11:00 a.m. EDT) to discuss the quarterly results.
The investor conference call details are as follows:
Participant Dial-In Number(s):
- Operator Assisted Toll-Free Dial-In Number: (888) 231-8191
- Local Dial-In Number: (403) 451-9838
- Conference ID: 41483553
Note: In order to join this conference call, you will be required to provide the Conference ID Number listed above.
Legacy is a uniquely positioned, well‐capitalized, technically driven, intermediate oil and natural gas company with a proven management team committed to aggressive, cost‐effective growth of light oil reserves and production in large hydrocarbon in‐place assets and resource plays. Legacy's common shares trade on the Toronto Stock Exchange under the symbol LEG.
Forward-Looking Information - This press release contains forward-looking statements. More particularly, it contains forward-looking statements concerning: (i) Legacy being on track to meet its 2012 average and exit production targets, (ii) the initial productive capacity of wells at Pierson, (iii) the effect of constraining initial production of wells at Pierson on long-term well performance, future reserves bookings and additional drilling locations, (iv) the anticipated bringing onto production of additional wells at Bottineau County in the fourth quarter of 2012, (v) the potential number of drilling locations associated with Legacy's Spearfish properties, (vi) the potential recovery rates achievable through waterflood of Legacy's Spearfish properties, (vii) the potential number of drilling locations at Star Valley, (viii) Legacy's plans to expand its waterflood project at Heward, (ix) expected production characteristics of horizontal wells drilled at Turner Valley, * the potential for future cost reductions for wells drilled at Turner Valley, (xi) the anticipated closing date of the unsecured Note investment by CII, and (xii) Legacy's total number of drilling locations.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Legacy, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability and performance of facilities and pipelines, the geological characteristics of Legacy's properties, the successful application of drilling, completion and seismic technology, prevailing weather conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements and the availability of capital, labour and services. In addition, the forward-looking statements respecting the closing of the unsecured Note investment by CII are based on expectations and assumptions concerning the satisfaction of all of the conditions to closing set out in the subscription agreement with CII and the due finalization and execution of all required documentation.
Although Legacy believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Legacy can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), constraint in the availability of services, commodity price and exchange rate fluctuations, adverse weather conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects, waterflood projects or capital expenditures. These and other risks are set out in more detail in Legacy's Annual Information Form for the year ended December 31, 2011 dated March 20, 2012. In addition, the unsecured Note investment by CII may not close at the anticipated time or at all due to a number of factors and risks. These include, but are not limited to, the failure to satisfy all of the conditions to closing set out in the subscription agreement or the failure of the parties to agree to acceptable final documentation.
The forward-looking statements contained in this press release are made as of the date hereof and Legacy undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Meaning of Boe: When used in this press release, Boe means a barrel of oil equivalent on the basis of 1 Boe to 6 thousand cubic feet of natural gas. Boe/d means a barrel of oil equivalent per day. Boe's may be misleading, particularly if used in isolation. A Boe conversion ratio of 1 Boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
SOURCE: Legacy Oil + Gas Inc.For further information:
Trent J. Yanko, P.Eng.
President + CEO
Legacy Oil + Gas Inc.
4400,525-8th Avenue SW
Calgary, AB T2P 1G1
Matt Janisch, P.Eng.
Vice-President, Finance + CFO
Legacy Oil + Gas Inc.
4400,525-8th Avenue SW
Calgary, AB T2P 2V7