Daylight Energy Ltd. ("Daylight" or the "Corporation") (TSX:DAY) is pleased to
report its financial and operating results for the three and six months ended
June 30, 2010 ("Q2 2010" and "YTD 2010", respectively). Full copies of our Q2
2010 financial statements and management discussion and analysis ("MD&A") have
been filed on our website at www.daylightenergy.com and under our profile on
SEDAR at www.sedar.com.
Record production volumes during Q2 2010 of 42,273 barrels of oil equivalent
("boe") per day highlight another strong quarter for Daylight representing year
over year production growth of 83% and an increase of 6% over Q1 2010. The
Corporation continued to be extremely active during Q2 2010, converting from an
Income Trust to a growth-oriented dividend paying corporation, closing our
previously announced acquisition of West Energy Ltd. ("West") and announcing the
sale of certain assets in eastern Alberta, outside of our core Deep Basin
Alberta and Northeast BC fairway. Daylight continues this momentum into Q3 2010
as we maintain our focus on developing our key Pembina Cardium horizontal light
oil play.
In spite of weather related delays during Q2 2010, the Corporation initiated
drilling operations on 7 gross (3.4 net) wells, including wells in a variety of
different high profile plays. Daylight participated in 3 gross (2.8 net)
horizontal multi-frac light oil wells during Q2 2010, two targeting the Pembina
Cardium in Brazeau and one targeting the Doe Creek formation in Sinclair. The
two Pembina Brazeau wells have both been cased, with preliminary geological and
initial testing data indicating that their production performance should be
similar to Daylight's top performing wells in the area. The Corporation also
initiated drilling on 4 gross (0.6 net) horizontal wells targeting natural gas
and liquids in our core West Central property. This program continues to
highlight the depth and variety of Daylight's inventory of resource play
opportunities in light oil, natural gas and natural gas liquids.
Subsequent to the end of Q2 2010, Daylight has spud 6 gross (5.5 net) wells to
kick-off the remainder of our high-impact 2010 drilling program. Currently,
Daylight has 4 drilling rigs operating in the Pembina area. At Pembina, we are
targeting the Cardium light oil resource play with 2 gross (2.0 net) wells in
Brazeau and 2 gross (2.0 net) wells in Tomahawk drilling or cased so far in Q3
2010. Daylight considers these areas to be among the top locations for Cardium
development. In addition, Daylight is following up on our first Sinclair Doe
Creek horizontal light oil well with another 100% W.I. location.
Q2 2010 FINANCIAL & OPERATING RESULTS
Operations
-- Recorded Q2 2010 production volumes of 42,273 boe per day, representing
an increase of 6% from Q1 2010 and 83% from Q2 2009. In spite of weather
related delays impacting completion and tie-in operations during Q2
2010, Daylight maintains its 2010 production guidance of 42,000 to
43,000 boe per day with an exit rate of approximately 45,000 boe per
day.
-- Capital expenditures of $61.8 million during Q2 2010. Daylight has
guided total capital spending of $300 million in 2010 with a primary
focus on horizontal Cardium oil wells in Pembina and Pine Creek and
multi-zone, high liquids natural gas in our core West Central area.
-- Daylight's operating costs decreased by 5% in Q2 2010 to $10.33 per boe
as compared to $10.86 per boe in Q1 2010. Daylight's operating costs are
expected to remain between $10.25 and $10.75 per boe for the remainder
of 2010 as Daylight adds production in our lower cost key resource play
areas.
Commodity Prices
-- Average price received for natural gas decreased to $3.94 per mcf from
$5.29 per mcf for Q1 2010, a decrease of 26%.
-- Average price received for light oil decreased to $72.12 per bbl for Q2
2010, a 7% decrease from Q1 2010.
-- Average price received for heavy oil decreased to $56.92 per bbl for Q2
2010, a decrease of 14% from Q1 2010.
-- Average price received for natural gas liquids ("NGLs") was $55.89 per
bbl for Q2 2010, a decrease of 10% from Q1 2010.
Financials
-- Funds from operations increased to $71.3 million during Q2 2010 from
$66.4 million in Q1 2010.
-- Royalty rates for Q2 2010 decreased to 27.4% of revenue compared to
28.2% of revenue in Q1 2010.
-- Revenue for Q2 2010 decreased 6% to $160.3 million from $170.9 million
in Q1 2010 due to lower commodity prices and despite higher production
volumes.
-- Daylight declared a $0.05 per share per month dividend for each of the
three months July, August and September 2010.
-- Payout ratio for Q2 2010 was 48% compared to 63% in Q1 2010.
-- Operating netback of $21.38 per boe for Q2 2010 compared to $22.53 per
boe for Q1 2010 as lower royalties and lower operating costs partially
mitigated the impact of lower commodity prices.
Balance Sheet
-- Maintained our financial flexibility with bank debt of $372 million
drawn against Daylight's $650 million credit facility at June 30, 2010.
-- Financial position further improved in July 2010 with Daylight's non-
core asset sale for cash proceeds of $100 million plus $25 million of
equity.
SECOND QUARTER FINANCIAL AND OPERATIONAL RESULTS
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Financial(CDN$ thousands,
except share, per share and Q2 Q1 Q2 YTD YTD
operational data) 2010 2010 2009 2010 2009
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Petroleum and natural gas
revenues $160,267 $170,934 $ 66,649 $331,201 $138,542
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Operating netback 82,232 80,606 58,383 162,838 114,699
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Funds from operations (1) 71,309 66,439 48,459 137,748 93,354
Per share - Basic 0.37 0.38 0.45 0.76 0.94
- Diluted 0.35 0.36 0.42 0.71 0.87
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Cash dividends declared 34,298 41,820 26,254 76,118 47,911
Per share 0.18 0.24 0.24 0.42 0.48
Payout ratio (1) 48% 63% 54% 55% 51%
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Capital expenditures 61,799 94,253 15,803 156,052 75,216
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Shares outstanding (000s)
Basic 203,258 174,278 122,434 203,258 122,434
Diluted 235,063 206,216 138,457 235,063 138,457
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Operational
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Average daily production
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Natural gas (mcf/d) 148,966 144,754 96,173 146,872 93,933
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Light oil (bbls/d) 12,173 10,025 3,596 11,105 3,764
Heavy oil (bbls/d) 1,722 1,969 2,141 1,845 2,129
NGLs (bbls/d) 3,551 3,640 1,281 3,595 1,380
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Oil & NGLs (bbls/d) 17,446 15,634 7,018 16,545 7,273
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Combined (boe/d) 42,273 39,760 23,047 41,023 22,929
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Average prices received
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Natural gas ($/mcf) $ 3.94 $ 5.29 $ 3.53 $ 4.60 $ 4.36
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Light oil ($/bbl) 72.12 77.57 60.54 74.56 53.08
Heavy oil ($/bbl) 56.92 66.20 56.16 61.85 46.96
NGLs ($/bbl) 55.89 62.12 42.75 59.03 40.64
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Oil & NGLs ($/bbl) $ 67.32 $ 72.54 $ 55.96 $ 69.77 $ 48.92
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Combined ($/boe) $ 41.66 $ 47.77 $ 31.78 $ 44.61 $ 33.38
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$ per boe
Petroleum and natural gas
revenues $ 41.66 $ 47.77 $ 31.78 44.61 $ 33.38
Royalties (11.41) (13.47) (5.36) (12.40) (6.11)
Realized gain on derivative
contracts 2.30 - 14.33 1.19 13.33
Operating expenses (10.33) (10.86) (11.86) (10.59) (11.88)
Transportation expenses (0.85) (0.91) (1.05) (0.88) (1.09)
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Operating netback $ 21.38 $ 22.53 $ 27.84 21.93 $ 27.63
Other income 2.04 - - 1.06 -
G&A - cash charge (2.25) (1.83) (2.44) (2.05) (2.89)
Cash financial charges (2.64) (2.13) (2.29) (2.39) (2.25)
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Funds from operations (1) $ 18.53 $ 18.57 $ 23.11 18.55 $ 22.49
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Per boe amounts may not add exactly due to rounding.
The Corporation is the entity resulting from the conversion of Daylight
Resources Trust from an income trust to a corporate structure effective May 7
2010. Reference to "common shares" and "shares", "shareholder" and "dividends"
should be read as reference to "trust units" and "units", "unitholders" and
"distributions", respectively, for periods prior to May 7, 2010.
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 Deep Basin area of Alberta and British
Columbia and in the premium Pembina Cardium light oil fairway.
Daylight has approximately 203 million common shares outstanding which trade on
the TSX under the symbol DAY. Daylight Series B, C and D convertible debentures
trade on the TSX under the symbols DAY.DB.B, DAY.DB.C and DAY.DB.D,
respectively.
Consolidated Financial Statements and MD&A
Q2 2010 consolidated financial statements and notes to the consolidated
financial statements, along with the MD&A for Daylight, have been filed on our
website at www.daylightenergy.com and under our profile on SEDAR
(www.sedar.com).
For further information regarding this news release or to receive a copy of our
Q2 2010 interim report, please contact our investor relations department at Toll
Free 1-877-266-6901 or email ir@daylightenergy.com.
An updated corporate presentation is available on Daylight's website at
www.daylightenergy.com.
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.
Production volumes and revenues are reported on a gross basis, before the
deduction of Crown and other royalties, unless otherwise stated.
Advisory Regarding Forward-Looking Information and Statements
This news release contains statements that constitute forward-looking statements
and forward-looking information (collectively "forward-looking statements")
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", "plan", "forecast", "intend" and similar
expressions are intended to identify forward-looking statements.
More particularly and without limitation, this news release contains
forward-looking statements concerning anticipated drilling and completion
operations during Q3 2010 and for the balance of 2010, anticipated production
volumes for the balance of 2010 and anticipated exit 2010 production volumes,
including the production mix thereof as between oil, natural gas and NGLs,
expected operating costs on a per boe basis for the balance of 2010, and payment
of dividends on the Corporation's common shares during Q3 2010.
The forward-looking statements in this news release are based on certain key
expectations and assumptions made by Daylight, including expectations and
assumptions concerning timing of receipt of all regulatory, court and other
third party approvals and satisfaction of conditions in order to complete the
Conversion and the West Acquisition, the ability of Daylight to achieve the
benefits of the West Acquisition, future commodity prices, future availability
of tax pools, the performance of existing wells, the success obtained in
drilling new wells, application of existing technologies and future advancements
in technology to Daylight's operations and drilling activities, the sufficiency
of budgeted capital expenditures in carrying out planned activities and the
availability and cost of labour and services. Although Daylight believes that
the expectations and assumptions on which such forward-looking statements are
based are reasonable, undue reliance should not be placed on the forward-looking
statements because Daylight can give no assurance that they will prove to be
correct.
Since forward-looking statements address future events and conditions, by their
very nature they involve inherent risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors
and risks. These include, but are not limited to 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 estimates, the uncertainty of estimates and projections relating to
reserves, production, costs and expenses, health, safety and environmental
risks, commodity price and exchange rate fluctuations, marketing and
transportation of petroleum, NGLs and natural gas and loss of markets,
environmental risks, competition, incorrect assessment of the value of
acquisitions, failure to realize the anticipated benefits of acquisitions,
ability to access sufficient capital from internal and external sources, and
changes in legislation, including but not limited to tax laws, royalty rates and
environmental regulations.
Readers are cautioned that the foregoing list of risks and assumptions is not
exhaustive. Additional information on these and other factors that could affect
the operations or financial results of Daylight are included in reports on file
with applicable securities regulatory authorities, including but not limited to
the Daylight Resources Trust's annual information form for the year ended
December 31, 2009 and the Daylight Resources Trust'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's SEDAR profile at
www.sedar.com. The forward-looking statements contained in this news release are
made as of the date hereof and Daylight undertakes no obligation to update
publicly or revise any forward-looking statements whether as a result of new
information, future events or otherwise, unless so required by applicable
securities laws.
(1) 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 Q1
2010 MD&A 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, realized gain on derivative contracts, operating and transportation
expenses.
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 Q2 2010 for further
information.
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