CALGARY, AB, July 29, 2021 /CNW/ – Advantage Energy Ltd. (“Advantage” or the “Corporation”) is pleased to report its second quarter 2021 results including record production of 50,011 boe/d, a significant increase in free cash flow(a) and accelerated debt reduction.
Production from the winter drilling program continued to exceed expectations while gas prices remained elevated during the quarter, with the payout of new wells averaging 8 months from the on-stream date. Production was relatively stable through the extreme heat event in June thanks to the outstanding efforts of our field staff and robust facility designs. Drilling and completions activities resumed approximately 3 to 4 weeks ahead of schedule made possible by an unusually brief spring breakup.
Operating and Financial Highlights for the Quarter
- Cash provided by operating activities was $57.1 million
- Adjusted funds flow (“AFF”)(a) increased 168% from second quarter 2020 to $46.3 million ($0.24 per share)
- Cash used in investing activities was $20.8 million while net capital expenditures(a) were $22.5 million
- Free cash flow (“FCF”)(a) was $23.8 million, representing 51% of AFF
- Net debt(a) fell to $195.3 million, a reduction of $19.2 million from Q1 2021 and $162.2 million from Q2 2020
- Reduced net debt to AFF(a) ratio to 1.3x
- Record total production of 50,011 boe/d, up 10% over Q2 2020, with record gas production of 274 mmcf/d
- Liquids production of 4,290 bbls/d (1,163 bbls/d crude oil, 637 bbls/d condensate, and 2,490 bbls/d NGLs)
- Maintained low cash costs including operating costs of $2.21/boe
- Increased operating netbacks(a) to $12.51/boe, up 117% from second quarter 2020
Operational Update
- At Glacier, the continued outperformance of new wells and available capacity in the Advantage owned and operated Glacier Gas Plant provide flexibility to increase production while natural gas prices remain elevated
- Completions on a five-well Glacier pad drilled in Q1 began ahead of schedule, with wells currently flowing back on clean-up
- Two wells were drilled at Valhalla with completions planned for Q3 2021
- Thirteen additional wells are scheduled to be drilled in the second half of 2021 with the primary focus remaining on Glacier
- The northwest segment of the Glacier gas gathering system was commissioned in early April, increasing capacity and eliminating restrictions on existing and future well pads
- All major equipment for the Glacier Gas Plant Carbon Capture and Storage project (phase 1) has been ordered and expected on-stream date remains April 2022
Marketing Update
Advantage has hedged approximately 47% of its natural gas production for this summer and 21% for winter 2021/22. These hedges are fixed price swaps denominated at AECO, Henry Hub, Dawn and Chicago, reflective of the market exposures in our natural gas diversification strategy. Advantage has 48% of its total liquids production hedged for the remainder of 2021 with WTI swaps at an average price of US$49.14/bbl.
Looking Forward
As production has grown in the first half of 2021 and with continued strengthening of North American oil and natural gas prices, Advantage has delivered a significant increase to FCF and debt has been reduced faster than expected. Current guidance for 2021 remains at $115 to $135 million of capital (and tracking below the mid-point), delivering production of 48,000 to 51,000 boe/d. Targeted annual production per share growth remains between 5 and 10%.
Operationally, Advantage is well ahead of schedule due to the short spring break-up season and continued outperformance by the drilling team. As a result, Advantage has the opportunity to accelerate drilling in the fourth quarter of 2021, which would serve to increase 2022 production and reduce Q1 2022 spending. Advantage will continue to monitor market conditions and may accelerate $10 to $20 million in capital spending from Q1 2022 into the Q4 2021 program.
Advantage will continue to fortify its balance sheet and maximize returns for its shareholders by executing on its strategy to:
- Continue to deliver moderate production growth (between 5% and 10%) utilizing existing capacity at our Glacier Gas Plant
- Enhance corporate resilience and scale through:
- balancing our exposure to gas pricing by growing our liquids production
- revenue-generating cleantech investments through the Corporation’s subsidiary Entropy Inc. (“Entropy”) that will leverage our carbon capture and sequestration technology and expertise
- acquisitions that create efficiencies and scale
- Potentially return capital to shareholders
CEO Retirement Plan and Management Succession Update
Mr. Andy Mah has confirmed his plan to retire from the role of Chief Executive Officer of the Corporation effective December 31, 2021. Mr. Mah has provided over 15 years of corporate leadership including the successful conversion of Advantage from a Canadian Royalty Trust to a low cost, low emission, progressive Montney natural gas and liquids energy business. Advantage would like to thank Andy for his strong, dynamic leadership and lengthy track record of accomplishments. Mr. Mah will continue to provide his expertise and experience as a director on Advantage’s Board after his retirement as Chief Executive Officer.
In accordance with the Corporation’s management succession plan, Mr. Michael Belenkie will be appointed to the role of Chief Executive Officer effective January 1, 2022. Mr. Belenkie joined Advantage in 2018 and currently serves as President and Chief Operating Officer. Mr. Belenkie has been instrumental in expanding Advantage’s corporate strategy and development approach while helping to lead the repositioning of the Corporation for the new energy market. Mr. Belenkie will provide leadership to Entropy through the existing management services agreement between Entropy and Advantage.
Adoption of Automatic Securities Disposition Plan
Advantage has adopted an automatic securities disposition plan (the “ASDP“) specifically to enable Mr. Mah, to sell, on an automatic basis through an independent third-party broker (the “Broker“), certain securities of Advantage to facilitate estate and tax planning. It is expected that sales under the ASDP will commence after August 30, 2021. The ASDP will terminate in twelve (12) months subject to earlier termination in accordance with the ASDP.
The ASDP facilitates: (i) the automatic exercise of performance share awards granted to Mr. Mah by the Corporation (“Entitlements“); (ii) the automatic sale of common shares of Advantage (“Common Shares“) issuable on the exercise of the Entitlements; and (iii) the automatic sale of Common Shares.
Mr. Mah established the ASDP to sell up to an aggregate 700,000 Common Shares for estate and tax planning purposes in connection with his pending retirement. Mr. Mah provided the Broker with a set of written trading instructions pursuant to an agreement which required Mr. Mah to, among other things, certify that he is not in possession of material non-public information regarding Advantage.
The Broker will sell the securities under the ASDP according to the predetermined trading instructions given by Mr. Mah. Among other things, the trading instructions provide a minimum trading price at which the Common Shares may be sold pursuant to the ASDP. Sales will automatically occur on the open market through the facilities of the Toronto Stock Exchange and may occur under circumstances where Mr. Mah would ordinarily not be permitted to sell his securities due to restrictions under Canadian securities laws or trading black-outs imposed by Advantage’s Disclosure, Confidentiality and Trading Policy.
Mr. Mah is subject to meaningful restrictions on his ability to modify, suspend or terminate his participation in the ASDP that have the effect of ensuring that Mr. Mah cannot benefit from material non-public information. In addition, Mr. Mah may not amend or modify his instructions under the ASDP more than one (1) time during its term.
Mr. Mah may only participate in the ASDP if he continues to meet the minimum share ownership requirements set out in Advantage’s Director and Executive Share Ownership Policy.
Financial & Operating Summary
Financial Highlights
|
Three months ended June 30 |
Six months ended June 30 |
||||||
($000, except as otherwise indicated) |
2021 |
2020 |
2021 |
2020 |
||||
Financial Statement Highlights |
||||||||
Sales including realized derivatives |
$ |
88,512 |
$ |
48,593 |
$ |
183,309 |
$ |
114,365 |
Net income (loss) and comprehensive income (loss) |
$ |
8,725 |
$ |
(20,088) |
$ |
8,300 |
$ |
(286,607) |
per basic share (2) |
$ |
0.04 |
$ |
(0.11) |
$ |
0.04 |
$ |
(1.53) |
Basic weighted average shares (000) |
190,501 |
187,901 |
189,313 |
187,406 |
||||
Cash provided by operating activities |
$ |
57,134 |
$ |
24,357 |
$ |
108,700 |
$ |
45,183 |
Cash provided by (used in) financing activities |
$ |
(21,480) |
$ |
23,492 |
$ |
(29,028) |
$ |
58,452 |
Cash used in investing activities |
$ |
(20,834) |
$ |
(44,855) |
$ |
(35,903) |
$ |
(110,076) |
Other Financial Highlights |
||||||||
Adjusted funds flow (1) |
$ |
46,266 |
$ |
17,259 |
$ |
100,244 |
$ |
49,352 |
per boe (1) |
$ |
10.17 |
$ |
4.19 |
$ |
11.10 |
$ |
5.91 |
per basic share (1)(2) |
$ |
0.24 |
$ |
0.09 |
$ |
0.53 |
$ |
0.26 |
Net capital expenditures (1) |
$ |
22,482 |
$ |
10,663 |
$ |
59,667 |
$ |
104,293 |
Working capital surplus (deficit) (1) |
$ |
24,520 |
$ |
(3,295) |
$ |
24,520 |
$ |
(3,295) |
Bank indebtedness |
$ |
219,856 |
$ |
354,199 |
$ |
219,856 |
$ |
354,199 |
Net debt (1) |
$ |
195,336 |
$ |
357,494 |
$ |
195,336 |
$ |
357,494 |
(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 June 30 |
Six months ended June 30 |
||||||
2021 |
2020 |
2021 |
2020 |
|||||
Operating |
||||||||
Daily Production |
||||||||
Crude oil (bbls/d) |
1,163 |
2,018 |
1,278 |
1,595 |
||||
Condensate (bbls/d) |
637 |
627 |
679 |
803 |
||||
NGLs (bbls/d) |
2,490 |
2,001 |
2,492 |
1,782 |
||||
Total liquids production (bbls/d) |
4,290 |
4,646 |
4,449 |
4,180 |
||||
Natural gas (mcf/d) |
274,328 |
243,749 |
272,804 |
250,106 |
||||
Total production (boe/d) |
50,011 |
45,271 |
49,916 |
45,864 |
||||
Average realized prices (including realized derivatives) |
||||||||
Natural gas ($/mcf) |
$ |
2.81 |
$ |
1.72 |
$ |
2.93 |
$ |
1.92 |
Crude oil ($/bbl) |
$ |
39.30 |
$ |
37.52 |
$ |
43.43 |
$ |
46.08 |
Condensate ($/bbl) |
$ |
81.67 |
$ |
16.09 |
$ |
75.35 |
$ |
43.11 |
NGLs ($/bbl) |
$ |
42.09 |
$ |
14.44 |
$ |
42.30 |
$ |
22.57 |
Operating Netback ($/boe) |
||||||||
Petroleum and natural gas sales from production |
$ |
21.76 |
$ |
11.56 |
$ |
21.96 |
$ |
13.40 |
Realized gains (losses) on derivatives |
(2.12) |
0.23 |
(1.50) |
0.30 |
||||
Royalty expense |
(1.20) |
(0.26) |
(1.17) |
(0.58) |
||||
Operating expense |
(2.21) |
(2.43) |
(2.33) |
(2.35) |
||||
Transportation expense |
(3.72) |
(3.34) |
(3.64) |
(3.42) |
||||
Operating netback (1) |
$ |
12.51 |
$ |
5.76 |
$ |
13.32 |
$ |
7.35 |
(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 six months ended June 30, 2021 together with the notes thereto, and Management’s Discussion and Analysis for the three and six months ended June 30, 2021 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.