Lightstream Resources Ltd.

TSX : LTS


Lightstream Resources Ltd.

September 02, 2014 16:26 ET

Lightstream Announces $378 Million Asset Sale to Complete Our 2014-2015 Disposition Program and Updated 2014 Guidance

CALGARY, ALBERTA--(Marketwired - Sept. 2, 2014) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) is pleased to announce that we have entered into an agreement with Crescent Point Energy Ltd. to sell the remaining assets in our southeast Saskatchewan Conventional business unit for gross proceeds of $378.4 million, including $375 million in cash proceeds plus certain Bakken lands within our Creelman enhanced oil recovery (EOR) project area valued at $3.4 million (the Transaction). Upon the successful closing of the Transaction, our liquidity will increase to over $600 million and we will reduce our secured term credit facility by $150 million to $1.15 billion. We are also providing updated guidance to reflect the effect of this divestiture.

THE TRANSACTION

The Transaction consists of approximately 3,300 boepd of production (96% light oil) and 13.2 million boe of proved plus probable reserves. The assets being sold represent approximately 8.5% of our July 2014 estimated production and approximately 7% of proved and probable reserves (based on our December 31, 2013 independent engineering evaluation). The purchase price received for the assets consists of total cash consideration of $375 million, before customary adjustments, and 3 key parcels of Bakken rights that enable us to expand our Creelman enhanced oil recovery project, valued at $3.4 million.

The Creelman Bakken properties received as part of the Transaction directly offset our successful natural gas injection scheme in the Bakken. Consolidation of these assets gives us 100% working interest ownership in a proposed 11.5 section Unit. Within the proposed Unit, we currently have three active injection wells with a fourth well expected to be on injection by year-end. The consolidation will allow for accelerated expansion of our EOR injection schemes.

Asset Sale Details:

  • Approximately 3,300 boepd of southeast Saskatchewan light oil production (July 2014 field estimate)
  • 13.2 million boe (96% light oil) of gross proved plus probable reserves (as evaluated by Sproule Associates Limited according to NI 51-101 adjusted for production up to June 30, 2014)
  • 76,882 net acres of land, which includes 55,471 net undeveloped acres
  • The asset disposition includes 450 net wells, including $38.5 million of abandonment and reclamation liabilities

Key Metrics of the Transaction:

  • $114,700 per flowing boe (July 2014 field estimate)
  • $33.74 per boe of gross proved plus probable reserves (including future development capital of $67 million)
  • 5.6 times annualized current cash flow

The Transaction will have an effective date of July 1, 2014 and, subject to satisfaction of all conditions and receipt of required regulatory approvals, is expected to close by the end of September 2014. TD Securities Inc. acted as our financial advisor on the Transaction.

ASSET DISPOSITION PROGRAM UPDATE

Upon the successful completion of this Transaction, our objective to divest $600 million worth of assets by the end of 2015 will have been achieved well in advance of our timeline. Including the Transaction, our cumulative 2014 cash asset disposition proceeds will be $729 million. The proceeds will be used to meet our strategic priority to reduce overall corporate debt, which will drop to approximately $1.5 billion (based on net debt reported at the end of second quarter, pro forma the early July asset sale and this Transaction) down from $2.3 billion at December 31, 2013. On a go-forward basis, we expect to realize at least a further $25 million in cash interest savings annually. The table below is a summary of our 2014 asset sales.

Dispositions
To-Date
Current
Transaction
Total Cumulative Metrics
Disposition Proceeds $351 M $378 M $729 M
Production 3,015 boepd 3,300 boepd 6,315 boepd $115,400/boepd
Reserves (2P) 7.7 mmboe 13.2 mmboe 20.9 mmboe $39.12/boe(1)
Net Operating Income $44 M $68 M $112 M 6.5x
Reduction in Future Development Capital $21.5 M $67.2 M $88.7 M
Reduction in Abandonment Liability $22.6 M $38.5 M $61.2 M
(1) Future development costs of $88.7 million included in reserve metric calculation.

The majority of the assets sold in 2014 were part of our Conventional business unit. Upon successful completion of this Transaction, we will have completed two working interest asset sales and one royalty sale from the Conventional business unit for gross proceeds of $617 million, representing approximately 4,750 boepd of production (average fourth quarter 2013 production levels). In 2014, until they were sold, these assets generated excess net cash flow of $36 million over and above capital expenditures, and when combined with disposition proceeds, have generated total cash receipts of $653 million for Lightstream this year.

SECURED TERM CREDIT FACILITY UPDATE

Consistent with other divestment activity in 2014, we are applying all cash proceeds from the Transaction to repay debt. Upon the successful completion of this Transaction we will also reduce the maximum lending amount of our secured term credit facility by $150 million to $1.15 billion (before the optional accordion feature that permits an increase by a further $100 million), with only $525 million drawn on a pro forma basis. The maturity date of the secured term credit facility remains June 2017, subject to further extensions.

GUIDANCE UPDATE

We are updating our guidance to reflect the sale of the remaining assets in our southeast Saskatchewan Conventional business unit and have reduced average and exit production rates as well as increased our gas weighting slightly to 22% from 20%. Our range for funds flow from operations has also been reduced by $20 million or 3%, as a result of the production sold. Similarly, our capital spending range has been decreased by $15 million. We do not expect any change to our dividend and still expect the payout ratio to be 15% of fund flow from operations in 2014.

($000s, except where noted and per share amounts) 2014 Revised Guidance (September 2, 2014)(1) Previous Guidance
(August 7, 2014)
Production (annual average)
Total (boe/d) 40,000 - 42,000 41,000 - 43,000(1)
Natural Gas Weighting 22% 20%
Exit Production (boe/d) 36,500 - 39,500 40,000 - 43,000(1)
Funds Flow from Operations(2) $615,000 - $645,000 $635,000 - $665,000
Funds Flow per share(2) (3) $3.08 - $3.23 $3.18 - $3.33
Declared Dividends per share $0.48 $0.48
Capital Expenditures(2) $485,000 - $535,000 $500,000 - $550,000
Pricing Assumptions(4):
Crude oil - WTI (US$/bbl) 95.00 95.00
Crude oil - WTI (Cdn$/bbl) 105.55 105.55
Corporate oil differential (%) 10 10
Natural gas - AECO (Cdn$/mcf) 4.00 4.00
Exchange rate (Cdn$/ US$) 1.11 1.11
(1) Reflects completed dispositions 2014-to-date and the Transaction totaling $729 million and 6,315 boepd of production.
(2) Forecasted funds flow from operations, funds flow per share and capital expenditures are shown prior to the impact of reclassifying decommissioning liabilities from capital to funds flow. Decommissioning liability costs are forecasted in capital expenditures for 2014 annual guidance purposes.
(3) Funds flow per share calculation based on 200 million shares outstanding.
(4) Pricing assumptions are used for second half of 2014 estimates.

OUTLOOK

We are pleased to report that, upon closing of the Transaction, we will have completed $729 million of cash divestitures in the first 9 months of 2014, 15 months ahead of our plan. With our balance sheet strengthened, during the remainder of 2014 we will focus on our operations and the effective deployment of capital to deliver the results that we have forecasted.

Our assets are the foundation of our value proposition. They generate strong operating and cash netbacks and our focus will continue to be on the development of light oil resource-style plays. Post the Transaction, two of our three business units (Cardium and Bakken) will generate net operating income well in excess of capital expenditures and provide a foundation for future value generation. Our asset base will include 178 mmboes of proved and probable reserves (December 31, 2013 adjusted for disposition activity) and over 670 thousand undeveloped acres with more than 1,700 potential drilling locations in southeast Saskatchewan and Alberta.

As we enter the start of September, our second half capital program is well under way with activities ongoing in all our business units. Currently we have 4 rigs operating in southeast Saskatchewan and central Alberta. We plan to drill 38 wells within the Bakken and Cardium business units, with all but 7 wells to be brought on stream before the end of the year.

Lightstream Resources Ltd. is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. Lightstream is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations, along with other emerging resource play opportunities. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.

Well Counts. All references to well counts are on a net basis.

Forward Looking Statements. Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to the anticipated completion of asset dispositions, anticipated debt reduction and interest savings, results from operations, future production rates, proposed exploration and development activities (including the number of wells to be drilled, completed and put on production), our drilling prospect inventory, projected capital expenditures, the timing of certain projects, future finding and development costs, and future dividend payments. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the ability of counterparties to close on dispositions, prevailing commodity prices and economic conditions, the success of future drilling, completion, recompletion and development activities, the performance of new and existing wells,, the availability and cost of labour and services, timing of pipeline and facilities construction, access to third party facilities and weather and access to drilling locations. Although we believe 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 we 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, the potential for counterparties to be unable to close dispositions, 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, reliance on industry partners, risks that asset dispositions cannot be completed, availability of equipment and personnel, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and exchange rate fluctuations and general economic conditions. Certain of these risks are set out in more detail in our Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com. Except as may be required by applicable securities laws, Lightstream assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

BOEs. Natural gas volumes have been converted to barrels of oil equivalent ("boe"). Six thousand cubic feet ("Mcf") of natural gas is equal to one barrel of oil equivalent based on an energy equivalency conversion method primarily attributable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, especially if used in isolation.

Contact Information

  • Lightstream Resources Ltd.
    John D. Wright
    President and Chief Executive Officer
    403.268.7800
    403.218.6075 (FAX)

    Lightstream Resources Ltd.
    Peter D. Scott
    Senior Vice President and Chief Financial Officer
    403.268.7800
    403.218.6075 (FAX)

    Lightstream Resources Ltd.
    Bill A. Kanters
    Vice President Capital Markets
    403.268.7800
    403.218.6075 (FAX)
    ir@lightstreamres.com
    www.lightstreamresources.com