Daylight Energy Ltd. (TSX:DAY) ("Daylight" or the "Corporation") is pleased to
provide operational and financial guidance for 2011. Daylight continues to
provide a consistent and attractive monthly cash return while implementing a
focused and growth-oriented capital program in 2011. This capital program is
expected to provide growth in overall production with an emphasis on developing
our extensive inventory of oil and liquids rich natural gas resource plays. Our
balance sheet will continue to provide Daylight with stability and financial
flexibility as our 2011 budget targets balancing our cash inflows with our
capital program and dividend commitments. Daylight targets to provide a
two-tiered sustainable return for our shareholders including both a meaningful
dividend and organic growth in our reserves, production and oil weighting.
Daylight successfully executed our conversion to a corporation in May 2010 and
is now established as a leading Canadian intermediate oil and gas producer with
significant internal growth potential. Results from our 2010 capital program
provide confirmation of the tremendous potential of our core Deep Basin assets
as highlighted by our recently announced major reserve additions. Very strong
drilling results were experienced during Q4 2010 over a number of diverse plays
including: our Pembina Cardium light oil development, our emerging liquids rich
Montney resource play in Wapiti and our suite of West Central and Peace River
Arch resource plays including the Nikanassin, Cadomin, Bluesky and Wilrich
zones.
Daylight is also pleased to announce that our Q1 2011 monthly cash dividend to
shareholders will be maintained at our Q4 2010 level of Cdn$0.05 per share per
month. Dividends continue to be an important component of our two-tiered
sustainable return to shareholders. Daylight's intent is to sustain these
dividend payment levels for the full 2011 year and beyond, under reasonable
commodity price assumptions, as we target growth in per share cash flow.
An operational update of Daylight's very active and successful Q4 2010 is
included in this release with our full year 2010 and Q4 2010 financial and
operating results scheduled to be released on or about March 2, 2011.
2011 GUIDANCE
- Daylight plans to execute a capital budget of $250 million during 2011. Our
capital program will be invested in our core Deep Basin portfolio of assets with
a focus on light oil and liquids rich gas opportunities. Daylight's 2011
drilling program will continue to use and improve upon our successful horizontal
drilling techniques and innovative completion technologies that significantly
contributed to our 2010 operational success.
- Daylight's current asset base and 2011 capital program are expected to deliver
average production of 42,000 to 42,500 boe per day for 2011, net of
approximately 3,800 boe per day of non-core production sold over the course of
2010. This represents overall growth in total production of approximately 3%
with stronger growth of over 11% in oil and NGL production due to the emphasis
on these commodities in the 2011 capital program. Production is expected to be
weighted approximately 45% to oil and natural gas liquids ("NGLs") and 55% to
natural gas by Q4 2011, as Daylight continues to emphasize our large inventory
of oil and liquids weighted drilling and development opportunities which
generate superior cash flow on a per boe basis at current commodity price
levels. Production will increase from our 2011 entry point of approximately
41,500 boe per day by approximately 500 boe per day per quarter, increasing our
oil and liquids production weighting by approximately 1% per quarter. This
highlights the capacity of Daylight, with our large inventory of development
drilling opportunities, to internally manage our production and capital
commodity mix consistent with actual commodity price changes.
- Daylight expects to drill approximately 70 wells during 2011, with 36 drilled
for light oil in our Pembina core area, primarily targeting the Cardium zone but
also the Belly River and Nisku zones. The Corporation is also planning to drill
a minimum of 4 wells targeting the liquids rich Montney gas play in Wapiti plus
an additional 9 wells to further develop and delineate our resource play gas
opportunities in Elmworth, including the Nikanassin and Cadomin zones. In our
liquids rich West Central core area, Daylight plans to drill 17 wells following
up on very successful 2010 drilling in the Bluesky, Cardium and Wilrich zones.
- Daylight's operating costs are expected to continue to improve to
approximately $9.50 - $9.90 per boe for 2011 as compared to $10.42 per boe
reported for YTD Q3 2010.
- Daylight had approximately $280 million of bank debt drawn against our $625
million credit facility at December 31, 2010 which provides significant
financial flexibility to the Corporation.
- Daylight has approximately $1.6 billion of high claim rate tax pools at
year-end 2010 which provide significant flexibility and shelter from cash taxes
for 2011 and years beyond.
Q4 2010 OPERATIONAL HIGHLIGHTS
- Daylight's 2010 capital program delivered significant well results in a number
of our different resource play opportunities. At Pembina, 4 (3.8 net) additional
Cardium horizontal wells were placed on production during Q4. Our 30 day average
initial calendar day production rate excluding completion fluids is currently
228 boe per day, above our type curve rate used in our economic analysis of 200
boe per day. In addition, 8 (6.9 net) wells were spud during Q4 2010, bringing
our total number of wells drilled into this play to 28 (25.8 net) for 2010.
- In Wapiti, Daylight placed our first horizontal liquids rich Montney gas well
on production late in December and attained an initial production rate of 7 mmcf
per day, in line with recent adjacent competitor activity. Initial natural gas
liquids production rates appear to be in excess of 50 bbls per mmcf at the
wellhead and an estimated 90 bbls per mmcf including deep cut processing, also
in line with recent competitor activity.
- During Q4, Daylight drilled several significant wells in Elmworth, our key
resource play natural gas area. Of particular note are two vertical Nikanassin
wells, with initial production rates of 5 and 6 mmcf per day. Daylight plans to
follow up these successful tests with two horizontal Nikanassin wells and five
additional vertical wells in 2011. Also of note are our two most recent
horizontal Cadomin wells in the Elmworth area, with initial production rates of
4 and 7 mmcf per day.
- Daylight's most recent liquids rich Bluesky gas well in our West Central core
area attained an initial production rate of 5 mmcf per day with an associated
liquids rate of approximately 50 bbls per mmcf. Also in West Central, Daylight
participated in another successful Wilrich well with an initial production rate
of over 6 mmcf per day.
- During Q4 2010, Daylight divested approximately 1,500 boe per day and
experienced third party downtime and delays with an additional impact of
approximately 1,500 boe per day on the quarter. As a result, Daylight's field
estimate for Q4 2010 production is approximately 40,500 boe per day. With our
previously announced dispositions closed in 2010 and our third party downtime
and delays resolved, Daylight enters 2011 with production of approximately
41,500 boe per day.
- During Q4 2010, Daylight invested approximately $10 million to obtain
significant undeveloped land positions in two emerging oil resource plays within
our core areas. This investment was in addition to our budgeted $325 million
2010 capital program.
- During Q4 2010, Daylight closed our previously announced dispositions of
approximately 1,500 boe per day of non-core production for net proceeds of
approximately $66 million, inclusive of closing adjustments and fees. We also
sold our entire non-core financial investment in asset backed securities, Bengal
Energy Ltd. and Midway Energy Ltd. for net proceeds of approximately $27
million. At December 31, 2010 Daylight continued to hold our non-core financial
investment in Gear Energy Ltd. Daylight considers this investment available for
disposition. Daylight also recognized other income of approximately $17 million
related to our net share of royalty program recoveries (consistent with Q2
2010). As a result of these items, Daylight's bank debt at December 31, 2010 was
approximately $280 million and our estimated year-end working capital deficiency
was approximately $150 million.
2011 GUIDANCE
Capital Expenditure Program
Daylight's 2011 capital expenditure program focuses on our repeatable, low risk
resource play drilling and development opportunities in each of our three core
areas. Particular emphasis has been placed on liquids weighted opportunities,
with 60% of our capital targeting light oil, 20% targeting liquids rich natural
gas and the remaining 20% targeting delineation of resource play natural gas.
Capital has been allocated to our core areas with the following geographic
locations, geological zones and commodity targets:
2011 Capital Geographic Geological Zone & Commodity
Core Area Allocation Location Target
----------------------------------------------------------------------------
Pembina $150 million Pembina Cardium (Horizontal) - Light
Oil
Brazeau Belly River (Horizontal) -
Light Oil
Tomahawk Nisku (Vertical) - Light Oil
Warburg Cretaceous (Multi-zone) -
Liquids Rich Natural Gas
----------------------------------------------------------------------------
West Central $ 30 million Pine Creek Bluesky (Horizontal) -
Liquids Rich Natural Gas
Kaybob Cardium (Horizontal) -
Liquids Rich Natural Gas
Obed Wilrich (Horizontal) -
Liquids Rich Natural Gas
Medicine Cretaceous (Multi-zone) -
Lodge Liquids Rich Natural Gas
Marlboro Montney (Horizontal) -
Liquids Rich Natural Gas
----------------------------------------------------------------------------
Elmworth $ 70 million Elmworth Montney (Horizontal) -
Liquids Rich Natural Gas
Jackpine Cadomin (Horizontal) -
Natural Gas
Wapiti Nikanassin (Horizontal) -
Natural Gas
Uphole Cretaceous (Multi-
zone) - Natural Gas
----------------------------------------------------------------------------
Total $250 million (1)
------------------------------------
(1) Net of drilling credits
In addition to the capital expenditure program, Daylight also expects asset
retirement expenditures of approximately $6 million to be incurred during 2011.
Financial
Daylight intends to fully fund our 2011 capital program and dividend payments
with our estimated funds from operations and the disposition of our remaining
non-core financial assets during 2011. Daylight's balance sheet provides
significant capacity and flexibility, with approximately $280 million of bank
debt currently drawn against our $625 million credit facility at December 31,
2010.
The Corporation has declared a Cdn$0.05 per share monthly dividend for Q1 2011.
Dividends continue to be an important component of our two-tiered sustainable
return to shareholders. Daylight intends to sustain these dividend payment
levels well into the future, under reasonable commodity price assumptions, as we
target growth in per share cash flow over time. With a focus on increasing cash
flow per share, our payout ratio should improve and further secure Daylight's
dividend payment stability.
Daylight's 2011 budget is based on an exchange rate of US$1.00 per Cdn$1.00 and
commodity prices of US$90.00 per barrel WTI for light oil and Cdn$4.00 per mcf
AECO for natural gas which are consistent with the current 2011 forward strip
commodity prices.
Daylight expects operating costs of approximately $9.50 - $9.90 per boe during
2011. This represents an improvement from our YTD Q3 2010 operating costs of
$10.42 per boe primarily due to the internal cost reduction initiatives and the
focusing of our production within our core operating areas.
Daylight expects an overall royalty rate of approximately 25% of revenue during
2011 based on the above noted commodity prices.
Daylight directly controls the marketing of our commodities to obtain the
highest available price for our production and to pursue opportunities which
enhance economics and provide financial certainty. Daylight also manages the
related transportation of our commodities and expects 2011 transportation
expenses to be approximately $0.70 per boe.
Daylight continues to actively manage our assets with a team of highly skilled
technical and business execution professionals. Investing in these teams
generates value through our prospect inventory, play development, technical
operations and production growth. Daylight expects 2011 cash general and
administrative expenses of approximately $2.25 per boe which includes the
creation, in late 2010, of a New Ventures team dedicated to internally
developing and acquiring early stage resource plays with a meaningful footprint
at a low entry cost.
Daylight expects cash financial charges based on all in credit facility costs
(including bank stamping, standby and renewal fees) to result in a realized
interest rate of approximately 4.75% on our bank debt, 10.0% on our Series C
convertible debentures and 6.25% on our Series D convertible debentures which
results in cash financial charges of approximately $2.60 per boe.
Hedging Summary
Daylight's hedging program protects our funds from operations and provides
financial stability with a sizeable portion of our 2011 production volumes
covered by this program at favorable prices.
Daylight has approximately 4,000 barrels per day of crude oil hedged for
calendar 2011 with an average price of Cdn$90.78 per barrel WTI. Details of
these crude oil hedges are as follows:
Type of Hedged
Contract Commodity Volume Hedge Price Hedge Period
----------------------------------------------------------------------------
Financial
(Swap) (1) Crude oil 1,000 bbl/d US$90.00/bbl Jan 1/11 to Dec 31/11
Financial
(Swap) (1) Crude oil 2,000 bbl/d US$90.06/bbl Jan 1/11 to Dec 31/11
Financial
(Swap) (1) Crude oil 1,000 bbl/d US$93.00/bbl Feb 1/11 to Dec 31/11
Daylight has 45,000 GJ per day, equivalent to 42,650 mcf per day, of natural gas
hedged from January 1, 2011 to March 31, 2011 at an average fixed price of $5.69
per GJ, equivalent to $6.00 per mcf AECO. Details of these natural gas hedges
are as follows:
Type of Hedged
Contract Commodity Volume (2) Hedge Price Hedge Period
----------------------------------------------------------------------------
Financial
(Swap) (1) Natural gas 5,000 GJ/d Cdn$5.72/GJ Jan 1/11 to Mar 31/11
Financial
(Swap) (1) Natural gas 30,000 GJ/d Cdn$5.69/GJ Jan 1/11 to Mar 31/11
Financial
(Swap) (1) Natural gas 10,000 GJ/d Cdn$5.695/GJ Jan 1/11 to Mar 31/11
(1) Swap indicates fixed price.
(2) A GJ converts to a mcf at the rate of 1.055056 GJs per mcf.
2011 GUIDANCE SUMMARY
Capital Expenditures (millions)
----------------------------------------------------------------------------
Land, geological and geophysical $ 20
Drill, complete and tie-in (net of drilling credits) 215
Facilities 15
----------------------------------------------------------------------------
Total $250
----------------------------------------------------------------------------
Production Volumes
----------------------------------------------------------------------------
2011 annual average daily production (boe/d) 42,000 to
42,500
----------------------------------------------------------------------------
2011 mid point of annual average guidance:
----------------------------------------------------------------------------
Natural gas (mcf/d) 142,500
----------------------------------------------------------------------------
Light oil (bbls/d) 14,900
NGLs (bbls/d) 3,600
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 18,500
----------------------------------------------------------------------------
Combined (boe/d) 42,250
----------------------------------------------------------------------------
Financial
----------------------------------------------------------------------------
Royalties (% of revenue) 25% (1)
Operating expenses (per boe) $9.50 - $9.90
Transportation expenses (per boe) $0.70
----------------------------------------------------------------------------
Cash general & administration expenses (per boe) $2.25
Cash financial charges (per boe) $2.60
----------------------------------------------------------------------------
(1) Based on commodity prices for 2011 of US$90.00 per barrel WTI for light oil
and Cdn$4.00 per mcf AECO for natural gas with an exchange rate of US$1.00 per
Cdn$1.00.
Cash Dividends
Daylight maintains a Q1 2011 cash dividend to shareholders of Cdn$0.05 per share
per month based on our 2011 guidance as follows:
----------------------------------------------------------------------------
Dividend Payment Dividend
Record Date Ex-Dividend Date Date Per Share
----------------------------------------------------------------------------
January 31, 2011 January 27, 2011 February 15, 2011 Cdn$0.05
February 28,2011 February 24, 2011 March 15, 2011 Cdn$0.05
March 31, 2011 March 29, 2011 April 15, 2011 Cdn$0.05
----------------------------------------------------------------------------
(i) The dividend is considered an "eligible dividend" for tax purposes.
Daylight expects to pay a sustainable dividend on a monthly basis, provided
however that any decision to pay dividends on the common shares will be made by
the Board of Directors on the basis of Daylight's funds from operations,
earnings, financial requirements, commodity price levels, legal requirements and
other conditions existing at such future times. Daylight currently intends to
designate all dividends to be "eligible dividends" for the purposes of the
Income Tax Act (Canada) such that shareholders who are individuals will benefit
from the enhanced gross-up and dividend tax credit mechanism under the Income
Tax Act (Canada).
Daylight is a growing intermediate oil and natural gas producing company with a
high quality suite of resource play assets in Western Canada. Our highly focused
team utilizes our technical expertise in exploitation, development, and
acquisitions to create long-term value for our shareholders. Our team has
developed a multi-year inventory of repeatable, low risk exploitation resource
play projects with substantial potential reserve additions on assets we
currently own and control in the premier Pembina Cardium light oil fairway and
in the premier Deep Basin area of Alberta and British Columbia.
Daylight has approximately 210 million common shares outstanding which trade on
the TSX under the symbol DAY. Daylight Series C and D convertible debentures
trade on the TSX under the symbols DAY.DB.C and DAY.DB.D, respectively.
An updated corporate presentation is available on Daylight's website at
www.daylightenergy.com.
ADVISORY:
Forward-Looking Information and Statements
This press release contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and
similar expressions are intended to identify forward-looking statements or
information. More particularly and without limitation, this press release
contains forward-looking statements and information concerning: anticipated
financial stability and flexibility during 2011; Daylight's 2011 capital
program, including allocation of expenditures associated therewith; Q1 2011
dividend levels and dividend levels for the balance of 2011 and beyond;
anticipated 2011 growth in production, cash flows, reserves, and liquids
weighting; anticipated dispositions of additional non-core assets, including
financial assets, during 2011; expectations regarding the number of wells to be
drilled during 2011 and the allocation of Daylight's 2011 capital budget
thereto; anticipated operating costs, on a per barrel basis, for 2011; estimated
initial production rates associated with Daylight's planned drilling and
development activities; estimated liquids volumes associated with Daylight's
Wapiti Montney well brought on production in late December 2010; field estimates
regarding Q4 2010 production volumes; estimated commodity prices and exchange
rates for 2011 and beyond; estimated cash flow per share, payout ratio and
royalty rates for 2011; anticipated transportation expenses and cash general and
administrative expenses on a per barrel basis for 2011; and the anticipated
record date and payment date in respect of Q1 2011 dividends on Daylight's
common shares.
The forward-looking statements and information in this press release are based
on certain key expectations and assumptions made by Daylight, including but not
limited to expectations and assumptions concerning: prevailing and future
commodity prices and exchange rates; applicable royalty rates and tax laws;
future production rates; the performance of existing and future wells;
application of existing technologies and future advancements in technology to
Daylight's operations and drilling activities; the success obtained in drilling
new wells; the inventory of new drilling locations; the sufficiency of budgeted
capital expenditures in carrying out planned activities; the availability and
cost of labor and services, including but not limited to completion equipment
and services; adequate weather and environmental conditions for drilling and
completion activities, including transportation of associated equipment; the
receipt, in a timely manner, of regulatory and third party approvals; Daylight's
ability to negotiate acceptable terms of sale for non-core assets, including
financial assets, and market demand therefore; and the receipt of required
regulatory and other third party approvals for such dispositions.
Although Daylight believes that the expectations and assumptions on which such
forward-looking statements and information are based are reasonable, undue
reliance should not be placed on the forward-looking statements and information
because Daylight can give no assurance that they will prove to be correct. There
is no representation by Daylight that actual results achieved during the periods
identified in this press release will be the same in whole or in part as those
forecast.
Since forward-looking statements and information 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 risks
associated with the oil and gas industry in general such as: 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 and resource (including original oil in place) estimates;
the uncertainty of estimates and projections relating to production, costs and
expenses; health, safety and environmental risks; risks associated with weather
and the impact on drilling and completion activities and the transportation of
associated equipment; commodity price and exchange rate fluctuations; marketing
and transportation of petroleum and natural gas and loss of markets;
environmental risks; competition; risks associated with utilizing existing
technologies and future technological advancements in Daylight's operations and
drilling activities; failure to realize the anticipated benefits of
acquisitions; risks regarding the integration of acquired entities and assets;
incorrect assessment of the values of acquisitions; Daylight's ability to
negotiate acceptable terms for non-core assets, including financial assets,
being marketed; Daylight's ability to obtain all third party and regulatory
approvals necessary to dispose of such assets; ability to access sufficient
capital from internal and external sources; failure to obtain required
regulatory and other third party approvals; and changes in legislation,
including but not limited to tax laws, royalty rates and environmental
regulations. Readers are cautioned that the foregoing list of risk factors is
not exhaustive. Additional information on these and other factors that could
affect the business, operations or financial results of Daylight are included in
reports on file with applicable securities regulatory authorities, including but
not limited to Daylight Energy Ltd.'s Annual Information Form for the year ended
December 31, 2009 and Daylight Energy Ltd.'s Notice of Annual and Special
Meeting and Information Circular and Proxy Statement dated April 7, 2010, each
of which may be accessed on Daylight Resources Trust's (the predecessor to
Daylight) SEDAR profile at www.sedar.com.
This press release also contains future-oriented financial information and
financial outlook information (collectively, "FOFI") about prospective and
potential operating and financial results of Daylight during 2011 and beyond,
all of which are subject to the same assumptions, risk factors, limitations, and
qualifications as set forth in the above paragraphs. The FOFI contained in this
press release was made as of the date of this press release and was provided for
the purpose of giving a general overview of management's expectations regarding
the anticipated results of Daylight's planned 2011 operations and capital
expenditures, and management's expectations regarding sustainability of future
dividends on the common shares. Readers are cautioned that the FOFI contained in
this press release should not be used for purposes other than for which it is
disclosed herein as such information may not be appropriate for other purposes.
The forward-looking statements and FOFI contained in this press release are made
as of the date hereof and Daylight undertakes no obligation to update publicly
or revise any forward-looking statements or information or FOFI, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
Barrels of Oil Equivalent
"Boe" or "barrel of oil equivalent" means barrel of oil equivalent on the basis
of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading,
particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000
cubic feet of natural gas is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Non-GAAP Measures
Throughout this news release we use the terms "cash flow" and "cash flow per
share" as alternate terms for "funds from operations" and "funds from operations
per share". "Cash flow","cash flow per share", "funds from operations", and
"funds from operations per share" are terms utilized by Daylight to evaluate
operating performance and assess leverage. A reconciliation of cash provided by
operating activities to funds from operations is set forth in the Q3 2010 MD&A
under the heading "Non-GAAP Measures". "Payout ratio" is also used in this press
release and is a term utilized to evaluate financial flexibility and the
capacity to fund dividends. Payout ratio is defined on a percentage basis as
dividends declared divided by funds from operations.
Such terms do not have a standardized meaning or definition as prescribed by
Canadian generally accepted accounting principles ("GAAP") and therefore may not
be comparable with calculations of similar measures by other entities. Refer to
the "Non-GAAP Measures" section of the MD&A from Q3 2010 for further
information.
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