MESSAGE TO SHAREHOLDERS
Daylight Energy Ltd. ("Daylight" or the "Company") (TSX:DAY) announces its
financial and operating results for the three months and year ended December 31,
2010 ("Q4 2010" and "2010", respectively). Daylight is firmly established as a
growing and balanced oil and natural gas producer with a current dividend yield
of approximately 6% and a sustainable business model. Highlights of Q4 2010 and
2010 include:
-- Recorded a 46% increase of 55 MMboe in total proved plus probable ("2P")
reserves to 174 MMboe at December 31, 2010 from 119 MMboe at December
31, 2009.
-- Lowest since inception 2P finding and development cost ("F&D") of $5.16
per boe for 2010 excluding future development capital ("FDC") and $11.96
per boe for 2010 including FDC.
-- Exploration and development activities added 65 MMboe of 2P reserves
during 2010 representing a 433% replacement of our 15 MMboe produced in
the year.
-- 2P reserve life index ("RLI") increased by 39% to 11.8 years.
-- Record funds from operations of $299.7 million and $94.3 million for the
2010 year and Q4 2010 respectively.
KEY EVENTS DURING 2010
Daylight had a very active and successful year in 2010. The very large and cost
effective reserve additions noted above were primarily generated in our key
Pembina Cardium light oil play and our natural gas resource plays in the Cadomin
and Nikanassin at Elmworth. More than 90% of this reserve growth was associated
with organic drilling versus acquisition based reserve additions. Our 2P F&D
cost of $11.96 including FDC's is the lowest since Daylight's inception and
further validates our long term resource play growth strategy of accumulating a
multi-billion dollar, multi-year drilling inventory within our highly
concentrated core areas.
During 2010 Daylight converted to a dividend paying corporation, continuing our
sustainable business model of balancing an oil and liquids oriented capital
program and monthly dividend payments within our cash flow. Through a series of
acquisitions and non-core area divestments during 2010, we continued to
consolidate our land holdings in the premium oil, liquids and natural gas
development area known as the Deep Basin of NE British Columbia and Alberta. Our
acquisition of West Energy Ltd. ("West") during 2010 enhanced our assets in the
key oil development area of Pembina, where we are currently developing both the
Cardium and Belly River light oil plays with cutting edge horizontal and
multi-stage frac drilling technologies. This same technology is being applied to
multiple liquids rich targets across our portfolio of assets including the
Montney zone in the Wapiti area and the Bluesky and Wilrich zones in our West
Central core area. Daylight will also continue to target the prolific Cadomin
and Nikanassin zones within our land holdings of over 180,000 net acres in the
Cutbank Ridge trend of our Elmworth core area.
Daylight's successful acquisitions during 2009 and the first half of 2010
followed up by our non-core asset rationalization during the second half of 2010
have positioned Daylight with highly focused organic growth resource play
opportunities for 2011 and many years to follow. Our multi-billion dollar
inventory of oil, liquids rich gas and resource play gas opportunities across
the Deep Basin allows Daylight to select the best value creation opportunities
as we focus on the appropriate commodities at the optimal time. Daylight is
targeting growth in oil and natural gas liquids ("NGLs") production of 11% with
our 2011 capital program allocated 80% to these opportunities. Combined with our
current dividend yield of approximately 6%, this provides a compelling business
model of sustainable and growing returns to our shareholders.
FOURTH QUARTER FINANCIAL AND OPERATIONAL RESULTS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(CDN$ thousands,
except share,
per share and
operational Q4 Q3 Q4 Year ended December 31
data) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Petroleum and
natural gas
revenues $163,960 $ 161,279 $ 156,695 $ 656,440 $ 361,337
----------------------------------------------------------------------------
Operating
netback (1) 92,554 84,373 88,299 339,765 263,250
----------------------------------------------------------------------------
Funds from
operations (1) 94,329 67,654 72,162 299,731 215,761
Per share
- Basic 0.46 0.33 0.42 1.55 1.76
- Diluted 0.43 0.31 0.40 1.45 1.65
----------------------------------------------------------------------------
Cash dividends
declared 31,218 30,490 41,811 137,826 119,107
Per share 0.15 0.15 0.24 0.72 0.96
Payout ratio (1) 33% 45% 58% 46% 55%
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Capital
expenditures 106,789 72,540 76,928 335,381 162,757
----------------------------------------------------------------------------
Shares
outstanding
(000s)
Basic 210,090 203,267 174,216 210,090 174,216
Diluted 235,320 235,050 189,831 235,320 189,831
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operational
----------------------------------------------------------------------------
Average daily
production
Natural gas
(Mcf/d) 140,378 145,409 136,412 144,866 106,232
----------------------------------------------------------------------------
Light oil
(bbls/d) 13,924 13,572 9,926 12,437 5,231
Heavy oil
(bbls/d) - 505 2,026 1,042 2,095
NGLs (bbls/d) 3,223 3,740 3,510 3,538 1,891
----------------------------------------------------------------------------
Oil & NGLs
(bbls/d) 17,147 17,817 15,462 17,017 9,217
----------------------------------------------------------------------------
Combined (boe/d) 40,543 42,052 38,197 41,161 26,922
----------------------------------------------------------------------------
Average prices
received
----------------------------------------------------------------------------
Natural gas
($/Mcf) $ 3.72 $ 3.74 $ 4.76 $ 4.17 $ 4.18
----------------------------------------------------------------------------
Light oil
($/bbl) 76.93 72.35 74.11 74.62 65.52
Heavy oil
($/bbl) - 60.57 63.10 61.69 54.03
NGLs ($/bbl) 58.75 52.50 54.19 57.22 47.73
----------------------------------------------------------------------------
Oil & NGLs
($/bbl) $ 73.51 $ 67.85 $ 68.14 $ 70.21 $ 59.26
----------------------------------------------------------------------------
Combined ($/boe) $ 43.96 $ 41.69 $ 44.59 $ 43.69 $ 36.77
----------------------------------------------------------------------------
$ per boe (2)
Petroleum and
natural gas
revenues $ 43.96 $ 41.69 $ 44.59 $ 43.69 $ 36.77
Royalties (11.27) (11.48) (12.00) (11.88) (7.94)
Realized gain
on derivative
contracts 2.55 2.41 4.96 1.84 10.69
Operating
expenses (9.78) (10.09) (11.53) (10.26) (11.71)
Transportation
expenses (0.65) (0.72) (0.89) (0.78) (1.02)
----------------------------------------------------------------------------
Operating
netback (1) $ 24.81 $ 21.81 $ 25.13 $ 22.61 $ 26.79
Other income 4.60 0.04 - 1.68 -
G&A - cash
charge (1.84) (2.07) (3.14) (2.00) (2.85)
Cash financial
charges (2.28) (2.29) (1.46) (2.34) (1.99)
----------------------------------------------------------------------------
Funds from
operations (1) $ 25.29 $ 17.49 $ 20.53 $ 19.95 $ 21.95
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes:
(1) See "Non-GAAP Measures" at the end of this press release.
(2) Per boe amounts may not add exactly due to rounding.
Q4 2010 AND 2010 FINANCIAL & OPERATING RESULTS
Reserves and Finding Costs
-- Over 90% of Daylight's reserve additions for 2010 were associated with
organic drilling additions rather than acquisition based reserve
additions.
-- Daylight's 2010 activities replaced 467% of production on a 2P basis and
226% on a proved basis.
-- Daylight's 2P reserves at December 31, 2010 are 174 MMboe, an increase
of 46% over the prior year.
-- Based on 2010 2P reserve additions and our total capital expenditures of
$335.4 million (excluding acquisitions and FDC), F&D costs for 2010 were
$5.16 per boe. Including FDC our 2010 2P F&D cost is $11.96 per boe
resulting in a recycle ratio of 1.9x.
-- Daylight's 2P Finding, Development & Acquisition ("FD&A") costs were
$9.80 per boe excluding FDC and $16.79 per boe including FDC.
Funds from Operations
-- Funds from operations were $94.3 million for Q4 2010 and $299.7 million
for 2010. Funds from operations for both Q4 2010 and 2010 were up
substantially from the $67.7 million recorded in Q3 2010 and $215.8
million recorded in 2009.
-- The increase in funds from operations for 2010 versus 2009 is primarily
a result of higher production and improved commodity prices for oil and
NGLs combined with Daylight's net share of royalty recoveries received
under the Alberta government's Energy Incentive Program.
Production
-- Average production for 2010 was 41,161 boe per day, an increase of 53%
from 2009 due to the West Energy Ltd. ("West") and Highpine Oil & Gas
Limited ("Highpine") acquisitions and the 2010 capital program,
partially offset by the disposition of approximately 3,800 boe per day
during the second half of 2010.
-- Daylight's total production volumes for Q4 2010 averaged 40,543 boe per
day, a 4% decrease from Q3 2010 due to the Q4 2010 disposition of
certain non-core petroleum and natural gas properties representing
approximately 1,500 boe per day.
Capital
-- In 2010, Daylight drilled a total of 75 gross (47.2 net) wells with 100%
success.
-- Capital expenditures for Q4 2010 were $106.8 million. This level of
capital expenditure during Q4 2010 represents an increase from $72.5
million during Q3 2010 and $76.9 million during Q4 2009. Capital
expenditures for the full year 2010 were $335.4 million.
-- During 2010, drilling activity was focused on our key horizontal multi-
stage frac light oil opportunities in the Cardium zone at Pembina.
Daylight successfully drilled and placed on production our first Montney
high liquids natural gas well in Wapiti in addition to pursuing our
established high liquids natural gas plays in West Central including the
Bluesky, Wilrich and Cardium zones. Daylight continued to successfully
drill in our core Elmworth area, following up on our successful Cadomin
and Nikanassin drilling in the Cutbank Ridge trend of the Deep Basin.
Hedges
-- At December 31, 2010, Daylight had 45,000 GJ per day of natural gas
hedged under a series of financial fixed price swaps for an average
price of Cdn$5.69 per GJ (Cdn$6.00 per Mcf) for the period January 1,
2011 to March 31, 2011.
-- Daylight has hedged 8,000 boe per day of crude oil for the majority of
2011 at prices higher than our 2011 budget price of US$90/Bbl WTI,
providing significant support to our capital program and dividend
policy.
Operating Netback
-- 2010 light oil price of $74.62 per Bbl was 14% higher than the 2009
realized light oil price of $65.52 per Bbl. Daylight's Q4 2010 light oil
price was $76.93 per Bbl while Q3 2010 light oil realized $72.35 per
Bbl, an increase of 6%, and Q4 2009 light oil price was $74.11 per Bbl,
an increase of 4%.
-- Daylight's Q4 2010 NGLs realized $58.75 per Bbl, 73% of Edmonton par, an
increase from Q3 2010 NGLs realized price of $52.50 per Bbl, 71% of
Edmonton par. Daylight's Q4 2010 NGLs price was 8% higher than the Q4
2009 price of $54.19 per Bbl, which was 71% of Edmonton par. Daylight's
2010 NGLs price of $57.22 per Bbl, 74% of Edmonton par, was 20% higher
than the 2009 realized NGLs price of $47.73 per Bbl, 72% of Edmonton
par.
-- Natural gas price during Q4 2010 was $3.72 per Mcf which is a 1%
decrease from the Q3 2010 natural gas price of $3.74 per Mcf and is 22%
lower than the Q4 2009 natural gas price of $4.76 per Mcf. Daylight's
2010 natural gas price was $4.17 per Mcf, consistent with the 2009
natural gas price of $4.18 per Mcf.
-- Daylight's operating costs during Q4 2010 decreased 3% to $9.78 per boe
as compared to Q3 2010 at $10.09 per boe and were 15% lower than Q4
2009, at $11.53 per boe. Daylight's 2010 operating expenses on a boe
basis decreased 12% to $10.26 per boe from $11.71 per boe in 2009.
-- Overall royalty rates decreased to 25.6% of revenue during Q4 2010 from
27.5% of revenue during Q3 2010 due to lower royalties on new
production. For 2010, total royalty rates increased to 27.2% of revenue
as compared to 21.6% for 2009 primarily driven by the acquisitions of
West and Highpine which incur higher light oil royalties and higher
operating netbacks in the current price environment.
Payout Ratio
-- Payout ratio for 2010 was 46%, as compared to 55% in 2009. Payout ratio
during Q4 2010 was 33% versus a payout ratio of 45% during Q3 2010 and a
payout ratio of 58% during Q4 2009.
Balance Sheet and Financial Flexibility
-- Daylight's balance sheet provides significant capacity and flexibility,
with approximately $280 million of bank debt drawn against our $625
million credit facility at December 31, 2010.
Tax Pools
-- Tax pools of approximately $1.6 billion at December 31, 2010 are
available to shelter cash flow from income tax in current periods and
beyond.
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 Series 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.
Signed:
Anthony Lambert, President & CEO
March 1, 2011
RESERVES INFORMATION
Reserves included herein are stated on a company interest basis (before royalty
burdens and including royalty interests) unless noted otherwise. "Company
Interest" is not a term defined by National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities ("NI 51-101") and as such the estimates of
company interest reserves herein may not be comparable to estimates in
accordance with NI 51-101 or other issuers' estimates of company interest
reserves. 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) prepared in accordance with NI 51-101
is included in Daylight's Annual Information Form for the year ended December
31, 2010 and dated March 1, 2011 (the "AIF") which is available on www.sedar.com
and on our website at www.daylightenergy.com. This press release contains
several cautionary statements that are specifically required by NI 51-101.
Based on an independent reserves evaluation of all of Daylight's assets
conducted by Sproule Associates Limited ("Sproule") effective December 31, 2010,
Daylight had proved plus probable reserves of 174.2 MMboe. Proved plus probable
reserve additions from exploration and development activities (including
revisions) were 65.0 MMboe. This represents 433% of the 15.0 MMboe produced
during 2010. Corporate acquisition additions, net of our property dispositions,
added total proved plus probable reserves of 5.1 MMboe bringing total proved
plus probable reserve additions to 70.1 MMboe. As a result, at December 31,
2010, proved plus probable reserves are 46% higher at 174.2 MMboe than the 119.1
MMboe of reserves recorded at year end 2009.
Proved developed producing reserves represent 32% of proved plus probable
reserves while total proved reserves account for 55% of proved plus probable
reserves. Approximately 30% of Daylight's proved plus probable reserves are
crude oil and natural gas liquids while 70% are natural gas on a boe basis.
TOTAL COMPANY INTEREST
----------------------------------------------------------------------------
Natural Gas Oil
Crude Oil Liquids Natural Gas Equivalent
----------------------------------------------------------------------------
(Mbbl) (Mbbl) (MMcf) (Mboe)
Proved
Developed
Producing 14,184 6,072 211,573 55,518
Developed Non-
Producing 1,543 424 28,893 6,782
Undeveloped 7,007 2,398 145,560 33,665
----------------------------------------------------------------------------
Total Proved 22,734 8,894 386,026 95,965
Probable 13,447 7,944 341,014 78,227
----------------------------------------------------------------------------
Proved plus Probable 36,181 16,838 727,040 174,192
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INTEREST
----------------------------------------------------------------------------
Natural Gas Oil
Crude Oil Liquids Natural Gas Equivalent
----------------------------------------------------------------------------
(Mbbl) (Mbbl) (MMcf) (Mboe)
Proved
Producing 11,068 4,036 173,229 43,975
Developed Non-
Producing 1,014 300 24,583 5,411
Undeveloped 5,662 1,915 124,475 28,323
----------------------------------------------------------------------------
Total Proved 17,744 6,251 322,286 77,709
Probable 9,892 5,704 288,428 63,667
----------------------------------------------------------------------------
Proved plus Probable 27,636 11,955 610,714 141,376
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes:
1. Boe 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.
2. Numbers may not add due to rounding.
RESERVES RECONCILIATIONS (COMPANY INTEREST)
----------------------------------------------------------------------------
Natural Gas Oil
Crude Oil Liquids Natural Gas Equivalent
----------------------------------------------------------------------------
(Mbbl) (Mbbl) (MMcf) (Mboe)
Proved Producing
December 31, 2009 14,191 6,169 210,912 55,512
Discoveries - - 1,233 206
Extensions & Improved
Recovery 2,978 296 30,010 8,275
Technical Revisions 219 612 18,717 3,950
Acquisitions 7,400 293 9,105 9,211
Dispositions (5,684) (7) (5,528) (6,612)
Production (4,920) (1,291) (52,876) (15,024)
----------------------------------------------------------------------------
December 31, 2010 14,184 6,072 211,573 55,518
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas Oil
Crude Oil Liquids Natural Gas Equivalent
----------------------------------------------------------------------------
(Mbbl) (Mbbl) (MMcf) (Mboe)
Total Proved
December 31, 2009 17,863 7,396 310,572 77,021
Discoveries - - 1,233 206
Extensions & Improved
Recovery 7,283 1,826 100,562 25,868
Technical Revisions 40 612 20,939 4,141
Acquisitions 9,691 358 11,811 12,018
Dispositions (7,223) (7) (6,215) (8,265)
Production (4,920) (1,291) (52,876) (15,024)
----------------------------------------------------------------------------
December 31, 2010 22,734 8,894 386,026 95,965
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas Oil
Crude Oil Liquids Natural Gas Equivalent
----------------------------------------------------------------------------
(Mbbl) (Mbbl) (MMcf) (Mboe)
Total Proved Plus Probable
December 31, 2009 25,991 12,365 484,234 119,062
Discoveries - - 1,811 302
Extensions & Improved
Recovery 12,245 4,435 244,202 57,380
Technical Revisions (628) 830 42,944 7,359
Acquisitions 14,700 516 17,465 18,127
Dispositions (11,207) (17) (10,740) (13,014)
Production (4,920) (1,291) (52,876) (15,024)
----------------------------------------------------------------------------
December 31, 2010 36,181 16,838 727,040 174,192
----------------------------------------------------------------------------
----------------------------------------------------------------------------
RESERVE LIFE INDEX ("RLI")
Daylight's proved plus probable RLI was 11.8 years at December 31, 2010 while
the proved RLI was 6.5 years based on the Sproule Report and Daylight's Q4 2010
average production of 40,543 boe per day.
NET PRESENT VALUE ("NPV") SUMMARY
Daylight's crude oil, natural gas and natural gas liquids reserves were
evaluated using Sproule's product price forecasts effective December 31, 2010
prior to provision for income taxes, interest, financial charges and general and
administrative expenses. It should not be assumed that the discounted future net
production revenues estimated by Sproule represents the fair market value of the
reserves.
NPV of Cash Flow Using Sproule December 31, 2010 Forecast Prices and Costs
----------------------------------------------------------------------------
NI 51-101 Net Interest
(Before Income Tax) 0% 5% 8% 10% 12%
----------------------------------------------------------------------------
($000s)
Proved
Developed Producing 1,674,149 1,301,256 1,157,706 1,081,374 1,016,360
Developed Non-Producing 196,794 156,594 139,903 130,722 122,729
Undeveloped 700,999 414,152 309,767 256,810 213,468
----------------------------------------------------------------------------
Total Proved 2,571,942 1,872,002 1,607,376 1,468,906 1,352,557
Probable 2,252,290 1,166,688 853,545 709,518 598,514
----------------------------------------------------------------------------
Proved plus Probable 4,824,232 3,038,690 2,460,921 2,178,424 1,951,071
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At a 10% discount factor, the proved producing reserves make up 50% of the
proved plus probable value while total proved reserves account for 67% of the
proved plus probable value. Sproule's price forecast utilized in the evaluation
is summarized in the following table:
Sproule December 31, 2010 Price Forecast
----------------------------------------------------------------------------
Year West Texas Edmonton
Intermediate Light Crude Natural Gas Foreign
Crude Oil Oil at AECO Exchange
----------------------------------------------------------------------------
($US/Bbl) ($Cdn/Bbl) ($Cdn/MMbtu) ($US/$Cdn)
2011 88.40 93.08 4.04 0.932
2012 89.14 93.85 4.66 0.932
2013 88.77 93.43 4.99 0.932
2014 88.88 93.54 6.58 0.932
2015 90.22 94.95 6.69 0.932
2016 91.57 96.38 6.80 0.932
2017 92.94 97.84 6.91 0.932
2018 94.34 99.32 7.02 0.932
2019 95.75 100.81 7.14 0.932
2020 97.19 102.34 7.26 0.932
----------------------------------------------------------------------------
Escalate thereafter
at +1.5%/yr +1.5%/yr +1.5%/yr -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET ASSET VALUE ("NAV") SUMMARY
The following NAV table shows what is normally referred to as a "produced-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.
----------------------------------------------------------------------------
Net Asset Value 2010
----------------------------------------------------------------------------
(000)
Proved plus Probable NI 51 - 101 discounted at 8% $ 2,460,921
Undeveloped Land, Seismic and Other Assets (internal estimate) 445,556
Investments (book value) 26,000
Unrealized gain (loss) on derivative contracts 3,728
Bank Debt (280,235)
Convertible Debentures (face value) (247,477)
Working Capital Deficiency(1) (141,644)
----------------------------------------------------------------------------
Net Asset Value - Basic $ 2,266,849
Basic Common Shares Outstanding 210,090
----------------------------------------------------------------------------
Net Asset Value - Basic (per share) $ 10.79
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. Excludes unrealized gain (loss) on derivative contracts and future
income tax liability.
FUTURE DEVELOPMENT CAPITAL ("FDC")
NI 51-101 requires that finding, development and acquisition ("FD&A") costs be
calculated including changes in FDC. Changes in forecast FDC occur annually as a
result of development activities, acquisition and disposition activities and
capital cost estimates that reflect the independent evaluator's best estimate of
what it will cost to bring the proved undeveloped and probable reserves on
production.
----------------------------------------------------------------------------
FDC (000s) Proved plus
Proved Probable
----------------------------------------------------------------------------
December 31, 2009 $ 291,296 $ 482,658
Exploration & development changes in period 211,689 490,406
----------------------------------------------------------------------------
December 31, 2010 $ 502,985 $ 973,064
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINDING, DEVELOPMENT AND ACQUISITION ("FD&A") COSTS- COMPANY INTEREST RESERVES(1)
During 2010 Daylight spent $335.4 million on its internal capital program which
added 30.2 MMboe of proved and 65.0 MMboe of proved plus probable reserves,
including revisions. Daylight's internal capital program replaced 433% of its
2010 production on a proved plus probable basis. During the year ended December
31, 2010, Daylight drilled 75 gross (47.2 net) wells with a 100% drilling
success rate. Set forth below is certain information for Daylight's FD&A costs
for the year ended December 31, 2010. The aggregate of the exploration and
development costs incurred in the most recent financial period and the change
during that period in estimated FDC generally reflects total finding and
development costs related to reserves additions for that period.
----------------------------------------------------------------------------
Proved plus
Proved Probable
----------------------------------------------------------------------------
FD&A Costs Excluding Future Development
Capital
Exploration and Development Capital
Expenditures - (000s) $ 335,381 $ 335,381
Exploration and Development Reserve Additions
Including Revisions - Mboe 30,215 65,041
----------------------------------------------------------------------------
Finding and Development Cost - per boe $ 11.10 $ 5.16
----------------------------------------------------------------------------
Acquisition Capital - (000s) $ 542,080 $ 542,080
Acquisition Reserve Additions - Mboe 12,018 18,127
----------------------------------------------------------------------------
Acquisition Cost - per boe $ 45.11 $ 29.90
----------------------------------------------------------------------------
Disposition Proceeds - (000s) $ (190,162) $ (190,162)
Disposition Reserves Reductions- Mboe (8,265) (13,014)
----------------------------------------------------------------------------
Disposition Cost - per boe $ 23.01 $ 14.61
----------------------------------------------------------------------------
Total Capital Expenditures including Net
Acquisitions - (000s) $ 687,299 $ 687,299
Reserve Additions including Net Acquisitions
- Mboe 33,968 70,154
----------------------------------------------------------------------------
Finding, Development and Acquisition Cost -
per boe $ 20.23 $ 9.80
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) In all cases, the FD&A number is calculated by dividing the identified
capital expenditures by the applicable reserves additions. 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.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FD&A Costs Including Future Development
Capital
Exploration and Development Capital
Expenditures - (000s) $ 335,381 $ 335,381
Exploration and Development Change in FDC -
(000s) 191,515 442,552
----------------------------------------------------------------------------
Exploration and Development Capital Including
change in FDC - (000s) $ 526,896 $ 777,933
Exploration and Development Reserve Additions
Including Revisions - Mboe 30,215 65,041
----------------------------------------------------------------------------
Finding and Development Cost - per boe $ 17.44 $ 11.96
----------------------------------------------------------------------------
Acquisition Capital - (000s) $ 542,080 $ 542,080
Acquisition FDC - (000s) 42,585 88,904
----------------------------------------------------------------------------
Acquisition Capital including FDC - (000s) $ 584,665 $ 630,984
Acquisition Reserve Additions - Mboe 12,018 18,127
----------------------------------------------------------------------------
Acquisition Cost - per boe $ 48.65 $ 34.81
----------------------------------------------------------------------------
Disposition Proceeds - (000s) $ (190,162) $ (190,162)
Disposition FDC - (000s) (22,411) (41,050)
----------------------------------------------------------------------------
Disposition Proceeds including FDC - (000s) $ (212,573) $ (231,212)
Disposition Reserve Reductions - Mboe (8,265) (13,014)
----------------------------------------------------------------------------
Disposition Cost - per boe $ 25.72 $ 17.77
----------------------------------------------------------------------------
Total Capital Expenditures including Net
Acquisitions - (000s) $ 687,299 $ 687,299
Total Change in FDC - (000s) 211,689 490,406
----------------------------------------------------------------------------
Total Capital Including Change in FDC - (000s) $ 898,988 $1,177,705
Reserve Additions Including Net Acquisitions
- Mboe 33,968 70,154
----------------------------------------------------------------------------
Finding, Development and Acquisition Cost
including FDC - per boe $ 26.47 $ 16.79
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Daylight's proved plus probable F&D costs for 2010 were $5.16 per boe excluding
the change in FDC and $11.96 including the change in FDC. On a proved basis,
Daylight's F&D costs were $11.10 per boe excluding the change in FDC and $17.44
including the change in FDC.
Daylight completed one corporate acquisition during 2010 spending $542.1 million
to purchase 18.1 MMboe of proved plus probable reserves. Daylight sold certain
non-core properties disposing of 13.0 MMboe of proved plus probable reserves for
total proceeds of $190.2 million. Incorporating net acquisitions during 2010,
Daylight's proved plus probable FD&A costs were $9.80 per boe excluding the
change in FDC and $16.79 including the change in FDC. Daylight's proved FD&A
costs were $20.23 per boe excluding the change in FDC and $26.47 per boe
including the change in FDC. The following table sets forth comparable
information for 2008, 2009 and 2010, as well as the average of the periods
presented.
----------------------------------------------------------------------------
Average of
Periods
$ per boe 2008 2009 2010 Presented
----------------------------------------------------------------------------
F&D Costs Excluding Change in FDC
Proved 25.97 12.18 11.10 13.29
Proved plus Probable 16.41 7.98 5.16 6.95
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F&D Costs Including Change in FDC
Proved 28.70 20.26 17.44 19.63
Proved plus Probable 20.44 15.97 11.96 13.71
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Average of
Periods
$ per boe 2008 2009 2010 Presented
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FD&A Costs Excluding Change in FDC
Proved 20.77 21.44 20.23 20.86
Proved plus Probable 15.33 13.94 9.80 12.03
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FD&A Costs Including Change in FDC
Proved 23.22 26.09 26.47 25.89
Proved plus Probable 17.67 19.03 16.79 17.80
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RESERVES REPLACEMENT
Daylight's 2010 FD&A activities replaced 467% of production on a proved plus
probable basis and 226% on a proved basis.
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2010
Production - Mboe 15,024
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Proved plus probable reserve additions - Mboe 70,154
Proved plus probable reserve replacement - % 467
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Proved reserve additions - Mboe 33,968
Proved reserve replacement - % 226
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Proved producing reserve additions - Mboe 15,030
Proved producing reserve replacement - % 100
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RECYCLE RATIO
The recycle ratio is a measure for evaluating the effectiveness of an
organization's reinvestment program. This ratio measures the efficiency of
Daylight's internal capital program by comparing the operating netback per boe
to the current year internal FD&A costs per boe and F&D costs per boe. Operating
netbacks are calculated on a per boe basis as petroleum and natural gas revenues
less royalties, operating and transportation expenses, including the realized
gain on derivative contracts.
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2010
Operating netback for the year ended December 31, 2010 - $ per boe 22.61
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Proved plus probable reserve F&D cost (excluding change in FDC) -
$ per boe 5.16
Proved plus probable recycle ratio (excluding change in FDC) 4.4x
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Proved plus probable reserve F&D cost (including change in FDC) -
$ per boe 11.96
Proved plus probable recycle ratio (including change in FDC) 1.9x
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Proved reserve F&D cost (excluding change in FDC) - $ per boe 11.10
Proved recycle ratio (excluding change in FDC) 2.0x
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Proved reserve F&D cost (including change in FDC) - $ per boe 17.44
Proved recycle ratio (including change in FDC) 1.3x
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2010
Operating netback for the year ended December 31, 2010 - $ per boe 22.61
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Proved plus probable reserve FD&A cost (excluding change in FDC) -
$ per boe 9.80
Proved plus probable recycle ratio (excluding change in FDC) 2.3x
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Proved plus probable reserve FD&A cost (including change in FDC) -
$ per boe 16.79
Proved plus probable recycle ratio (including change in FDC) 1.3x
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Proved reserve FD&A cost (excluding change in FDC) - $ per boe 20.23
Proved recycle ratio (excluding change in FDC) 1.1x
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Proved reserve FD&A cost (including change in FDC) - $ per boe 26.47
Proved recycle ratio (including change in FDC) 0.9x
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Audited Consolidated Financial Statements, MD&A and Annual Information Form
Daylight's audited consolidated financial statements for the year ended December
31, 2010 together with the notes thereto, Management's Discussion and Analysis
for the year ended December 31, 2010, and Daylight's Annual Information Form for
the year ended December 31, 2010 have been posted on our website at
www.daylightenergy.com and filed under our profile on SEDAR (www.sedar.com).
ADVISORY:
Information Regarding Disclosure in This News Release
The term "boe" is utilized by Daylight in relation to reserves or production to
combine the volumetric measures of natural gas, light oil, heavy oil, and NGLs
to a common "barrel of oil equivalent" term of measurement. Natural gas volumes
have been converted at the ratio of 6,000 cubic feet of natural gas to one boe
and this conversion ratio is based upon an energy equivalent conversion method
primarily applicable at the burner tip and does not represent value equivalence
at the wellhead. Light oil, heavy oil, and NGLs have been converted at the ratio
of one barrel of these liquids to one boe. Use of the terms boe and amounts per
boe without reference to the underlying commodity may be misleading.
"Company interest" is not a term defined by NI 51-101 and as such the estimates
of company interest reserves herein may not be comparable to estimates prepared
in accordance with NI 51-101 or to other issuers' estimates of company interest
reserves. "Net" or "net interest" as used herein means: (i) in relation to our
interest in production or reserves, our working interest (operating or
non-operating) share after deduction of royalty obligations, plus our royalty
interests in such production or reserves; (ii) in relation to our interest in
wells, the number of wells obtained by aggregating our working interest in each
of our gross wells; and (iii) in relation to our interest in a property, the
total area in which we have an interest multiplied by the working interest owned
by us.
Production volumes and revenues are reported on a gross basis, before the
deduction of Crown and other royalties, unless otherwise stated.
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; and
anticipated 2011 growth in production, cash flows, reserves, and liquids
weighting.
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 the disposition of non-core assets, including
financial assets; 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 laws.
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's Annual Information Form for the year ended December 31,
2010 and Management's Discussion and Analysis for the year ended December 31,
2010, each of which may be accessed on Daylight's SEDAR profile at www.sedar.com
or on our website at www.daylightenergy.com.
The forward-looking statements 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, whether as a result of new
information, future events or otherwise, unless so required by applicable
securities laws.
Non-GAAP Measures
Throughout this news release we use the terms "funds from operations", "funds
from operations per share", "payout ratio", and "operating netback". "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
Management's Discussion and Analysis for the year ended December 31, 2010 under
the heading "Non-GAAP Measures". "Payout ratio" 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. "Operating netback" is a term utilized by Daylight to evaluate the
operating performance of petroleum and natural gas assets. The term operating
netback is defined as petroleum and natural gas revenues less royalties,
operating, and transportation expenses plus the realized gain on derivative
contracts.
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 Management's Discussion and Analysis for
the year ended December 31, 2010 for further information.
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