CALGARY, ALBERTA--(Marketwired - Dec. 15, 2014) - Lightstream Resources Ltd. (the "Company" or "Lightstream") (TSX:LTS) is announcing our 2015 capital program as well as certain strategic initiatives, including a 62.5 percent dividend reduction and plans to monetize all or a portion of our Bakken business unit, with the goal of maximizing our financial flexibility during this current environment of low oil prices and optimizing the long term value of the Company's assets.
Corporate Strategy
In recent weeks, oil prices have dropped to five year lows, recently hitting US$55.91/bbl (WTI), a 48% drop from the peak price earlier this year. At Lightstream, we are managing our business on the basis that we could be operating in this low price environment for an extended period of time. Our goal is the preservation of our long-term value by maintaining our inventory of opportunities and our financial viability. Lightstream's extensive drilling inventory is characterized by wells which exhibit high initial oil production rates (coupled with high initial decline rates) that typically have generated rapid capital return, followed by a long life, low rate, low decline production profile. On average, our new wells produce up to 30% of their ultimate reserves during the first 12 months on-stream. We are seeking to preserve this initial economic value until we are in an environment with higher oil prices and/or lower capital costs. With this perspective in mind, our strategy for 2015 is to adopt a conservative capital and dividend program with the objective of ensuring that our expenditures will be funded through cash flow, without an increase in debt levels. In addition, we also have a strategy to monetize, at an appropriate valuation, all or part of our Bakken business unit in the next 24 months. If achieved, we would unlock unrecognized value and significantly restructure our balance sheet.
2015 Highlights
Our initial 2015 guidance, set out below, is based on an average WTI price of US$65/bbl, an AECO natural gas price of $4.00/mcf, a 10% light oil differential and a foreign exchange rate of US$/CDN$0.87.
- Capital program of $190 - $210 million funded through internally-generated cash flow, focused on capital efficiencies, recoveries and profitability;
- Two-rig program, one in each of the Bakken and Cardium business units, with a total of 51 net wells drilled;
- 2015 average and exit production of 30,000 - 32,000 boe per day, 77% oil and liquids-weighted;
- Funds flow from operations of $225 million to $245 million ($1.14 to $1.24 per share);
- Reduction of monthly dividend from $0.04 to $0.015 per share, with excess funds applied to reduce debt;
- Plan to sell all or part of our Bakken business unit with proceeds to further reduce debt and position the company for focused, future growth.
2015 Operating and Capital Guidance
The 2015 capital plan of $190 to $210 million is expected to deliver average and exit daily production rates of between 30,000 - 32,000 boepd. We forecast our average 2015 production weighting to be approximately 77% oil and liquids.
With a more modest capital program in 2015, we will take advantage of this period of reduced activity to further refine our technical expertise in well design and execution to continuously improve capital efficiencies.
We plan to drill a total of 51 net wells for approximately $146 million, accounting for 73% of our 2015 capital program. These wells are aligned with our strategy to invest in high rate of return projects in the current low oil price environment and are planned to optimize existing infrastructure and maximize field operating efficiencies. We will continue to review and evaluate this program and reallocate resources as input costs and commodity prices change.
In the Bakken Business Unit, we plan to drill up to 18 Bakken formation wells utilizing optimized drilling methods and recently tested next-generation completion designs to improve capital efficiencies. We are also planning to drill 2 additional gas injection wells in 2015 to advance the development of the gas flood in our proposed 13 section Creelman EOR Unit. We continue to develop our Mississippian play where we will drill 10 net wells in 2015.
In the Cardium business unit, we expect continuing improvements in drilling, completion and on-stream costs in 2015 (prior to any reduction in service costs) where we will drill up to 20 net wells focused primarily in West Pembina.
In the Swan Hills play of our Alberta/BC business unit, gas egress restrictions associated with existing third party infrastructure integrity have resulted in a delay in the area's future development program. We don't anticipate these egress issues to be resolved before the fourth quarter of 2015 and therefore our activity will be restricted to participation in non-operated wells.
Our anticipated 2015 business unit capital and drilling activity is as follows:
| Area |
Capital
($million)(1)(2) |
New Wells
(Net) |
| SE Saskatchewan |
83 |
30 |
| Cardium |
103 |
20 |
| Alberta / BC |
14 |
1 |
| Total |
200 |
51 |
| |
|
| (1) |
Midpoint of guidance estimates. |
| (2) |
Includes drill, complete, equip and tie-in capital as well as facilities, maintenance and other capital. |
2015 Financial Guidance
Our balance sheet is a primary area of focus in this low oil price environment. We have no plans to increase our debt. Our capital plan is expected to generate funds flow from operations of $225 to $245 million in 2015, with $190 to $210 million in capital spending and a revised annual dividend of $36 million. We intend to use any surplus cash to repay debt.
In addition to our reduced capital expenditures and our dividend initiatives, we will continue to pursue minor asset dispositions in 2015 with all proceeds directed towards further debt reduction. We plan to apply excess cash to both our high yield notes and our secured credit facility.
In 2014, we executed a $729 million asset divesture program resulting in significant debt reduction and an improved liquidity position. We used proceeds from our dispositions in 2014 to pay down our secured credit facility as well as repurchase US$100 million of principal of our high yield notes. As a result of these activities, we expect $30 million in annual interest savings going forward. We currently have $600 million undrawn under our secured credit facility. This facility has a maturity of June 2017 and we are in compliance with all covenants.
At today's oil price and current industry service costs, it is imprudent to continue to pay a dividend at our 2014 level. We have chosen to reduce our monthly dividend to $0.015 per share commencing with the December 2014 dividend payable on January 15, 2015. Depending on future material movements in the price of oil, and our success in executing our asset monetization, we will review our dividend policy further.
2015 Outlook
Our industry is experiencing challenging times with low oil pricing and high capital/service costs that have yet to adjust to current oil prices. We are taking proactive steps to preserve the financial viability and long term prospectivity of Lightstream through significant changes to our capital and dividend program, which we believe are prudent decisions in this environment. In addition, we believe there is a significant disconnect in the long term value of Lightstream and what is currently recognized in share and debt valuations. We have been successful in the past in unlocking unrecognized value through asset dispositions and we will endeavor to repeat it through the potential disposition of our Bakken business unit over the next 12 to 24 months. In the event that we are unable to achieve appropriate valuation for this transaction, we will retain our Bakken business unit and continue to operate and invest in it to maintain and enhance its long-term cash flow generating capacity, while preserving our optionality to execute a similar transformative transaction in the future. A successful transaction will allow us to significantly restructure our balance sheet with an Alberta Cardium and Swan Hills focused Company.
In the event of further material changes in the oil price environment, we will adjust our capital plans and dividend policies accordingly. We can further taper our drilling program in the face of even lower oil prices and we can also increase activity if there is sustained improvement in the industry's economic environment. We will continue to maintain the maximum flexibility in our plans.
2015 Guidance
Our updated 2015 guidance provides management's expectations for results of operations, excluding any acquisitions or dispositions for 2015. Certain guidance estimates may change with fluctuations in commodity prices.
| Average Production (boe/d) |
30,000 to 32,000 |
| Exit Production (boe/d) |
30,000 to 32,000 |
| Oil and Liquids Weighting |
77% |
| Funds Flow(1) |
|
| |
Funds Flow from Operations ('000) |
$225,000 to $245,000 |
| |
Funds Flow per share(2) |
$1.14 to $1.24 |
| Declared Dividends per share |
$0.18 |
| Capital Expenditures(3) |
|
| |
Drill, Complete, Equip and Tie-in ('000) |
$140,000 to $152,000 |
| |
Facilities, Workovers, Optimizations and Other ('000) |
$50,000 to $58,000 |
| Total Capital Expenditures ('000) |
$190,000 to $210,000 |
| |
|
| (1) |
Commodity price assumption include WTI US$65.00/bbl, AECO CDN$4.00/Mcf, foreign exchange rate of US$/CDN$0.87, and corporate oil differential of 10%. |
| (2) |
Funds flow per share calculation based on 198 million shares outstanding for 2015. |
| (3) |
Projected capital expenditures exclude acquisitions. |
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.
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 our business strategies, plans and objectives; our capital budget for 2015; our annual average production rate for 2015; 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, planned asset dispositions, future dividend payments, anticipated interest savings, anticipated reduction in capital/service expenses, debt repayment and the sufficiency of our financial resources to fund our operations. 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 commodity price and exchange rate fluctuations, 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), 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.