Lightstream Resources Ltd.
TSX : LTS

Lightstream Resources Ltd.

August 07, 2014 06:30 ET

Lightstream Announces Funds Flow From Operations of $177 Million and Update to 2014 Guidance

CALGARY, ALBERTA--(Marketwired - Aug. 7, 2014) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) is pleased to announce our second quarter financial and provide operating results and an update to the capital program of 2014.

SECOND QUARTER FINANCIAL & OPERATING HIGHLIGHTS

  • Second quarter production averaged 42,513 barrels of oil equivalent per day ("boepd") (80% light oil and liquids), a slight decrease from the first quarter of 2014 due to dispositions and reduced field activity during spring break-up.
  • Our operating netback for the second quarter was $57.49/boe, a 15% increase over the second quarter of 2013, mainly due to higher commodity prices.
  • Funds flow from operations was $177 million ($0.88 per basic share) for the quarter, representing a 5% increase over the second quarter of 2013 as a result of our higher realized operating netback.
  • Due to reduced activity during spring break-up, capital expenditures before acquisitions and dispositions totalled $61 million in the second quarter, resulting in 29 wells placed on production, with only 3 wells in inventory at the end of the quarter.
  • To-date, non-core asset sales have totalled $351 million of gross proceeds, including the previously disclosed disposition of certain Conventional business unit assets which closed in early July 2014.
  • Debt reduction year-to-date is $385 million, resulting in a 17% reduction from year-end 2013 levels, and is a product of our successful disposition program and excess cash flow generated in the first half of the year.
  • Base production performance, capital spending and cash flow from operations have been consistent with or ahead of our plan for the first half of 2014.
  • Due to results from certain Swan Hills, Brazeau area Cardium and non-operated Falher wells, we are adjusting our 2014 guidance to reflect current expectations. Capital is being lowered along with average and exit production estimates.

Summary of Results

Three months ended
June 30,
Six months ended
June 30,
2014 2013 2014 2013
Oil and natural gas sales 326,552 315,417 651,786 630,950
Funds flow from operations (1) 177,034 168,212 352,004 345,198
Per share - basic ($)(1) 0.88 0.86 1.76 1.78
Adjusted Net income (loss)(1) 68,202 (50,597 ) 82,601 (49,041 )
Per share - basic ($)(1) 0.34 (0.26 ) 0.41 (0.25 )
Capital Expenditures(2) 61,249 116,871 260,532 418,856
Net Capital Expenditures(1) (77,174 ) 116,982 8,429 425,402
Total debt (1) 1,985,342 2,232,656
Dividends per share ($) 0.12 0.24 0.24 0.48
Common Shares, end of period (000) (3) 200,150 196,136
Operating netback ($/boe) (1) (4) 57.49 50.08 56.81 49.93
Average daily production (boe) (4) 42,513 46,045 43,232 47,553
  1. Non-GAAP measure. See "Non-GAAP Measures" section.
  2. Prior to asset acquisitions and dispositions.
  3. Denotes basic common shares outstanding.
  4. Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe").

OPERATING RESULTS

Our second quarter average production of 42,513 boepd (80% light oil and liquids) was comprised of 19,277 boepd from the Cardium business unit, 19,705 boepd from our southeast Saskatchewan business units and 3,531 boepd from the AB/BC business unit. In prior years we experienced, on average, an 11% drop in production volumes between the first and second quarter due to the historical timing of our capital program as well as spring break-up conditions. In 2014, this drop significantly improved to 3% due to reduced production volatility from our balanced capital program, investments in facilities and gathering systems and a more mature production base with lower decline rates. This decline was further attenuated by new Cardium wells completed and brought on production during the quarter and the start-up of our new Swan Hills facility late in the second quarter.

Average Daily Production
Three months ended
June 30, 2014
Six months ended
June 30, 2014
Business Unit Oil &NGL (bbl/d) Gas (Mcf/d) Total (boe/d) Oil &NGL (bbl/d) Gas (Mcf/d) Total (boe/d)
Bakken 13,965 6,148 14,990 14,301 5,992 15,300
Conventional (SE SK) 4,468 1,484 4,715 4,679 1,451 4,921
Cardium (central AB) 13,397 35,283 19,277 13,103 35,897 19,086
Alberta/BC 2,298 7,394 3,531 2,582 8,060 3,925
34,128 50,309 42,513 34,665 51,400 43,232

Production expenses were $14.31/boe in the second quarter, which is consistent with the second quarter of 2013. Production expenses so far this year have tracked slightly higher than 2013 due to higher workover costs, however they continue to outperform our internal estimates and guidance.

Drilling activity ramped down for the second quarter due to spring break-up. Our efforts were focused on completing wells that were drilled in the first quarter. During the second quarter, we brought 29 wells on production compared to 20 wells a year ago. For the first six months of 2014, we have brought 54 wells on production compared to 61 wells during the same period in 2013. At June 30, 2014, there were 3 wells waiting to be completed and/or brought on production.


Q2 2014 Drilling Activity
Drilled Completed On Production Inventory(1)
Business Unit Gross Net Gross Net Gross Net Gross Net
Bakken - - 4 1 8 3 3 2
Conventional (SE SK) - - 1 - 2 - - -
Cardium (central AB) 2 1 14 9 25 19 1 1
Alberta/BC - - 7 7 7 7 - -
Total 2 1 26 17 42 29 4 3
  1. Inventory refers to the number of wells pending completion and/or tie-in at June 30, 2014.

Southeast Saskatchewan Business Units Update

Production in the southeast Saskatchewan business units averaged 19,705 boepd. This was lower than the first quarter of 2014 and the second quarter of 2013 due to disposition activity, attenuation in the level of investment in the area, and surface flooding that occurred along the Saskatchewan and Manitoba border. Although the impact of flooding in the area was significant, we were able to minimize the negative effect it had on our production levels. It did, however, delay some of our capital projects, including the completion of a natural gas injection well in our Creelman enhanced oil recovery (EOR) project. Activity on this project re-commenced early in the third quarter. We plan to have 2 wells on injection by year-end bringing the total to 5 in the area, followed by an additional 2 injectors in the first quarter of 2015.

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 EOR and optimization projects are further under-pinning production in the area and moderating decline rates.

Cardium Business Unit

In the second quarter we achieved an average production rate of 19,277 boepd, representing a 2% increase over the first quarter of 2014 despite lower seasonal activity and production restrictions. We also disposed of 1,200 boepd of production (70% gas weighted) in February 2014 for gross proceeds of $72.5 million. Production increased in the second quarter as we completed and tied-in 19 Cardium wells. The addition of these wells was slightly offset by temporary production restrictions due to facility constraints and upgrading of a sales gas meter by a midstream company. We continue to work with industry partners to enhance infrastructure; two projects were recently completed in the Lochend area, and two more facility projects will be completed by year-end.

Although we achieved production growth in the business unit, the production growth was less than expected due to compressor restrictions at 2 non-operated Falher wells and mechanical issues at 5 recently completed Cardium wells.

Within the Cardium business unit, we are testing water injection and evaluating natural gas for enhanced recovery potential. Our first West Pembina EOR pilot project, where we have 100% working interest, commenced water injection in July.

Alberta/BC Business Unit

In our Alberta/BC business unit, second quarter production averaged 3,531 boepd, which represents an 18% decrease relative to the first quarter of 2014. The decrease was primarily a result of the disposition of 500 boepd (60% gas) during the first quarter.

In late May, we commissioned our 3,500 bopd Swan Hills facility allowing us to bring our 7 most recent wells on-stream. These wells contributed 1,300 boepd of production during the month of June and production rates are expected to improve as the wells clean up after being initially tied-in. All of the wells are still recovering completion fluids, and current production is approximately 1,450 boepd. While these rates are below our expectations, we are currently assessing all technical aspects of the operational history of these wells to determine potential remedial actions and go forward operational improvements. We have temporarily suspended our remaining 2014 capital program pending the results of our technical assessment.

We remain optimistic about the EOR potential in the Swan Hills and we will be implementing a water flood pilot scheme with our first injection well expected to be on-line by year-end.

FINANCIAL RESULTS

Operating netback during the second quarter was $57.49/boe resulting in funds flow from operations of $177 million ($0.88 per basic share), which is 5% higher than the second quarter of 2013 due to higher netbacks more than off-setting the decline in production.

Our adjusted net income for the second quarter was $68.2 million ($0.34 per basic share) compared to a loss during the same period in the prior year. The increase in adjusted net income was primarily due to gains on asset dispositions, gains on foreign exchange conversion related to our US dollar term debt and an increase to our net operating income.

Capital expenditures in the second quarter, before acquisitions and dispositions, were $61 million, down from $199 million in the first quarter. Reduced activity in the second quarter is typical due to spring break-up conditions. The majority of the capital that was spent was used to complete and tie-in existing wells and complete the Swan Hills facility. First half capital expenditures of $260 million, before acquisitions and divestitures, represented approximately half of our $525 million capital program (mid-point of the revised 2014 annual guidance).

Our monthly dividend was $0.04 per share during the second quarter, which resulted in total dividends of $24 million being paid, representing 14% of funds flow from operations, the same level as the first quarter. All in, we have achieved a first-half sustainability ratio of 88% (before divestment proceeds) which is ahead of our plan.

At the end of the second quarter we had $1.99 billion in total debt, including $931 million of debt drawn on our $1.3 billion secured termed credit facility. We completed $253 million of non-core dispositions in the first half of 2014, $141 million of which closed during the second quarter, and all proceeds were used to repay debt.

On July 7, we closed the disposition of non-core Conventional business unit assets for gross proceeds of $98 million bringing our year-to-date proceeds to $351 million. Including these proceeds and surplus cash flow resulting from our sustainability ratio of 88%, pro forma total debt outstanding is $1.89 billion, a reduction of $387 million or 17% from year-end 2013.

With the success of our year-to-date disposition program and our excess cash flow, on July 11, 2014, we repurchased approximately US$44 million principal amount of outstanding 8.625% Senior Notes due 2020 for an aggregate purchase price of US$47.6 million, including accrued interest. The repurchased notes have been retired, resulting in a current total of US$856 million aggregate principal amount of 8.625% Senior Notes outstanding. The repurchase results in an incremental interest savings of approximately $2.5 million per annum. We had $365 million of available liquidity at June 30, 2014 and after the repurchase of Notes and proceeds from the July 7 conventional asset disposition we have pro forma liquidity of approximately $400 million.

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

EXECUTIVE ADDITION

We are pleased to announce the appointment of Ms. Annie Belecki as General Counsel at Lightstream effective June 16, 2014. Before joining Lightstream, Ms. Belecki was associate general counsel at a Canadian energy company and served as corporate secretary to its U.S. master limited partnership.

CURRENT OPERATIONS AND GUIDANCE UPDATE

July production, after accounting for the recent disposition of 1,000 boepd, is approximately 39,000 boepd (based on field estimates), which is currently 8% below our 2014 plans. This is primarily a result of lower than expected performance from certain 2014 Swan Hills and Brazeau Cardium wells as well as restrictions on third-party Falher wells.

For the second half of the year, we will execute the remaining 48% of our drilling program, with 23 wells planned in southeast Saskatchewan, 23 wells in the Cardium and 1 well in Alberta/BC. We are currently deferring 4 operated Swan Hills wells until our review is completed.

We are providing updated 2014 guidance that reflects strong first half results, the dispositions that have been completed so far this year, reduced capital spending, and recent performance from certain wells.

2014 GUIDANCE

($000s, except where noted and per share amounts) 2014 Revised Guidance (August 7, 2014) Previous Guidance
Production (annual average)
Total (boe/d) 41,000 - 43,000(1) 43,000 - 45,000(1)
Natural Gas Weighting 20% 20%
Exit Production (boe/d) 40,000 - 43,000(1) 45,000 - 47,000(1)
Funds Flow from Operations(2) $635,000 - $665,000 $635,000 - $665,000
Funds Flow per share(2) (3) $3.18 - $3.33 $3.19 - $3.34
Declared Dividends per share $0.48 $0.48
Capital Expenditures(2) $500,000 - $550,000 $525,000 - $575,000
Pricing Assumptions:
Crude oil - WTI (US$/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 dispositions to-date of $351 million and 3,015 boepd.
  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 199 million shares outstanding for previous guidance and 200 million for revised guidance.

OTHER

We hold approximately 16.9% equity interest in Arcan Resources Ltd. (Arcan). Based on our review of the available information, and a meeting with Aspenleaf Energy Limited to discuss the proposed arrangement, we are of the view that the proposed transaction does not provide optimal value for our investment in Arcan.

SECOND QUARTER FINANCIAL INVESTOR CONFERENCE CALL

Management of Lightstream will be holding a conference call for investors, financial analysts, media and any interested persons on August 7, 2014 at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss our second 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/5247

FINANCIAL & OPERATING TABLES

Three months ended June 30, Six Months ended June 30,
2014 2013 % Change 2014 2013 % Change
Financial ($000s, except where noted)
Oil and natural gas sales 326,552 315,417 4 651,786 630,950 3
Funds flow from operations (1) 177,034 168,212 5 352,004 345,198 2
Per share - basic ($)(1) 0.88 0.86 2 1.76 1.78 (1 )
- diluted ($)(1) (2) 0.87 0.85 2 1.73 1.76 (2 )
Adjusted Net Income (loss)(1) 68,202 (50,597 ) - 82,601 (49,041 ) -
Per share - basic ($)(1) 0.34 (0.26 ) - 0.41 (0.25 ) -
- diluted ($)(1) (2) 0.34 (0.26 ) - 0.41 (0.25 ) -
Dividends(1) 24,351 47,313 (49 ) 48,649 94,340 (48 )
Per share ($)(1) 0.12 0.24 (50 ) 0.24 0.48 (50 )
Payout ratio(1) 14 % 28 % - 14 % 27 % -
Cash dividends(1) 24,351 34,759 (30 ) 48,649 67,643 (28 )
Cash dividend payout ratio(1) 14 % 21 % - 14 % 20 % -
Capital Expenditures 61,249 116,871 (48 ) 260,532 418,856 (38 )
Net capital expenditures(1) (77,174 ) 116,982 - 8,429 425,402 (98 )
Total debt(1) (3) 1,985,342 2,232,656 (11 )
Basic common shares, end of period (000) 200,150 196,136 2
Operations
Operating netback($/boe except where noted) (1)(4)
Oil, NGL and natural gas revenue (5) 83.92 74.81 12 82.84 72.90 14
Royalties 12.12 10.54 15 11.93 9.60 24
Production expenses 14.31 14.19 1 14.10 13.37 5
Operating netback 57.49 50.08 15 56.81 49.93 14
Average daily production (boe/d)
Oil and NGL (bbl/d) 34,128 37,582 (9 ) 34,665 38,978 (11 )
Natural gas (mcf/d) 50,309 50,783 (1 ) 51,400 51,452 -
Total (boe/d) (4) 42,513 46,045 (8 ) 43,232 47,553 (9 )
  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. Total debt is calculated as secured credit facility 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.
  4. Six Mcf of natural gas is equivalent to one barrel of oil equivalent ("boe").
  5. 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 financial results, 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, the anticipated completion of asset dispositions, and future dividend payments. 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.

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)

    Lightstream Resources Ltd.
    Eighth Avenue Place, 2800, 525 - 8th Avenue S.W.
    Calgary, Alberta T2P 1G1
    403.268.7800
    403.218.6075 (FAX)
    ir@lightstreamres.com
    www.lightstreamresources.com