44% Production Growth & 27% Reduction in Total Corporate Cash Costs Drives Surplus Cash Flow
CALGARY, Nov. 3, 2016 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report that the Corporation’s strategy to maintain a profitable and sustainable growth plan is demonstrated by its third quarter 2016 production per share and cash flow per share increases of 33% and 20%, respectively, while reducing Advantage’s total debt by 37% since year-end 2015. Advantage’s continued production growth with further improvements in its industry leading capital and operating efficiencies have generated year-to-date surplus cash flow of $14 million (funds from operations net of capital expenditures) including $9 million in the third quarter of 2016. The surplus cash flow has further reduced the Corporation’s total debt to $184 million at the end of the third quarter of 2016, down from $294 million at year-end 2015. These accomplishments were achieved despite a 20% reduction in the average AECO daily natural gas price to Cdn $2.32/mcf compared to Cdn $2.90/mcf in the same period of 2015. Advantage estimates its annual surplus cash flow could grow to approximately $36 million by year-end 2016 based on current commodity prices, resulting in an estimated year-end 2016 total debt-to-trailing cash flow ratio of 1.0 times.
During the third quarter of 2016, production increased 44% to 215 mmcfe/d (35,760 boe/d) and total corporate cash costs were reduced 27% to $0.58/mcfe ($3.48/boe) which helped drive cash flow up 31% to $45.1 million ($0.24/share) as compared to the third quarter of 2015. Advantage’s cash flow was also supported by realized hedging gains of $11.9 million during the third quarter of 2016.
Advantage’s focus on operational excellence demonstrated by production outperformance of its Glacier Montney wells (please refer to our operational update released on October 12, 2016) and continued cost reductions further reinforces the Corporation’s solid foundation for Advantage’s announced expansion of its 100% owned Glacier gas plant to 350 mmcf/d (58,330 boe/d). Advantage anticipates disclosing development plan details for the 2017 to 2019 period before year-end 2016.
Third Quarter 2016 Operating and Financial Highlights
Production increased 44% to average 215 mmcfe/d (35,760 boe/d) including 468% growth in natural gas liquids to 1,205 bbls/d for the third quarter of 2016 as compared to the same period in 2015. The Corporation’s 2016 annual production is expected to be within our previously announced Budget production guidance range of 190 to 210 mmcfe/d generating a year-on-year production growth of approximately 40% or 34% on a per share basis. Liquids production is expected to remain flat to slightly lower in the fourth quarter due to Pembina Pipeline Corporation’s maintenance work in October 2016.
Cash flow (Funds from Operations) for the third quarter of 2016 was up 31% to $45.1 million or 20% on a per share basis to $0.24 per share. Cash netbacks for the three months ended September 30, 2016 were $2.29/mcfe ($13.74/boe) which represents 80% of the realized sales price, including hedging. Excluding hedging, positive cash flow of $33.2 million was realized on an average AECO daily natural gas price of Cdn $2.32/mcf demonstrating the economic resilience of Advantage’s Montney development.
Total corporate cash costs were reduced to a record low of $0.58/mcfe in the third quarter of 2016 which is a 27% decrease compared to the same period of 2015. Total corporate cash costs includes royalties ($0.08/mcfe), operating costs ($0.25/mcfe), liquids transportation ($0.05/mcfe), cash general and administrative ($0.09/mcfe), and cash finance expense ($0.11/mcfe). Liquids transportation costs were up slightly during the third quarter of 2016 due to additional trucking costs resulting from wet weather conditions which are extending into the fourth quarter of 2016.
Total capital expenditures during the quarter were on-track at $36 million. Drilling operations resumed during the quarter on a six well pad, with five of these wells rig released at the end of the third quarter of 2016. As communicated in Advantage’s October 12, 2016 operational update, eight previously drilled wells were completed and production tested in the third quarter of 2016. The remaining capital activity in the third quarter was invested in expanding our plant utilities for future processing capacity growth. A 16 well pad commenced drilling during the fourth quarter of 2016 with well completions planned to start on this pad by mid-year 2017. Wet weather conditions have delayed recent drilling and completions activities; however, Advantage anticipates minimal impacts to our fourth quarter 2016 plans.
Total debt (including working capital deficit) as of September 30, 2016 was $184 million or 46% drawn against Advantage’s $400 million borrowing base Credit Facility. Third quarter cash flow exceeded capital expenditures by $9.5 million and resulted in a decrease in bank debt. Advantage estimates approximately $36 million of surplus cash flow could be realized for calendar 2016 resulting in a year-end 2016 total debt-to-trailing cash flow of approximately 1.0x based on current commodity prices for the balance of 2016.
Natural gas hedge positions extended into 2019. Advantage’s hedging positions include an average 48% of forecast production for the fourth quarter of 2016 at an average AECO floor price of $3.56/mcf, 45% of forecast 2017 annual production at an average AECO floor price of $3.19/mcf, 22% of forecast 2018 annual production at an average AECO floor price of $3.02/mcf and 18% of forecast production for the first quarter of 2019 at an average AECO floor price of $3.00/mcf.
Consolidated Financial Statements and MD&A
The Corporation’s unaudited interim consolidated financial statements for the three and nine months ended September 30, 2016 together with the notes thereto, and Management’s Discussion and Analysis for the three and nine months ended September 30, 2016 have been filed on SEDAR and EDGAR and are available on the Corporation’s website at http://www.advantageog.com.
Third Quarter 2016 Operating & Financial Summary
Three months ended |
Nine months ended |
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Financial and Operating Highlights |
September 30 |
September 30 |
||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||
Financial ($000, except as otherwise indicated) |
||||||||||||
Sales including realized hedging |
$ |
56,697 |
$ |
44,980 |
$ |
143,937 |
$ |
122,400 |
||||
Funds from operations |
$ |
45,132 |
$ |
34,474 |
$ |
112,251 |
$ |
91,974 |
||||
per share(1) |
$ |
0.24 |
$ |
0.20 |
$ |
0.62 |
$ |
0.54 |
||||
Total capital expenditures |
$ |
35,640 |
$ |
39,234 |
$ |
97,971 |
$ |
137,379 |
||||
Working capital deficit (2) |
$ |
5,023 |
$ |
12,273 |
$ |
5,023 |
$ |
12,273 |
||||
Bank indebtedness |
$ |
178,971 |
$ |
285,707 |
$ |
178,971 |
$ |
285,707 |
||||
Basic weighted average shares (000) |
184,572 |
170,715 |
181,188 |
170,563 |
||||||||
Operating |
||||||||||||
Daily Production |
||||||||||||
Natural gas (mcf/d) |
207,332 |
147,574 |
191,970 |
135,104 |
||||||||
Liquids (bbls/d) |
1,205 |
212 |
903 |
146 |
||||||||
Total mcfe/d(3) |
214,562 |
148,846 |
197,388 |
135,980 |
||||||||
Total boe/d(3) |
35,760 |
24,808 |
32,898 |
22,663 |
||||||||
Average prices (including hedging) |
||||||||||||
Natural gas ($/mcf) |
$ |
2.71 |
$ |
3.25 |
$ |
2.52 |
$ |
3.27 |
||||
Liquids ($/bbl) |
$ |
45.58 |
$ |
45.43 |
$ |
46.19 |
$ |
45.16 |
||||
Cash netbacks ($/mcfe)(3) |
||||||||||||
Natural gas and liquids sales |
$ |
2.27 |
$ |
2.70 |
$ |
1.80 |
$ |
2.65 |
||||
Realized gains on derivatives |
0.60 |
0.58 |
0.86 |
0.65 |
||||||||
Royalty expense |
(0.08) |
(0.12) |
(0.02) |
(0.12) |
||||||||
Operating expense |
(0.25) |
(0.36) |
(0.29) |
(0.36) |
||||||||
Transportation expense |
(0.05) |
– |
(0.03) |
– |
||||||||
Operating netback |
2.49 |
2.80 |
2.32 |
2.82 |
||||||||
General and administrative |
(0.09) |
(0.11) |
(0.11) |
(0.15) |
||||||||
Finance expense |
(0.11) |
(0.20) |
(0.14) |
(0.20) |
||||||||
Other income |
– |
0.02 |
0.01 |
0.01 |
||||||||
Cash netbacks |
$ |
2.29 |
$ |
2.51 |
$ |
2.08 |
$ |
2.48 |
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(1) |
Based on basic weighted average shares outstanding. |
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(2) |
Working capital deficit includes trade and other receivables, prepaid expenses and deposits, and trade and other accrued liabilities. |
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(3) |
A boe and mcfe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas equivalent to |
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one barrel of liquids. |