Daylight Resources Trust

Daylight Resources Trust

November 26, 2008 21:52 ET

Daylight Resources Trust Announces Strategic Elmworth Property Acquisition-Transaction Creates Substantial Increase to Deep Basin Land and Drilling Inventory

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2008) - Daylight Resources Trust ("Daylight" or the "Trust") (TSX:DAY.UN) is pleased to announce a strategic transaction in our Elmworth core area. This acquisition increases our land, infrastructure and drilling inventory in our most active and successful area. Included in the transaction are 77 gross (58 net) sections of land with an average working interest of 75%, plus compression and pipeline infrastructure serving the existing 20 gross (14.6 net) producing wells. The majority of these lands have similar geological characteristics to our current Elmworth and our recently announced Bilbo farmin properties. While 75% of these lands are categorized as undeveloped we see substantial additional drilling potential on the developed acreage as well. The lands to be acquired are located either directly adjacent to Daylight's Elmworth land base or in the fairway between Elmworth and Bilbo. The acquisition includes approximately 1,000 boe/d of existing production, consisting of 92% natural gas and 8% natural gas liquids ("NGLs") with approximately 4.0 million barrels of oil equivalent ("boe") of Proved Plus Probable ("P+P") NI 51-101 compliant reserves evaluated by a third party engineering firm, representing a reserve life index of 11.0 years. Approximately 80% of these reserves are in the Total Proved category.

Transaction Rationale

This strategic transaction is an excellent fit with Daylight's current assets, technical expertise and counter-cyclical inventory building strategy which provides excellent value with tremendous upside potential for Daylight. Our existing Elmworth property has been the platform to demonstrate our technical expertise and the main driver of the Trust's continued strong operational results. As background to the sizeable opportunity generated by this transaction, prior to initiating our drilling program in Q3 2007, the Elmworth property was producing just over 100 boe/d and Daylight held 11 gross (4.8 net) sections of land. As of the end of October 2008, Elmworth has become Daylight's largest single producing property with production increasing dramatically to over 3,100 boe/d. This production increase was based on the successful drilling of 8 gross (7.2 net) horizontal wells with uphole zones completed. These wells targeted the Cadomin zone with the horizontal segment of the wellbore and multiple uphole Cretaceous zones in the vertical segment. Upon closing of this transaction, Daylight's production at the Elmworth property will exceed 4,100 boe/d and our land holdings, including land expected to be earned under farmin at Bilbo and Elmworth, will exceed 150 gross (92.8 net) sections.

Daylight's technical team has extensively analyzed the assets to be acquired through this transaction and has identified similar Cadomin and uphole Cretaceous potential across this land base. While additional activity is required to confirm our estimates, our analysis has identified the unrisked opportunity to develop up to 1 Tcf of potential natural gas on these and Daylight's existing lands. This includes nearly 50 gross (36 net) firm drilling locations and over 200 additional contingent locations identified on the acquired lands. This acquisition and our existing land base in the area provide an extensive depth of inventory for Daylight that is expected to provide meaningful production volume growth for the Trust in years to come. For the near-term, the Trust has identified 9 gross (9 net) uphole recompletion opportunities on existing producing wells that we believe will add approximately 750 boe/d of production during the first half of 2009 at a net cost of approximately $10 million. The land tenure on the acquired property does not require any additional capital expenditures to preserve the land base until late in 2010. This will allow the Trust to focus its capital program on the earning of lands under the previously announced Elmworth and Bilbo farmins and allow Daylight to capitalize the asset in an orderly and appropriate manner. Under the Elmworth and Bilbo farmins, drilling has already commenced on the first two of three earning wells at Elmworth and on the first of six earning wells at Bilbo.

Transaction Details and Metrics

At closing, expected to be on or about December 1, 2008, Daylight will pay $64.5 million for these assets with an effective date of December 1, 2008.

Based on Daylight's internal assessment of $12 million in value for the undeveloped lands and 3D seismic associated with this transaction, 1,000 boe/d of current production, 4.0 million boe of current P+P reserves and the anticipated addition of approximately 750 boe/d during the first half of 2009 through uphole recompletions (at a cost of approximately $10 million), the transaction metrics are as follows:

- $52,500 per current flowing boe/d,

- $35,700 per flowing boe/d subsequent to uphole recompletions, and

- $12.98 per current P+P boe of reserves.

Balance Sheet and Hedging Program

Daylight's balance sheet depth with significant available bank debt capacity allows the Trust to close this transaction with cash and remain very solid financially. As at September 30, 2008 Daylight had over $150 million of available capacity under our bank credit facility and we will utilize a portion of this capacity to close this property acquisition. At September 30, 2008 Daylight had less than $200 million drawn on our $350 million bank credit facility. Daylight's credit facility was reviewed and renewed at a $350 million borrowing base level with the unanimous support of our banking syndicate on October 31, 2008. This recently renewed borrowing base does not include any incremental borrowing base value for the assets related to this transaction or the West Central assets that we acquired on October 31, 2008 and the value related to these assets will be incorporated within our borrowing base during our next scheduled renewal which will occur on or before May 31, 2009.

Daylight's hedging program provides additional balance sheet stability with a significant portion of our 2009 production volumes covered by this program at favorable prices. On a combined boe/d basis, these hedges for 2009 cover approximately 47% of our anticipated exit 2008 production volumes including the volumes associated with the completion of this transaction.

Daylight has 3,000 bbl/d of crude oil hedged since August 1, 2008 to the end of December, 2009 (17 months) with a zero premium collar that has a minimum floor price of Cdn$110 per bbl WTI. Details of these crude oil hedges are as follows:

Type of Hedged
Contract Commodity Volume Hedge Price Hedge Period
Financial Aug 1/08 to
(Collar) (1) Crude oil 1,000 bbl/d Cdn$110.00 - $206.00/bbl Dec 31/09
Financial Aug 1/08 to
(Collar) (1) Crude oil 1,000 bbl/d Cdn$110.00 - $205.55/bbl Dec 31/09
Financial Aug 1/08 to
(Collar) (1) Crude oil 1,000 bbl/d Cdn$110.00 - $205.00/bbl Dec 31/09
Aug 1/08 to
Total 3,000 bbl/d Cdn$110.00 - $205.52/bbl Dec 31/09

(1) Collar price indicates floor (minimum) and ceiling (maximum).

Daylight has 50,000 GJ/d, equivalent to 47,400 mcf/d, of natural gas hedged from January 1, 2009 to the end of October, 2009 (10 months) at an average fixed price of $7.59 per GJ, equivalent to $8.00 per mcf at AECO. Details of these natural gas hedges are as follows:

Type of Hedged
Contract Commodity Volume (2) Hedge Price Hedge Period
(Swap) (1) Natural gas 10,000 GJ/d Cdn$7.59/GJ Jan 1/09 to Oct 31/09
(Swap) (1) Natural gas 5,000 GJ/d Cdn$7.63/GJ Jan 1/09 to Oct 31/09
(Swap) (1) Natural gas 35,000 GJ/d Cdn$7.58/GJ Jan 1/09 to Oct 31/09
Total 50,000 GJ/d Cdn$7.59/GJ Jan 1/09 to Oct 31/09

(1) Swap indicates fixed price.

(2) A GJ converts to a mcf at the rate of 1.055056 GJs per mcf.

Summary and Guidance

This highly synergistic acquisition increases our inventory of repeatable, low-geological risk drilling opportunities in the Elmworth area. Daylight's technical expertise and experience with horizontal drilling and multi-stage completion technologies is expected to generate sizeable reserve additions and new production within the Elmworth and Bilbo areas. Based on the addition of production on the anticipated closing date, Daylight now expects to exit 2008 at a production rate of over 23,000 boe/d but maintains capital guidance for 2008 at approximately $160 million excluding acquisitions and divestitures.

A revised corporate presentation describing this transaction will be available by November 27, 2008 on Daylight's website at


Forward Looking Statements: This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "believes", "expects", "intends", "projects", "plans", "anticipates", "positions", "potential", "objective", "continuous", "ongoing", "estimates" or "contains" or similar words or the negative thereof. In particular, this press release contains forward-looking statements relating to:

- anticipated closing of Elmworth property acquisition;

- the performance characteristics of Elmworth property acquisition;

- anticipated production and reserve additions together with related cost per boe and cost per flowing boe/d associated with Elmworth property acquisition;

- anticipated reserve life index;

- anticipated land holdings in Bilbo and Elmworth upon closing of transaction and earned under farmin;

- anticipated commencement and estimated net capital costs of recompletions on Elmworth property acquisition;

- anticipated drilling inventory of gross and net wells, prospects, drilling opportunities and upside following completion of Elmworth acquisition;

- anticipated hedging results and production hedged;

- estimated number of earning wells to be drilled on Elmworth and Bilbo farmin properties;

- anticipated incremental borrowing base value added upon Elmworth and West Central acquisitions;

- the transaction's fit, complement, synergy, value and upside potential for Daylight;

- the successful application of horizontal drilling and multi-stage completion technologies to the Elmworth acquisition properties; and

- anticipated production exit rate and capital guidance.

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 2008 and beyond 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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