(TSX: AAV)
CALGARY, May 6, 2020 /CNW/ - Advantage Oil & Gas Ltd.
("Advantage" or the "Corporation") is pleased to announce solid
first quarter 2020 operating results including production of 46,458
boe/d (up 3% from first quarter 2019) and record liquids production
of 3,714 bbls/d (up 83% from first quarter 2019) with continued low
operating costs of $2.28/boe.
Production from new wells at Progress and Pipestone/Wembley is meeting or exceeding expectations,
and performance of the foundational assets at Glacier and
Valhalla has remained robust.
Advantage's highly active first quarter included the completion
of strategic oil infrastructure projects at both Pipestone/Wembley and Progress. With the recent
commissioning of this infrastructure, Advantage has established
flexibility to optimize capital deployment between our prolific
low-cost gas at Glacier, our prolific condensate-rich gas at
Valhalla, and our high quality
light oil assets at Wembley and
Progress.
In response to the current shift in commodity prices, the
Corporation has updated 2020 capital guidance to between
$130 million and $145 million, with plans to moderate liquids
growth and focus spending on the highest rate-of-return investments
at Glacier. This plan is designed to increase liquidity and
financial flexibility, bolstering our ability to pursue strategic
opportunities and execute value-generating investments with a
disciplined approach. In conjunction with the Corporation's
recently announced sale of 12.5% of our Glacier Gas Plant for
$100 million (see Advantage news
release dated April 13, 2020) to
fortify our balance sheet, Advantage will continue to target a net
debt to adjusted funds flow(a) ratio of 2x or less in
2021.
Advantage wishes to thank our field staff, head office staff and
service providers for their commitment and hard work required to
complete recent projects under strict health protocols, during the
COVID 19 pandemic. We commend and appreciate their
dedication, along with other industry producers and all front-line
workers, as we continue to deliver environmentally responsible,
essential energy to Canada and the
world.
First quarter 2020 results:
- Total production of 46,458 boe/d including natural gas
production of 256.5 mmcf/d and liquids production of 3,714
bbls/d
- Cash provided by operating activities of $20.8 million and adjusted funds
flow(a) of $32.1 million
or $0.17 per share
- Net capital expenditures(a) of $93.6 million. This included $49 million of infrastructure spending to
establish efficient operations at both Wembley and Progress. First half 2020 spending
remains approximately $100 million.
All drilling, completions and facilities spending required to meet
2020 production guidance is now substantially complete; remaining
capital spending is primarily discretionary investment in the
highest rate-of-return projects.
- Bank indebtedness of $330.6
million and net debt(a) of $364.9 million. The Corporation intends to use
the proceeds from the $100 million
sale of 12.5% of our Glacier Gas Plant to reduce bank indebtedness
on closing in July.
- Maintained low cash costs including operating costs of
$2.28/boe.
- A non-cash impairment expense of $361
million ($277 million net of
tax) was recognized due to a significantly reduced independent
reserve engineer price forecast attributable to exceptional
commodity price volatility. The impairment has no impact on
adjusted funds flow and could reverse in the future should the
commodity futures recover.
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.
|
Operational Update
At Progress, construction of a 26 km gathering system was
completed during the first quarter, connecting five wells from our
recently discovered light oil play to the Glacier Gas Plant.
Productivity of the wells is exceeding expectations and the wells
remain restricted, with maximum capacity of approximately 2,000
bbls/d, depending on frac water flowback rates. In
preparation to construct a 5,000 bbl/d battery, $18 million was spent during the quarter to
purchase major equipment. Construction of this battery has
been deferred while oil prices remain impacted by the COVID
pandemic.
At Wembley, construction of our
36 mmcf/d gas and 5,000 bbl/d liquids hub was completed and
commissioned during April. With liquids extraction and
compression now in place, liquids constraints at a third-party gas
plant have been alleviated and wellhead pressures have been
reduced. Since the battery was commissioned, the 8 Wembley
wells drilled to date have been ramping up and producing at
expectations.
At Glacier, one previously drilled well was brought on
production during the quarter. The well averaged 7.5 mmcf/d and 7.5
MPa flowing pressure over the first 30 days of production.
Approximately four wells will be drilled during the remainder of
2020, targeting low-risk prolific gas that will produce into
existing processing capacity at the Glacier Gas Plant.
All four properties (Glacier, Valhalla, Wembley and Progress) now have established
infrastructure and proven productivity. Development of each
of the assets can continue within existing capacity, with no major
infrastructure or land spending, providing strong returns in most
commodity price environments. Advantage has minimal
take-or-pay obligations, which provides flexibility to redirect
capital to the highest rate-of-return projects, and to vary the
pace of development freely.
Advantage has hedged approximately 55% of its natural gas
production for the second and third quarters of this year.
For 2021, 12% of forecast natural gas production is hedged
between Henry Hub, Chicago and
Dawn at an average price of US $2.51
per mmbtu, with more hedging planned in the coming months.
Looking Forward and Updated Guidance
Although gas prices experienced a significant decline across the
North American complex in the first quarter due to a warm winter,
futures have strengthened significantly as supply and demand have
rebalanced; as such, Advantage has adjusted capital spending to be
prepared to capitalize on strategic opportunities and to deliver
strong returns through organic development. The asset sale of
12.5% of our Glacier Gas Plant, which is scheduled to close in
July, fortifies the Corporation's balance sheet and provides
significant financial and operational flexibility during this
period of unprecedented volatility. Key goals for our revised
guidance will be to optimize returns, invest opportunistically, and
target a net debt to adjusted funds flow(a) ratio of
approximately 2x or less in 2021. The Corporation has revised
its 2020 guidance as follows:
|
Updated Guidance
(1)
|
Original Guidance
(2)
|
Cash Used in
Investing Activities (3) ($
millions)
|
$130 to
145(4)
|
$170 to
$200
|
Average Production
(boe/day)
|
43,500 to
46,500
|
45,000 to
47,500
|
Gas
Production (mmcf/d)
|
235 to 250
|
234 to 245
|
Liquids
Production (bbls/d)
|
4,200 to
4,700
|
6,000 to
6,700
|
Royalty Rate
(%)
|
3% to 5%
|
3% to 5%
|
Operating Expense
($/boe)
|
$2.50
|
$2.50
|
Transportation
Expense ($/boe)
|
$3.70
|
$3.70
|
G&A/Finance
Expense ($/boe)
|
$1.80
|
$1.70
|
|
|
|
(1)
Forward-looking information. Refer to Forward-Looking Information
and Other Advisories for cautionary statements regarding
Advantage's guidance including material assumptions and risk
factors.
|
(2)
See News Release dated January 8, 2020.
|
(3)
Cash Used in Investing Activities is the same as Net Capital
Expenditures as no change in non-cash working capital is assumed
and other differences are immaterial.
|
(4)
Excludes net proceeds from the asset sale of 12.5% of our Glacier
Gas Plant.
|
First Quarter 2020 Operating and Financial
Summary
Financial
Highlights
|
|
|
|
Three months
ended
March
31
|
($000, except as
otherwise indicated)
|
|
|
|
|
|
2020
|
|
2019
|
Financial
Statement Highlights
|
|
|
|
|
|
|
|
|
Sales including
realized derivatives (3)
|
|
|
|
|
$
|
65,772
|
$
|
81,372
|
Net income (loss) and
comprehensive income (loss)
|
|
|
|
|
$
|
(266,519)
|
$
|
681
|
per basic share
(2)
|
|
|
|
|
$
|
(1.43)
|
$
|
0.00
|
Cash provided by
operating activities
|
|
|
|
|
$
|
20,826
|
$
|
44,483
|
Cash provided by
financing activities
|
|
|
|
|
$
|
34,960
|
$
|
19,501
|
Cash used in
investing activities
|
|
|
|
|
$
|
65,221
|
$
|
59,714
|
Basic weighted
average shares (000)
|
|
|
|
|
|
186,911
|
|
185,942
|
Other Financial
Highlights
|
|
|
|
|
|
|
|
|
Adjusted funds flow
(1)
|
|
|
|
|
$
|
32,093
|
$
|
50,023
|
per boe
(1)
|
|
|
|
|
$
|
7.59
|
$
|
12.38
|
per basic share
(1)(2)
|
|
|
|
|
$
|
0.17
|
$
|
0.27
|
Net capital
expenditures (1)
|
|
|
|
|
$
|
93,630
|
$
|
57,422
|
Working capital
deficit (surplus) (1)
|
|
|
|
|
$
|
34,284
|
$
|
(9,325)
|
Bank
indebtedness
|
|
|
|
|
$
|
330,644
|
$
|
290,612
|
Net debt
(1)
|
|
|
|
|
$
|
364,928
|
$
|
281,287
|
(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.
|
Operating
Highlights
|
|
|
|
Three months
ended
March
31
|
|
|
|
|
|
|
2020
|
|
2019
|
Operating
|
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
|
|
|
|
|
256,463
|
|
257,219
|
Crude oil and
condensate (bbls/d)
|
|
|
|
|
|
2,151
|
|
750
|
NGLs
(bbls/d)
|
|
|
|
|
|
1,563
|
|
1,280
|
Total production
(boe/d)`
|
|
|
|
|
|
46,458
|
|
44,900
|
Average realized
prices (including realized derivatives)
|
|
|
|
|
|
|
|
|
Natural gas ($/mcf)
(2)
|
|
|
|
|
$
|
2.11
|
$
|
3.11
|
Crude oil and
condensate ($/bbl)
|
|
|
|
|
$
|
60.64
|
$
|
61.59
|
NGLs
($/bbl)
|
|
|
|
|
$
|
32.98
|
$
|
46.28
|
Operating Netback
($/boe)
|
|
|
|
|
|
|
|
|
Petroleum and natural
gas sales from production
|
|
|
|
|
$
|
15.18
|
$
|
18.90
|
Net sales of natural
gas purchased from third parties (1)
|
|
|
|
|
|
-
|
|
(0.35)
|
Realized gains on
derivatives
|
|
|
|
|
|
0.38
|
|
1.23
|
Royalty
expense
|
|
|
|
|
|
(0.89)
|
|
(0.57)
|
Operating
expense
|
|
|
|
|
|
(2.28)
|
|
(2.02)
|
Transportation
expense
|
|
|
|
|
|
(3.50)
|
|
(3.40)
|
Operating
netback (1)
|
|
|
|
|
$
|
8.89
|
$
|
13.79
|
(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 unaudited consolidated financial statements
for the three months ended March 31,
2020 together with the notes thereto, and Management's
Discussion and Analysis for the three months ended March 31, 2020 have been filed on SEDAR and are
available on the Corporation's website at
http://www.advantageog.com/investors/financial-reports/financial-reports-2020.
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 "anticipate", "continue",
"demonstrate", "expect", "may", "can", "will", "believe", "would"
and similar expressions and include statements relating to, among
other things, Advantage's strategy and development plans; and
Advantage's expectations generally and with respect to its liquid
development. 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 sale of
12.5% of the Glacier Gas Plant will close in July 2020; 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.
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. References to natural gas or liquids
production in this press release refer to conventional natural gas
and natural gas liquids, respectively, product types as defined in
National Instrument 51-101.
References in this press release to production test rates,
flow rates, yields and other short-term production rates are useful
in confirming the presence of hydrocarbons, however such rates are
not determinative of the rates at which such wells will commence
production and decline thereafter and are not indicative of long
term performance or of ultimate recovery. Additionally, such rates
may also include recovered "load oil" fluids used in well
completion stimulation. While encouraging, readers are cautioned
not to place reliance on such rates in calculating the aggregate
production of Advantage. Advantage cautions that test results
and short-term production rates should be considered
preliminary.
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 press release, should not be relied upon for investment or
other purposes.
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", "net debt", "net debt to adjusted
funds flow", "working capital" 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:
|
|
Three months
ended
March 31
|
($000)
|
|
|
|
2020
|
|
2019
|
Cash used in
investing activities
|
|
|
|
|
$
|
65,221
|
$
|
59,714
|
Changes in non-cash
working capital
|
|
|
|
|
|
28,409
|
|
( 2,292)
|
Net capital
expenditures
|
|
|
|
|
$
|
93,630
|
$
|
57,422
|
Working Capital
Working capital includes cash and cash equivalents, trade and
other receivables, prepaid expenses and deposits and trade and
other accrued payables at the reporting date. Working capital
provides Management and users with a measure of the Corporation's
operating
liquidity.
Net Debt
Net debt is comprised of bank indebtedness and working
capital. Net debt provides Management and users with a
measure of the Corporation's bank indebtedness and expected
settlement of net liabilities in the next year. A detailed
calculation of net debt is provided below:
($000)
|
|
|
|
|
March 31
2020
|
December
31
2019
|
Bank indebtedness
(non-current)
|
|
|
|
|
$
|
330,644
|
$
|
295,624
|
Working capital
deficit
|
|
|
|
|
|
34,284
|
|
7,996
|
Net debt
|
|
|
|
|
$
|
364,928
|
$
|
303,620
|
|
|
|
|
|
|
|
|
|
|
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 other
long-term 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. Expenditures on decommissioning liabilities are
excluded from the calculation as the amount and timing of these
expenditures are unrelated to current production, highly variable
and discretionary. Adjusted funds flow has also been
presented per boe, by dividing adjusted funds flow by total
production in boe for the reporting period, and per basic share, by
dividing by the basic weighted average shares outstanding of the
Corporation.
A reconciliation between adjusted funds flow and the nearest
measure calculated in accordance with GAAP, cash provided by
operating activities, is provided below:
|
|
|
|
Three months
ended
March 31
|
($000, except as
otherwise indicated)
|
|
|
|
|
|
2020
|
|
2019
|
Cash provided by
operating activities
|
|
|
|
|
$
|
20,826
|
$
|
44,483
|
Expenditures on
decommissioning liability
|
|
|
|
|
|
179
|
|
865
|
Changes in non-cash
working capital
|
|
|
|
|
|
11,088
|
|
4,675
|
Adjusted funds
flow
|
|
|
|
|
$
|
32,093
|
$
|
50,023
|
Net Debt to Adjusted Funds Flow
Net debt to adjusted funds flow is calculated by dividing net
debt by adjusted fund flow for the previous four quarters.
Net debt to adjusted funds flow is a coverage ratio that
provides Management and users the ability to determine how long it
would take the Corporation to repay its bank debt if it devoted all
its adjusted funds flow to bank debt repayment.
Operating Netback
Advantage calculates operating netback on a per boe basis.
Operating netback is comprised of sales revenue, realized
gains (losses) on derivatives and net sales of natural gas
purchased from third parties, 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.
|
Three months
ended
March 31
|
|
2020
|
2019
|
|
|
$000
|
|
per boe
|
|
$000
|
|
per boe
|
Petroleum and natural
gas sales from production
|
$
|
64,185
|
$
|
15.18
|
$
|
76,393
|
$
|
18.90
|
Net sales of natural
gas purchased from third parties
|
|
-
|
|
-
|
|
(1,400)
|
|
(0.35)
|
Realized gains on
derivatives
|
|
1,587
|
|
0.38
|
|
4,979
|
|
1.23
|
Royalty
expense
|
|
(3,755)
|
|
(0.89)
|
|
(2,302)
|
|
(0.57)
|
Operating
expense
|
|
(9,647)
|
|
(2.28)
|
|
(8,157)
|
|
(2.02)
|
Transportation
expense
|
|
(14,804)
|
|
(3.50)
|
|
(13,750)
|
|
(3.40)
|
Operating
netback
|
$
|
37,566
|
$
|
8.89
|
$
|
55,763
|
$
|
13.79
|
|
|
|
|
|
|
|
|
|
|
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 terms and 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 fee
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
|
Liquids or
NGLs
|
Natural Gas
Liquids as defined in National Instrument 51-101
|
Natural
gas
|
Conventional
Natural Gas as defined in National Instrument 51-101
|
SOURCE Advantage Oil & Gas Ltd.