Increased Liquids Production and Market Diversification Gains Deliver Solid Adjusted Funds Flow
CALGARY, July 8, 2019 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to provide an operational update which includes solid second quarter 2019 results driven by higher than planned liquids production and strong market diversification gains.
Liquids production during the quarter increased 142% year over year to 2,580 bbls/d, primarily from bringing on two net condensate-rich middle-Montney wells at east Glacier. These wells averaged 84 bbls/mmcf during initial production. June liquids production exceeded 2,700 bbls/d.
Marketing gains were $16 million in the second quarter of 2019, including $7 million from long-term market diversification gains (outside of AECO) and $9 million from hedging gains. In June, Advantage further strengthened its market diversification portfolio by adding a total of 76 mmcf/d of firm NGTL capacity to Empress, which begins in November 2020 and increases in 2021. With this additional service, Advantage’s exposure to AECO is expected to be negligible by 2021 based on our current production outlook.
(References to second quarter 2019 operational and financial results are estimates only and have not been reviewed or audited by our independent auditor. Advantage expects to release its second quarter results after markets close on or about August 1, 2019.)
Total production for the quarter was 43,000 boe/d, despite proactively shutting-in an average of 5,000 boe/d of dry gas during periods of extremely low AECO pricing, as previously communicated (see Advantage Q1 press release dated May 2, 2019). On average, 30 mmcf/d of AECO-exposed dry gas was taken off-line over the quarter. As a result, gas sold at AECO accounted for only 15% of total production in the second quarter.
Capital spending was $20 million in the second quarter, focused on early Wembley facilities construction, and facilities work remaining from our first quarter program including the full commissioning of the Valhalla liquids hub (2,000 bbls/d wellhead liquids capacity).
During the second quarter, liquids production increased primarily due to two new condensate-rich east Glacier wells, as well as two new condensate-rich Valhalla wells that were brought on production at restricted rates. At the end of the quarter, there were 5 condensate-rich wells drilled but awaiting completion at Valhalla, and 8 drilled and completed wells (6 of which are condensate-rich) awaiting tie-in at Glacier. All these wells are expected to be brought on production through the third quarter.
In September 2019, Advantage’s previously announced 12-25 Pipestone/Wembley well (see Advantage Q1 press release dated March 5, 2018) is expected to be brought on production in conjunction with the planned start-up of the new Tidewater Pipestone Gas Plant.
No further drilling activity is required to achieve Advantage’s 2019 liquids growth plan; wells drilled in the second half of 2019 will contribute to 2020 production.
Secured Additional Natural Gas Transportation to Empress
Advantage has secured an additional 76 mmcf/d of firm transportation capacity to Empress, AB on the NGTL system. Contract terms are between 4 and 25 years, commencing with 52 mmcf/d November 2020 increasing to 76 mmcf/d in 2021. Although AECO prices have been extremely volatile since TC Energy changed the NGTL pipeline system balancing procedure in July 2017, Empress has remained a strong pricing point with available downstream capacity to continental markets. This new service, combined with an existing, diverse marketing portfolio, is designed to result in effectively all of Advantage’s forecast gas production being sold into markets outside of AECO by 2021.
Advantage will continue diversifying revenue streams, including increased liquids production. However, as TC Energy proceeds with the announced 3.2 Bcf/d NGTL expansion, Advantage anticipates AECO volatility may be reduced. Advantage will remain well positioned to capitalize on a recovery, with a prolific, low supply cost natural gas resource base and significant available plant capacity that would allow us to rapidly increase exposure to AECO if warranted.
For the third quarter of 2019, Advantage has fixed price hedges on 52% of its estimated natural gas production at an average price of $2.12/mcf, with only 19% of gas production remaining exposed to AECO, and the balance being sold into Dawn and midwest markets.
Second Quarter 2019 Highlights:
- 142% increase in average liquids production year over year to 2,580 bbls/d, with an exit rate exceeding 2,700 bbls/d. Liquids contributed 20% of total revenue including hedging gains
- Total production of 43,000 boe/d, despite proactively shutting-in an average of 5,000 boe/d of dry gas during periods of extremely low AECO pricing
- $16 million gain from our market diversification portfolio which includes fixed price hedges, increased midwest U.S. sales from 20 mmcf/d to 40 mmcf/d, and Dawn sales of 53 mmcf/d. This resulted in an average realized natural gas price of $2.17/mcf compared to the average daily AECO price of $1.03/mcf
- Generated adjusted funds flow (a) of $33 million ($0.18/share)
- Reduced total debt to adjusted funds flow (a) to 1.7x from 1.9x during the quarter