Advantage Announces First Quarter 2018 Operating & Financial Results

Solid Cash Flow, Strong Well Results and Glacier Gas Plant Expansion Advances Liquids Development Strategy

(TSX: AAV, NYSE: AAV)

CALGARY, May 3, 2018 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report strong cash flow of $48.9 million ($0.26/share) and net income of $10.1 million ($0.05/share) during the first quarter of 2018. Cash flow was supported by the Corporation’s proactive marketing strategy which included $18.1 million from hedging gains and enhanced netbacks from natural gas sales at Dawn, Ontario.  In addition, liquids revenue increased 18% to $6.6 million and the Corporation achieved low total corporate cash costs of $1.13/mcfe ($6.78/boe) contributing to solid cash flow results. On April 30, 2018, the Corporation renewed its annual credit facility of $400 million with improved borrowing terms and maintained a strong balance sheet with a total debt to trailing 12 month cash flow ratio of 1.4.

First quarter results also included completion of six liquids rich wells on a new west Glacier well pad which demonstrated an 86% improvement in productivity over all previous Middle Montney Glacier wells.  These six wells had a combined initial production flowrate of 64 mmcf/d and 1,914 bbls/d of C3+ liquids at the end of the first 48 hours.  Two additional Lower Montney wells, located on the same well pad, had a combined production rate of 25.8 mmcf/d at the end of 37 hours of flow, which ranks in the top quartile of all Glacier wells.  The Middle Montney wells will be brought on-production during the second half of 2018 after the Glacier plant expansion project is completed.  In addition, liquids production from a four well pad at Valhalla, will be increased after completion of the Glacier plant expansion and flow unrestricted once the new Valhallacompressor and liquids handling facility is completed in the fourth quarter of 2018. This four well pad was completed prior to year-end 2017 and demonstrated an initial combined liquids productivity of 1,075 bbls/d.

Construction activity associated with the expansion of our 100% owned Glacier gas plant neared completion during the end of the first quarter when planned shut-downs commenced to tie-in new equipment.  Average production during the quarter was 239 mmcfe/d (39,848 boe/d) and included two days of outage during the last week of March.  As previously noted in Advantage’s press release of April 19, 2018, this planned outage extended longer than scheduled in April due to a process upset which has been fully resolved.  The Glacier plant expansion increases gas processing capacity from 250 to 400 mmcf/d and increases shallow cut propane plus (“C3+”) liquids extraction capacity to 6,800 bbls/d providing room to accommodate future liquids production growth from east Glacier, Valhalla and Wembley.  The Corporation’s first quarter capital expenditures were $77.6 million, including $42 million invested in facilities infrastructure to support longer term liquids and natural gas development.

As previously announced, Advantage will lower natural gas production in 2018 in response to low price periods and to preserve dry gas productivity for higher price periods.  Dry gas well completions in the second half of 2018 will be deferred to increase liquids rich drilling at east Glacier and Valhalla.  The Corporation’s first quarter liquids production of 1,105 bbls/d represents 3% of total production and generated 11% of total revenues.  In 2019, Advantage targets to increase liquids production to 8% or more of total production and 13% or more of total production in 2020 which is anticipated to significantly enhance our netbacks and cash flows.  Liquids production growth in 2018 and 2019 will primarily come from east Glacier and Valhalla, with significant growth from Wembley expected by mid-2020 when additional processing and pipeline capacity is expected to be completed.

As a result of increased liquids production, an active hedging program and secured egress to downstream markets in eastern Canada and the U.S. Midwest, Advantage has diversified its revenue portfolio reducing AECO gas exposure to approximately 27% of total revenues through 2019.  Furthermore, Advantage continues to evaluate new commercial opportunities capable of providing incremental sources of long term natural gas demand and continued revenue diversification.

Operations Update

Glacier

Advantage completed an eight well pad located in the western portion of Glacier during the quarter.  These wells were drilled in the second half of 2017 and consist of six wells in the Middle Montney and two wells in the Lower Montney.

The six Middle Montney wells further delineated all three layers within the Middle Montney and demonstrated a total combined production rate of 64 mmcf/d with an average rate of 10.6 mmcf/d per well at an average flowing pressure of 15,444 kPa at the end of 48 hours of flow. This represents an increase in the average per well test rate and average flowing pressure of 86% and 126%, respectively, compared to all of our previously drilled Glacier Middle Montney wells.  Based on measured gas compositions from the six wells with a combined gas rate of 64 mmcf/d, the recoverable C3+ liquid rates is estimated to be 1,914 bbls/d at an average liquids yield of 30 bbls/mmcf, consistent with the previous results in this area of Glacier. Average frac count was increased to 34 stages per well which represents a 76% increase over our previous Middle Montney wells.

The two Lower Montney wells were flowed at an average rate of 12.9 mmcf/d per well at an average flowing pressure of 11,678 kPa at the end of 37 hours of flow. These results are consistent with the exceptional Lower Montney results that have been achieved in the western portion of Glacier over the past number of drilling programs.

During the first quarter of 2018, Advantage drilled a horizontal acid gas disposal well at Glacier to provide back-up and incremental disposal capacity to our two existing vertical disposal wells. This well was successfully drilled through our targeted interval with a lateral length of 1,585 meters and will be completed during the summer of 2018.  Advantage’s two existing vertical acid gas disposal wells are capable of handling the total acid gas stream based on current H₂S compositions at Glacier and the expanded gas plant capacity of 400 mmcf/d.  The new horizontal acid gas disposal well will provide additional acid gas disposal capacity to accommodate higher H₂S gas levels as liquids development continues at Valhalla, Wembley and Progress.

Valhalla

Installation of Advantage’s first compressor and liquids handling facility at Valhalla is continuing on track. This facility is designed to handle 40 mmcf/d of raw gas and 2,000 bbls/d of liquids and is expandable to accommodate future liquids rich production growth at Valhalla. Current Valhalla production has been limited due to the size of the existing Advantage pipeline connected to the Glacier gas plant.  The Valhalla facility will help alleviate the current capacity limitation and is designed to separate wellhead liquids and transport liquids rich gas to Glacier for further processing and liquids extraction.  Engineering design has been completed with the majority of major equipment items to be sourced from surplus equipment resulting from the Glacier gas plant expansion project. Construction is planned during the second half of 2018 with the facility scheduled to be brought-on stream in the fourth quarter of 2018.

Wembley

Engineering evaluations are underway to assess facility designs and pipeline options for transporting and processing liquids rich natural gas production from our Wembley land block.  Prolific development of this liquids rich area has resulted in limited processing capacity. Options currently under consideration include transporting production back to our Glacier gas plant for processing and collaborating with third party processors and area producers to maximize efficiencies. Advantage is in the process of working through stakeholder consultations in anticipation of securing regulatory approvals targeted for 2019.  Facility and pipeline construction is expected to occur during the first half of 2020; although, Advantage will be prepared to commence this work earlier if the timeline can be shortened.

Looking Forward

Our 2018 production guidance was updated recently to incorporate our strategy to lower natural gas production in response to low AECO price periods and the extended Glacier plant outage which occurred in the second quarter (refer to Advantage’s press release dated April 19, 2018).  Production for the second quarter of 2018 is expected to be 205 to 215 mmcfe/d, including liquids production between 950 and 1,150 bbls/d with higher per unit total corporate cash costs of $1.35/mcfe to $1.45/mcfe due to lower production.  Annual 2018 production is estimated to average between 240 and 255 mcfe/d with average liquids production of approximately 1,800 bbls/d and a year-end exit rate of 2,400 bbls/d.  Annual total corporate cash costs are estimated to be $1.10/mcfe to $1.30/mcfe.  Advantage’s 2018 capital program of $175 million is expected to be approximately 60% invested during the first half of the year.

Advantage has successfully executed on its Montney development at Glacier since 2008, achieving an industry leading low-cost structure, preserving a strong balance sheet and maintaining operational and financial flexibility. This solid foundation which includes a significant liquids resource on our 200 net sections of Montney lands provides flexibility to create long term value through multiple investment options as we respond promptly and responsibly to market conditions.  We look forward to reporting on our progress through the remainder of 2018.

First Quarter 2018 Operating and Financial Summary

The Corporation’s unaudited interim condensed consolidated financial statements for the three months ended March 31, 2018 together with the notes thereto, and Management’s Discussion and Analysis for the three months ended March 31, 2018 have been filed on SEDAR and with the SEC and are available on the Corporation’s website at http://www.advantageog.com/investors/financial-reports/financial-reports-2018.