Daylight Energy Ltd.

Transcription

1 Institutional Equity Research Earnings Update May 19, 2011 Stock Rating: Sector Outperformer Sector Weighting: Market Weight mo. Price Target $ TSX (5/18/11) $ Key Indices: S&P/TSX Energy Trust, S&P/TSX Income Trust Composite Projected Total Return 42.8% 52-week Range $8.40-$ Shares Outstanding M Distr. Frequency $0.05 Monthly Avg. Daily Trading Vol. 1,040,000 Market Capitalization $2,161.4M Dividend/Div Yield $0.60 / 5.9% Fiscal Year Ends December P+P RLI (years) EV/DACF 7.8X Net Debt $680.1M Net Asset Value $ per Shr Net Debt/CF 2.3X Convertible Available Yes Cash Flow Per Share Prev Current 2010 $1.55A 2011 $1.67E $1.61E 2012 $2.17E $1.97E P/CF x x 6.3x x 5.2x Oil & Gas - Dividend Corporations Daylight Energy Ltd. Q1 Cash Flow Beats On Royalties; Shut-ins & Nisku Declines Challenge Production Daylight reported Q1 results yesterday that were in line on a production basis, but a beat on cash flow. Q1 production of 39,250 Boe/d was in line with our forecasts, while cash flow came in at $0.46/share, 18% above our forecast and 21% above consensus. Variance to cash flow forecasts was primarily due to other income in the form of drilling incentive recoveries related to third parties. Without other income from drilling incentive recoveries, cash flow would have been essentially in line with consensus at $0.37/share. Adjusting for the impact of extended downtime at Daylight's K3 gas plant and declining production at its Nisku oil play, we have trimmed our 2011 and 2012 production forecasts to 39,100 Boe/d and 43,500 Boe/d, respectively (from 39,375 Boe/d and 44,500 Boe/d previously). We are maintaining our Sector Outperformer rating on Daylight, but trimming our target to $14.00 (from $14.25, previously) incorporating a gassier production mix (partially offset by emerging Rock Creek value). We continue to believe Daylight shares represent excellent value today. Stock Price Performance Cash Dividend Per Share 2010 $0.72A 2011 $0.60E $0.60E 2012 $0.60E $0.60E Cash-on-Cash Yield % % 5.9% % 5.9% Company Description Daylight Energy Ltd. converted from a trust to a dividend-paying corporation on May 7, Jeremy Kaliel 1 (403) Jeremy.Kaliel@cibc.ca Andrew Konesky 1 (403) Andrew.Konesky@cibc.ca Jeff (Sizhuo) Shen 1 (403) jeff.shen@cibc.ca Source: Re uters All figures in Canadian dollars, unless otherwise stated CIBC World Markets does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures" section at the end of this report for important required disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. Find CIBC research on Bloomberg, Reuters, firstcall.com CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 (416) and ResearchCentral.cibcwm.com

2 PetroBakken NAL Penn West Pengrowth Daylight Enerplus Perpetual Bonavista Vermilion Average Peyto ARC Crescent Point Bonterra Baytex Trilogy Progress Avg. 2011E Avg. Avg. (C$/Unit) PetroBakken Total Debt / Cash Flow Total Debt / / Cash Flow Penn West NAL Daylight Enerplus Pengrowth Crescent Point Average Bonterra Baytex Peyto Progress Perpetual ARC Bonavista Vermilion Trilogy % Credit Facility Utilized % Credit Facility Utilized Payout Ratios % Credit Facility Utilized Payout Ratios 2007A 2008A 2009A 2010A 2011E 2005A 2006A 2007A 2008A 2009A 2010A (boe/d) (% change - YOY) (Mmboe) (% change - YOY) Q1 Cash Flow Beats On Roy alties; Shut -ins & Nisku Declines Challenge P roduction - May 19, 2011 Exhibit 1. Daylight Energy - Snapshot Daylight Energy Ltd. ( - TSX) Current Price: C$10.2 Shares O/S(1): 211.9MM Jeremy Kaliel, MBA ( ) Jeremy.Kaliel@cibc.ca 12 To 18 Month Price Target: C$14.00 Market Cap.: $2,161MM Jeff Shen ( ) Jeff.Shen@cibc.ca Dividend (NTM) / Freq. / Yield: $0.6 / mthly / 5.9% Average Trading Vol (50 day): 1,000,000 Andrew Konesky, MBA ( ) Andrew.Konesky@cibc.ca SUMMARY & INVESTMENT THESIS Investment Thesis: We have a Sector Outperformer rating on Daylight Energy Ltd. with a month price target of $14.00/share. We believe shares of Daylight represent excellent value at current levels. We would also highlight Daylight as excellent way to play natural gas defensively, as we believe that investors are currently paying for little or none of Daylight's significant natural gas resource potential. Potential Catalysts: In the near-term, possible catalysts include additional well results from the company's Pembina Cardium oil and its extensive natural gas resource play drilling activities. We would also highlight the possibility of Daylight striking a joint venture at Elmworth (AB) to develop its natural gas resource potential as a near term catalyst. Key Assets: Key assets include Daylight's Cardium tight oil at Pembina (AB), and its natural gas resource plays at Elmworth (AB) which is prospective for the Nikanassin, Cadomin, Montney, and Bluesky formations. Other notable assets include its and Belly River light oil play at Pembina (AB). Relative Valuation: Daylight is currently trading at a Price to Risked NAV ratio of 78% and a 2011E EV/DACF multiple of 7.8x (versus the group averages of 91% and 9.1x, respectively) while providing a current yield of 5.9% (versus the group average of 5.1%). Our month price target of $14.00/share is based on a 1.1x target multiple to our Risked NAV of $13.03/share (less forecast dividends of $0.60/share) versus the group average of 1.1x. PROPERTY OVERVIEW Sector Outperformer PRODUCTION & RESERVES GROWTH 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Production Growth (Per Share) Production () PPS Growth () PPS Growth (Avg) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Reserves Growth (Per Share) 2P Reserves - MMboe () RPS Growth () RPS Growth (Avg) 30% 25% 20% 15% 10% 5% 0% -5% -10% RELATIVE RISK & MAGNITUDE OF UNBOOKED PROSPECTS Production (Boe/d) CFPS (Basic) Reserves (MMBoe) 2010A +Net Acq. 2011E 2012E 2011E 2012E Proved Developed Producing Q1 39,257A $0.46A Total Proved (1P) Q2 36,500E $0.38E Proved + Probable (2P) Q3 39,000E $0.38E PDP % of Total Proved 46% 46% Q4 41,619E $0.43E Total Proved % of P+P 55% 55% FY 39,100E 43,500E $1.61E $1.97E 2P Reserve Life - Years % Gas 60% 57% FD&A - 2P, incl. FDC $26.47 Cash Recycle Ratio 3 1.2x Reserve Engineers: Sproule Associates Ltd. DEBT & OUTFLOWS VS. INFLOWS 5 VALUATION SUMMARY 5 D/CF Debt () Outflows $55 vs. Inflows 4 $45 Risked NAV (C$/Share) 3.0x Price to Risked NAV D/CF Metrics () 150% D/CF () () $50 $40 "Bluesky" NAV (unrisked) 104% 111%113% Credit Line Drawn () Total Pay out Ratio 104% D/CF () 97% 99% 100% 3 Credit Line Drawn () 2.5x 200% 1.5 Inflow s v s. Outflow s (incl DRIP) 3.5x Credit Line Draw n () () 125% 175% Risked NAV 90% 91% 91% 92% $45 Core NAV 85% 86% % Basic Pay out Ratio 3.0x Credit Line Draw n () 150% $35 78% 2.0x 100% 175% Core NAV 74% 2.5x 2 125% 1 71% 150% 150% $40 Sustainability threshold Target Price 1.5x 2.0x % 125% 125% $30 58% 1.5x 75% $ % 1.0x 50% 75% 100% 1.0x % $30 Risked $25 Target 0.5x 25% 50% Price 75% NAV Risked Price 0.0x 0 0% 0 25% 0.5x 25% $25 $20 NAV Target 50% 0.0x 0% 25% $ E $15 EV/DACF (2011E) 0% $ x12.5x 12.6x Financial Flexibility ($MM) Netback Analysis ($/Boe) $ x 10.6x 2011E 2012E $ E 2012E 9.1x 9.1x 7.8x 7.8x 8.1x 8.2x 8.4x 8.7x 9.1x Cash Flow 2005 from Operations $ E 7.2x 7.3x $417 Gross Revenue (net trans) $50.65 $53.73 Current 5.8x $5 $5 Capital Spending 6 ($350) ($350) Hedging Gains (Losses) ($0.63) $0.00 Price Current Price E 2011E Dividends ($127) ($127) Royalties $0($11.79) ($13.00) $0 DRIP $0 $0 Operating Costs ($9.75) US$100/bbl ($9.75) US$120/bbl CIBC Base CIBC Base US$50/bbl US$50/bbl Surplus (Deficit) ($136) ($60) Operating Netback $28.48 C$7.00/mcf $30.98 Commodity C$7.00/mcf Prices Cmdty Prices C$4.00/mcf C$4.00/mcf Working Capital Deficit $146 $146 G&A ($2.25) ($2.25) Bank Debt $391 $457 Interest ($2.39) ($2.49) Key Valuation Metrics vs. Coverage (CIBC Estimates) Senior Notes/Other Debt $247 $247 Cap Tax/Other $0.00 $0.00 EV/ EV/2P Net Debt at Year-end $784 $850 Cash Flow Netback $23.85 $26.25 Share Expected 2011E 2011E 2011E P/Core P/Risked Production Reserves Debt / CF (Y/E Debt, Year CF) 2.3x 2.0x Price Return Yield P/CF EV/DACF NAV NAV ($/Boe/d) ($/Boe) Total Credit Facility (Current) $625 avg Operating Netback $34.74 $39.08 Daylight $ % 5.9% 6.3x 7.8x 176% 78% $72,668 $16.31 Facility Utilized (Current) $277 (44%) avg Cash Flow Netback $29.32 $33.75 Average 30% 5.1% 8.1x 9.1x 185% 91% $102,183 $22.82 MANAGEMENT (Ownership: 3.1%) Name Position Name Position Anthony Lambert President & CEO Randy Ford VP, Operations Steve Nielsen VP, CFO Steve Horner VP, Business Services Ted Hanbury Executive VP Pamela Kazeil VP, Finance Brent Eshleman VP, Exploitation Jerry Simpson VP, Production NOTES Risked NAV 1) Shares O/S based on most recent quarterly balance (adjusted for recent acquisitions and equity issues). 2) Y/E P+P reserves divided by Q4 annualized production (Q4 2010A Production for 2010A). 3) Year operating netbacks divided by reported P+P FD&A cost, incl. FDC on a cash basis. 4) Basic payout ratio is calculated total dividends (excluding the effect of DRIP) paid as a % of operating cash flow, total payout is calculated as total CAPEX and dividends (excluding the effect of DRIP) as a % of operating cash flow. and inflows versus outflows is calculated as total CAPEX and dividends (including the effect of DRIP) as a % of operating cash flow. 5) Our base commodity price assumptions are US$100.00/bbl (2011E), US$105.00/bbl (2012E) and US$105.00/bbl (long term) for WTI crude oil, C$4.00/mcf (2011E), C$4.35/mcf (2012E), C$4.85/mcf (2013E) and C$5.35/mcf (long term) for AECO natural gas, with FX of $1.00 USD/Cdn (2011E), $1.00 USD/Cdn (2012E), and $1.00 USD/Cdn (longterm). 6) Based on net capex including the effect of Alberta royalty credits. Source: Company reports and CIBC World Markets Inc. 2

3 Q1 Cash Flow Beats On Royalties; Shut-ins And Nisku Declines Challenge Production Daylight ( SO) reported first-quarter results yesterday that were in line on a production basis, but a significant beat on cash flow. Actual quarterly production of 39,250 Boe/d was previously announced and in line with our forecasts. Reported Q1 cash flow came in at $0.46/share, 18% above our forecast of $0.39/share and 21% above consensus of expectations of $0.38/share. Variance to cash flow forecasts was primarily due to other income in the form of drilling incentive recoveries related to third parties. Without other income from drilling incentive recoveries, cash flow would have been $0.37/share. Since the drilling credit incentive program ceased as of March 31, 2011, we are modeling some retroactive revenue in Q2, but none thereafter. Adjusting for the impact of extended downtime at its K3 gas plant and 1,400 Boe/d of disposed production, Daylight now expects Q2 volumes to average ~36,500 Boe/d, Q3 to average 39,000 Boe/d, Q4 to average 42,000 Boe/d, and 2011 exit volumes to be 43,000 Boe/d. Key to note, average 2011 production is now expected to be 60% weighted to natural gas (versus 56%, previously). Q1 results are summarized at right in Exhibit 2. Daylight had capital spending of $115.3MM in Q1 and drilled 24 gross (17.3 net) wells with a 96% success rate. Of note during the quarter, on March 14 Daylight announced a mechanical failure at its non-operated K3 gas plant, which led to shut-in production of ~8,500 Boe/d of natural gas. Subsequent to quarter-end, the K3 gas plant was brought back on line, but was shut down again in early May. Daylight expects that ~7,000 Boe/d will be shut in for four to eight weeks; however, cash flow will be protected by interruption insurance after 30 days. Also of note in Q2, several of Daylight s Nisku wells started producing with higher water cuts and, as a result, oil production from the Nisku decreased ~1,500 Bbls/d during the quarter. Daylight expects to add submersible pumps to slow declining Nisku production. Finally, also subsequent to quarter-end, Daylight disposed of 1,600 Boe/d of non-core production for proceeds of $44MM. Exhibit 2. Daylight Energy Q1 Results First Quarter Results Q1/11 Q1/10 % Change Volumes Crude Oil & NGLs (bbl/d) 14,990 15,634-4% Natural Gas (mmcf/d) % Boe/d (6:1) 39,257 39,760-1% % Natural Gas 62% 61% Realized Prices Before Hedging: Crude Oil & NGLs (C$/bbl) $79.59 $ % Natural Gas ($/mcf) $3.89 $ % After Hedging: Crude Oil & NGLs (C$/bbl) $79.59 $ % Natural Gas ($/mcf) $4.42 $ % Financial Summary ($millions except per share) Gross Revenue (net of hedging) $184.7 $ % Cash Flow from Operations $97.7 $ % Cash Distributions $31.6 $ % Development Expenditures $113.2 $ % Total Debt (incl. converts) $724.1 $ % Cash Flow per share (basic) $0.46 $ % Cash Distributions per share $0.15 $ % Basic Payout Ratio 32% 63% -49% Total Payout Ratio 148% 205% -28% Average shares Outstanding (mm) % Per BOE Analysis ($/boe) Gross Revenue (net of hedging) $46.81 $ % Royalties ($10.00) ($13.47) -26% Transportation ($0.62) ($0.91) -32% Operating Costs ($9.71) ($10.86) -11% General & Administrative ($2.15) ($1.83) 17% Interest, Capital Taxes and Other $3.30 ($2.13) -255% Cash Flow $27.63 $ % Commodity Assumptions Crude Oil - WTI (US$/bbl) $94.46 $ % Crude Oil - Edmonton Par (C$/bbl) $88.66 $ % Natural Gas - NYMEX (US$/mcf) $4.18 $ % Natural Gas - AECO (C$/mcf) $3.77 $ % Exchange Rate (US$/C$) $1.01 $0.96 6% Source: Company reports and CIBC World Markets Inc. Of note operationally, in the Pembina area Daylight placed 3 (2.3 net) vertical Rock Creek wells on stream in Q2 with 30-day IPs of 2.2 MMcf/d, 4.3 MMcf/d, and 8.2 MMcf/d with over 50 Bbls/MMcf of liquids. We believe these are very promising rates for vertical wells with drilling costs close to $2.5MM/well. Daylight plans to experiment with horizontal wells in the Rock Creek, and believes upcoming results have the potential to open up significant new potential in the Pembina area. The company has over 70 net sections of land in the Rock Creek fairway at Pembina, which it believes can be drilled to a density of two to three wells per section. 3

4 PetroBakke n NAL Penn West Pengrowth Daylight Enerplus Perpetual Bonavista Vermilion Average Peyto ARC Crescent Point Bonterra Baytex Trilogy Progress PetroBakken Penn West NAL Daylight Enerplus Pengrowth Crescent Point Average Bonterra Baytex Peyto Progress Perpetual ARC Bonavista Vermilion Trilogy (C$/Share) (C$/Unit) Q1 Cash Flow Beats On Roy alties; Shut -ins & Nisku Declines Challenge P roduction - May 19, 2011 Daylight increased its 2011 capex to $350MM (from $300MM previously), with the majority of the incremental spending partially funded by Daylight s recent $44MM non-core asset sale. Increased spending is slated for an additional six Cardium oil wells and six additional Rock Creek wells in Adjusting for the impact of extended downtime at its K3 gas plant and declining production at its Nisku oil play, we have trimmed our 2011 and 2012 production forecasts to 39,100 Boe/d and 43,500 Boe/d, respectively (from 39,375 Boe/d and 44,500 Boe/d previously). Key to note, average 2011E production is now expected to be 60% weighted to natural gas (versus 56% previously). Adjusting our model for lower production and a gassier production mix, our cash flow forecast has decreased by 3% in 2011 and decreased 10% in 2012 to $1.61/share and $1.97/share, respectively (versus $1.67/share and $2.17/share, previously). Daylight has an estimated 2011 total debt to cash flow ratio of 2.3x (versus the group average of 1.7x), with 44% of its $625MM credit lines currently drawn (versus the group average of 38%). We note that we estimate a total payout ratio for Daylight of 140% in 2011 versus the group average total payout ratio of 124%. Maintain Sector Outperformer Rating; Emerging Rock Creek Value Partially Offsets Gassier Production Mix We are maintaining our Sector Outperformer rating on Daylight, and trimming our price target slightly to $14.00/share (from $14.25 per share previously). Our target price is based on a 1.1x target multiple to a decreased Risked NAV estimate of $13.03 per share (in line with the group average target multiple of 1.1x). We note that the decrease in our Risked NAV was due to lower production and a higher gas weighting, partially offset by the incorporation of new unbooked potential in the Rock Creek. We continue to believe that shares of Daylight represent excellent value at current levels. The company trades at a 2011E EV/DACF multiple of 7.8x and a P/Risked NAV of 78% (versus the group averages of 9.1x and 91%, respectively), while providing investors with a current cash yield of 5.9% (versus the group average of 5.1%). Exhibit 3. Valuation Summary $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $55 $50 $45 $40 $35 $30 $25 $20 Risked Risked NAV NAV Risked Risked NAV NAV "Bluesky" NAV (unrisked) Risked NAV Core NAV Core NAV Target Price Price Target Target Price $15 Current $10 Price $5 US$120/bbl CIBC Base Current Price US$50/bbl $0 C$7.00/mcf Commodity Prices C$4.00/mcf (C$,mlns) US$100/bbl CIBC Base US$50/bbl CIBC Base Commodity Price Assumption C$7.00/mcf Commodity Prices C$4.00/mcf Long-term WTI (US$/bbl) $ $ $ $ FX ($US/$Cdn) $1.00 $1.00 $1.00 $1.00 Nat Gas (C$/mcf) $4.00 $4.35 $4.85 $5.35 Source: Company reports and CIBC World Markets Inc. 58% 5.8x 113% Price to Risked NAV 111% 104% 104% 97% 99% 100% 85% 86% 90% 91% 91% 92% 78% 71% 74% EV/DACF (2011E) 12.5x 12.5x 12.6x 7.2x 7.3x 7.8x 8.1x 8.2x 8.4x 8.7x 9.1x 9.1x 10.1x 10.6x 9.1x 7.8x 4

5 Exhibit 4. Daylight Energy Previous Vs. Revised Full-year Estimates 2011E 2012E 2010A Previous Revised % Change Previous Revised % Change Volumes Crude Oil & NGLs (bbl/d) 17,017 18,506 15,754-15% 21,632 18,755-13% Natural Gas (mmcf/d) % % Boe/d (6:1) 41,161 39,375 39,100-1% 44,500 43,500-2% % Natural Gas 59% 53% 60% 51% 57% Realized Prices Before Hedging: Crude Oil & NGLs (C$/bbl) $70.21 $88.27 $ % $93.84 $ % Natural Gas ($/mcf) $4.17 $4.08 $4.08 0% $4.44 $4.44 0% After Hedging: Crude Oil & NGLs (C$/bbl) $70.77 $87.13 $ % $93.84 $ % Natural Gas ($/mcf) $4.69 $4.27 $4.22-1% $4.44 $4.44 0% Financial Summary ($millions except per share) Gross Revenue (net of hedging) $709.3 $783.6 $ % $963.1 $ % Cash Flow from Operations $299.7 $351.7 $ % $458.1 $ % Cash Distributions $137.8 $126.2 $ % $126.4 $ % Development Expenditures $335.4 $300.0 $ % $300.0 $ % Total Debt (incl. converts) $673.2 $731.5 $ % $703.7 $ % Cash Flow per share (basic) $1.55 $1.67 $1.61-3% $2.17 $ % Cash Distributions per share $0.72 $0.60 $0.60 0% $0.60 $0.60 0% Basic Payout Ratio 46% 36% 37% 4% 28% 31% 11% Total Payout Ratio 158% 121% 140% 16% 93% 114% 23% Average shares Outstanding (mm) % % Per BOE Analysis ($/boe) Gross Revenue (net of hedging) $47.21 $54.52 $ % $59.30 $ % Royalties ($11.88) ($14.84) ($11.79) -21% ($16.22) ($13.00) -20% Transportation ($0.78) ($0.75) ($0.75) 0% ($0.75) ($0.75) 0% Operating Costs ($10.26) ($9.75) ($9.75) 0% ($9.75) ($9.75) 0% General & Administrative ($2.00) ($2.25) ($2.25) 0% ($2.25) ($2.25) 0% Interest, Capital Taxes and Other ($2.34) ($2.46) ($2.39) -3% ($2.12) ($2.49) 17% Cash Flow $19.94 $24.47 $ % $28.21 $ % Commodity Assumptions Crude Oil - WTI (US$/bbl) $79.53 $ $ Crude Oil - Edmonton Par (C$/bbl) $77.55 $96.00 $ Natural Gas - NYMEX (US$/mcf) $4.40 $4.50 $5.00 Natural Gas - AECO (C$/mcf) $4.03 $4.00 $4.35 Exchange Rate (US$/C$) $0.97 $1.00 $1.00 Source: Co mpa ny re ports and CIB C Wo rld M arkets I nc. 5

6 Price Target Calculation We calculate our 12- to 18-month price target of $14.00 for Daylight based on a 1.1x target multiple to our Risked NAV estimate (less forecast dividends of $0.60/share) versus the group average at 1.1x. Key Risks To Price Target The primary risks to Daylight achieving our price target include a decline in commodity prices, higher-than-expected production decline rates, and rising industry costs. 6

7 Our CFPS estimates are shown below: 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly 2010 Current $0.38A $0.37A $0.33A $0.46A $1.55A 2011 Prior $0.39E $0.39E $0.44E $0.49E $1.67E 2011 Current $0.46A $0.38E $0.38E $0.43E $1.61E 2012 Prior $2.17E 2012 Current $1.97E Our CD estimates are shown below: 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly 2010 Current $0.24A $0.18A $0.15A $0.15A $0.72A 2011 Prior $0.15E $0.15E $0.15E $0.15E $0.60E 2011 Current $0.15A $0.15E $0.15E $0.15E $0.60E 2012 Prior $0.60E 2012 Current $0.60E 7

8 IMPORTANT DISCLOSURES: Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other de rivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Important Disclosure Footnotes for Daylight Energy Ltd. () 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Daylight Energy Ltd. in the next 3 months. 8

9 Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by CIBC World Markets Inc.: Stock Prices as of 05/19/2011: ARC Resources Ltd. (2g, 7) (ARX-TSX, $25.09, Sector Performer) Baytex Energy Corp. (2g, 7) (BTE-TSX, $52.80, Sector Outperformer) Bonavista Energy Corporation (2g, 7) (BNP-TSX, $28.35, Sector Performer) Bonterra Energy Corp. (2g) (BNE-TSX, $58.10, Sector Outperformer) Crescent Point Energy Corp. (2a, 2c, 2e, 2g, 7) (CPG-TSX, $44.79, Sector Outperformer) Enerplus Corporation (2g) (ERF-TSX, $30.70, Sector Performer) NAL Energy Corporation (2g) (NAE-TSX, $12.40, Sector Outperformer) Pengrowth Energy Corporation (2g, 3a, 3c) (PGF-TSX, $12.70, Sector Performer) Penn West Petroleum Ltd. (2g, 3a, 3c, 7) (PWT-TSX, $24.89, Sector Outperformer) Perpetual Energy Inc. (2a, 2c, 2e, 2g) (PMT-TSX, $3.57, Sector Underperformer) PetroBakken Energy Ltd. (2g) (PBN-TSX, $16.18, Sector Outperformer) Peyto Exploration & Development Corp. (2a, 2c, 2e, 2g) (PEY-TSX, $19.52, Sector Performer) Progress Energy Resources Corp. (2a, 2c, 2e, 2g) (PRQ-TSX, $12.89, Sector Performer) Trilogy Energy Corp. (2g) (TET-TSX, $22.12, Sector Performer) Vermilion Energy Inc. (2a, 2e, 2g, 7) (VET-TSX, $50.05, Sector Performer) Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to Important Disclosure Footnotes" section of this report. 9

10 Key to Important Disclosure Footnotes: 1 CIBC World Markets Corp. makes a market in the securities of this company. 2a This company is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months. 2b 2c 2d 2e 2f 2g 3a 3b 3c 4a 4b 4c 5a 5b 6a CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the past 12 months. CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the past 12 months. CIBC World Markets Corp. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. This company is a client for which a CIBC World Markets company has performed non-investment banking, securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from this company in the past 12 months. This company is a client for which a CIBC World Markets company has performed non-investment banking, non-securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months. The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common equity securities. A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a long position in the common equity securities of this company. The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its common equity securities. 6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this company has a long position in the common equity securities of this company. 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company. 8 An executive of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has provided services to this company for remuneration in the past 12 months. 9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer, director or advisory board member of this company or one of its subsidiaries. 10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., has a significant credit relationship with this company. 11 The equity securities of this company are restricted voting shares. 12 The equity securities of this company are subordinate voting shares. 13 The equity securities of this company are non-voting shares. 14 The equity securities of this company are limited voting shares. 10

11 CIBC World Markets Inc. Price Chart HISTORICAL PERFORMANCE OF CIBC WORLD MARKETS INC. RECOMMENDATIONS FOR LIGHT ENERGY LTD. () Date Change Type Closing Price Rating Price Target Coverage 05/26/ SO Brad Borggard, CFA 07/08/ SO Brad Borggard, CFA 07/14/ SP Brad Borggard, CFA 08/07/ SP Brad Borggard, CFA 08/24/ SP Brad Borggard, CFA 10/21/ SO Brad Borggard, CFA 11/06/ SO Brad Borggard, CFA 11/27/ SO Brad Borggard, CFA 12/02/ R - Brad Borggard, CFA 01/09/ SO Brad Borggard, CFA 01/11/ SO Brad Borggard, CFA 02/18/ SO Brad Borggard, CFA 04/08/ SO Brad Borggard, CFA 04/15/ R - Brad Borggard, CFA 05/07/ SO Brad Borggard, CFA 07/07/ SO 9.75 Brad Borggard, CFA 07/16/ SP 9.25 Brad Borggard, CFA 12/02/ R - Brad Borggard, CFA 01/05/ NR None CIBC World Markets Inc. 03/05/ R - CIBC World Markets Inc. 05/12/ NR None CIBC World Markets Inc. 07/05/ SO Jeremy Kaliel 09/08/ SO Jeremy Kaliel 10/19/ SO Jeremy Kaliel 11/03/ SO Jeremy Kaliel 01/12/ SO Jeremy Kaliel 04/07/ SO Jeremy Kaliel 11

12 CIBC World Markets Inc. Stock Rating System Abbreviation Rating Description Stock Ratings SO Sector Outperformer Stock is expected to outperform the sector during the next months. SP Sector Performer Stock is expected to perform in line with the sector during the next months. SU Sector Underperformer Stock is expected to underperform the sector during the next months. NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock. R Restricted CIBC World Markets is restricted*** from rating the stock. Sector Weightings** O Overweight Sector is expected to outperform the broader market averages. M Market Weight Sector is expected to equal the performance of the broader market averages. U Underweight Sector is expected to underperform the broader market averages. NA None Sector rating is not applicable. **Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada. "Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues. ***Restricted due to a potential conflict of interest. Ratings Distribution*: CIBC World Markets Inc. Coverage Universe (as of 19 May 2011) Count Percent Inv. Banking Relationships Count Percent Sector Outperformer (Buy) % Sector Outperformer (Buy) % Sector Performer (Hold/Neutral) % Sector Performer (Hold/Neutral) % Sector Underperformer (Sell) % Sector Underperformer (Sell) % Restricted % Restricted % Ratings Distribution: Oil & Gas - Dividend Corporations Coverage Universe (as of 19 May 2011) Count Percent Inv. Banking Relationships Count Percent Sector Outperformer (Buy) % Sector Outperformer (Buy) % Sector Performer (Hold/Neutral) % Sector Performer (Hold/Neutral) % Sector Underperformer (Sell) 1 5.9% Sector Underperformer (Sell) % Restricted 0 0.0% Restricted 0 0.0% Oil & Gas - Dividend Corporations Sector includes the following tickers: ARX, BNE, BNP, BTE, CPG,, ERF, FRU, NAE, PBN, PEY, PGF, PMT, PRQ, PWT, TET, VET. *Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Perfor mer, and sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting. Important disclosures required by IIROC Rule 3400, including potential conflicts of interest information, our system for rating investment opportunities and our dissemination policy can be obtained by visiting CIBC World Markets on the web at under 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161 Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request. 12

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(the Canadian broker-dealer) are required to effect transactions (other than negotiating their terms) in securities discussed in the report through CIBC World Markets Corp. (the U.S. broker-dealer). This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World Markets in Canada, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of wholesale clients of CIBC Australia Limited. The securities mentioned in this report may not be suitable for all types of investors. 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