Legacy Oil + Gas Inc. announces second quarter 2010 results

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW/

CALGARY, Aug. 11 /CNW/ - Legacy Oil + Gas Inc. ("Legacy" or the "Company") (TSX:LEG) is pleased to announce it has filed on SEDAR its unaudited financial statements and related Management's Discussion and Analysis ("MD&A") for the three months ended June 30, 2010. Selected financial and operational information is outlined below and should be read in conjunction with Legacy's unaudited financial statements and related MD&A which are available for review at www.legacyoilandgas.com or www.sedar.com.

Second quarter results include only a portion from the Villanova Resources Inc. ("Villanova") acquisition and does not include the CanEra Resources Inc. ("CanEra") acquisition.

    
    FINANCIAL + OPERATIONAL HIGHLIGHTS:

    -------------------------------------------------------------------------
                           Three Months Ended            Six Months Ended
                                 June 30                      June 30
    -------------------------------------------------------------------------
                        2010     2009  % change      2010     2009  % change
    -------------------------------------------------------------------------
    Financial ($000's,
     except per share
     amounts)
    -------------------------------------------------------------------------
    Petroleum and
     natural
     gas sales         37,018    2,281    1,523     79,561    4,335    1,735
    Funds generated
     by operations(1)  21,603      674    3,105     48,005    1,096    4,280
        Per share basic  0.28     0.12      133       0.63     0.20      215
        Per share
         diluted         0.27     0.12      125       0.61     0.20      205
    Net loss           (7,563)    (472)   1,502    (10,422)  (1,386)     652
        Per share basic (0.10)   (0.08)      25      (0.14)   (0.25)     (44)
      Per share
       diluted          (0.10)   (0.08)      25      (0.14)   (0.25)     (44)
    Capital
     expenditures      27,929    1,370    1,938     77,807    2,113    3,582
    Corporate and
     asset
     acquisitions
     (cash
     consideration)    19,654        -      n/a     20,093        -      n/a
    Net debt and
     working capital
     surplus
     (deficit)       (112,291)  (8,199)   1,270   (112,291)  (8,199)   1,270
    -------------------------------------------------------------------------
    Operating
    -------------------------------------------------------------------------
    Production
      Crude oil
       (Bbls per
       day)             5,477      391    1,301      5,699      451    1,164
      Natural gas
      (Mcf per day)     1,341        -      n/a      1,353        -      n/a
      Natural gas
       liquids
      (Bbls per
       day)                17        -      n/a         43        -      n/a
      Barrels of oil
       equivalent
       (Boe per day)(2) 5,717      391    1,362      5,967      451    1,223
    Average
     realized price
      Crude oil
      ($ per Bbl)       73.34    64.17       14      75.85    53.04       43
      Natural gas
       ($ per Mcf)       3.56        -      n/a       4.13        -      n/a
        Natural gas
         liquids
         ($ per Bbl)    23.39        -      n/a      40.19        -      n/a
        Barrels of oil
         equivalent
         ($ per Boe)(2) 71.16    64.17       11      73.66    53.04       39
    Netback per
     Boe ($)
      Petroleum and
       natural gas
       sales            71.16    64.17       11      73.66    53.04       39
      Royalties         12.34     4.63      167      12.12     3.59      238
      Operating
       expenses(3)      10.94    20.18      (46)     11.45    19.73      (42)
      Transportation
       expenses(3)       1.47        -      n/a       1.67        -      n/a
    -------------------------------------------------------------------------
    Operating Netback   46.41    39.36       18      48.42    29.72       63
    -------------------------------------------------------------------------
      Undeveloped
       land holdings
       (gross acres)  475,424   28,035    1,596    475,424   28,035    1,596
       (net acres)    351,917   21,537    1,534    351,917   21,537    1,534
    -------------------------------------------------------------------------
    Common Shares (000's)
    -------------------------------------------------------------------------
    Shares outstanding,
     end of period
      Common & Class
       A shares(4)     82,337    4,032    1,942    82,337     4,032    1,942
      Class B Common
       shares(4)            -      154      n/a         -       154      n/a
    Weighted average
     shares            77,442    5,569    1,291    75,848     5,569    1,262
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Management uses funds generated by operations to analyze operating
        performance and leverage. Funds generated by operations as presented
        do not have any standardized meaning prescribed by Canadian GAAP and
        therefore it may not be comparable with the calculation of similar
        measures for other entities.
    (2) Boe's may be misleading, particularly if used in isolation. Boe
        conversion ratio for natural gas of 1 Boe: 6 Mcf 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) Transportation expenses in the 2008 fiscal year were reported as
        part of operating expenses.
    (4) The class B common shares were converted to class A common shares on
        October 5, 2010. On December 2, 2009, Legacy Oil + Gas Inc.
        consolidated its outstanding class A shares on a 6 to 1 basis and
        redesignated the class A shares as common shares as approved by
        shareholders. Comparative figures have been presented as if this
        share consolidation occurred on January 1, 2009

    ACCOMPLISHMENTS
    ---------------

    -   On May 25, 2010, closed the acquisition of Villanova with assets in
        Legacy's southeast Saskatchewan core area for total consideration of
        $18 million in cash and 8.1 million Legacy common shares. The assets
        were comprised of high quality, high netback light oil production of
        approximately 1,000 Boe per day and proved plus probable reserves of
        4.5 MMBoe.

    -   Increased average production from 391 Boe per day in the second
        quarter of 2009 to 5,717 Boe per day in the second quarter of 2010
        (1,362 percent increase). Production for the second quarter 2010
        consisted of 96 percent oil and natural gas liquids and 4 percent
        natural gas. Second quarter average production includes only a
        portion of the production from the Villanova acquisition and no
        production from the CanEra acquisition.

    -   Increased funds generated by operations from $0.7 million in the
        second quarter of 2009 to $21.6 million in the second quarter of 2010
        (3,105 percent increase).

    -   Increased funds flow from operations per share (basic) from $0.12 in
        the second quarter of 2009 to $0.28 in the second quarter of 2010
        (133 percent increase).

    -   Reduced operating and transportation costs from $20.18 per Boe in the
        second quarter of 2009 to $12.41 per Boe in the second quarter of
        2010 (39 percent decrease) and from $13.79 per Boe in the first
        quarter of 2010 (10 percent decrease). Operating costs for the second
        quarter 2010 were $10.94 per Boe.

    -   Reduced G&A costs from $15.48 per Boe in the second quarter of 2009
        to $2.67 per Boe in the second quarter of 2010 (83 percent decrease).

    -   The cost reductions have contributed to Legacy improving its
        operating netback to $46.41 per Boe in the second quarter of 2010
        from the same period in the prior year.

    -   Drilled 17 (11.4 net) wells with a 100 percent drilling success in
        the second quarter of 2010.

    -   Increased undeveloped land holdings from 21,537 net acres at the end
        of the second quarter of 2009 to 351,917 net acres at the end of the
        second quarter of 2010 (1,534 percent increase).

    OPERATIONS OVERVIEW
    -------------------
    

In the second quarter of 2010, Legacy managed a relatively high level of activity, in spite of challenges relating to the pervasive and unprecedented wet weather which impacted surface lease access in southeast Saskatchewan. Legacy participated in the drilling of 17 wells (11.4 net) targeting light oil, achieving a 100 percent success rate. The majority of this drilling activity did not occur until late in the quarter due to the weather issues, therefore production additions related to this activity contributed minimally to the second quarter average. Average production was also affected by the wet weather through delays in fluid trucking, well servicing and well tie-in projects.

The Company spent $27.9 million on capital expenditures in the quarter: $15.2 million on drilling and completions, $6.0 million on equipping and facilities and $6.7 million on land, seismic and other.

Legacy drilled 11 (6.9 net) Bakken wells in the quarter: 7 (5.2 net) at Taylorton, 1 (1.0 net) at Heward/Stoughton, 3 (0.7 net) at Kisbey/Star Valley. In addition, the Company drilled 3 (1.5 net) wells in the Torquay at Frys/Antler and 3 (3.0 net) wells in the Frobisher at Alameda.

Production results continue to be encouraging at the Taylorton Bakken light oil property as a result of the ongoing optimization of well completion procedures. Ten wells have been brought on production to-date in 2010, with four wells coming on production in the last month. Oil production results from these wells are:

    
                                         Boe per day       Number of Wells
                                         -----------       ---------------
    Average Initial Rate                     350                  10
    30 Day Average                           194                   6
    90 Day Average                           166                   3
    

The Company has followed up on the discovery of a new Tilston pool at Nottingham with 1 (1.0 net) successful well. The Company continues to be encouraged by the production/drilling results in this play. Legacy has identified 22 gross (22 net) horizontal Tilston locations in the area and has plans for a central battery and salt water disposal facility.

    
    NEW LIGHT OIL RESOURCE PLAY OPPORTUNITIES
    -----------------------------------------
    

Legacy has established itself as a leader in light oil resource play development and has levered this expertise through its efforts over the past 11 months into two new potential light oil resource play opportunities. Capital spending activity to-date on these two emerging new ventures has been funded as part of Legacy's previously announced 2010 capital budget.

Through a number of transactions, the Company has assembled 31,292 gross (25,033 net) acres or nearly 49 gross sections of undeveloped land in Bottineau County, North Dakota. The lands are operated by Legacy (80 percent working interest) and are located southeast and on trend with the Waskada light oil field in southern Manitoba. Legacy expects these lands to be prospective for Spearfish (Amaranth) development opportunities, based on geological mapping, 2D seismic data and existing vertical well control, oil shows and production. Offsetting acreage in both Manitoba and North Dakota has seen Spearfish drilling success by other operators, with more than 130 multi-frac horizontal wells drilled to-date, at planned well densities of up to 24 wells per section. The Spearfish reservoir produces 36o API light sweet crude from a depth of approximately 950 metres. Legacy has contracted a drilling rig for an initial six well program as part of our evaluation of the lands, currently expected to be initiated in the third quarter of 2010.

In addition, Legacy is the operator of a farmout agreement in the Maxhamish area in NE British Columbia that covers 50,000 contiguous acres of light oil resources play prospective land. The farmout agreement provides for the Company to earn, on a rolling option basis, a 61.5 percent before payout (40 percent after payout) working interest in the lands. The Maxhamish area is prospective for 40o API light sweet oil production from the Chinkeh Formation, found at a depth of approximately 1,600 metres. The Chinkeh reservoir appears to be an aerially extensive sheet sand that has produced minor quantities of oil from five vertical producers. To date, Legacy has successfully drilled and multi-stage fracture stimulated two horizontal oil wells and worked over three of the existing vertical oil producers. Results of these wells are being assessed and future plans will be determined accordingly. The drilling and workover activity has earned Legacy a 41.7 percent (before payout) working interest in 8,450 gross acres of land.

    
    SUBSEQUENT EVENTS
    -----------------
    

Subsequent to the end of the quarter, Legacy announced and closed the acquisition of CanEra Resources Inc. (the "Acquisition"). Through the Acquisition, Legacy acquired high quality, high netback, long life, light oil and liquids rich natural gas assets focused in southwest Alberta for total consideration of $241 million in cash (subject to adjustment in certain circumstances) and 20.5 million Legacy common shares. CanEra's primary asset is the dominant, operated working interest in the giant 1.3 billion barrel original oil in-place ("OOIP") and 1.6 Tcf original gas in-place ("OGIP") (both figures from published ERCB estimates) Turner Valley field and associated gathering, treating and compression facilities.

Legacy maintains its significant oil and NGL weighting at over 80 percent of proforma production and over 80 percent of proforma proved plus probable reserves. The Acquisition also adds substantial long tenure lands prospective for high impact natural gas drilling opportunities. Furthermore, the Acquisition provides access to 750 contiguous sections of relatively unexplored land in the Strathmore area, east of Calgary, prospective for multi-zone oil and natural gas.

To fund the cash component of the Acquisition, Legacy issued a total of 20,000,000 subscription receipts ("Subscription Receipts") and 3,000,000 common shares at a price of $11.80 per Subscription Receipt and share. The Subscription Receipts were exchanged for common shares on a one for one basis upon completion of the Acquisition.

Concurrently with the closing of the Acquisition, Legacy's banking syndicate has increased its borrowing base from the previous $150 million to $305 million. The next interim review is scheduled for October 31, 2010.

    
    OUTLOOK
    -------
    

Legacy continues to successfully execute its business plan of targeting large oil in-place light oil reservoirs suitable for recovery factor enhancement through the application of technology. The Company's acquisitions have built a focused, high working interest, operated asset base with an extensive multi-year light oil development inventory associated with significant internally generated cash flow that funds aggressive organic growth, underpinned by a sustainable reserve base.

This strategy is exemplified with the recent CanEra acquisition. As a result of the Acquisition, Legacy has increased its development drilling inventory to 655 gross (462.5 net) locations and grown its undeveloped land to more than 434,000 net acres, while reducing its corporate decline rate by one-third, substantially increasing its reserve life index to 16.4 years and significantly expanding its free cash flow base.

Legacy's solid reserves and production base, along with its extensive development inventory is complemented by the Company's emerging light oil resource plays located in Bottineau County, North Dakota and in Maxhamish, BC. Legacy has leveraged its light oil resource play development expertise into these two areas that potentially have the attributes of resource plays, including:

    
    1.  Large areal extent
    2.  Geologically consistent
    3.  Significant accumulation of hydrocarbons
    4.  High degree of repeatability
    5.  Improved results and capital efficiencies over time
    6.  Scalable
    

Success in one or both of these emerging light oil resource plays could add significant incremental upside to Legacy's current production guidance, reserve bookings and valuation. Proof of concept and commerciality of these two projects is progressing with the ongoing evaluation of the results of the first two wells in Maxhamish, while the Company anticipates initiating a six-week drilling program in North Dakota in the third quarter of 2010.

Legacy continues to advance a number of additional growth and sustainability initiatives. Re-completion work is ongoing in Turner Valley and the results achieved will be used to calibrate future horizontal well re-completion and completion activities and improvement in well results over the historically unstimulated horizontal wells could lead to significant production gains. Evaluation of pilot waterflood implementation is underway at Taylorton and Heward for the Bakken formation and at Antler for the Torquay formation. Successful application of waterflooding to these areas could add appreciably to recoverable reserves while reducing production decline rates, both outcomes congruent with Legacy's goal of improving sustainability of our business plan.

Despite having to navigate the operational challenges presented by the unprecedented wet weather in southeast Saskatchewan in the second quarter 2010, Legacy reconfirms its previously increased guidance for 2010 average production of 8,650 Boe per day and previously increased guidance for 2010 exit rate production of 12,700 Boe per day. This is a testament to the dedication, tenacity and drive for success of our employees and consultants as we build our Legacy.

Legacy is a uniquely positioned, 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.

FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. More particularly, this press release contains statements concerning potential geological characteristics of the Company's properties, the potential for enhanced recovery and production from the application of completion and recompletion activities and implementing of waterflood, the 2010 average and exit rates of production and potential future exploration and development activities. The forward-looking statements are based on certain key expectations and assumptions made by the Company, including expectations and assumptions concerning the success of optimization and efficiency improvement projects, the availability of capital, the success of future drilling and development activities, the performance of existing wells, the performance of new wells , prevailing commodity prices, the availability of labor and services, the geological nature of the formations targeted by the Corporation and the success of completion and recompletion activities. Although the Company 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 the Company 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; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in the Company's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com. 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.

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 per day 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.

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.

NEITHER THE TSX NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

%SEDAR: 00023400E

For further information: For further information: Trent J. Yanko, P.Eng., President + CEO, Legacy Oil + Gas Inc., 3900, Bow Valley Square II, 205 - 5th Avenue S.W., Calgary, AB, T2P 2V7, Telephone: 403.441.2300, Fax: 403.441.2017; Matt Janisch, P.Eng., Vice-President, Finance + CFO, Legacy Oil + Gas Inc., 3900, Bow Valley Square II, 205 - 5th Avenue S.W., Calgary, AB, T2P 2V7, Telephone: 403.441.2300, Fax: 403.441.2017

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