Commissioning of Glacier Gas Plant Expansion
to 400 mmcf/d Creates Significant Available Processing Capacity for
Future Growth
(TSX: AAV, NYSE: AAV)
CALGARY, Aug. 2, 2018 /PRNewswire/ - Advantage Oil &
Gas Ltd. ("Advantage" or the "Corporation") successfully
commissioned its major gas plant expansion project in the second
quarter of 2018 at the Corporation's 100% owned Glacier sour gas
facility. This is a strategic milestone in the development of
Advantage's Montney resource as
our expanded Glacier gas plant now contains significant spare
capacity to accommodate future liquids-rich production growth from
Glacier and our additional land blocks at Valhalla, Wembley/Pipestone and Progress. The expansion
increased processing capacity of raw gas to 400 mmcf/d (second
largest Alberta producer owned
licensed sour gas plant) and shallow cut liquids extraction to
6,800 bbls/d, providing approximately 125 mmcf/d of current spare
raw gas processing capacity. This spare capacity supports
Advantage's higher focus on increasing its liquid-rich production
and also provides flexibility to readily increase natural gas
production in response to price improvements.
In April 2018, Advantage provided
updated guidance which included moderated natural gas production in
response to low prices and confirmed plans to redirect more of its
future capital investments into the Corporation's significant and
growing inventory of liquids-rich drilling opportunities.
During the second quarter of 2018, average production was 212.1
mmcfe/d (35,352 boe/d), including liquids production of 1,067
bbls/d (70% condensate), with total per unit cash costs of
$1.21/mcfe. Total cash costs
are expected to return to approximately $1.10/mcfe to $1.20/mcfe, including operating costs of
$0.24/mcfe to $0.28/mcfe, for the remainder of 2018 due to
higher production rates. Capital expenditures during the quarter of
$25.8 million were largely funded
from cash flow of $23.2 million
($0.12/share) despite a 58% decrease
in the AECO daily natural gas price. The Corporation renewed
its annual credit facility of $400
million with improved borrowing terms and maintained a
strong balance sheet with a total debt to trailing 12 month cash
flow ratio of 1.7. Current production is approximately 270
mmcfe/d (45,000 boe/d) including liquids production of
approximately 1,700 bbls/d.
Advantage's increased focus on liquids-rich activities during
the second half of 2018 includes commencing production from 5
standing liquids-rich Middle Montney wells and the commencement of
a drilling program which includes 10 Middle Montney wells in east
Glacier and an additional 5 liquids-rich wells at Valhalla.
Construction plans were finalized for Advantage's new Valhalla facility which includes a compressor
station and liquids handling hub with project completion scheduled
in the fourth quarter of 2018.
At our ultra-rich liquids asset at Wembley/Pipestone, we advanced work on selecting
routes to extend Advantage's current gathering pipeline system into
this area and have secured a firm third party processing
arrangement for up to 10 mmcf/d of capacity beginning in the latter
half of 2019 for added flexibility and optionality. Our
excitement continues to build in regard to the upside value of
Advantage's entire Wembley/Pipestone land block based on recently
released industry well test information on each side of our
asset.
The Corporation strengthened its commodity hedging position by
monetizing certain in-the-money 2018 and 2019 NYMEX-AECO
differential swaps and applying the proceeds towards the
acquisition of 62 mmcf/d of AECO monthly settled puts at
$1.42 per mcf for June through
September 2018 and 62 mmcf/d of
enhanced AECO fixed price swaps at $1.77 per mcf for the April 2019 to October
2019 period. The restructuring of these transactions
provides Advantage with greater price and cash flow certainty
during planned third party maintenance activities which have and
are anticipated to create significant gas price volatility.
For the second half of 2018 the Corporation has total fixed
price hedges for 112 mmcf/d with 77 mmcf/d at an AECO average price
of $2.29 Cdn/mcf and 35 mmcf/d at a
Dawn average price of $2.85
US/mmbtu. In 2019, Advantage has 81 mmcf/d hedged with 75
mmcf/d at an AECO average price of $2.26
Cdn/mcf and 6 mmcf/d at a Dawn average price of $3.13 US/mmbtu. The Corporation's AECO
price exposure is estimated by Management to be approximately 25%
of total revenue through to 2020 as a result of the Advantage's
revenue diversification program.
Operations Update
Glacier
Six Middle Montney and two Lower Montney wells located on an
eight well pad in the western portion of Glacier were completed in
the first quarter of 2018 and were designed to evaluate the impact
of tighter frac spacing in an area where there are few Middle
Montney wells.
The six Middle Montney wells on this pad contained an average
frac count of 34 stages per well representing a 76% increase over
our previous Middle Montney wells. Four of the six wells have
been placed on production with flow duration ranging from 30 to 100
days. On average, the wells have flowed 62 days at an average
restricted rate of 8.3 mmcf/d representing a 62% increase over our
unrestricted type curve. Production rates remain restricted
on all wells with a current average flowing wellhead pressure of
8,600 kPa
The two Lower Montney wells have been on restricted production
for 17 days averaging 7.5 mmcf/d with current flowing pressures of
10,000 kPa which significantly exceeds the flowing pressure
assumption in our average dry gas type curve.
We have spud the first well of a 10 well Middle Montney pad
located in east Glacier where initial C3+ liquid yields have been
approximately 50 to 80 bbls/mmcf (approximately 50% C5+) and
the knowledge gained in recent well completions in the western
portion of Glacier will be used to further enhance well
performance.
Valhalla
One of the standing Middle Montney wells was placed on
production during the second quarter of 2018 and has produced under
restricted flow at approximately 6 mmcf/d (20% above Advantage's
Middle Montney average well type curve) at a flowing pressure of
6,900 kPa for 73 days. Well production from Valhalla will remain restricted until
Advantage's new Valhalla facility,
which includes 40 mmcf/d of compression and liquids handling
equipment, is completed in the fourth quarter of 2018.
This facility will increase the throughput capacity of our
existing pipeline connecting Valhalla to Advantage's Glacier gas plant.
Two standing Upper Montney wells will also be brought
on-production after the Valhalla
facility is completed.
Advantage will drill a new 5 well liquids-rich pad at
Valhalla as part of our upcoming
winter drilling program.
Wembley/Pipestone
Construction work is scheduled to begin in August 2018 on the tie-in of Advantage's first
delineation well at 12-25-72-8W6. This well will be tied-in
to a third party producer facility on a 'best-efforts' processing
basis as available capacity continues to be increasingly
constrained due to industry successes in this prolific
condensate/oil fairway.
We continue to advance work towards extending Advantage's
current gathering pipelines into this area and have secured a firm
third party processing arrangement beginning in the latter half of
2019 that can provide up to 10 mmcf/d of capacity for added
optionality. Advantage's facility and pipeline construction is
expected to occur during the first half of 2020; although,
Advantage will be prepared to commence this work earlier if the
timeline can be shortened.
Recently released industry wells which offset our Wembley/Pipestone land block demonstrate similar
results to our 12-25 well which was production tested earlier this
year at 1,312 boe/d with 819 bbls/d of liquids including 624 bbls/d
of wellhead condensate/oil and 2.9 mmcf/d of gas.
Looking Forward
Advantage continues to build operational flexibility with a
significant Montney resource of
low cost prolific natural gas and liquids including condensate and
oil. This solid foundation which includes 200 net sections of
Montney lands, 100% owned gas
plant and an expanding pipeline infrastructure combined with an
industry leading low cost structure is well positioned to create
long term value. Advantage will continue to closely monitor
market conditions and respond promptly and responsibly in order to
optimize the allocation of our capital investments.
Second Quarter 2018
Operating and Financial Summary
|
Three months
ended
|
|
Six months
ended
|
|
Financial and
Operating Highlights
|
June
30
|
|
June
30
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Financial ($000,
except as otherwise indicated)
|
|
|
|
|
|
|
|
|
Sales including
realized hedging (3)
|
$
|
45,319
|
|
$
|
69,169
|
|
$
|
118,697
|
|
$
|
142,126
|
|
Net income (loss) and
comprehensive income (loss)
|
$
|
(15,294)
|
|
$
|
18,339
|
|
$
|
(5,191)
|
|
$
|
60,588
|
|
per basic
share
|
$
|
(0.08)
|
|
$
|
(0.05)
|
|
$
|
(0.03)
|
|
$
|
0.33
|
|
Funds from
operations(1)
|
$
|
23,160
|
|
$
|
48,625
|
|
$
|
72,042
|
|
$
|
102,597
|
|
per basic
share
|
$
|
0.12
|
|
$
|
0.26
|
|
$
|
0.39
|
|
$
|
0.55
|
|
Net capital
expenditures
|
$
|
25,761
|
|
$
|
31,462
|
|
$
|
103,397
|
|
$
|
85,253
|
|
Working capital
deficit
|
$
|
3,206
|
|
$
|
6,950
|
|
$
|
3,206
|
|
$
|
6,950
|
|
Bank
indebtedness
|
$
|
250,189
|
|
$
|
134,128
|
|
$
|
250,189
|
|
$
|
134,128
|
|
Basic weighted
average shares (000)
|
186,190
|
|
185,790
|
|
186,077
|
|
185,319
|
|
Operating
|
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
205,712
|
|
225,844
|
|
219,009
|
|
228,363
|
|
Liquids
(bbls/d)
|
1,067
|
|
1,098
|
|
1,086
|
|
1,124
|
|
Total
mcfe/d
|
212,114
|
|
232,432
|
|
225,525
|
|
235,107
|
|
Total
boe/d
|
35,352
|
|
38,739
|
|
37,588
|
|
39,185
|
|
Average prices
(including hedging)
|
|
|
|
|
|
|
|
|
Natural gas ($/mcf)
(3)
|
$
|
2.05
|
|
$
|
3.09
|
|
$
|
2.65
|
|
$
|
3.17
|
|
Liquids
($/bbl)
|
$
|
72.32
|
|
$
|
57.27
|
|
$
|
69.17
|
|
$
|
55.47
|
|
Cash netbacks
($/mcfe)(1)
|
|
|
|
|
|
|
|
|
Sales of natural gas
and liquids from production
|
$
|
1.94
|
|
$
|
3.16
|
|
$
|
2.34
|
|
$
|
3.17
|
|
Net sales of natural
gas purchased from third parties(1)
|
0.06
|
|
-
|
|
0.03
|
|
-
|
|
Realized gains on
derivatives
|
0.41
|
|
0.11
|
|
0.57
|
|
0.17
|
|
Royalty
expense
|
0.06
|
|
(0.15)
|
|
-
|
|
(0.13)
|
|
Operating
expense
|
(0.34)
|
|
(0.27)
|
|
(0.33)
|
|
(0.25)
|
|
Transportation
expense
|
(0.63)
|
|
(0.37)
|
|
(0.60)
|
|
(0.37)
|
|
Operating
netback(1)
|
1.50
|
|
2.48
|
|
2.01
|
|
2.59
|
|
General and
administrative
|
(0.13)
|
|
(0.12)
|
|
(0.10)
|
|
(0.11)
|
|
Settlement of
Performance Awards
|
(0.03)
|
|
-
|
|
(0.01)
|
|
-
|
|
Finance
expense
|
(0.14)
|
|
(0.07)
|
|
(0.12)
|
|
(0.08)
|
|
Other
income
|
-
|
|
0.01
|
|
-
|
|
-
|
|
Cash
netbacks(1)
|
$
|
1.20
|
|
$
|
2.30
|
|
$
|
1.78
|
|
$
|
2.40
|
|
|
|
(1)
|
Non-GAAP Measure
which may not be comparable to similar non-GAAP measures used by
other entities.
|
|
(2)
|
Based on basic
weighted average shares outstanding.
|
|
(3)
|
Excludes net sales of
natural gas purchased from third parties.
|
The Corporation's unaudited interim condensed consolidated
financial statements for the three and six months ended
June 30, 2018 together with the notes
thereto, and Management's Discussion and Analysis for the three and
six months ended June 30, 2018 have
been filed on SEDAR and with the SEC and are available on the
Corporation's website at
http://www.advantageog.com/investors/financial-reports/financial-reports-2018.
Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of the
United States Private Securities Litigation Reform Act of 1995.
These statements relate to future events or our future intentions
or performance. All statements other than statements of historical
fact may be forward-looking statements. Forward-looking statements
are often, but not always, identified by the use of words such as
"seek", "anticipate", "plan", "continue", "estimate", "guidance",
"demonstrate", "expect", "may", "can", "will", "project",
"predict", "potential", "target", "intend", "could", "might",
"should", "believe", "would" and similar expressions and include
statements relating to, among other things, completion of expansion
of the Corporation's Glacier gas plant, including the anticipated
raw processing capacity and shallow cut propane plus liquids
extraction capacity following such expansion; Advantage's
expectation that the expansion of the Corporation's Glacier gas
plant will support anticipated production growth; Advantage's focus
on increasing liquids production; Advantage's ability to increase
natural gas production in response to commodity price improvements;
Advantage's drilling plans, including its plans to redirect more of
its future capital investments into the liquids-rich drilling
opportunities; the impact of third party processing on Advantage;
the impact of third party maintenance activities of gas volatility;
the Corporation's AECO price exposure; future well performance; the
results of future operations, including the expected total
production and liquids production; restrictions on well production
at Valhalla; the timing of
bringing certain Upper-Montney wells onto production; the
anticipated timing of facility and pipeline construction, the
tie-in of certain wells as well as Advantage's ability to begin
construction earlier if necessary; Advantage's capital program for
2018, including the expected timing of incurring capital
expenditures; the factors that Advantage believes will provide
Advantage with the ability to respond promptly and responsibly to
market conditions; and other matters. Advantage's actual decisions,
activities, results, performance or achievement could differ
materially from those expressed in, or implied by, such
forward-looking statements and accordingly, no assurances can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur or, if any of them do, what
benefits that Advantage will derive from them.
These statements involve substantial known and unknown risks
and uncertainties, certain of which are beyond Advantage's control,
including, but not limited to: changes in general economic, market
and business conditions; industry conditions; impact of significant
declines in market prices for oil and natural gas; actions by
governmental or regulatory authorities including increasing taxes
and changes in investment or other regulations; changes in tax
laws, royalty regimes and incentive programs relating to the oil
and gas industry; the effect of acquisitions; Advantage's success
at acquisition, exploitation and development of reserves; failure
to achieve production targets on timelines anticipated or at all;
unexpected drilling results; changes in commodity prices, currency
exchange rates, capital expenditures, reserves or reserves
estimates and debt service requirements; the occurrence of
unexpected events involved in the exploration for, and the
operation and development of, oil and gas properties, including
hazards such as fire, explosion, blowouts, cratering, and spills,
each of which could result in substantial damage to wells,
production facilities, other property and the environment or in
personal injury; changes or fluctuations in production levels;
individual well productivity; lack of available capacity on
pipelines; delays in anticipated timing of drilling and completion
of wells; delays in completion of the expansion of the Glacier gas
plant; delays in completion of the facility at Valhalla; delays in construction and
completion of other infrastructure projects; that test results are
not indicative of future production rates; lack of available
capacity on pipelines; competition from other producers; the lack
of availability of qualified personnel or management; credit risk;
changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are
interpreted and enforced; our ability to comply with current and
future environmental or other laws; stock market volatility and
market valuations; liabilities inherent in oil and natural gas
operations; uncertainties associated with estimating oil and
natural gas reserves; competition for, among other things, capital,
acquisitions of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; geological,
technical, drilling and processing problems and other difficulties
in producing petroleum reserves; ability to obtain required
approvals of regulatory authorities; and ability to access
sufficient capital from internal and external sources. Many of
these risks and uncertainties and additional risk factors are
described in the Corporation's Annual Information Form dated
March 5, 2018, which is available at
www.Sedar.com and www.advantageog.com. Readers are also referred to
risk factors described in other documents Advantage files with
Canadian securities authorities.
With respect to forward-looking statements contained in this
press release, Advantage has made assumptions regarding, but not
limited to: timing of regulatory approvals; conditions in general
economic and financial markets; effects of regulation by
governmental agencies; current and future commodity prices and
royalty regimes; future exchange rates; royalty rates; future
operating costs, cash costs and liquids transportation costs; frac
stages per well; lateral lengths per well; well costs; expected
annual production growth rates; availability of skilled labor;
availability of drilling and related equipment; timing and amount
of capital expenditures; the impact of increasing competition; the
price of crude oil and natural gas; that the Corporation will have
sufficient cash flow, debt or equity sources or other financial
resources required to fund its capital and operating expenditures
and requirements as needed; that the Corporation's conduct and
results of operations will be consistent with its expectations;
that the Corporation will have the ability to develop the
Corporation's properties in the manner currently contemplated;
available pipeline capacity; that the Corporation will be able to
complete the expansion and increase capacity at the Glacier gas
plant; that Advantage's production will increase; current or, where
applicable, proposed assumed industry conditions, laws and
regulations will continue in effect or as anticipated; and that the
estimates of the Corporation's production and reserves volumes and
the assumptions related thereto (including commodity prices and
development costs) are accurate in all material respects.
Production estimates contained herein are expressed as anticipated
average production over the calendar year. In determining
anticipated production for the year ended December 31, 2018 Advantage considered historical
drilling, completion and production results for prior years and
took into account the estimated impact on production of the
Corporation's 2018 expected drilling and completion
activities.
Management has included the above summary of assumptions and
risks related to forward-looking information in order to provide
shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other
purposes. Advantage's actual results, performance or achievement
could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits that Advantage will derive there from. Readers are
cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this
press release and Advantage disclaims any intent or obligation to
update publicly any forward-looking statements, whether as a result
of new information, future events or results or otherwise, other
than as required by applicable securities laws.
This press release contains a number of oil and gas metrics,
including operating netbacks, which do not have standardized
meanings or standard methods of calculation and therefore such
measures may not be comparable to similar measures used by other
companies and should not be used to make comparisons. Such metrics
have been included herein to provide readers with additional
measures to evaluate the Corporation's performance; however, such
measures are not reliable indicators of the future performance of
the Corporation and future performance may not compare to the
performance in previous periods and therefore such metrics should
not be unduly relied upon. Management uses these oil and gas
metrics for its own performance measurements and to provide
securityholders with measures to compare Advantage's operations
over time. Readers are cautioned that the information provided by
these metrics, or that can be derived from the metrics presented in
this news release, should not be relied upon for investment or
other purposes.
References in this press release to flow rates and other
short-term production rates are useful in confirming the presence
of hydrocarbons, however such rates are not determinative of the
rates at which such wells will commence production and decline
thereafter and are not indicative of long term performance or of
ultimate recovery. Additionally, such rates may also include
recovered "load oil" fluids used in well completion stimulation.
While encouraging, readers are cautioned not to place reliance on
such rates in calculating the aggregate production of
Advantage.
Barrels of oil equivalent (boe) and thousand cubic feet of
natural gas equivalent (mcfe) may be misleading, particularly if
used in isolation. Boe and mcfe conversion ratios have been
calculated using a conversion rate of six thousand cubic feet of
natural gas equivalent to one barrel of oil. A boe and mcfe
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.
|
The following
abbreviations used in this press release have the meanings set
forth below.
|
|
|
bbls/d
boe
|
barrels per
day
barrels of oil
equivalent of natural gas, on the basis of one barrel of oil or
NGLs for six thousand cubic feet of natural gas
|
|
boe/d
|
barrels of oil
equivalent per day
|
|
GJ
|
gigajoule
|
|
GJ/d
|
gigajoules per
day
|
|
mboe
|
thousand barrels
of oil equivalent
|
|
mcf
|
thousand cubic
feet
|
|
mcf/d
|
thousand cubic
feet per day
|
|
mcfe
|
thousand cubic
feet equivalent on the basis of six thousand cubic feet of natural
gas for one barrel of oil or NGLs
|
|
mcfe/d
|
thousand cubic
feet equivalent per day on the basis of six thousand cubic feet of
natural gas for one barrel of oil or NGLs
|
|
mmcf/d
|
million cubic feet
per day
|
|
mmcfe/d
|
million cubic feet
equivalent per day
|
Non-GAAP Measures
The Corporation discloses several financial measures that do
not have any standardized meaning prescribed under International
Financial Reporting Standards ("IFRS"). These financial measures
include funds from operations, operating netbacks, cash netbacks,
cash costs and total debt to annualized cash flow ratio. Funds from
operations, as presented, is based on cash provided by operating
activities, before expenditures on decommissioning liability and
changes in non-cash working capital, reduced for finance expense
excluding accretion. Management believes these adjustments to cash
provided by operating activities increase comparability between
reporting periods. Operating netback is calculated by adding
natural gas and liquids sales with realized gains and losses on
derivatives and subtracting royalty expense, operating expense and
transportation expense. Cash netbacks are dependent on the
determination of funds from operations and include the primary cash
sales and expenses on a per mcfe basis that comprise funds from
operations. Total debt to cash flow ratio is calculated as
indebtedness under the Corporation's credit facilities plus working
capital deficit divided by funds from operations for the prior
twelve month period.
Management believes that these financial measures are useful
supplemental information to analyze operating performance and
provide an indication of the results generated by the Corporation's
principal business activities. Investors should be cautioned that
these measures should not be construed as an alternative to net
income or other measures of financial performance as determined in
accordance with IFRS. Advantage's method of calculating these
measures may differ from other companies, and accordingly, they may
not be comparable to similar measures used by other companies.
Please see the Corporation's most recent Management's Discussion
and Analysis, which is available at www.sedar.com and
www.advantageog.com for additional information about these
financial measures, including a reconciliation of funds from
operations to cash provided by operating activities.
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SOURCE Advantage Oil & Gas Ltd.