Continued success in the Company's dominant position in the Spearfish in southern Manitoba and North Dakota and the Rundle at Turner Valley has added significantly to its drilling inventory and these areas will play a key role in 2012 organic activity and growth.
Legacy expects to spend $305 million in 2012 focused on light oil development with the majority (83 percent) directed to drilling, completions and tie-ins. The spending is distributed as follows: drilling, completions and tie-ins - $254 million; facilities - $28 million; land and seismic - $18 million and other $5 million. The majority of the capital spending will be allocated to the Company's major plays: Turner Valley - $98 million (32 percent), Spearfish (Manitoba and North Dakota) - $75 million (25 percent), conventional Mississippian - $47 million (15 percent), Frys/Antler - $27 million (9 percent) and Taylorton - $19 million (6 percent).
Legacy is planning to drill 123 gross (96 net) wells in 2012, targeting high quality light oil. In addition to drilling, the Company is planning capital expenditures on a pilot waterflood at Frys/Antler and Taylorton. No capital has been budgeted for acquisitions, although the Company continues to evaluate new opportunities, both within and beyond its core areas.
Legacy anticipates a 2012 average production rate of 16,300 Boe per day (85 percent weighted to light oil and NGL) representing growth of 29 percent over 2011 expected average production, and 26 percent on a per share basis. The Company has incorporated a significant reduction in second quarter volumes to account for the possibility of an extended spring break up in its Williston Basin core area. Legacy expects to exit 2012 at approximately 17,900 Boe per day, representing 10 percent growth from 2011 exit rate guidance. The operational parameters used in the budget are as follows:
- Average Production - 16,300 Boe per day (85 percent light oil and NGL)
- Average Crude Quality - 39° API
- Royalty Rate - 16.5 percent
- Operating Costs - $14.00 per Boe
- Transportation Costs - $2.50 per Boe
- G&A (expensed) - $2.65 per Boe
- Common Shares Outstanding (basic, weighted average) - 143.3 million
At recent strip pricing, this budget is expected to deliver cash flow in excess of $295 million, or $2.05 per basic common share, an increase of over 50% year over year. This cash flow generation results in a debt to cash flow ratio of approximately 1.3 times. Projected 2012 year end net debt at recent strip pricing is expected to be $397 million. Cash flow sensitivity to changes in oil price is 1.8 percent per USD 1.00 per barrel change in WTI oil price.
Legacy begins 2012 with an extensive light oil development drilling inventory of more than 1,200 net locations, which represents over 12 years of development potential, based on expected 2012 activity levels. This significant opportunity set does not reflect the potential upside from downspacing Bakken light oil resource play lands from 4 to 8 wells per section or the waterflood potential at Frys/Antler, Taylorton , Heward/Stoughton and Spearfish and recognizes only a portion of the Bottineau County, North Dakota Spearfish drilling potential. Furthermore, Legacy has material exposure to emerging light oil resource plays in southern Alberta for Alberta Bakken and Maxhamish in northeast BC for Chinkeh that could add significantly to the development drilling inventory and growth potential of the Company.
Legacy also announces that Paul Charron has resigned from the board of directors to pursue other business interests.
The Company would like to thank Mr. Charron for his contribution to Legacy's ongoing success.