42% Increase in Production to 238 mmcfe/d (39,635 boe/d),
79% Increase in Cash Flow to $54 million
and a 39% Increase in Undeveloped Montney Land Holdings
CALGARY, May 4, 2017 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report that first quarter 2017 production increased 42% over the same period of 2016 and 8% over the fourth quarter of 2016 to a record level of 238 mmcfe/d (39,635 boe/d). Cash flow increased 79% to $54 million which fully funded our capital expenditures of $54 million and included the completion of all well operations required to support our 2017 production target. Since January 1, 2017 the Corporation has acquired 24 net sections of strategic Montney land and entered into a long term commitment to further diversify our natural gas markets.
On a per share basis, production grew 34% to 238 mmcfe/d (39,635 boe/d) and cash flow grew 71% to $0.29/share during the first quarter of 2017 through Advantage’s continued focus on improving efficiencies. The Corporation reduced its operating costs by 34% to $0.23/mcfe ($1.38/boe) and total corporate cash costs by 18% to $0.89/mcfe ($5.34/boe) including natural gas and liquids transportation.
Strong cash flow fully funded our capital program of $54 million and resulted in a total debt to trailing cash flow of 0.8 times as of March 31, 2017. Total debt (including working capital deficit) was $159 million at the end of the quarter.
Advantage increased its undeveloped Montney land holdings by 39% through the acquisition of 24 net sections (15,360 net acres) at our Progress and Valhalla areas for an aggregate cash cost of $6 million. Since 2008, Advantage has increased its total Montney land holding by 125% from 79 net sections (50,560 acres) to 178 net sections (113,920 acres) with 87 net sections (55,680 acres) now located at Valhalla, Progress and Wembley, proximal to our 100% owned Glacier gas plant and gathering system. These 87 net sections are located in three contiguous land blocks and have natural gas liquids and multi-zone development potential.
Advantage committed to 55,600 GJ/day (52,800 mcf/d) of firm sales gas transportation service on Trans Canada Pipelines (“TCPL”) mainline from Empress, Alberta to the Dawn market in Southern Ontario through TCPL’s open season in the first quarter of 2017. This service is expected to commence on November 1, 2017 and includes a 10 year term at a toll of $0.77/GJ. Approval of this service is subject to TCPL obtaining the necessary regulatory approvals which are progressing in an expedited application process. This will further diversify Advantage’s end-markets and complement our attractive AECO natural gas price hedges and Henry Hub to AECO basis differentials that have been secured through 2019.
Activity Update and Looking Forward
Well Operations
Advantage completed 11 new Montney gas wells that were drilled prior to year-end 2016 which will be utilized to support our 2017 production target of 236 mmcfe/d. We also concluded drilling operations on a 16-well pad in the first quarter of 2017 which is scheduled to be completed during the second half of 2017. Production from this pad is scheduled to be brought on-stream in 2018 to support the Corporation’s development plan growth. The Corporation’s current standing well inventory consists of 28 wells of which 11 are drilled and completed and 17 remain uncompleted. Advantage’s completed well productivity is estimated to have a combined average 30 day initial production rate (“IP30”) of 65 mmcf/d, sufficient to support our 2017 annual production target of 236 mmcfe/d. These completed wells consist of 7 Upper and Lower Montney wells and 4 Middle Montney wells.
Increased Montney Undeveloped Land
Advantage’s acquisition of 24 net Montney sections has strategically expanded our Progress area and further complemented our Valhalla land holdings. In addition to the 91 net sections of Montney land at Glacier, Advantage now owns 87 net sections of Montney land (100% operated and controlled) which represents three separate contiguous assets in the greater Glacier area. These 87 net sections are comprised of 29 sections located at Progress, 30 sections located at Valhalla and 28 sections located at Wembley. Each of these asset areas are estimated by Management to contain sufficient natural gas and liquids accumulations to support scalable drilling programs and economies of scale given their proximity to our Glacier gas plant and gathering system. Delineation drilling is required to optimize and schedule future development planning in order to continue Advantage’s track record of delivering strong returns and sustainable growth. Advantage drilled and is producing three liquids rich Montney wells at Valhalla and plans to drill a new four well pad during the second half of 2017. At Wembley and Progress, Advantage plans to spud delineation wells in each of these areas in the fourth quarter of 2017. Industry drilling adjacent to Progress, Valhalla and Wembley have continued to demonstrate the potential for liquids rich and multi-zone development.
Glacier Gas Plant Expansion
Advantage received license approval from the Alberta Energy Regulator for the expansion of our 100% owned Glacier gas plant to a processing capacity of 400 mmcf/d of raw gas and 6,800 bbls/d of shallow-cut liquids extraction capability. The plant expansion also included engineering design changes for the processing of natural gas and liquids compositions from the greater Glacier area. All major equipment items have been procured and shop fabrication is well underway. On-site construction will begin in the second half of 2017 and is anticipated to be completed by the second quarter of 2018. At such time, Advantage anticipates having initial surplus raw processing capacity of approximately 140 mmcf/d to support our 2017 through 2019 corporate growth plan and beyond, accelerated production growth and/or accommodate third party processing opportunities.
Commodity Price Risk Management, Transportation & Market Diversification
Advantage’s multi-year commodity risk management program includes the following hedging positions:
% Estimated Future Natural |
Average AECO Cdn $/mcf |
|
2017 Remainder of Year |
45% |
$3.07/mcf |
2018 |
22% |
$3.02/mcf |
2019 Q1 |
18% |
$3.00/mcf |
Notes: (1) Based on estimates of average daily natural gas production, net of royalties |
Advantage has also secured Henry Hub to AECO basis differentials of US$0.85/mcf on 25,000 mcf/d for calendar 2018 and US$0.88/mcf on 50,000 mcf/d for calendar 2019.
In order to further diversify our markets, Advantage participated in TCPL’s Mainline open season in the first quarter of 2017 and committed for firm transportation service of 55,600 GJ/d (52,800 mcf/d) from Empress, Alberta to the Dawn market in Southern Ontario. This firm service commitment is expected to be effective November 1, 2017 and represents approximately 20% of our targeted 2018 average annual production. The toll is $0.77/GJ for a 10 year take-or-pay term that can be reduced at Advantage’s option by up to 5 years, subject to the terms of the contract. The firm service is conditional on National Energy Board approval and is on an expedited approval timeline process.
On the intra-Alberta Nova Gas Transmission Ltd’s (“NGTL”) system, Advantage has secured increasing levels of firm sales gas transportation service of up to 308 mmcf/d which will satisfy 100% of the Corporation’s annual production targets of 236 mmcfe/d, 272 mmcfe/d and 316 mmcfe/d for 2017, 2018 and 2019, respectively.
Advantage’s 2017 through 2019 Development Plan is On-Track
Advantage is well positioned and on-track to continue executing on its 2017 through 2019 development plan which is expected to increase production by 56% to 316 mmcfe/d (52,670 boe/d) or 16% on an average annual basis.
Advantage 2017 production is targeted to achieve an annual average rate of approximately 236 mmcfe/d with a range of 230 to 240 mmcfe/d. Maintenance, turnaround and expansion activities based on TCPL’s schedule and based on Advantage’s schedule are expected during the second and third quarters of 2017 and have been previously incorporated into our annual production target and guidance. Advantage also expects NGTL’s sales gas pipeline take-away capacity in the Upstream James River area will increase above historical levels in the fourth quarter of 2017.
Advantage’s achievements in the first quarter of 2017 reinforced the Corporation’s execution strength and the increase in our undeveloped Montney land holdings are expected to significantly supplement our Glacier future drilling inventory of over 1,100 locations and extend growth for decades to come.
First Quarter 2017 Operating and Financial Highlights
(refer to summary table at the end of this release)
First quarter 2017 production was up 42% to a record 238 mmcfe/d (39,635 boe/d), representing a 34% increase on a per share basis. Liquids production was up 175% to 1,151 bbls/d as compared to the first quarter of 2016. Production increased through the addition of new Montney wells and the utilization of additional processing capacity at our 100% owned Glacier gas plant.
Operating costs in the first quarter of 2017 were reduced by 34% to $0.23/mcfe ($1.38/boe) compared to the same period of 2016. This achievement was made possible due to continued efficiency improvements, streamlined equipment maintenance procedures and higher plant throughput. Total corporate cash costs were reduced 18% to $0.89/mcfe as compared to the same period of 2016, including gas and liquids transportation. Total corporate cash costs includes royalties ($0.10/mcfe), operating costs ($0.23/mcfe), transportation ($0.38/mcfe), cash general and administrative ($0.10/mcfe), and cash finance expense ($0.08/mcfe). (Note that natural gas transportation costs were previously deducted from revenue and are now included as an expense as of November 1, 2016. This has no impact on the Corporation’s historical or go forward netbacks).
Funds from operations (cash flow) for the first quarter of 2017 was up 79% to $54 million and up 71% on a per share basis to $0.29, including hedging gains of $5 million. Advantage’s operating netback was $2.70/mcfe ($16.20/boe) and cash netback was $2.52/mcfe ($15.12/boe) which represents 74% of the realized sales price, including hedging.
Net capital expenditures during the quarter were $54 million and funded entirely through cash flow.
Total debt to trailing twelve-month cash flow was reduced to 0.8x at March 31, 2017. This achievement was attained despite an average daily AECO natural gas price of $2.38/mcf during the twelve-month trailing period. Total debt (including working capital deficit) as of March 31, 2017 was $159 million.
Subsequent to March 31, 2017, Advantage’s Credit Facilities borrowing base was renewed at $400 million. Advantage’s bank debt of $148 million represents a 37% draw against Advantage’s $400 million borrowing base credit facility at the end of the first quarter of 2017.
Interim Consolidated Financial Statements and MD&A
The Corporation’s unaudited condensed interim consolidated financial statements for the three months ended March 31, 2017 together with the notes thereto, and Management’s Discussion and Analysis for the three months ended March 31, 2017 have been filed on SEDAR and with the SEC and are available on the Corporation’s website at http://www.advantageog.com/investors/financial-reports/2017-2.
First Quarter 2017 Operating & Financial Summary
Three months ended |
|||||
Financial and Operating Highlights |
March 31 |
||||
2017
|
2016
|
||||
Financial ($000, except as otherwise indicated) |
|||||
Sales including realized hedging |
$ |
72,957 |
$ |
41,625 |
|
Funds from operations |
$ |
53,972 |
$ |
30,236 |
|
per share(1) |
$ |
0.29 |
$
|
0.17 |
|
Net capital expenditures |
$ |
53,791 |
$ |
44,736 |
|
Working capital deficit(2) |
$ |
10,895 |
$ |
10,666 |
|
Bank indebtedness |
$ |
147,781 |
$ |
202,538 |
|
Basic weighted average shares (000) |
184,842 |
174,479 |
|||
Operating |
|||||
Daily Production |
|||||
Natural gas (mcf/d) |
230,906 |
164,618
|
|||
Liquids (bbls/d) |
1,151 |
418
|
|||
Total mcfe/d(3) |
237,812 |
167,126
|
|||
Total boe/d(3) |
39,635 |
27,854 |
|||
Average realized prices (including hedging) |
|||||
Natural gas ($/mcf) |
$ |
3.24 |
$
|
2.70 |
|
Liquids ($/bbl) |
$ |
53.73 |
$
|
31.21 |
|
Cash netbacks ($/mcfe)(3) |
|||||
Natural gas and liquids sales |
$ |
3.17 |
$
|
1.77 |
|
Realized gains on derivatives |
0.24 |
0.97 |
|||
Royalties |
(0.10) |
(0.07)
|
|||
Operating expense |
(0.23) |
(0.35) |
|||
Transportation expense (4) |
(0.38) |
(0.01)
|
|||
Operating netback |
2.70 |
2.31
|
|||
General and administrative |
(0.10) |
(0.13) |
|||
Finance expense |
(0.08) |
(0.19)
|
|||
Cash netbacks |
$ |
2.52 |
$ |
1.99 |
(1) |
Based on basic weighted average shares outstanding. |
(2) |
Working capital deficit includes trade and other receivables, prepaid expenses and deposits, and trade and other accrued liabilities. |
(3) |
A boe and mcfe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas equivalent to one barrel of liquids. |
(4) |
Commencing on November 1, 2016, Advantage requested that its gas marketing contract be modified to reflect natural gas transportation as a cost. Prior to November 1, 2016, Advantage’s realized natural gas prices were reduced for natural gas transportation from the sales points to AECO. This change has no effect on funds from operations, cash netbacks, or net income; however, Advantage believes this is more instructive for our investors to compare cost structures going forward. |