Advancing Light Oil with A Solid Natural Gas
Foundation
(TSX: AAV)
CALGARY, Jan. 8, 2020 /CNW/ - Advantage Oil & Gas Ltd.
("Advantage" or the "Corporation") is pleased to announce its 2020
capital budget which targets investment between $170 and $200
million. These investments will continue to advance
the Corporation's liquids transition plan by focusing on our
Progress and Pipestone/Wembley
light oil assets, complementing our solid foundation of low-cost
natural gas and condensate at Glacier and Valhalla. The 2020
capital budget is expected to culminate in a significant increase
in revenue by year-end and 130% growth in liquids production over
2019.
Key objectives of our 2020 budget are to:
- Increase liquids revenue to approximately 35% of total revenue
in 2020 and approximately 50% in 2021. Liquids production is
expected to achieve a year-end exit rate of approximately 9,000
bbls/d.
- Establish key oil infrastructure by constructing oil batteries
at both Pipestone/Wembley (early Q2) and Progress (early Q4).
Once commissioned, all four core areas will be capable of
contributing free cash flow, providing the Corporation complete
flexibility to allocate capital between our high-quality portfolio
of light oil, condensate and natural gas Montney assets.
- Continue to be a unique Montney producer with a low-cost supply of
natural gas, condensate and light oil through our owned and
operated infrastructure with minimal midstream commitments.
- Retain financial flexibility and discipline by continuing to
target a total debt to adjusted funds flow ratio of approximately
two times.
Following the Corporation's light oil pool discovery announced
September 3, 2019, Progress spending
will be more prominent in 2020 than previously contemplated, with a
modest reduction in spending planned for our other assets.
Development of the Progress asset will include an innovative
infrastructure plan, reconfiguring portions of our existing
Valhalla pipeline system and using
available gas processing capacity at Advantage's Glacier Gas
Plant. These changes are expected to result in an optimized
investment plan and a higher utilization of our 100% owned
infrastructure processing capacity, contributing to enhanced
natural gas and liquids cost efficiencies for the longer term.
2020 Capital Budget Summary(1)
|
2020
Budget
|
Cash Used in
Investing Activities (2) (millions)
|
$170 to
$200
|
Average Production
(boe/day)
|
45,000 to
47,500
|
Gas Production
(mmcf/d)
|
234 to 245
|
Liquids Production
(bbls/d)
|
6,000 to
6,700
|
Royalty Rate
(%)
|
3% to 5%
|
Operating Expense
($/boe)
|
$2.50
|
Transportation
Expense ($/boe)
|
$3.70
|
G&A/Finance
Expense ($/boe)
|
$1.70
|
|
|
Notes:
|
(1)
|
Forward-looking
information. Refer to Advisory for cautionary statements regarding
Advantage's budget including material assumptions and risk
factors.
|
(2)
|
Cash Used in
Investing Activities is the same as Net Capital Expenditures as no
change in non-cash working capital is assumed between years and
other differences are immaterial.
|
- Cash used in investing activities are expected to be allocated
approximately 65% to drilling, completions and equipping, 35% to
major facilities. Capital spending is expected to be highest in the
first and third quarters of 2020 aligned with infrastructure
construction timing.
- In light of the low Alberta
gas storage levels, improved demand outlook and operations on the
NGTL system which could sustain improved AECO prices, Advantage has
the flexibility to redirect capital to our prolific Glacier and
Valhalla assets to increase
natural gas production within a short cycle time. The Corporation
also retains flexibility to reduce capital spending in the second
half of 2020 in response to market conditions.
- Advantage's 2020 budget assumes annual natural gas prices of
AECO $1.88/GJ, NYMEX US$2.42/mmbtu and oil prices of WTI US$56.58/bbl, and incorporates the Corporation's
hedging and market diversification positions.
Operational Update
In October 2019, Advantage's first
Pipestone/Wembley 12-25 well began producing
intermittently at restricted rates, due to the ongoing
commissioning of a midstream gas plant. The ramp-up of this
midstream gas plant was slower than expected in the fourth quarter
of 2019 and Advantage anticipates production will continue to
experience interruptions through the first quarter of 2020 until
our 100% owned Pipestone/Wembley oil battery is completed.
Construction of this 5,000 bbl/d oil battery commenced during
the fourth quarter of 2019 and is targeted for commissioning in
April 2020. This battery will help to improve operational
performance related to liquids through the midstream plant and
accommodate increasing production as development continues.
In December 2019, a new
Pipestone/Wembley four-well pad was completed.
Average production from the first two wells began at type curve
expectations; the remaining two wells are expected to begin
production in the first quarter of 2020. An additional
three-well pad which was drilled in the fourth quarter 2019 will be
completed and begin producing after the first quarter of 2020.
The tie-in of the Progress asset to Advantage's existing Glacier
pipeline system is expected to be completed in the first quarter of
2020 with a new 5,000 bbl/d oil battery targeted for commissioning
in the fourth quarter of 2020. As an interim measure,
Advantage will access approximately 2,000 bbls/d of processing
capacity at a third-party oil battery during the second and third
quarters of 2020.
During the fourth quarter of 2019, Advantage increased its
natural gas production as AECO prices improved following the
approval and implementation of operational changes (Temporary
Service Protocol) on the NGTL system. As we expected, these
changes reduced the erratic price swings and improved the AECO
forward prices.
Looking Forward
Advantage's high quality Montney land holdings consisting of 210 net
sections within our four core assets at Glacier, Valhalla, Pipestone/Wembley and Progress provides multi-decade
development for natural gas, condensate and light oil. As we
continue to execute on the Corporation's disciplined approach to
developing these assets, we anticipate growing our adjusted funds
flow per share, increasing free cash generation, and strengthening
our netback margins to enhance economic returns and shareholder
value. Our 2020 program will be a key step in moving all of
our assets into the next phase of development maturation.
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 Corporation's estimated net capital expenditures for 2020,
including the expected allocation and timing of such expenditures
and the anticipated effect of such expenditures on revenue; the
development focus of the 2020 capital budget and the anticipated
timing thereof; the anticipated effect of net capital expenditures
on liquids production, including the estimated amount of such
production; expected focus and results to be derived from the 2020
capital budget, including, but not limited to, increasing annual
liquids production and the anticipated amount thereof, diversifying
the Corporation's revenue sources and developing additional
operational and infrastructure capability and how this will be
achieved; the expected amount by which revenues from liquids
production will increase in 2020 and 2021 as a percentage of total
revenue; the expected amount of average production in 2020,
including the expected amount of gas production and liquids
production; the estimated total debt to adjusted funds flow ratio
for 2020; anticipated royalty rates, operating expense,
transportation expense and G&A/finance expense for 2020;
expectations that the owned Glacier Gas Plant has capacity to
accommodate future growth and provide third party processing
opportunities; the anticipated timing of wells being brought on
production; drilling and development plans for 2020; anticipated
disruptions to production while the oil battery at Pipestone/Wembley is being completed, the expected
timing of such completion and the anticipated effect of such
battery on performance and production; anticipated timing of
production from certain wells at Pipestone/Wembley; the expected timing of completion of
commissioning an oil battery at Progress and the tie-in of the
Progress asset to Advantage's existing Glacier pipeline system;
resource development potential of the Corporation's assets; the
Corporation's plans to continue to be a low-cost supplier of
natural gas, condensate and light oil and to grow adjusted funds
flow per share, increase free cash generation and strengthen
netback margins; 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; risk and assumptions used in
estimating the 2020 budget, including commodity prices, timing of
expenditures and the focus of such expenditures, change from
current expectations; risk that the Corporation does not achieve
the anticipated increases to production and revenues expected from
the 2020 capital budget; changes in commodity prices, currency
exchange rates, net 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; 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
February 28, 2019 which is available
at www.Sedar.com and www.advantageog.com.
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, G&A and finance cost and
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 net capital expenditures; the
expected impact of net capital expenditures on production and
revenue; 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 and revenues will increase;
current or, where applicable, proposed assumed industry conditions,
laws and regulations will continue in effect or as anticipated; and
that the estimates of the Corporation's production and reserves
volumes and the assumptions related thereto (including commodity
prices and development costs) are accurate in all material
respects. Production estimates contained herein are expressed as
anticipated average production over the calendar year. In
determining anticipated production for the year ended December 31, 2020 Advantage considered historical
drilling, completion and production results for prior years and
took into account the estimated impact on production of the
Corporation's 2020 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.
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" which should not be considered as an alternative to
"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. 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.
Barrels of oil equivalent (boe) and thousand cubic feet of
natural gas equivalent (mcfe) may be misleading, particularly if
used in isolation. Boe and mcfe conversion ratios have been
calculated using a conversion rate of six thousand cubic feet of
natural gas equivalent to one barrel of oil. A boe and mcfe
conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
The following abbreviations used in this press release have
the meanings set forth below.
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.