Lightstream Resources Ltd.
TSX : LTS

Lightstream Resources Ltd.

August 04, 2016 20:00 ET

Lightstream Announces Second Quarter 2016 Results

CALGARY, ALBERTA--(Marketwired - Aug. 4, 2016) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) announces second quarter 2016 financial and operating results. Our financial statements and management's discussion and analysis for the quarter ended June 30, 2016 will be available on the system for electronic analysis and retrieval at www.sedar.com and on Lightstream's website at www.lightstreamresources.com.

Three months ended
June 30,
Six months ended
June 30,
($000s, except where noted) 2016 2015 %
Change
2016 2015 %
Change
Financial
Oil and natural gas sales 76,716 136,265 (44 ) 139,891 257,396 (46 )
Adjusted EBITDA(1) 37,262 94,747 (61 ) 60,146 174,202 (65 )
Funds flow from operations(1) 3,787 66,966 (94 ) (6,823 ) 118,894 -
Per share
- basic ($)(1) 0.02 0.34 (94 ) (0.03 ) 0.60 -
- diluted ($)(1),(2) 0.02 0.34 (94 ) (0.03 ) 0.60 -
Adjusted Net Income (loss)(1) 110,502 (51,533 ) - 137,578 (178,695 ) -
Per share
- basic ($)(1) 0.56 (0.26 ) - 0.69 (0.90 ) -
- diluted ($)(1),(2) 0.56 (0.26 ) - 0.69 (0.90 ) -
Capital Expenditures(3) 7,504 20,175 (63 ) 14,857 80,429 (82 )
Net capital expenditures(1) 6,216 18,324 (66 ) 13,287 67,255 (80 )
Total debt(1),(4) 1,574,576 1,668,123 (6 )
Basic common shares, end of period (000) 198,645 197,565 1
Operations
Average daily production (boe/d)
Oil and NGL (bbl/d) 16,333 23,066 (29 ) 17,103 24,827 (31 )
Natural gas (mcf/d) 52,697 53,399 (1 ) 51,779 52,419 (1 )
Total (boe/d)(5) 25,116 31,966 (21 ) 25,733 33,563 (23 )
Average realized prices
Oil and NGL ($/bbl) 47.36 58.71 (19 ) 40.17 51.50 (22 )
Natural gas ($/mcf) 1.32 2.68 (51 ) 1.58 2.74 (42 )
Total (boe/d) 33.56 46.84 (28 ) 29.87 42.37 (30 )
Operating netback(1)
($/boe except where noted)(5)
Oil, NGL and natural gas revenue 33.56 46.84 (28 ) 29.87 42.37 (30 )
Royalties 2.73 4.47 (39 ) 2.73 4.54 (40 )
Production expenses 11.48 12.89 (11 ) 11.77 12.68 (7 )
Transportation expenses 0.25 0.30 (17 ) 0.26 0.30 (13 )
Operating netback 19.10 29.18 (35 ) 15.11 24.85 (39 )
Realized gain on hedging contracts 0.90 6.69 (87 ) 1.69 7.87 (79 )
Operating netback including hedging(1) 20.00 35.87 (44 ) 16.80 32.72 (49 )

SECOND QUARTER 2016 HIGHLIGHTS

  • Second quarter average production was 25,116 boepd (65% light oil and liquids weighted), a 5% decrease from the previous quarter. The decline is mainly attributable to our reduction in development capital spending, resulting in natural declines exceeding new production additions, and a continued third party pipeline outage in the Swan Hills area.
  • Our second quarter operating netback was $19.10/boe, a 69% increase over first quarter 2016. This was primarily due to higher realized oil prices and lower production expenses.
  • Funds flow from operations for the second quarter 2016 was $3.8 million ($0.02 per basic share), compared to negative funds flow of $10.6 million in the first quarter of 2016. As a result, our funds flow deficit for the first half of 2016 was lower than projected.
  • Adjusted EBITDA for the second quarter and first half were $37.3 million and $60.1 million respectively; both above guidance, primarily as a result of lower production costs.
  • Capital expenditures for Q2 2016 were $7.5 million, in line with Q1 2016 capital expenditures and slightly below our 1H 2016 forecast.
  • We recognized a non-cash asset impairment charge of $789.8 million ($576.6 million after-tax) associated with our proposed Recapitalization (as defined below) announced on July 28, 2016 and an additional $15.1 million ($11.0 million after-tax) of impairment relating to the expiry of exploitation and evaluation assets.
  • We have not released 2H 2016 guidance due to our pending Recapitalization plan. We anticipate capital spending to be minimal and production levels to decline until a new capital program is initiated, assuming the successful implementation of the Recapitalization plan.

OPERATING SUMMARY

Q2 2016 AVERAGE DAILY PRODUCTION
Three months ended
June 30, 2016
Six months ended
June 30, 2016
Business Unit Oil & NGL
(bbl/d)
Gas
(Mcf/d)
Total
(boe/d)
Oil & NGL
(bbl/d)
Gas
(Mcf/d)
Total
(boe/d)
Cardium 7,147 45,047 14,655 7,400 43,594 14,666
Bakken 8,412 3,160 8,939 8,669 3,390 9,234
Alberta/BC 774 4,490 1,522 1,034 4,795 1,833
16,333 52,697 25,116 17,103 51,779 25,733
Q2 2016 DRILLING ACTIVITY
Drilled Completed On Production Inventory(6)
Business Unit Gross Net Gross Net Gross Net Gross Net
Cardium 1.0 0.3 1.0 0.3 - - 1.0 0.3
Bakken - - - - - - - -
Alberta/BC - - - - - - - -
Total 1.0 0.3 1.0 0.3 - - 1.0 0.3

Average production for the quarter was 25,166 boepd, 5% below the first quarter of 2016 and 21% below Q2 2015 levels. This is attributed to natural well declines exceeding new well production additions, given the reduction in our development capital program and a continued third party pipeline outage in the Swan Hills area of our Alberta/BC business unit. Natural gas production remained flat from second quarter 2015, as continued strong results from our Falher liquids-rich gas play have offset natural declines within our Cardium business unit.

Our Bakken business unit produced 8,939 boepd during the second quarter of 2016, representing a decrease of 6% from the previous quarter's production of 9,530 boepd; compared to the same period last year, average production decreased by 24%. The decrease is due to continued attenuation of investment in the area, given the challenging economic environment for drilling new wells.

Production in our Cardium business unit for the second quarter 2016 averaged 14,655 boepd, essentially unchanged from the first quarter of 2016. We did see a decrease in production compared to the second quarter of 2015 which is primarily attributable to natural declines and reduced new well spending. During the quarter we drilled and completed one (0.3 net) well, which was put on production early in the third quarter. There are currently no wells in inventory.

In our Alberta/BC business unit, second quarter 2016 production of 1,522 boepd, reflected a decrease of 29% from the previous quarter due to higher downtime, a third party pipeline outage and reduced new well spending in the area. The pipeline outage was rectified subsequent to end of the second quarter.

FINANCIAL SUMMARY

Second quarter 2016 financial results improved over the first quarter due to higher oil prices and lower production expenses. Average WTI prices increased 36% from US$33.52/bbl in the first quarter to US$45.59/bbl in the second quarter. In addition, our light oil differentials also narrowed by approximately US$1.70/bbl, further increasing our operating netback. As a result, funds flow from operations for the quarter was $3.8 million, compared to a deficit of $10.6 million in the first quarter. We recorded a funds flow deficit of $6.8 million for the first half, an improvement compared to our guidance of a deficit of $10 million.

Our adjusted EBITDA for the quarter was $37.3 million, down from $94.7 million a year ago, mainly attributable to the current commodity price environment and lower production. Our continued positive adjusted EBITDA demonstrates the resiliency and low cost attributes of our operations and asset base.

Our Q2 2016 operating netback was $19.10/boe, a 69% increase over the previous quarter due to the above mentioned WTI price improvement during the quarter. Compared to last year, our netback decreased by 35% which is mainly attributable to lower commodity prices, partially offset by lower royalties and production expenses. Royalties decreased on both a total and per-unit of production basis compared to last year by 52% and 39%, respectively. This reflects our decrease in revenue and a lower royalty rate, which is mainly impacted by benchmark pricing. Total production expenses decreased 30% compared to Q2 2015, primarily due to lower variable costs associated with decreased production levels and several cost reduction initiatives within our core operating areas. On a per-boe basis, production expenses decreased by 11% compared to Q2 2015. The most significant factors in this reduction were related to repairs and maintenance, field personnel, electricity and power, chemicals, trucking, workovers and treating and processing costs.

We recorded a non-cash impairment charge totaling $804.9 million ($587.6 million after-tax). This charge primarily recognizes the restructuring support arrangement we entered into in respect of our proposed Recapitalization plan and the prescribed value to our assets associated with the credit bid process in that plan.

Capital expenditures of $7.5 million for the second quarter continued to be minimal and essentially unchanged from first quarter levels but down significantly from 2015 expenditure levels, which is consistent with our capital plans in this depressed commodity environment. Total debt increased slightly from the first quarter primarily due to increased borrowings under the existing revolving credit facility (the "Credit Facility"). We continue to generate monthly oil and gas revenue through ongoing operations. At the end of the second quarter, we had a $31.2 million cash balance and currently have approximately $40 million cash on-hand. We are continuing to pay all service providers, suppliers and contractors in the normal course of business as we pursue our Recapitalization plan.

FIRST HALF GUIDANCE & RESULTS

($000s, except where noted and per share amounts) First Half 2016
Revised Guidance
(May 4, 2016)
First Half 2016
Actual Results
Production (annual average)
Total (boe/d) 25,500 - 26,000 25,733
Light-oil and liquids weighting 66 % 66 %
Adjusted EBITDA(1) $56,000 $60,146
Funds Flow from Operations(1) ($10,000 ) ($6,823 )
Funds Flow per share(1),(7) ($0.05 ) ($0.03 )
Capital Expenditures(8) $15,500 - $16,500 $14,857
Pricing Assumptions: Q2 2016 Q2 2016
Crude oil - WTI (US$/bbl) 45.00 45.59
Crude oil - WTI (Cdn$/bbl) 58.44 58.76
Corporate light-oil to WTI differential (US$/bbl)(9) 6.19 4.73
Natural gas - AECO (Cdn$/mcf) 1.37 1.40
Exchange rate (Cdn$/US$) 0.77 0.78

Total average production for the first half ended June 30, 2016 was 25,733 boepd, in line with our first half 2016 guidance. Our capital expenditures of $14.9 million came in slightly below the low end of our guidance range and both our adjusted EBITDA and funds flow from operations exceeded our forecast. We will not be providing guidance for the second half of 2016 at this time due to the pending Recapitalization plan.

RECAPITALIZATION PLAN

As previously announced on July 28, 2016, the Company entered into a definitive arrangement agreement with a new wholly-owned subsidiary to effect a series of transactions which will result in the recapitalization (the "Recapitalization") of the Company's US$650 million 9.875% secured notes due June 15, 2019 (the "Secured Notes"), the Company's US$254 million 8.625% unsecured notes due February 1, 2020 (the "Unsecured Notes") and the Company's common shares (the "Common Shares"). The proposed Recapitalization is intended to be implemented by way of a corporate plan of arrangement under the Canada Business Corporations Act (the "CBCA Plan"). Under a support agreement entered into on July 12, 2016, holders of 91.5% of the Company's Secured Notes have agreed, subject to certain conditions, to vote their securities in favour of the CBCA Plan. In addition, in connection with the completion of the Recapitalization, we are working towards a replacement credit facility for the Company's existing Credit Facility. The Recapitalization is expected to reduce the Company's overall debt by approximately US$904 million (Cdn$1.175 billion) in principal and reduce our cash interest payments by over US$83 million (Cdn$108 million) per year.

As a result of the Company's failure to make the June 15 semi-annual interest payment on our Secured Notes by July 15, 2016, the Company triggered defaults under the Credit Facility, the Secured Notes indenture and the Unsecured Notes indenture. In anticipation of this, and as part of the CBCA Plan, on July 13, 2016, the Company received a preliminary interim order from the Court of Queen's Bench of Alberta (the "Court") containing a stay prohibiting any person, including the holders of Secured Notes and holders of Unsecured Notes, other than the lenders under the Credit Facility, from terminating, making any demand, accelerating, amending or declaring in default or taking any enforcement steps under any contract or other agreement to which the Company is a party. On July 12, 2016, the Company also entered into a forbearance agreement with the lenders under the Credit Facility. Pursuant to the forbearance agreement, as amended, the lenders have agreed to forbear from exercising their enforcement rights and remedies arising on account of existing defaults under the Credit Facility until August 5, 2016, including in respect of the Company's hedging liabilities. The Company has requested and anticipates receiving an extension to the forbearance relief period to August 12, 2016, however there is no assurance the Company will obtain this extension. Subject to obtaining the forbearance extension and satisfactory commitments to provide the new revolving credit facility, the Company anticipates entering into a second forbearance agreement with lenders prior to August 12, 2016 to extend the relief period through the anticipated completion of the CBCA Plan and implementation of a new revolving credit facility.

We will be seeking a further interim order from the Court on August 5, 2016 authorizing the Company to call, hold and conduct the required special meetings of the holders of Secured Notes, Unsecured Notes and Common Shares to consider and vote on the CBCA Plan.

Readers are urged to consult the Company's press releases issued July 12, 2016, July 13, 2016 and July 28, 2016 for further details respecting the Recapitalization.

2016 SECOND QUARTER FINANCIAL RESULTS CONFERENCE CALL

Lightstream management will not be hosting our usual quarterly results conference call while the Recapitalization plan is being advanced. We expect to host our next conference call once meeting materials for the proposed Recapitalization plan have been made public.

NOTES

  1. Non-GAAP measure. See "Non-GAAP Measures" section below.
  2. Consists of common shares, stock options, deferred common shares, incentive shares and convertible debentures (if applicable) as at the period end date.
  3. Prior to asset acquisitions and dispositions.
  4. Total debt includes secured termed credit facility outstanding plus accounts payable less accounts receivable, prepaid expenses and long-term investments plus the full value outstanding on the secured notes and unsecured notes converted to Canadian dollars using the period end exchange rate of 0.77 at June 30, 2016 (June 30, 2015 - 0.79).
  5. Six Mcf of natural gas is equivalent to one barrel of oil equivalent ("boe").
  6. Inventory refers to the number of wells pending completion and/or tie-in at June 30, 2016.
  7. Funds flow per share calculation based on 198 million weighted average basic shares outstanding.
  8. Projected capital expenditures exclude acquisitions and divestitures, which are evaluated separately.
  9. Differential includes approximately US$2.00/bbl cost for tariffs and quality adjustments charged from western Canadian benchmark prices to our realized wellhead prices.

Lightstream Resources Ltd. is an oil and gas exploration and production company focused on light oil in the Bakken and Cardium resource plays. We are committed to delivering industry leading operating netbacks, strong cash flows and consistent operating results through leading edge technology applied to a multi-year inventory of existing and emerging resource play opportunities. Our long-term strategy is to efficiently develop our assets and deliver an attractive dividend yield.

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.

Non-GAAP Measures. This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, net capital expenditures, adjusted EBITDA, total debt, operating netback and operating netback including hedging. 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 and operating netback including hedging reflects the impact of crude oil and natural gas derivative contracts on the operating netback. These measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to those reported by other companies. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders as they help evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt.

These measures should not be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with IFRS. Further information and reconciliations to the most directly comparable IFRS financial measures in respect of these non-GAAP measures is set forth in our MD&A.

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 proposed Recapitalization including the CBCA Plan and the matters related thereto, including the anticipated timing of certain events, the Company being able to receive all required court and regulatory approvals to consummate the CBCA Plan, the ability of the Company to obtain the required levels of approval from holders of Common Shares, Secured Notes and Unsecured Notes for the CBCA Plan, the ability of the parties to satisfy the other conditions to the CBCA Plan, the execution of a forbearance extension and second forbearance agreement with its lenders, the ability to enter into binding commitment letters for the new credit facility of the Company, and the size thereof, the potential and anticipated impact of the Recapitalization on Lightstream, the commencement of proceedings under the CCAA in the event that the CBCA Plan is not approved or otherwise does not occur, future capital structure, debt levels and annual interests costs, improved liquidity, release of guidance and anticipated timing, planned development capital spending and production levels for the remainder of 2016 and the sufficiency of cash to fund ongoing operations.

The forward-looking statements are based on information currently available as well as certain expectations and assumptions concerning anticipated financial performance, business prospects, regulatory developments and general market conditions. 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 Company's inability to complete the Recapitalization, including the CBCA Plan, on the timeline or on the terms currently contemplated or at all, that the Recapitalization may have an effect on the Company other than what is currently anticipated, that the pursuit of the Recapitalization, CBCA Plan and related activities may divert management time and attention away from other business matters, commodity price and exchange rate fluctuations, risks associated with the oil and gas industry in general (e.g., operational risks in production; delays or changes in plans with respect to capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, reliance on industry partners, availability of equipment and personnel, changes in applicable regulatory regimes and health, safety and environmental risks)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.

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.
    Annie C. Belecki
    General Counsel
    403.268.7800
    403.218.6075 (FAX)
    ir@lightstreamres.com
    www.lightstreamresources.com