Mr. Trent Yanko reports
LEGACY OIL + GAS INC. ANNOUNCES YEAR-END RESULTS AND FILES ANNUAL INFORMATION FORM
Legacy Oil + Gas Inc. has filed on SEDAR its
audited financial statements and related management's discussion and
analysis (MD&A) for the year ended Dec. 31, 2011, as well as its
annual information form (AIF) for the year ended Dec. 31, 2011.
Selected financial and operational information is outlined in the associated table and
should be read in conjunction with Legacy's audited financial
statements, the related MD&A and the AIF which are available for review
at the company's website or SEDAR.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
(In thousands of dollars except where indicated)
Three months ended Year ended
Dec. 31, Dec. 31,
2011 2010 2011 2010
Financial
Petroleum and natural gas sales, net of royalties $94,358 $60,248 $300,591 $179,111
Funds generated by operations 60,310 36,320 188,852 118,520
Per share basic 0.42 0.29 1.34 1.18
Per share diluted 0.42 0.28 1.32 1.16
Net income 7,231 25,004 19,167 20,275
Per share basic 0.05 0.2 0.14 0.2
Per share diluted 0.05 0.19 0.13 0.2
Capital expenditures (excluding acquisitions) 117,754 51,733 334,783 169,742
Acquisitions (cash consideration) 1,043 42,814 112,589 293,888
Net debt and working capital surplus (deficit) (376,543) (255,556) (376,543) (255,556)
Operating
Production
Crude oil (bbl per day) 11,100 8,339 8,984 6,913
Heavy oil (bbl per day) 209 251 271 63
Natural gas (mcf per day) 14,018 13,437 13,557 7,392
Natural gas liquids (bbl per day) 1,235 1,073 1,135 557
Barrels of oil equivalent (boe per day) 14,880 11,902 12,650 8,765
Average realized price
Crude oil ($ per bbl) 95.39 78.99 92.82 76.35
Heavy oil ($ per bbl) 79.54 66.24 71.24 66.24
Natural gas ($ per mcf) 3.79 4.02 4.02 3.89
Natural gas liquids ($ per bbl) 74.73 50.96 68.76 52.71
Barrels of oil equivalent ($ per boe) 82.03 65.87 77.93 67.33
Netback per boe ($)
Petroleum and natural gas sales 82.03 65.87 77.93 67.33
Royalties 13.1 10.85 12.83 11.34
Operating expenses 16.4 11.82 15.52 11.28
Transportation expenses 2.56 3.13 2.58 2.1
Operating netback ($ per boe) 49.97 40.07 47 42.61
Undeveloped landholdings (gross acres) 665,026 711,352 655,026 711,352
(net acres) 501,075 538,223 501,075 538,223
Accomplishments
- Closed the Pierson Spearfish asset acquisition; acquired high-quality,
high netback light oil assets with an associated significant
development horizontal drilling inventory in the company's Williston
basin core area;
- Drilled 133 gross (99.0 net) oil wells in 2011, with a 100-per-cent
success rate; drilled 42 gross (33.0 net) oil wells in the fourth
quarter of 2011, with a 100-per-cent success rate;
- Increased average production from 8,765 barrels of oil equivalent (boe) per day in 2010 to 12,650
boe per day in 2011 (44-per-cent increase); increased average production
from 11,920 boe per day in the fourth quarter of 2010 to 14,880 boe per
day in the fourth quarter of 2011 (25-per-cent increase); exceeded
16,250 boe per day 2011 exit production rate guidance, a 59-per-cent
increase from second quarter 2011 average production;
- Increased funds generated from operations from $118.5-million in 2010 to
$188.9-million in 2011 (59-per-cent increase); increased funds generated
from operations from $36.3-million in the fourth quarter of 2010 to
$60.3-million in the fourth quarter of 2011 (66-per-cent increase);
- Increased funds generated from operations per share (diluted) from $1.16
in 2010 to $1.32 in 2011 (14 per cent); increased funds generated from
operations per share (diluted) from 28 cents in the fourth quarter of 2010
to 42 cents in the fourth quarter of 2011 (50-per-cent increase);
- Increased gross proved plus probable reserves from 77.8 million barrels of oil equivalent (mmboe) at
Dec. 31, 2010, to 88.0 mmboe at Dec. 31, 2011 (13-per-cent
increase); proved plus probable reserve additions replacing 318 per cent
of production in the year;
- Generated solid three-year total proved plus probable finding,
development and acquisition (FD&A) costs of $22.08 per boe excluding
changes in future development costs (FDC), representing a recycle ratio of 2.3 times
based on fourth quarter of 2011 operating netbacks of
$49.97 per boe;
- Maintained proved plus probable reserve life index of 16.2 years at
Dec. 31, 2011, based on fourth quarter average production;
- Closed one equity financing totalling $140-million;
- Entered into a new syndicated banking facility and increased available
line of credit to $450-million; year-end 2011 net debt of $376.5-million, representing approximately estimated forward cash
flow of 1.3 times (using strip pricing);
- Legacy awarded Apex award for annual report of the year for its
2010 annual report and best financial statements and
analysis by Oilweek Magazine/ATB Financial at the 36th annual report awards.
Operations overview
Although the company had to navigate challenging operating conditions
due to the unprecedented spring runoff and pervasive flooding in the
majority of its core operating areas, Legacy was able to successfully
advance a number of its key development and emerging light oil resource
plays. The company drilled 133 gross (99.0 net) oil wells in 2011, up
from 97 gross (66.9 net) wells in 2010, with a 100-per-cent success
rate. In the fourth quarter of 2011, the company drilled 42 gross
(33.0 net) oil wells, with a 100-per-cent success rate. Activity in the
fourth quarter included the drilling of 11 gross (9.8 net) Spearfish
horizontal wells in the company's Pierson and Bottineau county areas.
Legacy anticipated a potential services
crunch in the third and fourth quarter of 2011, due to most of
industry trying to catch up on capital activities after the flooding
and weather conditions in mid-2011. The company's fracture services
arrangement and pro-active management of its drilling fleet enabled
Legacy to not only meet but exceed its originally forecast exit rate
guidance. This accomplishment is a testament to the company's ability
to manage its base corporate declines as well as the performance of its
organic capital program. This successful operational momentum has
continued into the first quarter 2012, with Legacy having drilled 47
gross (34.8 net) wells to date, with a 100-per-cent success rate.
Legacy's exposure to the Spearfish light oil resource play increased
dramatically in 2011, with the acquisition of the Pierson asset in
Manitoba. At the end of 2011, Legacy had 75,160 net undeveloped acres
in both Pierson and Bottineau county, North Dakota. In a year
challenged by weather-caused access issues, the company was able to
drill 20 (18.6 net) wells in the play. Operational momentum has
progressed in 2012 with 12 (10.3 net) wells already drilled to date.
Legacy continues to evolve the completion design at Pierson and is
demonstrating much better performance than the previous operator, a
phenomenon that has been witnessed in a number of other Legacy-acquired
assets. In Pierson, Legacy-drilled wells have produced 85 per cent more
oil in the first five months of production compared with the previous
operator's wells in the area. The company believes this performance
will lead to superior long-term performance and ultimately higher per
well reserve bookings. Success also continues in Bottineau county,
with wells meeting or exceeding internal expectations. Bottineau
county is an extension of the Spearfish play from Canada into North
Dakota and represents a significant unbooked drilling inventory.
In the Spearfish, Legacy has identified in excess of 440 net undeveloped
locations (88 per cent unbooked) at a spacing of eight wells per
section. This risked inventory only includes a portion of the
Bottineau county lands and incorporates the well results, geological
control and 3-D seismic at Pierson. The company's spacing assumption of
eight wells per section could prove to be conservative as other
operators are drilling the Spearfish at 24 wells per section. Legacy
has been developing the play with one-mile-long horizontal wells while
other operators have been drilling one-half-mile horizontal wells.
Based on similar spacing, Legacy's number of undeveloped locations
would increase by 50 per cent.
The company has also been at the forefront in identifying the water flood
potential in the Spearfish. Based on analogy to the South Pierson
unit, which has been under water flood since 1993, Legacy anticipates
water flood to result in a 14-per-cent recovery factor of the original
oil in place.
At Turner Valley, the company drilled four (3.2 net) successful horizontal
Rundle oil wells in 2011 (two gross (1.7 net) in the fourth quarter of
2011) and completed one of these wells with a multistage acid fracture
stimulation before year-end. This first well came on production in
November, 2011, with an initial production of 225 boe per day and has
stabilized at a rate of approximately 170 boe per day. The three other
horizontal wells came on production at various times in the first
quarter of 2012 and are exhibiting encouraging rates that are improving
over time as water cuts continue to decrease. The recompletion of an
existing Rundle horizontal well (seven-year-old well) in February, 2011, with
a multistage acid fracture stimulation increased production from 25 boe
per day to 110 boe per day and the well currently is producing at 100
boe per day. Also at Turner Valley, Legacy had additional success with
another test of its jet pump skid. The subject well was producing at
18 boe per day prior to installing the jet pump, and the rate has since
increased to 45 boe per day. The company will provide an operational
update on these wells in the coming months.
At Taylorton, modification of the fracture stimulation treatments has
led to continual improvements in production rates, with a number of
wells achieving the highest initial production rates to date. Legacy
drilled nine wells that had 30-day initial production rates in excess of
260 boe per day per well. These wells have continued to perform with
90-day average production rates of 260 boe per day per well and six-month production rates averaging 190 boe per day per well. The company
also began injection in April, 2011, in a pilot water flood and has plans
to expand this project in 2012. This pilot water flood could lead to
incremental reserve bookings and lower production decline rates and
could be expanded depending upon results.
At Star Valley, Legacy has applied its leading fracture stimulation
design developed in Heward to this area with good success. As a
result, 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. At Heward/Stoughton, the company initiated a
pilot water flood at Heward in November, 2011, which could lead to
incremental reserve bookings and lower production decline rates and
could be expanded depending upon results.
The Torquay (Three Forks) core flooding study at Frys/Antler was
completed in 2011 and Legacy combined the study with a comprehensive
geological and geophysical review of the area. Reservoir
characteristics, including net pay, porosity and permeability, appear
similar to the highly successful water flood in the Sinclair Three Forks
B pool located in Manitoba, directly offsetting the company's lands.
This water flood project has been under way since mid-2006 and has now
been expanded to more than 24 sections and is expected to recover up to
30 per cent of the petroleum initially in place (PIIP), a more-than-fivefold increase in recovery factor over primary production. The
Legacy study indicates similar potential water flood recoveries of
approximately 30 per cent of the PIIP. Legacy has exposure to more than
90 million stock tank barrels (mmstb) of net PIIP in the Torquay at Frys/Antler area (as
independently mapped by GLJ Petroleum Consultants Ltd., Aug. 1,
2009). Pilot water flood implementation on Legacy-operated lands is
expected later in 2012. No reserves are assigned to water flood in this
area in the Dec. 31, 2011, reserves report.
At Maxhamish, Legacy constructed an all-season road and an additional
well pad to permit year-round drilling activity. The company drilled
and fracture stimulated two additional Chinkeh horizontal wells. Liner
difficulties in the first well resulted in only half the well bore being
effectively stimulated. However, initial production rates have been
encouraging. The second well came on production in January, 2012, and
continues to recover load fluid and formation oil, but is rate
constrained due to surface production equipment limitations. Legacy
continues to be encouraged with the play, as the two horizontal wells
drilled in 2010 have been producing at a stabilized rate of
approximately 55 boe per day per well after almost two years of
production.
Legacy, as operator, drilled and completed two strat to horizontal wells
in the Big Valley (Three Forks) formation in the Southern Alberta
Bakken light oil play. Results have been encouraging but in line with
an exploratory, early-stage play. Both strat wells encountered
multiple oil-saturated horizons and the horizontal laterals were
drilled into a light-oil-bearing overpressured reservoir. Technical
work continues on analyzing the geological and reservoir model based on
the data gathered from these two wells and will be integrated with
recent successes other operators have announced in immediate proximity
to Legacy's land. Together, all the information will be used to
determine the pace of development in 2012.
Reserves
In accordance with National Instrument 51-101 -- standards of disclosure
for oil and gas activities (NI 51-101), Sproule Associates Ltd.
evaluated, as at Dec. 31, 2011, materially all of
Legacy's oil, natural gas liquids and natural gas reserves. Legacy's
annual information form for the year ended Dec. 31, 2011, contains Legacy's reserves data and other oil and natural gas
information for the period ended Dec. 31, 2011, as mandated by NI
51-101. A copy of the AIF can be obtained under Legacy's profile at SEDAR or at its website. The summary information provided should be read in conjunction
with the detailed information in the AIF.
As of Dec. 31, 2011, Legacy's total gross proved plus probable
reserves base was 88.0 mmboe, an increase of 13 per cent year over year. Total
proved plus probable reserves additions (before divestitures) were 14.7
mmboe. These additions represent 318 per cent of the 4.6 mmboe produced
during 2011. Light and medium oil and NGL accounted for 84 per cent of
the proved plus probable reserves base.
Legacy's gross total proved reserves base was 52.4 mmboe. Total proved
reserves represent 60 per cent of the total proved plus probable
reserves. Proved producing reserves represent 66 per cent of the total
proved reserves base. Total proved reserves additions (before
divestitures) were 8.8 mmboe. These additions represent 191 per cent of
the 4.6 mmboe produced during 2011. Light and medium oil and NGL accounted for 81 per cent of the total proved reserves base.
The associated table is a summary, as at Dec. 31, 2011, of Legacy's
petroleum and natural gas reserves as evaluated by Sproule. It is
important to note that the recovery and reserves estimates provided
herein are estimates only. Actual reserves may be greater or less then
the estimates provided herein. Reserves information may not add due to
rounding.
GROSS COMPANY RESERVES SUMMARY
Light and Total oil
medium oil Natural gas NGL equivalent
(mbbl) (mmcf) (mbbl) (mboe)
Proved producing 23,314.6 41,536.9 4,596.9 34,834.3
Proved developed non-producing 539.6 75.9 21.8 574.0
Proved undeveloped 12,106.2 18,838.3 1,749.9 16,995.8
Total proved 35,960.4 60,451.3 6,368.6 52,404.1
Total proved plus probable 64,428.5 85,528.2 9,309.2 87,992.4
Note
Using Sproule Dec. 31, 2011, forecast prices and costs
as at Dec. 31, 2011.
Capital expenditures and finding, development and acquisition costs
Legacy incurred capital expenditures of $549.2-million in 2011, of which
$215.3-million was spent on strategic corporate and property
acquisitions and $334.0-million on organic opportunities.
The company's total proved plus probable F&D costs for 2011 were $25.44
per boe (excluding FDC) which generated a recycle ratio of two times,
based on the fourth quarter 2011 average operating netback.
2011 CAPITAL EXPENDITURES
(In thousands of dollars)
Total proved plus probable Total proved
Capital costs
Exploration and development drilling and associated costs $318,352 $318,352
Land and seismic 15,601 15,601
Net acquisitions 215,289 215,289
Change in FDC 147,282 79,017
2011 reserve additions (mboe)
Exploration and development 13,125 7,634
Net acquisitions 1,550 1,184
Finding and development costs ($ per boe)
Three-year weighted average cost, excluding change in FDC 25.25 42.43
Three-year weighted average cost, including change in FDC 35.72 51.60
2011 excluding FDC 25.44 43.75
2011 including FDC 36.66 54.10
2010 excluding FDC 25.40 38.61
2010 including FDC 35.60 47.76
Finding, development and acquisition costs ($ per boe)
Three-year weighted average cost, excluding change in FDC 22.08 35.05
Three-year weighted average cost, including change in FDC 28.68 40.46
2011 excluding FDC 37.43 62.29
2011 including FDC 47.46 71.25
2010 excluding FDC 14.54 22.72
2010 including FDC 20.09 31.39
Delays caused by the severe weather in 2011 also impacted reserve
bookings, particularly in the Spearfish play. Drilling activity did
not commence in Pierson and Bottineau county until August and October,
respectively. The encouraging but limited production history resulted
in conservative per well reserve bookings and assignment of undeveloped
locations. Legacy-operated wells continue to outperform both the area
historic results and the Sproule proved plus probable type curve.
Furthermore, booked undeveloped locations account for only 12 per cent
of the Legacy-identified risked drilling inventory.
The majority of capital spent in Turner Valley also occurred late in the
year and had no impact to reserves or values associated with the Rundle
infill drilling inventory.
The three-year weighted average costs do not include any reserves
associated with the acquisition of Bronco Energy Ltd., but do include
the capital expenditures for the acquisition.
Subsequent events
Legacy is pleased to announce the appointment of Curt Ziemer to vice-president, accounting. Mr. Ziemer has more than 23 years of industry
experience and was the controller for Legacy since its inception.
Outlook
Over the past 12 quarters, Legacy has grown production per share more
than 62 per cent or 17 per cent per year. It has been able to maintain
this disciplined level of growth while enduring one the most pervasive
and difficult spring breaks on record. The company's producing assets have
performed favourably and its new production additions have met or
exceeded its expectations, as evidenced by the strong rebound in the
company's production rate, up 59 per cent since the second quarter of
2011.
The company's goal at Legacy is to deliver 10-to-15-per-cent-per-share growth per
year, spending cash flow plus the company's 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 company has more than 1,200 net development locations for light oil.
- Two thousand twelve production is forecast to grow 29 per cent year over year compared with 2011.
-
Two thousand twelve budget is essentially fully financed from internally generated cash
flow, based on current strip prices.
- The company has a development-drilling-focused capital program for 2012 (83 per cent to
drilling, completion, equipping, tie-in).
- The company is fast-tracking water flood projects in the Bakken, Torquay (Three Forks)
and the Spearfish to build significant net asset value while moderating
corporate declines and provide additional opportunity creation.
The operational momentum and success that started in the latter part of
2011 have continued into 2012, with Legacy having drilled 47 gross (34.8
net) wells to date, with a 100-per-cent success rate. Continuous
refinement of mapping, completion programs and production strategies
has provided a number of positive results:
- Spearfish production has outperformed the Sproule proved plus probable
type curve.
- More than 385 net locations are unbooked in the Spearfish which could
grow to nearly 600 net locations with inclusion of all Spearfish lands
held in North Dakota.
- The infill horizontal multistage fracture stimulation program in Turner
Valley has generated positive early results.
- Taylorton Bakken continues to deliver strong results with nine wells
averaging more than 260 boe per day per well over the first 30 days of
production and averaging 260 boe per day per well over the first 90
days of production.
- The company had success in conventional Mississippian at Alameda, Edenvale, Manor and
Steelman.
In 2012, the company is demonstrating better capital efficiencies compared with
2011 which will further improve economics and provide risk protection
to the capital program:
- Weather has been more typical compared with 2011.
- The company contracted fit-for-purpose horizontal drilling rigs and equipment (top
drives, larger pumps).
- The company moved to more manufacturing-type development in some of its emerging
plays such as the Spearfish.
- Costs have stabilized for key services.
Legacy's light oil assets and strong financial position not only provide
downside mitigation in periods of lower commodity prices or volatility,
but also provide upside torque to the continued operational success
achieved in the past nine months due to:
- Production that is 85 per cent weighted to light oil and NGL;
- Current operating netbacks greater than $52.00 per boe;
- Operating cost decrease and the expectation of this trend to
continue throughout 2012;
- Surplus capacity on banking facility.
Legacy embarks on 2012 positioned with high-quality light oil assets, a
strong 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 p.m. on May 29,
2012, at the Petroleum Club, McMurray room, located at 319 -- 5th Ave.
SW, Calgary, Alta.
To view Legacy's audited financial statements, the related MD&A and the
AIF for the years ended Dec. 31, 2011, Dec. 31, 2010, and
Dec. 31, 2009, please visit its website or SEDAR. 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 Ave. SW, Calgary, Alta., T2P-1G1.
We seek Safe Harbor.
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