FINANCIAL + OPERATIONAL HIGHLIGHTS (1)
| Three Months Ended March 31 | |||
| Unaudited (Cdn $000’s, except per share amounts) | 2013 | 2012 | % change |
| Financial | |||
| Petroleum and natural gas sales, net of royalties | 100,848 | 94,975 | 6 |
| Funds generated by operations (2) | 62,054 | 60,565 | 2 |
| Per share basic | 0.43 | 0.42 | 2 |
| Per share diluted (3) | 0.43 | 0.42 | 2 |
| Net income (loss) | (175) | 1,277 | (114) |
| Per share basic | – | 0.01 | n/a |
| Per share diluted (3) | – | 0.01 | n/a |
| Capital expenditures (excluding acquisitions) | 107,277 | 115,210 | (7) |
| Acquisitions (cash consideration) | 7,959 | 30 | 26,430 |
| Net debt and working capital surplus (deficit) (2) | (543,286) | (430,696) | 26 |
| Operating | |||
| Production | |||
| Crude oil (Bbls per day) | 13,808 | 12,370 | 12 |
| Heavy oil (Bbls per day) | 124 | 175 | (29) |
| Natural gas (Mcf per day) | 12,843 | 12,927 | (1) |
| Natural gas liquids (Bbls per day) | 1,378 | 1,670 | (17) |
| Barrels of oil equivalent (Boe per day) (4) | 17,451 | 16,370 | 7 |
| Average realized price | |||
| Crude oil ($ per Bbl) | 86.76 | 90.48 | (4) |
| Heavy oil ($ per Bbl) | 56.00 | 82.26 | (32) |
| Natural gas ($ per Mcf) | 3.68 | 2.72 | 35 |
| Natural gas liquids ($ per Bbl) | 61.93 | 52.87 | 17 |
| Barrels of oil equivalent ($ per Boe) (4) | 76.65 | 76.79 | – |
| Netback ($ per Boe) (2) | |||
| Petroleum and natural gas sales | 76.65 | 76.79 | – |
| Royalties | 12.44 | 13.04 | (5) |
| Operating expenses | 13.88 | 15.36 | (10) |
| Transportation expenses | 2.90 | 2.47 | 17 |
| Operating Netback ($ per Boe) (2) | 47.43 | 45.92 | 3 |
| Undeveloped land holdings (gross acres) | 412,549 | 625,916 | (34) |
| (net acres) | 317,741 | 472,311 | (33) |
| Common Shares (000’s) | |||
| Common shares outstanding, end of period | 143,348 | 143,313 | – |
| Weighted average common shares (basic) | 143,348 | 143,313 | – |
| Weighted average common shares (diluted) (3) | 145,938 | 145,658 | – |
| (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 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 ration of 1 Boe : 6 Mcf, utilizing a conversion ratio of 1 Boe : 6 Mcf may be misleading as an indication of value. |
ACCOMPLISHMENTS
Operations Overview
In the first quarter of 2013, the Company drilled 43 gross (34.8 net) light oil wells, with a 98 percent success rate. Activity in the first quarter included the drilling of 14 gross (11.0 net) Spearfish horizontal wells in the Company’s Pierson and Bottineau County areas.
Due to severe winter weather conditions in southeast Saskatchewan, Manitoba, and North Dakota in the first quarter, Legacy lost operational and production time amounting to approximately 19 percent of the quarter. Production has been shut-in for spring break-up at various levels since the beginning of the second quarter and approximately 2,000 Boe per day is currently shut-in. Activity levels returned to normal by the end of the first quarter, resulting in average production in excess of 19,000 Boe per day for the month of April 2013, including production from the acquisitions closing in mid-April and after giving effect to production shut-in due to spring break-up. The Company continues to be on track to meet its previously announced increased full year production guidance.
With road bans being lifted, Legacy anticipates spudding a well at Taylorton on May 16 and spudding a well in Steelman on May 21. In addition, the Company should have five service rigs mobilized on May 14 for workovers on wells in SE Saskatchewan. Shut-in volumes are already being restored. All of this activity is occurring three weeks earlier than planned.
Spearfish
At Pierson, Manitoba, results continue to meet the Legacy established historical type curve. Drilling practices have been further optimized with wells now routinely being drilled in six days which represents a significant improvement and cost savings over the year ago average of nine days. Two successful step-out wells were drilled in the first quarter of 2013, extending the Spearfish play boundaries. Work also progressed on defining numerous Alida 3D seismic anomalies that underlie the Spearfish at Pierson. Plans are to test one of these features later in 2013.
At North Dakota, the Company has had similar success in the Spearfish. The Company has drilled a stratigraphic/horizontal well on the southern portion of its lands and core analysis confirms net pay of 11.4 m, porosity of 14.7 percent and original oil in-place of greater than 12 MMBbl per section. Legacy has identified 230 net locations on the northern portion only of its lands in Bottineau County, approximately 92 percent unbooked in the most recent independent reserves report. This location count could grow significantly as Legacy de-risks the opportunity on the southern portion of its lands over the coming years.
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 has increased 260 percent, 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 370 percent increase in oil production rate. Legacy has moved forward with additional waterflood pilot expansion into sections 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 360 percent increase in oil production 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 December 2012 has shown early signs of response. In addition, an infill well drilled in the waterflood pilot has averaged 100 Bbls of oil per day in the first 30 days of production. An 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.
Conventional Mississippian
Legacy continues to show strong success in Steelman, with 10 successful wells being put on production in the first quarter of 2013. Average 30 day initial production rates from these wells was 245 Boe per day per well. With the commissioning of the new Steelman battery and tie-in of the wells, production of 3,500 Boe per day was achieved through the facility in April 2013. Two years ago production from the Steelman area was approximately 350 Boe per day.
The Company has successfully expanded the boundaries of the Midale play with its drilling activity in the quarter. Midale horizontal wells were drilled and are on production in the Alameda South and Taylorton areas. Numerous follow-up locations have been identified, some of which are planned for drilling in 2013.
The follow-up well to the Tilston new pool discovery at Manor has averaged 110 Boe per day at a 15 percent water cut over the first 30 days of production. Two additional wells will be drilled in 2013.
A novel, detailed 3D seismic interpretation has led to a Tilston new pool discovery at Nottingham. The well is surface equipment constrained and has averaged 60 Bbls of oil per day for the first 30 days. There is potential for 10 additional wells in the anomaly.
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. Legacy’s most recent wells at Candor #2 and Hartell #7 exemplify the successful evolution of the development at Turner Valley.
Candor #2 was brought on production in late March and has an average 30 day initial production rate of 375 Boe per day, with a recent peak production rate of 485 Boe per day, at a 12 percent water cut. Legacy’s Hartell #7 was brought on production 10 days ago and is currently at 125 Boe per day and improving. The well has a high fluid level and strong inflow characteristics, currently producing in excess of 1,100 Bbls per day of fluid.
The Hartell #6 well, Boyd #1 well and the Herriman #5 well continue to deliver excellent performance. Hartell #6 has produced nearly 75 MBoe in just over 17 months of production, Boyd #1 has produced nearly 77 MBoe in less than 13 months of production and Herriman #5 has produced over 48 MBoe in a little more than six months. All wells 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 continued. The most recent example of this characteristic is the Howe #5 well which has seen production increase 1,300 percent since start-up to current rates of 200 Boe per day.
Also, during the first quarter, Legacy completed a 35 square mile 3D seismic survey over the south half of the Turner Valley pool. Most of the drilling to date has been based on geological mapping. The 3D seismic will be instrumental in mapping the complex foothills geology and will be invaluable in identifying underdeveloped areas suitable for more drilling, planning identified future drilling locations and in optimizing water injection patterns.
In March 2013, oil production at Turner Valley reached the highest level seen in 50 years. The field peak production was in 1942, during the height of supplying oil for the Allied effort in World War II. After the war, drilling all but ceased and production began to rapidly decline. Legacy’s efforts and application of new technology have reversed this trend and has initiated a new era of growth for the nearly 100 year old field.
EVENTS AFTER THE REPORTING PERIOD
Subsequent to the quarter, the Company:
Acquired all of the issued and outstanding shares of Villanova Oil Corp., a Saskatchewan based private oil company, pursuant to a plan of arrangement under the Business Corporations Act (Alberta), for $21.3 million cash consideration and the issuance of 13.9 million Legacy common shares;
Closed the acquisitions of light oil assets in the Company’s core areas of Turner Valley and Taylorton from a senior producer for total cash consideration of $57.5 million plus Legacy’s minor working interest in the Freda Lake Unit;
Agreed to, with the Company’s syndicate of Canadian banks, an increase in the Company’s borrowing base to $600 million from the previous $525 million. In addition, security for the facility in the form of a fixed and floating charge debenture has been increased to $1 billion from the previous $750 million, and the term-out date for the facility was extended to April 25, 2014. The borrowing base continues to be subject to semi-annual review, the next of which is scheduled to occur in October 2013;
Entered into the following financial derivative contracts:
Crude Oil Commodity Contracts (1)
| Volume | Swap Price | |||||
| Term | Contract | Bbl/d | C$/Bbl | |||
| May 2013 – Dec 2013 | Swap | 1,000 | 97.65 | |||
| May 2013 – Dec 2013 | Swap | 1,000 | 97.60 | |||
| May 2013 – Dec 2013 | Swap | 1,000 | 95.50 |
(1) NYMEX WTI Monthly average converted to Canadian dollars
OUTLOOK
Our goal at Legacy is to deliver 10 to 15 percent per share growth per year, spending cash flow plus our growth rate, for the next three to five years. This sustainable model is designed to deliver superior returns over the near and long term in a low risk platform and is characterized by:
The operational momentum and success achieved in 2012 has continued into 2013, with Legacy having drilled 48 gross (38.0 net) light oil wells to date, with a 98 percent success rate. Continuous refinement of mapping, completion programs and production strategies has provided a number of positive results:
Legacy’s light oil assets and strong financial position not only provide downside mitigation in periods of lower commodity prices or volatility, as seen in 2012 where oil price differentials experienced higher than normal volatility and went through a period of rapid widening and contraction, but also provide upside torque to the continued operational success due to:
With a less severe spring break-up than anticipated, Legacy has commenced operations in SE Saskatchewan. Three drilling rigs are expected to be running by the end of May and five service rigs working this week to restore production. Drilling continues in Turner Valley. With an early start to Q2 activity, Legacy is well-positioned to deliver another year of strong organic 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 endedDecember 31, 2012, December 31, 2011 and December 31, 2010 please visit our web site atwww.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, May 14, 2013 at 9:00 a.m. (MDT) (11:00 a.m. EDT) to discuss the 2013 first quarter 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.
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 Information – This press release contains forward-looking statements. More particularly, it contains forward-looking statements concerning: (i) the meeting of full year production guidance, (ii) the potential number of drilling locations at various properties and on a corporate basis, (iii) planned drilling, development and waterflood activities, (iv) forecast year over year growth in exit rate production, and (v) expected continued volatility in pricing differentials.
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 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; 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, 2012 dated March 18, 2013.
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. 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