Long Run Exploration Ltd. Announces First Quarter 2013 Results

Marketwired

CALGARY, ALBERTA--(Marketwired - May 7, 2013) - Long Run Exploration Ltd. ("Long Run" or the "Corporation") (LRE.TO) is pleased to report financial and operational results for the quarter ended March 31, 2013. This represents the first full quarter of operations as Long Run, a significant milestone in the evolution of the Corporation. Long Run aggressively drilled both the Montney and the Viking this quarter, adding more than 3,000 boe per day of production from 2012 fourth quarter exit volumes to first quarter 2013 exit volumes. The majority of production additions in the first quarter were crude oil volumes, a trend which Long Run expects to continue through 2013. Given strong first quarter results driven by operational results which met or exceeded expectations, Long Run awaits the end of Spring break up and a return to executing the 2013 capital program.

The unaudited financial statements of Long Run for the period ended March 31, 2013 and the related Management's Discussion and Analysis ("MD&A") can be accessed on-line on SEDAR at www.sedar.com or on Long Run's website at www.longrunexploration.com.

HIGHLIGHTS

  • First quarter 2013 exit production of approximately 26,300 boe per day was ahead of budget forecast. Continued operational improvements in the Montney at Girouxville / Normandville and in the Viking at Redwater were responsible for increased exit production volumes. Long Run continues to be on-track to meet its 2013 full-year average production guidance of 25,000 boe per day.

  • Due to an active first quarter development program and successful efforts in the Montney and Viking, production for the first quarter of 2013 averaged 23,611 boe per day. This is an increase of 167 percent over the first quarter of 2012 and an increase of 10 percent over the fourth quarter of 2012. 2013 first quarter liquids production represented 52 percent of total production.

  • First quarter 2013 development capital expenditures targeted crude oil in the Montney and the Viking.

    • The Corporation drilled 18 net wells in the Montney oil play at Girouxville / Normandville, all of which were completed, equipped and on-stream before the end of the quarter.

    • At Redwater, Long Run drilled 30 (28.6 net) light-oil wells.

  • Funds flow from operations for the first quarter of 2013 was $48.6 million ($0.39 per share diluted). This represents an increase of approximately 66 percent from the $29.4 million realized in the first quarter of 2012, and approximately 27 percent higher than the $38.4 million generated in the fourth quarter of 2012.

FIRST QUARTER FINANCIAL AND PRODUCTION RESULTS

  • First quarter production averaged 23,611 boe per day, weighted approximately 52 percent to oil and natural gas liquids. Compared to the first quarter 2012, production increased approximately 167 percent due to the fourth quarter 2012 business combination with Guide Exploration Ltd. and to a successful first quarter capital program which achieved strong production results from crude oil development plays.

  • Higher production volumes in the first quarter increased funds flow from operations to approximately $48.6 million or $0.39 per share (diluted), a 27 percent (18 percent per share) increase over the $38.4 million or $0.33 per share (diluted) generated in the fourth quarter of 2012.

  • Funds flow from operations was impacted by higher operating costs ($13.53 per boe) in the first quarter of 2013 as compared with $11.78 per boe in the fourth quarter of 2012. Operating costs increased due to normal-course workover activity across our crude oil properties and lower natural gas volumes at Boyer due to cold weather during the months of January and February.

  • The net loss of $0.8 million during the first quarter of 2013, compared to earnings of $1.2 million in the first quarter of 2012 and a loss of $56.6 million in the fourth quarter of 2012. The first quarter 2013 net loss included a $10.8 million unrealized loss on derivative financial contracts. The fourth quarter 2012 loss included an impairment of $128.0 million on oil and natural gas properties.

  • Capital expenditures totaled $103.9 million in the first quarter of 2013 with the Montney and Viking constituting the bulk of development spending.

  • On March 28, 2013, Long Run completed a $13.5 million transaction in the Cherhill area of Alberta. The transaction focused on the strategic consolidation of crude oil and solution natural gas processing capacity and infrastructure, developed and undeveloped acreage, as well as production which was averaging approximately 2,400 mcf/d of natural gas and 200 barrels per day of crude oil and natural gas liquids at the time of closing.

  • Subsequent to the end of the quarter, Long Run renewed its three-year, revolving credit facility of $450 million and extended the facility to May 31, 2016. The bank syndicate is jointly led by The Bank of Nova Scotia and National Bank of Canada, and includes a broad syndicate of Canadian and international banks.

COMMODITY ENVIRONMENT

  • WTI crude oil prices averaged US$94.37 per barrel in the first quarter of 2013, compared to US$102.93 per barrel for the first quarter of 2012 and US$88.18 per barrel in the fourth quarter of 2012. During the first quarter of 2013, Edmonton light sweet oil traded at an average discount of $6.18 per barrel compared to WTI. This compares to an average discount of $10.70 per barrel compared to WTI during the first quarter of 2012, and of $4.19 per barrel during the fourth quarter of 2012.

  • In the first quarter of 2013, the AECO Monthly Index averaged $3.20 per mcf compared to $2.15 per mcf in the first quarter of 2012 and $3.21 per mcf in the fourth quarter of 2012.

OPERATIONS UPDATE

Peace River Area Montney

  • Production in the Peace River area averaged 9,453 boe per day in the first quarter of 2013, an increase of 41 percent over the 6,691 boe per day average in the fourth quarter of 2012. The Peace River Area Montney contributed 40 percent of Long Run's first quarter 2013 production volumes.

  • Recent well results are, on average, above the established type-curve. Continued use of cemented liner completion design is yielding improved completion reliability. Long Run believes operational and engineering improvements in this play realized over the past several months will lead to an increased inventory of drilling locations and higher booked reserves in the longer-term.

  • Enhanced oil recovery ("EOR") work in the Montney at Normandville is progressing on-schedule. Water injection began on April 1, 2013 on this project with a response anticipated in 2014. Long Run believes this pressure maintenance program will improve recoveries, lower natural gas/oil ratios, and enhance overall project economics.

Redwater Viking

  • In the first quarter of 2013 Redwater production averaged approximately 5,195 boe per day, more than 22 percent of Long Run's total production volumes. 30 (28.6 net) wells were drilled in this play during the first quarter with 26 gross wells tied-in. Higher production volumes have been achieved through modifications of drilling technique and completion technology. These improved results are driving strong project economics which confirm the deep value in this play. On-stream well costs remain at $1.2 million.

  • Plans continue to advance EOR work in this play. To ensure that maximum value from this property is achieved, Long Run is moving forward with the initial stages of a pilot water injection scheme and plans to implement injectivity before the end of 2013 to further test this concept. Long Run anticipates initial results from the early stages of this project to be available in 2014.

Duvernay

  • During the first quarter of 2013, Long Run re-completed a 100% working interest vertical well into the Duvernay located in the Smoky Heights area at 3-26-72-2W6. Initial testing recovered light oil and associated natural gas volumes. Additional analysis will be available in coming months when further testing is completed.
Results Overview
($000s, except per share) 2013 2012 2011
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Funds flow from operations (1) 48,644 38,407 26,546 34,385 29,381 29,896 27,448 10,641
Per share, diluted 0.39 0.33 0.32 0.41 0.35 0.36 0.33 0.23
Net earnings (loss) (827 ) (56,590 ) (4,747 ) 17,506 1,179 (66,612 ) 11,427 4,387
Per share, basic & diluted (0.01 ) (0.49 ) (0.06 ) 0.21 0.01 (0.80 ) 0.14 0.10
Production (BOE/d)
Liquids (Bbl/d) (2) 12,358 11,995 7,854 8,291 6,133 5,872 5,499 2,243
Natural Gas (Mcf/d) 67,516 56,453 18,214 19,548 16,288 16,376 17,766 6,392
Total (BOE/d) 23,611 21,405 10,890 11,549 8,848 8,601 8,460 3,308
Prices, including derivatives
Liquids ($/Bbl) (2) 73.03 75.49 77.67 80.68 85.15 88.74 85.97 90.26
Natural Gas ($/Mcf) 3.63 4.19 2.44 1.94 2.29 3.41 4.20 4.83
Total $/BOE 49.12 53.99 61.34 61.57 64.92 69.26 66.79 70.55
Revenues, before royalties 103,613 99,000 60,094 64,025 53,486 56,192 51,568 21,377
Capital expenditures 103,936 64,524 31,379 45,081 69,425 72,552 59,361 20,453
Net acquisitions (divestitures) 16,928 (175,916 ) (2,325 ) - - - (52 ) (1,704 )
Net debt 366,305 293,123 124,753
(1) See "Non-GAAP Measurements".
(2) Liquids includes light oil, heavy oil and natural gas liquids.
Capital Investment
($000s) Q1 2013 Q4 2012 Q1 2012
Drilling and completion 80,767 46,620 53,339
Plant and facilities 19,652 9,967 9,659
Land 1,659 6,806 5,505
Geological and geophysical 1,314 772 834
Other assets 544 359 88
Capital expenditures 103,936 64,524 69,425
Acquisitions 22,949 - -
Dispositions (6,021 ) (175,916 ) -
Capital investment 120,864 (111,392 ) 69,425
Share Capital
(# of units) May 6,
2013
March 31,
2013
December 31,
2012
Common Shares 110,107,152 110,107,152 110,107,152
Non-Voting Convertible Shares 15,512,858 15,512,858 15,512,858
Options 9,661,400 9,727,400 8,042,000
Warrants1 2,300,000 2,300,000 2,300,000
(1) Each common share purchase warrant ("Warrant") entitles the holder to purchase 0.4167 of a common share at an exercise price of $3.10 per 0.4167 of a share until September 15, 2014. The Warrants are not exercisable until the twenty-day volume weighted average trading price of the common shares exceeds $12.00 per share.

Non-GAAP Measurements

This press release contains terms commonly used in the oil and natural gas industry, such as funds flow from operations, and funds flow from operations per share. These terms are not defined by International Financial Reporting Standards (IFRS) and should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings as determined in accordance with IFRS as an indicator of Long Run's performance. Management believes that funds flow from operations is a useful financial measurement which assists in demonstrating the Corporation's ability to fund capital expenditures necessary for future growth or to repay debt. Long Run's determination of funds flow from operations may not be comparable to that reported by other companies. All references to funds flow from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. The Corporation calculates funds flow from operations per share by dividing funds flow from operations by the diluted weighted average number of Common Shares outstanding.

Long Run uses the term net debt herein. This measure does not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.

With respect to funds flow from operations and net debt, reference is made to the Corporation's Management's Discussion and Analysis for the three months ended March 31, 2013 which includes a table showing how they have been determined.

Long Run is a Calgary-based intermediate oil company focused on light-oil development and exploration in western Canada. For further information about Long Run, visit the Company's website at www.longrunexploration.com.

ADVISORIES

Forward Looking Statements:

Certain information in this news release including management's assessment of future plans and operations, 2013 average production guidance, expectation that operational and engineering improvements at Peace River will lead to increased drilling inventory and higher booked reserves, timing of new wells coming on-stream, timing of response to water injections at Peace River, plans to continue pilot enhanced recovery oil project at Redwater and the timing thereof, and timing of testing and availability of additional analysis of Duvernay well are forward looking statements. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties including, without limitation, risks related to closing of the disposition, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although the Corporation believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Corporation can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Corporation operates; the timely receipt of any required regulatory approvals; the ability of the Corporation to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration results; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Corporation to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Corporation operates; and the ability of the Corporation to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list of factors and assumptions is not exhaustive. Additional information on these and other factors that could affect Long Run's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at Long Run's website (www.longrunexploration.com). Furthermore, the forward looking statements contained in this news release are made as at the date of this news release and Long Run does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOES:

Disclosure provided herein in respect of barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1; utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Netbacks:

Netbacks are calculated by subtracting royalties, transportation costs and operating costs from revenues.

Contact:
Long Run Exploration Ltd.
William E. Andrew
Chair and Chief Executive Officer
(403) 261-6012
Long Run Exploration Ltd.
Dale A. Miller
President
(403) 261-6012
Long Run Exploration Ltd.
Jason Fleury
Vice President, Capital Markets
(403) 261-8302
Long Run Exploration Ltd.
Investor Relations
(888) 598-1330
information@longrunexploration.com
www.longrunexploration.com

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