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Press release from CNW Group

Legacy Oil + Gas Inc. Announces Second Quarter 2012 Results

Thursday, August 09, 2012

Legacy Oil + Gas Inc. Announces Second Quarter 2012 Results18:49 EDT Thursday, August 09, 2012CALGARY, Aug. 9, 2012 /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 quarter ended June 30, 2012. 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   Six Months Ended  June 30   June 30 Unaudited (Cdn $000's, except per share amounts) 2012 2011 % change  2012 2011 % changeFinancial       Petroleum and natural gas sales, net of royalties 80,818 64,307 26 175,793 133,616 32Funds generated by operations (1) 47,424 40,498 17 107,989 84,382 28 Per share basic 0.33 0.28 18 0.75 0.61 23 Per share diluted (2) 0.33 0.28 18  0.75 0.59 27Net income (loss) (687) 6,885 (110) 590 4,031 (85)Per share basic - 0.05 (100)  - 0.03 (100)Per share diluted (2) - 0.05 (100)  - 0.03 (100)Capital expenditures (excluding acquisitions) 53,214 40,110 33 168,424 115,246 46Net acquisitions (cash consideration) (4) 4,874 1,507 223 4,904 99,878 (95)Net debt and working capital surplus (deficit) (1) (442,694) (254,310) 74  (442,694) (254,310) 74Operating       Production        Crude oil (Bbls per day) 11,3687,195 58 11,8697,99049 Heavy oil (Bbls per day) 197323 (39) 186324(43) Natural gas (Mcf per day) 13,54711,17621 13,23712,9542 Natural gas liquids (Bbls per day) 1,252 82152  1,4611,04740 Barrels of oil equivalent (Boe per day) (3) 15,075 10,20248 15,72311,520 36Average realized price        Crude oil ($ per Bbl) 82.42 101.25(19)  86.6292.93 (7) Heavy oil ($ per Bbl) 64.32 75.59(15) 72.7670.04 4 Natural gas ($ per Mcf) 2.30 4.16(45) 2.514.17 (40) Natural gas liquids ($ per Bbl) 59.50 72.02(17) 55.7167.35 (17) Barrels of oil equivalent ($ per Boe) (3) 70.01 84.16(17) 73.5477.23 (5)Netback ($ per Boe) (1)        Petroleum and natural gas sales 70.0184.16(17) 73.5477.23 (5) Royalties  11.0914.89(26) 12.10 13.15 (8) Operating expenses  14.3414.94(4) 14.87 14.62 2 Transportation expenses  3.422.9914 2.93 2.50 17Operating Netback ($ per Boe) (1) 41.1651.34(20)  43.64 46.96 (7)Undeveloped land holdings (gross acres)604,103639,263(6)  604,103639,263 (6) (net acres) 454,941484,104(6) 454,941484,104 (6)Common Shares (000's)       Common shares outstanding, end of period 143,309 142,860- 143,309142,860-Weighted average common shares (basic) 143,309 142,860- 143,309138,1064Weighted average common shares (diluted) (2) 143,883146,202(2) 144,590142,3772(1)     Management uses funds generated by operations, net debt and working capital surplus (deficit) and operating netback to analyze operating performance and leverage.  These terms, as presented, do not have a standardized meaning prescribed by International Financial Reporting Standards and therefore it may not be comparable with the calculation of similar measures for other entities.(2)     In calculating the net income (loss) per share diluted,  Legacy Oil + Gas Inc. ("Legacy" or the "Company") excludes the effect of outstanding stock options and share warrants outstanding and uses the weighted average common shares (basic) where the Company has a net loss for the period. In calculating, funds generated by operations per share diluted, the Company includes the effect of outstanding stock options and share warrants using the treasury stock method.  (3)     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.  (4)     For the three and six months ended June 30, 2012, the Company issued no common shares as part consideration for acquisitions (no common shares for the three months ended June 30, 2011 and 6.2 million common shares valued at $102.7 million for the six months ended June 30, 2011).   ACCOMPLISHMENTSDrilled 18 gross (14.5 net) light oil wells in the second quarter of 2012, with a 100 percent success rateIncreased average production from 10,202 Boe per day in the second quarter of 2011 to 15,075 Boe per day in the second quarter of 2012 (48 percent increase) without acquiring any production; increased crude oil and natural gas liquids weighting of production from 82 percent in the second quarter of 2011 to 85 percent in the second quarter of 2012Spearfish average well production results significantly above previous operator results and 2011 independent engineering report type curve due to the Company's drilling, completion design and production practicesTurner Valley average production rates are above the type curve used by the independent reserve evaluator in the most recent engineering report and continue to improveContinued to improve the Company's leading fracture stimulation design resulting in better production results in the Bakken at Taylorton and Star ValleyDemonstrated positive Bakken waterflood response at pilot projects in both Taylorton and HewardIncreased funds generated from operations from $40.5 million in the second quarter of 2011 to $47.4 million in the second quarter of 2012 (17 percent increase)Increased funds generated from operations per share (diluted) from $0.28 in the second quarter of 2011 to $0.33 in the second quarter of 2012 (18 percent increase), in spite of wider differentialsReduced operating costs from $15.36 per Boe in the first quarter of 2012 to $14.34 per Boe in the second quarter of 2012 (7 percent decrease)Legacy's banking syndicate increased the borrowing base from the previous $450 million to $525 millionOperations OverviewIn the second quarter of 2012, the Company drilled 18 (14.5 net) wells, all targeting light oil, with a 100 percent success rate.  This total included 4 (3.7 net) horizontal wells in its Spearfish play at Pierson.Spring break-up began mid-March and wet conditions pervaded well into June, limiting activity in the quarter.  However, the Company continues to be on track to meet its full year production guidance.SpearfishAt Pierson, Manitoba, the Company's drilling, completion design and production practices have continued to demonstrate superior results in the Spearfish compared to both the previous operator's production results and the type curve used in the 2011 year-end independent engineering report.  Production from 22 Legacy drilled wells to the end of the second quarter 2012 had a restricted 30 day average of 96 Bbls oil per day per well. Legacy has achieved these rates while constraining production to maximize ultimate recovery, leading to superior long term performance, higher per well reserve bookings plus additional locations booked.  Legacy has identified 210 net locations on its lands at Pierson, approximately 77 percent unbooked in the most recent independent reserves report.In North Dakota, the Company has had similar success in the Spearfish.  Legacy lands in Bottineau County represent a significant light oil development opportunity that has essentially been unbooked in the most recent independent reserves report.  Production to the end of the second quarter 2012 from eight Legacy drilled wells had a 30 day average of 86 Bbls oil per day per well. Legacy has achieved these rates while constraining production to maximize ultimate recovery, leading to superior long term performance, higher per well reserve bookings plus additional locations booked.Legacy has identified 230 net locations on the northern portion only of its lands in Bottineau County, approximately 97 percent unbooked in the most recent independent reserves report.  This location count could grow significantly as Legacy de-risks the opportunity on the southern portion of its lands over the coming years.The total Spearfish play development drilling inventory of 440 net potential locations (88 percent unbooked) is based on eight wells per section.  Based on other operators' results in the play, Legacy's location count could increase by 50 percent through downspacing.  In addition, the Company is evaluating the waterflood potential in the play and anticipates recovery factors of up to 14 percent, based on analogous pools.BakkenAt Taylorton, the pilot waterflood project has shown signs of waterflood response, with a flatter decline profile and increased bottom-hole pressure in the two offsetting producing wells.  This pilot waterflood could lead to incremental reserve bookings and lower production decline rates and a third well has been converted to injection in July 2012, with plans to continue to expand the pilot as results merit.At Heward, the pilot waterflood project initiated in December 2011 has already demonstrated waterflood response as the oil production rate in the six offsetting wells has increased since the commencement of the pilot.  Plans are underway for expansion of the pilot waterflood project in the latter part of 2012.Turner ValleyAt Turner Valley, Legacy's first five Rundle light oil horizontal wells had  90 day average production rates of 120 Boe per day per well, and a number of the wells continue to demonstrate decreasing water cuts and increasing oil rates, as expected.  In particular, the Boyd 1 well production rate continues to increase after being on production for more than four months.  Current production from this well is approximately 270 Boe per day, a dramatic increase from the well's 30 day initial rate of approximately 120 Boe per day.  This increasing production profile provides encouragement for similar results from other Turner Valley horizontal wells.Legacy has drilled two more wells in the Turner Valley area and completion operations are underway.  With an ongoing program, refinement of mud programs and bit selection, Legacy continues to improve its drilling performance in Turner Valley, leading to reduced capital costs. Legacy expects further drilling efficiency gains can be achieved in Turner Valley through ongoing operational refinements and implementation of fit for purpose rigs and equipment.Legacy plans to provide a type curve of Turner Valley drilling results when the Company has a statistically significant number of well results, expected before the end of the year.INCREASE TO BANK BORROWING BASELegacy's banking syndicate, led by BMO Capital Markets and including National Bank, the Bank of Nova Scotia, ATB Financial, Canadian Imperial Bank of Commerce, JP Morgan Chase Bank NA and the Toronto-Dominion Bank, increased the Company's borrowing base from the previous $450 million to $525 million.  The increase is a result of the Company's high netback light oil reserves, long reserve life and increased production over the past six months and continues to provide Legacy with the financial flexibility with which to conduct its operations.EVENTS AFTER THE REPORTING PERIODOn July 5, 2012, the shareholders of Bowood Energy Inc. ("Bowood"), a TSX-V corporation, approved the previously announced strategic transaction with Legacy whereby Legacy sold certain undeveloped land in southern Alberta to Bowood in exchange for 200,000,000 common shares of Bowood (the "Asset Purchase").Following completion of the Asset Purchase: (i) Bowood had 474,933,373 common shares outstanding, 42.1% of which were owned by Legacy; (ii) the former officers of Bowood resigned and were replaced by Trent Yanko as President and Chief Executive Officer, Matt Janisch as Vice-President, Finance and Chief Financial Officer and Mark Franko as Corporate Secretary; (iii) the board of directors of Bowood was reconstituted to be comprised of James Pasieka as Chairman, Trent Yanko, Chris Bloomer, Jim Welykochy and Neil Roszell; (iv) Legacy and Bowood entered into a management, technical and administrative services agreement ("Services Agreement") whereby Bowood will be managed by Legacy's current management team and staff, in exchange for a monthly fee; (v) the Bowood shareholders approved a proposed name change of Bowood to LGX Oil + Gas Inc. and a consolidation of the Bowood common shares on a 20 to 1 basis; (vi) on August 2, 2012, Bowood completed a brokered private placement of 120,000,000 units at a price of $0.05 per unit, each unit comprising one Bowood common share and one share purchase warrant entitling the holder to purchase one Bowood common share at a price of $0.065 per share for a period of three years; and (vii) Bowood announced the commencement of a rights offering pursuant to which holders of Bowood common shares as at July 26, 2012 will, in respect of each Bowood common share held, be issued one right with each ten rights entitling the holder to purchase one Bowood common share at an exercise price of $0.05 until the rights expire on August 17, 2012. Legacy has agreed not to participate in the rights offering with respect to the 200,000,000 Bowood common shares that it acquired on July 5, 2012 and will not be entitled to exercise, sell or convey any rights.  The name change and consolidation will be effective following the expiration of the Bowood rights offering on August 17, 2012.As a result of the Asset Purchase and the Services Agreement and in accordance with IFRS, Legacy obtains deemed control of Bowood.  Effective July 5, 2012, Legacy will consolidate Bowood in its own consolidated financial statements and disclose the remaining ownership not held by Legacy as non-controlling interest.  As at August 9, 2012, Bowood had 594,933,373 common shares outstanding, 33.6% of which were owned by Legacy.OUTLOOKLegacy's operational momentum and success has continued in 2012, with Legacy having drilled 67 gross (49.4 net) wells to-date, with a 100 percent success rate.  Continuous refinement of mapping, completion programs and production strategies has provided a number of positive results.Since the second quarter of 2011, Legacy has grown production 48 percent on an absolute and per share basis.  This was accomplished without a significant acquisition.  Our producing assets have performed favourably and our new production additions have met or exceeded our expectations.Our goal at Legacy is to deliver 10 to 15 percent per share growth per year, spending cash flow plus our 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 with more than 1,200 net locations for high net back, light oil production and reserves.In 2012, we are demonstrating better capital efficiencies compared to 2011 which will further improve economics and provide risk protection to our capital program.  Legacy has re-negotiated lower day rates for our contracted drilling rigs and has seen reduced costs for fracture stimulation services.Legacy's light oil assets and strong financial position not only provide downside mitigation in periods of lower commodity prices and volatility, as seen in the second quarter of 2012 where oil price differentials experienced higher than normal volatility through a period of rapid widening and contraction, but also provides upside torque to the continued operational success achieved in the past 12 months.A significant portion of the oil price differential widening can be attributed to pipeline and short term seasonal issues such as refinery maintenance coupled with supply and demand factors in the US PADD II market.  Current differentials have returned to more normal levels, although Legacy expects that near term price volatility will continue.Legacy is a uniquely positioned, well‐capitalized, 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 Toronto Stock Exchange under the symbol LEG.Forward-Looking Information - This press release contains forward-looking statements.  More particularly, it contains forward-looking statements concerning Legacy being on track to meet its full year production guidance, the initial productive capacity of wells at Pierson and Bottineau County, the effect of constraining initial production of wells at Pierson and Bottineau County on long-term well performance and future reserves bookings, the potential number of drilling locations associated with Legacy's Spearfish properties, the potential recovery rates achievable through waterflood of Legacy's Spearfish and Bakken properties, the potential of waterflood at Taylorton to increase reserves and lower production decline rates, anticipated gains in drilling and operating efficiency at Turner Valley, anticipated annual production growth in 2012, the sufficiency of internally generated cash flow, combined with available credit facilities, to fund planned capital expenditures, expected decreases in operating costs in 2012 and expected continuing volatility in price differentials.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, development and completion activities, the performance of existing wells, the performance of new wells, the viability of waterflood projects, the availability and performance of facilities and pipelines, the geological characteristics of Legacy's properties, the successful application of drilling, completion and seismic technology, prevailing weather conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements and 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.  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; 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, adverse weather conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects, waterflood projects or capital expenditures.  These and other risks are set out in more detail in this MD&A under the heading "Risk Assessment" and in Legacy's Annual Information Form for the year ended December 31, 2011, dated March 20, 2012.The forward-looking statements contained in this press release are made as of the date hereof and the Company 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. SOURCE: Legacy Oil + Gas Inc.For further information: Trent J. Yanko, P.Eng. President + CEO Legacy Oil + Gas Inc. 4400,525-8th Avenue SW Calgary, AB T2P 1G1 Telephone: 403.441.2300 Fax: 403.441.2017 Matt Janisch, P.Eng. Vice-President, Finance + CFO Legacy Oil + Gas Inc. 4400,525-8th Avenue SW Calgary, AB T2P 2V7 Telephone: 403.441.2300 Fax: 403.441.2017