CALGARY, Jan. 18, 2017 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report that our 2016 operating and financial results outperformed the Corporation’s previously disclosed guidance targets. Fourth quarter production, 2016 annual production, operating costs and cash flow were at or exceeded the higher end of guidance reinforcing our industry leading efficiencies, operational expertise and the exceptional quality of Advantage’s Glacier Montney resource play.
Fourth quarter 2016 production was up 42% to a record 221 mmcfe/d (36,833 boe/d), representing production growth per share of 32% compared to the same period in 2015 and up from 215 mmcfe/d during the third quarter of 2016. Annual 2016 production was up 44% and 36% on a per share basis to 203 mmcfe/d (33,833 boe/d). Liquids production was up 494% on an annual basis as compared to 2015 and averaged 949 bbls/d (75% C5+) in the fourth quarter of 2016, slightly lower than the third quarter of 2016 due to Pembina Pipeline Corporation’s planned maintenance in October. The Corporation’s strategy to maintain excess Montney well productivity and to retain available processing capacity at its 100% owned Glacier gas plant provided operational flexibility to capitalize on strengthening gas prices and to offset TransCanada Pipeline Limited’s (“TCPL”) sales gas transportation restrictions during the fourth quarter of 2016.
Operating costs in the fourth quarter of 2016 were reduced by 37% to a record low of $0.22/mcfe ($1.32/boe) and reduced on an annual basis by 25% to $0.27/mcfe ($1.62/boe) compared to the same periods of 2015. This outstanding achievement was made possible by Advantage’s continued focus on operational excellence and through the dedicated efforts of our Montney team.
Strong cash flow growth resulted in $39 million of surplus cash (funds from operations less capital expenditures) during 2016. During the fourth quarter of 2016 Advantage’s operating netback of $2.83/mcfe ($16.98/boe) generated a 73% increase in cash flow to $55 million and a 58% increase in cash flow per share to $0.30 as compared to the same quarter of 2015. Annual cash flow was up 35% to $167 million and up 28% on a per share basis to $0.92. Capital spending during the fourth quarter of 2016 was $30 million and $128 million for 2016 resulting in year-end total debt of $159 million (includes working capital deficit) and a year-end total debt to 2016 cash flow of approximately 1.0x. These achievements were attained despite an average daily AECO natural gas price of $2.11/mcf during 2016.
(References to 2016 operational and financial results are estimates only and have not been reviewed or audited by our independent auditor. Advantage is expected to release its fourth quarter and audited year-end results after markets close on March 2, 2017 which results will include additional information)
Strong Well Results, Available Plant Capacity, 100% Firm Service and Additional Montney Land Acquisitions Sets the Foundation for 2017 Growth and Beyond
In December 2016, four Montney wells from our recently completed eight well pad were brought on-production (please refer to the Advantage press release dated October 12, 2016). These four wells demonstrated exceptional results with restricted individual well production rates ranging from 8.5 to 12.5 mmcf/d after one month of continuous production. Of particular note is that these four wells are still substantially rate restricted to limit sand flow back with current flowing pressures ranging from 7,900 to 17,900 kpa, well above our average gas gathering system pressure of 3,000 kpa. Management estimates that these four wells could produce at a combined production rate of approximately 65 mmcf/d at our average gas gathering system pressure of 3,000 kpa.
Available processing capacity at Advantage’s 100% owned Glacier gas plant was successfully utilized to offset TCPL sales gas pipeline restrictions during 2016 and particularly during the fourth quarter when firm service restrictions were more pronounced. Advantage’s current raw gas processing capacity of 260 mmcf/d at our Glacier plant is expected to provide operational flexibility in support of our 2017 annual production sales target of 236 mmcfe/d. The Corporation’s ongoing Glacier plant expansion project to increase processing capacity to 400 mmcf/d (66,670 boe/d) is progressing with major equipment orders secured. Contruction is anticipated to commence during the second half of 2017 with completion targeted by the second quarter of 2018. This expansion will provide Advantage with available plant capacity and operational flexibility through to and beyond 2019.
In conjunction with our three-year development plan to increase production to 316 mmcfe/d (52,670 boe/d) in 2019, Advantage has secured 100% firm transportation service from TCPL to match our annual production targets and has requested additional transportation service for continued growth beyond 2019.
During 2016, Advantage increased its Montney land holdings by 12% through the acquisition of 16 sections of new Montney lands (100% owned) through Alberta Government land sales and producer transactions. The acquired lands were high graded and targeted based on our geotechnical interpretation and purchased for a total cost of $6 million during the lower natural gas commodity price environment.
Commodity Risk Management Program Provides Downside Protection & Market Diversification
Advantage has hedged 45% of its 2017 forecast natural gas production at an average AECO price of Cdn $3.19/mcf, 22% of 2018 estimated natural gas production at an average AECO price of Cdn $3.02/mcf and 18% of first quarter 2019 estimated natural gas production at an average AECO price of Cdn $3.00/mcf. Additionally, we have secured Henry Hub to AECO basis differentials of US$0.85/mmbtu on 25,000 mmbtu/d for calendar 2018 and 2019 to diversify our natural gas markets.
We believe taking a disciplined approach to managing commodity price risk for 2018 and beyond will be prudent as supply and demand fundamentals are expected to remain volatile.
The Corporation’s operational flexibility combined with its strong balance sheet, Montney leading low cost structure and commodity risk management program provides a solid foundation for Advantage’s future growth plans which are anticipated to provide strong investment returns. We look forward to reporting on our progress as we continue to advance the Corporation’s Montney development program.