Increased Liquids Production and Market
Diversification Gains Deliver Solid Adjusted Funds Flow
(TSX: AAV)
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.)
Operational Update
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
Looking Forward – Guidance Reaffirmed with Capital
Flexibility
The Corporation's 2019 net capital
expenditures(a) guidance range remains between
$180 and $200
million. Our 2019 annual production guidance range
remains between 43,500 and 46,500 boe/d, including liquids
production between 2,900 and 3,200 bbls/d.
In the third quarter of 2019, Advantage is prepared to continue
restricting dry natural gas production exposed to AECO if there are
periods of extremely low prices. However, the Corporation has
adequate productive capacity to achieve 2019 gas production
targets, so long as prices justify steady production in the second
half. Liquids production is expected to continue increasing
through the second half of 2019.
Advantage retains flexibility to moderate capital spending by up
to $30 million through the second
half of 2019 with no impact expected on our 2019 liquids production
guidance. Any reductions to the capital program will be prioritized
to minimize the impact on our high-returns liquids projects and
will be intended to preserve a total debt to adjusted funds
flow(a) ratio below two times.
Advantage will remain diligent in monitoring commodity and
industry trends and respond accordingly to retain a strong balance
sheet while advancing our multi-year strategy to increase liquids
development and enhance shareholder returns.
Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of
applicable securities laws. These statements relate to future
events or our future intentions or performance. All statements
other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "seek", "anticipate",
"plan", "continue", "estimate", "demonstrate", "expect", "may",
"can", "will", "project", "predict", "potential", "target",
"intend", "could", "might", "should", "guidance", "believe",
"would" and similar expressions and include statements relating to,
among other things, Advantage's strategy, plans and priorities,
expectations generally and with respect to its liquid development;
the Corporation's hedging activities; timing and magnitude of firm
capacity increases to Empress,
Alberta; the Corporation's expected exposure to AECO by
2021; the terms of the Corporation's derivative contracts; the
anticipated timing of when wells in Glacier, Valhalla, and Pipestone/Wembley will be brought on production and the
start-up of the new Tidewater Pipestone Gas Plant; expectation that
no further drilling is required to achieve Advantage's 2019 liquids
production growth plan; intention that all of Advantage's forecast
gas production is sold into markets outside of AECO by 2021;
expectation that AECO volatility may be reduced and the expectation
that Advantage will remain well positioned to capitalize on this
recovery and increase exposure to AECO; Advantage's anticipated
amount of investment in the second half of 2019 and the benefits to
be derived therefrom; the Corporation's 2019 net capital
expenditures guidance range and the Corporation's 2019 annual
production guidance range; and the amount of capital projects that
could be deferred from the 2019 plan. Advantage's actual decisions,
activities, results, performance or achievement could differ
materially from those expressed in, or implied by, such
forward-looking statements and accordingly, no assurances can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur or, if any of them do, what
benefits that Advantage will derive from them.
These statements involve substantial known and unknown risks
and uncertainties, certain of which are beyond Advantage's control,
including, but not limited to: changes in general economic, market
and business conditions; industry conditions; actions by
governmental or regulatory authorities including increasing taxes
and changes in investment or other regulations; changes in tax
laws, royalty regimes and incentive programs relating to the oil
and gas industry; Advantage's success at acquisition, exploitation
and development of reserves; unexpected drilling results; changes
in commodity prices, currency exchange rates, capital expenditures,
reserves or reserves estimates and debt service requirements; the
occurrence of unexpected events involved in the exploration for,
and the operation and development of, oil and gas properties,
including hazards such as fire, explosion, blowouts, cratering, and
spills, each of which could result in substantial damage to wells,
production facilities, other property and the environment or in
personal injury; changes or fluctuations in production levels;
delays in anticipated timing of drilling and completion of wells;
individual well productivity; competition from other producers; the
lack of availability of qualified personnel or management; credit
risk; changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are
interpreted and enforced; our ability to comply with current and
future environmental or other laws; stock market volatility and
market valuations; liabilities inherent in oil and natural gas
operations; competition for, among other things, capital,
acquisitions of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; geological,
technical, drilling and processing problems and other difficulties
in producing petroleum reserves; ability to obtain required
approvals of regulatory authorities; and ability to access
sufficient capital from internal and external sources. Many of
these risks and uncertainties and additional risk factors are
described in the Corporation's Annual Information Form which is
available at www.sedar.com ("SEDAR") and www.advantageog.com.
Readers are also referred to risk factors described in other
documents Advantage files with Canadian securities
authorities.
With respect to forward-looking statements contained in this
press release, Advantage has made assumptions regarding, but not
limited to: conditions in general economic and financial markets;
effects of regulation by governmental agencies; current and future
commodity prices and royalty regimes; future exchange rates;
royalty rates; future operating costs; availability of skilled
labor; availability of drilling and related equipment; timing and
amount of net capital expenditures; the impact of increasing
competition; the price of crude oil and natural gas; that the
Corporation will have sufficient cash flow, debt or equity sources
or other financial resources required to fund its capital and
operating expenditures and requirements as needed; that the
Corporation's conduct and results of operations will be consistent
with its expectations; that the Corporation will have the ability
to develop the Corporation's properties in the manner currently
contemplated; current or, where applicable, proposed assumed
industry conditions, laws and regulations will continue in effect
or as anticipated; and the estimates of the Corporation's
production and reserves volumes and the assumptions related thereto
(including commodity prices and development costs) are accurate in
all material respects.
Management has included the above summary of assumptions and
risks related to forward-looking information above and in its
continuous disclosure filings on SEDAR in order to provide
shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other
purposes. Advantage's actual results, performance or achievement
could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits that Advantage will derive there from. Readers are
cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this
news release and Advantage disclaims any intent or obligation to
update publicly any forward-looking statements, whether as a result
of new information, future events or results or otherwise, other
than as required by applicable securities laws.
Barrels of oil equivalent (boe) and thousand cubic feet of
natural gas equivalent (mcfe) may be misleading, particularly if
used in isolation. Boe and mcfe conversion ratios have been
calculated using a conversion rate of six thousand cubic feet of
natural gas equivalent to one barrel of oil. A boe and mcfe
conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
Non-GAAP Measures
The Corporation discloses several financial and performance
measures in this press release that do not have any standardized
meaning prescribed under GAAP. These financial and performance
measures include "net capital expenditures", "total debt",
"adjusted funds flow", and "total debt to adjusted funds flow",
which should not be considered as alternatives to, or more
meaningful than "net income", "comprehensive income", "cash
provided by operating activities", "cash used in investing
activities", or "bank indebtedness" presented within the
consolidated financial statements as determined in accordance with
GAAP. Management believes that these measures provide an indication
of the results generated by the Corporation's principal business
activities and provide useful supplemental information for analysis
of the Corporation's operating performance and liquidity.
Advantage's method of calculating these measures may differ from
other companies, and accordingly, they may not be comparable to
similar measures used by other companies. Please see the
"Non-GAAP Measures" section in the Management Discussion &
Analysis for the reconciliations to the nearest measure calculated
in accordance with GAAP, which is available at www.sedar.com
("SEDAR") and www.advantageog.com.
Net Capital Expenditures
Net capital expenditures include total capital expenditures
related to property, plant and equipment and exploration and
evaluation assets. Management considers this measure reflective of
actual capital activity for the period as it excludes changes in
working capital related to other periods.
Total Debt
Total debt is comprised of bank indebtedness and working
capital. Total debt provides Management and users with a measure of
the Corporation's indebtedness and expected settlement of net
liabilities in the next year.
Adjusted Funds Flow
The Corporation considers adjusted funds flow to be a useful
measure of Advantage's ability to generate cash from the production
of natural gas and liquids, which may be used to settle outstanding
debt and obligations, and to support future capital expenditures
plans. Changes in non-cash working capital are excluded from
adjusted funds flow as they may vary significantly between periods
and are not considered to be indicative of the Corporation's
operating performance as they are a function of the timeliness of
collecting receivables or paying payables. Expenditures on
decommissioning liabilities are excluded from the calculation as
the amount and timing of these expenditures are unrelated to
current production, highly variable and discretionary.
Total Debt to Adjusted Funds Flow
Total debt to adjusted funds flow is calculated by dividing
total debt by adjusted fund flow for the previous four quarters.
Total debt to adjusted funds flow is a coverage ratio that provides
Management and users the ability to determine how long it would
take the Corporation to repay its debt if it devoted all its
adjusted funds flow to debt repayment.
The following abbreviations used in this press release have
the meanings set forth below:
bbl
|
one
barrel
|
bbls
|
barrels
|
bbls/d
|
barrels per
day
|
bbls/mmcf
|
barrels per
million cubic fee
|
bcf/d
|
billion cubic feet
per day
|
boe
|
barrels of oil
equivalent of natural gas, on the basis of one barrel of oil or
NGLs for six thousand cubic feet of natural gas
|
boe/d
|
barrels of oil
equivalent of natural gas per day
|
mcf
|
thousand cubic
feet
|
mcf/d
|
thousand cubic
feet per day
|
mcfe
|
thousand cubic
feet equivalent on the basis of six thousand cubic feet of natural
gas for one barrel of oil or NGLs
|
mcfe/d
|
thousand cubic
feet equivalent per day
|
mmcf
|
million cubic
feet
|
mmcf/d
|
million cubic feet
per day
|
mmcfe/d
|
million cubic feet
equivalent per day
|
NGL
|
natural gas
liquids
|
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.
|
SOURCE Advantage Oil & Gas Ltd.