Daylight Energy Ltd.

Daylight Energy Ltd.

January 11, 2011 02:01 ET

Daylight Energy Announces 2011 Guidance, Q1 2011 Dividends and Provides Q4 2010 Operational Update- Daylight Focused on Organic Oil & Liquids Production Growth for 2011

CALGARY, ALBERTA--(Marketwire - Jan. 11, 2011) - Daylight Energy Ltd. (TSX:DAY) ("Daylight" or the "Corporation") is pleased to provide operational and financial guidance for 2011. Daylight continues to provide a consistent and attractive monthly cash return while implementing a focused and growth-oriented capital program in 2011. This capital program is expected to provide growth in overall production with an emphasis on developing our extensive inventory of oil and liquids rich natural gas resource plays. Our balance sheet will continue to provide Daylight with stability and financial flexibility as our 2011 budget targets balancing our cash inflows with our capital program and dividend commitments. Daylight targets to provide a two-tiered sustainable return for our shareholders including both a meaningful dividend and organic growth in our reserves, production and oil weighting. Daylight successfully executed our conversion to a corporation in May 2010 and is now established as a leading Canadian intermediate oil and gas producer with significant internal growth potential. Results from our 2010 capital program provide confirmation of the tremendous potential of our core Deep Basin assets as highlighted by our recently announced major reserve additions. Very strong drilling results were experienced during Q4 2010 over a number of diverse plays including: our Pembina Cardium light oil development, our emerging liquids rich Montney resource play in Wapiti and our suite of West Central and Peace River Arch resource plays including the Nikanassin, Cadomin, Bluesky and Wilrich zones.

Daylight is also pleased to announce that our Q1 2011 monthly cash dividend to shareholders will be maintained at our Q4 2010 level of Cdn$0.05 per share per month. Dividends continue to be an important component of our two-tiered sustainable return to shareholders. Daylight's intent is to sustain these dividend payment levels for the full 2011 year and beyond, under reasonable commodity price assumptions, as we target growth in per share cash flow.

An operational update of Daylight's very active and successful Q4 2010 is included in this release with our full year 2010 and Q4 2010 financial and operating results scheduled to be released on or about March 2, 2011.


- Daylight plans to execute a capital budget of $250 million during 2011. Our capital program will be invested in our core Deep Basin portfolio of assets with a focus on light oil and liquids rich gas opportunities. Daylight's 2011 drilling program will continue to use and improve upon our successful horizontal drilling techniques and innovative completion technologies that significantly contributed to our 2010 operational success.

- Daylight's current asset base and 2011 capital program are expected to deliver average production of 42,000 to 42,500 boe per day for 2011, net of approximately 3,800 boe per day of non-core production sold over the course of 2010. This represents overall growth in total production of approximately 3% with stronger growth of over 11% in oil and NGL production due to the emphasis on these commodities in the 2011 capital program. Production is expected to be weighted approximately 45% to oil and natural gas liquids ("NGLs") and 55% to natural gas by Q4 2011, as Daylight continues to emphasize our large inventory of oil and liquids weighted drilling and development opportunities which generate superior cash flow on a per boe basis at current commodity price levels. Production will increase from our 2011 entry point of approximately 41,500 boe per day by approximately 500 boe per day per quarter, increasing our oil and liquids production weighting by approximately 1% per quarter. This highlights the capacity of Daylight, with our large inventory of development drilling opportunities, to internally manage our production and capital commodity mix consistent with actual commodity price changes.

- Daylight expects to drill approximately 70 wells during 2011, with 36 drilled for light oil in our Pembina core area, primarily targeting the Cardium zone but also the Belly River and Nisku zones. The Corporation is also planning to drill a minimum of 4 wells targeting the liquids rich Montney gas play in Wapiti plus an additional 9 wells to further develop and delineate our resource play gas opportunities in Elmworth, including the Nikanassin and Cadomin zones. In our liquids rich West Central core area, Daylight plans to drill 17 wells following up on very successful 2010 drilling in the Bluesky, Cardium and Wilrich zones.

- Daylight's operating costs are expected to continue to improve to approximately $9.50 - $9.90 per boe for 2011 as compared to $10.42 per boe reported for YTD Q3 2010.

- Daylight had approximately $280 million of bank debt drawn against our $625 million credit facility at December 31, 2010 which provides significant financial flexibility to the Corporation.

- Daylight has approximately $1.6 billion of high claim rate tax pools at year-end 2010 which provide significant flexibility and shelter from cash taxes for 2011 and years beyond.


- Daylight's 2010 capital program delivered significant well results in a number of our different resource play opportunities. At Pembina, 4 (3.8 net) additional Cardium horizontal wells were placed on production during Q4. Our 30 day average initial calendar day production rate excluding completion fluids is currently 228 boe per day, above our type curve rate used in our economic analysis of 200 boe per day. In addition, 8 (6.9 net) wells were spud during Q4 2010, bringing our total number of wells drilled into this play to 28 (25.8 net) for 2010.

- In Wapiti, Daylight placed our first horizontal liquids rich Montney gas well on production late in December and attained an initial production rate of 7 mmcf per day, in line with recent adjacent competitor activity. Initial natural gas liquids production rates appear to be in excess of 50 bbls per mmcf at the wellhead and an estimated 90 bbls per mmcf including deep cut processing, also in line with recent competitor activity.

- During Q4, Daylight drilled several significant wells in Elmworth, our key resource play natural gas area. Of particular note are two vertical Nikanassin wells, with initial production rates of 5 and 6 mmcf per day. Daylight plans to follow up these successful tests with two horizontal Nikanassin wells and five additional vertical wells in 2011. Also of note are our two most recent horizontal Cadomin wells in the Elmworth area, with initial production rates of 4 and 7 mmcf per day.

- Daylight's most recent liquids rich Bluesky gas well in our West Central core area attained an initial production rate of 5 mmcf per day with an associated liquids rate of approximately 50 bbls per mmcf. Also in West Central, Daylight participated in another successful Wilrich well with an initial production rate of over 6 mmcf per day.

- During Q4 2010, Daylight divested approximately 1,500 boe per day and experienced third party downtime and delays with an additional impact of approximately 1,500 boe per day on the quarter. As a result, Daylight's field estimate for Q4 2010 production is approximately 40,500 boe per day. With our previously announced dispositions closed in 2010 and our third party downtime and delays resolved, Daylight enters 2011 with production of approximately 41,500 boe per day.

- During Q4 2010, Daylight invested approximately $10 million to obtain significant undeveloped land positions in two emerging oil resource plays within our core areas. This investment was in addition to our budgeted $325 million 2010 capital program.

- During Q4 2010, Daylight closed our previously announced dispositions of approximately 1,500 boe per day of non-core production for net proceeds of approximately $66 million, inclusive of closing adjustments and fees. We also sold our entire non-core financial investment in asset backed securities, Bengal Energy Ltd. and Midway Energy Ltd. for net proceeds of approximately $27 million. At December 31, 2010 Daylight continued to hold our non-core financial investment in Gear Energy Ltd. Daylight considers this investment available for disposition. Daylight also recognized other income of approximately $17 million related to our net share of royalty program recoveries (consistent with Q2 2010). As a result of these items, Daylight's bank debt at December 31, 2010 was approximately $280 million and our estimated year-end working capital deficiency was approximately $150 million.


Capital Expenditure Program

Daylight's 2011 capital expenditure program focuses on our repeatable, low risk resource play drilling and development opportunities in each of our three core areas. Particular emphasis has been placed on liquids weighted opportunities, with 60% of our capital targeting light oil, 20% targeting liquids rich natural gas and the remaining 20% targeting delineation of resource play natural gas. Capital has been allocated to our core areas with the following geographic locations, geological zones and commodity targets:

2011 Capital Geographic Geological Zone & Commodity
Core Area Allocation Location Target
Pembina $150 million Pembina Cardium (Horizontal) - Light
Brazeau Belly River (Horizontal) -
Light Oil
Tomahawk Nisku (Vertical) - Light Oil
Warburg Cretaceous (Multi-zone) -
Liquids Rich Natural Gas
West Central $ 30 million Pine Creek Bluesky (Horizontal) -
Liquids Rich Natural Gas
Kaybob Cardium (Horizontal) -
Liquids Rich Natural Gas
Obed Wilrich (Horizontal) -
Liquids Rich Natural Gas
Medicine Cretaceous (Multi-zone) -
Lodge Liquids Rich Natural Gas
Marlboro Montney (Horizontal) -
Liquids Rich Natural Gas
Elmworth $ 70 million Elmworth Montney (Horizontal) -
Liquids Rich Natural Gas
Jackpine Cadomin (Horizontal) -
Natural Gas
Wapiti Nikanassin (Horizontal) -
Natural Gas
Uphole Cretaceous (Multi-
zone) - Natural Gas
Total $250 million (1)

(1) Net of drilling credits

In addition to the capital expenditure program, Daylight also expects asset retirement expenditures of approximately $6 million to be incurred during 2011.


Daylight intends to fully fund our 2011 capital program and dividend payments with our estimated funds from operations and the disposition of our remaining non-core financial assets during 2011. Daylight's balance sheet provides significant capacity and flexibility, with approximately $280 million of bank debt currently drawn against our $625 million credit facility at December 31, 2010.

The Corporation has declared a Cdn$0.05 per share monthly dividend for Q1 2011. Dividends continue to be an important component of our two-tiered sustainable return to shareholders. Daylight intends to sustain these dividend payment levels well into the future, under reasonable commodity price assumptions, as we target growth in per share cash flow over time. With a focus on increasing cash flow per share, our payout ratio should improve and further secure Daylight's dividend payment stability.

Daylight's 2011 budget is based on an exchange rate of US$1.00 per Cdn$1.00 and commodity prices of US$90.00 per barrel WTI for light oil and Cdn$4.00 per mcf AECO for natural gas which are consistent with the current 2011 forward strip commodity prices.

Daylight expects operating costs of approximately $9.50 - $9.90 per boe during 2011. This represents an improvement from our YTD Q3 2010 operating costs of $10.42 per boe primarily due to the internal cost reduction initiatives and the focusing of our production within our core operating areas.

Daylight expects an overall royalty rate of approximately 25% of revenue during 2011 based on the above noted commodity prices.

Daylight directly controls 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. Daylight also manages the related transportation of our commodities and expects 2011 transportation expenses to be approximately $0.70 per boe.

Daylight continues to actively manage our assets with a team of highly skilled technical and business execution professionals. Investing in these teams generates value through our prospect inventory, play development, technical operations and production growth. Daylight expects 2011 cash general and administrative expenses of approximately $2.25 per boe which includes the creation, in late 2010, of a New Ventures team dedicated to internally developing and acquiring early stage resource plays with a meaningful footprint at a low entry cost.

Daylight expects cash financial charges based on all in credit facility costs (including bank stamping, standby and renewal fees) to result in a realized interest rate of approximately 4.75% on our bank debt, 10.0% on our Series C convertible debentures and 6.25% on our Series D convertible debentures which results in cash financial charges of approximately $2.60 per boe.

Hedging Summary

Daylight's hedging program protects our funds from operations and provides financial stability with a sizeable portion of our 2011 production volumes covered by this program at favorable prices.

Daylight has approximately 4,000 barrels per day of crude oil hedged for calendar 2011 with an average price of Cdn$90.78 per barrel WTI. Details of these crude oil hedges are as follows:

Type of Hedged
Contract Commodity Volume Hedge Price Hedge Period
(Swap) (1) Crude oil 1,000 bbl/d US$90.00/bbl Jan 1/11 to Dec 31/11
(Swap) (1) Crude oil 2,000 bbl/d US$90.06/bbl Jan 1/11 to Dec 31/11
(Swap) (1) Crude oil 1,000 bbl/d US$93.00/bbl Feb 1/11 to Dec 31/11

Daylight has 45,000 GJ per day, equivalent to 42,650 mcf per day, of natural gas hedged from January 1, 2011 to March 31, 2011 at an average fixed price of $5.69 per GJ, equivalent to $6.00 per mcf 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 5,000 GJ/d Cdn$5.72/GJ Jan 1/11 to Mar 31/11
(Swap) (1) Natural gas 30,000 GJ/d Cdn$5.69/GJ Jan 1/11 to Mar 31/11
(Swap) (1) Natural gas 10,000 GJ/d Cdn$5.695/GJ Jan 1/11 to Mar 31/11

(1) Swap indicates fixed price.

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


Capital Expenditures (millions)
Land, geological and geophysical $ 20
Drill, complete and tie-in (net of drilling credits) 215
Facilities 15
Total $250

Production Volumes
2011 annual average daily production (boe/d) 42,000 to
2011 mid point of annual average guidance:
Natural gas (mcf/d) 142,500
Light oil (bbls/d) 14,900
NGLs (bbls/d) 3,600
Oil & NGLs (bbls/d) 18,500
Combined (boe/d) 42,250

Royalties (% of revenue) 25% (1)
Operating expenses (per boe) $9.50 - $9.90
Transportation expenses (per boe) $0.70
Cash general & administration expenses (per boe) $2.25
Cash financial charges (per boe) $2.60

(1) Based on commodity prices for 2011 of US$90.00 per barrel WTI for light oil and Cdn$4.00 per mcf AECO for natural gas with an exchange rate of US$1.00 per Cdn$1.00.

Cash Dividends

Daylight maintains a Q1 2011 cash dividend to shareholders of Cdn$0.05 per share per month based on our 2011 guidance as follows:

Dividend Payment Dividend
Record Date Ex-Dividend Date Date Per Share
January 31, 2011 January 27, 2011 February 15, 2011 Cdn$0.05
February 28,2011 February 24, 2011 March 15, 2011 Cdn$0.05
March 31, 2011 March 29, 2011 April 15, 2011 Cdn$0.05

(i) The dividend is considered an "eligible dividend" for tax purposes.

Daylight expects to pay a sustainable dividend on a monthly basis, provided however that any decision to pay dividends on the common shares will be made by the Board of Directors on the basis of Daylight's funds from operations, earnings, financial requirements, commodity price levels, legal requirements and other conditions existing at such future times. Daylight currently intends to designate all dividends to be "eligible dividends" for the purposes of the Income Tax Act (Canada) such that shareholders who are individuals will benefit from the enhanced gross-up and dividend tax credit mechanism under the Income Tax Act (Canada).

Daylight is a growing intermediate oil and natural gas producing company with a high quality suite of resource play assets in Western Canada. Our highly focused team utilizes our technical expertise in exploitation, development, and acquisitions to create long-term value for our shareholders. Our team has developed a multi-year inventory of repeatable, low risk exploitation resource play projects with substantial potential reserve additions on assets we currently own and control in the premier Pembina Cardium light oil fairway and in the premier Deep Basin area of Alberta and British Columbia.

Daylight has approximately 210 million common shares outstanding which trade on the TSX under the symbol DAY. Daylight Series C and D convertible debentures trade on the TSX under the symbols DAY.DB.C and DAY.DB.D, respectively.

An updated corporate presentation is available on Daylight's website at


Forward-Looking Information and Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking statements or information. More particularly and without limitation, this press release contains forward-looking statements and information concerning: anticipated financial stability and flexibility during 2011; Daylight's 2011 capital program, including allocation of expenditures associated therewith; Q1 2011 dividend levels and dividend levels for the balance of 2011 and beyond; anticipated 2011 growth in production, cash flows, reserves, and liquids weighting; anticipated dispositions of additional non-core assets, including financial assets, during 2011; expectations regarding the number of wells to be drilled during 2011 and the allocation of Daylight's 2011 capital budget thereto; anticipated operating costs, on a per barrel basis, for 2011; estimated initial production rates associated with Daylight's planned drilling and development activities; estimated liquids volumes associated with Daylight's Wapiti Montney well brought on production in late December 2010; field estimates regarding Q4 2010 production volumes; estimated commodity prices and exchange rates for 2011 and beyond; estimated cash flow per share, payout ratio and royalty rates for 2011; anticipated transportation expenses and cash general and administrative expenses on a per barrel basis for 2011; and the anticipated record date and payment date in respect of Q1 2011 dividends on Daylight's common shares.

The forward-looking statements and information in this press release are based on certain key expectations and assumptions made by Daylight, including but not limited to expectations and assumptions concerning: prevailing and future commodity prices and exchange rates; applicable royalty rates and tax laws; future production rates; the performance of existing and future wells; application of existing technologies and future advancements in technology to Daylight's operations and drilling activities; the success obtained in drilling new wells; the inventory of new drilling locations; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labor and services, including but not limited to completion equipment and services; adequate weather and environmental conditions for drilling and completion activities, including transportation of associated equipment; the receipt, in a timely manner, of regulatory and third party approvals; Daylight's ability to negotiate acceptable terms of sale for non-core assets, including financial assets, and market demand therefore; and the receipt of required regulatory and other third party approvals for such dispositions.

Although Daylight believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Daylight can give no assurance that they will prove to be correct. There is no representation by Daylight that actual results achieved during the periods identified in this press release will be the same in whole or in part as those forecast.

Since forward-looking statements and information 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 the risks associated with the oil and gas industry in general such as: 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 and resource (including original oil in place) estimates; the uncertainty of estimates and projections relating to production, costs and expenses; health, safety and environmental risks; risks associated with weather and the impact on drilling and completion activities and the transportation of associated equipment; commodity price and exchange rate fluctuations; marketing and transportation of petroleum and natural gas and loss of markets; environmental risks; competition; risks associated with utilizing existing technologies and future technological advancements in Daylight's operations and drilling activities; failure to realize the anticipated benefits of acquisitions; risks regarding the integration of acquired entities and assets; incorrect assessment of the values of acquisitions; Daylight's ability to negotiate acceptable terms for non-core assets, including financial assets, being marketed; Daylight's ability to obtain all third party and regulatory approvals necessary to dispose of such assets; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other third party approvals; and changes in legislation, including but not limited to tax laws, royalty rates and environmental regulations. Readers are cautioned that the foregoing list of risk factors is not exhaustive. Additional information on these and other factors that could affect the business, operations or financial results of Daylight are included in reports on file with applicable securities regulatory authorities, including but not limited to Daylight Energy Ltd.'s Annual Information Form for the year ended December 31, 2009 and Daylight Energy Ltd.'s Notice of Annual and Special Meeting and Information Circular and Proxy Statement dated April 7, 2010, each of which may be accessed on Daylight Resources Trust's (the predecessor to Daylight) SEDAR profile at

This press release also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about prospective and potential operating and financial results of Daylight during 2011 and beyond, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. The FOFI contained in this press release was made as of the date of this press release and was provided for the purpose of giving a general overview of management's expectations regarding the anticipated results of Daylight's planned 2011 operations and capital expenditures, and management's expectations regarding sustainability of future dividends on the common shares. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein as such information may not be appropriate for other purposes.

The forward-looking statements and FOFI contained in this press release are made as of the date hereof and Daylight undertakes no obligation to update publicly or revise any forward-looking statements or information or FOFI, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Barrels of Oil Equivalent

"Boe" or "barrel of oil equivalent" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 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.

Non-GAAP Measures

Throughout this news release we use the terms "cash flow" and "cash flow per share" as alternate terms for "funds from operations" and "funds from operations per share". "Cash flow","cash flow per share", "funds from operations", and "funds from operations per share" are terms utilized by Daylight to evaluate operating performance and assess leverage. A reconciliation of cash provided by operating activities to funds from operations is set forth in the Q3 2010 MD&A under the heading "Non-GAAP Measures". "Payout ratio" is also used in this press release and is a term utilized to evaluate financial flexibility and the capacity to fund dividends. Payout ratio is defined on a percentage basis as dividends declared divided by funds from operations.

Such terms do not have a standardized meaning or definition as prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with calculations of similar measures by other entities. Refer to the "Non-GAAP Measures" section of the MD&A from Q3 2010 for further information.

Contact Information