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Tuesday, 05/14/2013 12:34:52 AM

Tuesday, May 14, 2013 12:34:52 AM

Post# of 9
Q1 Highlights - Overall Positive Outlook

I looked briefly over the Q1 release and found it to be overall a very positive quarter for the company. Here are the main points that caught my eye:

* Increased average production from 16,370 Boe per day in the first quarter of 2012 to 17,451 Boe per day in the first quarter of 2013 (7 percent increase)

* Turner Valley volumes reached 3,623 Bbl per day of oil, the highest level in 50 years

* Legacy’s operating netbacks increased year over year from $45.92 per Boe in the first quarter of 2012 to $47.43 per Boe in the first quarter of 2013 (6 percent increase), in spite of materially lower light oil prices

* Reduced operating expenses from $15.36 per Boe in the first quarter of 2012 to $13.88 per Boe for the first quarter of 2013 (10 percent decrease); reduced total operating costs (operating plus transportation costs) from $17.83 in the first quarter of 2012 to $16.78 in the first quarter of 2013 (6 percent decrease). Very nice reduction in expenses as the company increases economies of scale and becoming a larger scale producer with lower expenses and higher net backs.

* Subsequent to the end of the quarter, Legacy’s banking syndicate increased the borrowing base from the previous $525 million to $600 million, bringing total borrowing capacity to $800 million. Security for the facility in the form of a fixed and floating charge debenture has been increased to $1 billion from the previous $750 million, and the term-out date for the facility was extended to April 25, 2014. The borrowing base continues to be subject to semi-annual review, the next of which is scheduled to occur in October 2013; Potentially could be increased again in October.

* Increased funds generated from operations of $60.6 million ($0.42 per share) in the first quarter of 2012 to $62.1 million ($0.43 per share) in the first quarter of 2013 (2 percent increase on an absolute and per share basis). Although some might argue that EPS is negative, EPS is over rated especially for ressource based companies due to large assets which create huge depreciation expenses. What really matters is cash generated from operations, ignoring non cash items (such as depreciation). In this case funds from operations is up on a per share basis, not much but considering the severe wheather experienced its good, and with everything coming up in the year ahead it will be up much more.

* Activity levels returned to normal by the end of the first quarter, resulting in average production in excess of 19,000 Boe per day for the month of April 2013, including production from the acquisitions closing in mid-April and after giving effect to production shut-in due to spring break-up. The Company continues to be on track to meet its previously announced increased full year production guidance. Re-iterated meeting guidance and stated they were producing at 19k BOE in April, very strong production indication.

* With road bans being lifted, Legacy anticipates spudding a well at Taylorton on May 16 and spudding a well in Steelman on May 21. In addition, the Company should have five service rigs mobilized on May 14 for workovers on wells in SE Saskatchewan. Shut-in volumes are already being restored. All of this activity is occurring three weeks earlier than planned. Ahead of schedule, always great to hear.

*Spearfish production has outperformed the independent reserve evaluators proved plus probable type curve

* More than 385 net locations are unbooked in the Spearfish which could grow to nearly 600 net locations with inclusion of all Spearfish lands held in North Dakota

* less severe spring break-up than anticipated, Legacy has commenced operations in SE Saskatchewan. Three drilling rigs are expected to be running by the end of May and five service rigs working this week to restore production. Drilling continues in Turner Valley. With an early start to Q2 activity, Legacy is well-positioned to deliver another year of strong organic growth. Q2 probably will look great with everything that appears to be going strong and ahead of schedule along with a great indication that spring break up was less severe than expected.

On a going forward basis the company looks very strong and the outlook looks great, the shares should start performing as management is doing very well with the efficiency of operations. Albeit we would all want more focus on shareholders or even dividends but currently the strategy of re-investing cash flows is the best to acheive further growth. In time this disconnect with share price and company performance will correct itself, or else I would not be surprised if we got taken over by a larger player as Legacy is a very solid player in its field.