Record Low Proved Developed Producing Reserve Addition Cost of $0.84/mcfe ($5.04/boe) Underscores Outperformance In All Reserve Categories
CALGARY, Feb. 7, 2017 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to report that the Corporation achieved record low reserves addition costs and capital efficiencies in 2016 which continues to demonstrate the ongoing strength of its industry leading low cost and profitable natural gas development at its Glacier Montney property. Year-on-year gains in well production performance generated significant positive technical revisions that accounted for 46% of proved plus probable (“2P”) reserve additions while Advantage’s development and delineation drilling program at Glacier contributed the balance of natural gas and liquids reserves additions. 2P reserves grew 13% to 2.2 Tcfe (366.1 million boe) including natural gas liquids which increased by 17% to 23.5 million barrels.
During 2016, Advantage brought 15 new wells on-production which helped increase annual production by 44% over 2015. These wells and the improved performance of historical producing wells contributed to a 26% increase in proved developed producing (“PDP”) reserves at a record low finding and development (“F&D”) cost of $0.84/mcfe ($5.04/boe) and a PDP recycle ratio of 3.4. The Corporation’s 2P reserve additions replaced 429% of its 2016 annual production while lower future development capital combined with significant positive technical revisions resulted in a negative 2016 F&D cost of –$0.01/mcfe (-$0.06/ boe) and a three year average 2P F&D cost including the change in future development capital (“FDC”) of $0.46/mcfe ($2.76/boe).
As the Corporation continues to advance its Montney growth plan and expand its 100% owned Glacier gas plant to 400 mmcf/d (66,670 boe/d), we believe Advantage’s Glacier development is and will continue to be an industry leading and competitive North American low cost natural gas supply source as demonstrated by record achievements in its operating, financial and reserve addition results in 2016.
PDP reserves increased 26% to 381 Bcfe at a F&D cost of $0.84/mcfe ($5.04/boe). PDP reserves increased due to the recognition of 15 new wells that were brought on-production in 2016 and higher reserves assignments on historical producing wells due to shallower longer term declines than previously assumed.
Proved (“1P”) reserves increased 20% to 1.53 Tcfe (255.1 million boe) at a F&D cost of $0.25/mcfe ($1.49/boe) including the change in FDC. Reserve increases resulted from technical revisions which accounted for 60% of the 1P reserves additions and the conversion of probable locations to the proved reserves category as a result of Advantage’s successful drilling program.
2P reserves increased 13% to 2.20 Tcfe (366.1 million boe) at a F&D cost including the change in FDC of –$0.01/mcfe (-$0.06/boe). 2P FDC decreased by $131 million reflective of lower future well costs which were partly offset by increases in facilities costs to include an upsized Glacier gas plant expansion to 400 mmcf/d and future infrastructure costs including a frac water supply system, gas gathering system expansions and additional utilities. This reduction in FDC is due to Advantage’s ongoing achievements in improving capital efficiencies and lowering costs which has reduced capital requirements to support growth. The 2016 2P reserves include an addition of 24 new Glacier Montney well locations including 10 undeveloped locations that were added in 2016. A total of 307 undeveloped locations were booked in the 2016 reserve report. Management estimates approximately 1,100 total Montney locations remain undrilled at Glacier.
The Corporation replaced 429% of its 2016 annual production on a 2P basis, 438% on a 1P basis and 206% on a PDP basis at Recycle Ratios of -266.6x (7.0x excluding the change in FDC), 11.4x and 3.4x, respectively. The strong recycle ratios reinforces Advantage’s industry leading low cost structure which continues to support strong netbacks and profit margins. These recycle ratios included the Corporation’s hedges and were achieved in the environment where the AECO daily natural gas price averaged Cdn $2.16/mcf in 2016.
At year-end 2016, Advantage’s 2P reserves grew 13% and 18% on a debt adjusted basis and 1P reserves grew 20% and 26% on a debt adjusted per share basis compared to year-end 2015.
Since Advantage’s Glacier Montney development program began in 2008, 2P reserves have grown 3,800% to 2.2 Tcfe (366.1 million boe) with a 2P reserve Net Present Value of $2.2 Billion as at December 31, 2016 (10% discount factor on a pre-tax basis).
The cumulative efficiencies achieved to date have allowed the Corporation to continue to deliver profitable and sustainable growth. This is further reflected in our 2017 through 2019 strategic growth plan which is targeted to deliver 52% production growth per share (16% on an average annual production per share basis) while reducing estimated year-end total debt to trailing cash flow to 0.2x in 2019 at an average AECO natural gas price of Cdn $2.95/mcf ($2.80/GJ) as outlined in Advantage’s “2017 Budget and Development Plan” press release dated November 28, 2016.
Notable 2016 Reserve Changes and Analysis
Sproule Associates Ltd. (“Sproule”) was engaged as an independent qualified reserve evaluator to evaluate Advantage’s year-end reserves as of December 31, 2016 (“Sproule 2016 reserve report”) in accordance with National Instrument 51-101 (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”). Reserves are stated on a gross (before royalties) working interest basis unless otherwise indicated. Additional details are provided in the accompanying tables to this release and additional reserve information as required under NI 51-101 will be included in our Annual Information Form which will be filed on SEDAR on or before March 31, 2017.
All 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 year-end results after markets close on March 2, 2017.
- The Sproule 2016 reserve report demonstrates the continued and efficient conversion of identified natural gas and natural gas liquids resources into 2P reserves. The reserves by category and year over year changes compared to 2015 are indicated below:
Reserve |
Conventional |
NGLs |
Total Gas |
% Change from |
PDP |
0.36 |
3.65 |
0.38 |
26% |
1P |
1.44 |
15.53 |
1.53 |
20% |
2P |
2.06 |
23.54 |
2.20 |
13% |
- The total number of 2P future well locations booked and the 2P estimated ultimate recoverable (“EUR”) conventional natural gas volumes per well assigned by Sproule in the Sproule 2016 reserve report are illustrated in the following table:
Sproule # of Gross Horizontal Wells Booked |
Sproule Average EUR/well (bcf raw /well) |
||
Developed |
Undeveloped |
Undeveloped |
|
Upper |
102 |
141 |
5.9 |
Middle |
22 |
82 |
4.9 |
Lower |
43 |
84 |
6.4 |
Total |
167 |
307 |
- The Sproule 2016 reserve report average 2P recovery per well increased for Upper Montney undeveloped locations from 5.5 bcf/well to 5.9 bcf/well. The average 2P recovery per well increased for Middle Montney undeveloped locations from 4.6 bcf/well to 4.9 bcf/well reflective of higher initial production rates and lower declines. The average 2P recovery per well for Lower Montney undeveloped locations increased from 5.9 bcf/well to 6.4 bcf/well. Advantage’s Management estimates over 1,100 locations remain undrilled at Glacier based on the five Montney development layers within our 300 meter thick Montney reservoir.
- Advantage’s 1P reserve life index is 19 years and its 2P reserve life index is 27 years based on the Corporation’s average fourth quarter 2016 production rate of approximately 221 mmcfe/d.
- The 2P Reserve Net Present Value determined by Sproule is approximately $2.2 billion as at December 31, 2016 (10% discount factor on a pre-tax basis).
2016 Summary Results
During the fourth quarter of 2016 production increased 42% over the same period in 2015 to 221 mmcfe/d and Advantage outperformed its annual 2016 Guidance targets (please refer to Advantage’s Operational Update press release dated January 18, 2017).
Key operational results during the fourth quarter of 2016 and for calendar 2016 are indicated below:
Q4 2016E |
2016E |
||
Production (mmcfe/d) |
221 |
203 |
|
Royalties % |
5.6% |
3.0% |
|
Operating Cost ($/mcfe) |
$0.22 |
$0.27 |
|
Operating netback ($/mcfe) |
$2.83 |
$2.46 |
|
Capital Expenditures ($ millions) |
$30 |
$128 |
|
Total Debt including working capital ($ millions) |
$159 |
$159 |
(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 year-end results after markets close on March 2, 2017)
Looking Forward
The Sproule 2016 reserve report demonstrates another year of highly efficient reserve additions at Glacier reaffirming the exceptional quality of our Montney asset and the outstanding achievements of our team who accomplished this in a safe and environmentally responsible manner. Looking ahead, Advantage remains highly focused on maintaining operational and financial flexibility in conjunction with growth plans that generate profitability during lower commodity price cycles while preserving significant upside torque. We look forward to reporting on our progress through 2017.
RESERVE SUMMARY TABLES
Company Gross (before royalties) Working Interest Reserves
Summary as at December 31, 2016
Light & Medium (mbbl) |
Natural Gas Liquids (mbbl) |
Conventional (mmcf) |
Total Oil (mboe) |
|
Proved |
||||
Developed Producing |
8 |
3,645 |
358,980 |
63,484 |
Developed Non-producing |
– |
597 |
50,736 |
9,053 |
Undeveloped |
– |
11,281 |
1,027,433 |
182,520 |
Total Proved |
8 |
15,524 |
1,437,149 |
255,057 |
Probable |
3 |
8,005 |
618,249 |
111,049 |
Total Proved + Probable |
11 |
23,529 |
2,055,398 |
366,106 |
(1) Tables may not add due to rounding. |
Company Net Present Value of Future Net Revenue using Sproule price and cost forecasts (1)(2)(3)
($000)
Before Income Taxes Discounted at |
|||
0% |
10% |
15% |
|
Proved |
|||
Developed Producing |
1,084,909 |
720,793 |
616,180 |
Developed Non-producing |
186,551 |
90,765 |
72,810 |
Undeveloped |
2,587,841 |
614,694 |
298,395 |
Total Proved |
3,859,301 |
1,426,251 |
987,386 |
Probable |
2,384,445 |
787,492 |
546,369 |
Total Proved + Probable |
6,243,745 |
2,213,743 |
1,533,754 |
(1) |
Advantage’s light and medium oil, conventional natural gas and natural gas liquid reserves were evaluated using Sproule’s product price forecast effective December 31, 2016 prior to the provision for income taxes, interests, debt services charges and general and administrative expenses. It should not be assumed that the discounted future net revenue estimated by Sproule represents the fair market value of the reserves. |
(2) |
Assumes that development of Glacier will occur, without regard to the likely availability to the Corporation of funding required for that development. |
(3) |
Future Net Revenue incorporates Managements’ estimates of required abandonment and reclamation costs, including expected timing such costs will be incurred, associated with all wells, facilities and infrastructure. No abandonment and reclamation costs have been excluded. |
(4) |
Tables may not add due to rounding. |
Sproule Price Forecasts
The net present value of future net revenue at December 31, 2016 was based upon natural gas and natural gas liquids pricing assumptions prepared by Sproule effective December 31, 2016. These forecasts are adjusted for reserve quality, transportation charges and the provision of any applicable sales contracts. The price assumptions used over the next seven years are summarized in the table below:
Year |
Alberta AECO-C Natural Gas ($Cdn/mmbtu) |
Henry Hub Natural Gas ($US/mmbtu) |
Edmonton Propane ($Cdn/bbl) |
Edmonton Butane ($Cdn/bbl) |
Edmonton Pentanes Plus ($Cdn/bbl) |
Exchange Rate ($US/$Cdn) |
2017 |
3.44 |
3.50 |
22.74 |
47.60 |
67.95 |
0.78 |
2018 |
3.27 |
3.50 |
28.04 |
55.49 |
75.61 |
0.82 |
2019 |
3.22 |
3.50 |
30.64 |
57.65 |
78.82 |
0.85 |
2020 |
3.91 |
4.00 |
32.27 |
58.80 |
80.47 |
0.85 |
2021 |
4.00 |
4.08 |
33.95 |
59.98 |
82.15 |
0.85 |
2022 |
4.10 |
4.16 |
35.68 |
61.18 |
83.86 |
0.85 |
2023 |
4.19 |
4.24 |
37.46 |
62.40 |
85.61 |
0.85 |
Company Gross (before royalties) Working Interest Reserves Reconciliation (1):
Proved |
Light & (mbbl) |
Natural Gas Liquids (mbbl) |
Conventional Gas (mmcf) |
Total Oil Equivalent (mboe) |
Opening balance Dec. 31, 2015 |
9.4 |
12,097 |
1,206,484 |
213,187 |
Extensions |
– |
3,166 |
142,211 |
26,868 |
Infill Drilling |
– |
– |
– |
– |
Improved recovery |
– |
– |
– |
– |
Technical revisions |
0.5 |
846 |
190,852 |
32,655 |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
– |
– |
– |
Royalty Changes |
– |
(166) |
(20,901) |
(3,650) |
Economic factors |
(0.1) |
(86) |
(9,087) |
(1,600) |
Production |
(1.4) |
(334) |
(72,410) |
(12,404) |
Closing balance at Dec. 31, 2016 |
8.4 |
15,524 |
1,437,149 |
255,057 |
Proved Plus Probable |
Light & (mbbl) |
Natural Gas Liquids (mbbl) |
Conventional Gas (mmcf) |
Total Oil Equivalent (mboe) |
Opening balance Dec. 31, 2015 |
12.2 |
20,121 |
1,831,284 |
325,347 |
Extensions |
– |
3,966 |
174,684 |
33,080 |
Infill Drilling |
– |
– |
– |
– |
Improved recovery |
– |
– |
– |
– |
Technical revisions |
0.5 |
(225) |
149,264 |
24,653 |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
– |
– |
– |
Royalty Changes |
– |
106 |
(15,929) |
(2,549) |
Economic factors |
(0.2) |
(106) |
(11,495) |
(2,022) |
Production |
(1.4) |
(334) |
(72,410) |
(12,404) |
Closing balance at Dec. 31, 2016 |
11.1 |
23,529 |
2,055,398 |
366,106 |
(1) |
Technical revisions accounted for 60% of the total proved additions and 46% of the total proved plus probable additions. Percentage of each category calculated by dividing the technical revisions in the category by the total reserve additions in the same category before production. |
(2) |
Tables may not add due to rounding. |
Company Finding & Development Costs (“F&D”)
Company 2016 F&D Costs – Gross (before royalties) Working Interest Reserves including Future Development Capital (1)(2)(3)
Proved |
Proved + Probable |
|
Capital expenditures ($000) |
128,014 |
128,014 |
Net change in Future Development Capital ($000) |
(47,091) |
(131,400) |
Total capital ($000) |
80,923 |
(3,386) |
Total mboe, end of year |
255,057 |
366,106 |
Total mboe, beginning of year |
213,187 |
325,347 |
Production, mboe |
12,404 |
12,404 |
Reserve additions, mboe |
54,274 |
53,163 |
2016 F&D costs ($/boe) |
$1.49 |
$(0.06) |
2015 F&D costs ($/boe) |
$5.22 |
$4.65 |
Three-year average F&D costs ($/boe) |
$4.53 |
$2.76 |
(1) |
F&D costs are calculated by dividing total capital by reserve additions during the applicable period. Total capital includes both capital expenditures incurred and changes in FDC required to bring the proved undeveloped and probable reserves to production during the applicable period. Reserve additions is calculated as the change in reserves from the beginning to the ending of the applicable period excluding production. |
(2) |
The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC generally will not reflect total finding and development costs related to reserves additions for that year. Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect Sproule’s best estimate of what it will cost to bring the proved undeveloped and probable reserves on production. |
(3) |
The change in FDC is primarily from lower future well costs which were partly offset by increases in facilities costs to include an upsized Glacier gas plant expansion to 400 mmcf/d and future infrastructure costs such as a frac water supply system, gas gathering system expansions and additional utilities. |