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Press release from CNW Group

LEGACY OIL + GAS INC. ANNOUNCES YEAR-END RESULTS AND FILES ANNUAL INFORMATION FORM

Tuesday, March 15, 2011

LEGACY OIL + GAS INC. ANNOUNCES YEAR-END RESULTS AND FILES ANNUAL INFORMATION FORM00:43 EDT Tuesday, March 15, 2011CALGARY, March 14 /CNW/ - Legacy Oil + Gas Inc. ("Legacy" or the "Company") (TSX:LEG) is pleased to announce it has filed on SEDAR its audited financial statements and related Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2010 as well as its annual information form ("AIF") for the year ended December 31, 2010. Selected financial and operational information is outlined below 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 www.legacyoilandgas.com or www.sedar.com.FINANCIAL + OPERATIONAL HIGHLIGHTS    Three Months Ended Year Ended December 31 December 31     20102009% change20102009% changeFinancial ($000's, except per share amounts)      Petroleum and natural gas sales 72,12531,498129215,38547,457354Funds generated by operations (1) 36,46917,368110119,61123,013420 Per share basic (1) 0.290.29-1.190.9427 Per share diluted (1) 0.280.2741.170.9129Net income (loss) 10,660 (5,381)298 (4,656) (10,053)54 Per share basic 0.08 (0.09)189(0.05) (0.41)88 Per share diluted 0.08(0.09)189(0.05)(0.41)88Capital expenditures 51,88230,61369170,83337,218359Corporate and asset acquisitions (cash consideration) 43,188109,279(60)297,538211,83140Net debt and working capital surplus (deficit) (255,556) (54,045)373(255,556) (54,045) 373Operating      Production       Crude oil (Bbls per day) 8,3394,583826,9131,833 277 Heavy oil (Bbls per day) 251-n/a63-n/a Natural gas (Mcf per day) 13,43785514,7167,3922862,485 Natural gas liquids (Bbls per day) 1,073335,667557155,600 Barrels of oil equivalent (Boe per day) (2) 11,902 4,728152 8,7651,881366Average realized price       Crude oil ($ per Bbl) 78.9974.13776.3570.508 Heavy oil ($ per Bbl) 66.24 -n/a 66.24 -n/a Natural gas ($ per Mcf) 4.022.84423.892.6149 Natural gas liquids ($ per Bbl) 50.9668.85(26)52.7167.94(22) Barrels of oil equivalent ($ per Boe) (2) 65.8772.41(9)67.3369.11 (3)Netback per Boe ($)       Petroleum and natural gas sales 65.8772.41(9)67.3369.1 (3) Royalties  10.8511.96 (9)11.3410.2710 Operating expenses (3) 11.8212.71 (7)11.2814.14 (20) Transportation expenses (3) 3.13 2.13472.101.5139Operating Netback 40.0745.61(12)42.61 43.19 (1)Undeveloped land holdings (gross acres) 711,352 347,383105711,352347,383105 (net acres) 538,223259,787107538,223259,787107Common Shares (000's)      Shares outstanding, end of period        Common & Class A shares 127,23474,15672127,23474,15672Weighted average shares 126,91660,487110100,75824,454312(1)      Management uses funds generated by operations to analyze operating performance and leverage.  Funds generated by operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities.(2)      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.  (3)      Transportation expenses up to the six months ended June 30, 2009 were reported as part of operating expenses.ACCOMPLISHMENTSNamed Oilweek Magazine 2010 Producer of the YearSubsequent to year end, S&P announced that Legacy would be added to the S&P/TSX Composite Index, effective March 21, 2011Closed a total of three private company acquisitions; acquiring high quality, high netback, light oil assets in the Company's southeast Saskatchewan core area and established the dominant position in the 1.3 billion barrel original oil in-place low decline, light oil field at Turner ValleyDrilled 97 gross (66.9 net) oil wells with a 100 percent success rate in 2010.  Drilled 31 gross (21.0 net) oil wells in the fourth quarter of 2010, with a 100 percent success rateIncreased average production from 1,881 Boe per day in 2009 to 8,765 Boe per day in 2010 (366 percent increase);  increased average production from 4,728 Boe per day in the fourth quarter of 2009 to 11,902 Boe per day in the fourth quarter of 2010 (152 percent increase);  exceeded 13,000 Boe per day 2010 exit production rate guidanceIncreased funds generated from operations from $23.0 million in 2009 to $119.6 million in 2010 (420 percent increase); increased funds generated from operations from $17.4 million in the fourth quarter of 2009 to $36.5 million in the fourth quarter of 2010 (110 percent increase)Increased net income from a loss of $5.4 million in the fourth quarter of 2009 to a gain of $10.7 million in the fourth quarter of 2010 (298 percent increase)Reduced operating costs from $14.14 per Boe in 2009 to $11.28 per Boe in 2010 (20 percent decrease) in 2010;  reduced operating costs from $12.71 per Boe in the fourth quarter of 2009 to $11.82 per Boe in the fourth quarter of 2010 (7 percent decrease)Reduced general and administrative ("G&A") costs from $7.23 per Boe in 2009 to $2.68 per Boe in 2010 (69 percent decrease); decreased G&A costs from $4.36 per Boe in the fourth quarter of 2009 to $3.07 per Boe in the fourth quarter of 2010 (30 percent decrease)Increased gross proved plus probable reserves from 16.1 MMBoe at December 31, 2009 to 77.8 MMBoe at December 31, 2010 (382 percent increase);  proved plus probable reserve additions replaced 2,094 percent of production in the year; subsequent to year end, acquired 9.1 MMBoe of gross proved plus probable reserves (12 percent increase)Generated solid 2010 total proved plus probable finding, development and acquisition ("FD&A") costs of $20.04 per Boe (including future development costs ("FDC"), representing a 2.1 times recycle ratio on 2010 operating netbacksSubstantially increased proved plus probable reserve life index from 9.3 years at December 31, 2009 to 17.9 years at December 31, 2010, based on fourth quarter average productionIncreased undeveloped land holdings from 259,787 net acres at the end of 2009 to 538,223 net acres at the end of the 2010 (107 percent increase).  Shot two 3D seismic surveys, acquiring 29 square miles of dataClosed one equity financing totalling $271.4 millionEntered new syndicated banking facility and subsequently increased available line of credit to $340 million. Year end net debt was $255.6 million, representing approximately 1.0 times estimated forward cash flow (using strip pricing)OPERATIONS OVERVIEWThe Company drilled 97 gross (66.9 net) oil wells in 2010, up from 30 gross (23.5 net) wells in 2009, with a 100 percent success rate.  In the fourth quarter of 2010, the Company drilled 31 gross (21.0 net) oil wells, with a 100 percent success rate.  Activity in the fourth quarter included the drilling of 12 gross (7.7 net) Bakken horizontal wells in the Company's Stoughton/Heward, Star Valley and Taylorton areas.  This successful operational momentum has continued into the first quarter 2011, with Legacy having drilled 34 gross (24.7 net) wells to-date.   Legacy also prepared a 10 square mile 3-D program in the fourth quarter of 2010, which was acquired in early 2011.  Production operations in the fourth quarter of 2010 were impacted by a longer than expected turnaround at the Quirk Creek Gas Plant, Enbridge pipeline issues and wetter than normal field conditions in southeast Saskatchewan, which reduced production averages in the quarter and increased operating costs.  These issues were largely remedied by the end of the year, allowing Legacy to exceed its 2010 exit production rate guidance.At Turner Valley, the Company drilled three successful vertical Rundle oil wells in the fourth quarter of 2010 and completed multiple horizons within each well with a variety of fracture stimulation treatments.  The vertical wells have exhibited an average initial production rate of 60 to 80 Boe per day per well, encouraging results that will be used in the design and execution of the recompletion and multi-stage frac of an existing Rundle horizontal well and the drilling of five Rundle vertical and horizontal wells this year.  Also at Turner Valley, Legacy successfully recompleted a vertical well in the Cardium zone, recovering load fluid and formation oil and natural gas.   New mapping of the Cardium zone has led to the identification of incremental opportunities in the area.  Legacy plans on recompleting two additional vertical wells in the Cardium and drilling one horizontal Cardium well in 2011 and will follow up this activity depending upon results.At Taylorton, modification of the fracture stimulation treatments has led to continual improvements in production rates, with Legacy's first 24 stage fracture stimulation in the field achieving the highest initial production rate to-date.  Construction of the central oil treating facility was completed and it is anticipated its operation will reduce field operating costs to approximately $7.50 per Boe.  Design and initial construction of the Enbridge tie-in and natural gas and NGL tie-in was initiated, with completion expected by the second quarter of 2011, adding further to production rates while reducing natural gas flaring.  The Company also has received approval for a pilot waterflood and expects to initiate injection later in 2011.  This pilot waterflood could lead to incremental reserve bookings and lower production decline rates and could be expanded depending upon results.At Heward/Stoughton, Legacy drilled two 200 meter interwell spacing Bakken infill horizontal wells in 2010, resulting in significantly higher initial production rates than the corresponding 400 meter interwell spacing offset locations.  The Company is looking to expand this infill program in 2011. In addition, the Company plans to initiate a pilot waterflood at Heward later in 2011, which also could lead to incremental reserve bookings and lower production decline rates and could be expanded depending upon results. It is important to note that no reserves are assigned to further 200 meter interwell spacing infill locations and no reserves are assigned to waterfloods in any of the Company's Bakken producing areas, including Heward/Stoughton, in the December 31, 2010 reserves report.The Torquay (Three Forks) coreflooding study at Frys/Antler continued in the fourth quarter of 2010 and Legacy also conducted a comprehensive geological and geophysical review of the area.  Reservoir characteristics, including net pay, porosity and permeability appear similar to the highly successful waterflood in the Sinclair Three Forks 'B' pool located in Manitoba, directly offsetting the Company's lands.  This waterflood project has been underway since mid-2006 and has now been expanded to more than 24 sections and is expected to recover up to 30 percent of the Petroleum Initially in Place ("PIIP"), a more than five‐fold increase in recovery factor over primary production.  Legacy has exposure to more than 90 MMSTB of net PIIP in the Torquay at Frys/Antler area (as independently mapped by GLJ Consultants Ltd., August 1, 2009).  Pilot waterflood implementation on Legacy operated lands is expected later in 2011. No reserves are assigned to waterflood in this area in the December 31, 2010 reserves report.At Maxhamish, Legacy successfully drilled and fracture stimulated its first two Chinkeh horizontal wells earlier in 2010 and jointly acquired the farmor's interest in the Chinkeh light oil resource play.  As a result of this acquisition, the Company now owns a 61.5 percent operated working interest in 69,440 gross acres, seven oil wells and the gathering and road infrastructure.  Although encouraged by the initial production rates from the two horizontal wells, production run times and operating practices through 2010 were less than optimal and contributed to difficulties in fully assessing the production results from these wells. These issues are being resolved and the Company is optimistic that it will be in a position to better assess this significant opportunity by the end of 2011. No reserves have been assigned to Legacy's interest in Maxhamish in the December 31, 2010 reserves report.The first two horizontal wells of a five well program targeting light oil in the Spearfish in Bottineau County, North Dakota were drilled in the fourth quarter of 2010, with the remaining wells drilled subsequent to year end.  Based on drill cuttings, gas detector response and oil shows while drilling, all five wells have now been cased as potential Spearfish oil wells and await completion.  Fracture stimulation treatment is dependent on weather and road bans but is anticipated to occur within the next six weeks.  The Company has continued to build on its dominant land position in the area which is now in excess of 43,840 net undeveloped acres. No reserves have been assigned to Legacy's interest in Bottineau County in the December 31, 2010 reserves report.Also in the fourth quarter of 2010, through a combination of land purchase and farm-in, Legacy purchased a 50 percent working interest in 52 gross sections and farmed-in with the potential to earn a 50 percent working interest in an additional 131 gross sections in the Alberta Bakken play.  The lands comprise a number of large contiguous blocks and are prospective for light oil in several horizons including the Banff/Bakken/Exshaw/Big Valley sequence.  The Company has committed to drill a minimum of two wells in 2011, with the first well expected to spud on or before March 31, 2011.RESERVESIn accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), Sproule Associates Ltd. ("Sproule") evaluated, as at December 31, 2010, materially all of Legacy's oil, natural gas liquids and natural gas reserves. The AIF contains Legacy's reserves data and other oil and natural gas information for the period ended December 31, 2010 as mandated by NI 51-101. A copy of the AIF can be obtained under Legacy's profile at www.sedar.com or at www.legacyoilandgas.com. The summary information provided below should be read in conjunction with the detailed information in the AIF.As of December 31, 2010, Legacy's total proved plus probable reserves base was 77.8 MMBoe.  Total proved plus probable reserves additions before divestitures were 64.9 MMBoe. These additions represent 2,094 percent of the 3.1 MMBoe produced during 2010. Light and medium oil and NGL's accounted for 82 percent of the proved plus probable reserves base.Legacy's gross total proved reserves base was 48.1 MMBoe.  Total proved reserves represent 62 percent of the total proved plus probable reserves.  Proved producing reserves represent 67 percent of the total proved reserves base.  Total proved reserves additions before divestitures were 41.5 MMBoe.  These additions represent 1,339 percent of the 3.1 MMBoe produced during 2010.  Light and medium oil and NGL's accounted for 78 percent of the total proved reserves base.The following table is a summary, as at December 31, 2010, of Legacy's petroleum and natural gas reserves as evaluated by Sproule.  It is important to note that these estimates are subject to positive and negative revisions as additional reservoir and production information becomes available.  The reserves attributed to Legacy are based on judgments regarding future events; therefore actual results will vary and the variations may be material. Reserves information may not add due to rounding.        Gross Company Reserves Summary (1)       Using Sproule December 31, 2010 Forecast Prices and Costs       As at December 31, 2010        Light and     Total Oil Medium Oil Natural Gas NGL's Equivalent (MBbl)  (mmcf) (MBbl)  (MBoe)Proved Producing 20,276.6 44,755.7 4,628.5 32,364.4Proved Developed Non-Producing 481.0 113.6 13.6 513.5Proved Undeveloped 10,204.9 19,222.7 1,773.7 15,182.4Total Proved 30,962.4  64,092.1 6,415.8 48,060.2Total Proved plus Probable 54,775.6 85,595.1 8,749.6 77,791.1(1)     Gross Company Reserves means the Company's working interest reserves before calculations of royalties and before consideration of the Company's royalty interestCAPITAL EXPENDITURES AND FINDING, DEVELOPMENT AND ACQUISITION COSTSLegacy incurred capital expenditures of $942.3 million in 2010, of which $771.6 million was spent on strategic corporate and property acquisitions and $170.3 million on organic opportunities.The Company's total proved plus probable FD&A costs for 2010 were $20.04 per Boe (including FDC) which generated a 2.1 times recycle ratio, based on the 2010 average operating netback.2010 Capital Expenditures                                                 Total Proved plus Probable (2) Total Proved (2)Capital costs ($ thousands)    Exploration & development drilling & associated costs 151,674 151,674 Land & seismic 18,625 18,625 Net acquisitions 771,506 771,506 Change in FDC (1)  359,650 247,2602010 Reserve Additions (MBoe) (3)   Exploration & development6,861 3,532Net acquisitions58,080 37,045    2010 Finding & Development Costs ($ per Boe) (4)   Excluding FDC$24.82 $48.22Including FDC$34.79 $59.65    2010 Finding, Development & Acquisition Costs ($ per Boe)(4)(5)   Excluding FDC$14.50 $23.21Including FDC$20.04 $29.30(1)      The aggregate of the exploration and development costs incurred in the most recent financial period and the change during that period in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that period(2)      Based on gross reserves meaning the total company interest (operated and non-operated) share before deduction of royalties payable to others(3)      Boe conversion ratio for natural gas of 1 Boe: 6 Mcf has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead(4)      Excludes revisions(5)      As a majority of Legacy's capital expenditures in 2010 were directed towards acquisitions, the Company feels this analysis to be important to evaluating 2010 resultsThe above costs do not include any reserves associated with the acquisition of Bronco Energy Ltd., but does include the capital expenditures for the acquisition. Legacy also spent a significant amount of capital in 2010 at Maxhamish and North Dakota, which had no reserves assigned in 2010. In aggregate, these factors would reduce proved plus probable FD&A and F&D costs by $1.07 per Boe and $3.70 per Boe, respectively.SUBSEQUENT EVENTSSubsequent to year end, Legacy acquired 800 Bbls per day (2010 exit rate) and 9.1 MMBbl of gross proved plus probable reserves of high quality, high netback, Spearfish light oil assets in an early stage resource play focused in the Pierson area of southwest Manitoba for total consideration (subject to customary closing adjustments) of $93 million in cash and 6.18 million Legacy common shares (subject to a 180 day escrow).   The Company financed the cash portion of the acquisition through a portion of the proceeds of an equity financing consisting of 9.355 million common shares at a price of $14.95 per share.OUTLOOKSince its inception in July 2009, Legacy has remained committed to cost effective per share growth through the build-out of high quality, light oil assets comprised of large accumulations of hydrocarbon in-place and resource plays.  As a leader in light oil resource play development, the Company has leveraged this expertise into a series of accretive acquisitions and demonstrated strong organic growth.  We believe these are complementary strategies and have led to both near-term and longer term value creation potential through our enviable inventory of work‐overs, infill drilling, step‐out drilling, secondary recovery projects and emerging light oil resource play development.  The extensive light oil opportunities are underpinned by a significant internally generated cashflow which is sufficient to fund capital expenditures that result in solid double-digit per share growth, while maintaining a strong balance sheet with surplus debt capacity.As the industry increasingly utilizes horizontal multistage fracture stimulation technology in an ever broader number of plays, corporate decline rates are bound to increase as the horizontal multistage frac wells are characterised by their strong flush production rates with steep initial declines.  Legacy recognized this potential challenge from its beginning and has moved decisively to mitigate the downside to an increasing corporate decline rate by acquiring the long-life, low decline Turner Valley light oil pool and aggressively pursuing waterflood development in a number of our key producing areas.  Not only do these projects have the ability to grow reserves, production and cash flow through their associated upside opportunities, they have the capacity to moderate corporate declines and provide a stable base of free cash flow that can be used to fund additional growth opportunities throughout the Company.Legacy shareholders will continue to benefit from the Company's significant light oil resource play exposure.  The Company has expanded its operations into a number of emerging light plays over the past year, including the Spearfish play in North Dakota, the Alberta Bakken play, the Cardium at Turner Valley and the Chinkeh at Maxhamish.  Each play involves the same technical approach and is consistent with the core technical competencies evolved at Legacy:  exploitation of large hydrocarbon in-place resources with low recovery factors, through the use of technology.  Furthermore, Legacy's exposure to each play is meaningful enough that success in any one play could result in significant upside for the Company. No reserves have been attributed to any of these plays in the December 31, 2010 reserve report.Proforma the recently closed acquisition of the Pierson Spearfish assets, Legacy currently has the following attributes:Proved plus Probable Reserves (1):    86.9 MMBoe (84% light oil and NGL's)Proved plus Probable RLI (2):    16.9 yearsUndeveloped Land:    569,217 net acres3-D Seismic:    1,535 square milesTotal Development Drilling Locations:    984 gross, 696.5 net (71 percent unbooked)(1)      Gross Company Reserves.  Reserves evaluated by Sproule Associates Ltd. ("Sproule") as at December 31, 2010 for Legacy.  Reserves for Pierson are Legacy internal estimates prepared by a member of management who is a qualified reserves evaluator in accordance with National Instrument 51-101 effective December 31, 2010.  Gross Company Reserves means the Company's working interest reserves before the calculation of royalties, and before the consideration of the Company's royalty interests. (2)      Based on exit 2010 production.Legacy embarks on 2011 positioned with high quality light oil assets, an excellent balance sheet, significant opportunity inventory and dedicated people for continued aggressive and disciplined growth.ANNUAL GENERAL MEETINGLegacy's Annual General Meeting, is scheduled for 10:30 am on May 27, 2011 at The Petroleum Club, Devonian 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 ended December 31, 2010 and December 31, 2009 please visit our web site at www.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 3900, 205-5th Avenue SW, Calgary, Alberta, T2P 2V7. FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. More particularly, this press release contains statements concerning the year end debt to forward cash flow ratio, planned drilling and development activities in 2011, the anticipated reduction of operating costs at Taylorton, the timing of the completion of tie-in of Taylorton to the Enbridge pipeline and the potential conduct and results of waterflood projects at Taylorton, Heward and Frys/Antler.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 and development activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability of services and prevailing commodity prices and economic conditions. 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; 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), constraint in the availability of services, commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail herein and 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.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.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.For further information: Trent J. Yanko, P.Eng. President + CEOMatt Janisch, P.Eng. Vice-President, Finance + CFO     Legacy Oil + Gas Inc. 3900, Bow Valley Square II 205 - 5th Avenue SW Calgary, AB T2P 2V7Legacy Oil + Gas Inc. 3900, Bow Valley Square II 205 - 5th Avenue SW Calgary, AB T2P 2V7     Telephone: 403.441.2300 Fax: 403.441.2017Telephone: 403.441.2300 Fax: 403.441.2017