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Advantage Announces 2020 Capital Budget


Advancing Light Oil with A Solid Natural Gas Foundation

CALGARYJan. 8, 2020 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce its 2020 capital budget which targets investment between $170 and $200 million.  These investments will continue to advance the Corporation’s liquids transition plan by focusing on our Progress and Pipestone/Wembley light oil assets, complementing our solid foundation of low-cost natural gas and condensate at Glacier and Valhalla.  The 2020 capital budget is expected to culminate in a significant increase in revenue by year-end and 130% growth in liquids production over 2019.

Key objectives of our 2020 budget are to:

  • Increase liquids revenue to approximately 35% of total revenue in 2020 and approximately 50% in 2021. Liquids production is expected to achieve a year-end exit rate of approximately 9,000 bbls/d.
  • Establish key oil infrastructure by constructing oil batteries at both Pipestone/Wembley (early Q2) and Progress (early Q4). Once commissioned, all four core areas will be capable of contributing free cash flow, providing the Corporation complete flexibility to allocate capital between our high-quality portfolio of light oil, condensate and natural gas Montney assets.
  • Continue to be a unique Montney producer with a low-cost supply of natural gas, condensate and light oil through our owned and operated infrastructure with minimal midstream commitments.
  • Retain financial flexibility and discipline by continuing to target a total debt to adjusted funds flow ratio of approximately two times.

Following the Corporation’s light oil pool discovery announced September 3, 2019, Progress spending will be more prominent in 2020 than previously contemplated, with a modest reduction in spending planned for our other assets.  Development of the Progress asset will include an innovative infrastructure plan, reconfiguring portions of our existing Valhalla pipeline system and using available gas processing capacity at Advantage’s Glacier Gas Plant.  These changes are expected to result in an optimized investment plan and a higher utilization of our 100% owned infrastructure processing capacity, contributing to enhanced natural gas and liquids cost efficiencies for the longer term.

2020 Capital Budget Summary(1)

2020 Budget

Cash Used in Investing Activities (2) (millions)

$170 to $200

Average Production (boe/day)

45,000 to 47,500

Gas Production (mmcf/d)

234 to 245

Liquids Production (bbls/d)

6,000 to 6,700

Royalty Rate (%)

3% to 5%

Operating Expense ($/boe)

$2.50

Transportation Expense ($/boe)

$3.70

G&A/Finance Expense ($/boe)

$1.70

Notes:

(1)

Forward-looking 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.

  • Cash used in investing activities are expected to be allocated approximately 65% to drilling, completions and equipping, 35% to major facilities. Capital spending is expected to be highest in the first and third quarters of 2020 aligned with infrastructure construction timing.
  • In light of the low Alberta gas storage levels, improved demand outlook and operations on the NGTL system which could sustain improved AECO prices, Advantage has the flexibility to redirect capital to our prolific Glacier and Valhalla assets to increase natural gas production within a short cycle time. The Corporation also retains flexibility to reduce capital spending in the second half of 2020 in response to market conditions.
  • Advantage’s 2020 budget assumes annual natural gas prices of AECO $1.88/GJ, NYMEX US$2.42/mmbtu and oil prices of WTI US$56.58/bbl, and incorporates the Corporation’s hedging and market diversification positions.

Operational Update

In October 2019, Advantage’s first Pipestone/Wembley 12-25 well began producing intermittently at restricted rates, due to the ongoing commissioning of a midstream gas plant.  The ramp-up of this midstream gas plant was slower than expected in the fourth quarter of 2019 and Advantage anticipates production will continue to experience interruptions through the first quarter of 2020 until our 100% owned Pipestone/Wembley oil battery is completed.  Construction of this 5,000 bbl/d oil battery commenced during the fourth quarter of 2019 and is targeted for commissioning in April 2020.  This battery will help to improve operational performance related to liquids through the midstream plant and accommodate increasing production as development continues.

In December 2019, a new Pipestone/Wembley four-well pad was completed.  Average production from the first two wells began at type curve expectations; the remaining two wells are expected to begin production in the first quarter of 2020.  An additional three-well pad which was drilled in the fourth quarter 2019 will be completed and begin producing after the first quarter of 2020.

The tie-in of the Progress asset to Advantage’s existing Glacier pipeline system is expected to be completed in the first quarter of 2020 with a new 5,000 bbl/d oil battery targeted for commissioning in the fourth quarter of 2020.  As an interim measure, Advantage will access approximately 2,000 bbls/d of processing capacity at a third-party oil battery during the second and third quarters of 2020.

During the fourth quarter of 2019, Advantage increased its natural gas production as AECO prices improved following the approval and implementation of operational changes (Temporary Service Protocol) on the NGTL system.  As we expected, these changes reduced the erratic price swings and improved the AECO forward prices.

Looking Forward

Advantage’s high quality Montney land holdings consisting of 210 net sections within our four core assets at Glacier, ValhallaPipestone/Wembley and Progress provides multi-decade development for natural gas, condensate and light oil.  As we continue to execute on the Corporation’s disciplined approach to developing these assets, we anticipate growing our adjusted funds flow per share, increasing free cash generation, and strengthening our netback margins to enhance economic returns and shareholder value.  Our 2020 program will be a key step in moving all of our assets into the next phase of development maturation.



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