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Advantage Announces Record Production, Strong Reserves Growth with 212% PDP Reserves Replacement and 2.2 PDP Recycle Ratio


2019 Year-End Reserves & Operating Results
(TSX: AAV)

CALGARYFeb. 5, 2020 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce its 2019 year-end reserve evaluation by Sproule Associates Limited (“Sproule”), and a summary of 2019 operating results.

Advantage Oil & Gas Ltd. (CNW Group/Advantage Oil & Gas Ltd.)

During 2019, Advantage achieved several important milestones in our liquids-focused transition, as demonstrated by our reserves additions and operating results.  These achievements have positioned Advantage for a step change in oil and condensate production in 2020, enhancing our portfolio of investment opportunities while preserving our low-cost prolific gas foundation.

Accomplishments in 2019 include an important light oil pool discovery at Progress (see Advantage press release dated September 3, 2019), first oil production at Pipestone/Wembley, and further development of the condensate-rich middle Montney at Glacier and Valhalla.  These accomplishments increased reserves in all four assets, with the following highlights:

  • Proved developed producing (“PDP”) reserves increased by 21%
  • PDP finding and development cost (“F&D”) of $5.38/boe
  • PDP recycle ratio of 2.2
  • Proved plus probable (“2P”) condensate/light oil reserves increased by 45%
  • Total 2P liquids reserves increased by 15%

During the fourth quarter of 2019, Advantage achieved record production of 47,370 boe/d, up 5,290 boe/d or 13% above the third quarter of 2019 by increasing natural gas production to capture increased AECO prices.  Annual production was 44,334 boe/d, up 6% over 2018.   Liquids production in the fourth quarter of 2019 was 3,031 bbls/d, with annual liquids production reaching 2,700 bbls/d, an increase of 81% over 2018.

Advantage achieved adjusted funds flow(a) for 2019 of  $155 million or $0.83/share(a).  Year-end total debt-to-adjusted funds flow ratio(a) was 2.0 with bank debt of $296 million drawn on the Corporation’s $400 million credit facility.

Low Cost Reserves Additions Continued in 2019 as Liquids Program Progresses

2019 Reserves Highlights

PDP

1P (1)

2P

2019 Reserves (million boe)

106.0

352.8

465.7

2019 F&D Cost ($/per boe, including FDC(2))

$5.38

$4.26

$5.94

2019 Recycle ratio

2.2

2.8

2.0

2019 Reserves Increase Over 2018

20.7%

8.5%

7.8%

(1)

Proved reserves (“1P”).                                                                          

(2)

Future development capital (“FDC”).

a)

Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.

Key accomplishments included:

  • Replaced 307% of annual production (2P)
  • Increased liquids reserves by 11% to 6.6 million bbls (PDP) and 15% to 44.7 million bbls (2P)
  • Annual corporate decline rate of 26%

2019 Operating & Financial Information

(References to 2019 operational and financial results are estimates only and have not been reviewed or audited by our independent auditor. Advantage is expected to release its fourth quarter and year-end results after markets close on or about February 27, 2020)

Q4 2019E

2019E

Production (boe/d)

47,370

44,334

Natural gas (mcf/d)

266,035

249,802

Natural gas liquids (bbls/d)

3,031

2,700

Operating netback ($/boe) (a)

$11.79

$11.15

Cash provided by operating activities ($ millions)

$40

$156

Adjusted Funds Flow ($ millions) (a)

$45

$155

Cash used in investing activities ($ millions)

$50

$174

Net Capital Expenditures ($ millions) (a)

$60

$185

Total Debt ($ millions)(a)

$304

$304

Total Debt to Adjusted Funds Flow(a)

2.0

  • Achieved low annual 2019 royalty costs of $0.29/boe, operating costs of $1.98/boe, transportation expenses of $3.50/boe, general and administrative costs of $0.73/boe and finance costs of $0.84/boe
  • Annual 2019 cash provided by operating activities of $156 million and adjusted funds flow(a) of $155 million was supported by market diversification gains and realized gains on derivatives
  • Cash used in investing activities was $174 million and 2019 net capital expenditures(a) was $185 million
  • Capital efficiency(a) was $13,100/boe/d, including $57 million for major facilities projects, and $9,000/boe/d excluding major facilities expenditures

a)

Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.

RESERVES SUMMARY TABLES

Company Gross (before royalties) Working Interest Reserves
Summary as at December 31, 2019

Light & Medium
Crude Oil

(mbbl)

Conventional
Natural Gas

(mmcf)

Natural

Gas Liquids

(mbbl)

Total Oil
Equivalent

(mboe)

Proved

Developed Producing

232

595,907

6,414

105,963

Developed Non-producing

2,215

35,912

1,506

9,706

Undeveloped

4,233

1,302,300

15,873

237,156

Total Proved

6,679

1,934,120

23,792

352,824

Probable

5,973

591,922

8,254

112,880

Total Proved + Probable

12,652

2,526,042

32,046

465,705

(1)

Table may not add due to rounding.                                       

Company Net Present Value of Future Net Revenue using Sproule price forecasts (1)(2)(3)($000)

Before Income Taxes Discounted at

0%

10%

15%

Proved

Developed Producing

1,725,541

909,505

741,899

Developed Non-producing

213,394

125,305

105,203

Undeveloped

2,194,028

473,956

201,754

Total Proved

4,132,963

1,508,766

1,048,856

Probable

2,289,288

696,966

477,451

Total Proved + Probable

6,422,251

2,205,731

1,526,307

(1)

Advantage’s light and medium oil, conventional natural gas and natural gas liquid reserves were evaluated using Sproule’s product price forecast effective December 31, 2019 prior to the provision for income taxes, interests, debt services charges and general and administrative expenses. It should not be assumed that the discounted future net revenue estimated by Sproule represents the fair market value of the reserves.

(2)

Assumes that development of reserves will occur, without regard to the likely availability to the Corporation of funding required for that development.

(3)

Future Net Revenue incorporates Managements’ estimates of required abandonment and reclamation costs, including expected timing such costs will be incurred, associated with all wells, facilities and infrastructure.

(4)

Table may not add due to rounding.

a)

Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.

Sproule Price Forecasts

The net present value of future net revenue at December 31, 2019 was based upon oil, natural gas and natural gas liquids pricing assumptions prepared by Sproule effective December 31, 2019. These forecasts are adjusted for reserves quality, transportation charges and the provision of any applicable sales contracts. The price assumptions used over the next seven years are summarized in the table below:

Year

Canadian
Light
Sweet
Crude 40o
API
($Cdn/bbl)

Alberta
AECO-C

Natural Gas

($Cdn/mmbtu)

Henry Hub

Natural Gas

($US/mmbtu)

Edmonton

Propane

($Cdn/bbl)

Edmonton

Butane

($Cdn/bbl)

Edmonton

Pentanes
Plus

($Cdn/bbl)

Exchange

Rate

($US/$Cdn)

2020

73.84

2.04

2.80

25.07

37.72

76.32

0.76

2021

78.51

2.27

3.00

31.84

43.90

80.52

0.77

2022

78.73

2.81

3.25

32.43

47.74

80.00

0.80

2023

80.30

2.89

3.32

33.26

48.69

81.68

0.80

2024

81.91

2.98

3.38

34.12

49.67

83.38

0.80

2025

83.54

3.06

3.45

34.99

50.66

85.13

0.80

2026

85.21

3.15

3.52

35.88

51.67

86.90

0.80

Company Gross (before royalties) Working Interest Reserves Reconciliation (1):

Proved

Light &
Medium
Crude Oil

(mbbl)

Conventional
Natural Gas

(mmcf)

Natural Gas

Liquids

(mbbl)

Total Oil

Equivalent

(mboe)

Opening balance Dec. 31, 2018

3,011

1,777,022

25,884

325,065

Extensions and improved recovery

3,473

28,996

3,181

11,487

Technical revisions(1)

215

219,310

(4,293)

32,474

Discoveries

Acquisitions

12

40

42

Dispositions

Economic factors

(5)

(42)

(49)

(61)

Production

(15)

(91,178)

(970)

(16,182)

Closing balance at Dec. 31, 2019

6,679

1,934,120

23,792

352,824

a)

Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.

Proved Plus Probable

Light &
Medium
Crude Oil

(mbbl)

Conventional
Natural Gas

(mmcf)

Natural Gas

Liquids

(mbbl)

Total Oil

Equivalent

(mboe)

Opening balance Dec. 31, 2018

4,404

2,360,157

34,423

432,186

Extensions and improved recovery

9,390

73,771

6,019

27,704

Technical revisions(1)

(1,122)

183,318

(7,454)

21,977

Discoveries

Acquisitions

18

59

62

Dispositions

Economic factors

(5)

(44)

(31)

(43)

Production

(15)

(91,178)

(970)

(16,182)

Closing balance at Dec. 31, 2019

12,652

2,526,042

32,046

465,705

(1)

Technical revisions accounted for 74% of the total proved additions and 44% of the total proved plus probable additions. Percentage of each category calculated by dividing the technical revisions in the category by the total reserve additions in the same category before production.

(2)

Tables may not add due to rounding.  

Company 2019 F&D Costs – Gross (before royalties) Working Interest Reserves including FDC (1)(2)(3)

Proved

Proved + Probable

Net capital expenditures ($000)(a)

184,922

184,922

Net change in FDC ($000)

2,402

110,096

Total capital ($000)

187,324

295,018

Total mboe, end of year

352,824

465,705

Total mboe, beginning of year

325,065

432,186

Production, mboe

(16,182)

(16,182)

Reserve additions, mboe

43,941

49,701

2019 F&D costs ($/boe)

$4.26

$5.94

2018 F&D costs ($/boe)

$8.33

$8.04

Three-year average F&D costs ($/boe)

$5.97

$6.03

(1)

F&D costs are calculated by dividing total capital by reserve additions during the applicable period. Total capital includes both capital expenditures incurred and changes in FDC required to bring the proved undeveloped and probable undeveloped reserves to production during the applicable period. Reserves additions are calculated as the change in reserves from the beginning to the ending of the applicable period excluding production.

(2)

The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC generally will not reflect total finding and development costs related to reserves additions for that year. Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect Sproule’s best estimate of what it will cost to bring the proved undeveloped and probable undeveloped reserves on production.

(3)

The change in FDC is primarily from incremental undeveloped locations.

a)

Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.

The reserves by category and year-over-year changes compared to 2018 are indicated below:

Reserve
Category

Light &
Medium
Crude Oil
Million bbls

Conventional
Natural Gas
Tcf

Natural Gas
Liquids
Million bbls

Total Oil
Equivalent
Million boe

%
Change from
2018

PDP

0.23

0.60

6.41

106.0

20.7%

1P

6.68

1.93

23.79

352.8

8.5%

2P

12.65

2.53

32.05

465.7

7.8%

The total number of 2P future well locations booked in the Sproule 2019 Reserves Report are illustrated in the following table:

Sproule Number of Gross Horizontal Wells Booked

Developed

Undeveloped

Total

Upper

120

121

241

Middle

71

139

210

Lower

55

87

142

Total

246

347

593

Advantage’s 1P reserves life index is 20 years and its 2P reserves life index is 27 years based on the Corporation’s average fourth quarter 2019 production rate of approximately 47,370 boe/d.

Additional comments pertaining to each of the reserves categories:

  • PDP reserves increased 21% due to the recognition of 24 new wells that were brought on production through 2019 and upward technical revisions
  • 1P reserves increased 8.5%
  • 2P reserves increased 7.8% through the addition of 35 new wells and locations. A total of 347 undeveloped locations are booked in the Sproule 2019 Reserves Report


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