(TSX: AAV)
CALGARY, AB, Oct. 29, 2020 /CNW Telbec/ - Advantage Oil
& Gas Ltd. ("Advantage" or the "Corporation") is pleased to
report solid third quarter 2020 financial and operating results and
announce its 2021 capital program.
Production, operating costs and adjusted funds flow met or
exceeded expectations, despite the volatile macroeconomic
environment. Advantage's strong foundations have supported
the Corporation through the pandemic, with a fortified balance
sheet (net debt to adjusted funds flow ratio of 2.1x), low base
decline (23%), low operating cost ($2.35/boe) and low sustaining capital (under
$80 million per year required to
sustain production for minimum of three years).
Advantage's 2021 capital program will target modest production
growth (5-10%), with spending aimed at approximately 75% of
projected adjusted funds flow. By focusing on highest
rate-of-return, gas-weighted locations, adjusted funds flow growth
will be maximized. Modest spending (~20% of total budget)
will continue on future development initiatives, including
infrastructure optimization, completion piloting in oil plays and
expiry drilling.
Highlights for the quarter include:
- Cash provided by operating activities of $25.3 million
- Adjusted funds flow(a) of $23.6 million ($0.13 per share), with net capital
expenditures(a) of $21.3
million ($2.3 million or 10%
free cash flow(a))
- Total production of 44,448 boe/d (89% natural gas), an increase
of 6% over third quarter 2019
- Liquids production achieved a record of 4,729 bbls/d (2,417
bbls/d crude oil and condensate, 2,312 bbls/d NGLs), up 51% from
the third quarter 2019
- Gas production of 238 mmcf/d (up 2% from third quarter 2019),
demonstrating the low decline rates of our natural gas assets, with
only one Glacier well brought on-production in 2020
- Net loss was $21.6 million during
the third quarter of 2020 due to lower realized gains on
derivatives and $22.9 million
unrealized losses on derivatives, partially offset by increased
sales
- Reduced net debt from the second quarter of 2020 by
$107.2 million, or 30%, as a result
of proceeds from the sale of a 12.5% interest in the Glacier Gas
Plant, together with free cash flow(a)
- Revolving credit facility of $350
million was renewed unchanged following completion of the
fall semi-annual review
With a focus on delivering free cash flow and modest production
growth, Advantage will continue to allocate capital primarily to
high-return, short payout projects throughout our assets, and apply
free cash flow to debt reduction.
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.
|
Key Objectives For 2021 Budget:
- Grow 2021 production between 5% and 10% with exceptional growth
anticipated in adjusted funds flow ("AFF") based on current natural
gas futures pricing
- 2021 net capital expenditures will target approximately 75% of
AFF (2021 capital expected to be 10% to 15% below 2020
spending)
- Retain financial flexibility and discipline by targeting a net
debt to AFF ratio approaching 1x by year-end 2021
2021 Budget Summary
(1) (3)
|
|
|
|
Cash Used in
Investing Activities (2) (millions)
|
$125 to
$150
|
Average Production
(boe/day)
|
47,000 to
49,000
|
Liquids Production (%
of total)
|
8 to 9
|
Royalty Rate
(%)
|
3 to 5
|
Operating Expense
($/boe)
|
$2.55
|
Transportation
Expense ($/boe)
|
$4.15
|
G&A/Finance
Expense ($/boe)
|
$2.00
|
|
|
Notes:
|
(1)
|
Forward-looking
statements and 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
|
(3)
|
Management
estimate
|
|
|
Based on our current commodity price outlook for 2021, Advantage
anticipates spending roughly three-quarters of its 2021 capital on
Glacier gas-weighted development with 20% directed towards future
development initiatives, including 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.
Operational Update
Advantage invested $21.3 million
on property, plant, and equipment during the three months ended
September 30, 2020. Advantage's
capital activity was focused primarily on drilling operations at
Glacier.
With increasing gas prices, additional capital has been
allocated to our foundational Glacier gas property for the balance
of 2020. A ten well program has been planned for the second half of
2020, with five of the wells drilled and rig released in the third
quarter. The remaining five wells will be drilled in the fourth
quarter, along with completions of the first six wells. The
remaining four wells will be completed in the first quarter of
2021.
At Valhalla, production
remained partially restricted thanks to the continued
outperformance of area wells, and with the introduction of
production piped in from the Progress asset through the
Valhalla 40 mmcf/d compressor and
liquids hub. With the addition of gas from Progress and one
remaining well shut-in awaiting capacity at Valhalla, the facility is anticipated to be
full for the balance of 2020.
Advantage's current standing well inventory consists of one well
that is tied-in and five wells that are drilled and cased.
Hedging Update
Advantage has hedged approximately 49% of its natural gas
production for the fourth quarter of 2020. The Corporation
continues to increase its hedging position in 2021 and currently
has 33% of forecast natural gas production hedged between AECO,
Henry Hub, Chicago and Dawn at an
average equivalent price of US$2.56/Mmbtu, assuming adjustment for foreign
exchange at $0.76. Advantage has 44%
of its crude oil and condensate production hedged for the fourth
quarter of 2020 with WTI swaps at an average price of US$55.44/bbl and 27% of its crude oil and
condensate production hedged for 2021 at US$43.00/bbl.
Financial
Highlights
|
|
Three months
ended
September
30
|
|
Nine months
ended
September
30
|
($000, except as
otherwise indicated)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Financial
Statement Highlights
|
|
|
|
|
|
|
|
|
Sales including
realized derivatives
|
$
|
55,763
|
$
|
56,927
|
$
|
170,128
|
$
|
198,316
|
Net loss and
comprehensive loss
|
$
|
(21,606)
|
$
|
(26,863)
|
$
|
(308,213)
|
$
|
(22,810)
|
per basic share
(2)
|
$
|
(0.11)
|
$
|
(0.14)
|
$
|
(1.64)
|
$
|
(0.12)
|
Basic weighted
average shares (000)
|
|
188,113
|
|
186,911
|
|
187,643
|
|
186,574
|
Cash provided by
operating activities
|
$
|
25,271
|
$
|
27,323
|
$
|
70,454
|
$
|
116,098
|
Cash provided by
(used in) financing activities
|
$
|
(15,436)
|
$
|
5,010
|
$
|
43,016
|
$
|
4,202
|
Cash used in
investing activities
|
$
|
11,220
|
$
|
36,258
|
$
|
121,296
|
$
|
123,275
|
Other Financial
Highlights
|
|
|
|
|
|
|
|
|
Adjusted funds flow
(1)
|
$
|
23,571
|
$
|
27,928
|
$
|
72,923
|
$
|
110,728
|
per boe
(1)
|
$
|
5.76
|
$
|
7.21
|
$
|
5.86
|
$
|
9.37
|
per basic share
(1)(2)
|
$
|
0.13
|
$
|
0.15
|
$
|
0.39
|
$
|
0.59
|
Net capital
expenditures (1)
|
$
|
21,252
|
$
|
48,313
|
$
|
125,545
|
$
|
125,313
|
Working capital
deficit (1)
|
$
|
9,093
|
$
|
13,322
|
$
|
9,093
|
$
|
13,322
|
Bank
indebtedness
|
$
|
241,161
|
$
|
275,594
|
$
|
241,161
|
$
|
275,594
|
Net debt
(1)
|
$
|
250,254
|
$
|
288,916
|
$
|
250,254
|
$
|
288,916
|
|
|
(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.
|
Operating
Highlights
|
|
Three months
ended
September
30
|
|
Nine months
ended
September
30
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating
|
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
|
|
Crude
oil and condensate (bbls/d)
|
|
2,417
|
|
1,388
|
|
2,404
|
|
1,110
|
NGLs
(bbls/d)
|
|
2,312
|
|
1,754
|
|
1,960
|
|
1,478
|
Total
liquids production (bbls/d)
|
|
4,729
|
|
3,142
|
|
4,364
|
|
2,588
|
Natural
gas (mcf/d)
|
|
238,315
|
|
233,625
|
|
246,147
|
|
244,331
|
Total
production (boe/d)
|
|
44,448
|
|
42,080
|
|
45,389
|
|
43,310
|
Average realized
prices (including realized derivatives)
|
|
|
|
|
|
|
|
|
Natural
gas ($/mcf)
|
$
|
1.81
|
$
|
2.04
|
$
|
1.88
|
$
|
2.45
|
Crude
oil and condensate ($/bbl)
|
$
|
49.19
|
$
|
66.52
|
$
|
46.48
|
$
|
66.79
|
NGLs
($/bbl)
|
$
|
24.45
|
$
|
28.54
|
$
|
23.32
|
$
|
35.95
|
Operating Netback
($/boe)
|
|
|
|
|
|
|
|
|
Petroleum and natural gas sales from production
|
$
|
14.69
|
$
|
11.98
|
$
|
13.82
|
$
|
14.73
|
Net
sales of natural gas purchased from third parties
(1)
|
|
0.00
|
|
(0.03)
|
|
0.00
|
|
(0.13)
|
Realized
gains (losses) on derivatives
|
|
(1.03)
|
|
2.72
|
|
(0.14)
|
|
2.04
|
Royalty
expense
|
|
(0.63)
|
|
(0.06)
|
|
(0.60)
|
|
(0.21)
|
Operating expense
|
|
(2.35)
|
|
(2.12)
|
|
(2.35)
|
|
(2.01)
|
Transportation expense
|
|
(3.12)
|
|
(3.58)
|
|
(3.32)
|
|
(3.51)
|
Operating netback (1)
|
$
|
7.56
|
$
|
8.91
|
$
|
7.41
|
$
|
10.91
|
|
|
(1)
|
Non-GAAP measure
which may not be comparable to similar non-GAAP measures used by
other entities. Please see "Non-GAAP Measures".
|
The Corporation's unaudited consolidated financial statements
for the three and nine months ended September 30, 2020 together with the notes
thereto, and Management's Discussion and Analysis for the three and
nine months ended September 30, 2020
have been filed on SEDAR and are available on the Corporation's
website at https://www.advantageog.com/investors/financial-reports.
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 "guidance", "anticipate",
"target", "objectives", "estimates", "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 and the first quarter of 2021; anticipation
that for 2021, net capital expenditures will be approximately 75%
of adjusted funds flow; 2021 capital spending and allocation
thereof; anticipated net debt to AFF by end of 2021; average
production for gas and liquids; royalty rate; operating expense;
transportation expense and G&A/Finance expense for 2021;
Advantage's ability to grow 2021 adjusted funds flow based on
current natural gas futures pricing; the expected amount of
adjusted funds flow; 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; the anticipation that the compressor
and liquids hub will be full for the remainder of 2020; 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; the
Corporation's current and future hedging program; future exchange
rates; royalty rates; future operating costs; future transportation
costs and availability of product transportation capacity;
availability of skilled labor; availability of drilling and related
equipment; timing and amount of net capital expenditures; the
number of new wells required to achieve the budget objectives; that
the Corporation will have sufficient adjusted funds 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 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 therefrom. 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 and sustaining
capital, 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. 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",
"free cash flow", "net debt", "operating netback", "working capital
deficit" 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.
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 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
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
|
mmbtu
|
million British
thermal units
|
mmcf/d
|
million cubic feet
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.