Daylight Resources Trust

Daylight Resources Trust

January 15, 2008 22:26 ET

Daylight Resources Trust Announces 2008 Guidance, Q1 2008 Cash Distributions and Provides Q4 2007 Operational Update

2008 Cash Distributions and Capital Program Expected to Be Fully Funded by Internally Generated Funds From Operations

CALGARY, ALBERTA--(Marketwire - Jan. 15, 2008) -

Daylight Resources Trust (TSX:DAY.UN) ("Daylight") is pleased to provide operational and financial guidance for 2008 and also announces a monthly cash distribution of Cdn$0.10 per Trust Unit payable to Unitholders for each of the months of January, February and March 2008 based on our 2008 guidance, stable production volumes and existing hedging program. Daylight is also providing a fourth quarter 2007 operational update which includes hedging and tax pool information. Fourth quarter and full year 2007 financial and operating results are scheduled to be released on March 5, 2008.

2008 Guidance


- 2008 capital expenditure budget of $85 million to be invested in our inventory of repeatable, low risk exploitation projects.

- Farmouts totaling over $45 million committed on our attractive asset base by industry leading partners to contribute additional production and reserves at no cash cost to Daylight.

- Stable and reliable production - Daylight's assets are expected to deliver 20,000 to 20,500 barrels of oil equivalent ("boe") per day for 2008, weighted 43% to oil and natural gas liquids ("NGLs") and 57% to natural gas.

- Royalties and operating costs expected to remain stable at 19.5% of revenue and $12 per boe, respectively.

- Recent hedging activities lock in significant summer 2008 natural gas volumes at Cdn$7.15 per thousand cubic feet ("mcf") at AECO.

- 2008 cash distributions and capital program are expected to be fully funded by internally generated funds from operations.

- Tax pools of over $800 million and current safe harbour capacity for the issuance of $700 million of new equity provide significant flexibility to execute positive near term acquisitions that complement our depth of near, medium and long term opportunities in addition to positioning Daylight for significant success beyond 2011.

Capital Expenditures

The 2008 capital program reflects Daylight's continued investment in repeatable, low risk exploitation activities in each of our core areas. The majority of these activities follow up on our successful capital program executed during the latter half of 2007. Capital has been allocated to each of our core areas with the following geographic locations, geological zones and commodity targets:

Core Area 2008 Capital Geographic Geological Zone &
Allocation Location Commodity Target
Peace River Arch $50 million Elmworth Cadomin (Horizontal) - Natural
Cecil Kiskatinaw - Light Oil
West Central $25 million Pine Creek/ Cretaceous (Multi-zone) -
Kaybob Natural Gas
Sturgeon Leduc - Light Oil
Pembina Nisku - Light Oil
Red Earth Keg River - Light Oil
East & South $10 million Wildmere Lloydminster - Heavy Oil
& Colorado - Natural Gas
Sylvan Lake Edmonton - Natural Gas

Daylight expects to drill approximately 40 gross (31 net) wells and operate the drilling of 70% of these wells. Daylight has an identified inventory of approximately 400 to 500 drilling prospects for future development activity within our core areas which will be pursued over the next several years.

To continue building our development portfolio and maintain a competitive position in our core areas, Daylight has allocated $11 million for land, geological and geophysical expenditures during 2008.

In addition to the 2008 capital program, Daylight has also entered into multiple farmout commitments throughout 2007 with targeted and successful industry partners for a firm investment of over $45 million on our attractive asset base. With drilling success, rolling options may be exercised to further expand these farmout commitments on our lands. These commitments will result in Daylight receiving a carried working interest in new wells, with associated reserves and production, at no cash cost. These farmouts include a commitment by a leading industry partner to drill and complete at least seven wells to approximately 3,200 meters total depth in our West Central area at Obed, Medicine Lodge, Oldman and Fir. These wells are committed to be drilled by March 31, 2008 with estimated total expenditures of approximately $25 million. Daylight will retain 40% of its original interest in each of these new wells at no cash cost.

In addition to the capital expenditure program, Daylight also expects asset retirement expenditures of approximately $5 million to be incurred during 2008.

Production Volumes

Production volumes are expected to average between 20,000 and 20,500 boe per day during 2008 with the rate remaining relatively consistent throughout the year. The depth and diversity of our asset base allows a significant allocation of capital to our light and heavy oil programs. This allocation provides targeted balance to the composition of our 2008 production volumes which are expected to be derived approximately 43% from liquids (light oil, heavy oil and NGLs) and 57% from natural gas.


Daylight expects combined royalty rates of approximately 19.5% of revenue (prior to the impact of hedging) during 2008.

Operating costs will continue to be actively managed through several cost saving initiatives that continue to be developed and implemented by our staff of dedicated professionals. Daylight expects operating costs of approximately $12.00 per boe during 2008.

Daylight actively manages the marketing of our commodities to obtain the highest available price for our production and to pursue opportunities which enhance economics and provide financial certainty whenever possible. Daylight also manages the related transportation of our commodities and expects 2008 transportation expenses to be approximately $1.00 per boe.

Daylight is actively engaged in managing and operating its assets with a team of high-end technical and business execution professionals. Investing in these teams is necessary to generate value through our prospect inventory, play development, technical operations and production management. Daylight expects cash general & administrative charges of approximately $2.00 per boe during 2008.

Daylight has budgeted cash financial charges based on an estimated realized interest rate of 6.0% for our bank debt and 8.5% for our convertible debentures outstanding which results in cash financial charges of approximately $3.40 per boe. Daylight expects to incur no cash taxes during 2008.

2008 Guidance Summary

Capital Expenditures (millions)

Land, geological and geophysical $ 11
Drill, complete and recomplete 54
Equipping and facilities 20
Total $ 85

Production Volumes

Average daily production (boe/d) 20,000 to 20,500
Mid point of guidance:
Natural gas (mcf/d) 69,300
Light oil (bbls/d) 5,500
Heavy oil (bbls/d) 2,200
NGLs (bbls/d) 1,000
Oil & NGLs (bbls/d) 8,700
Combined (boe/d) 20,250


Royalties (% of revenue) 19.5%
Operating expenses (per boe) $ 12.00
Transportation (per boe) $ 1.00
General & Administration charges - cash (per boe) $ 2.00
Cash financial charges (per boe) $ 3.40
Cash taxes (per boe) $ 0.00


Daylight's high-end technical team integrates and emphasizes our exploitation, reservoir engineering, production optimization, geological and geophysical expertise to identify and capture reserves and production addition opportunities for the delivery of long term value creation to our Unitholders. Our team has developed a multi-year inventory of repeatable, low risk exploitation projects with significant potential reserve additions on assets we currently own and control. This inventory includes significant near term prospects and medium to long term opportunities across our high quality asset base, which target both oil and natural gas within the following geographic locations and geological zones:

Near-Term Prospects

Commodity Geographic Location Geological Zone
Oil Wildmere Lloydminster
Cecil Kiskatinaw
Sturgeon Leduc
Pembina Nisku
Red Earth Keg River
Freeman Beaverhill Lake
Natural Gas Elmworth Cadomin (Horizontal)
Pine Creek/Kaybob Cretaceous (Multi-zone)
Wildmere Colorado
Sylvan Lake Edmonton

Medium to Long-Term Opportunities

Commodity Geographic Location Geological Zone and Opportunity
Oil Sturgeon Leduc - CO2 enhanced recovery of
large Original Oil In Place ("OOIP")
Wildmere Lloydminster - Enhanced recovery of
large OOIP
Natural Gas Medicine Lodge/Obed Cretaceous (Multi-zone) - Resource
Sylvan Lake Coal Bed Methane - Resource Play

Daylight's depth of prospects and opportunities across all commodities provides the ability to modify our production commodity mix over time while maintaining our expectation of stable and predictable production volumes, funds from operations and monthly cash distributions for the benefit of our Unitholders. Daylight targets sustainability of our operations and expects to maintain our production volumes at relatively consistent levels through the full replacement of our produced reserves with new reserve additions by way of investment in our organic capital program.

Based on Daylight's 2008 guidance, our assets are expected to generate funds from operations that will meet or exceed our capital expenditures budget and our current monthly distribution level of $0.10 per Unit per month. Daylight does not expect to issue any equity in lieu of cash distributions under our distribution reinvestment program during 2008 as we consider this to be dilutive and not in the best interests of our Unitholders at this time. The current twelve month forward strip price for crude oil is approximately US$90 per barrel WTI and for natural gas is approximately Cdn$7.60 per mcf at AECO. This pricing in conjunction with the current exchange rate of US$0.98 per Cdn$1.00 and our 2008 guidance, including the impact of our current hedging contracts, is forecast to provide approximately $220 million ($2.80 per Unit) of funds from operations. Daylight's current expected use of funds for 2008 totals $185 million and includes cash distributions of approximately $95 million ($0.10 per Unit per month, a 43% payout ratio as compared to funds from operations), a capital expenditure budget of $85 million and expected asset retirement expenditures of $5 million for the 2008 year. This expected generation of funds from operations in excess of cash distributions, capital expenditures and asset retirement expenditures should provide significant financial flexibility for Daylight and allows a strong degree of security for our cash distribution level and capital expenditure funding. Financial flexibility has been further secured by a significant hedging program for our 2008 summer natural gas production. The generation of excess funds is expected to be initially applied to the reduction of our bank debt which will increase our available financing to potentially execute acquisition transactions.

Daylight's highly skilled and proven business execution professionals are working closely with our high-end technical teams as we actively pursue multiple value-add acquisition opportunities for execution during 2008. Daylight is very well positioned to acquire additional high quality oil and natural gas assets given our strong performance through the latter stages of 2007. Daylight's abilities are further enhanced by our strong and sustainable outlook for 2008, our valuable tax pools which exceed $800 million and our current safe harbour capacity to issue $700 million of new equity while remaining a distribution paying Trust entity. The current challenging environment for the oil and natural gas sector provides an attractive opportunity to acquire additional assets at significantly better metrics than have occurred in recent years. Daylight expects to be a consolidator of oil and gas entities throughout 2008 and beyond. Our 2008 guidance does not include the impact of any acquisition activities and Daylight would expect to modify our guidance in situations where significant acquisitions are announced.

Daylight's updated January 2008 corporate presentation is posted and available on our website at

Cash Distributions

Daylight is providing a first quarter 2008 cash distribution to Unitholders of $0.10 per Unit per month based on our 2008 guidance, stable production volumes and existing hedging program as follows:

Record Date Ex-Distribution Distribution Distribution Per
Date Payment Date Unit
January 31, 2008 January 29, 2008 February 15, 2008 $0.10
February 29, 2008 February 27, 2008 March 17, 2008 $0.10
March 31, 2008 March 27, 2008 April 15, 2008 $0.10

Fourth Quarter 2007 Operational Update

Exit production volumes for December 2007 were approximately 20,500 boe per day and establish a solid entry point for Daylight in 2008. Over 40 Daylight technical professionals developed the 2008 capital program which is designed to create significant value for our Unitholders as Daylight continues to maintain a strong focus on our operations and production levels.

During the fourth quarter of 2007, Daylight's average production volumes are estimated at 20,500 boe per day. Daylight's bank debt at the end of 2007 was approximately $255 million on our $300 million credit facility which results in approximately $45 million of undrawn and available funds at year end.

Hedging Summary

Daylight provides downside risk protection to realized commodity prices through its hedging program with the objective of providing a level of cash flow certainty for the benefit of Unitholders. Daylight's hedging program is focused on natural gas during the summer season as this is our most significant commodity price exposure and perceived season of potentially low prices. The hedging program is designed to reduce exposure to commodity price downside during periods of expected potential downside while maintaining exposure to commodity price upside in periods of potentially higher prices.

Daylight has hedged 50,000 gigajoules ("GJs") per day (47,400 mcf per day) of natural gas production for the summer months of April 2008 through to the end of October 2008. This volume represents approximately 68% of Daylight's budgeted 2008 natural gas production volumes for these summer months or approximately 40% of Daylight's budgeted full year 2008 natural gas production volumes. These hedges provide an average fixed price at AECO of $6.77 per GJ ($7.15 per mcf) during the summer months of April through to the end of October 2008.

Daylight may consider entering into additional hedging transactions throughout 2008. As at January 15, 2008, Daylight has the following commodity derivatives in place:

Hedged Hedged
Type of Hedged Price Price Hedged
Contract Commodity Amount (1) (Cdn$/GJ) (Cdn$/mcf) Period
Financial - Natural Apr 1/08 to
Fixed Price Gas 20,000 GJs/d Cdn$6.64/GJ Cdn$7.00/mcf Oct 31/08

Financial - Natural Apr 1/08 to
Fixed Price Gas 10,000 GJs/d Cdn$6.70/GJ Cdn$7.07/mcf Oct 31/08

Financial - Natural Apr 1/08 to
Fixed Price Gas 5,000 GJs/d Cdn$6.74/GJ Cdn$7.11/mcf Oct 31/08

Financial - Natural Apr 1/08 to
Fixed Price Gas 5,000 GJs/d Cdn$6.75/GJ Cdn$7.12/mcf Oct 31/08

Financial - Natural Apr 1/08 to
Fixed Price Gas 5,000 GJs/d Cdn$7.14/GJ Cdn$7.53/mcf Oct 31/08

Financial - Natural Apr 1/08 to
Fixed Price Gas 5,000 GJs/d Cdn$7.17/GJ Cdn$7.56/mcf Oct 31/08
TOTAL - Natural Apr 1/08 to
Fixed Price Gas 50,000 GJs/d Cdn$6.77/GJ Cdn$7.15/mcf Oct 31/08
(average) (average)
(1) GJs convert to Mcf at a rate of 1.055056 GJs per mcf.

Tax Pools

As at September 30, 2007, Daylight and it subsidiaries had combined tax pools of approximately $804 million. These tax pools are of high value since they reside primarily at the corporate level where income is generated and significant balances are available for high rates of annual claim. These tax pool annual claim rates include Canadian exploration expense at 100%, non-capital losses at 100%, Canadian development expense at 30% and undepreciated capital cost at approximately 25%. Fourth quarter 2007 activities are expected to maintain Daylight's tax pool balances at approximately this same level for December 31, 2007. With the announced changes to the taxation of Trusts, these tax pools provide Daylight with significant flexibility going forward and beyond 2011.

(000s) Corporate Level Trust Level Combined
Canadian exploration expense $ 67,000 $ - $ 67,000
Canadian development expense 291,000 - 291,000
Canadian oil and gas property
expense 30,000 76,000 106,000
Undepreciated capital cost 289,000 - 289,000
Non-capital losses 38,000 - 38,000
Share and Unit issue costs 2,000 11,000 13,000
Total $ 717,000 $ 87,000 $ 804,000

Safe Harbour

As at January 1, 2008, Daylight estimates that it has $700 million of safe harbour for the issuance of new equity as a Trust. This amount is estimated to increase by $200 million per year at the beginning of each of the following two years which provides Daylight with approximately $1.1 billion of transaction capacity as a Trust to acquire assets and other operating entities. This aggregate safe harbour capacity for the issuance of new equity is nearly twice the amount of our current market capitalization of approximately $600 million and provides very significant capacity to increase the size of Daylight's operations.

Daylight Resources Trust is a Calgary-based, open-ended, unincorporated investment trust with a high quality balanced natural gas and crude oil property base, extensive prospect inventory and large undeveloped land base that is managed by a team of highly skilled technical professionals. Daylight's properties include focused high potential assets in the Peace River Arch and West Central Alberta complemented by stable production and repeatable opportunities in Southern and Eastern Alberta. Daylight's prospect inventory is balanced across natural gas and crude oil with near, medium, long-term and high impact opportunities that will generate significant increased value into the future. Daylight's large undeveloped land base will provide additional opportunities to create value through our highly skilled technical teams as well as through selective farm out's to targeted industry partners. Daylight has approximately 78 million Trust Units currently outstanding.


Forward Looking Statements: This press release contains forward-looking statements as to the internal projections, expectations, estimates or beliefs relating to future events or future performance of Daylight Resources Trust ("Daylight"), including Daylight's guidance for 2008 and the amount and type of 2008 budgeted capital expenditures set forth herein. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "believes", "expects", "intends", "projects", "plans", "anticipates", "estimates" or "contains" or similar words or the negative thereof. These statements represent management's expectations or beliefs concerning, among other things, future capital expenditures and future operating results and various components thereof or the economic performance of Daylight and include, without limitation, statements with respect to the future financial position, business strategy, budgets, projected costs and plans, objectives of or involving Daylight or any of its respective affiliates; amounts to be retained by Daylight for growth; the amount and timing of the payment of distributions of Daylight; payout ratios; access to credit facilities; capital taxes; income taxes; commodity prices; administration costs; commodity price risk management activities; expectation of future production rates and components of cash flow and earnings. Actual events or results may differ materially. The projections, estimates and beliefs contained in such forward-looking statements are based on management's estimates, opinions and assumptions at the time the statements were made including assumptions relating to the production performance of Daylight's oil and gas assets, the cost and competition for services throughout the oil and gas industry in 2007 and 2008 and the continuation of the current regulatory and tax regime in Canada, and necessarily involve known and unknown risks and uncertainties which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. Daylight does not undertake to update any forward-looking information contained in this press release whether as to new information, future events or otherwise except as required by securities rules and regulations.

Barrels of Oil Equivalency: Barrels of oil equivalent (BOE's) may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio for natural gas of 6 Mcf:1bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.


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