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Advantage announces second quarter 2020 financial and operating results


CALGARY, AB – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce its second quarter 2020 financial and operating results. The Corporation’s key priorities during the COVID-19 pandemic continue to be the health and safety of all our personnel. We also wish to thank all front-line workers who deliver our essential services, including energy.

Highlights for the quarter include:

  • Cash provided by operating activities was $24.4 million
  • Adjusted funds flow(a) of $17.3 million, or $0.09 per share, exceeded net capital expenditures(a) of $10.7 million and generated $6.6 million of excess cash
  • Total production of 45,271 boe/d (up 5% from second quarter 2019)
  • Liquids production achieved a record of 4,646 bbls/d, up 80% from the second quarter 2019 and up 25% from the first quarter of 2020
  • Gas production of 244 mmcf/d (up 1% from second quarter 2019), demonstrating the low decline rates of our natural gas assets, with only one Glacier well brought on-production this year

Advantage quickly responded to unprecedented market volatility during the second quarter of 2020 by deferring spending on planned liquids projects, restricting initial production from new oil wells and reducing our 2020 capital budget with focus on short cycle payout gas weighted projects. In addition, Advantage closed the previously announced sale of 12.5% of its Glacier Gas Plant for $100 million on July 2, 2020, reducing net debt(a) to approximately $257 million from $365 million as at March 31, 2020. Advantage anticipates generating cash in excess of capital spending for the remainder of 2020 and through 2021, reducing net debt to adjusted funds flow(a) to less than 2 times.

During the second quarter, Advantage achieved several key milestones which contributed to record liquids production. This included commissioning of our 5,000 bbl/d Pipestone/Wembley oil battery and bringing on additional production at both Progress and Wembley. These successes have derisked the assets further and reinforced our ability to quickly shift back to oil development once prices recover.

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.

With a focus on delivering cash that exceeds capital spending and modest growth, Advantage is well positioned to capitalize on high-return, short payout projects throughout our natural gas, condensate and light oil assets and continue reducing net debt.

Operational Update

Advantage invested $10.7 million during the three months ended June 30, 2020. Development spending was primarily on the final steps of equipping and tying-in wells that were completed during the prior quarter with no wells drilled in the first half of 2020.

Pipestone/Wembley
Construction and commissioning of the 36 mmcf/d / 5,000 bbl/d Wembley battery was completed in the second quarter of 2020, resulting in increased well production and reliability at a third-party gas plant. Advantage now has 8 (8.0 net) Montney wells and one water disposal well operating, with results continuing to meet expectations. Production at Pipestone/Wembley averaged 2,498 boe/d (1,284 bbls/d oil, 660 bbls/d NGLs and 3.3 mmcf/d natural gas) during the second quarter of 2020, despite proactively restricting production during times of low oil prices.

Progress
During the first six months of 2020, Advantage completed two wells and tied-in five wells, successfully proving up three layers of development on the Progress land block. Consisting of 50 net sections (100% working interest), the asset is now connected to our Glacier Gas Plant and Valhalla liquid hub. Progress has advanced to full commerciality adding another, high-quality, cash-generating asset with attractive economics on Advantage’s land blocks.

During the second quarter of 2020, two additional oil wells were brought on-stream, at restricted rates, further delineating the asset and establishing commercial production from three zones to-date. Preparations continued for the Progress 25 mmcf/d / 5,000 bbl/d oil battery; however, in response to the recent decline in oil prices, construction of the facility has been delayed until oil prices support growth beyond the current capacity of approximately 2,000 bbls/d. Production at Progress averaged 2,209 boe/d (711 bbls/d oil, 158 bbls/d NGLs and 8.0 mmcf/d natural gas) with the wells performing at or above internal expectations, although restricted by up to 900 boe/d as third-party facility infrastructure is at capacity.

Valhalla
The 40 mmcf/d Valhalla facility is now handling production from both Valhalla and initial production from the Progress property. The facility remains fully utilized as a result of the continued outperformance of the assets and is anticipated to be full for the balance of 2020.

Glacier
One previously drilled Upper Montney well has been completed and placed on-production in 2020. With increasing gas prices, Glacier is expected to be the focus of our activity for the remainder of the year. Advantage recently spud a three-well pad, targeted to come on-stream in early fourth quarter; a total of six wells are planned for the second half of 2020 when North American natural gas prices are showing signs of improvement.

Hedging Update

Advantage has hedged approximately 51% of its natural gas production for the second half of 2020. The Corporation continues to increase its hedging position in 2021 and currently has 31% of forecast natural gas production hedged between Henry Hub, Chicago and Dawn at an average price of US$2.51/mmbtu. Advantage has hedged 33% of its crude oil and condensate production for the second half of 2020 with WTI swaps at an average price of US$55.44/bbl.

Second Quarter 2020 Financial and Operating Summary

  • First half 2020 production was 45,864 boe/d (4% higher than 2019). Second quarter 2020 production was 45,271 boe/d (5% higher than 2019).
  • Cash provided by operating activities was $45.2 million for the first half of 2020 and $24.4 million for the second quarter of 2020.
  • Adjusted funds flow(a) was $49.4 million or $0.26 per share for the first half of 2020 and $17.3 million or $0.09 per share for the second quarter of 2020.
  • Net loss was $20.1 million during the second quarter of 2020 due to lower adjusted funds flow(a) and $14.1 million unrealized losses on derivatives.
  • Bank indebtedness was $354.2 million and net debt(a) was $357.5 million. Subsequent to closing the sale of 12.5% of our Glacier Gas Plant on July 2, 2020, the Corporation used the proceeds of $100 million to reduce bank indebtedness, resulting in a net debt to adjusted funds flow(a) ratio of 2.1x.
  • Maintained low costs including royalty costs of $0.58/boe, operating costs of $2.35/boe, transportation costs of $3.42/boe and general & administrative costs of $0.57/boe over the first half of 2020.

Appointment of New Director

Advantage is also pleased to announce the appointment of Mr. Don Clague to the Board of Directors, which is now comprised of six independent directors. Mr. Clague has had an extensive 35 year working career in oil and gas, including diverse experience in North American domestic and frontier areas, as well as internationally in North AfricaNorway and the United Kingdom. He is a Life Member (P. Geoph) of the Association of Professional Engineers and Geoscientists of Alberta and has served on executive policy groups with the Canadian Association of Petroleum Producers (CAPP) and the Colorado Oil and Gas Association (COGA).

Financial Highlights

Three months ended
June 30

Six months ended
June 30

($000, except as otherwise indicated)

2020

2019

2020

2019

Financial Statement Highlights

Sales including realized derivatives (3)

$

48,593

$

60,017

$

114,365

$

141,389

Net income (loss) and comprehensive income (loss)

$

(20,088)

$

3,372

$

(286,607)

$

4,053

per basic share (2)

$

(0.11)

$

0.02

$

(1.53)

$

0.02

Basic weighted average shares (000)

187,901

186,858

187,406

186,402

Cash provided by operating activities

$

24,357

$

44,292

$

45,183

$

88,775

Cash provided by (used in) financing activities

$

23,492

$

(20,309)

$

58,452

$

(808)

Cash used in investing activities

$

44,855

$

27,303

$

110,076

$

87,017

Other Financial Highlights

Adjusted funds flow (1)

$

17,259

$

32,777

$

49,352

$

82,800

per boe (1)

$

4.19

$

8.38

$

5.91

$

10.41

per basic share (1)(2)

$

0.09

$

0.18

$

0.26

$

0.44

Net capital expenditures (1)

$

10,663

$

19,578

$

104,293

$

77,000

Working capital deficit (surplus) (1)

$

3,295

$

(1,891)

$

3,295

$

(1,891)

Bank indebtedness

$

354,199

$

270,495

$

354,199

$

270,495

Net debt (1)(4)

$

357,494

$

268,604

$

357,494

$

268,604

(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.

(4)

On July 2, 2020, Advantage closed the sale of a 12.5% interest in the Corporation’s 100% owned 400 mmcf/d Glacier Gas Plant for $100 million. Advantage utilized the cash proceeds from the sale to reduce net debt to $257 million.

Operating Highlights

Three months ended
June 30

Six months ended
June 30

2020

2019

2020

2019

Operating

Daily Production

Crude oil and condensate (bbls/d)

2,645

1,184

2,398

968

NGLs (bbls/d)

2,001

1,396

1,782

1,338

Total liquids production (bbls/d)

4,646

2,580

4,180

2,306

Natural gas (mcf/d)

243,749

242,409

250,106

249,773

Total production (boe/d)

45,271

42,982

45,864

43,935

Average realized prices (including realized derivatives)

Natural gas ($/mcf) (2)

$

1.72

$

2.17

$

1.92

$

2.65

Crude oil and condensate ($/bbl)

$

32.44

$

70.33

$

45.09

$

66.98

NGLs ($/bbl)

$

14.44

$

35.99

$

22.57

$

40.90

Operating Netback ($/boe)

Petroleum and natural gas sales from production

$

11.56

$

13.14

$

13.40

$

16.07

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

(0.18)

Realized gains on derivatives

0.23

2.20

0.30

1.71

Royalty (expense) recovery

(0.26)

0.02

(0.58)

(0.28)

Operating expense

(2.43)

(1.89)

(2.35)

(1.95)

Transportation expense

(3.34)

(3.56)

(3.42)

(3.48)

Operating netback (1)

$

5.76

$

9.91

$

7.35

$

11.89

(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 consolidated financial statements for the three and six months ended June 30, 2020 together with the notes thereto, and Management’s Discussion and Analysis for the three and six months ended June 30, 2020 have been filed on SEDAR and are available on the Corporation’s website at http://www.advantageog.com/wp-content/uploads/2020/05/Q1-2020-Quarterly-Report.pdf. Upon request, Advantage will provide a hard copy of any financial reports free of charge.



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