CALGARY, Dec. 17, 2014 /CNW/ - Legacy Oil + Gas Inc.
("Legacy" or the "Company") is pleased to announce its capital and
operating budget and associated production guidance for 2015.
In the current environment of low oil prices, the Company is
focusing on capital preservation and maintaining liquidity under
reduced cash flows by reducing discretionary spending and high
grading opportunities. The budget sustains production and
accomplishes the strategic objective of progressing and
accelerating the Company's numerous waterflood opportunities, while
emphasizing flexibility to increase or decrease investments as the
pricing environment dictates. The Company plans to spend less
than cash flow in 2015. The capital program will continue to
be monitored as the pricing environment dictates and further
opportunities to reduce capital are currently being
evaluated.
BACKGROUND
The combination of disciplined capital spending and increased
emphasis on waterfloods will lead to a reduction in the Company's
corporate average decline rate from 32 percent to 27 percent by the
end of 2015. The Company has the ability to achieve these
sustainability improvements due to the high quality of its
investment inventory, which continues to provide attractive rates
of return despite the current challenging oil price environment, as
well as the low decline nature of its Turner Valley field and the initial impact of
its waterflood projects.
The Company has focused its 2015 budget on high graded
opportunities and emphasizing cost reductions in its drilling and
completion activities. This emphasis, combined with Legacy's
high netback production, results in strong investment returns in
the current environment. The large majority of drilling
capital in the budget has been allocated to Legacy's highly
economic Midale play in southeast
Saskatchewan and the Rundle
Formation at Turner Valley.
2015 CAPITAL BUDGET
Legacy expects to spend $238
million, which is less than anticipated cash flow that would
be generated at pricing of US$65 per
barrel WTI and a 0.85 CDN/US dollar
exchange rate throughout 2015. This level represents a 40 percent
reduction in organic capital spending year over year. Legacy's
capital program will be focused on light oil development, with the
majority of capital (87 percent) directed to drilling, completions,
equipping and waterfloods. Legacy is planning to drill 94 gross
(79.4 net) wells in 2015 targeting high quality light oil. In
addition to drilling, the Company is planning capital expenditures
on expansion of the successful pilot waterfloods at Frys,
Heward, Pierson, Steelman and Taylorton, as well as
implementation of pilot waterfloods at Openshaw, Pinto and
Star Valley.
The capital spending is distributed as follows: drilling,
completions and tie‐ins - $196
million; waterfloods - $11
million; facilities - $29
million; and land, seismic and other - $2 million. The majority of the capital
spending will be allocated to the Company's major plays:
Taylorton/Pinto - $100 million (42
percent), Turner Valley -
$26 million (11 percent),
Steelman - $37 million (15 percent), and Manor/Wordsworth -
$18 million (8 percent).
The Company is planning to balance capital between the first
half and second half of 2015, spending less than cash flow in each
half of the year, currently assuming US$65 per barrel WTI. If oil prices do not
improve early in 2015, Legacy will defer or cancel capital
investments as necessary to spend cash flow, while generating
acceptable returns on investment.
2015 GUIDANCE
Legacy anticipates a 2015 average production rate of 24,500 Boe
per day, representing growth of 6 percent over 2014 average
production guidance. Production targets include the tie-in of
significant associated natural gas and NGL volumes at the Company's
successful Midale play.
Legacy expects to exit 2015 at approximately the same rate as
the 2014 exit rate excluding production from the Elmworth asset.
The Company continues to pursue the sale of Elmworth as soon
as practicable in 2015.
The operational parameters used in the budget are as
follows:
- Average Production – 24,500 Boe per day (85 percent light oil
and NGL)
- Exit Production – 27,300 Boe per day (85 percent light oil and
NGL)
- Average Crude Quality - 39° API
- Royalty Rate – 14.5 percent
- Operating Costs - $13.75 per
Boe
- Transportation Costs - $3.10 per
Boe
- G&A (expensed) - $2.50 per
Boe
- Common Shares Outstanding (basic, weighted average) – 199.3
million
With lower WTI oil prices, the Company anticipates crude oil
price differentials to remain volatile but to narrow slightly from
2014 levels. Cash flow sensitivity to changes in oil price is
2.1 percent per US$1.00 per barrel
change in WTI oil price.
BANK LINE AND TERM DEBT
Legacy has total current borrowing capacity of approximately
$1.025 billion, comprised of
$225 million of term debt and
$800 million of bank line. The
term debt does not mature until late 2017, is unsecured, has
minimal covenants and is not reserve based.
The bank line was recently reviewed and increased by
$100 million as a result of Legacy's
high netback, long reserve life light oil production and solid
proved developed producing reserves. The line is routinely
reviewed semi-annually and the next regularly scheduled review is
planned for April 2015. The bank syndicate was recently
expanded to a well-diversified group of 10 banks.
Bank line determinations are a function of net present value of
proved developed producing reserves using the lender's price deck
and applied risk factor. The Company has run sensitivities on its
borrowing base value and stress tested its balance sheet and
continues to expect to be within debt covenants down to oil prices
averaging US$55 per barrel WTI over a
continuous 12 month period.
OUTLOOK
Based on industry research and analysis, over the past 40 years
world oil prices have generally averaged at or near the worldwide
cost of reserves replacement, which is currently estimated at
approximately US$90 per barrel
WTI. Legacy expects oil prices to eventually return to these
levels. However, due to its top decile operating netbacks and
high quality inventory, Legacy is prepared to operate in an
extended period of lower and volatile prices, preserving capital in
anticipation of an eventual return to historical average
prices.
Through its 2015 budget cycle, Legacy has identified, evaluated
and ranked capital projects totaling in excess of $640 million. This depth of highly economic
inventory provides excellent flexibility to cost effectively expand
the 2015 capital budget when commodity prices recover.
However, in the current price environment, the Company is prepared
to make additional spending cuts if there is further deterioration
in oil prices.
Legacy has always aggressively pursued cost savings and is
working closely with all its service providers and suppliers. To
date the Company has already reduced drilling day rates by up to 12
percent over the first quarter of 2014. The Company is targeting
and expecting additional savings in all areas of the business.
The Company is using the current lower oil price environment as
an opportunity to enhance sustainability through disciplined growth
and waterflood expansion that results in lower corporate decline
rates and reduced maintenance capital requirements. With more
than 2,000 net undrilled light oil development locations
identified, the 2015 budget represents only approximately 4 percent
of this high quality development drilling inventory, leaving Legacy
in a better position to capitalize on its inventory and will add
optionality within its business model to surface shareholder
value.
Legacy is a uniquely positioned, 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 STATEMENTS: This press release contains
forward-looking statements. More particularly, this press release
contains statements concerning: (i) Legacy's plan to spend less
than cash flow in 2015, (ii) anticipated reductions in the
Company's corporate decline rate in 2015; (iii) the amount of
planned capital expenditures for 2015, (iv) the breakdown of
planned capital expenditures by type and area, (v) planned
drilling, development and waterflood activities, (vi) the
anticipated 2015 average and exit rates of production, (vii) the
expectation that the Company will be in compliance with its debt
covenants in the pricing scenario set out in the press release,
(viii) anticipated oil price differentials and anticipated long
term recovery in oil prices, and (ix) anticipated cost savings from
the Company's service providers.
The forward-looking statements contained in this press release
are based on certain key expectations and assumptions made by
Legacy, including the parameters specifically set out in the press
release and expectations and assumptions concerning: (i) prevailing
commodity prices, (ii) the success of future drilling, development
and waterflood activities, (iii) the performance of existing wells,
facilities and waterflood projects, (iv) the performance of new
wells, facilities and waterflood projects, (v) the timely receipt
of required regulatory approvals, (vi) prevailing weather
conditions, oil price differentials, royalty regimes and exchange
rates and (vii) 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. Most importantly, all of the
forward-looking statements are highly dependent on prevailing
commodity prices and significant fluctuations in prevailing
commodity prices may impact anticipated cash flows, capital
expenditures, production and compliance with debt covenants.
Other factors and risks 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), uncertainty as to the availability of
capital, labour and services, exchange rate fluctuations,
fluctuations in oil price differentials, unexpected adverse weather
conditions and changes to existing laws and regulations. Certain of
these risks are set out in more detail in Legacy's Annual
Information Form which has been filed on SEDAR and can be accessed
at www.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.
Non-IFRS Measure - This press release
contains the term "cash flow", which does not have a standardized
meaning prescribed by International Financial Reporting Standards
("IFRS") and therefore may not be comparable with the calculation
of similar measures by other companies. Legacy uses cash flow
to analyze financial and operating performance. Cash flow should
not be viewed as an alternative to cash flow from operating
activities, net earnings or other measures of financial performance
calculated in accordance with IFRS. Cash flow is calculated as cash
flow from operating activities less changes in non-cash working
capital.
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/d means a barrel of oil equivalent per
day. 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.
SOURCE Legacy Oil + Gas Inc.