CALGARY, AB, Feb. 25, 2021 /CNW/ – Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce increased 2021 production guidance, reduced 2021 capital guidance, and 2020 year-end results and reserves highlights.
Results from Advantage’s 2020 drilling program have exceeded expectations both in costs and well performance, positively impacting our 2020 reserves, financial outlook and 2021 guidance. Drilling in 2020 was entirely gas-focused at Glacier, with the first wells drilled in July and brought onstream in November.
Increasing 2021 production guidance range to 48,000 to 51,000 boe/d (from 47,000 to 49,000 boe/d)
- Average initial well productivity at Glacier from 2020 wells increased 87% over prior programs
- Only six of 13 wells drilled in 2020 were brought on-production prior to year-end, with the remainder brought on-production in early 2021 while gas prices were escalating
- Improved cycle times to equip wells and deliver production to market within 3 days
- Five wells drilled in Q1 2021 will be completed after spring breakup with production anticipated to begin in third quarter 2021
- Frac intensity and well design will continue to be progressed through the 2021 program
Reducing 2021 capital guidance range to $115 million to $135 million (from $125 million to $150 million)
- 2021 capital efficiency(a) expected to be approximately $8,400/boe/d
- Reduced drilling, completions and tie-in costs by 20%, allowing 2 wells to be added to the winter program without increasing total capital
- Focus will remain on gas drilling, and additional oil infrastructure has been deferred into 2022
- Significant flexibility remains in the capital spending plan, with optionality to throttle capital between oil-weighted and gas-weighted assets and strategic investments
Reinforcing corporate strategy:
Advantage believes that disciplined investment and balance sheet strength are crucial to maximize returns for our shareholders. Based on current futures pricing, our net debt to AFF(a) ratio is forecast to be 1x by exit 2021. Capital required to sustain production is less than $75 million per year, due to our quality assets and low annual decline rate of 23%. In 2021 Advantage anticipates delivering approximately $70 million of free cash flow(a) (after capital) and over a three-year period, can generate $225 million of free cash flow(a) while growing 7% per year. This financial strength will provide the basis to:
- Continue to deliver moderate annual production growth (between 5% and 10%) utilizing existing capacity at our Glacier Gas Plant, given a constructive gas price outlook
- Enhance corporate resilience and scale through:
- growing our liquids production, balancing our high exposure to gas pricing
- revenue-generating cleantech investments that leverage our carbon capture and sequestration expertise
- acquisitions that create efficiencies and scale
- Potentially return capital to shareholders
2020 Financial Highlights
- Annual 2020 cash provided by operating activities of $101 million and adjusted funds flow(a) of $105 million or $0.56/share
- Maintained low cash costs including operating costs of $2.43/boe, royalties of $0.64/boe, transportation expenses of $3.39/boe, general and administrative costs of $0.69/boe and finance costs of $1.11/boe
- Sold 12.5% working interest in the Glacier Gas Plant for $100 million
- Reduced net debt(a) to $251 million from $304 million
- Year-end net debt to AFF(a) was 2.4 with bank debt of $247 million drawn on the Corporation’s $350 million credit facility
Although commodity pricing was unusually volatile, Advantage successfully exited 2020 in a stronger position than it entered. By reducing capital spending, fortifying the balance sheet and focusing on highest return development projects, Advantage is accelerating into 2021 and capitalizing on the constructive natural gas pricing fundamentals.
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. |
Financial Highlights |
Three months ended December 31 |
Year ended December 31 |
|||||||
($000, except as otherwise indicated) |
2020 |
2019 |
2020 |
2019 |
|||||
Financial Statement Highlights |
|||||||||
Sales including realized derivatives |
$ |
69,930 |
$ |
76,921 |
$ |
240,058 |
$ |
275,237 |
|
Net income (loss) and comprehensive income (loss) |
$ |
24,168 |
$ |
(1,844) |
$ |
(284,045) |
$ |
(24,654) |
|
per basic share (2) |
$ |
0.13 |
$ |
(0.01) |
$ |
(1.51) |
$ |
(0.13) |
|
Basic weighted average shares (000) |
188,113 |
186,911 |
187,761 |
186,659 |
|||||
Cash provided by operating activities |
$ |
30,260 |
$ |
39,965 |
$ |
100,714 |
$ |
156,063 |
|
Cash provided by financing activities |
$ |
5,071 |
$ |
20,037 |
$ |
48,087 |
$ |
24,317 |
|
Cash used in investing activities |
$ |
37,325 |
$ |
50,365 |
$ |
158,621 |
$ |
173,640 |
|
Other Financial Highlights |
|||||||||
Adjusted funds flow (1) |
$ |
31,738 |
$ |
44,452 |
$ |
104,661 |
$ |
155,180 |
|
per boe (1) |
$ |
7.92 |
$ |
10.20 |
$ |
6.37 |
$ |
9.59 |
|
per basic share (1)(2) |
$ |
0.17 |
$ |
0.23 |
$ |
0.56 |
$ |
0.83 |
|
Net capital expenditures (1) |
$ |
32,390 |
$ |
59,609 |
$ |
157,935 |
$ |
184,922 |
|
Working capital deficit (1) |
$ |
4,292 |
$ |
7,996 |
$ |
4,292 |
$ |
7,996 |
|
Bank indebtedness |
$ |
247,105 |
$ |
295,624 |
$ |
247,105 |
$ |
295,624 |
|
Net debt (1) |
$ |
251,397 |
$ |
303,620 |
$ |
251,397 |
$ |
303,620 |
|
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. |
2020 Operational Highlights
- Record annual production of 44,922 boe/d (243 mmcf/d natural gas, 2,379 bbls/d crude oil and condensate, and 2,029 bbls/d NGLs). Exit production was 45,850 boe/d (247 mmcf/d natural gas, 2,219 bbls/d crude oil and condensate, and 2,464 bbls/d NGLs).
- Record annual liquids production of 4,408 bbls/d (up 63%).
- Drilled 13 wells at Glacier. Initial well productivity increased by 87%, resulting from enhanced execution strategies. The first 10 wells drilled at Glacier were producing 95 mmcf/d after an average of 60 days on production and the remaining wells recently came onstream at similar per well levels.
- Cycle times between completion and permanent production reduced to 3 days.
- De-risked two new liquids-weighted core areas (Progress and Wembley), resulting in annual liquids production increase of 63%.
- Constructed and commissioned Wembley oil battery and expanded Progress infrastructure
- Capital efficiency(a) was $14,650/boe/d, including $70 million for major facilities projects, and $8,150/boe/d excluding major facilities expenditures.
Operating Highlights |
Three months ended December 31 |
Year ended December 31 |
||||||
2020 |
2019 |
2020 |
2019 |
|||||
Operating |
||||||||
Production |
||||||||
Crude oil and condensate (bbls/d) |
2,306 |
1,337 |
2,379 |
1,166 |
||||
NGLs (bbls/d) |
2,234 |
1,694 |
2,029 |
1,534 |
||||
Total liquids production (bbls/d) |
4,540 |
3,031 |
4,408 |
2,700 |
||||
Natural gas (mcf/d) |
233,949 |
266,035 |
243,081 |
249,802 |
||||
Total production (boe/d) |
43,532 |
47,370 |
44,922 |
44,334 |
||||
Average realized prices (including realized derivatives) |
||||||||
Natural gas ($/mcf) |
$ |
2.45 |
$ |
2.58 |
$ |
2.02 |
$ |
2.49 |
Crude oil and condensate ($/bbl) |
$ |
55.08 |
$ |
68.53 |
$ |
48.58 |
$ |
67.34 |
NGLs ($/bbl) |
$ |
27.04 |
$ |
33.75 |
$ |
24.35 |
$ |
35.31 |
Operating Netback ($/boe) |
||||||||
Petroleum and natural gas sales from production |
$ |
18.28 |
$ |
17.69 |
$ |
14.91 |
$ |
15.53 |
Net sales of natural gas purchased from third parties (1) |
– |
– |
– |
(0.09) |
||||
Realized gains (losses) on derivatives |
(0.74) |
(0.04) |
(0.28) |
1.48 |
||||
Royalty expense |
(0.77) |
(0.51) |
(0.64) |
(0.29) |
||||
Operating expense |
(2.68) |
(1.89) |
(2.43) |
(1.98) |
||||
Transportation expense |
(3.62) |
(3.46) |
(3.39) |
(3.50) |
||||
Operating netback (1) |
$ |
10.47 |
$ |
11.79 |
$ |
8.17 |
$ |
11.15 |
1. |
Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see “Non-GAAP Measures”. |
2020 Reserve Evaluation by Sproule Associates Limited (“Sproule”)
2020 Reserves Highlights
- Proved Developed Producing (“PDP”) additions were 120% of 2020 total production, at a finding and development (“F&D”) cost of $8.41/boe.
- Proved plus Probable (“2P”) additions were 500% of 2020 total production, at an F&D cost of $2.80/boe.
- Average 2P reserves per booked location increased 18% as a result of enhanced geological targeting and frac designs, leading to increased confidence in higher reserve recoveries. These results were the basis for 367 bcfe of positive technical revision.
- PDP reserves increased 4%, 1P reserves increased 10%, 2P reserves increased 14%
- Corporate decline is less than 23%.
- Reserves life index (“RLI”) for PDP was 7 years, 1P was 24 years, 2P was 34 years based on the Corporation’s average fourth quarter 2020 production rate of approximately 43,532 boe/d.
2020 Reserves Highlights |
PDP |
1P (1) |
2P |
2020 Reserves (million boe) |
109.9 |
387.0 |
532.0 |
2020 F&D Cost ($/per boe, including FDC(2)) |
$8.41 |
$3.63 |
$2.80 |
2020 Recycle ratio |
1.2 |
2.9 |
3.7 |
2020 Reserves Increase Over 2019 |
3.7% |
9.7% |
14.2% |
(1) Proved reserves (“1P”). |
|
(2) Future development capital (“FDC”). |
RESERVES SUMMARY TABLES
Company Gross (before royalties) Working Interest Reserves
Summary as at December 31, 2020
Light & (mbbl) |
Conventional (mmcf) |
Natural Gas Liquids (mbbl) |
Total Oil (mboe) |
|
Proved |
||||
Developed Producing |
1,382 |
616,445 |
5,731 |
109,854 |
Developed Non-producing |
– |
3,309 |
8 |
559 |
Undeveloped |
6,863 |
1,522,632 |
15,975 |
276,610 |
Total Proved |
8,245 |
2,142,386 |
21,714 |
387,023 |
Probable |
5,838 |
786,756 |
8,046 |
145,011 |
Total Proved + Probable |
14,083 |
2,929,142 |
29,760 |
532,034 |
(1) |
Table may not add due to rounding. |
Company Net Present Value of Future Net Revenue using the IQRE Average Forecasts (1)(2)(3)($000)
Before Income Taxes Discounted at |
|||
0% |
10% |
15% |
|
Proved |
|||
Developed Producing |
1,227,332 |
741,275 |
621,688 |
Developed Non-producing |
2,764 |
539 |
69 |
Undeveloped |
2,999,967 |
740,744 |
428,676 |
Total Proved |
4,230,063 |
1,482,558 |
1,050,432 |
Probable |
2,382,972 |
708,514 |
481,035 |
Total Proved + Probable |
6,613,035 |
2,191,072 |
1,531,467 |
(1) |
Advantage’s light and medium oil, conventional natural gas and natural gas liquid reserves were evaluated using the IQRE Average Forecast effective December 31, 2020 prior to the provision for income taxes, interests, debt services charges and general and administrative expenses. It should not be assumed that the discounted future net revenue estimated by Sproule represents the fair market value of the reserves. |
(2) |
Assumes that development of reserves will occur, without regard to the likely availability to the Corporation of funding required for that development. |
(3) |
Future Net Revenue incorporates Managements’ estimates of required abandonment and reclamation costs, including expected timing such costs will be incurred, associated with all wells, facilities and infrastructure. |
(4) |
Table may not add due to rounding. |
IQRE Average Forecasts
The net present value of future net revenue at December 31, 2020 was based upon light and medium oil, conventional natural gas and natural gas liquid pricing assumptions, which was computed by using the average of the forecasts (“IQRE Average Forecast“) prepared by McDaniel & Associates Consultants Ltd., GLJ Petroleum Consultants and Sproule effective December 31, 2020. These forecasts are adjusted for reserves quality, transportation charges and the provision of any applicable sales contracts. The price assumptions used over the next seven years are summarized in the table below:
Year |
Canadian |
Alberta Natural Gas ($Cdn/mmbtu) |
Edmonton Propane ($Cdn/bbl) |
Edmonton Butane ($Cdn/bbl) |
Edmonton Pentanes Plus ($Cdn/bbl) |
Exchange Rate ($US/$Cdn) |
2021 |
55.76 |
2.78 |
18.18 |
26.36 |
59.24 |
0.77 |
2022 |
59.89 |
2.70 |
21.91 |
32.85 |
63.19 |
0.77 |
2023 |
63.48 |
2.61 |
24.57 |
39.20 |
67.34 |
0.76 |
2024 |
65.76 |
2.65 |
25.47 |
40.65 |
69.77 |
0.76 |
2025 |
67.13 |
2.70 |
26.00 |
41.50 |
71.18 |
0.76 |
2026 |
68.53 |
2.76 |
26.54 |
42.36 |
72.61 |
0.76 |
2027 |
69.95 |
2.81 |
27.09 |
43.24 |
74.07 |
0.76 |
Company Gross (before royalties) Working Interest Reserves Reconciliation (1):
Proved |
Light & (mbbl) |
Conventional (mmcf) |
Natural Gas Liquids (mbbl) |
Total Oil Equivalent (mboe) |
Opening balance Dec. 31, 2019 |
6,679 |
1,934,120 |
23,792 |
352,824 |
Extensions and improved recovery |
2,654 |
81,848 |
1,632 |
17,927 |
Technical revisions(1) |
(279) |
230,115 |
(2,544) |
35,530 |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
– |
– |
– |
Dispositions |
– |
– |
– |
– |
Economic factors |
(200) |
(14,730) |
(162) |
(2,818) |
Production |
(609) |
(88,967) |
(1,004) |
(16,441) |
Closing balance at Dec. 31, 2020 |
8,245 |
2,142,386 |
21,714 |
387,023 |
Proved Plus Probable |
Light & (mbbl) |
Conventional (mmcf) |
Natural Gas Liquids (mbbl) |
Total Oil Equivalent (mboe) |
Opening balance Dec. 31, 2019 |
12,652 |
2,526,042 |
32,046 |
465,705 |
Extensions and improved recovery |
3,554 |
111,184 |
2,184 |
24,269 |
Technical revisions(1) |
(1,315) |
394,900 |
(3,314) |
61,188 |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
– |
– |
– |
Dispositions |
– |
– |
– |
– |
Economic factors |
(199) |
(14,016) |
(152) |
(2,687) |
Production |
(609) |
(88,967) |
(1,004) |
(16,441) |
Closing balance at Dec. 31, 2020 |
14,083 |
2,929,142 |
29,760 |
532,034 |
(1) |
Technical revisions accounted for 66% of the total proved additions and 72% 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 2020 F&D Costs – Gross (before royalties) Working Interest Reserves including FDC (1)(2)(3)
Proved |
Proved + Probable |
|
Net capital expenditures ($000)(a) |
157,935 |
157,935 |
Net change in FDC ($000) |
25,961 |
73,925 |
Total capital ($000) |
183,897 |
231,860 |
Total mboe, end of year |
387,023 |
532,034 |
Total mboe, beginning of year |
352,824 |
465,705 |
Production, mboe |
(16,441) |
(16,441) |
Reserve additions, mboe |
50,640 |
82,770 |
2020 F&D costs ($/boe) |
$3.63 |
$2.80 |
2019 F&D costs ($/boe) |
$4.26 |
$5.94 |
Three-year average F&D costs ($/boe) |
$5.10 |
$4.80 |
(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 undeveloped reserves to production during the applicable period. Reserves additions are 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 undeveloped reserves on production. |
(3) |
The change in FDC is primarily from incremental undeveloped locations. |
The reserves by category and year-over-year changes compared to 2019 are indicated below:
Reserve |
Light & |
Conventional |
Natural Gas |
Total Oil |
% |
PDP |
1.38 |
0.62 |
5.73 |
109.9 |
3.7% |
1P |
8.24 |
2.14 |
21.71 |
387.0 |
9.7% |
2P |
14.08 |
2.93 |
29.76 |
532.0 |
14.2% |
The total number of 2P future well locations booked in the Sproule 2020 Reserves Report are illustrated in the following table:
Sproule Number of Gross Horizontal Wells Booked |
|||
Developed |
Undeveloped |
Total |
|
Glacier |
222 |
281 |
503 |
Valhalla |
14 |
17 |
31 |
Wembley |
8 |
29 |
37 |
Progress |
6 |
10 |
16 |
Total |
250 |
337 |
587 |
With modern, low emissions-intensity assets and the Glacier carbon capture and sequestration asset, the Corporation continues to proudly deliver clean, reliable and sustainable energy, contributing to a reduction in global emissions by displacing high-carbon fuels. Advantage wishes to thank our employees, Board of Directors and our shareholders for their ongoing support.
The Corporation’s audited consolidated financial statements for the fiscal year ended December 31, 2020 together with the notes thereto, and Management’s Discussion and Analysis for the year ended December 31, 2020 have been filed on SEDAR and are available on the Corporation’s website at https://www.advantageog.com/investors/financial-reports. The Corporation’s audited consolidated financial statements for the fiscal year ended December 31, 2020 are also available on the Corporation’s website via the same webpage. Upon request, Advantage will provide a hard copy of any financial reports free of charge.