LGX Oil + Gas Inc. Announces 27 Percent Increase in 2013 Year-End Reserves, Growth in NAV Per Share, Strong Finding & Development Costs and Provides Operational Update on 14-2 Big Valley Well

CALGARY, March 18, 2014 /CNW/ - LGX Oil + Gas Inc. ("LGX" or the "Company") (TSXV: OIL) is pleased to announce its 2013 year-end reserves and provide an operational update.

The financial and operational information contained below is based on the Company's unaudited expected results for the year ended December 31, 2013.

HIGHLIGHTS

  • 2013 net asset value per share grew by 9 percent over 2012 to $1.27 per share
  • 2013 total proved plus probable finding and development costs (including change in future development costs) of $25.57 per Boe
  • Initial reserve booking of 370 MBoe proved plus probable (gross) to 14-2 Alberta Bakken well.  Play was also assigned two proved undeveloped locations plus two probable locations
  • Netbacks from the Alberta Bakken play are expected to be in excess of $50.00 per Boe based on current pricing
  • Total proved plus probable reserves grew by 27 percent to 5.6 MMBoe (82 percent oil and NGL's) at year end 2013 from 4.4 MMBoe (72 percent oil and NGL's) at year end 2012
  • 2013 production averaged 898 Boe per day, an increase of 209 percent over 2012 average production of 291 Boe per day
  • Replaced 464 percent of production on a total proved plus probable basis

RESERVES

In this press release, all references to reserves are to gross company reserves, meaning LGX's working interest reserves before deductions of royalties and before consideration of LGX's royalty interests.  The reserves were evaluated by GLJ Petroleum Consultants ("GLJ") in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") effective December 31, 2013.  LGX's annual information form for the year ended December 31, 2013 (the "AIF") will contain LGX's reserves data and other oil and natural gas information as mandated by NI 51-101.  LGX is required to file the AIF on SEDAR on or before March 31, 2014. A copy of the AIF will be available under LGX's profile at www.sedar.com or at www.lgxoil.com.  The summary information provided below should be read in conjunction with the detailed information in the AIF.

As of December 31, 2013, LGX's total gross proved plus probable reserves base was 5,604 MBoe, an increase of 27 percent year over year.  Total proved plus probable reserves additions were 1,507 MBoe.  These additions represent 464 percent of the 325 MBoe produced during 2013.  Light and medium oil and NGL's accounted for 82 percent of the proved plus probable reserves base.

LGX's gross total proved reserves base was 2,772 MBoe.  Total proved reserves represent 49 percent of the total proved plus probable reserves.  Proved producing reserves represent 57 percent of the total proved reserves base.  Total proved reserves additions were 640 MBoe.  These additions represent 197 percent of the 325 MBoe produced during 2013.  Light and medium oil and NGL's accounted for 79 percent of the total proved reserves base.

The following table is a summary, as at December 31, 2013, of LGX's petroleum and natural gas reserves as evaluated by GLJ.  It is important to note that the recovery and reserves estimates provided herein are estimates only. Actual reserves may be greater or less then the estimates provided herein. Reserves information may not add due to rounding.

 
Gross Company Reserves Summary (1)
Using GLJ December 31, 2013 Forecast Prices and Costs
As at December 31, 2013
  Light and       Total Oil
  Medium Oil  Natural Gas  NGL's  Equivalent
  (MBbl)  (MMcf)  (MBbl)  (MBoe)
Proved Producing  1,201  2,217  7  1,578
Proved Developed Non-Producing  295  507  3  382
Proved Undeveloped  688  722  4  812
Total Proved  2,184  3,446  14  2,772
Total Proved plus Probable  4,543  6,200  28  5,604
(1)      Gross Company Reserves means the Company's working interest reserves before calculations of royalties and before consideration of the Company's royalty interest

Net Present Value of Future Net Revenue

  Before Future Income Tax Expenses and Discounted at
  0%   5%   10%   15%   20%
       
  (M$)   (M$)   (M$)   (M$)   (M$)
Proved                  
  Developed Producing 41,839   34,848   29,842   26,127   23,283
  Developed Non-Producing 17,292   12,539   10,030   8,509   7,409
  Undeveloped 19,825   10,318   5,251   2,219   258
Total Proved 78,956   57,705   45,124   36,855   31,031
Probable 102,203   51,682   30,349   19,044   12,292
Total Proved plus Probable 181,158   109,387   75,473   55,899   43,323
   
   
  After Future Income Tax Expenses and Discounted at
  0%   5%   10%   15%   20%
       
  (M$)   (M$)   (M$)   (M$)   (M$)
Proved                  
  Developed Producing 41,839   34,848   29,842   26,127   23,283
  Developed Non-Producing 17,292   12,539   10,030   8,509   7,490
  Undeveloped 19,825   10,318   5,251   2,219   258
Total Proved 78,956   57,705   45,124   36,855   31,031
Probable 85,903   44,841   26,920   17,152   11,184
Total Proved plus Probable 164,859   102,546   72,044   54,008   42,215

Pricing Assumptions - Forecast Prices and Costs

GLJ employed the following pricing, exchange rate and inflation rate assumptions as of December 31, 2013 in estimating reserves data using forecast prices and costs. For the year ended December 31, 2013, LGX's average realized sales prices before hedging were $3.05/Mcf for natural gas and $84.61/Bbl for crude oil and NGLs.

       
Year WTI
Cushing
Oklahoma
40° API
(US$/Bbl)
Edmonton
Par Price
40° API
($/Bbl)
Cromer
LSB
35° API
($/Bbl)
AECO - C Spot
($/MMBtu)
Pentanes
Plus
($/Bbl)
Exchange
Rate
($US/$Cdn)
2013
(Actual)
97.88 93.33 92.29 3.24 104.40 0.971
2014 97.50 92.76 90.91 4.03 105.20 0.950
2015 97.50 97.37 95.42 4.26 107.11 0.950
2016 97.50 100.00 98.00 4.50 107.00 0.950
2017 97.50 100.00 98.00 4.74 107.00 0.950
2018 97.50 100.00 98.00 4.97 107.00 0.950
2019 97.50 100.00 98.00 5.21 107.00 0.950
2020 98.54 100.77 98.75 5.33 107.82 0.950
2021 100.51 102.78 100.72 5.44 109.97 0.950
2022 102.52 104.83 102.73 5.55 112.17 0.950
2023 104.57 106.93 104.79 5.66 114.41 0.950

Thereafter escalation rate of 2.0%

Reconciliation of Changes in Reserves

The following table sets forth a reconciliation of LGX's gross reserves as at December 31, 2013 to the gross reserves as at December 31, 2012.

    Light and
Medium Crude
Oil
Natural Gas
Liquids
Natural Gas Total Oil
Equivalent
Proved (MBbls) (MBbls) (MMcf) (MBoe)
  Balance at December 31, 2012 1,638 23 4,744 2,458
  Extensions and Improved Recovery - - - -
  Technical Revisions 90 (6) (293) 30
  Infill Drilling 416 - - 416
  Discoveries 260 - - 260
  Acquisitions - - - -
  Dispositions - - - -
  Economic Factors - - (395) (66)
  Production (220) (3) (609) (325)
  Balance at December 31, 2013 2,184 14 3,446 2,772

    Light and
Medium Crude
Oil
Natural Gas
Liquids
Natural Gas Total Oil
Equivalent
Probable (MBbls) (MBbls) (MMcf) (MBoe)
  Balance at December 31, 2012 1,500 15 2,687 1,964
  Extensions and Improved Recovery - - - -
  Technical Revisions (12) (2) 62 (5)
  Infill Drilling 768 - - 768
  Discoveries 102 - - 102
  Acquisitions - - - -
  Dispositions - - - -
  Economic Factors 1 - 5 2
  Production - - - -
  Balance at December 31, 2013 2,360 13 2,754 2,832

    Light and
Medium Crude
Oil
Natural Gas
Liquids
Natural Gas Total Oil
Equivalent
Proved + Probable (MBbls) (MBbls) (MMcf) (MBoe)
  Balance at December 31, 2012 3,138 38 7,431 4,422
  Extensions and Improved Recovery - - - -
  Technical Revisions 78 (8) (232) 25
  Infill Drilling 1,184 - - 1,184
  Discoveries 362 - - 362
  Acquisitions - - - -
  Dispositions - - - -
  Economic Factors 1 - (390) (64)
  Production (220) (3) (609) (325)
  Balance at December 31, 2013 4,543 28 6,200 5,604

Future Development Costs

The table below sets out the total future development costs ("FDC") deducted in the estimation by GLJ of the future net revenue attributable to proved reserves and proved plus probable reserves.

    Proved Reserves   Proved Plus
Probable Reserves
     
    (M$)   (M$)
2014   12,010   12,516
2015   4,811   20,791
2016   3,266   12,120
2017   2,163   7,628
2018   447   491
Remaining Years   396   491
Total Undiscounted   23,093   54,037

CAPITAL EXPENDITURES AND FINDING AND DEVELOPMENT COSTS

LGX incurred capital expenditures of $15.3 million in 2013, all of which was dedicated to organic growth.  The Corporation did not complete any acquisitions in 2013.

The Company's total proved plus probable finding and development costs for 2013 were $25.57 per Boe (including change in FDC).

     
2013 Capital Expenditures                                                 Total Proved plus Probable (1) Total Proved (1)
Capital costs ($ thousands)    
  Exploration & development drilling & associated costs 14,321 14,321
  Land & Seismic 979 979
  Change in FDC  23,214 12,896
2013 Reserve Additions (MBoe) (2)    
Exploration & development 1,507 640
     
Finding & Development Costs ($ per Boe) (3)    
     
2013 excluding change in FDC 10.17 23.94
2013 including change in FDC 25.57 44.09

The Company is only disclosing one year of finding and developments costs as LGX feels the previous years are not comparable due to the reverse takeover completed in 2012.

(1)      The aggregate of the exploration and development costs incurred in the most recent financial period and the change during that period in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that period.
(2)      Boes may be misleading, particularly if used in isolation.  A Boe conversion ratio of 1 Boe: 6 Mcf natural gas has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead.
(3)     Includes revisions. Determined by dividing the sum of exploration, development, land & seismic costs and, where indicated, changes to FDC by additions to reserves, other than additions through net acquisitions.

NET ASSET VALUE ("NAV") PER SHARE

The following table outlines LGX's NAV per Basic Common Share using the Proved plus Probable reserve value at December 31, 2013, before taxes and discounted at 10 %, and forecast pricing and costs:

($MM except share and per share amounts)  
Proved Plus Probable Reserve Value NPV10 BT(incl. future capital) $75.4
Undeveloped Land (113,541 acres @ $500/acre) $56.8
Net Debt  ($19.6)
Total Net Assets (basic) $112.6
Basic Common Shares Outstanding (MM) 88.7
Estimated NAV per Basic Common Share $1.27

OPERATIONAL UPDATE

Alberta Bakken

LGX drilled 2 (2.0 net) wells into the Big Valley (Three Forks) Formation for the year ended December 31, 2013, both in the fourth quarter of 2013.

The 14-2 well drilled 1150 m horizontally from a vertical strat test and was fracture stimulated. It was put on production late January, 2014 and averaged in excess of 530 Bbl per day of light oil for the first 30 days of production. The well is currently producing approximately 470 Bbl per day of oil at a 13 percent water cut with a high fluid level. LGX has a 100 percent working interest in the well prior to recovery of 200 percent of the drilling, completion, equipping and tie-in costs, at which point its interest will revert to 80 percent.

The 10-15 vertical strat well encountered 13 metres of gross pay in the Big Valley, which confirms our 3-D seismic interpretation.  Well logs and core indicate good porosity and permeability, the core had good oil saturations and geochemical evaluation showed high TOC and early oil maturation.  The well was kicked off and drilled to intermediate casing point in the reservoir for future re-entry to drill a horizontal leg.  Similar reservoir was encountered in the build section.

Manyberries

A number of optimization projects have been completed including oil well restarts and water injection re-configuration and workovers.  Work continues on high-grading Sunburst development drilling locations and further evaluating the horizontal drilling potential in the Swift Formation.

In December 2013, the Company and another producer received notice from the Federal Minister of Environment of an Emergency Order for the Protection of the Greater Sage-Grouse pursuant to the Species at Risk Act (Canada) ("Emergency Order") to address the imminent threats to the survival and recovery of the Greater Sage-Grouse, including protecting the habitat in southeast Alberta and southwest Saskatchewan identified in the order to help stabilize the Sage-Grouse population and begin its recovery.  The Emergency Order came into effect on February 18, 2014, and does not affect LGX's Alberta Bakken property.

A copy of the Emergency Order is attached to the material change report of LGX dated January 3, 2014.  The material change report has been filed on SEDAR and may be reviewed under LGX's profile at the SEDAR website at www.sedar.com.

The Emergency Order came into effect after the effective date of the independent engineering report evaluating the Company's reserves as at December 31, 2013 and the ultimate impact of the Emergency Order on the Company's Manyberries reserves remains uncertain.  The existence of the Emergency Order may result in potential revisions to the reserves attributable to the Manyberries property in any future estimate of such reserves.

LGX expects to release its 2013 year end operational and financial results Monday, March 24, 2014.

LGX is a uniquely positioned, technically driven, junior oil and natural gas company with a proven management team committed to aggressive, cost-effective growth of light oil reserves and production combined with high impact exploration potential in southern Alberta.  LGX's common shares trade on the TSX Venture Exchange under the symbol OIL.

Reader Advisories

Reserves Data

The determination of oil and natural gas reserves involves the preparation of estimates that have an inherent degree of associated uncertainty. Categories of proved and probable reserves have been established to reflect the level of these uncertainties and to provide an indication of the probability of recovery.  The estimation and classification of reserves requires the application of professional judgment combined with geological and engineering knowledge to assess whether or not specific reserves classification criteria have been satisfied. Knowledge of concepts including uncertainty and risk, probability and statistics, and deterministic and probabilistic estimation methods is required to properly use and apply reserves definitions.

The recovery and reserve estimates of oil, NGL and natural gas reserves provided herein are estimates only.  Actual reserves may be greater than or less than the estimates provided herein. The estimated future net revenue from the production of LGX's natural gas and petroleum reserves does not represent the fair market value of LGX's reserves.

The reserve data provided in this news release presents only a portion of the disclosure required under NI 51-101.  All of the required information will be contained in LGX's AIF, which will be filed on SEDAR on or before March 31, 2014.

Caution Respecting BOE

In this press release, the abbreviation BOE means barrel of oil equivalent on the basis of 1 BOE to 6 Mcf of natural gas when converting natural gas to BOEs.  BOEs may be misleading, particularly if used in isolation.  A BOE conversion ratio of 6 Mcf to 1 BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency conversion ratio of 6 Mcf to 1 BOE, utilizing a conversion ratio of 6 Mcf to 1 BOE may be misleading as an indication of value.

Calculation of Netbacks

Netbacks are calculated by deducting royalties paid and operating costs, including transportation costs, from prices received, excluding the effects of hedging.

Forward Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning: (i) the anticipated netbacks from LGX's Alberta Bakken play; (ii) the potential impact of the Emergency Order on the reserves attributable to the Manyberries property; and (iii) the expected timing of the release by LGX of its year end operational and financial results.

The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by LGX, including expectations and assumptions concerning prevailing royalties and operating and transportation costs at LGX's Alberta Bakken play and the application of the Emergency Order and the Species at Risk Act (Canada).

Although LGX 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 LGX 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 changes in legislation, including changes in environmental laws, tax laws and royalty rates, uncertainties as to the application and impact of the Emergency Order and uncertainties as to the outcome of efforts by LGX to quash or amend the Emergency Order or to obtain compensation for losses related to the Emergency Order. 

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.

 

SOURCE LGX Oil + Gas Inc.

For further information:

Trent J. Yanko, P.Eng.
President + CEO

Matt Janisch
Vice President, Finance + CFO

4400, 525 - 8th Avenue S.W.
Calgary, AB T2P 1G1

Telephone: 403.441.2300