Production Growth, Record Low Cash Costs
& Improved Glacier Well Results Generates Strong
Cash Flow & Underpins 350 MMCF/D Plant Expansion Plan
(TSX: AAV, NYSE: AAV)
CALGARY, May 5, 2016 /PRNewswire/ - Advantage Oil &
Gas Ltd. ("Advantage" or the "Corporation") is pleased to report
strong cash flow of $30.2 million or
$0.17/share for the first quarter of
2016 supported by a 25% increase in production to 167 mmcfe/d
(27,854 boe/d) and an 11% reduction in its total cash cost to a
corporate record and industry leading low cost of $0.75/mcfe. Additionally, Advantage's
financial strategy to reduce downside cash flow exposure through
its ongoing hedging program generated a $14.7 million gain which is included in our first
quarter results. These operational and financial achievements
helped to maintain a comparable level of cash flow to the same
period in 2015 despite a 33% reduction in AECO natural gas prices
to Cdn $1.84/mcf.
During the first quarter of 2016, Advantage continued to achieve
outperformance in its Glacier well results. In particular, one of
our Lower Montney wells which included a new cemented port
completion design with 37 frac ports and 20 frac stages
significantly exceeded Management expectations by demonstrating an
on-production rate of 18.3 mmcf/d (3,050 boe/d) and proved up
another extension area of high quality Lower Montney reservoir at
Glacier. This Lower Montney well was drilled, completed and
tied-in at a cost of $5 million (10%
less than budgeted) and confirmed additional opportunities to
improve capital efficiencies as a result of advancing our drilling
and completion technologies. Five other Lower Montney wells
with an average of 21 frac stages were production tested during the
quarter and demonstrated an average per well rate of 12.3 mmcf/d,
exceeding Management expectations by 30% (see additional
information in the Operational Update section below).
Advantage's plans to expand its 100% owned Glacier gas plant to
increase processing capacity from 250 to 350 mmcf/d (58,330 boe/d)
is progressing with design and regulatory application work
underway. The Glacier "350" plant expansion is targeted for
completion in the second quarter of 2018 to continue production
growth through 2020. These plans are reinforced by our
ongoing operational achievements and solid financial results which
demonstrate the exceptional quality of our Glacier Montney
resource.
Advantage continues to advance its Montney development at Glacier with a strategy
to reduce downside cash flow exposure while retaining financial and
operational flexibility to immediately capitalize on improvements
in the natural gas price environment and organic growth
opportunities. The Corporation's strong balance sheet and
multi-year hedging program in conjunction with having readily
available additional gas plant capacity and additional productivity
from its 27 current standing wells provides flexibility to optimize
investment returns for our shareholders.
First Quarter 2016 Operating and Financial Highlights
Production increased 25% to average 167.1 mmcfe/d (27,854
boe/d) for the first quarter of 2016 as compared to the same period
in 2015. In April 2016 Glacier
production increased a further 20% from the prior quarter to a
record 200 mmcfe/d (33,300 boe/d). The Corporation's 2016
annual production is expected to be within our previously announced
Budget production guidance range of 190 to 210 mmcfe/d, resulting
in year on year production growth of 40%.
Funds from operations for the first quarter of 2016 was
$30.2 million or $0.17 per share. Cash netbacks for the three
months ended March 31, 2016 was
$1.99/mcfe ($11.94/boe) which represents 73% of the realized
sales price, including hedging. Funds from operations were
supported by increased production, lower costs and a realized
hedging gain of $14.7 million.
Total cash costs were reduced to a corporate record low of
$0.75/mcfe in the first quarter of
2016 which is an 11% decrease compared to the same period of
2015. Total cash costs include royalties ($0.07/mcfe), operating expense ($0.35/mcfe), transportation expense for liquids
($0.01/mcfe), general and
administrative expense ($0.13/mcfe),
and finance expense ($0.19/mcfe). An
additional water disposal well was commissioned in March 2016 to reduce water handling costs and
when combined with other ongoing cost initiatives, we anticipate
additional operating cost savings could be realized during the
latter half of 2016.
Capital expenditures during the quarter were on-track at
$45 million.
This included $32 million (71%)
invested to expand Advantage's sales gas pipeline takeaway capacity
to 400 mmcf/d from its Glacier gas plant to TransCanada Pipeline
Limited's ("TCPL") main northwest Alberta sales pipeline, to increase its raw
gas gathering system capacity and to install back-up plant
utilities. The remaining expenditures in the quarter
were directed to completion operations on 7 previously cased
wells. Capital expenditures are targeted to be
$58 million during the first half of
2016 and $120 million for the full
year.
Total debt (including working capital deficit) as of
March 31, 2016 was $213 million or 47% drawn against Advantage's
$450 million borrowing base Credit
Facility providing ample financial flexibility to support
future development. Advantage's year-end 2016 total
debt to trailing cash flow is estimated to be 1.2 times and 1.5
times based on average annual AECO natural gas prices of Cdn
$2.00/mcf and Cdn $1.50/mcf respectively, including the
Corporation's hedges.
Strong multi-year natural gas hedge positions in place to
support future development. Advantage's hedging positions
include an average 52% of forecast annual production for 2016
at an average AECO floor price of $3.62/mcf, 36% of forecast 2017 annual
production at an average AECO floor price of $3.24/mcf and 15% of forecast 2018 annual
production at average AECO floor price of $3.04/mcf.
Operational Update
Lower Montney Wells Exceed Expectations
A Lower Montney well located in the central area of Glacier was
drilled to a lateral length of 2,083 meters and was completed with
a cemented port, ball-drop system with 37 frac ports (45 meter
spacing) and 20 stages, slickwater and 1,480 tonnes of
proppant. This Lower Montney well has been standing since
December 2015 and was recently
brought on production. After four days of production, the
well was producing at a restricted rate of 18.3 mmcf/d (3,050
boe/d) and at a flowing pressure of 7 mpa, above its tested rate of
12.4 mmcf/d. This Lower Montney well will be restricted below
10 mmcf/d to control the volume of frac sand flowback during its
initial production period to match the design of our standard
wellsite facilities. The longer term production behavior will be
evaluated to assess the change in frac design but the initial
results are encouraging. The total drill, complete and tie-in
cost of $5 million for this Lower
Montney well results in an estimated 30 day average initial
production rate ("IP30") well capital efficiency of $2,220/boe/d. Additionally, this well
proves up an expanded area of top decile Lower Montney well
productivity at Glacier.
During the first quarter of 2016, five other Lower Montney wells
were production tested at Glacier. After an average flow
period of 57 hours, the average per well final production test rate
was 12.3 mmcf/d normalized to our average gas gathering system
flowing pressure of 3,000 kpa (435 psi). At the average final
production test pressure of 11.2 mpa (1,624 psi) the average
production test rate was 10.2 mmcf/d. These wells included an
average of 21 frac stages and exceeded Management's final
production test rate expectations by
30%.
For the balance of 2016, additional wells which contain a
combination of higher frac stages, cemented ports and longer
laterals will be brought on-production and compared against
offsetting older wells to evaluate the long term production and
reserve impacts of drilling and completion technology changes at
Glacier.
Glacier "350" Gas Plant Expansion
Design and regulatory application work has commenced on
Advantage's planned expansion of its 100% owned Glacier gas plant
processing capacity from 250 to 350 mmcf/d (58,330 boe/d).
The expansion will be undertaken at the existing Glacier gas plant
site with a preliminary cost estimate of $75
million. The existing gas plant capacity of 250 mmcf/d
will provide sufficient processing throughput to accommodate growth
plans through 2017. The plant expansion to 350 mmcf/d is
targeted for completion in the second quarter of 2018 and will
accommodate growth plans through 2020. Options to accelerate
this expansion project while maintaining industry leading capital
efficiencies will also be evaluated.
Modernized Royalty Framework Impact
The Alberta government has now
substantially completed the new Modernized Royalty Framework. The
new royalty framework partially emulates a revenue minus cost
royalty structure and will be effective for wells spud on or after
January 1, 2017 with existing wells
continuing to operate under the previous royalty framework for a
ten-year period. The new royalty framework is expected to
incentivize low cost producers with higher productivity wells which
will continue to benefit Advantage. We have reviewed the new
framework formulas and estimate that at natural gas prices up to
AECO $4.00/mcf, the impact on the
economic returns for our average Upper and Lower Montney wells are
insignificant while the economic returns for our average Middle
Montney wells are slightly improved. Advantage will
continue to evaluate and optimize the impact of drilling and
completion design changes on royalties and economics in respect of
the Modernized Royalty Framework.
Consolidated Financial Statements and MD&A
The Corporation's unaudited interim consolidated financial
statements for the three months ended March
31, 2016 together with the notes thereto, and Management's
Discussion and Analysis for the three months ended March 31, 2016 have been filed on SEDAR and with
the SEC and are available on the Corporation's website at
http://www.advantageog.com. Upon request, Advantage will provide a
hard copy of any financial reports free of charge.
Appendix – First Quarter 2016 Operating & Financial
Summary
|
|
|
Three months
ended
|
|
Financial and
Operating Highlights
|
|
March
31
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Financial ($000,
except as otherwise indicated)
|
|
|
|
|
|
Sales including
realized hedging
|
|
$
|
41,625
|
|
$
|
39,991
|
|
Funds from
operations
|
|
$
|
30,236
|
|
$
|
29,929
|
|
|
per
share(1)
|
|
$
|
0.17
|
|
$
|
0.18
|
|
Total capital
expenditures
|
|
$
|
44,736
|
|
$
|
78,708
|
|
Working capital
deficit(2)
|
|
$
|
10,666
|
|
$
|
40,552
|
|
Bank
indebtedness
|
|
$
|
202,538
|
|
$
|
261,241
|
|
Basic weighted
average shares (000)
|
|
174,479
|
|
170,301
|
|
Operating
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
|
164,618
|
|
133,281
|
|
|
Liquids
(bbls/d)
|
|
418
|
|
112
|
|
|
Total
mcfe/d(3)
|
|
167,126
|
|
133,953
|
|
|
Total
boe/d(3)
|
|
27,854
|
|
22,326
|
|
Average prices
(including hedging)
|
|
|
|
|
|
|
Natural gas
($/mcf)
|
|
$
|
2.70
|
|
$
|
3.30
|
|
|
Liquids
($/bbl)
|
|
$
|
31.21
|
|
$
|
41.86
|
|
Cash netbacks
($/mcfe)(3)
|
|
|
|
|
|
|
Natural gas and
liquids sales
|
|
$
|
1.77
|
|
$
|
2.71
|
|
|
Realized gains on
derivatives
|
|
0.97
|
|
0.61
|
|
|
Royalties
|
|
(0.07)
|
|
(0.13)
|
|
|
Operating
expense
|
|
(0.35)
|
|
(0.35)
|
|
|
Transportation
expense
|
|
(0.01)
|
|
-
|
|
Operating
netback
|
|
2.31
|
|
2.84
|
|
|
General and
administrative
|
|
(0.13)
|
|
(0.17)
|
|
|
Finance
expense
|
|
(0.19)
|
|
(0.19)
|
|
Cash
netbacks
|
|
$
|
1.99
|
|
$
|
2.48
|
|
|
|
|
|
|
|
|
(1)
|
Based on basic
weighted average shares outstanding.
|
|
|
|
|
|
(2)
|
Working capital
deficit includes trade and other receivables, prepaid expenses and
deposits, and trade and other accrued liabilities.
|
|
(3)
|
A boe and mcfe
conversion ratio has been calculated using a conversion rate of six
thousand cubic feet of natural gas equivalent to
|
|
|
|
one barrel of
liquids.
|
|
|
|
|
|
Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of the
United States Private Securities Litigation Reform Act of 1995.
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 potential for
future improvements in capital efficiencies resulting from
continued drilling and completion technology advances at Glacier;
Advantage's expansion of its Glacier gas plant processing capacity,
including the expected timing, estimated costs and anticipated
processing capacity as a result thereof; the Corporation's strategy
to reduce downside cash flow exposure while retaining financial and
operational flexibility to immediately capitalize on improvements
in the natural gas price environment and organic growth
opportunities; the anticipated effect of a strong balance sheet,
multi-year hedging program, additional gas plant capacity and
additional productivity on Advantage's ability to provide
investment returns for shareholders; Advantage's anticipated
annual production for 2016, production growth, year end total debt
to trailing cash flow ratio for 2016, and capital expenditures for
the first half and full year 2016, including the targeted amounts;
the Corporation's expectation that annual production for 2016 will
be within the Corporation's budget production guidance range;
anticipated drilling and future development plans for the
Corporation's assets; the terms of the Alberta Government's
Modernized Royalty Framework, its effect on new well (including on
rate of returns for Advantage's Upper, Middle and Lower Montney
wells) and its expected benefits for low cost producers with higher
productivity wells; anticipated commodity prices; the Corporation's
hedging activities; 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;
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;
delays in completion of the expansion of the Glacier gas plant;
lack of available capacity on pipelines; 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; Advantage's 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 which is
available at www.Sedar.com 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 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; available pipeline capacity; that the
Corporation will be able to complete the expansion and increase
capacity at the Glacier gas plant; that Advantage's production will
increase; 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. Production estimates contained herein for the
year ended December 31, 2016 are
expressed as anticipated average production over the calendar year.
In determining anticipated production for the year ended
December 31, 2016, Advantage
considered historical drilling, completion and production results
for prior years and took into account the estimated impact on
production of the Corporation's 2016 expected drilling and
completion activities. Advantage has also assumed TCPL's northwest
Alberta pipeline restrictions and
maintenance activity level will subside in early 2016 based on the
most recent information available.
Management has included the above summary of assumptions and
risks related to forward-looking information provided above and in
its continuous disclosure documents filed 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. Forward-looking statements contained
herein 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 certain oil and gas metrics,
including cash netbacks and operating netbacks, 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.
References in this press release to production test rates,
initial test production rates, 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 for Advantage. A pressure
transient analysis or well-test interpretation has not been carried
out in respect of all wells. Accordingly, the Corporation cautions
that the test results should be considered to be
preliminary.
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 Corporation discloses several financial measures that do
not have any standardized meaning prescribed under International
Financial Reporting Standards ("IFRS"). These financial measures
include funds from operations, operating netbacks and total debt to
trailing cash flow ratio. Funds from operations is based on
cash provided by operating activities, before expenditures on
decommissioning liability and changes in non-cash working capital,
reduced for finance expense excluding accretion. Cash netbacks are
dependent on the determination of funds from operations and include
the primary cash sales and expenses on a per mcfe basis that
comprise funds from operations. Total debt to trailing cash flow
ratio is calculated as indebtedness under the Corporation's credit
facilities plus working capital deficit divided by funds from
operations for the prior twelve month period. Management believes
that these financial measures are useful supplemental information
to analyze operating performance and provide an indication of the
results generated by the Corporation's principal business
activities. Investors should be cautioned that these measures
should not be construed as an alternative to net income or other
measures of financial performance as determined in accordance with
IFRS. 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 of funds from operations to cash provided by
operating activities.
This press release and, in particular the information in
respect of the Corporation's prospective cash flow debt to trailing
cash flow ratio, may contain future oriented financial information
("FOFI") within the meaning of applicable securities laws. The FOFI
has been prepared by management to provide an outlook of the
Corporation's activities and results and may not be appropriate for
other purposes. The FOFI has been prepared based on a number of
assumptions including the assumptions discussed above. The actual
results of operations of the Corporation and the resulting
financial results may vary from the amounts set forth herein, and
such variations may be material. The Corporation and management
believe that the FOFI has been prepared on a reasonable basis,
reflecting management's best estimates and judgments. FOFI
contained in this press release was made as of the date of this
press release and the Corporation disclaims any intention or
obligations to update or revise any FOFI contained in this press
release, whether as a result of new information, future events or
otherwise, unless required pursuant to applicable
law]
The following abbreviations used in this press release have
the meanings set forth below:
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 per day
|
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 NGLs
|
mmcf
|
million cubic
feet
|
mmcf/d
|
million cubic feet
per day
|
mmcfe
|
million cubic feet
equivalent
|
mmcfe/d
|
million cubic feet
equivalent per day
|
SOURCE Advantage Oil & Gas Ltd.