(TSX: AAV)
CALGARY, AB, Oct. 8, 2020 /CNW/ - Advantage Oil & Gas
Ltd. ("Advantage" or the "Corporation") is pleased to announce a
modest increase in 2020 capital guidance, as a result of continued
strengthening of the Corporation's outlook. Spending for 2020
is now projected to be between $147
million and $162 million, an
increase of approximately $17
million, primarily to accelerate a four-well pad into Q4
2020 and augment natural gas production through the winter
season.
Program highlights:
- The four additional wells are to be drilled at Glacier (two D4
Montney and two Upper Montney);
all four of these wells are expected to be onstream during the
first quarter of 2021
- Six Glacier wells have been drilled to date in the second half
of 2020 (all D1 Montney); all six
of these wells are expected to be onstream prior to year-end
2020
- All 10 wells in the program are expected to have payouts within
one year of spud date
- Production will be processed using existing capacity at
Advantage's 400 mmcf/d Glacier Gas Plant, incurring minimal
incremental operating costs and low carbon-intensity
Advantage's 2021 production is expected to grow between 5% and
10%, with exceptional growth anticipated in adjusted funds
flow(a) ("AFF") based on current natural gas futures
pricing. Directionally, Advantage expects that 2021 net
capital expenditures will be approximately 75% of AFF, and that net
debt to AFF(a) ratio will approach 1x by year-end
2021. The Corporation plans to provide formal 2021 guidance
during the fourth quarter of 2020.
As a part of our annual planning strategy, Advantage has
completed detailed analysis to establish a baseline for "sustaining
capital", defined as the estimated net capital expenditures
required annually to keep corporate production flat over a
sustained three-year period. For the period of 2021 to 2023,
Advantage's sustaining capital is estimated to be under
$80 million per year, as a result of
prolific Montney assets and a
corporate base decline rate of approximately 23%.
Based on our current commodity price outlook for 2021, Advantage
anticipates spending roughly three-quarters of capital on Glacier
drilling with the remainder to be used to advance our oil and
liquids developments at Valhalla,
Progress and Pipestone/Wembley. Advantage has
maintained the flexibility to reallocate capital between assets
should prices swing in favor of liquids development.
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.
|
Hedging Update
Advantage has hedged approximately 51% of its natural gas
production for the second half of 2020. The Corporation continues
to increase its hedging position in 2021 and currently has 31% of
forecast natural gas production hedged between Henry Hub,
Chicago and Dawn at an average
price of US$2.51/mmbtu. Advantage has
hedged 33% of its crude oil and condensate production for the
second half of 2020 with WTI swaps at an average price of
US$55.44/bbl.
2020 Guidance Update
Advantage's 2020 capital guidance range will now be $147 million to $162
million versus the previous range of $130 million to $145
million. There are no other changes to the Corporation's
previous 2020 guidance.
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 "guidance", "anticipate",
"continue", "demonstrate", "expect", "may", "can", "will",
"believe", "would" and similar expressions and include statements
relating to, among other things, Advantage's focus, strategy and
development plans; timing for wells to come on-stream at Glacier;
number of wells planned for the second half of 2020; anticipation
that for 2021, net capital expenditures will be approximately 75%
of adjusted funds flow; Advantage's ability to grow 2021 adjusted
funds flow based on current natural gas futures pricing;
Advantage's estimates of base decline rate and sustaining capital
for the period of 2021 to 2023; Advantage's ability to reduce its
net debt to adjusted funds flow in 2021; production growth for
2021; and the Corporation's hedging activities and the benefits to
be derived therefrom. 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, including as a result
of demand and supply effects resulting from the COVID-19 pandemic;
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, 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 and processing
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;
the impact and duration thereof that the COVID-19 pandemic will
have on (i) the demand for crude oil, NGLs and natural gas, (ii)
the supply chain including the Corporation's ability to obtain the
equipment and services it requires, and (iii) the Corporation's
ability to produce, transport and/or sell its crude oil, NGLs and
natural gas; 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. 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.
This press release contains a number of oil and gas and
finance metrics, including base decline rate, sustaining capital
and payouts, 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. Base
decline rate is Management's estimated annual reduction in
corporate production from currently producing wells that is
expected to occur in the subsequent year. Sustaining capital is
Management's estimate of the capital required to drill, complete,
equip and tie-in new wells to existing infrastructure thereby
offsetting the corporate base decline rate and maintain production
at existing levels. Payouts means the anticipated duration of
production from a well expected to recoup its initial capital
investment. Management uses these oil and gas and finance 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",
"net debt", "working capital" and "net debt to adjusted funds
flow", 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. 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.
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.
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.
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 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 and paying payables. Expenditures on
decommissioning liabilities are excluded from the calculation as
the amount and timing of these expenditures are unrelated to
current production and are partially discretionary due to the
nature of our low liability.
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 net debt if it devoted all its
adjusted funds flow to repayment.
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
|
mmbtu
|
million British
thermal units
|
mmcf
|
million cubic
feet
|
mmcf/d
|
million cubic feet
per day
|
mmcfe/d
|
million cubic feet
equivalent per day
|
Crude oil
and
condensate
|
Light crude oil
and medium crude oil as defined in National Instrument
51-101
|
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.