Legacy Oil + Gas Inc. announces first quarter 2014 results, record funds generated by operations and increase to borrowing base
CALGARY, May 12, 2014 /CNW/ - Legacy Oil + Gas Inc. ("Legacy" or the "Company") (TSX:LEG) is pleased to announce it has filed on SEDAR its audited financial statements and related Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2014. Selected financial and operational information is outlined below and should be read in conjunction with Legacy's audited financial statements and the related MD&A which are available for review at www.legacyoilandgas.com or www.sedar.com.
FINANCIAL + OPERATIONAL HIGHLIGHTS (1)
|Three Months Ended March 31|
|Unaudited (Cdn $000's, except per share amounts)||2014||2013||% change|
|Petroleum and natural gas sales, net of royalties||142,626||100,848||41|
|Funds generated by operations (2)||82,304||62,054||33|
|Per share basic||0.52||0.43||21|
|Per share diluted (3)||0.51||0.43||19|
|Net income (loss)||2,441||(175)||(1,495)|
|Per share basic||0.02||-||n/a|
|Per share diluted (3)||0.02||-||n/a|
|Capital expenditures - Exploration and development (4)||140,338||107,277||31|
|Capital expenditures - Acquisitions and dispositions (4)||1,051||7,959||(87)|
|Net debt and working capital surplus (deficit) (2)||(756,409)||(543,286)||39|
|Crude oil (Bbls per day)||16,635||13,808||20|
|Heavy oil (Bbls per day)||54||124||(56)|
|Natural gas (Mcf per day)||14,730||12,843||15|
|Natural gas liquids (Bbls per day)||1,948||1,378||41|
|Barrels of oil equivalent (Boe per day) (5)||21,092||17,451||21|
|Average realized price|
|Crude oil ($ per Bbl)||98.85||86.76||14|
|Heavy oil ($ per Bbl)||75.10||56.00||34|
|Natural gas ($ per Mcf)||5.30||3.68||44|
|Natural gas liquids ($ per Bbl)||75.05||61.93||21|
|Barrels of oil equivalent ($ per Boe) (5)||88.79||76.65||16|
|Netback ($ per Boe) (2)(5)|
|Petroleum and natural gas sales||88.79||76.65||16|
|Operating Netback ($ per Boe) (2)(5)||56.39||47.43||19|
|Undeveloped land holdings (gross acres)||481,701||412,549||17|
|Common Shares (000's)|
|Common shares outstanding, end of period||157,267||143,348||10|
|Weighted average common shares (basic)||157,267||143,348||10|
|Weighted average common shares (diluted) (3)||160,164||145,938||10|
|(1)||Consolidated financial and operating highlights for Legacy Oil + Gas Inc. and all of its subsidiaries ("Legacy" or the "Company")|
|(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 they 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, stock incentives and share warrants 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, stock incentives and share warrants using the treasury stock method.|
|(4)||Refer to Capital Expenditures in the Management Discussion and Analysis for the three months ended March 31, 2014.|
|(5)||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. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 Boe : 6 Mcf, utilizing a conversion ratio of 1 Boe : 6 Mcf may be misleading as an indication of value.|
- Drilled 61 gross (52.1 net) light oil wells in the first quarter of 2014, with a 98 percent success rate
- Strong production results from first quarter activity in the Midale play, Turner Valley, Spearfish and conventional assets.
- Increased average production from 17,451 Boe per day in the first quarter of 2013 to 21,092 Boe per day in the first quarter of 2014 (21 percent increase)
- Increased funds generated by operations of $62.1 million ($0.43 per share) in the first quarter of 2013 to a record $82.3 million ($0.52 per share) in the first quarter of 2014 (33 percent increase on an absolute basis and 22% on a per share basis)
- Increased operating netback from $47.43 per Boe in the first quarter of 2013 to $56.39 per Boe in the first quarter of 2014 (19 percent increase)
- Increased undeveloped acreage from 317,741 net acres in the first quarter of 2013 to 364,011 net acres in the first quarter of 2014 (15 percent increase)
- Subsequent to the end of the quarter, Legacy's banking syndicate increased the borrowing base from the previous $660 million to $700 million, bringing total borrowing capacity to $900 million
- Subsequent to the end of the quarter, Legacy announced the accretive acquisition of Highrock Energy Ltd. ("Highrock") comprised of 2,000 Boe per day of high netback light oil for total consideration of 18.9 million Legacy common shares and the assumed net debt of $33.8 million (subject to certain adjustments), expected to close in late June 2014. Pro-forma the Acquisition, Legacy's pro forma 2014 year end debt to current annualized funds flow from operations will be approximately 1.6 times based on current strip pricing
In the first quarter of 2014, the Company drilled 61 gross (52.1 net) oil wells, with a 98 percent success rate. Legacy also completed a number of key infrastructure projects in the quarter to improve fluid treating capabilities and reduce single well batteries. Activity in the first quarter included the drilling of 21 gross (20.3 net) Midale horizontal wells in the Company's Pinto and Steelman areas. Legacy also shot three 3D seismic surveys, acquiring 70 square miles of data.
Production averaged 21,092 Boe per day in the first quarter in spite of severe winter weather conditions in southeast Saskatchewan, Manitoba, and North Dakota in January and the subsequent lost operational and production time. Activity levels returned to normal by the last half of the first quarter, resulting in early April 2014 production in excess of 22,500 Boe per day before the impact of spring break-up. The Company continues to be on track to meet its full year production guidance.
Legacy had a very active quarter developing the Midale Formation with the drilling of 21 (20.3 net) wells and the construction and commissioning of a new oil battery at 3-7 in Pinto. A number of successful development, step-out and new pool discovery wells were drilled in the first quarter of 2014. Overall, the average 30 day initial production rates from the 18 wells with 30 days history was 250 Boe per day per well, with the most prolific well producing in excess of 1,000 Boe per day during its initial 30 day production period.
Legacy drilled two successful step-out horizontal wells and a new pool discovery horizontal well significantly outside Legacy's currently developed Midale fairway. The new pool discovery horizontal well came on production in excess of 200 Bbls oil per day unstimulated. The Company shot two 3D seismic programs in the first quarter 2014, leading to the identification of a substantial multi-section pool extension and three potential new Midale pools. Legacy continues to add acreage in the play through freehold leasing and Crown sales.
Waterflood pilot projects are underway with one Midale water injector currently active in Steelman and the approval to convert two more injectors recently received.
Legacy was the first mover in the Midale play more than three years ago and has utilized its leading horizontal completion expertise to generate these tremendous results.
At Turner Valley, Legacy has continued to evolve drilling and completion practices to optimize both production rate and capital costs. Through the application of unique logging while drilling (LWD) tools, longer laterals in the best pay, integration of the 3D seismic interpretation and selective completion techniques, the last nine wells drilled by Legacy have demonstrated a significant step-change in initial oil rate and water cut.
Legacy drilled two wells in the first quarter 2014, Herriman # 7 and Hartell # 8. The Herriman #7 well, brought on production in the first quarter, had an average 30 day initial production rate of 465 Boe per day, at a 17 percent water cut. Legacy's Hartell #8 well, brought on production early in the second quarter, set a field record with 3,028 m of pay encountered in the lateral sections, record cycle time (for a triple lateral well) from spud to first production time of 53 days and gross total cost less than $6 million. The Hartell #8 well was recently brought on production in excess of 400 Boe per day and continues to improve.
Both wells utilized unique completion fluids and reached peak oil rates within days of first coming on production, a dramatic improvement when compared to all the horizontal wells drilled in Turner Valley to-date by both Legacy and the previous operator.
The Company drilled 17 (12.6 net) Spearfish wells in the first quarter of 2014. The wells continue to meet type curve with average 30 day initial production of 106 Bbls of oil per day per well.
The total Spearfish play development drilling inventory of 324 net potential locations (83 percent unbooked) is based on eight wells per section. Applying other operators' results in the play, Legacy's location count could increase by 50 percent through downspacing. In addition, the Company has applied for approval of a pilot waterflood project and anticipates recovery factors of up to 14 percent, based on analogous pools.
Legacy drilled 11 (9.9 net) conventional (not frac'd) Mississippian horizontal wells in various areas in the first quarter of 2014. Notable wells were drilled at Alameda, Frys and Glen Ewen. The Alameda Frobisher horizontal well was a new pool discovery and had an average 30 day initial production rate of 165 Boe per day.
At Frys, a Tilston horizontal well had an average 30 day initial production rate of 200 Boe per day. A number of follow-up locations have been identified.
At Glen Ewen, a Frobisher horizontal well has demonstrated strong and stable production. This well had an average 30 day initial production rate of 175 Boe per day and an average 90 day average initial production rate of 180 Boe per day.
The Company is actively pursuing a number of opportunities for new and follow-up locations in all its conventional areas.
Torquay (Three Forks)
Legacy continues to evaluate and increase its Torquay (Three Forks) potential in the Taylorton/Pinto area. The Torquay oil at Taylorton/Pinto is sourced by the overlying Bakken shales, which are also the source for the Bakken oil accumulation. The source rocks are in the source "oil kitchen" and have locally generated the oil found there, similar to Flat Lake/Oungre. The Torquay in Taylorton/Pinto consists of a series of depositional cycles, with dolomitic siltstone beds forming the reservoir and shalier intervals separating them. At Taylorton/Pinto, the upper most cycle, the Sanish, is typically 3 to 4.5 metres thick and up 5.5 metres at Taylorton/Pinto. Porosity and permeability are in the same range as at Flat Lake/Oungre, with good residual oil saturations in the core.
The Company has participated in five Torquay wells and sees potential on over 60 sections of its land in the area. Legacy intends to test the Torquay with additional wells in last half of 2014.
BORROWING BASE INCREASE
Legacy's banking syndicate increased the borrowing base from the previous $660 million to $700 million. The increase is prior to the recently announced acquisition of Highrock and is a result of the Company's high netback light oil reserves, long reserve life and increased production over the past year and continues to provide Legacy with significant financial flexibility with which to conduct its operations. The borrowing base continues to be subject to semi-annual review, the next of which is scheduled to occur in October 2014.
On May 7, 2014 Legacy announced the acquisition of Highrock Energy Ltd., a Saskatchewan based private light oil company (the "Acquisition"). Legacy is acquiring 2,000 Boe per day high quality, high netback production from light oil assets focused in the Company's southeast Saskatchewan core area for total consideration of 18.9 million Legacy common shares and assumed net debt of $33.8 million (subject to certain adjustments). The producing properties are predominately operated with high working interests, 3D seismic coverage and control of key producing infrastructure and are associated with a light oil prospective undeveloped land base. The Acquisition also adds several key sections of land in Legacy's Taylorton/Pinto and Manor core properties and adds land in the emerging Torquay (Three Forks) play at Flat Lake and the emerging Duvernay play in Alberta.
Highrock's net debt on closing is anticipated to be below 0.8 times annualized funds flow from operations, resulting in a deleveraging of Legacy's balance sheet. The Acquisition is expected to close in late June 2014.
The impact of spring break-up to production volumes has been less than anticipated, however, the biggest risk is the amount of spring rainfall. Weather has been unsettled in early May, but Legacy's guidance incorporated a longer than normal spring break-up and the Company expects to meet its recently released increased guidance.
Pro-forma the recently announced Acquisition, Legacy's pro forma 2014 year end debt to current annualized funds flow from operations will be approximately 1.6 times based on current strip pricing. Highrock production is currently unhedged and benefiting from the current strong oil prices, tighter differentials and weaker Canadian dollar.
The Company continues to pursue additional opportunities to enhance the balance sheet and production growth, capitalizing on the solid first step provided through the Acquisition. An enhanced balance sheet and additional growth opportunity positions the Company for higher production and funds flow from operations growth.
CONFERENCE CALL DETAILS
Management will be holding a conference call for investors, financial analysts, media and any interested persons on Tuesday, May 13, 2014 at 9:00 a.m. (MDT) (11:00 a.m. EDT) to discuss the 2014 first quarter 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: 37196581
Note: In order to join this conference call, you will be required to provide the Conference ID Number listed above.
ANNUAL GENERAL MEETING
Legacy's Annual General Meeting, is scheduled for 3:00 pm on May 28, 2014 at The Petroleum Club, McMurray Room, located at 319 - 5th Avenue SW, Calgary, AB.
To view Legacy's audited financial statements, the related MD&A and the AIF for the years ended December 31, 2013, December 31, 2012 and December 31, 2011 please visit our web site at www.legacyoilandgas.com or www.sedar.com. To the extent investors do not have access to the internet, copies of the audited financials the related MD&A and the AIF can be obtained on request without charge by contacting Legacy at 403.441.2300 or at 4400, 525-8th Avenue SW, Calgary, Alberta, T2P 1G1.
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 TSX under the symbol LEG.
This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Forward Looking Statements
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 full year production guidance, (ii) the potential number of drilling locations and the potential recovery factor at Legacy's Spearfish property; (iii) planned drilling, development and waterflood activities, (iv) Legacy's pro forma 2014 year end debt to current pro forma annualized funds flow from operations following the Acquisition, and (v) the expected closing date of the Acquisition.
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 and break-up conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners and the satisfaction of all conditions to the closing of the Acquisition.
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 or break-up 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, 2013 dated March 25, 2014.
The forward-looking statements contained in this press release are made as of the date hereof and the Company 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 Legacy Oil + Gas Inc.For further information:
Trent J. Yanko, P.Eng.
President + CEO
Legacy Oil + Gas Inc.
4400 Eighth Avenue Place
525 - 8th Avenue SW
Calgary, AB T2P 1G1
Matt Janisch, P.Eng.
Vice-President, Finance + CFO
Legacy Oil + Gas Inc.
4400 Eighth Avenue Place
525 - 8th Avenue SW
Calgary, AB T2P 1G1