New 120 MMCF/D Eight Well Montney Pad Exceeds Expectations
Corporate Production Increased to 215 MMCFE/D (35,760 boe/d) and Total Corporate Cash Costs Reduced to $0.58/mcfe
(TSX: AAV, NYSE: AAV)
CALGARY, Oct. 12, 2016 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report that during the third quarter of 2016, a new Glacier eight well Montney pad was completed and outperformed Management expectations with a combined initial production flow rate of 120 mmcf/d. This eight well pad was designed to evaluate increased frac stages, longer horizontal laterals and cost efficiencies related to continued optimization of our well operations and larger pad sizes specifically in the Lower and Middle Montney formations.
The Corporation’s third quarter 2016 production increased 44% to 215 mmcfe/d (35,760 boe/d), representing production growth per share of 33% compared to the same period in 2015 and up from 210 mmcfe/d during the second quarter of 2016. Liquids production increased to an average 1,200 bbls/d (80% C5+) and is expected to remain flat to slightly lower in the fourth quarter due to Pembina Pipeline Corporation’s planned maintenance work in October 2016.
Total corporate cash costs were reduced to a record low of $0.58/mcfe ($3.48/boe) from $0.79/mcfe ($4.74/boe) in the third quarter of 2015 and $0.59/mcfe ($3.54/boe) in the second quarter of 2016. The lower total corporate cash costs were led by a 31% reduction in operating costs to $0.25/mcfe from $0.36/mcfe in the third quarter of 2015 and from $0.30/mcfe in the second quarter of 2016. The lower third quarter 2016 per unit operating costs resulted from reduced water disposal costs, more efficient equipment maintenance procedures and higher plant throughput. Royalties increased during the third quarter of 2016 due to a 66% increase in the AECO daily natural gas price compared to the second quarter of 2016. Cash flow during the third quarter of 2016 was up 31% to $45 million and 20% on a per share basis to $0.24/share as compared to the same quarter of 2015. Capital spending during the third quarter was $36 million resulting in a total debt of $184 million at the end of the quarter. Advantage estimates approximately $40 million of surplus cash flow could be realized for calendar 2016 resulting in a year-end 2016 total debt-to-cash flow of approximately 1.0x based on current commodity prices for the balance of 2016.
(Please note that references to third quarter 2016 operational and financial results are estimates only and have not been reviewed or audited by our independent auditors. Advantage is expected to release its third quarter results after markets close on November 3, 2016 which will include additional data)
New 120 mmcf/d Eight Well Montney Pad at Glacier Surpasses Management Expectations
During the third quarter of 2016, an eight well pad located at 5-16-76-13W6 consisting of six Lower Montney (“LM”) wells, one Middle Montney (“MM”) well and one Upper Montney (“UM”) well was completed and evaluated by producing each well in-line to our Glacier plant. Each of these eight wells were flowed for an average of 48 hours and resulted in a combined production rate of 120 mmcf/d based on an average flowing pressure of 11,182 kpa (1,623 psi). The eight wells on the 5-16 well pad are expected to be placed on-stream during the next three to six months at restricted rates to control the amount of frac sand flow-back and to evaluate longer term well performance.
Three of the six Lower Montney wells on the pad were drilled to an average horizontal lateral length of 2,583 meters (with the longest well at 2,880 meters) and were fracture stimulated with an average of 28 frac stages utilizing 60 tonnes of proppant per frac stage. The remaining three LM wells were drilled to evaluate the LM reservoir in the area located east of the 5-16 pad and the results confirmed exceptional reservoir quality. All six of the LM wells were produced in-line to the Glacier gas plant and demonstrated a combined initial production rate of 100 mmcf/d at an average flowing pressure of 11,782 kpa (1,710 psi) based on an average 42 hours of flow per well. The average drill, complete, equipping and tie-in (“DCET”) cost of these six LM wells was $4.3 million per well based on an average length of 2,119 meters and 24 frac stages. Three of the wells were drilled to a shorter average lateral length of 1,656 meters for an average DCET cost of $3.7 million per well to evaluate longer term recovery and spacing in the LM formation. These costs compare against the previous year’s LM wells which had an average DCET cost of $5.3 million per well at an average lateral length of 1,930 meters and 19 frac stages.
The liquids rich Middle Montney well on the eight well pad was drilled offsetting one of the first MM wells located at 103/1-16-76-13W6 that was completed in 2012. The new MM well was drilled to a lateral length of 2,502 meters and contained 26 frac stages with open hole packers compared to the previous 103/1-16 offset well which had a lateral length of 1,635 meters and 11 frac stages completed with a plug and perf system. The proppant loading in the new well was 60 tonnes per frac stage compared to the 103/1-16 well which was stimulated with 150 tonnes per frac stage. The initial production rate from this new well was 11.3 mmcf/d after 71 hours of in-line flow at a flowing pressure of 10,747 kpa (1,560 psi). This compares to an initial rate of 3.7 mmcf/d from the 103/1-16 well. The propane plus (“C3+”) liquid content of the new MM well is estimated to be approximately 30 bbls/mmcf, consistent with earlier results in the western part of the Glacier land block. The DCET cost of this new MM well was $5.1 million and represents the third well drilled in this western area of Glacier and confirms additional MM reservoir potential with improved capital efficiencies.
Management estimates this new 5-16 eight well pad alone will be sufficient to offset declines until the end of Q2 2017. A new 16 well pad commenced drilling in October and will be completed during the second half of 2017 to support production growth and to offset normal declines. The recent frac design changes and well results are being incorporated into our forecast model as we finalize plans for our next three year development period. Advantage anticipates providing updated development plan information before year-end 2016 allowing us to gather additional well production performance.
Standing Well Productivity and Plant Capacity Provides Operational Flexibility for Upcoming Winter Season
The Corporation is well positioned to increase production without incurring incremental capital costs and per unit operating costs in 2016 during this upcoming winter season. Advantage is able to immediately respond to improving natural gas prices by accessing its current surplus production capability of approximately 180 mmcf/d from 12 standing completed wells and additional processing capacity available at the Corporation’s 100% owned Glacier gas plant.
Commodity Hedging Positions Provide Downside Protection
For the balance of 2016, approximately 48% of our production is hedged at an average AECO price of Cdn $3.56/mcf. Advantage has hedged 41% of its estimated 2017 annual production at an average AECO price of Cdn $3.19/mcf and 17% of estimated 2018 annual production at an average AECO price of Cdn $3.03/mcf. We anticipate increasing our future hedge positions if natural gas prices continue to rise, reflecting higher demand through the upcoming winter season.
The Corporation’s operational flexibility combined with its strong balance sheet, Montney leading low cost structure and commodity hedging program provides a solid foundation for Advantage’s previously announced expansion of its 100% owned Glacier gas plant to 350 mmcf/d (58,330 boe/d) which is expected to commence construction during the second half of 2017. We look forward to reporting on our progress as we continue to advance the Corporation’s Glacier Montney development program.