Lightstream Resources Ltd.

TSX : LTS


Lightstream Resources Ltd.

May 05, 2014 19:21 ET

Lightstream Announces First Quarter Production of 43,959 boepd and Funds Flow from Operations of $175 Million

CALGARY, ALBERTA--(Marketwired - May 5, 2014) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) is pleased to announce our first quarter financial and operating results.

FIRST QUARTER FINANCIAL & OPERATING HIGHLIGHTS

  • First quarter production averaged 43,959 barrels of oil equivalent per day ("boepd") (80% light oil and liquids), a decrease of 3% from the fourth quarter of 2013 due to dispositions completed during the quarter of 1,700 boepd (66% gas weighted).
  • Our operating netback for the first quarter was $56.11/boe, a 24% increase over the fourth quarter of 2013 mainly due to higher commodity prices.
  • Funds flow from operations was $175 million ($0.88 per basic share) for the quarter, representing a 20% increase over the fourth quarter of 2013 as a result of a higher realized operating netback.
  • Capital expenditures before acquisitions and dispositions totalled $199 million in the first quarter, resulting in 50 wells drilled and 25 wells placed on production, with 32 wells in inventory at the end of the quarter.
  • Non-core asset sales during the first quarter resulted in $112 million of gross proceeds with an additional $141 million of royalty interests divested May 2, 2014.
Summary of Results
Three months ended March 31
2014 2013
Oil and natural gas sales 325,234 315,533
Funds flow from operations(1) 174,970 176,986
Per share - basic ($)(1) 0.88 0.92
Adjusted Net income(1) 14,399 1,556
Per share - basic ($)(1) 0.07 0.01
Net Capital Expenditures(1) 85,603 308,420
Total debt(1) 2,248,702 2,199,378
Dividends per share ($) 0.12 0.24
Cash dividends per share ($) 0.12 0.17
Common Shares, end of period (000)(2) 200,001 194,423
Operating netback ($/boe) (1)(3)(4) 56.11 49.79
Average daily production (boe)(3) 43,959 49,078
(1) Non-GAAP measure. See "Non-GAAP Measures" section.
(2) Denotes basic common shares outstanding.
(3) Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe").
(4) Net of transportation expenses.

OPERATING RESULTS

Our first quarter average production of 43,959 boepd (80% light oil and liquids) was comprised of 18,893 boepd from the Cardium business unit, 20,742 boepd from the southeast Saskatchewan business units and 4,324 boepd from the AB/BC business unit. Our production decreased 3% from the fourth quarter of 2013 due to 1,700 boepd of production from non-core assets being sold in the first quarter and infrastructure restricted production in the Cardium. Our first quarter production is on target with our 2014 plan.

Production for the first three months of 2014 was 10% lower than the first quarter of 2013, primarily due to our active second half capital program in 2012 elevating our early 2013 production, as well as our 2014 asset dispositions. Beginning in 2013, we altered our strategy to focus on achieving higher annual average production and attenuated decline rates by deploying a more balanced capital program throughout the year. This has resulted in more consistent quarter over quarter production levels, notwithstanding the impact of divestiture activities.

Average Daily Production
Three months ended
March 31, 2014
Business Unit Oil &NGL (bbl/d) Gas (Mcf/d) Total (boe/d)
Bakken 14,641 5,836 15,614
Conventional (SE SK) 4,892 1,417 5,128
Cardium (central AB) 12,807 36,517 18,893
Alberta/BC 2,869 8,733 4,324
35,209 52,503 43,959

Production expenses were $13.90/boe in the first quarter, up approximately 10% on a per boe basis from both the first and fourth quarter of 2013. This increase is driven by a larger proportion of workover expenses compared to the prior periods.

Over half of our 2014 drilling program was executed in the first three months of this year. We drilled 50 wells and brought 25 wells on production. At March 31, 2014, there were an additional 32 wells waiting in inventory to be completed and/or brought on production. The majority of these wells will be brought on during the second quarter, which we expect will keep second quarter production in line with the first quarter and offset the impact of downtime associated with spring break-up.

Q1 2014 Drilling Activity
Drilled Completed On Production Inventory(1)
Business Unit Gross Net Gross Net Gross Net Gross Net
Bakken 18 14 14 11 12 9 10 6
Conventional (SE SK) 7 4 7 4 7 5 2 -
Cardium (central AB) 31 25 17 15 11 11 26 19
Alberta/BC 7 7 - - - - 7 7
Total 63 50 38 30 30 25 45 32
(1) Inventory refers to the number of wells pending completion and/or tie-in at March 31, 2014.

Southeast Saskatchewan Business Units Update

Production in the southeast Saskatchewan business units averaged 20,742 boepd. These business units continue to be consistent contributors to our bottom line. Production levels were slightly lower than the fourth quarter of 2013 as we reduced investment in the Bakken to strategically maximize the free cash flow generated from the business unit. This was partially offset by an increase in Conventional production by 8%, over the same time period, due to the success of the five new Mississippian wells that were brought on-stream in the first quarter. Six wells still remained in inventory at the end of the first quarter in southeast Saskatchewan.

We continue to experience strong results in our Mississippian drilling program by extending existing oil pools and finding highly profitable new reserves. In the first quarter of 2014, we drilled 10 wells (including the five mentioned above) into the Frobisher and Tilston formations of the Mississippian. Initial rates from the wells put on production so far are very encouraging, averaging approximately 150 boepd in the first 30 days.

Our southeast Saskatchewan assets contribute significant free cash flow as a result of low decline, high netback production. We continue to invest in initiatives to maximize the long-term value of the area. Our enhanced oil recovery and optimization projects are further under-pinning production in the area and moderating decline rates.

Cardium Business Unit

In the first quarter we achieved an average production rate of 18,893 boepd, which is slightly less than the fourth quarter of 2013, primarily due to the disposition of approximately 1,200 boepd (70% gas) non-Cardium production during the quarter, timing of bringing wells on production, and temporary production restrictions. Entering 2014 we had very few wells in inventory, but, after drilling 25 new wells and bringing 11 wells on production, we exited the first quarter with 19 wells in inventory that are scheduled to be brought on during the second quarter. In addition, we had approximately 800 to 1,000 boepd of production that continued to be restricted due to facility constraints (primarily solution gas gathering and processing). We have three infrastructure projects underway in the area that are scheduled to be completed in the last half of 2014 that will mitigate the production that is currently restricted.

AB/BC Business Unit

In our Alberta/BC business unit, production in the first quarter of 2014 averaged 4,324 boepd; which represents a 29% increase relative to the first quarter of 2013 and a 3% increase over the fourth quarter of 2013. During the first quarter, we drilled 7 wells in the Swan Hills area, all of which are expected to come on-stream during the second quarter after the completion of our 3,500 bopd Swan Hills facility in late May. Production additions have increased the overall liquids weighting of this business unit to 66%, up from 47% in the first quarter of last year.

FINANCIAL RESULTS

First quarter production of 43,959 boepd and an operating netback of $56.11/boe resulted in funds flow from operations of $175 million ($0.88 per basic share), which is flat to the first quarter of 2013 due to higher netbacks being offset by lower production. Improving commodity prices resulted in first quarter 2014 funds flow from operations 20% higher than the fourth quarter of 2013.

Our adjusted net income for the first quarter was $14 million ($0.07 per basic share) compared to $2 million in the first quarter of 2013. The increase in adjusted net income is primarily due to a gain on non-core asset dispositions, partially offset by a larger non-cash foreign exchange loss on our US dollar denominated debt as the Canadian dollar weakened against the US dollar.

Capital expenditures in the first quarter, before acquisitions and dispositions, were $199 million. This spending profile is consistent with our plan to execute a balanced capital program in 2014. Based on our plan, the first quarter is expected to be the most capital intensive quarter in 2014 and we spent approximately 36% of our $550 million annual program. A significant portion of our first quarter capital program was directed towards drilling, completions and facility construction in the Cardium, Bakken and Alberta/BC business units.

Our monthly dividend was $0.04 per share during the first quarter, which resulted in total dividends of $24 million being paid, representing 14% of funds flow from operations.

As of March 31, 2014, we had $1.07 billion of debt drawn on our credit facility. We have completed $253 million of non-core dispositions to-date in 2014, $141 million of which closed on May 2nd, 2014, and used all proceeds to repay debt. In conjunction with reducing our outstanding balance on our credit facility, we have again extended the term one year to June 2, 2017, reduced the lending limit on this facility from $1.4 billion to $1.3 billion, and retained the $100 million accordion feature. Our pro forma balance drawn on the credit facility at March 31, including the royalty dispositions that closed on May 2, 2014, would have been $935 million.

For the remainder of 2014 we will continue to proactively target cumulative disposition activities of at least $300 million, with the goal of reaching $600 million by the end of 2015.

CURRENT OPERATIONS UPDATE

With spring break-up in effect, average production for the month of April is estimated to be approximately 43,500 boepd. Activity in April was focused on completing the remainder of wells drilled in the first quarter, as well as facility construction in the Cardium business unit and Swan Hills area. At the end of April, we brought on an additional 17 wells, leaving 15 wells in inventory. By the end of the second quarter we expect to have our 3,500 bopd Swan Hills facility operational with the majority of the wells in inventory on-stream. We expect drilling activity to resume early in the third quarter.

INVESTOR CONFERENCE CALL

Management of Lightstream will be holding a conference call for investors, financial analysts, media and any interested persons on Tuesday May 6, 2014 at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss Lightstream's first quarter financial and operating results.

The investor conference call details are as follows:

Live call dial-in numbers: 1-416-340-8530/ 1-800-766-6630
Replay dial-in numbers: 1-905-694-9451 / 1-800-408-3053
Passcode: 5694926
http://www.gowebcasting.com/5245

ANNUAL GENERAL MEETING NOTICE

Lightstream will host our Annual General Meeting for shareholders on May 14, 2014 at 9:00am (MDT) at the Metropolitan Conference Centre (333 - 4th Ave SW) in Calgary, Alberta. The meeting will also be available via webcast using the following link: http://www.gowebcasting.com/5213. Those in attendance or participating in the webcast will have the opportunity to have questions responded to by management of the Company.

FINANCIAL & OPERATING TABLES
Three months ended
March 31,
2014 2013 % Change
Financial ($000s, except where noted)
Oil and natural gas sales 325,234 315,533 3
Funds flow from operations(1) 174,970 176,986 (1)
Per share - basic ($)(1) 0.88 0.92 (4)
- diluted ($)(1)(2) 0.86 0.91 (6)
Adjusted Net Income(1)(3) 14,399 1,556 825
Per share - basic ($)(1) 0.07 0.01 600
- diluted ($)(1)(2) 0.07 0.01 600
Dividends(1) 24,298 47,027 (48)
Per share ($)(1) 0.12 0.24 (50)
Payout ratio(1) 14% 27% (48)
Cash dividends(1) 24,298 32,884 (26)
Cash dividend payout ratio(1) 14% 19% (25)
Net capital expenditures(1) 85,603 308,420 (72)
Total debt(1)(4) 2,248,702 2,199,378 2
Basic common shares, end of period (000) 200,001 194,423 3
Operations
Operating netback($/boe except where noted)(1)(5)
Oil, NGL and natural gas revenue(6) 81.77 71.09 15
Royalties 11.76 8.70 35
Production expenses 13.90 12.60 10
Operating netback 56.11 49.79 13
Average daily production (boe/d)
Oil and NGL (bbl/d) 35,209 40,390 (13)
Natural gas (mcf/d) 52,503 52,128 1
Total (boe/d)(5) 43,959 49,078 (10)
(1) Non-GAAP measure. See "Non-GAAP Measures" section within this document.
(2) Consists of common shares, stock options, deferred common shares, incentive shares and convertible debentures as at the period end date.
(3) Adjusted net income is calculated using net income and adding back impairments and the loss or deducting the gain on settlement of convertible debentures and derivative liabilities.
(4) Total debt is calculated as bank debt outstanding plus accounts payable less accounts receivable, prepaid expense and long-term investments plus the full value outstanding on the senior unsecured notes and convertible debentures converted to Canadian dollars at the exchange rate on the period end date.
(5) Six Mcf of natural gas is equivalent to one barrel of oil equivalent ("boe").
(6) Net of transportation expenses.

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 a significant inventory of opportunities in the Horn River gas resource play in northeast BC. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.

Non-GAAP Measures. This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, payout ratio, total debt, operating netback and net capital expenditures. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities, adding back any losses or deducting any gains on settlement of convertible debentures, and adding back impairments. Payout ratio is determined as dividends paid as a percentage of funds flow from operations. Management considers funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, and payout ratio important as it helps evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Total debt includes bank debt outstanding plus accounts payable less accounts receivable and prepaid expenses plus the full value outstanding on the senior unsecured notes and convertible debentures converted to Canadian dollars at the exchange rate on the period end date less long-term investments. Total debt is used to evaluate Lightstream's financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Operating netback reflects revenues less royalties, transportation costs, and production expenses divided by production for the period. Net capital expenditures represent capital expenditures, including exploration and evaluation expenditures, less proceeds from asset dispositions. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, payout ratio, total debt, operating netbacks, and net capital expenditures may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Further information in respect of these non-GAAP measures is set forth in our MD&A.

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: (i) the bringing onto production of inventory wells; (ii) the expected timing of the completion of the Swan Hills facility; (iii) the expected timing of the restart of drilling activities, (iv) the anticipated mitigating of production restrictions in the Cardium operating areas; and (v) potential future disposition activities. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the success of future drilling, completion, recompletion and development activities, the performance of new and existing wells, prevailing commodity prices and economic conditions, the market for asset dispositions and the ability of counterparties to close on dispositions, 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, 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, general economic conditions and the potential for counterparties to be unable to close dispositions. 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.

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