Lightstream Resources Ltd.
TSX : LTS

Lightstream Resources Ltd.

November 07, 2013 20:37 ET

Lightstream Announces Third Quarter Production of 45,160 boepd and Funds Flow from Operations of $180 Million

CALGARY, ALBERTA--(Marketwired - Nov. 7, 2013) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) is pleased to announce our third quarter financial and operating results.

THIRD QUARTER FINANCIAL & OPERATING HIGHLIGHTS

  • Third quarter production averaged 45,160 barrels of oil equivalent per day ("boepd") (78% light oil and liquids), an increase of 17% from the third quarter of 2012 and relatively flat to the second quarter 2013. Year to date average production is 13% above 2012 levels.
  • Our operating netback for the third quarter was $54.75/boe, a 9% increase over the second quarter of 2013 and a 21% increase over the third quarter of 2012, driven by higher WTI prices, which averaged US$105.83/bbl.
  • Funds flow from operations was $180 million ($0.91 per basic share) for the quarter, representing a 7% increase over the second quarter of 2013 and an increase of 47% over the third quarter of 2012.
  • Capital expenditures before acquisitions and dispositions totalled $141 million in the third quarter, resulting in 24 wells drilled and 20 wells placed on production, with 19 wells in inventory at the end of the quarter.
  • During the quarter, our funds flow from operations (cash in) exceeded our net capital and cash dividends (cash out) by $8 million.
Summary of Results
Three months ended September 30, Nine months ended September 30,
2013 2012 2013 2012
Oil and natural gas sales 331,814 237,833 962,764 808,399
Funds flow from operations (1) 179,713 122,037 524,911 428,754
Per share - basic ($) (1)(2) 0.91 0.65 2.70 2.28
Adjusted Net income (1) 52,031 27,449 2,990 155,767
Per share - basic ($) (1)(2) 0.26 0.15 0.02 0.83
Net Capital Expenditures(1) 139,212 263,053 564,614 (48,590 )
Total debt (1) 2,195,808 1,783,585 2,195,808 1,783,585
Dividends per share ($) (2)(3) 0.24 0.24 0.72 0.72
Cash dividends per share ($) (2)(3) 0.16 0.09 0.50 0.31
Common Shares, end of period (000) (4) 198,520 189,704 198,520 189,704
Operating netback ($/boe) (1)(5)(6) 54.75 45.09 51.50 48.00
Average daily production (boe) (5) 45,160 38,503 46,746 41,303
  1. Non-GAAP measure. See "Non-GAAP Measures" section.
  2. 2012 balance calculated using shares outstanding of Lightstream Resources Ltd. (formerly PetroBakken Energy Ltd.) prior to the reorganization in December 2012.
  3. 2012 balance represents dividends paid by Lightstream Resources Ltd. prior to the reorganization in December 2012.
  4. Denotes basic common shares outstanding.
  5. Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe").
  6. Net of transportation expenses.

OPERATING RESULTS

Our third quarter average production of 45,160 boepd (78% light oil and liquids) was comprised of 20,580 boepd from the Cardium business unit and 16,016 boepd from the Bakken business unit, with the remainder from the Saskatchewan Conventional and AB/BC business units. Our production increased 17% over the third quarter of 2012, and does not include approximately 1,000 boepd of production (70% light oil) in the Cardium business unit that is restricted due to third party constraints on existing gas conservation and processing infrastructure in the central Alberta and west Pembina areas. This growth in production is due to the efficient execution of our drilling program and our maturing production base, resulting in reduced decline rates. On a year to date basis, production through the third quarter of 2013 is 13% higher than 2012 levels.

Production expenses of $13.25/boe increased 7% over the third quarter of 2012 due to higher third party processing costs, equipment rentals and chemical costs. Compared to the second quarter of 2013, production expenses fell 7% on a per boe basis due to the absence of spring break-up related costs.

Average Daily Production
Three months ended
September 30, 2013
Nine months ended
September 30, 2013
Business Unit Oil & NGL (bbl/d) Gas (Mcf/d) Total (boe/d) Oil & NGL (bbl/d) Gas (Mcf/d) Total (boe/d)
Bakken 14,967 6,298 16,016 16,225 5,793 17,190
Conventional (SE SK) 4,672 826 4,810 5,309 1,198 5,509
Cardium (central AB) 13,735 41,070 20,580 14,381 36,398 20,447
Alberta/BC 2,071 10,096 3,754 1,872 10,367 3,600
35,445 58,290 45,160 37,787 53,756 46,746

A shorter spring break-up allowed for an early start to our summer drilling program. During the third quarter of 2013 we drilled 24 wells and brought 20 wells on-production. At September 30, 2013, there were an additional 19 wells waiting in inventory to be completed and/or brought on production.

Q3 2013 Drilling Activity
Drilled Completed On Production Inventory(1)
Business Unit Gross Net Gross Net Gross Net Gross Net
Bakken 14 9 12 8 12 8 8 5
Conventional (SE SK) 4 2 5 1 3 - 4 3
Cardium (central AB) 15 13 12 9 11 8 11 10
Alberta/BC 1 - 3 2 6 4 1 1
Total 34 24 32 20 32 20 24 19
  1. Inventory refers to the number of wells pending completion and/or tie-in at September 30, 2013.

Bakken Business Unit

Production in the Bakken business unit averaged 16,016 boepd during the third quarter, down slightly from the second quarter of 2013. We continue to leverage our optimization program in the area, with over 300 wells optimized in the past 18 months, and we are seeing meaningful returns on our investment through mitigated production declines.

Our enhanced oil recovery (EOR) plans continue to advance and we are on track to expand our natural gas injection projects in 2014. A maturing production base, combined with a significant inventory of drilling locations and well optimization candidates, allows us to generate significant free cash flow from this business unit.

Saskatchewan Conventional Business Unit

Third quarter production of 4,810 boe/d in our southeast Saskatchewan business unit was down 15% from the second quarter of 2013 as a result of a non-core disposition of 350 boepd for gross proceeds of $38.5 million as well as minimal capital investment during the quarter. Our low decline, light oil production base in this business unit continues to generate free cash flow for the company and with capital activity increasing in the fourth quarter we expect production levels to increase by the end of the year.

Cardium Business Unit

We continue to grow the Cardium business unit, where production averaged 20,580 boepd in the third quarter of 2013, representing a 2% increase over the second quarter of 2013 and a 40% increase over the third quarter of 2012. We expect the production restrictions of approximately 1,000 boepd to be alleviated in the first half of 2014 as operations are debottlenecked and additional capacity is added in the affected areas.

The Cardium gas weighting increased from 28% in the second quarter to 33% in the current quarter due to an increased proportion of associated gas from recent oil wells being conserved, as well as higher than anticipated gas/oil ratios in certain new wells in Brazeau and Lochend. Based on our ongoing Cardium oil drilling program, we expect the associated gas percentage to trend to 30%. We are also participating in two Spirit River (Falher) liquid-rich gas wells in the fourth quarter which are expected to increase our gas production from this business unit next year.

Since 2010, we have been investing in the Cardium business unit in order to develop a production base with critical mass. As production has continued to grow and with declines starting to attenuate, the Cardium business unit achieved a significant milestone by generating free cash flow late in the third quarter. Subject to commodity prices, we expect it will continue to generate free cash flow on an operating basis in the fourth quarter.

AB/BC Business Unit

Production in our Alberta/BC business unit averaged 3,754 boepd in the quarter, representing a 46% increase over the third quarter of 2012 and a 3% increase over the second quarter of 2013, with the growth driven by our new Swan Hills light-oil play. Associated with this production growth, our liquids weighting continues to increase, growing from 32% in the third quarter of 2012 to 55% this quarter. During the quarter, 2 wells were completed and 4 wells were brought on production, with 1 well remaining in inventory. In 2013, we have drilled a total of 9 wells and brought 7 on production. Capital activity has recommenced in the Swan Hills region, and in the fourth quarter we expect to drill and bring 3 additional wells on production, which should further increase production and the liquids weighting of this business unit by year-end. Mid-quarter, we completed an asset acquisition contiguous to our existing Swan Hills acreage for gross consideration of $35 million. This acquisition added approximately 300 boepd of production and an additional 40 drilling locations, increasing our total inventory to over 220 locations.

FINANCIAL RESULTS

Third quarter production of 45,160 boepd and an operating netback of $54.75/boe resulted in funds flow from operations of $180 million ($0.91 per basic share), a 7% increase over the preceding quarter due to higher realized prices. Compared to the third quarter of 2012, our funds flow from operations increased 47% due to higher production and an increased operating netback. Our improved operating netback resulted from an increase in our realized oil price during the quarter driven by higher WTI prices and narrower differentials. For the third quarter of 2013, we realized a 6% discount to WTI, compared to a discount of 12% in the third quarter of 2012. While light oil differentials in 2013 have generally improved over levels experienced in 2012, they have recently widened and are expected to remain wide in the fourth quarter of this year as light oil supply continues to grow and seasonal refinery maintenance and outages result in a temporary reduction in demand. We expect light oil differentials to ultimately improve from current levels but for volatility to continue.

Our adjusted net income for the third quarter was $52 million ($0.26 per basic share) compared to a loss of $51 million in the second quarter of 2013. The turnaround in adjusted net income is primarily the result of higher funds flow from operations and the absence of loss on dispositions. Compared to 2012, adjusted net income increased by 90% due to higher sales volumes, higher realized prices, and a gain on long-term investments, partially offset by a larger foreign exchange loss and higher depletion and depreciation associated with higher production.

Capital expenditures, before acquisitions and dispositions, in the third quarter of 2013 were $141 million, representing a 20% increase over the second quarter of 2013 and a 48% decrease from the third quarter of 2012. This reflects a slight increase of activity following spring break-up in the second quarter, and is consistent with our approach of executing a more balanced capital plan between the first and second half of 2013 as compared to 2012. Year-to-date, we have spent $560 million, before acquisitions and dispositions, and are on track with our guidance estimate of $700-$725 million. Acquisitions and dispositions for the quarter and on a year-to-date basis have essentially offset each other as we have disposed of non-core properties in southeast Saskatchewan and added to our core area in the Swan Hills play.

Our monthly dividend of $0.08 per share remained consistent with previous quarters. During the third quarter, total dividends of $48 million were declared, representing 27% of funds flow from operations. Cash dividends of $32 million were paid, representing 18% of quarterly funds flow from operations, as approximately 33% of shareholders participated in our dividend reinvestment and share dividend plans in the quarter.

As of September 30, 2013, we had $1.2 billion of debt drawn on our $1.4 billion covenant based credit facility, which is down slightly from the previous quarter. We are fully compliant on all the covenants of this facility. On a relative basis, our debt to quarterly annualized funds flow ratio of 3.1 in the third quarter dropped slightly from the second quarter as a result of our growth in funds flow.

CURRENT OPERATIONS UPDATE

Average production for the month of October is estimated to be approximately 44,000 boepd. During the month, 18 wells were drilled and 8 wells were placed on production, leaving 29 wells in inventory at the end of October. Currently we have 1 drilling rig operating in the Bakken, 2 drilling rigs in the Cardium, and 2 drilling rigs operating on other properties. We anticipate this activity to result in production increases through the remainder of the fourth quarter.

OUTLOOK AND GUIDANCE

As the end of the 2013 approaches and we finalize our plans for 2014, we continue to work towards executing our business model that provides long-term growth plus yield. With the completion of our remaining 2013 capital program, we are on target to exceed the lower end of our forecasted 8% to 12% annual average production growth (46,000 to 48,000 boepd), and we continue to target exit production in excess of 47,000 boepd and annual capital expenditures of $700 to $725 million. As previously discussed, oil price differentials to WTI have widened in the fourth quarter, and we are currently anticipating differentials of approximately 17.5% in the quarter. As a result of the lower realized prices caused by the widening differentials, we are reducing our forecasted annual funds flow from operations by $15 million to a range of $665 - $705 million.

Our long term business plan of delivering sustainable growth and dividend income (based on cash outflows matching cash inflows) with a debt to funds flow from operations ratio of 2 or less is based on our light oil weighted assets generating strong cash flows and our large inventory of opportunities delivering long-term growth. Our sustainability and debt to funds flow ratios currently exceed our long term targets, but we continue to focus our multi-year plan to reduce debt levels and achieve a sustainability ratio of 100%. In 2013, we executed a balanced capital program, which is approximately 25% lower than our 2012 program, to work towards these milestones. We continue to evaluate a number of options available to us to continue to advance our business plan and plans for 2014 will be released along with our scheduled 2014 guidance conference call on November 21, 2013.

2013 GUIDANCE
($000s, except where noted and per share amounts) 2013 Guidance
(Jan 11, 2013)
2013 Guidance
(Revised Aug 8, 2013)
(4)
YTD 2013 Actual
Production (annual average)
Oil and NGL (bbl/d) 39,000 - 41,000 37,700 - 39,300 37,787
Natural Gas (Mmcf/d) 41 - 43 50 - 52 54
Total (boe/d) 46,000 - 48,000 46,000 - 48,000 46,746
Exit Production (boe/d) 49,000 - 52,000 47,000 - 50,000 -
Funds Flow from Operations (1) $645,000 - $680,000 $665,000 - $705,000(4) $524,911
Funds Flow per share (1) $3.30 - $3.50 $3.37 - $3.62(4) $2.70
Declared Dividends per share $0.96 $0.96 $0.72
Capital Expenditures (2) $675,000 $700,000 - $725,000 $559,980
Pricing Assumptions: (3)
Crude oil - WTI (US$/bbl) 90.00 95.00 98.14
Crude oil - WTI (Cdn$/bbl) 90.00 100.00 100.51
Corporate oil differential (%) 10 7.5 - 17.5(4) 8
Natural gas - AECO (Cdn$/mcf) 3.50 3.00 3.06
Exchange rate (Cdn$/US$) 1.00 1.05 1.02
  1. Funds flow per share calculation based on 194 million weighted average basic shares outstanding for 2013 in initial guidance and 196 million shares in revised guidance.
  2. Projected capital expenditures exclude acquisitions and divestitures, which are evaluated separately. Comparatives for 2013 are shown prior to net acquisition and disposition costs of $4.6 million.
  3. 2013 revised pricing assumptions apply to the last half of 2013.
  4. We have adjusted our forecast for Q4 2013 corporate oil differentials from 7.5% to 17.5% to reflect current market conditions. This impacted our estimate of 2013 funds flow from operations and funds flow per share as reflected in the 2013 revised guidance.

NORMAL COURSE ISSUER BID APPROVAL

The Board of Directors of Lightstream has approved a normal course issuer bid (the "NCIB") and the Toronto Stock Exchange ("TSX") has accepted the Corporation's notice to make the NCIB to purchase outstanding common shares on the open market, in accordance with the rules of the TSX. This approval gives Lightstream the option to purchase outstanding shares on the open market at our discretion over the next 12 months. As approved by the TSX, Lightstream is authorized to purchase up to 17,051,793 common shares, representing approximately 10% of the public float (excluding insiders and holders of >10%) of Lightstream, being 170,517,933 common shares as of November 1, 2013. On any trading day, Lightstream will not purchase more than 140,656 common shares. Lightstream currently has 198,573,103 common shares outstanding.
Lightstream is authorized to make purchases during the period from November 12, 2013 to November 11, 2014, or until such earlier time as the NCIB is completed or terminated at the option of Lightstream. Any common shares purchased by Lightstream under the NCIB will be purchased on the open market through the facilities of the TSX and other markets including ALPHA, OMEGA, PURE, Chi-X and Match Now, at the prevailing market price at the time of the transaction. All common shares acquired under the NCIB will be cancelled.

DIVIDEND REINVESTMENT PROGRAM AND SHARE DIVIDEND PLAN

Lightstream has a dividend reinvestment program ("DRIP") in place that is available only to Canadian Lightstream shareholders. Our share dividend plan ("SDP") is now available to Canadian shareholders and most non-Canadian shareholders. The DRIP and the SDP allow shareholders to effectively receive their monthly Lightstream dividends as Lightstream shares at a 5% discount to the market price at the date of the dividend payment.

For further information regarding our SDP and DRIP, please visit Lightstream's website at www.lightstreamresources.com or contact Olympia Trust Company at 403-668-8887, toll free at 1-800-727-4493 or via email at corporateactions@olympiatrust.com.

FINANCIAL & OPERATING TABLES
Three months ended
September 30,
Nine months ended
September 30,
2013 2012 % Change 2013 2012 % Change
Financial ($000s, except where noted)
Oil and natural gas sales 331,814 237,833 40 962,764 808,399 19
Funds flow from operations (1) 179,713 122,037 47 524,911 428,754 22
Per share - basic ($) (1)(2) 0.91 0.65 40 2.70 2.28 18
- diluted ($) (1)(2)(3) 0.90 0.62 45 2.66 2.19 21
Adjusted Net Income (1) 52,031 27,449 90 2,990 155,767 (98 )
Per share - basic ($) (1)(2) 0.26 0.15 73 0.02 0.83 (98 )
- diluted ($) (1)(2) 0.26 0.14 86 0.02 0.82 (98 )
Dividends (1)(4) 47,876 45,392 5 142,216 136,112 4
Per share ($) (1) 0.24 0.24 - 0.72 0.72 -
Payout ratio (1) 27 % 37 % - 27 % 32 % -
Cash dividends (1)(4) 32,189 17,224 87 99,832 59,501 68
Cash dividend payout ratio (1) 18 % 14 % - 19 % 14 % -
Net capital expenditures (1)(7) 139,212 263,053 (47 ) 564,614 (48,590 ) -
Total debt (1)(7) 2,195,808 1,783,585 23
Basic common shares, end of period (000) 198,520 189,704 5
Operations
Operating netback($/boe except where noted) (1)(5)
Oil, NGL and natural gas revenue (6) 79.36 66.58 19 75.00 71.04 6
Royalties 11.36 9.09 25 10.17 10.26 (1 )
Production expenses 13.25 12.40 7 13.33 12.78 4
Operating netback 54.75 45.09 21 51.50 48.00 7
Average daily production
Oil and NGL (bbls) 35,445 31,662 12 37,787 34,733 9
Natural gas (mcf) 58,290 41,048 42 53,756 39,420 36
Total (boe) (5) 45,160 38,503 17 46,746 41,303 13
  1. Non-GAAP measure. See "Non-GAAP Measures" section within this document.
  2. 2012 balance calculated using shares outstanding by Lightstream Resources Ltd. prior to the reorganization in December 2012.
  3. Consists of common shares, stock options, deferred common shares, incentive shares and convertible debentures as at the period end date.
  4. 2012 balance is dividends paid out by Lightstream Resources Ltd. prior to the reorganization in December 2012. Petrobank Energy and Resources Ltd., which amalgamated with Lightstream Resources Ltd. pursuant to the Reorganization, did not payout out any dividends in the year ending December 31, 2012.
  5. Six Mcf of natural gas is equivalent to one barrel of oil equivalent ("boe").
  6. Net of transportation expenses.
  7. Net capital for the three and nine months ended September 30, 2012 and total debt as at September 30, 2012 has been adjusted to reflect the reclassification of long-term investments on the balance sheet.

INVESTOR CONFERENCE CALL

Management of Lightstream will be holding a conference call for investors, financial analysts, media and any interested persons on Friday November 8, 2013 at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss Lightstream's second quarter financial and operating results.

The investor conference call details are as follows:

Live call dial-in numbers: 1-416-340-2220/ 1-866-226-1799
Replay dial-in numbers: 1-905-694-9451 / 1-800-408-3053
Passcode: 320653
http://www.gowebcasting.com/4940

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 and Montney gas resource plays 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 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 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, 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.

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