| FINANCIAL + OPERATIONAL HIGHLIGHTS OF LEGACY OIL + GAS INC. EXCLUDING LGX OIL + GAS INC. (1) | |||||||
| Three Months Ended | Year Ended | ||||||
| December 31 | December 31 | ||||||
| (Cdn $000 ‘s, except per share amounts) | 2012 | 2011 | % change | 2012 | 2011 | % change | |
| Financial | |||||||
| Petroleum and natural gas sales, net of royalties | 97,093 | 94,358 | 3 | 363,211 | 300,591 | 21 | |
| Funds generated by operations (2) | 59,261 | 60,310 | (2) | 222,942 | 188,852 | 18 | |
| Per share basic | 0.41 | 0.42 | (2) | 1.56 | 1.34 | 16 | |
| Per share diluted(3) | 0.41 | 0.42 | (2) | 1.53 | 1.32 | 16 | |
| Net income (loss) | 1,985 | 7,231 | (73) | 528 | 19,167 | (97) | |
| Per share basic | 0.01 | 0.05 | (80) | – | 0.14 | (100) | |
| Per share diluted (3) | 0.01 | 0.05 | (80) | – | 0.13 | (100) | |
| Capital expenditures (excluding acquisitions) | 68,416 | 117,754 | (42) | 312,168 | 334,783 | (7) | |
| Net acquisitions (cash consideration) (5) | 7,285 | 1,043 | 598 | 12,381 | 112,589 | (89) | |
| Net debt and working capital surplus (deficit) (2) | (485,613) | (376,543) | 29 | (485,613) | (376,543) | 29 | |
| Operating | |||||||
| Production | |||||||
| Crude oil (Bbls per day) | 13,891 | 11,100 | 25 | 12,591 | 8,984 | 40 | |
| Heavy oil (Bbls per day) | 141 | 209 | (33) | 171 | 271 | (37) | |
| Natural gas (Mcf per day) | 12,551 | 14,018 | (10) | 13,053 | 13,557 | (4) | |
| Natural gas liquids (Bbls per day) | 1,315 | 1,235 | 6 | 1,364 | 1,135 | 20 | |
| Barrels of oil equivalent (Boe per day) (4) | 17,439 | 14,880 | 17 | 16,301 | 12,650 | 29 | |
| Average realized price | |||||||
| Crude oil ($ per Bbl) | 81.61 | 95.39 | (14) | 84.46 | 92.82 | (9) | |
| Heavy oil ($ per Bbl) | 62.67 | 79.54 | (21) | 67.97 | 71.24 | (5) | |
| Natural gas ($ per Mcf) | 3.52 | 3.79 | (7) | 2.81 | 4.02 | (30) | |
| Natural gas liquids ($ per Bbl) | 54.51 | 74.73 | (27) | 53.99 | 68.76 | (21) | |
| Barrels of oil equivalent ($ per Boe) (4) | 72.16 | 82.03 | (12) | 72.72 | 77.93 | (7) | |
| Netback ($ per Boe) (2) | |||||||
| Petroleum and natural gas sales | 72.16 | 82.03 | (12) | 72.72 | 77.93 | (7) | |
| Royalties | 11.64 | 13.10 | (11) | 11.84 | 12.83 | (6) | |
| Operating expenses | 13.88 | 16.40 | (15) | 14.36 | 15.52 | (7) | |
| Transportation expenses | 3.00 | 2.56 | 17 | 3.06 | 2.58 | 19 | |
| Operating Netback ($ per Boe) (2) | 43.64 | 49.97 | (13) | 43.46 | 47.00 | (8) | |
| Undeveloped land holdings (gross acres) | 473,010 | 665,026 | (29) | 473,010 | 665,026 | (29) | |
| (net acres) | 370,605 | 501,075 | (26) | 370,605 | 501,075 | (26) | |
| Common Shares (000’s) | |||||||
| Common shares outstanding, end of period | 143,338 | 143,259 | 1 | 143,338 | 143,259 | 1 | |
| Weighted average common shares (basic) | 143,338 | 143,259 | 1 | 143,338 | 140,901 | 2 | |
| Weighted average common shares (diluted) (3) | 145,622 | 143,795 | 1 | 145,514 | 143,365 | 1 | |
| (1) | Financial and operating highlights for Legacy Oil + Gas Inc. (“Legacy” or the “Company”) excluding LGX Oil + Gas Inc. (“LGX”) |
| (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 it 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 and share warrants outstanding 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 and share warrants using the treasury stock method. |
| (4) | 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. |
| (5) | For the three months ended and year ended December 31, 2012 , the Company issued no common shares as part consideration for acquisitions (no common shares for the three months ended December 31, 2011 and 6.2 million common shares valued at $102.7 million for the year ended December 31 , 2011). |
ACCOMPLISHMENTS
Operations Overview
The Company drilled 145 gross (110.4 net) oil wells in 2012, with a 100 percent success rate. In the fourth quarter of 2012, the Company drilled 32 gross (24.7 net) oil wells, with a 100 percent success rate. Activity in the fourth quarter included the drilling of 13 gross (9.5 net) Spearfish horizontal wells in the Company’s Pierson and Bottineau County areas.
The Company met its 2012 production guidance, averaging 16,301 Boe per day, an increase of 29 percent over 2011 average production of 12,650 Boe per day. Total capital expenditures on organic opportunities for 2012 were $307.7 million (not including capitalized G&A, corporate fixed assets or net acquisitions and divestitures) compared to guidance of $305 million .
SPEARFISH PLAY
At Pierson, Manitoba, the Company continues to deliver excellent production results in the Spearfish compared to the previous operator’s drilling and these results have significantly influenced the type curve used in the 2012 year-end independent engineering report. Legacy has achieved these rates while constraining production to maximize ultimate recovery. Undeveloped locations included in the 2012 independent engineering report have been assigned reserves 25 percent higher than in the 2011 independent engineering report. The Company believes these achievements will lead to superior long term performance, higher per well reserve bookings plus additional locations booked.
Similarly, at Bottineau County, North Dakota, undeveloped locations included in the 2012 independent engineering report have been assigned reserves 25 percent higher than in the 2011 independent engineering report. Legacy has achieved higher production rates while constraining production to maximize ultimate recovery.
The total Spearfish play development drilling inventory of 440 net potential locations (84 percent unbooked) is based on eight wells per section. Based on other operators’ results in the play, Legacy’s location count could increase by 50 percent through downspacing. In addition, the Company is evaluating the waterflood potential in the play and anticipates recovery factors of up to 14 percent, based on analogous pools.
STAR VALLEY
At Star Valley , Legacy has applied its leading fracture stimulation design developed in Heward to this area with good success. Legacy brought 5 (4.0 net) wells on production since the start of the fourth quarter of 2012 and these wells have average 30 day initial rates of 200 Boe per day per well and average 60 day initial rates of 170 Boe per day. As previously disclosed, the Company believes the Bakken play boundaries have expanded and has increased its drilling location inventory to more than 50 net wells in Star Valley .
PINTO
Since early 2011, Legacy was the first-mover in applying unconventional drilling and completion techniques to its conventional assets in the Pinto area of SE Saskatchewan. Since this time, 85 wells targeting light oil in the Midale Formation have been licenced in the greater Pinto area by Legacy and others.
Legacy operated wells have demonstrated good production characteristics with the Company’s four operated wells at Pinto having average 30 day initial rates and average 60 day initial rates of 131 Bbls oil per day and 129 Bbls oil per day, respectively. The Company has identified a number of follow-up locations.
WATERFLOODS
At Taylorton, the Company has continued to observe improved waterflood response in both the original and expanded pilot areas. In the section 29 pilot, oil production rates have increased 2.6 times, with a corresponding increase in fluid rate, fluid level and reduction in water cut. The pilot was expanded into section 28 in July 2012 and this area has already demonstrated a 3.7 times increase in oil production rate. Legacy has moved forward with additional waterflood pilot expansion into the section to the south.
At Heward, the pilot waterflood project initiated in December 2011 continues to demonstrate waterflood response as the oil production rate in eight offsetting wells has increased since the commencement of the pilot. The wells seeing response have exhibited a 3.6 times increase in oil production rate since commencement of injection and the Company is rapidly expanding the waterflood pilot project into three additional sections in the first half of 2013.
At Frys/Antler, a pilot waterflood initiated in early December 2012 has shown early signs of response. Application has already been made to expand the pilot to the offsetting sections. Located immediately east of Frys/Antler, the analogous field at Sinclair now has 33 sections under waterflood and has seen oil production rate increases ranging from 50 to 100 percent after waterflood response.
TURNER VALLEY
At Turner Valley, Legacy has continued to evolve drilling and completion practices to optimize both production rate and capital costs. Drilling to-date has targeted infill locations testing areas of varying water cut, reservoir pressure, proximity to water injection and three different stratigraphic horizons. As previously disclosed, horizontal wells in Turner Valley have typically come on production with a high water cut and as load fluid is recovered, the water cuts decrease and the oil rates increase. This result has been observed in the 22 horizontal wells drilled by the previous operator and in the wells drilled by Legacy. In turn, the Company expects the Turner Valley horizontal wells to produce at stable, low decline rates based on the production profile demonstrated by both the previously drilled and Legacy drilled wells.
The Hartell #6 well, Boyd #1 well and the Herriman #5 well continue to deliver excellent performance. Hartell #6 has produced nearly 64 MBoe in just over 14 months of production, Boyd #1 has produced nearly 60 MBoe in less than 10 months of production and Herriman #5 has produced nearly 33 MBoe in less than four months. The wells continue to be strong producers, averaging 145 Boe per day, 235 Boe per day and 250 Boe per day, respectively, and did not reach peak rates until considerably after first production date.
Production has continued to trend higher on the remainder of the Turner Valley wells as artificial lift optimization has taken place, production run times have improved and recovery of load fluid has resumed. The most recent example of this characteristic is the Howe #5 well which has seen production increase nearly 12 fold since start-up in July 2012 to 175 Boe per day currently and still improving. Three other wells have shown oil production increase ranging between 50 to 120 percent.
OUTLOOK
Since its inception in July 2009 , Legacy has remained committed to cost effective per share growth through the build-out of high quality, light oil assets comprised of large accumulations of hydrocarbon in-place and resource plays. As a leader in light oil resource play development, the Company has leveraged this expertise into a series of accretive acquisitions and has demonstrated strong organic growth. We believe these are complementary strategies and have led to both near-term and longer term value creation potential through our enviable inventory of work‐overs, infill drilling, step‐out drilling, secondary recovery projects and emerging light oil resource play development. The extensive light oil opportunities are underpinned by a significant internally generated cashflow which is sufficient to fund capital expenditures that result in solid double-digit per share growth, while maintaining a strong balance sheet with surplus debt capacity.
The Company has added significant value to its existing assets through diligent application of rigorous technical evaluation and efficient execution of its capital program. Positive results have been demonstrated across all the assets acquired over the past three years by continuously improving and innovating drilling, completion and production techniques. Legacy’s success in the Bakken at Star Valley and the Spearfish at Pierson are the most recent examples of this innovation. Legacy continues to work on improving results from its existing play inventory and originating and extending new play concepts from both its resource and conventional assets.
Operational momentum that began in late 2011 and continued through 2012 has provided performance objectives while spending essentially within budget and demonstrating strong finding, development and acquisition costs of $22.72 per Boe and a robust recycle ratio of 2.0 times. As a light oil weighted (89 percent oil and NGL’s) company, Legacy’s 2012 performance positions the Company for continued solid production growth with good capital efficiencies from its extensive inventory of 2,000 net light oil development locations and waterflood assets.
Legacy embarks on 2013 positioned with high quality light oil assets, an excellent balance sheet, significant opportunity inventory and dedicated people for continued aggressive and disciplined growth.
ANNUAL GENERAL MEETING
Legacy’s Annual General Meeting, is scheduled for 3:00 pm on May 27, 2013 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, 2012 , December 31, 2011 and December 31, 2010 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.
Conference call details
Management will be holding a conference call for investors, financial analysts, media and any interested persons on Tuesday, March 19, 2013 at 8:00 a.m. (MDT ) (10:00 a.m. EDT) to discuss the 2012 year end results.
The investor conference call details are as follows:
Participant Dial-In Number(s):
Note: In order to join this conference call, you will be required to provide the Conference ID Number listed above.
FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. More particularly, this press release contains statements concerning the year end debt to forward cash flow ratio, planned drilling, development and waterflood activities, the anticipated impact of constrained production and improved well performance at Pierson , Manitoba on recovery, reserves and drilling locations, the potential number of drilling locations at various properties and on a corporate basis, the potential recovery factors attainable at the Company’s Spearfish properties, expected well performance characteristics at Turner Valley and the sufficiency of internally generated cash flow to fund capital expenditures and growth.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 and development activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability of services and prevailing commodity prices, economic conditions and weather and break-up conditions. 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), constraint in the availability of services, unfavorable weather and break-up conditions, 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 herein and in Legacy’s Annual Information Form which has been filed on SEDAR and can be accessed atwww.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 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. 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.
Trent J. Yanko, P.Eng.
President + CEO
Legacy Oil + Gas Inc.
4400 Eighth Avenue Place
525 – 8th Avenue SW
Calgary, AB T2P 1G1
Telephone: 403.441.2300
Fax: 403.441.2017
Matt Janisch, P.Eng.
Vice-President, Finance + CFO
Legacy Oil + Gas Inc.
4400 Eighth Avenue Place
525 – 8th Avenue SW
Calgary, AB T2P 1G1
Telephone: 403.441.2300
Fax: 403.441.2017