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Advantage Announces First Quarter 2019 Operating & Financial Results


2019 Liquids Production Growth On-Track with Lower Capital
(TSX: AAV)

CALGARYMay 2, 2019 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce continued advancement of our liquids development plan as demonstrated by our first quarter 2019 results. Advantage’s achievements include:

  • 13% increase in production to 44,900 boe/d, including an 84% increase in liquids production to 2,030 bbls/d during the quarter, on plan to exceed 2,300 bbls/d in the second quarter
  • Generated adjusted funds flow (a) of $50 million ($0.27/share) and net capital expenditures(a) of $57 million
  • Achieved a $5.8 million gain through gas marketing and hedging initiatives resulting in an average realized natural gas price of Cdn $3.11/mcf
  • Increased hedging to 47% of estimated 2019 total gas sales at an average Cdn price of $2.50/mcf with only 20% of gas production exposed to AECO pricing between April and October 2019
  • Maintained low corporate costs including royalty costs of $0.57/boe, operating costs of $2.02/boe, transportation costs of $3.40/boe and G&A costs of $0.61/boe
  • Renewal of our $400 million credit facility with over $100 million undrawn
  • Retained strong financial flexibility with a total debt to adjusted funds flow (a) of 1.9x
  • At Glacier, a new 10 well liquids-rich Middle Montney pad is exceeding expectations
  • Successfully commissioned our new Valhalla liquids handling facility, in preparation for 7 standing Middle Montney wells to be brought on-production through the remainder of 2019

Advantage’s 2019 capital development program has been reduced by $10 million with no impact to the Corporation’s annual production guidance. Annual 2019 capital expenditures are anticipated to range from $180 to $200 million with annual liquids production increasing 100% year-on-year to average between 2,900 to 3,200 bbls/d, and total production between 43,500 and 46,500 boe/d. The 2019 program is expected to reduce year-end total debt to adjusted funds flow (a) to approximately 1.7x based on current strip prices. The $10 million reduction was accomplished primarily by deferring lean gas well drilling.

Advantage’s 2019 to 2021 liquids development plan increases liquids production to over 11,000 bbls/d in 2021.  The plan results in more than 50% of revenue from high value liquids while targeting a total debt to adjusted funds flow below 2.0 times based on current strip prices. Advantage’s extensive infrastructure ownership and minimal external commitments provides the Corporation with the flexibility to allocate capital between our four project areas over the plan period as we refine and optimize our plan to enhance investment returns.  This will be accomplished through allocating capital to the highest return projects and managing the pace of development which may vary the total plan capital required.

Operations Update

During the first quarter, Advantage drilled 5 gross wells (4.7 net) at Valhalla, completed 2 gross wells (2 net) at Valhalla, completed 10 gross wells (10 net) at east Glacier, and commissioned the new Valhalla liquids hub.  Production was significantly reduced in February 2019 for 10 days due to 76% firm service restrictions on TransCanada Pipelines Ltd’s NGTL system; conversely Advantage increased production in March to capture higher prices during a prolonged period of cold weather.

Glacier

During the first quarter of 2019, Advantage completed and tested a 10 well Middle Montney pad located in east Glacier. These Middle Montney wells demonstrated an average liquids yield of 73 bbls/mmcf.  Gas production rates from these wells exceeded the Corporation’s average well type curves by 20%. Two of the 10 wells are currently on-production with the remaining eight to be tied-in following spring breakup.

Valhalla

During the first quarter of 2019, 5 gross (4.7 net) wells were drilled across three different liquids-rich Montneyhorizons with completions and tie-ins planned for the third quarter 2019. Two additional wells (drilled in late 2018) were completed in the Middle Montney; flow back and tie-ins will occur following spring breakup.

Advantage commissioned a 100% owned Valhalla compression and liquids facility during the first quarter.  This facility is designed to accommodate 40 mmcf/d of raw gas and 2,000 bbls/d of free liquids and is expandable to accommodate future liquids-rich production growth at Valhalla.

Pipestone/Wembley

At Wembley, Advantage continues to progress engineering, procurement and regulatory work on a liquids hub (capacity of 36 mmcf/d of raw gas and 5,000 bbls/d of oil), along with the associated gathering and sales pipelines. Long lead-time items have been ordered and regulatory approval has been obtained for the portion of gathering and sales pipelines necessary to deliver the first tranche of production from Wembley to a third party processor in the area. Production is expected to commence during the third quarter of 2019.

Progress

At Progress, Advantage is preparing to construct a pipeline to tie-in two previously drilled wells to our Glacier gas plant through the Valhalla liquids hub. This new pipeline, expected to be complete by the fourth quarter of 2019, further expands Advantage’s infrastructure network, and will serve as a trunk line as Advantage continues to delineate the Progress Montney oil asset.

Looking Forward

The Corporation’s 2019 net capital expenditures(a) guidance range is $180 to $200 million. Our 2019 production guidance range of between 43,500 and 46,500 boe/d (261 and 279 mmcfe/d) remains unchanged.  Liquids production is expected to average between 2,900 and 3,200 bbls/d.  Advantage believes that AECO gas prices may remain volatile through the summer due in part to the receipt and delivery balancing procedure on the NGTL pipeline system.  In the event of periods of very low prices, Advantage has the flexibility to appropriately manage production on unhedged AECO sales, with minimal impact on adjusted funds flow due to Advantage’s existing market diversification positions.

Advantage is planning to invest approximately $15 million in the second quarter of 2019.  Liquids production is forecast to continue increasing through the remainder of 2019 as we tie-in new wells at east Glacier and Valhalla.  Additionally, production from our Pipestone/Wembley asset is targeted to be brought on-stream during the third quarter when third party processing capacity is available.

First Quarter 2019 Operating and Financial Summary

Financial Highlights

Three months ended

March 31

($000, except as otherwise indicated)

2019

2018

Financial Statement Highlights

Sales including realized hedging (3)

$

81,372

$

73,378

Net income and comprehensive income

$

681

$

10,103

     per basic share (2)

$

0.00

$

0.05

Cash provided by operating activities

$

44,483

$

58,654

Cash provided by financing activities

$

19,501

$

28,341

Cash used in investing activities

$

59,714

$

85,225

Basic weighted average shares (000)

185,942

185,963

Other Financial Highlights

Adjusted funds flow (1)

$

50,023

$

48,882

     per boe

$

12.38

$

13.63

     per basic share (2)

$

0.27

$

0.26

Net capital expenditures (1)

$

57,422

$

77,073

Working capital (surplus) deficit (1)

$

(9,325)

$

13,779

Bank indebtedness

$

290,612

$

237,319

Total debt (1)

$

281,287

$

251,098

(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

2019

2018

Operating

Daily Production

     Natural gas (mcf/d)

257,219

232,456

     Liquids (bbls/d)

2,030

1,105

     Total production (mcfe/d)

269,401

239,086

     Total production (boe/d)

44,900

39,848

Average prices (including realized hedging)

     Natural gas ($/mcf) (2)

$

3.11

$

3.19

     Liquids ($/bbl)

$

51.93

$

66.11

Operating Netback ($/boe)

     Sales of natural gas and liquids from production

$

18.90

$

16.19

     Net sales of natural gas purchased from third parties (1)

(0.35)

     Realized gains on derivatives

1.23

4.27

     Royalty expense

(0.57)

(0.34)

     Operating expense

(2.02)

(1.94)

     Transportation expense

(3.40)

(3.44)

Operating netback (1)

$

13.79

$

14.74

(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 interim condensed consolidated financial statements for the three months ended March 31, 2019 together with the notes thereto, and Management’s Discussion and Analysis for the three months ended March 31, 2019 have been filed on SEDAR and are available on the Corporation’s website at http://www.advantageog.com/investors/financial-reports/financial-reports-2019.



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