CALGARY, Nov. 1, 2018 /CNW/ - Advantage Oil & Gas Ltd.
("Advantage" or the "Corporation") is pleased to announce strong
third quarter 2018 results which included record production of
45,611 boe/d (273.7 mmcfe/d), up 29% from the second quarter of
2018 and up 20% from the same period in 2017. Liquids production
increased 69% to a record 1,804 bbls/d compared to the second
quarter of 2018, up 29% from the same period of 2017. Advantage
exited the third quarter of 2018 with liquids production of 2,100
bbls/d which was comprised of approximately 67% condensate
("C5+").
Adjusted funds flow during the quarter was $32 million or $0.17/share supported by realized hedging and
marketing diversification gains of $9.5
million and industry leading low total cash costs of
$6.12/boe ($1.02/mcfe), down 12% from the first half of
2018. Net capital expenditures of $48.4 million were on-track for the quarter
resulting in a total debt to trailing 12 month adjusted funds flow
ratio of 1.8 which is estimated to be reduced to 1.6 at year-end
2018 due to surplus cash generated from Glacier operations during
the fourth quarter (See Appendix - Third Quarter 2018).
Three Year Development Plan (2019 through 2021)
The Board of Directors of Advantage has approved a three year
development plan (the "Plan") including the Corporation's 2019
capital and operating budget. This Plan is expected to be
internally funded through redeploying surplus cash generated by our
Glacier asset, growing liquids revenue and existing credit
facilities. Advantage's Plan is based on current annual
average 2019 through 2021 strip prices for natural gas of
$1.78/mcf AECO and oil of WTI
$65.50 U.S./bbl and the Corporation's
hedging and market diversification positions (see summary Plan
estimates and assumptions provided in this press
release).
Advantage's Plan is strategically designed to:
- Continue strengthening our solid business foundation by
increasing our premium C5+ / light oil production mix to further
diversify and enhance the Corporation's revenue sources making
Advantage even stronger through and beyond 2021
- Preserve balance sheet strength and develop additional
operational and infrastructure optionality by optimizing
infrastructure investment, leveraging efficiencies in our existing
owned process capacity and utilization of third party processing
capacity
- Strengthen netbacks while maintaining Advantage's industry
leading low cash cost structure
- Increase flexibility to optimize capital allocation by
development of Advantage's vast multi-zone liquids potential while
retaining torque to its extensive and ultra-low cost natural gas
resource
Key Anticipated/Estimated highlights of our Plan are:
- Increases annual liquids production 700% to an exit rate of
over 14,000 bbls/d and an annual average of 11,370 bbls/d in 2021
representing over 22% of total production and approximately 60% of
total revenue
- Increases premium C5+ / light oil content from currently 67%
to 82% of total liquids
- Increases total annual average production by 25% or 8%
compound annual growth rate ("CAGR") to 52,300 boe/d (314
mmcfe/d) in 2021 over estimated 2018 annual production
- Further diversifies Advantage's revenue exposure with
natural gas accounting for approximately 14% AECO, 13% Dawn and 14%
mid-west U.S. by 2021
- Increases adjusted funds flow by 15% to $0.99/share in 2019, 26% to $1.25/share in 2020 and 34% to $1.67/share in 2021 over each prior annual
period
- Increases adjusted funds flow per boe by 58% to $16.56/boe ($2.76/mcfe)
- Preserves financial flexibility with year-end total debt to
trailing adjusted funds flow ratios of 1.6, 1.2 and 0.6 for 2019,
2020 and 2021, respectively. Significant cash flow growth
results in cumulative cash of $735
million as compared to a capital investment of $690 million over the three years
- Maintains Advantage's industry leading low total cash costs
averaging $7.92/boe ($1.32/mcfe) over the three years
- Requires only 96 new Montney wells to achieve the objectives of
our Plan while retaining a significant high quality inventory of
over 1,200 future Montney
locations for development beyond 2021
- Enhances operational and financial optionality through
utilization of third party processing capacity for our initial
Pipestone/Wembley development with options to
expand. This efficiently manages infrastructure capital
requirements, provides more processing flexibility and accommodates
growth from Advantage's other assets and third party processing
revenue at our 100% owned Glacier gas plant. The Corporation
continues to work on and retains future optionality to construct a
Wembley to Glacier pipeline
We look forward to reporting on our progress as we continue
development of our world class Montney resource with financially disciplined
and full-cycle returns based approach that focuses on per share
value generation.
Three Year Development Plan Commentary (2019 through
2021)
Advantage's Plan is anticipated to position the Corporation to
capitalize on emerging demand growth with a more diversified
revenue base and added flexibility to capture value enhancing
opportunities. We believe Canadian condensate market demand
will continue to exceed domestic supply growth resulting in strong
future pricing. We also believe that Canadian natural
gas demand will continue to grow through new domestic power,
petro-chemical and industrial gas projects along with increasing
export demand in the next 3 to 5 years. Accordingly, the
Corporation's Plan to accelerate development of its liquids-rich
lands with a specific focus on premium C5+ / light oil while
retaining optionality to accelerate development of its ultra-low
cost gas resource will create additional capital allocation
flexibility.
Advantage's Plan will focus development of its liquids-rich
Montney resources at east Glacier,
Valhalla, Pipestone/Wembley with additional delineation of the
Corporation's land block at Progress. The Plan includes
anticipated liquids growth from east Glacier and Valhalla (liquids yields of 50 bbls/mmcf to
100 bbls/mmcf) in 2019 with increasing contribution from our
Pipestone/Wembley (>250 bbls/mmcf) land block
beginning in the fourth quarter of 2019 and ramping up
significantly thereafter.
Existing gas production is expected to modestly decrease over
the three year Plan; however, our low cost and lower decline
Glacier foundational asset is expected to provide approximately
$175 million of free cash flow to
re-invest in development of Advantage's liquids
potential.
Drilling and Future Inventory
Advantage's total Montney land
holdings comprise 200 net sections (128,000 net acres) of prolific
gas and liquids-rich drilling opportunities in multiple layers. To
date, only 5% of our liquids-rich future well inventory has been
drilled. The estimated future drilling inventory within
our multi-zone land holdings reinforces the extensive high quality
resource development potential that exists today and beyond
2021.
# Estimated Future
Drilling Locations(1)
|
|
|
C3+ Shallow Cut
Liquids Content
|
#
Locations
|
(approximately 50%
to 80% C5%+)
|
|
<25
bbls/mmcf
|
270
|
25 to 100
bbls/mmcf
|
730
|
>100
bbls/mmcf
|
200 to 400
|
Total
|
1,200 to
1,400
|
|
Note: (1)
Management estimates given consideration to number of Montney
layers, well spacing, frac design, regulatory guidelines and
production & delineation results. C3+ refers to propane
plus butane & condensate.
|
The Plan includes drilling 96 new Montney production wells comprised of 42
ultra-rich C5+/light oil wells at Pipestone/Wembley and 54 wells targeting the premium
condensate Montney intervals at
Valhalla, east Glacier and
Progress. The development drilling program at Pipestone/Wembley will commence during the second half
of 2019 to support liquids growth targets in 2020 in conjunction
with third party processing capacity.
Well costs (drill, complete, equip and tie-in) are estimated to
range from $4.9 million to
$5.3 million per well dependent on
the number of frac stages and length.
Facilities, Processing and Transportation
Processing capacity in the Pipestone
Area is currently constrained with one new third party
mid-stream facility expected to come on-stream in the second half
of 2019. Subsequent new third party mid-stream facilities are
expected to be completed by mid-2020 and mid-2021 with additional
expansion plans progressing to provide sufficient capacity to match
longer term area growth plans.
Advantage has secured and is finalizing additional third party
processing arrangements in the Pipestone/Wembley area to accommodate our Plan gas
processing volume requirements with options to add additional
processing capacity for future development. This allows
Advantage to optimize infrastructure investment and accelerate the
drilling of liquids-rich wells. This will also allow
Advantage more flexibility to utilize the current spare raw gas
processing capacity of approximately 120 mmcf/d at our 100% owned
Glacier gas plant to accommodate growth from east Glacier and
Valhalla and provide additional
flexibility to consider third party processing arrangements at
Glacier. Advantage will retain the optionality to extend its
gathering pipelines from Glacier to Wembley by completing engineering design work
and surveying in 2019 but will defer the decision on this
investment until a later date.
Liquids growth from Pipestone/Wembley will be handled through a new 100%
owned liquids separation/handling facility which will be
constructed to an initial design capacity of 5,000 bbls/d with
provisions for expansion.
Revenue Diversification and Hedging
During the three years of the Plan, Advantage's liquids
production is anticipated to grow to approximately 22% of total
production in 2021 (82% C5+) and is expected to provide almost 60%
of the Corporation's revenue. At that time, Advantage's
natural gas revenue as a percentage of total Corporate revenue is
estimated to be comprised of approximately 14% from AECO, 13% Dawn
and 14% from the U.S. mid-west markets.
Advantage's hedging positions include an average 75 mmcf/d
hedged at an average AECO price of $2.26/mcf for 2019 and 23 mmcf/d hedged at an
average Dawn price of U.S. $2.94/mcf
for 2019. Included in our 2019 hedging position is 87 mmcf/d
hedged at an average AECO price of $2.00/mcf for the summer of 2019 where
maintenance restrictions on the NGTL system are expected to
occur. The Corporation will continue to participate in
hedging both natural gas and liquids prices to reduce cash flow
volatility to support future development.
2019 Capital Budget
Advantage's 2019 Capital Budget will focus investment primarily
to drilling and completing wells at east Glacier, Valhalla and Pipestone/Wembley to support 2019 production and to
provide sufficient well productivity to meet 2020 liquids growth
targets.
Capital expenditures in 2019 are targeted at $225 million of which $154
million (68%) will be invested in drilling and completion
activity. Infrastructure investment is expected to be
$58 million (26%) which includes
major gathering system and liquids handling facilities for
Pipestone/Wembley and the equipping and tie-in of new
wells.
Development Plan Summary Table
|
Guidance and
Estimates
|
|
2019
Guidance(3)
|
2020
Estimate(4)
|
2021
Estimate(4)
|
Average production
(Boe/day)
|
43,500 to
46,500
|
47,850
|
52,300
|
Gas
production (mmcf/d)
|
244 to 260
|
245
|
246
|
Liquids
production (bbls/d)
|
2,900 to
3,200
|
7,000
|
11,370
|
%
Liquids / % Condensate/light oil
|
7% / 75%
|
15% / 80%
|
22% / 82%
|
|
|
|
|
Royalty Rate
(%)
|
4%
|
4%
|
4.5%
|
Royalties
($/boe)
|
$0.65
|
$0.90
|
$1.15
|
Operating Cost
($/boe)
|
$2.00
|
$2.45
|
$2.65
|
Transportation Cost
($/boe)
|
$3.35
|
$3.45
|
$3.40
|
G&A/Finance Cost
($/boe)
|
$1.35
|
$1.35
|
$1.25
|
Total Costs
($/boe)
|
$7.35
|
$8.15
|
$8.45
|
|
|
|
|
Net Capital
Expenditures (millions)(1)
|
$210 to
$240
|
225
|
240
|
Capital Efficiency
($/boe/d)
|
$14,400
|
$13,700
|
$12,700
|
Adjusted funds flow
($/boe)(1)
|
$11.28
|
$13.38
|
$16.56
|
Adjusted funds flow
(millions) (1)
|
$185
|
$235
|
$315
|
Per
share(1)
|
$0.99
|
$1.25
|
$1.67
|
|
|
|
|
|
|
|
|
Total YE debt /
trailing cash flow ratio(1)
|
1.6
|
1.2
|
0.6
|
|
|
|
|
WTI (US$/bbl)
(2)
|
$66.79
|
$66.37
|
$63.29
|
Advantage C5+/Light
oil differential to WTI (CAD$/bbl) (3)
|
$(7.00)
|
$(6.00)
|
$(6.00)
|
CAD/USD exchange
rate(2)
|
$0.77
|
$0.77
|
$0.77
|
AECO (C$/GJ)
(2)
|
$1.68
|
$1.61
|
$1.78
|
|
|
|
|
Notes:
|
|
1)
|
Non-GAAP Measure
which may not be comparable to similar non-GAAP measures used by
other entities. Please see
"Non-GAAP Advisory".
|
2)
|
Based on strip
pricing at October 23, 2018.
|
3)
|
Management
estimate.
|
4)
|
Midpoint management
estimate.
|
2021 and Beyond
Advantage's land holdings and infrastructure ownership provides
a strong foundation to support development of natural gas and
liquids for many years beyond 2021. Management estimates the
Corporation's high quality land holdings are capable of supporting
total production in excess of 120,000 boe/d with liquids production
exceeding 30% of total production assuming an approximate 12+ year
flat production plateau. The estimated return on average
capital employed (ROACE) over a 10 year period is between 10% to
15% based on a flat AECO Cdn $2.00/mcf price and a flat WTI oil price of $U.S.
$65.00/bbl. Continued
efficiency improvements driven by technology gains and economies of
scale could further increase these
estimates.
Updated corporate presentation and Sustainability Report have
been added to our website. The Corporation's unaudited
interim condensed consolidated financial statements for the three
and nine months ended September 30,
2018 together with the notes thereto, and Management's
Discussion and Analysis for the three and nine months ended
September 30, 2018 have been filed on
SEDAR and are available on the Corporation's website.
APPENDIX - Third Quarter 2018
Operations Update
During the third quarter of 2018, Advantage resumed normal
operations at our 100% owned Glacier gas plant after successfully
completing the construction and commissioning of our major plant
expansion project in the second quarter of 2018. The
expansion increased the raw gas processing capacity at the Glacier
gas plant to 400 mmcf/d and increased shallow cut liquids
extraction capacity to 6,800 bbls/d. Current throughput is
approximately 285 mmcf/d of raw gas and liquids extraction of
approximately 2,100 bbls/d, providing spare capacity to accommodate
future growth and third party processing
opportunities.
Production from six new liquids-rich Middle Montney wells
located in west Glacier continue to outperform and are exceeding
our expectations by an average of 100% after 120 days of
production.
In east Glacier, seven wells of a 10 well Middle Montney pad
have been rig released targeting liquid yields ranging from 50 to
80 bbls/mmcf.
In Valhalla, two liquids-rich
well pads at Valhalla consisting
of five wells and two wells will commence drilling in the first
quarter of 2019 as part of our winter drilling program. These
wells will be brought on-production in 2019. Construction has
commenced on Advantage's new liquids handling facility which is
expected to be completed by year-end 2018. This facility is
designed to compress up to 40 mmcf/d of liquids-rich gas production
to our Glacier gas plant and will allow the existing and new
Valhalla wells to flow
unrestricted.
At Wembley, Advantage's
existing well at 12-25-72-8W6 has been tied-in to a third party
producer under a best-efforts processing arrangement.
Processing capacity is currently very limited in the
Pipestone/Wembley area and production from the well may
be restricted until 2019. Advantage's 2018 annual liquids
production is expected to be 1,520 bbls/d, an increase of 25% as
compared to 2017. Annual 2018 production guidance is 40,000
boe/d to 42,500 boe/d (240 mmcfe/d to 255 mmcfe/d).
Operating and Financial Summary
|
|
Three months
ended
|
|
Nine months
ended
|
Financial and
Operating Highlights
|
September
30
|
|
September
30
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Financial ($000,
except as otherwise indicated)
|
|
|
|
|
|
|
|
Sales including
realized hedging (3)
|
$
|
57,928
|
|
$
|
51,706
|
|
$
|
176,625
|
|
$
|
193,832
|
Net income (loss) and
comprehensive income (loss)
|
$
|
(8,852)
|
|
$
|
13,026
|
|
$
|
(14,043)
|
|
$
|
73,614
|
|
per basic
share(2)
|
$
|
(0.05)
|
|
$
|
0.07
|
|
$
|
(0.08)
|
|
$
|
0.40
|
Cash provided by
operating activities
|
$
|
30,786
|
|
$
|
56,661
|
|
$
|
115,372
|
|
$
|
156,553
|
|
per mcfe
|
$
|
1.23
|
|
$
|
2.69
|
|
$
|
1.75
|
|
$
|
2.46
|
|
per basic
share(2)
|
$
|
0.17
|
|
$
|
0.30
|
|
$
|
0.62
|
|
$
|
0.84
|
Adjusted funds
flow(1)
|
$
|
32,035
|
|
$
|
36,722
|
|
$
|
104,077
|
|
$
|
139,319
|
|
per mcfe
|
$
|
1.28
|
|
$
|
1.74
|
|
$
|
1.58
|
|
$
|
2.18
|
|
per basic share
(2)
|
$
|
0.17
|
|
$
|
0.20
|
|
$
|
0.56
|
|
$
|
0.75
|
Cash used in
investing activities
|
$
|
39,085
|
|
$
|
77,286
|
|
$
|
163,011
|
|
$
|
154,839
|
Net capital
expenditures (1)
|
$
|
48,437
|
|
$
|
89,799
|
|
$
|
151,834
|
|
$
|
175,052
|
Working capital
deficit
|
$
|
8,169
|
|
$
|
37,017
|
|
$
|
8,169
|
|
$
|
37,017
|
Bank
indebtedness
|
$
|
259,179
|
|
$
|
156,351
|
|
$
|
259,179
|
|
$
|
156,351
|
Basic weighted
average shares (000)
|
|
186,065
|
|
|
185,953
|
|
|
186,073
|
|
|
185,533
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
|
262,841
|
|
|
219,812
|
|
|
233,780
|
|
|
225,480
|
|
Liquids
(bbls/d)
|
|
1,804
|
|
|
1,395
|
|
|
1,328
|
|
|
1,215
|
|
Total
mcfe/d
|
|
273,665
|
|
|
228,182
|
|
|
241,748
|
|
|
232,770
|
|
Total
boe/d
|
|
45,611
|
|
|
38,030
|
|
|
40,291
|
|
|
38,795
|
Average prices
(including realized hedging)
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/mcf)
(3)
|
$
|
1.93
|
|
$
|
2.26
|
|
$
|
2.38
|
|
$
|
2.87
|
|
Liquids
($/bbl)
|
$
|
67.90
|
|
$
|
46.95
|
|
$
|
68.59
|
|
$
|
52.18
|
Operating Netback
($/mcfe)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas
and liquids from production
|
$
|
2.22
|
|
$
|
2.06
|
|
$
|
2.30
|
|
$
|
2.80
|
|
Net sales of natural
gas purchased from third
parties(1)
|
|
-
|
|
|
-
|
|
|
0.02
|
|
|
-
|
|
Realized gains on
derivatives
|
|
0.08
|
|
|
0.40
|
|
|
0.38
|
|
|
0.25
|
|
Royalty recovery
(expense)
|
|
(0.03)
|
|
|
0.02
|
|
|
(0.01)
|
|
|
(0.08)
|
|
Operating
expense
|
|
(0.27)
|
|
|
(0.25)
|
|
|
(0.31)
|
|
|
(0.25)
|
|
Transportation
expense
|
|
(0.51)
|
|
|
(0.35)
|
|
|
(0.57)
|
|
|
(0.36)
|
Operating
netback(1)
|
$
|
1.49
|
|
$
|
1.88
|
|
$
|
1.81
|
|
$
|
2.36
|
(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.
|
Advisory
The information in this press release contains certain
forward-looking statements within the meaning of applicable
securities laws relating to the Corporation's plans and other
aspects of its anticipated future operations, management focus,
strategies, financial, operating and production results and
business opportunities. 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,
the estimated total debt to trailing 12 month adjusted funds flow
ratio at year-end 2018 and the reasons therefor; the expected
sources of funding for the Corporation's Plan, the Plan's
development focus and the timing thereof; expected results and
benefits to be derived from the Plan, including, but not limited
to, increasing annual liquids production and annual liquids
production average and the anticipated amount of annual liquids
production and annual liquids average in 2021, diversifying the
Corporation's revenue sources, developing additional operational
and infrastructure optionality and how this will be achieved;
annual production average in 2021, increasing C5+/light oil
production mix and the expected amount of C5+/light oil production
mix increase, the expected amount by which total annual average
production will be increased by in 2021, the expected amount of
total annual average production in 2021; the amount by which the
Corporation's natural gas revenue will be diversified by 2021; the
expected adjusted funds flow per share in each of 2019, 2020 and
2021 over each prior annual period; the expected amount of adjusted
funds flow netbacks; expected year-end total debt to trailing cash
flow ratios in each of 2019, 2020 and 2021; the expected cumulative
cash flow and capital investment over the Plan's three years; the
number of new wells required to achieve the objectives of the
Corporation's Plan and the number of Montney locations for development beyond 2021;
expectations that the owned Glacier gas plant has capacity to
accommodate future growth and provide third party processing
opportunities; Q1 2019 drilling plans in east Glacier and the
timing of wells being brought on production; the timing for the
construction to be completed on the Corporation's new liquids
handling facility in Valhalla and
the benefits derived from such new facility; duration of
production restrictions at Wembley
and the impact on the Corporation's annual 2018 liquids production
estimates; the expectation that production restrictions at
Wembley will not impact the
Corporation's expected annual 2018 production guidance;
management's beliefs on the Canadian condensate market and the
Canadian natural gas demand; expectations that the Plan will
enhance shareholder value; expectations with respect to lean gas
and natural gas production over the course of the Plan; the
Corporation's future drilling inventory, the estimated well costs
and the C3+ liquids content; resource development potential beyond
2021; the timing of the drilling program at Pipestone/Wembley; the timing for the construction to be
completed on third party mid-stream facilities; the benefits
derived from third party processing arrangements the Corporation
entered into with two midstream firms; whether the Corporation will
extend its gathering pipelines from Glacier to Wembley and the timing to complete engineering
design work and surveying; the impact of the Plan on the
Corporation's revenue in 2021 and the expected allocation of
natural gas revenue; the Corporation's current and future hedging
program; the focus on the Corporation's 2019 capital budget; the
Corporation's expected capital expenditures for 2019, including the
expected allocation of such expenditures; 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 infrastructure; lack of available
capacity on pipelines; individual well productivity; 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 rate; 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 its infrastructure projects; 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 years ended
December 31, 2018, 2019, 2020 and
2021 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, 2019,
2020 and 2021 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.
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.
This press release discloses drilling inventory in the
Glacier, Valhalla, Progress and
Pipestone/Wembley areas in three categories: (i) proved
locations; (ii) probable locations; and (iii) unbooked locations.
Proved locations and probable locations are derived from Sproule
Associates Limited reserves evaluation effective December 31, 2017 and account for drilling
locations that have associated proved and/or probable reserves, as
applicable. Unbooked locations are internal estimates based on our
prospective acreage and an assumption as to the number of wells
that can be drilled per section based on industry practice and
internal review. Unbooked locations do not have attributed reserves
or resources. Of the 1,200 to 1,400 total drilling locations
identified herein, 303 are proved locations, 34 are additional
probable locations and 863 to 1,063 are unbooked locations.
Unbooked locations have been identified by management as an
estimation of our multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. There is no certainty that the
Corporation will drill all unbooked drilling locations and if
drilled there is no certainty that such locations will result in
additional oil and gas reserves, resources or production. The
drilling locations on which we actually drill wells will ultimately
depend upon the availability of capital, regulatory approvals,
seasonal restrictions, oil and natural gas prices, costs, actual
drilling results, additional reservoir information that is obtained
and other factors. While certain of the unbooked drilling locations
have been de-risked by drilling existing wells in relative close
proximity to such unbooked drilling locations, other unbooked
drilling locations are farther away from existing wells where
management has less information about the characteristics of the
reservoir and therefore there is more uncertainty whether wells
will be drilled in such locations and if drilled there is more
uncertainty that such wells will result in additional oil and gas
reserves, resources or production.
The Corporation discloses several financial and performance
measures that do not have any standardized meaning prescribed under
International Financial Reporting Standards ("IFRS" or "GAAP").
These financial and performance measures include "net capital
expenditures" and "adjusted funds flow", which should not be
considered as alternatives to, or more meaningful than "net
income", "comprehensive income", "cash provided by operating
activities", or "cash used in investing activities" as determined
in accordance with GAAP. Management believes that these measures
provide an indication of the results generated by the Corporation's
principal business activities and provide useful supplemental
information for analysis of the Corporation's operating performance
and liquidity. 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. Net capital
expenditures include total capital expenditures related to
property, plant and equipment and exploration and evaluation assets
incurred during the period. Management considers this measure
reflective of actual capital activity for the period as it excludes
changes in working capital related to other periods. The
Corporation considers adjusted funds flow to be a useful measure of
Advantage's ability to generate cash from the production of natural
gas and liquids, which may be used to settle outstanding debt and
obligations, and to support future capital expenditures plans.
Changes in non-cash working capital are excluded from adjusted
funds flow as they may vary significantly between periods and are
not considered to be indicative of the Corporation's operating
performance as they are a function of the timeliness of collecting
receivables or paying payables. Expenditures on decommissioning
liabilities are excluded from the calculation of adjusted funds
flow as the amount and timing of these expenditures are unrelated
to current production, highly variable and discretionary. 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 to the nearest GAAP
measures.
This press release and, in particular the information in
respect of the Corporation's expected 2019, 2020 and 2021 cash flow
per share, 2021 cash flow netbacks, year-end total debt to trailing
cash flow ratios for 2019, 2020 and 2021, average cash costs over
2019, 2020 and 2021 and 2019 capital expenditures, may contain
future oriented financial information ("FOFI") within the
meaning of applicable securities laws. The FOFI has been
prepared by management to provide an outlook of the Corporation's
activities and results and may not be appropriate for other
purposes. The FOFI has been prepared based on a number of
assumptions, including the assumptions discussed above, and
assumptions with respect to the costs and expenditures to be
incurred by the Corporation, capital equipment and operating costs,
foreign exchange rates, taxation rates for the Corporation, general
and administrative expenses and the prices to be paid for the
Corporation's production. Management does not have firm commitments
for all the costs, expenditures, prices or other financial
assumptions used to prepare the FOFI or assurance that such
operating results will be achieved and, accordingly, the complete
financial effects of all of those costs, expenditures, prices and
operating results are not objectively determinable. The
actual results of operations of the Corporation and the resulting
financial results may vary from the amounts set forth herein, and
such variations may be material. The Corporation and
management believe that the FOFI has been prepared on a reasonable
basis, reflecting management's best estimates and judgments.
However, because this information is highly subjective and subject
to numerous risks including the risks discussed above, it should
not be relied on as necessarily indicative of future results.
FOFI contained in this press release was made as of the date of
this press release and the Corporation disclaims any intention or
obligations to update or revise any FOFI contained in this press
release, whether as a result of new information, future events or
otherwise, unless required pursuant to applicable law.
The following abbreviations used in this press release have
the meanings set forth below.
bbl
|
barrel
|
bbl/d
|
barrel per
day
|
bbls/d
|
barrels per
day
|
bbls/mmcf
|
Barrels per
million cubic feet
|
boe
|
barrels of oil
equivalent of natural gas, on the basis of one barrel of oil or
natural gas liquids for six thousand cubic feet of natural
gas
|
boe/d
|
barrels of oil
equivalent per day
|
GJ
|
gigajoule
|
mcf
|
thousand cubic
feet
|
mcfe
|
thousand cubic
feet equivalent on the basis of six thousand cubic feet of natural
gas for one barrel of oil or natural gas liquids
|
mmcf/d
|
million cubic feet
per day
|
mmcfe/d
|
million cubic feet
equivalent per day
|
|
|
|
|
SOURCE Advantage Oil & Gas Ltd.