221% Production Replacement Led
By
22% Increase in Liquids Reserves
(TSX:
AAV)
CALGARY, Feb. 11, 2019 /CNW/ - Advantage Oil & Gas
Ltd. ("Advantage" or the "Corporation") is pleased to report its
2018 reserves and an operational update on the Corporation's
liquids development plan.
Advantage's 2018 proved plus probable ("2P") reserve additions
replaced 221% of annual production through drilling successes in
all of the Corporation's land blocks and through positive technical
revisions reflecting continued improvements in production
performance. 2P reserves increased 4.4% to 432.2 million boe
(2.59 Tcfe) at a finding and development cost ("F&D") of
$8.04/boe ($1.34/mcfe) including the change in future
development capital ("FDC"). Advantage's focus on liquids
resulted in a 33% increase in proved developed producing
("PDP") liquids reserves, and recorded its first reserve bookings
at our ultra-rich Pipestone/Wembley block.
Fourth quarter 2018 operating results included record production
of 45,686 boe/d and a 61% increase in liquids production to 1,974
bbls/d. Liquids contributed 15% of total 2018 revenue, and
marketing initiatives generated $59
million (includes realized gains on derivatives and revenue
less transportation realized from physical sales arrangements
involving markets outside of AECO). Adjusted funds
flow(a) for 2018 was $150
million, and year-end total debt(a) was
$273 million, resulting in a
debt-to-adjusted funds flow ratio of 1.8. Advantage's low
cost structure, high rate of liquids growth, and strong balance
sheet establish a solid platform for the Corporation to continue
advancing it's multi-year liquids development plan (refer to
Advantage press release dated November 1,
2018).
Major facilities expenditures in 2018 included the Glacier gas
plant expansion to 400 mmcf/d and 6,800 bbls/d of liquids, and the
substantial completion of a new compression and liquids handling
hub at Valhalla. In addition,
certain liquids-rich well operations and capital expenditures that
were previously planned for January
2019 were accelerated to December
2018 to capitalize on temporary service discounts and
reinforce our production outlook.
2018 Reserves Achievements:
- Replaced 225% and 221% of 2018 annual production on a Proved
("1P") and 2P reserves basis, respectively.
- PDP and 2P liquids reserves increased 33% and 22% to 6.0
million barrels and 38.8 million barrels, respectively. This
included the first reserves bookings assigned at Pipestone/Wembley.
- PDP reserves increased by 9% at a F&D cost of $9.04/boe ($1.51/mcfe). F&D includes $63 million spent on the Glacier gas plant
expansion and $27 million on the
Valhalla liquids hub.
- 1P reserves increased by 6% at a F&D cost of $8.33/boe ($1.39/mcfe) including change in FDC.
- 2P reserves increased by 4.4% to 432.2 million boe (2.59 Tcfe)
at an F&D cost of $8.04/boe
($1.34/mcfe) including change in
FDC.
- The three year average PDP and 2P F&D cost is $7.31/boe ($1.22/mcfe) and $3.88/boe ($0.65/mcfe) including change in FDC,
respectively.
- The 2018 PDP and 2P recycle ratios are 1.4 and 1.5,
respectively. The three year average PDP and 2P recycle ratios are
1.8 and 3.4, respectively.
- Positive technical revisions from improved well production
performance accounted for 21% of 2P reserves additions. Strong well
performance has contributed to a low annual decline rate of
26%.
- Approximately 5% of Advantage's condensate rich Greater Pipestone lands and 17% of our liquids
rich Glacier lands have reserves booked.
- Achieved a 3 year capital efficiency(a) of
$13,400/boe/d. Advantage's 2018
annual capital efficiency(a) of $15,700/boe/d includes $90
million for completing major facilities projects. The
capital efficiency(a) is $8,700/boe/d when major facility expenditures are
excluded.
2018 Operating & Financial Information
(References to 2018 operational and financial results are
estimates only and have not been reviewed or audited by our
independent auditor. Advantage is expected to release its fourth
quarter and year-end results after markets close on February 28, 2019)
|
Q4
2018E
|
2018E
|
Production
|
45,686
boe/d
(274.1
mmcfe/d)
|
41,651 boe/d
(249.9 mmcfe/d)
|
|
|
|
Operating netback
($/boe) (a)(1)
|
$12.24
|
$11.22
|
Cash provided by
operating activities ($ millions)
|
$45
|
$160
|
Adjusted Funds Flow
($ millions) (a)(2)
|
$46
|
$150
|
Cash used in
investing activities ($ millions)
|
$51
|
$214
|
Net Capital
Expenditures ($ millions) (a)(3)
|
$52
|
$204
|
Total Debt ($
millions)(a)
|
$273
|
$273
|
|
|
|
Total Debt to
Adjusted Funds Flow(a)
|
|
1.8
|
|
|
(1)
|
Operating netback is
comprised of sales revenue and realized gains on derivatives, net
of expenses resulting from field operations, including royalty
expense, operating expense and transportation expense.
|
(2)
|
Adjusted funds flow
excludes changes in non-cash working capital and expenditures on
decommissioning liabilities.
|
(3)
|
Net capital
expenditures include total capital expenditures related to
property, plant and equipment and exploration and evaluation assets
incurred.
|
- Achieved annual 2018 cash costs including royalty costs of
$0.18/boe, operating costs of
$1.80/boe, transportation expenses of
$3.36/boe, general and administrative
costs of $0.60/boe and finance costs
of $0.72/boe.
- Annual 2018 cash provided by operating activities of
$160 million and adjusted funds
flow(a) of $150 million
was supported by $59 million market
diversification gains (includes realized gains on derivatives and
revenue less transportation realized from physical sales
arrangements involving markets outside of AECO). Advantage's
revenue exposure to AECO daily prices was 22% in 2018 and is
anticipated to be 20% in 2019.
- Cash used in investing activities was $214 million, including $204 million for 2018 net capital
expenditures(a). This included a $29 million acceleration of 2019 planned capital
into 2018. Accordingly, the 2019 capital budget will be reduced by
$29 million.
2018 Additional Reserves Commentary and
Analysis
Sproule Associates Ltd. ("Sproule") was engaged as an
independent qualified reserve evaluator to evaluate Advantage's
year-end reserves as of December 31,
2018 ("Sproule 2018 Reserves Report") in
accordance with National Instrument 51-101 ("NI 51-101") and the
Canadian Oil and Gas Evaluation Handbook ("COGE Handbook").
Reserves are stated on a gross (before royalties) working interest
basis unless otherwise indicated. Additional details are
provided in the accompanying tables to this
release and additional reserve information as required under NI
51-101 will be included in our Annual Information Form which will
be filed on SEDAR on February 28,
2019. All references to 2018 operational and
financial results are estimates only and have not been reviewed or
audited by our independent auditor. Advantage is expected to
release its fourth quarter and year-end results after markets close
on February 28, 2019.
Advantage's 2018 reserves additions include the first
liquids-rich reserves bookings at Pipestone/Wembley along with the continued recognition
of drilling success and improved well performance at Glacier and
Valhalla.
The Corporation's Pipestone/Wembley land block consists of 31 net sections
(19,840 acres) and is located in a prolific condensate fairway
where significant industry drilling successes in multiple layers
has occurred. In 2018, Advantage's first well in this land
block was tested at average flow rate of 1,312 boe/d consisting of
2.9 mmcf/d of gas and 819 bbls/d of condensate and NGLs. This
well is expected to be on-production by the fourth quarter of 2019.
Advantage booked 12 locations in 2018 totaling 9.9 million
boe of 2P reserves.
Drilling at Glacier and Valhalla in 2018 was focused on the
liquids-rich Middle Montney. Continued strong production
performance resulted in 6.9 million boe of positive 2P technical
revisions across the properties. At Glacier, our 2018 completed
wells are out-performing Advantage's average well type curve by 35%
after more than 150 days of production. At Valhalla, our new
compressor station and liquids hub has been commissioned. The
facility will increase drawdown of existing wells and provide
capacity for future liquids-rich wells, including seven wells that
make up our current winter Valhalla program.
Additional comments pertaining to each of the reserves
categories:
- PDP reserves increased 9% due to the recognition of 20 new
Glacier & Valhalla wells that were brought on production
through 2018 and higher reserves assignments on historical
producing wells due to stronger performance than previously
forecast.
- 1P reserves increased 6% resulting from technical revisions
which accounted for 43% of the 1P reserves additions. The remaining
reserves additions resulted from the conversion of probable
locations to the proved reserves category and the booking of new
proven undeveloped locations.
- 2P reserves increased 4.4% through the addition of 41 new wells
and locations. A total of 356 undeveloped locations are booked in
the Sproule 2018 Reserves Report. Management estimates in-excess of
1,200 total Montney locations
remain undrilled across all of our land blocks.
- 2P FDC increased by $66 million
to $1.7 billion as the reduction in
facilities capital expenditures in the Sproule 2018 Reserves Report
were offset by the cost of booking additional future well
locations.
Since Advantage's Montney
development program began in 2008, 2P reserves have grown at
an average compound annual growth rate of 28% per year to 2.6 Tcfe
(432 million boe). Advantage's 1P Net Present Value is
$1.5 billion, and 2P Net Present Value is $2.2 billion as at December 31, 2018 (10% discount factor on a
pre-tax basis).
The reserves by category and year over year changes compared to
2017 are indicated below:
Reserve
Category
|
Light
&
Medium
Crude
Oil
Million
bbls
|
Conventional
Natural
Gas
Tcf
|
Natural
Gas
Liquids
Million
bbls
|
Total
Gas
Equivalent
Tcfe
|
%
Change
from
2017
|
PDP
|
|
-
|
0.49
|
5.97
|
0.53
|
9.1%
|
1P
|
|
3.01
|
1.78
|
25.88
|
1.95
|
6.2%
|
2P
|
|
4.40
|
2.36
|
34.42
|
2.59
|
4.4%
|
The total number of 2P future well locations booked in the
Sproule 2018 Reserves Report are illustrated in the following
table:
Sproule Number of
Gross Horizontal Wells Booked
|
|
Developed
|
Undeveloped
|
Total
|
Upper
|
119
|
|
135
|
|
254
|
|
Middle
|
45
|
|
135
|
|
180
|
|
Lower
|
55
|
|
86
|
|
141
|
|
Total
|
219
|
|
356
|
|
575
|
|
|
|
|
|
Advantage's 1P reserves life index is 20 years and its 2P
reserves life index is 26 years based on the Corporation's average
fourth quarter 2018 production rate of approximately 45,686
boe/d.
Looking Forward
2019 Capital Spending Revised With More Flexibility
Available
Advantage's 2019 net capital expenditures(a) guidance
range is reduced to $185 to
$215 million from $210 to $240
million as a result of the accelerated spending discussed
earlier. No impact to our 2019 production guidance range of
43,500 to 46,500 boe/d (261 mmcfe to 279 mmcfe/d) is
anticipated.
Advantage is planning to invest approximately $65 million through the first quarter of 2019
which is expected to substantially provide the well productivity to
achieve our 2019 annual production guidance. Investment for the
remainder of 2019 will be reviewed during the second quarter of
2019. The Corporation has identified additional capital
projects of up to $100 million which
could be deferred from our 2019 plan with minimal 2019 production
impact. Capital deferrals will be prioritized to minimize
impact on the highest-return liquids projects. Advantage will
remain diligent in monitoring commodity and industry trends and
respond accordingly to retain a strong balance sheet while
advancing our multi-year strategy to increase liquids
development.
RESERVES SUMMARY TABLES
Company Gross (before royalties) Working Interest
Reserves
Summary as at December 31, 2018
|
Light &
Medium
Crude
Oil
(mbbl)
|
Conventional
Natural
Gas
(mmcf)
|
Natural
Gas
Liquids
(mbbl)
|
Total Oil
Equivalent
(mboe)
|
Proved
|
|
|
|
|
Developed
Producing
|
-
|
490,850
|
5,974
|
87,782
|
Developed
Non-producing
|
266
|
52,097
|
871
|
9,821
|
Undeveloped
|
2,745
|
1,234,075
|
19,038
|
227,462
|
Total
Proved
|
3,011
|
1,777,022
|
25,884
|
325,065
|
Probable
|
1,393
|
583,135
|
8,539
|
107,121
|
Total Proved +
Probable
|
4,404
|
2,360,157
|
34,423
|
432,186
|
|
|
(1)
|
Tables may not add
due to rounding.
|
Company Net Present Value of Future Net Revenue using Sproule
price and cost forecasts (1)(2)(3)
($000)
|
Before Income Taxes
Discounted at
|
|
0%
|
10%
|
15%
|
Proved
|
|
|
|
Developed
Producing
|
1,206,385
|
778,999
|
653,677
|
Developed
Non-producing
|
167,849
|
86,014
|
68,431
|
Undeveloped
|
2,712,159
|
652,328
|
336,103
|
|
|
|
|
Total
Proved
|
4,086,393
|
1,517,341
|
1,058,212
|
|
|
|
|
Probable
|
2,044,535
|
651,846
|
441,686
|
|
|
|
|
Total Proved +
Probable
|
6,130,928
|
2,169,187
|
1,499,898
|
|
|
|
|
|
|
|
(1)
|
Advantage's light and
medium oil, solution gas, conventional natural gas and natural gas
liquid reserves were evaluated using Sproule's product price
forecast effective December 31, 2018 prior to the provision for
income taxes, interests, debt services charges and general and
administrative expenses. It should not be assumed that the
discounted future net revenue estimated by Sproule represents the
fair market value of the reserves.
|
(2)
|
Assumes that
development of reserves will occur, without regard to the likely
availability to the Corporation of funding required for that
development.
|
(3)
|
Future Net Revenue
incorporates Managements' estimates of required abandonment and
reclamation costs, including expected timing such costs will be
incurred, associated with all wells, facilities and infrastructure.
No abandonment and reclamation costs have been excluded.
|
(4)
|
Tables may not add
due to rounding.
|
Sproule Price Forecasts
The net present value of future net revenue at December 31, 2018 was based upon oil, natural gas
and natural gas liquids pricing assumptions prepared by Sproule
effective December 31, 2018. These
forecasts are adjusted for reserves quality, transportation charges
and the provision of any applicable sales contracts. The price
assumptions used over the next seven years are summarized in the
table below:
Year
|
|
Canadian
Light
Sweet
Crude 40o
API
($Cdn/bbl)
|
|
Alberta
AECO-C
Natural
Gas
($Cdn/mmbtu)
|
|
Henry Hub
Natural
Gas
($US/mmbtu)
|
|
Edmonton
Propane
($Cdn/bbl)
|
|
Edmonton
Butane
($Cdn/bbl)
|
|
Edmonton
Pentanes
Plus
($Cdn/bbl)
|
|
Exchange
Rate
($US/$Cdn)
|
2019
|
|
75.27
|
|
1.95
|
|
3.00
|
|
30.27
|
|
40.91
|
|
75.32
|
|
0.77
|
2020
|
|
77.89
|
|
2.44
|
|
3.25
|
|
34.51
|
|
50.25
|
|
80.00
|
|
0.80
|
2021
|
|
82.25
|
|
3.00
|
|
3.50
|
|
38.15
|
|
56.88
|
|
83.75
|
|
0.80
|
2022
|
|
84.79
|
|
3.21
|
|
3.57
|
|
39.64
|
|
58.01
|
|
85.50
|
|
0.80
|
2023
|
|
87.39
|
|
3.30
|
|
3.64
|
|
40.62
|
|
59.17
|
|
87.29
|
|
0.80
|
2024
|
|
89.14
|
|
3.39
|
|
3.71
|
|
41.62
|
|
60.36
|
|
89.11
|
|
0.80
|
2025
|
|
90.92
|
|
3.49
|
|
3.79
|
|
42.64
|
|
61.56
|
|
90.96
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Gross (before royalties) Working Interest Reserves
Reconciliation (1):
Proved
|
Light
&
Medium
Crude
Oil
(mbbl)
|
Conventional
Natural
Gas
(mmcf)
|
Natural
Gas
Liquids
(mbbl)
|
Total Oil
Equivalent
(mboe)
|
Opening balance Dec.
31, 2017
|
4
|
1,698,002
|
23,057
|
306,062
|
Extensions
|
3,011
|
37,170
|
1,956
|
11,162
|
Infill
Drilling
|
-
|
66,715
|
1,304
|
12,423
|
Infill Future
Offset
|
-
|
-
|
-
|
-
|
Improved
recovery
|
-
|
-
|
-
|
-
|
Technical
revisions
|
(4)
|
85,997
|
287
|
14,616
|
Discoveries
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
-
|
Economic
factors
|
-
|
(22,907)
|
(176)
|
(3,994)
|
Production
|
-
|
(87,955)
|
(544)
|
(15,204)
|
|
|
|
|
|
Closing balance at
Dec. 31, 2018
|
3,011
|
1,777,022
|
25,884
|
325,065
|
|
|
|
|
|
Proved Plus
Probable
|
Light
&
Medium
Crude
Oil
(mbbl)
|
Conventional
Natural
Gas
(mmcf)
|
Natural
Gas
Liquids
(mbbl)
|
Total Oil
Equivalent
(mboe)
|
Opening balance Dec.
31, 2017
|
6
|
2,292,273
|
31,768
|
413,819
|
Extensions
|
4,404
|
51,000
|
2,755
|
15,659
|
Infill
Drilling
|
-
|
85,127
|
1,644
|
15,832
|
Infill Future
Offset
|
-
|
-
|
-
|
-
|
Improved
recovery
|
-
|
-
|
-
|
-
|
Technical
revisions
|
(5)
|
47,473
|
(1,009)
|
6,897
|
Discoveries
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
-
|
Economic
factors
|
-
|
(27,761)
|
(191)
|
(4,817)
|
Production
|
-
|
(87,955)
|
(544)
|
(15,204)
|
|
|
|
|
|
Closing balance at
Dec. 31, 2018
|
4,404
|
2,360,157
|
34,423
|
432,186
|
|
|
(1)
|
Technical revisions
accounted for 43% of the total proved additions and 21% of the
total proved plus probable additions. Percentage of each category
calculated by dividing the technical revisions in the category by
the total reserve additions in the same category before
production.
|
(2)
|
Tables may not add
due to rounding.
|
Company Finding & Development Costs ("F&D")
Company 2018 F&D Costs – Gross (before royalties) Working
Interest Reserves including Future Development Capital
(1)(2)(3)
|
Proved
|
Proved +
Probable
|
Capital expenditures
($000)
|
203,834
|
203,834
|
Net change in Future
Development Capital ($000)
|
81,206
|
66,049
|
Total capital
($000)
|
285,040
|
269,883
|
|
|
|
Total mboe, end of
year
|
325,065
|
432,186
|
Total mboe, beginning
of year
|
306,062
|
413,819
|
Production,
mboe
|
15,204
|
15,204
|
Reserve additions,
mboe
|
34,207
|
33,571
|
|
|
|
2018 F&D costs
($/boe)
|
$8.33
|
$8.04
|
2017 F&D costs
($/boe)
|
$5.88
|
$5.01
|
Three-year average
F&D costs ($/boe)
|
$4.88
|
$3.88
|
|
|
(1)
|
F&D costs are
calculated by dividing total capital by reserve additions during
the applicable period. Total capital includes both capital
expenditures incurred and changes in FDC required to bring the
proved undeveloped and probable undeveloped reserves to production
during the applicable period. Reserves additions are calculated as
the change in reserves from the beginning to the ending of the
applicable period excluding production.
|
(2)
|
The aggregate of the
exploration and development costs incurred in the most recent
financial year and the change during that year in estimated FDC
generally will not reflect total finding and development costs
related to reserves additions for that year. Changes in forecast
FDC occur annually as a result of development activities,
acquisition and disposition activities and capital cost estimates
that reflect Sproule's best estimate of what it will cost to bring
the proved undeveloped and probable undeveloped reserves on
production.
|
(3)
|
The change in FDC is
primarily from incremental undeveloped locations.
|
Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of
applicable securities laws. 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", "demonstrate", "expect", "may",
"can", "will", "project", "predict", "potential", "target",
"intend", "could", "might", "should", "guidance", "believe",
"would" and similar expressions and include statements relating to,
among other things, Advantage's strategy and plans, expectation
with respect to its liquid development, the benefits derived from
accelerating certain well operations, market diversification and
low cost structure; the timing of when wells will be placed on
production; the benefits associated with Advantage's
infrastructure; Advantage's belief that its Glacier development
will allow for production optimization; the expected timing of
release of Advantage's 2018 financial and operational results;
estimated number of drilling locations; Advantage's estimated
fourth quarter and full year 2018 financial and operating results
including production, revenue, royalties, operating costs,
transportation cost, operating netback, adjusted funds flow, net
capital expenditures and total debt; Advantage's 2019 anticipated
revenue exposure to AECO daily natural gas prices; Advantage's
anticipated 2019 net capital expenditures; and Advantage's
anticipated amount of investment in the first quarter of 2019 and
the amount of capital projects that could be deferred from it's
2019 plan. In addition, statements relating to "reserves" are by
their nature forward-looking statements, as they involve the
implied assessment, based on certain estimates and assumptions that
the reserves described can be profitably produced in the future.
The recovery and reserve estimates of Advantage's reserves provided
herein are estimates only and there is no guarantee that the
estimated reserves will be recovered. 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; 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;
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;
delays in anticipated timing of drilling and completion of wells;
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 which is
available at www.sedar.com ("SEDAR") 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: 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; availability of skilled
labor; availability of drilling and related equipment; timing and
amount of net 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; current or, where applicable, proposed assumed
industry conditions, laws and regulations will continue in effect
or as anticipated; and 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.
Management has included the above summary of assumptions and
risks related to forward-looking information above and in its
continuous disclosure filings on SEDAR 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
news 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 contains a number of oil and gas metrics,
including F&D, operating netback, recycle ratio, reserve
replacement and reserve life index, 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. Operating netback is calculated by adding natural
gas and liquids sales with realized gains/losses on derivatives and
subtracting royalty expense, operating expense and transportation
expense. Recycle ratio is calculated by dividing Advantage's fourth
quarter operating netback by the calculated F&D of the
applicable year and expressed as a ratio. Reserve
replacement is calculated by dividing reserves net volume additions
by the current annual production and expressed as a percentage.
Reserve life index is calculated by dividing the total volume of
reserves by the fourth quarter production rate and expressed in
years. Reserves per share is calculated as the total volume of
reserves divided by the number of common shares issued and
outstanding at year end.
The recovery and reserve estimates of reserves provided in
this news release are estimates only, and there is no guarantee
that the estimated reserves will be recovered. Actual reserves may
eventually prove to be greater than, or less than, the estimates
provided herein.
This press release discloses drilling locations in three
categories: (i) proved locations; (ii) probable locations; and
(iii) unbooked locations. Proved locations and probable locations
are derived from the Sproule Associates Limited reserves evaluation
effective December 31, 2018 and
account for drilling locations that have associated proved and/or
probable reserves, as applicable. Unbooked locations are internal
estimates based on the Corporation's 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 total drilling locations identified herein, 327 are proved
locations, 29 are probable locations and 844 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.
References in this press release to 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
indicitative of long-term performance, or of ultimate recovery.
Additionally, some 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.
Non-GAAP Measures
The Corporation discloses several financial and performance
measures in this press release that do not have any standardized
meaning prescribed under GAAP. These financial and performance
measures include "net capital expenditures", "adjusted funds flow",
"operating netback", "total debt" and "capital efficiency", which
should not be considered as alternatives to, or more meaningful
than "cash provided by operating activities", "cash used in
investing activities", or "bank indebtedness" presented within the
consolidated financial statements 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
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.
A reconciliation between net capital expenditures and the nearest
measure calculated in accordance with GAAP, cash used in investing
activities, is provided below:
|
|
Year
ended
|
|
|
December
31
|
($000)
|
2018
|
|
2017
|
Cash used in
investing activities
|
$
|
213,734
|
|
$
|
228,430
|
Changes in non-cash
working capital
|
(12,648)
|
|
17,098
|
Capitalized
stock-based compensation
|
2,748
|
|
3,245
|
Net capital
expenditures(1)
|
$
|
203,834
|
|
$
|
248,773
|
|
|
|
|
|
(1)
|
Includes cash and
non-cash capitalized stock-based compensation.
|
|
|
|
Adjusted Funds Flow
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 and expenditures
on decommissioning liabilities 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. A reconciliation between adjusted
funds flow and the nearest measure calculated in accordance with
GAAP, cash provided by operating activities, is provided
below:
|
|
|
Year
ended
|
|
|
|
December
31
|
($000s)
|
|
2018
|
2017
|
Cash provided by
operating activities
|
|
$
|
160,162
|
$
|
186,401
|
|
Expenditure on
decommissioning liability
|
|
1,782
|
1,190
|
|
Changes in non-cash
working capital
|
|
(644)
|
2,542
|
|
Finance
expense(1)
|
|
(10,922)
|
(6,931)
|
Adjusted funds
flow
|
|
$
|
150,378
|
$
|
183,202
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Finance expense
excludes non-cash accretion expense and unrealized gains on foreign
exchange.
|
Operating Netback
Operating netback is comprised of sales revenue and realized
gains of derivatives, net of expenses resulting from field
operations, including royalty expense, operating expense and
transportation expense. Operating netback provides Management and
users with a measure to compare the profitability of field
operations between companies, development areas and specific
wells.
Total Debt
Total debt is comprised of bank indebtedness and working
capital deficit. Total debt provides Management and users with a
measure of the Corporation's indebtedness and expected settlement
of net liabilities in the next year. A detailed calculation of
total debt is provided below:
($000)
|
|
December 31,
2018
|
Bank
indebtedness
|
$
|
270,918
|
Working capital
deficit
|
1,912
|
Total
debt
|
$
|
272,830
|
Capital Efficiency
Three-year and single year capital efficiency is calculated
by dividing total capital development costs for oil and gas
activities including drilling, completion, facilities,
infrastructure, office and capitalized general and administrative
costs (excluding abandonment and reclamation costs, exploration and
evaluation costs, and acquisition and disposition related costs and
proceeds) by the average production additions of the applicable
year to replace base production declines and deliver production
growth targets, expressed in $/boe/d. Capital efficiency is
considered by management to be a useful performance measure as a
common metric used to evaluate the efficiency with which capital
activity is allocated to achieve production additions.
Certain financial and operating results included in this news
release for the fourth quarter and year-ended 2018 are based on
unaudited estimated results. These estimated results are subject to
change upon completion of the Corporation's audited financial
statements for the year ended December 31,
2018, and changes could be material. Advantage anticipates
filing its audited financial statements and related management's
discussion and analysis for the year ended December 31, 2018 on SEDAR on February 28, 2019.
The following abbreviations used in this press release have
the meanings set forth below:
bbl
|
one
barrel
|
bbls
|
barrels
|
bbls/d
|
barrels per
day
|
boe
|
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 of natural gas per day
|
mbbl
|
thousand
barrels
|
mboe
|
thousand barrels
of oil equivalent of natural gas
|
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
NGLs
|
mmcf
|
million cubic
feet
|
mmbtu
|
million British
thermal units
|
mmcf/d
|
million cubic feet
per day
|
mmcfe/d
|
million cubic feet
equivalent per day
|
tcf
|
trillion cubic
feet
|
tcfe
|
trillion cubic
feet equivalent
|
|
|
|
|
|
|
a)
|
Non-GAAP
Measure which may not be comparable to similar non-GAAP measures
used by other entities. Please see Advisory for reconciliations to
the nearest measure calculated in accordance with
GAAP.
|
SOURCE Advantage Oil & Gas Ltd.