Legacy Oil + Gas Inc. is pleased to announce its capital and operating budget and associated public guidance for 2013. Continued success in the Company’s dominant position in the Spearfish play in southern Manitoba and North Dakota and in its conventional assets in the Williston Basin has added significantly to its drilling inventory. These areas, along with Turner Valley, will play key roles in 2013 organic activity and growth.
Legacy expects to spend $290 million in 2013 focused on light oil development with the majority of capital (81 percent) directed to drilling, completions and tie-ins. This capital spending is 12 percent lower than 2011 capital spending and 6 percent lower than 2012 forecast capital spending as a result of continued improvements in capital efficiencies. The capital spending is distributed as follows: drilling, completions and tie‐ins – $234 million; facilities – $35 million; land and seismic – $13 million and other – $8 million. The majority of the capital spending will be allocated to the Company’s major plays: Spearfish (Manitoba and North Dakota) – $80 million (28 percent), Alameda/Steelman – $52 million (18 percent), Turner Valley – $45 million (16 percent), Star Valley – $31 million (11 percent) and Frys/Antler – $28 million (10 percent).
Legacy is planning to drill 128 gross (109.4 net) wells in 2013, targeting high quality light oil. In addition to drilling, the Company is planning capital expenditures on pilot waterfloods at Frys/Antler and Pierson, as well as expansions of the successful pilot waterfloods at Taylorton and Heward. 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 2013 average production rate of 17,900 Boe per day (89 percent weighted to light oil and NGL) representing growth of 10 percent over 2012 expected average production. The Company has incorporated a significant reduction in second quarter volumes to account for the possibility of an extended spring break up in its Williston Basin core area. Legacy expects to exit 2013 at approximately 19,700 Boe per day, representing 10 percent growth from 2012 exit rate guidance. The operational parameters used in the budget are as follows:
- Exit Production – 19,700 Boe per day (91 percent light oil and NGL)
- Average Production – 17,900 Boe per day (89 percent light oil and NGL)
- Average Crude Quality – 39⁰ API
- Royalty Rate – 16 percent
- Operating Costs – $14.00 per Boe
- Transportation Costs – $2.50 per Boe
- G&A (expensed) – $2.50 per Boe
- Common Shares Outstanding (basic, weighted average) – 143.3 million
At recent strip pricing and wider than historical differentials, this budget is expected to deliver cash flow in excess of $275 million, or $1.92 per basic common share, an increase of over 22 percent year over year. The Company anticipates wider than historical crude oil price differentials to narrow in the later part of 2013 as more North American production is transported by rail and pipeline capacity increase projects are completed. This cash flow generation results in a debt to forward cash flow ratio of approximately 1.8 times. Projected 2013 year end net debt at recent strip pricing is expected to be $503 million, against a current borrowing capacity of $725 million. Cash flow sensitivity to changes in oil price is 1.9 percent per USD 1.00 per barrel change in WTI oil price.
Legacy begins 2013 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 2013 activity levels. This significant opportunity set does not reflect the potential 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 significantly to the development drilling inventory and growth potential of 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 planned capital expenditures, the breakdown of planned capital expenditures by class and area, planned exploration and development activities, the anticipated 2013 average and exit rates of production, anticipated cash flow and cash flow per share in 2013, the anticipated year end net debt and debt to trailing cash flow ratio and the development and growth potential of Legacy’s properties.
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 the success of future drilling and development activities, the performance of existing wells, the performance of new wells, the successful application of technology, prevailing weather conditions, commodity prices, royalty regimes and exchange rates and 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, 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’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.