CALGARY, Dec. 17, 2013 /CNW/ - Legacy Oil + Gas Inc. ("Legacy" or the "Company") is pleased to announce its capital and operating budget and associated public guidance for 2014. Continued success in the Company's Turner Valley, Midale and Spearfish plays have added significantly to production volumes and drilling inventory. These areas, along with expansion of the Company's waterflood pilots, will play key roles in 2014 organic activity and growth.
Legacy expects to spend $350 million in 2014 focused on light oil development with the majority of capital (85 percent) directed to drilling, completions and tie-ins. The capital spending is distributed as follows: drilling, completions and tie-ins - $297 million; facilities - $32 million; land and seismic - $16 million and other - $5 million. The majority of the capital spending will be allocated to the Company's major plays: Taylorton/Pinto - $102 million (29 percent), Spearfish (Manitoba and North Dakota) - $60 million (17 percent), Turner Valley - $57 million (16 percent), Steelman/Alameda - $42 million (12 percent) and Manor/Wordsworth - $20 million (6 percent).
Legacy is planning to drill 159 gross (124.2 net) wells in 2014, targeting high quality light oil. In addition to drilling, the Company is planning capital expenditures on expansion of the successful pilot waterfloods at Frys/Antler, Heward and Taylorton/Pinto, as well as implementation of pilot waterfloods at Pierson, Steelman and Star Valley. No capital has been budgeted for acquisitions, although the Company continues to evaluate new opportunities, both within and beyond its core areas.
Legacy anticipates a 2014 average production rate of 21,350 Boe per day, representing growth of 12 percent over 2013 expected average production. This production target includes the tie-in of significant associated natural gas volumes at the Company's successful Midale play. Similar to previous years, the Company is planning an active first quarter program, with capital spending of approximately $140 million, drilling 69 gross wells.
The Company has incorporated a significant reduction in second quarter volumes to account for the possibility of an extended spring break up and planned turnarounds in its core areas, particularly the non-operated gas plant at Quirk Creek which processes Turner Valley natural gas. Legacy expects to exit 2014 at approximately 23,650 Boe per day. The operational parameters used in the budget are as follows:
- Average Production - 21,350 Boe per day (88 percent light oil and NGL)
- Exit Production - 23,650 Boe per day (87 percent light oil and NGL)
- Average Crude Quality - 39⁰ API
- Royalty Rate - 15.7 percent
- Operating Costs - $13.25 per Boe
- Transportation Costs - $3.00 per Boe
- G&A (expensed) - $2.35 per Boe
- Common Shares Outstanding (basic, weighted average) - 157.2 million
- Hedging - 9,000 Bbl/day at C$97.47/Bbl WTI first half 2014 and 5,000 Bbl/day at C$98.15/Bbl WTI second half 2014.
At recent strip pricing and 2013 average differentials, this budget is expected to deliver cash flow in excess of $355 million, or $2.27 per basic common share, an increase of over 21 percent over 2013 expected cash flow per share. The Company anticipates crude oil price differentials to remain volatile but average near 2013 levels. This cash flow generation results in a 2013 debt to forward cash flow ratio of approximately 1.8 times, against current borrowing capacity of $860 million. Cash flow sensitivity to changes in oil price, taking into account the Company's hedging program, is 1 percent per US $1.00 per barrel change in WTI oil price.
Legacy begins 2014 with an extensive light oil development drilling inventory of more than 2,000 net locations, which represents over 15 years of development potential, based on expected 2014 activity levels. This significant opportunity set does not reflect the upside from the waterflood potential at Frys/Antler, Taylorton, Heward/Stoughton and the Spearfish, and recognizes only a portion of the Bottineau County, North Dakota Spearfish drilling potential. Furthermore, Legacy has material exposure to emerging light oil resource plays in southern Alberta for Alberta Bakken (through the Company's investment in LGX Oil + Gas Inc.), which could add significant value to the Company.
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.
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: This press release contains forward-looking statements. More particularly, this press release contains statements concerning: (i) the amount of planned capital expenditures for 2014, (ii) the breakdown of planned capital expenditures by class and area, (iii) planned drilling, development and waterflood activities, (iv) the anticipated 2014 average and exit rates of production, (v) anticipated cash flow and cash flow per share in 2014, (vi) anticipated oil price differentials, (vii) the anticipated debt to forward cash flow ratio as at year end 2013 and (viii) the potential 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 the operational parameters specifically set out in the press release and expectations and assumptions concerning: (i) the success of future drilling, development and waterflood activities, (ii) the performance of existing wells and facilities, (iii) the performance of new wells and facilities, (iv) the timely receipt of required regulatory approvals, (v) prevailing weather conditions, commodity prices, oil price differentials, royalty regimes and exchange rates and (vi) the availability of capital, labour and services.
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; 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), uncertainty as to the availability of labour and services, commodity price and exchange rate fluctuations, fluctuations in oil price differentials, unexpected adverse weather conditions and changes to existing laws and regulations. Certain of these risks are set out in more detail in Legacy'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 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 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.
SOURCE: Legacy Oil + Gas Inc.
For further information:
Trent J. Yanko, P.Eng.
President + CEO
Legacy Oil + Gas Inc.
4400, Eight Avenue Place
525 - 8th Avenue S.W.
Calgary, AB T2P 1G1
Matt Janisch, P.Eng.
Vice-President, Finance + CFO
Legacy Oil + Gas Inc.
4400, Eight Avenue Place
525 - 8th Avenue S.W.
Calgary, AB T2P 1G1