44% Increase in Capital Program Expected to Boost Oil Production by 12% Financed in Part by Dividend Reduction
(TSX: LNV)
CALGARY, Dec. 12, 2013 /CNW/ – Longview Oil Corp. (“Longview” or the “Company”) is pleased to announce that the Board of Directors has approved the Company’s capital expenditure budget and guidance for the year ending December 31, 2014 which includes a 44% increase in the capital expenditure program to $56 million. We anticipate this program will lead to a 20% increase in cash flow per share in 2014 as crude oil production volumes are expected to grow by 12% resulting in a 16% increase in operating netbacks.
Budget Highlights
- Capital expenditures are budgeted to increase by 44% from 2013 spending levels to $56 million.
- We anticipate that capital spending will be focused on the ongoing development of our light oil reserves including the drilling of 29 gross (22.3 net) wells.
- Oil production is expected to increase by 12% in 2014 as a result of the drilling program.
- Funds from operations are anticipated to increase by 20% in 2014 to $1.64 per share due to the increase in oil production.
- Our debt to cash flow ratio is expected to decline by 11% in 2014 to 1.7x, thereby preserving our strong balance sheet.
- Longview’s payout ratio for 2014 is anticipated to be 102% as compared to 105% in 2013.
Dividend Payment
In order to fund the expansion of our capital development program, Longview announces that it will be paring back its monthly dividend to four cents per share effective with the dividend to be paid on January 15, 2014 to shareholders of record on December 31, 2013. The ex-dividend date for the dividend is December 27, 2013. The dividend is considered an “eligible dividend” for Canadian tax purposes.
Longview’s new monthly dividend payout of four cents per share represents an annualized yield of 9.5% based on the December 12, 2013 closing price of $5.06 per share.
Operational and Financial Guidance – Summary
The following table summarizes operational and financial guidance for Longview for the year ending December 31, 2014 as compared to our published guidance for 2013:
| 2014 | 2013 | Key Variances | ||||||||||||||
| Production: | ||||||||||||||||
| Crude oil (bbls/d) | 4,750 | 4,250 | +12% | |||||||||||||
| NGLs (bbls/d) | 465 | 525 | ||||||||||||||
| Natural gas (mcf/d) | 6,800 | 7,400 | ||||||||||||||
| Boe/d (1) | 6,350 | 6,000 | ||||||||||||||
| Funds from operations (2) | $77 million | $64 million | +20% | |||||||||||||
| Per share (3) | $1.64 | $1.39 | +20% | |||||||||||||
| Capital expenditures | $56 million | $39 million | +44% | |||||||||||||
| Payout Ratio (3) | 102% | 105% | ||||||||||||||
| Debt to cash flow ratio (3) | 1.7x | 2.0x | -11% | |||||||||||||
| Royalty rate | 17% | 17.5% | ||||||||||||||
| Operating expenses | $20.00/boe | $21.00/boe | ||||||||||||||
| (1) | Boe, funds from operations, payout ratio and debt to cash flow ratio do not have a standardized meaning under GAAP. Refer to “Non-GAAP Measures, Definitions and Abbreviations” in this press release. |
| (2) | Commodity price assumptions: WTI – 2014 US $93.00/bbl, 2013 US $97.75/bbl; Edmonton light oil – 2014 $92.50/bbl, 2013 $93.00/bbl; Cdn/US exchange rate – 2014 $0.93, 2013 $0.97 and AECO C gas price – 2014 $3.68/mcf,, 2013 $3.05/mcf. |
| (3) | Based on our weighted average shares outstanding. |
Capital Development Strategy
Our asset base consists of operated oil-weighted resource plays where management of Longview has identified an extensive inventory of low risk development drilling and waterflood enhancement projects that offer the potential to significantly increase both production and reserve recoveries across our land holdings.
Management of Longview believes that in order to more fully realize the value inherent in our asset base, the pace of our capital development program needs to be accelerated. Consistent with this strategy, we have developed a 2014 budget that increases the capital program by 44% and directs a greater portion of our funds from operations towards organic growth projects while maintaining a sustainable payout ratio.
The 2014 drilling program will focus on the ongoing development of light oil reserves at 11 project areas in both Saskatchewan and Alberta which includes the drilling of 29 gross (22.3) net wells. The majority of the wells in our 2014 drilling program are expected to qualify for reduced royalty rates and will be directed towards areas where we have existing infrastructure in place resulting in lower operating costs and comparatively high rates of return. In addition, approximately 14% of our total capital budget will be allocated to waterflood enhancement and facility improvements at seven project areas designed to increase reservoir pressures and establish additional drilling locations.
Longview anticipates that this strategy will lead to a 12% increase in crude oil production in 2014. This is supported by our expected base decline rate of 19%, which is among the lowest in the industry. This boost in crude oil production is anticipated to improve our corporate netbacks by reducing royalty rates and per boe operating costs resulting in a 20% increase in cash flow per share. Production of lower value natural gas and NGL’s are expected to decline by 9% in 2014 as normal production declines are forecast to more than offset modest production additions.
2014 Capital Program
2014 Capital Budget – Drilling Summary
The following table summarizes our 2014 capital budget by area and target formation:
| Well | # of Wells | |||||||||||||||||
| Area | Target Formation | Type | Gross | Net | ||||||||||||||
| S.E. SK | Midale | Hz | 16 | 11.2 | ||||||||||||||
| S.E. SK | Frobisher | Hz | 2 | 2.0 | ||||||||||||||
| Lashburn, SK | Waseca | Vt | 4 | 2.4 | ||||||||||||||
| Sunset, AB | Montney | Hz | 1 | 0.7 | ||||||||||||||
| Pembina, AB | Cardium | Hz | 3 | 3.0 | ||||||||||||||
| Nevis, AB | Wabamun | Hz | 1 | 1.0 | ||||||||||||||
| Other, AB | Belly River/Glauconite | Hz | 2 | 2.0 | ||||||||||||||
| Total | 29 | 22.3 | ||||||||||||||||
- Given the current volatility in crude oil pricing conditions, we will continue to closely monitor our funds from operations as compared to our dividend policy and capital expenditure commitments to ensure they are substantially balanced.
Operating Netbacks
- The following table compares the anticipated operating netbacks for the year ending December 31, 2014 to the estimate for 2013:
| ($/boe) | 2014 | 2013 | Comment | |||||||||
| Revenues | $71.89 | $68.96 | Higher percent of production derived from light oil production more than offsets slight decrease in anticipated oil price |
|||||||||
| Hedging loss | (1.45) | (2.99) | Same volume of oil hedged in 2014 at a higher price | |||||||||
| Royalties | (12.22) | (12.14) | Lower royalty rate as new production | |||||||||
| Royalty rate | 17.0% | 17.6% | qualifies for royalty holiday | |||||||||
| Operating costs | (20.02) | (21.01) | Increase in oil production anticipating utilizing existing facilities | |||||||||
| Operating netback | $38.20 | $32.82 | Anticipated increase of 16% or $5.38/boe |
Hedging Update
- Longview hedges production in order to stabilize cash flow and enhance our ability to fund dividend payments and incur capital expenditures during periods of commodity price volatility.
Forward-Looking Statements
Certain information regarding Longview set forth in this press release, including management’s assessment of the Company’s future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, ” lead to”, “project”, “should”, “believe” and similar expressions are intended to identify forward looking statements. Such statements represent Longview’s internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of capital expenditures or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statementsare