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Longview Oil Corp > Year End

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Post by Al42 on Mar 27, 2013 5:42am

Year End

Longview Announces 2012 Year End Financial Results and Independent Reserve Report

Wednesday, March 27, 2013

Reserve Additions Replace 118% of Production and Supports Dividend Sustainability

(TSX: LNV)

CALGARY, March 27, 2013 /CNW/ - Longview Oil Corp. ("Longview" or the "Corporation") is pleased to announce the financial and operating results for the year ended December 31, 2012 and the accompanying reserves as of December 31, 2012.

			Three months ended				Year ended
			December 31,				December 31,
			2012		2011		2012		2011⁽¹⁾

Financial ($000, except as otherwise indicated)
Sales including realized hedging		$	36,388	$	43,303	$	141,186	$	112,778
	per share⁽²⁾	$	0.78	$	0.93	$	3.02	$	3.37
	per boe	$	62.70	$	68.99	$	61.87	$	68.60
Funds from operations		$	15,639	$	21,047	$	60,420	$	53,736
	per share⁽²⁾	$	0.33	$	0.45	$	1.29	$	1.61
	per boe	$	26.95	$	33.53	$	26.47	$	32.69
Net income (loss) and comprehensive income (loss)		$	(21,466)	$	4,320	$	(8,268)	$	20,529
	per share⁽²⁾	$	(0.46)	$	0.09	$	(0.18)	$	0.61
Dividends declared		$	7,025	$	7,012	$	20,085	$	18,695
	per share⁽³⁾	$	0.15	$	0.15	$	0.60	$	0.40
Total capital expenditures		$	11,763	$	25,645	$	44,491	$	55,033
Working capital deficit ⁽⁴⁾		$	11,712	$	20,074	$	11,712	$	20,074
Bank indebtedness		$	111,895	$	90,979	$	111,895	$	90,979
Shares outstanding at end of period (000)			46,837		46,750		46,837		46,750
Basic weighted average shares (000)			46,837		46,750		46,807		33,459
Operating
Daily Production
	Crude oil and NGLs (bbls/d)		4,887		5,120		4,745		4,690
	Natural gas (mcf/d)		8,526		10,215		8,938		9,514
	Total boe/d @ 6:1		6,308		6,823		6,235		6,276
Average prices (including hedging)
	Crude oil and NGLs ($/bbl)	$	74.94	$	85.01	$	76.47	$	84.06
	Natural gas ($/mcf)	$	3.44	$	3.47	$	2.56	$	3.81
Proved plus probable reserves
	Crude oil & NGLs (mbbls)						30,204		29,897
	Natural gas (bcf)						48.4		47.7
	Total mboe						38,263		37,853
	Reserve life index (years)⁽⁵⁾						16.6		15.2

(1)	Longview's operations commenced on April 14, 2011 and the year ended December 31, 2011 includes financial and operational results for only 262 days.
(2)	Based on basic weighted average shares outstanding.
(3)	Based on shares outstanding at each dividend record date.
(4)	Working capital deficit includes trade and other receivables, prepaid expenses and deposits, trade and other accrued liabilities and due to parent.
(5)	Based on fourth quarter average production rates.

Stable Production and Funds from Operations Sustains Dividends

Funds from operations for the fourth quarter of 2012 was $15.6 million or $0.33 per share, an increase of 9% as compared to the third quarter of 2012 due to higher crude oil and liquids production. Funds from operations are primarily supported by crude oil and liquids production that represents 94% of our total sales revenue. Crude oil prices have been challenging during much of 2012 due to weakened WTI pricing and wide differentials between WTI and Canadian realized pricing that resulted in lower funds from operations as compared to the prior year.
Production for the fourth quarter of 2012 averaged 6,308 boe/d (77% crude oil and liquids), an increase of 5% from 6,013 boe/d realized in the third quarter of 2012. Production for the year ended December 31, 2012 averaged 6,235 boe/d and was comparable to the prior year. Due to weaker than anticipated commodity prices and higher differentials, we announced a reduction to our capital expenditure program in the second quarter of 2012 to maintain financial discipline and a strong balance sheet. Production additions from our reduced capital expenditure program were sufficient to offset declines due to our drilling success and low decline rate on existing production.
Operating expense for the year ended December 31, 2012 was $20.35/boe. Operating expense for 2012 has been impacted by costs associated with the clean-up of two salt water spills resulting from injection pipeline failures at Sunset, Alberta and additional costs for maintenance associated with specific facilities and pipelines throughout the year.
Total capital expenditures for the three months and year ended December 31, 2012 amounted to $11.8 million and $44.5 million, respectively. During 2012 we drilled a total of 19.1 net (29 gross) wells at a 100% success rate adding initial 30 day production of approximately 1,591 boe/d weighted 90% to crude oil and natural gas liquids. This represents an on-stream cost of approximately $28,000 per boe/d.
As at December 31, 2012, Longview's bank debt was $112.5 million on a credit facility of $200 million (56% drawn) resulting in an unutilized capacity of approximately $87.5 million. Longview currently pays a monthly dividend of $0.05 per share and has declared and paid $28.1 million of dividends for the year ended December 31, 2012.

Reserve Additions Replace 118% of Production

At December 31, 2012 we had Proved plus Probable ("2P") Company interest reserves of 38.3 mmboe with proved reserves representing 56% of the total. Our 2012 capital program replaced 118% of production adding 2.7 mmboe of 2P reserves.
Finding, Development & Acquisition ("FD&A") cost was $29.10/boe including the change in Future Development Capital ("FDC").
Longview's December 31, 2012 Net Asset Value ("NAV") is $11.40/share at a 10% discount rate on a pre-tax basis. Longview's NAV has decreased from December 31, 2011 due to a reduction in the crude oil and natural gas pricing assumptions utilized by Sproule.
The Corporation's 2P Reserve Life Index ("RLI") is 16.6 years using our fourth quarter 2012 average production rate.

Commodity Hedging Program

Longview's hedging program for calendar 2013 includes crude oil hedges of 1,000 bbls/d at $90.29/bbl for January to December 2013 and 1,000 bbls/d at $93.00/bbl for February to December 2013.
The Corporation will continue to hedge a portion of its production in the future in order to provide stable cash flow to fund dividend payments and our capital expenditure program.
Additional details on our hedging program are available at our website at www.longviewoil.com.

Looking Forward

Our 2013 budget is designed to maintain production at 2012 levels in a manner that will preserve a strong balance sheet by utilizing funds from operations to maintain our current dividend policy and fund substantially all of our capital expenditures.
Longview has a base decline rate of approximately 19% which allows the Company to maintain production with a modest level of capital expenditures, as demonstrated during 2012 and 2011.
The following table summarizes operational and financial guidance for Longview for the year ending December 31, 2013:

Average daily production

6,200 boe/d to 6,300 boe/d

Oil & liquids %

79%

Royalty rate

19% to 21%

Operating expense

$19.00/boe to $20.00/boe

Capital expenditures

$36 million

Our 2013 capital program will be comprised of low-risk crude oil drilling and recompletion activities in areas with high netbacks where Longview operates existing infrastructure. Drilling operations will focus on areas where recent activity has demonstrated strong economics that result in a quick and positive impact on funds from operations while limiting facility and other infrastructure expenditures.
The percentage of our total corporate production related to crude oil and NGLs is expected to grow to 79% in 2013 from 76% in 2012 as the 2013 capital budget is entirely focused on oil weighted projects. Approximately 60% of the capital budget is allocated to Southeast Saskatchewan targeting 6 different project areas where Longview has existing infrastructure in place which will result in lower operating costs for new production. These are lower risk locations primarily targeting the Midale formation where successful results will lead to additional drilling in future years.
Longview's business strategy is to provide shareholders with attractive long term returns that combine both income and moderate growth by exploiting our assets in a financially disciplined manner and by acquiring additional long-life oil and gas assets of a similar nature.
Given the current volatility in crude oil pricing conditions, we will continue to closely monitor our funds from operations as compared to our dividend policy and capital expenditure commitments to ensure they are substantially balanced.

Financial Statements and MD&A

Longview's audited financial statements for the year ended December 31, 2012 together with the notes thereto, and Management's Discussion and Analysis for the three months and year ended December 31, 2012 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and posted on our website at www.longviewoil.com and filed under our profile on SEDAR at www.sedar.com.

APPENDIX 1 - Reserves Summary

Longview engaged our independent qualified reserves evaluator Sproule Associates Ltd. ("Sproule") to update the reserves analysis for the Company in accordance with National Instrument 51-101 and the COGE Handbook. Reserves and production information included herein is stated on a Company Interest basis (before royalty burdens and including royalty interests receivable) unless noted otherwise. This summary contains several cautionary statements that are specifically required by NI 51-101. In addition to the detailed information disclosed in this press release, more detailed information on a net interest basis (after royalty burdens and including royalty interests) and on a gross interest basis (before royalty burdens and excluding royalty interests) will be included in Longview's Annual Information Form ("AIF") and will be available at www.longviewoil.com and www.sedar.com.

Highlights - Company Interest Reserves (Working Interests plus Royalty Interests Receivable)

	December 31, 2012	December 31, 2011

Proved plus probable reserves (mboe)	38,263	37,853
Present Value of 2P reserves discounted at 10%, before tax ($000)⁽¹⁾	$609,507	$728,401
Net Asset Value per Share discounted at 10%, before tax ⁽²⁾	$11.40	$15.12
Reserve Life Index (proved plus probable - years) ⁽³⁾	16.6	15.2
Reserves per Share (proved plus probable) ⁽²⁾	0.81	0.80
Bank debt per boe of reserves ⁽⁴⁾	$3.29	$3.03

(1)	Assumes that development of each property will occur, without regard to the likely availability to the Company of funding required for that development.
(2)	Based on 46.84 million shares outstanding at December 31, 2012 and 46.75 million shares outstanding at December 31, 2011.
(3)	Based on Q4 average production and company interest reserves.
(4)	Using boe's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a boe conversion ratio for natural gas of 6 mcf: 1 bbl has been used which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Company Interest Reserves (Working Interests plus Royalty Interests Receivable)

Summary as at December 31, 2012

	Light & Medium Oil (mbbl)	Heavy Oil (mbbl)	Natural Gas Liquids (mbbl)	Natural Gas (mmcf)	Oil Equivalent (mboe)
Proved
Developed Producing	9,082	1,349	1,181	17,753	14,571
Developed Non-producing	430	136	12	210	613
Undeveloped	3,901	297	416	9,565	6,208
Total Proved	13,413	1,782	1,609	27,529	21,392
Probable	9,490	2,852	1,060	20,825	16,872
Total Proved + Probable	22,902	4,633	2,669	48,354	38,263

Proved plus Probable reserve additions for Company Interest Reserves were 2,693 mboe in 2012 which replaced 118% of annual production of 2,282 mboe.

Gross Working Interest Reserves (Working Interest only)

Summary as at December 31, 2012

	Light & Medium Oil (mbbl)	Heavy Oil (mbbl)	Natural Gas Liquids (mbbl)	Natural Gas (mmcf)	Oil Equivalent (mboe)
Proved
Developed Producing	8,928	1,341	1,164	17,669	14,378
Developed Non-producing	409	133	7	193	580
Undeveloped	3,901	292	416	9,565	6,204
Total Proved	13,238	1,766	1,587	27,427	21,162
Probable	9,372	2,836	1,045	20,762	16,714
Total Proved + Probable	22,610	4,602	2,632	48,189	37,876

Present Value of Future Net Revenue using Sproule price and cost forecasts ⁽¹⁾⁽²⁾

($000)

	Before Income Taxes Discounted at
	0%	10%	15%
Proved
Developed Producing	$ 458,765	$ 280,167	$ 237,724
Developed Non-producing	21,783	14,436	12,326
Undeveloped	147,088	66,250	45,504
Total Proved	627,636	360,853	295,554
Probable	683,735	248,654	173,426
Total Proved + Probable	$ 1,311,371	$ 609,507	$ 468,980


(1)	Longview's crude oil, natural gas and natural gas liquid reserves were evaluated using Sproule's product price forecast effective December 31, 2012 prior to the provision for income taxes, interests, debt services charges and general and administrative expenses. It should not be assumed that the discounted future revenue estimated by Sproule represents the fair market value of the reserves.
(2)	Assumes that development of each property will occur, without regard to the likely availability to the Company of funding required for that development.

Sproule Price Forecasts

The present value of future net revenue at December 31, 2012 was based upon crude oil and natural gas pricing assumptions prepared by Sproule effective December 31, 2012. These forecasts are adjusted for reserve quality, transportation charges and the provision of any applicable sales contracts. The price assumptions used over the next seven years are summarized in the table below:

Year	WTI Crude Oil ($US/bbl)	Edmonton Light Crude Oil ($Cdn/bbl)	Alberta AECO-C Natural Gas ($Cdn/mmbtu)	Henry Hub Natural Gas ($US/mmbtu)	Exchange Rate ($US/$Cdn)
2013	89.63	84.55	3.31	3.65	1.001
2014	89.93	89.84	3.72	4.06	1.001
2015	88.29	88.21	3.91	4.24	1.001
2016	95.52	95.43	4.70	5.04	1.001
2017	96.96	96.87	5.32	5.66	1.001
2018	98.41	98.32	5.40	5.74	1.001
2019	99.89	99.79	5.49	5.83	1.001

Net Asset Value using Sproule price and cost forecasts (before income taxes)

The following net asset value ("NAV") table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time.

	Before Income Taxes Discounted at

($000, except per share amounts)		0%		10%		15%
Net asset value per share- December 31, 2011		$	31.09	$	15.12	$	11.84
Present value proved and probable reserves		$	1,311,371	$	609,507	$	468,980
Undeveloped acreage and seismic⁽²⁾			48,886		48,886		48,886
Working capital (deficit) and other			(12,764)		(12,764)		(12,764)
Bank debt			(111,895)		(111,895)		(111,895)
Net asset value - December 31, 2012		$	1,235,598	$	533,734	$	393,207
Net asset value per share ⁽¹⁾ - December 31, 2012		$	26.38	$	11.40	$	8.40


(1)	Based on 46.84 million shares outstanding at December 31, 2012.
(2)	Internal estimate.

Gross Working Interest Reserves Reconciliation

Proved	Light & Medium Oil (mbbl)	Heavy Oil (mbbl)	Natural Gas Liquids (mbbl)	Natural Gas (mmcf)	Oil Equivalent (mboe)
Opening balance Dec. 31, 2011	12,691	2,060	1,495	26,741	20,703
Extensions	120	143	178	4,227	1,145
Improved recovery	-	-	-	-	-
Infill drilling	869	31	65	594	1,064
Discoveries	-	-	-	-	-
Economic factors	2	(1)	(18)	(496)	(100)
Technical revisions	835	(219)	77	(368)	632
Acquisitions	-	-	-	-	-
Dispositions	-	-	-	-	-
Production	(1,279)	(248)	(210)	(3,271)	(2,282)

Closing balance at Dec. 31, 2012	13,238	1,766	1,587	27,427	21,162

Proved + Probable	Light & Medium Oil (mbbl)	Heavy Oil (mbbl)	Natural Gas Liquids (mbbl)	Natural Gas (mmcf)	Oil Equivalent (mboe)
Opening balance Dec. 31, 2011	22,115	5,055	2,464	47,677	37,580
Extensions	333	300	266	6,342	1,956
Improved recovery	-	-	-	-	-
Infill drilling	1,460	26	99	898	1,736
Discoveries	-	-	-	-	-
Economic factors	37	(1)	(6)	(161)	4
Technical revisions	(56)	(530)	19	(3,296)	(1,118)
Acquisitions	-	-	-	-	-
Dispositions	-	-	-	-	-
Production	(1,279)	(248)	(210)	(3,271)	(2,282)

Closing balance at Dec. 31, 2012	22,610	4,602	2,632	48,189	37,876

Finding, Development & Acquisitions Costs ("FD&A") ^(1)(2)(3)

2012 FD&A Costs - Gross Working Interest Reserves excluding Future Development Capital

		Proved		Proved + Probable
Capital expenditures ($000)		$	44,491	$	44,491
Acquisitions net of dispositions ($000)			-		-
Total capital ($000)		$	44,491	$	44,491

Total mboe, end of year			21,162		37,876
Total mboe, beginning of year			20,703		37,580
Production, mboe			2,282		2,282
Reserve additions, mboe			2,741		2,578

FD&A costs ($/boe)
	2012	$	16.23	$	17.26
	2011	$	26.14	$	15.07
	Three year average⁽⁴⁾	$	25.08	$	15.21
F&D costs ($/boe)
	2012	$	16.23	$	17.26
	2011	$	17.40	$	16.48
	Three year average⁽⁴⁾	$	16.86	$	16.82

NI 51-101

2012 FD&A Costs - Gross Working Interest Reserves including Future Development Capital

		Proved		Proved + Probable
Capital expenditures ($000)		$	44,491	$	44,491
Acquisitions net of dispositions ($000)			-		-
Net change in Future Development Capital ($000)			22,455		30,531
Total capital ($000)		$	66,946	$	75,022
Reserve additions, mboe			2,741		2,578

FD&A costs ($/boe)
	2012	$	24.42	$	29.10
	2011	$	27.81	$	16.43
	Three year average⁽⁴⁾	$	27.45	$	17.20
F&D costs ($/boe)
	2012	$	24.42	$	29.10
	2011	$	29.56	$	32.63
	Three year average⁽⁴⁾	$	27.18	$	31.09

(1)	Under NI 51-101, the methodology to be used to calculate FD&A costs includes incorporating changes in future development capital ("FDC") required to bring the proved undeveloped and probable reserves to production. For continuity, Longview has presented herein FD&A costs calculated both excluding and including FDC.
(2)	The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year. Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect Sproule's best estimate of what it will cost to bring the proved undeveloped and probable reserves on production.
(3)	In all cases, the FD&A number is calculated by dividing the identified capital expenditures by the applicable reserve additions. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 MCF:1 BBL is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
(4)	Longview commenced operations on April 14, 2011 with the acquisition of certain oil-weighted assets from Advantage Oil & Gas Ltd. Therefore, the three year average figures are calculated beginning April 14, 2011.