Production, operating costs and adjusted funds flow met or exceeded expectations, despite the volatile macroeconomic environment. Advantage’s strong foundations have supported the Corporation through the pandemic, with a fortified balance sheet (net debt to adjusted funds flow ratio of 2.1x), low base decline (23%), low operating cost ($2.35/boe) and low sustaining capital (under $80 million per year required to sustain production for minimum of three years).
Advantage’s 2021 capital program will target modest production growth (5-10%), with spending aimed at approximately 75% of projected adjusted funds flow. By focusing on highest rate-of-return, gas-weighted locations, adjusted funds flow growth will be maximized. Modest spending (~20% of total budget) will continue on future development initiatives, including infrastructure optimization, completion piloting in oil plays and expiry drilling.
Highlights for the quarter include:
- Cash provided by operating activities of $25.3 million
- Adjusted funds flow(a) of $23.6 million ($0.13 per share), with net capital expenditures(a) of $21.3 million ($2.3 million or 10% free cash flow(a))
- Total production of 44,448 boe/d (89% natural gas), an increase of 6% over third quarter 2019
- Liquids production achieved a record of 4,729 bbls/d (2,417 bbls/d crude oil and condensate, 2,312 bbls/d NGLs), up 51% from the third quarter 2019
- Gas production of 238 mmcf/d (up 2% from third quarter 2019), demonstrating the low decline rates of our natural gas assets, with only one Glacier well brought on-production in 2020
- Net loss was $21.6 million during the third quarter of 2020 due to lower realized gains on derivatives and $22.9 million unrealized losses on derivatives, partially offset by increased sales
- Reduced net debt from the second quarter of 2020 by $107.2 million, or 30%, as a result of proceeds from the sale of a 12.5% interest in the Glacier Gas Plant, together with free cash flow(a)
- Revolving credit facility of $350 million was renewed unchanged following completion of the fall semi-annual review
With a focus on delivering free cash flow and modest production growth, Advantage will continue to allocate capital primarily to high-return, short payout projects throughout our assets, and apply free cash flow to debt reduction.
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. |
Key Objectives For 2021 Budget:
- Grow 2021 production between 5% and 10% with exceptional growth anticipated in adjusted funds flow (“AFF”) based on current natural gas futures pricing
- 2021 net capital expenditures will target approximately 75% of AFF (2021 capital expected to be 10% to 15% below 2020 spending)
- Retain financial flexibility and discipline by targeting a net debt to AFF ratio approaching 1x by year-end 2021
2021 Budget Summary (1) (3) |
|
Cash Used in Investing Activities (2) (millions) |
$125 to $150 |
Average Production (boe/day) |
47,000 to 49,000 |
Liquids Production (% of total) |
8 to 9 |
Royalty Rate (%) |
3 to 5 |
Operating Expense ($/boe) |
$2.55 |
Transportation Expense ($/boe) |
$4.15 |
G&A/Finance Expense ($/boe) |
$2.00 |
Notes: |
|
(1) |
Forward-looking statements and information. Refer to Advisory for cautionary statements regarding Advantage’s budget including material assumptions and risk factors |
(2) |
Cash Used in Investing Activities is the same as Net Capital Expenditures as no change in non-cash working capital is assumed between years and other differences are immaterial |
(3) |
Management estimate |
Based on our current commodity price outlook for 2021, Advantage anticipates spending roughly three-quarters of its 2021 capital on Glacier gas-weighted development with 20% directed towards future development initiatives, including oil and liquids developments at Valhalla, Progress and Pipestone/Wembley. Advantage has maintained the flexibility to reallocate capital between assets should prices swing in favor of liquids development.
Operational Update
Advantage invested $21.3 million on property, plant, and equipment during the three months ended September 30, 2020. Advantage’s capital activity was focused primarily on drilling operations at Glacier.
With increasing gas prices, additional capital has been allocated to our foundational Glacier gas property for the balance of 2020. A ten well program has been planned for the second half of 2020, with five of the wells drilled and rig released in the third quarter. The remaining five wells will be drilled in the fourth quarter, along with completions of the first six wells. The remaining four wells will be completed in the first quarter of 2021.
At Valhalla, production remained partially restricted thanks to the continued outperformance of area wells, and with the introduction of production piped in from the Progress asset through the Valhalla 40 mmcf/d compressor and liquids hub. With the addition of gas from Progress and one remaining well shut-in awaiting capacity at Valhalla, the facility is anticipated to be full for the balance of 2020.
Advantage’s current standing well inventory consists of one well that is tied-in and five wells that are drilled and cased.
Hedging Update
Advantage has hedged approximately 49% of its natural gas production for the fourth quarter of 2020. The Corporation continues to increase its hedging position in 2021 and currently has 33% of forecast natural gas production hedged between AECO, Henry Hub, Chicago and Dawn at an average equivalent price of US$2.56/Mmbtu, assuming adjustment for foreign exchange at $0.76. Advantage has 44% of its crude oil and condensate production hedged for the fourth quarter of 2020 with WTI swaps at an average price of US$55.44/bbl and 27% of its crude oil and condensate production hedged for 2021 at US$43.00/bbl.
Financial Highlights
|
Three months ended September 30 |
Nine months ended September 30 |
||||||
($000, except as otherwise indicated) |
2020 |
2019 |
2020 |
2019 |
||||
Financial Statement Highlights |
||||||||
Sales including realized derivatives |
$ |
55,763 |
$ |
56,927 |
$ |
170,128 |
$ |
198,316 |
Net loss and comprehensive loss |
$ |
(21,606) |
$ |
(26,863) |
$ |
(308,213) |
$ |
(22,810) |
per basic share (2) |
$ |
(0.11) |
$ |
(0.14) |
$ |
(1.64) |
$ |
(0.12) |
Basic weighted average shares (000) |
188,113 |
186,911 |
187,643 |
186,574 |
||||
Cash provided by operating activities |
$ |
25,271 |
$ |
27,323 |
$ |
70,454 |
$ |
116,098 |
Cash provided by (used in) financing activities |
$ |
(15,436) |
$ |
5,010 |
$ |
43,016 |
$ |
4,202 |
Cash used in investing activities |
$ |
11,220 |
$ |
36,258 |
$ |
121,296 |
$ |
123,275 |
Other Financial Highlights |
||||||||
Adjusted funds flow (1) |
$ |
23,571 |
$ |
27,928 |
$ |
72,923 |
$ |
110,728 |
per boe (1) |
$ |
5.76 |
$ |
7.21 |
$ |
5.86 |
$ |
9.37 |
per basic share (1)(2) |
$ |
0.13 |
$ |
0.15 |
$ |
0.39 |
$ |
0.59 |
Net capital expenditures (1) |
$ |
21,252 |
$ |
48,313 |
$ |
125,545 |
$ |
125,313 |
Working capital deficit (1) |
$ |
9,093 |
$ |
13,322 |
$ |
9,093 |
$ |
13,322 |
Bank indebtedness |
$ |
241,161 |
$ |
275,594 |
$ |
241,161 |
$ |
275,594 |
Net debt (1) |
$ |
250,254 |
$ |
288,916 |
$ |
250,254 |
$ |
288,916 |
(1) |
Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see “Non-GAAP Measures”. |
(2) |
Based on basic weighted average shares outstanding. |
Operating Highlights
|
Three months ended September 30 |
Nine months ended September 30 |
||||||
2020 |
2019 |
2020 |
2019 |
|||||
Operating |
||||||||
Daily Production |
||||||||
Crude oil and condensate (bbls/d) |
2,417 |
1,388 |
2,404 |
1,110 |
||||
NGLs (bbls/d) |
2,312 |
1,754 |
1,960 |
1,478 |
||||
Total liquids production (bbls/d) |
4,729 |
3,142 |
4,364 |
2,588 |
||||
Natural gas (mcf/d) |
238,315 |
233,625 |
246,147 |
244,331 |
||||
Total production (boe/d) |
44,448 |
42,080 |
45,389 |
43,310 |
||||
Average realized prices (including realized derivatives) |
||||||||
Natural gas ($/mcf) |
$ |
1.81 |
$ |
2.04 |
$ |
1.88 |
$ |
2.45 |
Crude oil and condensate ($/bbl) |
$ |
49.19 |
$ |
66.52 |
$ |
46.48 |
$ |
66.79 |
NGLs ($/bbl) |
$ |
24.45 |
$ |
28.54 |
$ |
23.32 |
$ |
35.95 |
Operating Netback ($/boe) |
||||||||
Petroleum and natural gas sales from production |
$ |
14.69 |
$ |
11.98 |
$ |
13.82 |
$ |
14.73 |
Net sales of natural gas purchased from third parties (1) |
0.00 |
(0.03) |
0.00 |
(0.13) |
||||
Realized gains (losses) on derivatives |
(1.03) |
2.72 |
(0.14) |
2.04 |
||||
Royalty expense |
(0.63) |
(0.06) |
(0.60) |
(0.21) |
||||
Operating expense |
(2.35) |
(2.12) |
(2.35) |
(2.01) |
||||
Transportation expense |
(3.12) |
(3.58) |
(3.32) |
(3.51) |
||||
Operating netback (1) |
$ |
7.56 |
$ |
8.91 |
$ |
7.41 |
$ |
10.91 |
(1) |
Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see “Non-GAAP Measures”. |
The Corporation’s unaudited consolidated financial statements for the three and nine months ended September 30, 2020 together with the notes thereto, and Management’s Discussion and Analysis for the three and nine months ended September 30, 2020 have been filed on SEDAR and are available on the Corporation’s website at https://www.advantageog.com/investors/financial-reports. Upon request, Advantage will provide a hard copy of any financial reports free of charge.