44% Increase in Capital Program Expected to Boost Oil Production by 12% Financed in Part by Dividend Reduction
(TSX: LNV)
CALGARY, Dec. 12, 2013 /CNW/ - Longview Oil Corp. ("Longview" or the "Company") is pleased to announce that the Board of Directors has approved the Company's capital expenditure budget and guidance for the year ending December 31, 2014 which includes a 44% increase in the capital expenditure program to $56 million. We anticipate this program will lead to a 20% increase in cash flow per share in 2014 as crude oil production volumes are expected to grow by 12% resulting in a 16% increase in operating netbacks.
Budget Highlights
- Capital expenditures are budgeted to increase by 44% from 2013 spending levels to $56 million.
- We anticipate that capital spending will be focused on the ongoing development of our light oil reserves including the drilling of 29 gross (22.3 net) wells.
- Oil production is expected to increase by 12% in 2014 as a result of the drilling program.
- Funds from operations are anticipated to increase by 20% in 2014 to $1.64 per share due to the increase in oil production.
- Our debt to cash flow ratio is expected to decline by 11% in 2014 to 1.7x, thereby preserving our strong balance sheet.
- Longview's payout ratio for 2014 is anticipated to be 102% as compared to 105% in 2013.
Dividend Payment
In order to fund the expansion of our capital development program, Longview announces that it will be paring back its monthly dividend to four cents per share effective with the dividend to be paid on January 15, 2014 to shareholders of record on December 31, 2013. The ex-dividend date for the dividend is December 27, 2013. The dividend is considered an "eligible dividend" for Canadian tax purposes.
Longview's new monthly dividend payout of four cents per share represents an annualized yield of 9.5% based on the December 12, 2013 closing price of $5.06 per share.
Operational and Financial Guidance - Summary
The following table summarizes operational and financial guidance for Longview for the year ending December 31, 2014 as compared to our published guidance for 2013:
| 2014 | 2013 | Key Variances | ||||||||||||||
| Production: | ||||||||||||||||
| Crude oil (bbls/d) | 4,750 | 4,250 | +12% | |||||||||||||
| NGLs (bbls/d) | 465 | 525 | ||||||||||||||
| Natural gas (mcf/d) | 6,800 | 7,400 | ||||||||||||||
| Boe/d (1) | 6,350 | 6,000 | ||||||||||||||
| Funds from operations (2) | $77 million | $64 million | +20% | |||||||||||||
| Per share (3) | $1.64 | $1.39 | +20% | |||||||||||||
| Capital expenditures | $56 million | $39 million | +44% | |||||||||||||
| Payout Ratio (3) | 102% | 105% | ||||||||||||||
| Debt to cash flow ratio (3) | 1.7x | 2.0x | -11% | |||||||||||||
| Royalty rate | 17% | 17.5% | ||||||||||||||
| Operating expenses | $20.00/boe | $21.00/boe | ||||||||||||||
| (1) | Boe, funds from operations, payout ratio and debt to cash flow ratio do not have a standardized meaning under GAAP. Refer to "Non-GAAP Measures, Definitions and Abbreviations" in this press release. |
| (2) | Commodity price assumptions: WTI - 2014 US $93.00/bbl, 2013 US $97.75/bbl; Edmonton light oil - 2014 $92.50/bbl, 2013 $93.00/bbl; Cdn/US exchange rate - 2014 $0.93, 2013 $0.97 and AECO C gas price - 2014 $3.68/mcf,, 2013 $3.05/mcf. |
| (3) | Based on our weighted average shares outstanding. |
Capital Development Strategy
Our asset base consists of operated oil-weighted resource plays where management of Longview has identified an extensive inventory of low risk development drilling and waterflood enhancement projects that offer the potential to significantly increase both production and reserve recoveries across our land holdings.
Management of Longview believes that in order to more fully realize the value inherent in our asset base, the pace of our capital development program needs to be accelerated. Consistent with this strategy, we have developed a 2014 budget that increases the capital program by 44% and directs a greater portion of our funds from operations towards organic growth projects while maintaining a sustainable payout ratio.
The 2014 drilling program will focus on the ongoing development of light oil reserves at 11 project areas in both Saskatchewan and Alberta which includes the drilling of 29 gross (22.3) net wells. The majority of the wells in our 2014 drilling program are expected to qualify for reduced royalty rates and will be directed towards areas where we have existing infrastructure in place resulting in lower operating costs and comparatively high rates of return. In addition, approximately 14% of our total capital budget will be allocated to waterflood enhancement and facility improvements at seven project areas designed to increase reservoir pressures and establish additional drilling locations.
Longview anticipates that this strategy will lead to a 12% increase in crude oil production in 2014. This is supported by our expected base decline rate of 19%, which is among the lowest in the industry. This boost in crude oil production is anticipated to improve our corporate netbacks by reducing royalty rates and per boe operating costs resulting in a 20% increase in cash flow per share. Production of lower value natural gas and NGL's are expected to decline by 9% in 2014 as normal production declines are forecast to more than offset modest production additions.
2014 Capital Program
- Our 2014 capital program will be focused on low-risk crude oil drilling and waterflood expansion activities in areas with comparatively high netbacks where Longview operates existing infrastructure. Drilling operations will focus on areas where recent activity has demonstrated strong economics while limiting facility and other infrastructure expenditures.
SE Saskatchewan
- Longview's 2014 capital drilling program in SE Saskatchewan will continue to focus on further development of our Midale and Frobisher plays where we have an extensive undeveloped land base of 106 gross (87 net) sections, high working interests, and existing infrastructure.
- Approximately 47% of our 2014 drilling budget is allocated to SE Saskatchewan targeting five different project areas, including 18 gross (13.2 net) wells. These wells are considered by Management to be lower risk locations primarily targeting the Midale formation that are offset by nearby production where successful results will lead to additional drilling in future years.
Alberta
- Approximately 50% of our 2014 drilling program will be allocated to five different project areas within Alberta. A total of six gross (5.7 net) wells are planned to be drilled targeting light oil development in the Cardium, Wabumun, Montney and Belly River formations. In addition, one gross (one net) well is planned to be drilled targeting the liquids rich Glauconite Hoadly trend at Willesden Green where Longview has 100% interest in an existing shallow cut gas processing facility that currently has excess capacity. All of these wells are considered by management to be lower risk locations which are offset by nearby production.
Waterflood Projects and Lloydminster area
- Our existing waterflood projects have demonstrated positive results due to capital expenditures incurred in the last several years which were undertaken to enhance water injection rates and flood patterns.
- Funds will be allocated in 2014 to further enhance existing waterflood projects at Nevis, Sunset and Pembina in Alberta and Weyburn in Saskatchewan. These enhancements are expected to help establish future drilling opportunities as voidage replacement ratios and reservoir pressures are increased to acceptable levels in each property.
- In addition, horizontal wells are planned for each of Nevis and Sunset in areas of these pools where pressure has been increased to levels sufficient to warrant additional infill drilling.
- Approximately 3% of our 2014 drilling program is anticipated to be directed to the drilling of four gross (2.4 net) wells targeting the Waseca formation at Lashburn, Saskatchewan where our infrastructure was upgraded in 2013 in order to handle additional production volumes.
2014 Capital Budget - Drilling Summary
The following table summarizes our 2014 capital budget by area and target formation:
| Well | # of Wells | |||||||||||||||||
| Area | Target Formation | Type | Gross | Net | ||||||||||||||
| S.E. SK | Midale | Hz | 16 | 11.2 | ||||||||||||||
| S.E. SK | Frobisher | Hz | 2 | 2.0 | ||||||||||||||
| Lashburn, SK | Waseca | Vt | 4 | 2.4 | ||||||||||||||
| Sunset, AB | Montney | Hz | 1 | 0.7 | ||||||||||||||
| Pembina, AB | Cardium | Hz | 3 | 3.0 | ||||||||||||||
| Nevis, AB | Wabamun | Hz | 1 | 1.0 | ||||||||||||||
| Other, AB | Belly River/Glauconite | Hz | 2 | 2.0 | ||||||||||||||
| Total | 29 | 22.3 | ||||||||||||||||
- 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.
Operating Netbacks
- The following table compares the anticipated operating netbacks for the year ending December 31, 2014 to the estimate for 2013:
| ($/boe) | 2014 | 2013 | Comment | |||||||||
| Revenues | $71.89 | $68.96 | Higher percent of production derived from light oil production more than offsets slight decrease in anticipated oil price |
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| Hedging loss | (1.45) | (2.99) | Same volume of oil hedged in 2014 at a higher price | |||||||||
| Royalties | (12.22) | (12.14) | Lower royalty rate as new production | |||||||||
| Royalty rate | 17.0% | 17.6% | qualifies for royalty holiday | |||||||||
| Operating costs | (20.02) | (21.01) | Increase in oil production anticipating utilizing existing facilities | |||||||||
| Operating netback | $38.20 | $32.82 | Anticipated increase of 16% or $5.38/boe |
Hedging Update
- Longview has the following commodity price hedging positions for 2014:
2000 bbls/d, January 1 to December 31, 2014 @ $94.85/bbl.
- Longview hedges production in order to stabilize cash flow and enhance our ability to fund dividend payments and incur capital expenditures during periods of commodity price volatility.
Technical Services Agreement Update
Management anticipates that the Technical Services Agreement ("TSA") between Longview and Advantage Oil & Gas Ltd. ("Advantage") will be terminated by March 31, 2014. The process of terminating the TSA has commenced which included the physical separation of Longview and Advantage employees into separate offices in early December 2013. We anticipate a smooth transition to a full separation early in 2014.
Forward-Looking Statements
Certain information regarding Longview set forth in this press release, including management's assessment of the Company's future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", " lead to", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. Such statements represent Longview's internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of capital expenditures or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statements are only predictions and actual events or results may differ materially. Although Longview believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Longview's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Longview.
In particular, forward-looking statements included in this press release include, but are not limited to, 2014 guidance; statements with respect to targeted average production; expected operating expenses for the year ended December 31, 2014; future royalty rates; projected capital expenditures for the year ended December 31, 2014; focus of capital budget; the focus of and timing of capital expenditures; drilling plans; timing of drilling of rigs; and crude oil and natural gas production levels. The payment and the amount of dividends declared in any month will be subject to the discretion of the board of directors and may vary depending on a variety of factors, including fluctuations in commodity prices, production levels, capital expenditure requirements, debt service requirements, operating costs, royalty burdens and foreign exchange rates. In addition, statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future.
These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Corporation's control, including the impact of general economic conditions; volatility in market prices for crude oil and natural gas; industry conditions; volatility of commodity prices; currency fluctuation; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations; environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition from other producers; the lack of availability of qualified personnel or management; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; stock market volatility; ability to access sufficient capital from internal and external sources and the other risks considered under "Risk Factors" in Longview's Annual Information Form dated March 26, 2013, which is available on www.sedar.com.
With respect to forward-looking statements contained in this press release, Longview has made assumptions regarding: current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the price of oil and natural gas; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates and future operating costs.
Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide shareholders with a more complete perspective on Longview's future operations and such information may not be appropriate for other purposes. Longview's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of this press release and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
The payment and the amount of dividends declared in any month will be subject to the discretion of the board of directors and will depend on the board of directors' assessment of the Corporation's outlook for growth, capital expenditure requirements, funds from operations, potential acquisition opportunities, debt position and other conditions that the board of directors may consider relevant at such future time, including applicable restrictions that may be imposed under the Corporations' Credit Facilities and on the ability of the Corporation to pay dividends. The amount of future cash dividends, if any, may also vary depending on a variety of factors, including fluctuations in commodity prices, production levels, capital expenditure requirements, debt service requirements, operating costs, royalty burdens and foreign exchange rates.
All dollar amounts in this press release are Canadian dollars unless otherwise indicated.
Non-GAAP Measures, Definitions and Abbreviations
The Corporation discloses several financial measures in this press release that do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or "GAAP"), such as funds from operations and payout ratio. Management believes that these financial measures are useful supplemental information to analyze operating performance and provide an indication of the results generated by the Corporation's principal business activities. Longview's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to similar measures used by other companies. Please see the Corporation's most recent management's discussion and analysis, which is available on www.sedar.com for additional information about these financial measures.
"Boe" may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (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.
"Funds from operations" represents cash provided by operating activities, adjusted for expenditures on decommissioning liability, changes in non-cash working capital and interest on bank indebtedness.
"Debt to cash flow ratio" is calculated as bank indebtedness plus working capital deficit divided by funds from operations.
"Operating netback" is calculated as revenue less hedging losses, royalties and operating costs.
"Payout ratio" is calculated as cash dividends declared and capital expenditures divided by funds from operations.
"Working capital deficit" includes trade and other receivables, prepaid expenses and deposits, trade and other accrued liabilities and due to parent.
The following abbreviations used in this press release have the meanings set forth below:
| bbls | barrels | mcf | thousand cubic feet | |||||||||
| bbls/d | barrels per day | mcf/d | thousand cubic feet per day | |||||||||
| boe | barrels of oil equivalent, on the basis of 1 bbl of oil for 6 mcf of natural gas |
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| boe/d | barrels of oil equivalent per day | |||||||||||
SOURCE: Longview Oil Corp.
Investor Relations
Toll free: 1-855-813-0313
Longview Oil Corp.
700, 400 -3rd Avenue SW
Calgary, Alberta
T2P 4H2
Phone: (403) 718-8000
Fax: (403) 718-8300
Web Site: www.longviewoil.com
E-mail: [email protected]
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