Liquids Growth, Market Diversification
&
Operational Excellence
(TSX: AAV)
CALGARY, Feb. 28, 2019 /CNW/ - Advantage Oil & Gas
Ltd. ("Advantage" or the "Corporation") is pleased to announce its
2018 results, culminating in increased liquids development,
successful revenue diversification, and operational excellence.
These accomplishments, combined with an emphasis on capital
and financial discipline, will continue to strengthen the
Corporation's solid business and advance its multi-year liquids
development plan.
Highlights from our 2018 accomplishments include:
- Record annual production of 41,651 boe/d including a 22%
increase in liquids
- $59 million gain through
marketing diversification initiatives
- Low operating expenses of $1.80/boe
- Year-end total debt(a) to adjusted funds
flow(a) ratio of 1.8
- 3 year capital efficiency(a) of $13,400/boe/d
- Increased Montney holdings by
acquiring 17 net sections (10,880 acres) of complimentary lands for
$2 million resulting in total land
ownership of 206 net sections (131,840 acres)
- 30% improvement in the liquids-rich Montney productivity per well through frac
design enhancements
- Completed Glacier plant expansion and new Valhalla liquids hub to accommodate liquids
development strategy
- Increased CO2e sequestration credits by 59% to
90,500 tonnes
- Participated in several industry advocacy initiatives and
continued to explore marketing opportunities
We are proud of our Team's 2018 achievements and thank
Advantage's Board of Directors and our shareholders for their
support. We look forward to reporting on our progress as our Team
continues to advance Advantage's multi-year liquids development
plan.
2018 Operating and Financial Results Summary
- Record annual and fourth quarter production of 41,651 boe/d
(249.9 mmcfe/d) and 45,686 boe/d (274.1 mmcfe/d), respectively,
representing increases of 6% and 12% compared to the same periods
of 2017.
- Annual liquids production increased 22% to 1,491 bbls/d and
generated a 40% increase in liquids revenue over 2017.
- Achieved low annual 2018 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.
- Year-end total debt(a) was $273 million resulting in a total
debt(a) to adjusted funds flow(a) ratio of
1.8 and an undrawn bank credit facility of $120 million.
Strengthened Market Diversification and Hedging
On November 1, 2018, Advantage
began receiving Midwest U.S. prices on 20,000 mcf/d, increasing to
40,000 mcf/d in April 2019. This
arrangement complements our Dawn, Ontario market where we delivered 52,700 mcf/d
in 2018.
For 2019, Advantage has fixed price hedges on 45% of our
estimated natural gas production at an average price of Cdn
$2.46/mcf, with 29% of production
remaining exposed to AECO. In the summer when prices are
anticipated to be more volatile, 52% of estimated natural gas
production is hedged at an average price of Cdn $2.13/mcf, with only 19% of production remaining
exposed to AECO.
Looking Forward
As previously communicated (see Advantage press release
February 11, 2019) the Corporation's
2019 net capital expenditures(a) guidance range was
reduced to $185 to $215 million from $210 to $240
million as a result of accelerated spending. Our 2019
production guidance range remains between 43,500 and 46,500 boe/d
(261 and 279 mmcfe/d).
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. Liquids
production is forecast to begin increasing through the second
quarter as we tie-in new wells at east Glacier and Valhalla.
Production from our Pipestone/Wembley asset is targeted to be brought
on-stream during the third quarter when third party processing
capacity is available.
Investment for the remainder of 2019 will be reviewed during the
second quarter of 2019. The Corporation has identified 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.
2018 Operating and Financial Summaries
|
Three months
ended
|
Year
ended
|
Financial
Highlights
|
December
31
|
December
31
|
($000, except as
otherwise indicated)
|
2018
|
2017
|
2018
|
|
2017
|
|
|
|
|
|
|
Financial
Statement Highlights
|
|
|
|
|
|
Sales including
realized hedging (3)
|
$
|
73,979
|
$
|
65,779
|
$
|
250,604
|
|
$
|
259,611
|
Net income and
comprehensive income
|
$
|
25,162
|
$
|
21,425
|
$
|
11,119
|
|
$
|
95,039
|
per basic
share(2)
|
$
|
0.14
|
$
|
0.12
|
$
|
0.06
|
|
$
|
0.51
|
Cash provided by
operating activities
|
$
|
44,790
|
$
|
29,848
|
$
|
160,162
|
|
$
|
186,401
|
Cash provided by
financing activities
|
$
|
8,576
|
$
|
50,659
|
$
|
53,015
|
|
$
|
48,945
|
Cash used in
investing activities
|
$
|
50,723
|
$
|
73,591
|
$
|
213,734
|
|
$
|
228,430
|
Basic weighted
average shares (000)
|
185,942
|
185,963
|
186,040
|
|
185,641
|
Other Financial
Highlights
|
|
|
|
|
|
Adjusted funds
flow(1)
|
$
|
46,301
|
$
|
43,883
|
$
|
150,378
|
|
$
|
183,202
|
per mcfe
|
$
|
1.84
|
$
|
1.94
|
$
|
1.65
|
|
$
|
2.13
|
per basic share
(2)
|
$
|
0.25
|
$
|
0.24
|
$
|
0.81
|
|
$
|
0.99
|
Net capital
expenditures (1)
|
$
|
52,000
|
$
|
73,723
|
$
|
203,834
|
|
$
|
248,774
|
Working capital
deficit
|
$
|
1,912
|
$
|
13,808
|
$
|
1,912
|
|
$
|
13,808
|
Bank
indebtedness
|
$
|
270,918
|
$
|
208,978
|
$
|
270,918
|
|
$
|
208,978
|
Total debt
(1)
|
$
|
272,830
|
$
|
222,786
|
$
|
272,830
|
|
$
|
222,786
|
|
|
(1)
|
Non-GAAP Measure
which may not be comparable to similar non-GAAP measures used by
other entities. Please see "Non-GAAP Measures".
|
(2)
|
Based on basic
weighted average shares outstanding.
|
(3)
|
Excludes net sales of
natural gas purchased from third parties.
|
|
Three months
ended
|
|
Year
ended
|
Operating
Highlights
|
December
31
|
|
December
31
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
262,269
|
|
237,780
|
|
240,959
|
|
228,583
|
Liquids
(bbls/d)
|
1,974
|
|
1,227
|
|
1,491
|
|
1,218
|
Total
mcfe/d
|
274,113
|
|
245,142
|
|
249,905
|
|
235,891
|
Total boe/d
|
45,686
|
|
40,857
|
|
41,651
|
|
39,315
|
Average prices
(including realized hedging)
|
|
|
|
|
|
|
|
Natural gas ($/mcf)
(2)
|
$
|
2.70
|
|
$
|
2.69
|
|
$
|
2.47
|
|
$
|
2.82
|
Liquids
($/bbl)
|
$
|
49.23
|
|
$
|
60.48
|
|
$
|
62.12
|
|
$
|
54.28
|
Operating Netback
($/mcfe)
|
|
|
|
|
|
|
|
Sales of natural gas
and liquids from production
|
$
|
2.81
|
|
$
|
2.38
|
|
$
|
2.44
|
|
$
|
2.69
|
Net sales of natural
gas purchased from third parties(1)
|
-
|
|
-
|
|
0.01
|
|
-
|
Realized gains on
derivatives
|
0.12
|
|
0.53
|
|
0.31
|
|
0.32
|
Royalty
expense
|
(0.07)
|
|
(0.07)
|
|
(0.03)
|
|
(0.07)
|
Operating
expense
|
(0.29)
|
|
(0.26)
|
|
(0.30)
|
|
(0.25)
|
Transportation
expense
|
(0.53)
|
|
(0.50)
|
|
(0.56)
|
|
(0.40)
|
Operating
netback(1)
|
$
|
2.04
|
|
$
|
2.08
|
|
$
|
1.87
|
|
$
|
2.29
|
|
|
(1)
|
Non-GAAP Measure
which may not be comparable to similar non-GAAP measures used by
other entities. Please see "Non-GAAP Measures".
|
(2)
|
Excludes net sales of
natural gas purchased from third parties.
|
The Corporation's audited consolidated financial statements for
the fiscal year ended December 31,
2018 together with the notes thereto, and Management's
Discussion and Analysis for the year ended December 31, 2018 have been filed on SEDAR and
are available on the Corporation's website
at http://www.advantageog.com/investors/financial-reports/financial-reports-2018.
The Corporation's audited consolidated financial statements for the
fiscal year ended December 31, 2017
are also available on the Corporation's website via the same
webpage. Upon request, Advantage will provide a hard copy of any
financial reports free of charge.
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, expectations
generally and with respect to its liquid development, the
corporation's hedging activities; the terms of the corporation's
derivative contracts; the benefits derived from accelerating
certain well operations, market diversification and low cost
structure; the capital expenditure acceleration is not anticipated
to impact 2019 production guidance; the anticipated timing of when
production will increase at east Glacier and Valhalla and the timing of when production
from our Pipestone/Wembley assets is to be brought on-stream;
Advantage's 2019 anticipated revenue exposure to AECO daily natural
gas prices; Advantage's anticipated amount of investment in the
first quarter of 2019 and the benefits to be derived therefrom;
timing to determine investment for the remainder of 2019; the
amount of capital projects that could be deferred from the 2019
plan. 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; 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; 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 operating netback, 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.
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", "3 year capital efficiency" and
"net sales of natural gas purchased from third parties", which
should not be considered as alternatives to, or more meaningful
than "net income", "comprehensive income", "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.
|
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
|
|
December 31,
2017
|
Bank
indebtedness
|
$
|
270,918
|
|
$
|
208,978
|
Working capital
deficit
|
1,912
|
|
13,808
|
Total
debt
|
$
|
272,830
|
|
$
|
222,786
|
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.
Net Sales of Natural Gas Purchased from Third Parties
Net sales of natural gas purchased from third parties
represents the revenue or loss generated from the sale of natural
gas volumes purchased from third parties, after deducting the cost
to purchase the volumes. The purchase and sale transactions are
non-routine and are considered by Management to be related for
performance purposes.
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
|
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
|
mmcf
|
million cubic
feet
|
mmcf/d
|
million cubic feet
per day
|
mmcfe/d
|
million cubic feet
equivalent per day
|
|
|
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.