(TSX: AAV, NYSE: AAV)
CALGARY, April 12, 2016 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce Glacier production has increased to a record 200 mmcfe/d (33,300 boe/d) as planned. Annual production for 2016 is expected to be within our previously announced Budget production guidance range of 190 to 210 mmcfe/d and is supported by a current standing well inventory of 18 completed and 14 uncompleted wells. These wells will be utilized to achieve our 2016 production target and are capable of supporting future production growth through to the second quarter of 2017. Production growth will utilize the remaining 50 mmcf/d of processing capacity that was designed into Advantage’s 2015 Glacier gas plant expansion. Additionally, take-away capacity on TransCanada Pipeline’s (“TCPL”) sales gas pipeline in the Glacier area has recently improved as firm and interruptible transportation capacity has been increasing since March 2016.
Advantage continues to execute its 2016 capital program which is supported by the Corporation’s hedge position, strong balance sheet and its industry leading low cost structure. Advantage has hedged 52% of forecast 2016 annual production at an average AECO price of Cdn $3.62/mcf and estimates that annual cash flow will meet the Corporation’s planned 2016 capital program of $120 million even if AECO prices average Cdn $1.25/mcf for the remainder of the year. At an average AECO price of Cdn $2.00/mcf for 2016, Advantage estimates that its year-end total debt to trailing cash flow ratio is approximately 1.2 times.
Advantage’s hedging position has been increased to 36% of forecast 2017 annual production at an average AECO price of Cdn $3.24/mcf and 52% of forecast Q1 2018 production at an average AECO price of Cdn $3.10/mcf. These hedge positions combined with our strong balance sheet provide additional financial flexibility to support the next significant expansion of Advantage’s Glacier gas plant processing capacity to 350 mmcf/d planned to commence during the second half of 2017.
Advantage’s Montney wells are continuing to outperform with shallower declines. Since July 2015, twelve Upper and Lower Montney wells containing an average of 18 frac stages have been placed on production and the longer producing wells are still trending approximately 1.2 mmcf/d above Advantage’s Upper and Lower Montney Budget well type curve after 150 days of production. Two liquids-rich Middle Montney wells which contain an average of 19 frac stages are also demonstrating strong performance. One of these wells is producing 2 mmcf/d above our Middle Montney Budget well type curve after 230 days and the other well is meeting expectations after 84 days of production. Completed wells which contain up to 37 frac ports and with longer horizontal laterals will be brought on-production during 2016 to evaluate the impact of additional drilling and completion design changes on longer term production behaviour.
Reduced Glacier well costs reflect improved operational efficiencies and lower service costs. Well costs (drill, complete, equipping and tie-in) have continued to improve despite increased number of frac stages. For 2016, Advantage estimates that Upper Montney wells will cost $4.5 million and Lower Montney wells will cost $5.5 million based on an average of 25 fracs stages per well. Middle Montney wells are estimated to be approximately $6.0 million based on 25 frac stages. These estimates reflect well cost reductions of approximately $0.5 million per well compared to earlier wells which had 47% fewer frac stages (16 to 18 frac stages). Total completion costs on a per frac basis have decreased approximately 26% compared to realized costs in our last two drilling programs.
First Quarter 2016 results(1) continue to demonstrate Advantage’s industry leading low cost structure. Average production during first quarter of 2016 increased 25% to 167 mmcfe/d compared to the first quarter of 2015. Production during the first quarter was impacted by TCPL transportation restrictions which reduced operational flexibility to offset lower production due to planned maintenance at our Glacier plant. TCPL transportation capacity has increased through March 2016 and is expected to remain higher through 2016 as compared to 2015. Advantage estimates first quarter 2016 total cash costs of approximately $0.76/mcfe including operating costs of $0.36/mcfe which is anticipated to be further reduced through 2016. Operating cost reductions are expected to result from increasing production volumes and the commissioning of an additional water disposal well in March 2016 which will lower water handling costs. Capital expenditures are estimated to be $45 million, on-track with expectations.
Advantage continues to closely monitor the natural gas price environment and can modify its growth plans as necessary to preserve financial flexibility and protect the long-term value of its Glacier Montney resource. The Corporation’s hedging program, industry leading low costs, improved capital efficiencies and strengthened balance sheet have already positioned Advantage with significant downside protection and with flexibility to capitalize on improved natural gas prices which we anticipate will occur as North American natural gas supply and demand become better balanced in the near future.
(1) All references to first quarter 2016 results are estimates and unaudited. Advantage is targeting to release actual results after-markets close on May 5, 2016.