CALGARY – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce solid first quarter 2020 operating results including production of 46,458 boe/d (up 3% from first quarter 2019) and record liquids production of 3,714 bbls/d (up 83% from first quarter 2019) with continued low operating costs of $2.28/boe. Production from new wells at Progress and Pipestone/Wembley is meeting or exceeding expectations, and performance of the foundational assets at Glacier and Valhalla has remained robust.
Advantage’s highly active first quarter included the completion of strategic oil infrastructure projects at both Pipestone/Wembley and Progress. With the recent commissioning of this infrastructure, Advantage has established flexibility to optimize capital deployment between our prolific low-cost gas at Glacier, our prolific condensate-rich gas at Valhalla, and our high quality light oil assets at Wembley and Progress.
In response to the current shift in commodity prices, the Corporation has updated 2020 capital guidance to between $130 million and $145 million, with plans to moderate liquids growth and focus spending on the highest rate-of-return investments at Glacier. This plan is designed to increase liquidity and financial flexibility, bolstering our ability to pursue strategic opportunities and execute value-generating investments with a disciplined approach. In conjunction with the Corporation’s recently announced sale of 12.5% of our Glacier Gas Plant for $100 million (see Advantage news release dated April 13, 2020) to fortify our balance sheet, Advantage will continue to target a net debt to adjusted funds flow(a) ratio of 2x or less in 2021.
Advantage wishes to thank our field staff, head office staff and service providers for their commitment and hard work required to complete recent projects under strict health protocols, during the COVID 19 pandemic. We commend and appreciate their dedication, along with other industry producers and all front-line workers, as we continue to deliver environmentally responsible, essential energy to Canada and the world.
First quarter 2020 results:
- Total production of 46,458 boe/d including natural gas production of 256.5 mmcf/d and liquids production of 3,714 bbls/d
- Cash provided by operating activities of $20.8 million and adjusted funds flow(a) of $32.1 million or $0.17 per share
- Net capital expenditures(a) of $93.6 million. This included $49 million of infrastructure spending to establish efficient operations at both Wembley and Progress. First half 2020 spending remains approximately $100 million. All drilling, completions and facilities spending required to meet 2020 production guidance is now substantially complete; remaining capital spending is primarily discretionary investment in the highest rate-of-return projects.
- Bank indebtedness of $330.6 million and net debt(a) of $364.9 million. The Corporation intends to use the proceeds from the $100 million sale of 12.5% of our Glacier Gas Plant to reduce bank indebtedness on closing in July.
- Maintained low cash costs including operating costs of $2.28/boe.
- A non-cash impairment expense of $361 million ($277 million net of tax) was recognized due to a significantly reduced independent reserve engineer price forecast attributable to exceptional commodity price volatility. The impairment has no impact on adjusted funds flow and could reverse in the future should the commodity futures recover.
a. Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.
At Progress, construction of a 26 km gathering system was completed during the first quarter, connecting five wells from our recently discovered light oil play to the Glacier Gas Plant. Productivity of the wells is exceeding expectations and the wells remain restricted, with maximum capacity of approximately 2,000 bbls/d, depending on frac water flowback rates. In preparation to construct a 5,000 bbl/d battery, $18 million was spent during the quarter to purchase major equipment. Construction of this battery has been deferred while oil prices remain impacted by the COVID pandemic.
At Wembley, construction of our 36 mmcf/d gas and 5,000 bbl/d liquids hub was completed and commissioned during April. With liquids extraction and compression now in place, liquids constraints at a third-party gas plant have been alleviated and wellhead pressures have been reduced. Since the battery was commissioned, the 8 Wembley wells drilled to date have been ramping up and producing at expectations.
At Glacier, one previously drilled well was brought on production during the quarter. The well averaged 7.5 mmcf/d and 7.5 MPa flowing pressure over the first 30 days of production. Approximately four wells will be drilled during the remainder of 2020, targeting low-risk prolific gas that will produce into existing processing capacity at the Glacier Gas Plant.
All four properties (Glacier, Valhalla, Wembley and Progress) now have established infrastructure and proven productivity. Development of each of the assets can continue within existing capacity, with no major infrastructure or land spending, providing strong returns in most commodity price environments. Advantage has minimal take-or-pay obligations, which provides flexibility to redirect capital to the highest rate-of-return projects, and to vary the pace of development freely.
Advantage has hedged approximately 55% of its natural gas production for the second and third quarters of this year. For 2021, 12% of forecast natural gas production is hedged between Henry Hub, Chicago and Dawn at an average price of US $2.51 per mmbtu, with more hedging planned in the coming months.