CALGARY, ALBERTA–(Marketwired – Nov. 21, 2013) – Lightstream Resources Ltd. (“Lightstream” or the “Company“) (TSX:LTS), is pleased to announce our strategic plan and 2014 capital program and production guidance.
Our 2014 plans represent the next step in our multi-year effort to improve our long-term sustainability and capacity to deliver growth plus yield for our shareholders. In 2014, we will focus on improving our sustainability ratio (cash outflows to cash inflows) and strengthening our balance sheet by reducing debt levels while maintaining production at 2013 levels. Although our focus in 2014 will be primarily on our balance sheet initiatives, our portfolio of opportunities allows us to plan for long-term realization of our growth plus yield model. Our plan incorporates a number of strategic efforts which include:
- Executing on our 2014 capital program of $525-575 million (65% focused on drilling and completions) while maintaining production levels similar to 2013. This capital plan represents a decrease of approximately 25% from estimated 2013 capital spending and 42% from 2012 levels. Notwithstanding this significant decrease in capital, we expect our production levels to remain relatively flat to 2013. We intend to execute a relatively balanced capital plan between the first and second half of 2014.
- Terminating the dividend reinvestment plan (“DRIP”) and share dividend plan (“SDP”) and reducing our dividend by 50% to $0.04 per month, resulting in an estimated $40 million in annual cash savings and elimination of the dilution created by issuing shares through the DRIP and SDP at current low prices.
- Targeting over $600 million of non-core asset sales by the end of 2015 and applying the proceeds to reduce debt levels. Provided market conditions are acceptable, our goal is to close at least 50% of the asset sales in 2014. The pace and timing of asset sales may impact our production guidance for the year.
We expect the reduced capital plan and dividend to result in a sustainability ratio of 100% to 113% for 2014 and approximately 100% in 2015, based on our commodity price forecast of US$95/bbl for WTI oil, 10% light oil differential, $0.95/US$ and $3.00/mcf for AECO gas. We also expect our disposition program to allow us to reduce our debt to funds flow ratio, which we are targeting to be below 2.5 times by the end of 2015.
2014 Operating and Capital Guidance
The 2014 capital plan of $525-575 million is expected to deliver an average daily production rate of 45,000 to 47,000 boepd and an exit production rate of 46,000 to 48,000 boepd (prior to disposition activity). Based on current plans, we forecast our average 2014 production weighting to be approximately 80% oil and liquids.
Sustained 2014 production rates are expected to be achieved through the impact of reduced base declines and improved capital efficiencies. We forecast our 2014 base decline rates to be in the range of 26-29%, a further decrease from 31% in 2013 as a result of the continued maturation of our production base and investments in our optimization program. In 2015, we are forecasting a continued reduction in our base declines to 24-27%. With reduced declines, we expect to maintain production rates with progressively lower capital investment levels, providing the opportunity for future growth.
In addition to lower declines, we are focused on improving our capital efficiencies with our 2014 program. In 2013, our capital efficiency was higher than anticipated as a result of certain exploration projects that failed to generate anticipated levels of production, investments in facilities and cost overruns on certain projects. Through the disciplined application of our capital in 2014, as well as the realization of the benefits of prior facility investments, we are targeting overall corporate capital efficiency in the range of $40,000 to $42,000/boepd in 2014.
In 2014, we plan to drill a total of 90 wells for approximately $360 million, accounting for approximately 65% of our 2014 capital program and generating continued growth in the Cardium and Swan Hills.
Our anticipated 2014 drilling activity is broken down by operating area as follows:
|Alberta / BC (Emerging Plays)||$90||13|
|(1)||Midpoint of guidance estimates.|
In the Cardium, we plan to drill 42 wells in 2014. In 2013, we faced many third-party restrictions which impacted production throughout the year. In 2014, we intend to minimize restricted volumes in the business unit by investing in facility expansion and reallocating capital to prioritize wells with ready access to infrastructure. Within the Cardium business unit, we also plan to participate in two non-operated low working interest Falher, liquids-rich, gas wells during the first quarter of 2014. While we do expect a slight short term increase in gas weighting in the Cardium as a result of these wells, oil weighted wells in other areas will result in our corporate oil/liquids ratio remaining relatively flat at approximately 80%.
In the Swan Hills, we are expecting to generate significant light oil production growth in 2014 through the drilling of 13 new wells. We will also focus on building our own infrastructure in the area, including the construction of a battery facility in the first quarter that is expected to handle our future Swan Hills production growth.
In SE Saskatchewan, we plan to drill 35 wells and to continue to invest in our optimization and enhanced oil recovery (“EOR”) programs. In 2014, we plan to spend approximately $45 million on optimizations and workovers to continue to mitigate our decline rates. Our 2012 and 2013 optimization programs continue to be capital efficient, resulting in production additions paying out in less than one year. Based on the initial success of our Creelman gas injection EOR project, we intend to expand the scope of the project in 2014 by placing one additional well on injection and drilling two further injection wells.
2014 Financial Guidance
In 2014, our main priorities will be to manage our balance sheet through initiatives aimed at reducing our debt to cash flow ratio, while improving our sustainability ratio, maintaining production and continuing to pay a dividend.
We are altering our dividend policy to eliminate the dilution impact of the DRIP and SDP programs and reduce our overall cash outlay. Starting with our December 2013 dividend, which will be paid in January 2014, we will be reducing our dividend by 50% from current levels to $0.04 per month and eliminating the DRIP and SDP, resulting in annual cash savings of approximately $40 million and a payout ratio of approximately 15% of funds flow from operations in 2014.
2014 production is expected to deliver $595-$620 million of funds flow from operations based on a flat US$95/bbl WTI oil price forecast, a 10% differential, $0.95/US$ and $3.00/mcf AECO gas price. With lower capital spending and the reduction to the dividend, we anticipate this funds flow will result in a sustainability ratio of 100% to 113% in 2014.
In addition, we will be actively pursuing non-core asset sales in excess of $600 million over the next two years, with approximately $300 million targeted to be completed in 2014. Although we recognize that there are currently many assets for sale in Western Canada and there is no certainty that transactions can be completed at acceptable valuations, we believe we have specific non-core assets in areas where we have minimal capital allocated in our long term plan that make for attractive sale candidates. In addition, we have initiated a process to offer for sale certain of our fee title and royalty interest lands in southeast Saskatchewan. We are committed to using the proceeds of any disposition activity to pay down portions of our debt.
We remain focused on creating value for our shareholders by developing long-life accretive light-oil resource plays that support organic growth of production and reserves. While 2014 represents a transition year in which we will focus on maintaining production, improving our balance sheet and long-term sustainability, we believe we will exit 2014 well positioned to capitalize on our extensive asset base to generate long term growth post our planned dispositions.
|Average Production (boe/d)||45,000 to 47,000|
|Exit Production (boe/d)||46,000 to 48,000|
|Oil and Liquids Weighting||80%|
|Funds Flow from Operations (‘000)||$595,000 – $620,000|
|Funds Flow per share(2)||$2.99 – $3.12|
|Declared Dividends per share||$0.48|
|Drill, Complete, Equip and Tie-in (‘000)||$350,000 – $370,000|
|Facilities, Workovers and Optimizations (‘000)||$120,000 – $140,000|
|Land, Seismic and Other (‘000)||$55,000 – $65,000|
|Total Capital Expenditures (‘000)||$525,000-$575,000|
|(1)||Commodity price assumptions include WTI US$95.00 /bbl, AECO CDN$3.00 /Mcf, foreign exchange rate of US$/CDN$0.95, and corporate oil differential of 10%.|
|(2)||Funds flow per share calculation based on 199 million shares outstanding for 2014.|
|(3)||Projected capital expenditures exclude acquisitions, which are evaluated separately.|
Investor Conference Call and Webcast
Management of Lightstream will be holding a conference call and simultaneous webcast for investors, financial analysts, media and any interested persons on Thursday November 21, 2013 at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss Lightstream’s 2014 operational and financial guidance. For those who wish to participate via the webcast, presentation slides will be available as supplement to the discussion. The presentation will also be available on our website in advance of the call at www.lightstreamresources.com.
The investor conference call details are as follows:
|Live call dial-in numbers:||1-416-340-2220 / 1-866-226-1799|
|Replay dial-in numbers:||1-905-694-9451 / 1-800-408-3053|
To join the webcast please click on the following link or copy and paste the address into your browser:
Lightstream Resources Ltd. is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. Lightstream is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations, along with a significant inventory of opportunities in the Horn River and Montney gas resource plays in northeast BC. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.
Non-GAAP Measures. This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations, funds flow per share, payout ratio, total debt, sustainability ratio and net capital expenditures. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities, adding back any losses or deducting any gains on settlement of convertible debentures, and adding back impairments. Payout ratio is determined as dividends paid as a percentage of funds flow from operations. Sustainability ratio is determined as capital expenditures and dividends paid as a percentage of funds flow from operations. Management considers funds flow from operations, funds flow per share, sustainability ratio and payout ratio important as they help evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Total debt includes bank debt outstanding plus accounts payable less accounts receivable and prepaid expenses plus the full value outstanding on the senior unsecured notes and convertible debentures converted to Canadian dollars at the exchange rate on the period end date less long-term investments. Total debt is used to evaluate Lightstream’s financial leverage. Net capital expenditures represent capital expenditures, including exploration and evaluation expenditures, less proceeds from asset dispositions. Funds flow from operations, funds flow per share, payout ratio, sustainability ratio, total debt, and net capital expenditures may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Further information in respect of these non-GAAP measures is set forth in our MD&A.
Well Counts. All references to well counts are on a net basis.
Forward Looking Statements. Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to financial results, results from operations, future production rates, proposed exploration and development activities (including the number of wells to be drilled, completed and put on production), our drilling prospect inventory, projected capital expenditures, the timing of certain projects, future asset dispositions and future dividend payments. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the success of future drilling, completion, recompletion and development activities, the performance of new and existing wells, prevailing commodity prices and economic conditions, the prevailing market for asset dispositions, the availability and cost of labour and services, timing of pipeline and facilities construction, access to third party facilities and weather and access to drilling locations. Although we believe 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 we 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, reliance on industry partners, availability of equipment and personnel, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and exchange rate fluctuations, uncertainty in the ability to complete asset dispositions with third parties on acceptable terms and general economic conditions. Certain of these risks are set out in more detail in our Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com. Except as may be required by applicable securities laws, Lightstream assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.
Natural gas volumes have been converted to barrels of oil equivalent (“boe”). Six thousand cubic feet (“Mcf”) of natural gas is equal to one barrel of oil equivalent based on an energy equivalency conversion method primarily attributable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, especially if used in isolation.
President and Chief Executive Officer
Peter D. Scott
Senior Vice President and Chief Financial Officer
Bill A. Kanters
Vice President Capital Markets
Eighth Avenue Place, 2800, 525 – 8th Avenue S.W.
Calgary, Alberta T2P 1G1