CALGARY, AB – Advantage Energy Ltd. (“Advantage” or the “Corporation”) is pleased to report 2021 year-end results, reserves and an operational update.
Advantage achieved record results during 2021, while capital spending remained modest. Advantage’s long history of disciplined capital deployment continued, with every well drilled since the second half of 2020 achieving payout in under one year and many achieving payout in under 5 months. The Corporation has a line-of-sight to eliminate net debt during the third quarter (based on current strip commodity prices) and intends to initiate a share buyback program in second quarter pending regulatory approval.
Advantage’s affiliate Entropy Inc. continues to make progress on its previously announced financing (see News Release dated December 30, 2021) and remains on-track to close during the first quarter of 2022.
In order to maximize shareholder returns, Advantage’s priority is growing adjusted funds flow per share(a) while maintaining a strong balance sheet and enhancing profitability through all phases of the commodities cycle. With commodity pricing remaining strong, production spiking, long-term demand likely to continue to grow, decades of high-quality inventory and significant existing capacity at Advantage-owned facilities, Advantage is well positioned to continue generating significant shareholder value.
2021 Year-End Financial Highlights
- Record cash provided by operating activities of $223 million
- Record adjusted funds flow (“AFF”)(a) of $235 million or $1.24/share
- Record free cash flow (“FCF”)(a) of $85 million (36% of AFF)
- Cash used in investing activities was $118 million while net capital expenditures(a) were $149 million
- Net income of $411 million, which includes a full impairment recovery of $341 million
- Operating expenses remained low at $2.49/boe
- Net debt(a) decreased to $165 million (a 34% reduction year-over-year) while net debt to AFF(a) ratio fell to 0.7x
(a) |
Specified financial measure which is not a standardized measure under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar specified financial measures used by other entities. Please see “Specified Financial Measures” for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of Advantage uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure. |
2021 Operating Highlights
- Record annual production of 49,445 boe/d (269.7 mmcf/d natural gas, 4,493 bbls/d liquids), up 10% over 2020
- Liquids production of 4,493 bbls/d (1,101 bbls/d oil, 844 bbls/d condensate, and 2,548 bbls/d NGLs)
- Of all Alberta Montney wells drilled in 2021, fourteen of the top 25 gas wells were Advantage’s, based on IP90 rates
- At Glacier, 20 gross (17.4 net) wells were drilled and 27 gross (24.4 net) were completed. Average initial well performance continues to exceed previous programs and area peers by significant margins
- At Valhalla, 2 gross (2.0 net) wells were drilled and completed with record results
- At Wembley, 3 gross (3.0 net) wells were drilled
- Capital efficiency(a) was approximately $10,000/boe/d
2021 Reserves Highlights
- Proved Developed Producing (“PDP”) reserves increased 10%, with finding, development and acquisition (“FD&A”) (a) costs of $5.23/boe including Future Development Capital (“FDC”)
- Proved plus Probable (“2P”) reserves increased 4%, with FD&A(a) costs of $5.82/boe including FDC
- PDP reserve additions replaced(a) 163% of production
- 2P reserve additions replaced(a) 218% of production
- Recycle ratios(a) were 3.5x for PDP and 3.1x for 2P
- Average type well at Glacier increased to 7.9 bcf (2P)
- Reserves life index (“RLI”) (a) was 7 years for PDP and 32 years for 2P, based on the Corporation’s average fourth quarter 2021 production rate of 47,940 boe/d
Operational Update
Advantage expects 2022 average production to increase to between 52,000 boe/d and 55,000 boe/d based on the Corporation’s 2022 capital program (see News Release dated December 6, 2021). In March, five days of downtime are planned at Glacier for a plant turnaround and to complete final construction of the Phase 1 CCS project.
In anticipation of gas supply shortages and elevated pricing, Advantage accelerated $10 million of spending from January into December. As a result, January production was approximately 57,000 boe/d, with the Glacier Gas Plant periodically exceeding 375 mmcf/d (gross raw). Drilling focus has now shifted to oil and condensate targets at Wembley, Valhalla and Progress, with minimal new Glacier volumes expected to come onstream for the remainder of 2022.
At Wembley, construction of the trunk-line tying Advantage’s oil battery to Keyera’s Pipestone Processing Facility is nearing completion, on-time and on-budget with 2022 costs of $10 million. Once complete, Advantage will have access to a total of 40 mmcf/d of firm processing capacity in the area. Production at Wembley is expected to grow through 2022, with 6 recently-drilled wells coming on production in the second quarter and drilling of one additional pad toward the end of the year.
At Progress, a new compressor station which was partially constructed prior to the pandemic is nearing completion, on-time and on-budget with 2022 costs of $12 million. In addition to increasing system capacity for Advantage wells, the compressor will service firm-contracted third-party volumes of 10 mmcf/d generating $5.5 million of processing revenue on an annualized basis. These volumes are incremental to the existing 11 mmcf/d of third-party gas processed through Advantage’s owned infrastructure.
The Corporation has hedged 22% of its natural gas production for first quarter of 2022, 36% for summer 2022, 27% for winter 2022/23 and 8% for summer 2023.
Share Buyback Program
As Advantage believes there may be times when the market price of its common shares does not fully reflect the underlying value of its business, or when buying back shares may provide superior returns versus acquiring third-party assets. The Corporation intends to launch a share buyback program during the second quarter, subject to receiving regulatory approval and compliance with applicable laws. The primary goals of the buyback program are to provide returns to shareholders in a tax efficient manner, to improve per share metrics and to help maintain an efficient capital structure.
Indigenous Education Scholarship Program
Advantage is pleased to support Indigenous students in communities near Advantage’s operations in Alberta. Advantage aims to provide students with funding to pursue post–secondary education opportunities to benefit both the students and Alberta’s energy industry. Annual scholarships will be open to all students but primarily awarded to students pursuing studies in engineering, operations, geosciences, environmental studies, and trades related to the energy industry. Applications for Advantage’s Indigenous Education Scholarship program will be accepted between March 1st to July 15th of each year and scholarships will be announced prior to August 15th. To apply for the Scholarship Award, please email scholarship@advantageog.com for an application form and further instructions.
Board Retirement
As a part of Advantage’s board succession planning, Mr. Ron McIntosh plans to retire on May 5, 2022, after 24 years of service with Advantage and predecessor companies. The Advantage team thanks him deeply for his dedication and wishes him all the best in his retirement. The new Chair of the Board will be appointed after Advantage’s annual general and special meeting on May 5, 2022.
Looking Forward
In order to maximize shareholder returns, Advantage’s priority is growing adjusted funds flow per share(a) while maintaining a strong balance sheet. The capital program for the second half of 2022 will focus on oil-weighted growth which delivers outsized adjusted funds flow growth per unit of production growth, at current strip commodity pricing. While total production for 2022 is expected to grow by approximately 8%, relative adjusted funds flow is expected to grow by over 25%, assuming the same commodity prices.
At current strip commodity prices, Advantage expects 2022 AFF(a) to be more than double what it was in 2021. We are on-track to generate significant free cash flow(a) of over $140 million in the first half of 2022 and approach zero net debt(a) in the third quarter. Advantage’s decision to advance $10 million in capital spending from early 2022 into December 2021 has significantly benefited the Corporation with average production of approximately 57,000 boe/d in January 2022, coinciding with elevated gas prices, resulting in payout(a) of new wells in under 5 months.
Advantage’s 2022 capital program ($170 million to $200 million) is weighted towards the first quarter with spending of approximately $76 million or 40% of the total 2022 budget. Production is expected to average between 52,000 boe/d and 55,000 boe/d in 2022 (see News Release dated December 6, 2021). In March, five days of downtime are planned at Glacier for a plant turnaround and to complete final construction of the Phase 1 CCS project, with production expected to average 52,000 boe/d during the first quarter.
The Corporation has $1.4 billion of tax pools which are expected to provide cash tax deferrals for several years.
With modern, low emissions-intensity assets and the Glacier carbon capture and sequestration asset, the Corporation continues to proudly deliver clean, reliable, 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.
Below are the complete tables showing financial highlights, operating highlights and reserves results.
Financial Highlights
|
Three months ended December 31 |
Year ended December 31 |
||
($000, except as otherwise indicated) |
2021 |
2020 |
2021 |
2020 |
Financial Statement Highlights |
||||
Natural gas and liquids sales |
159,255 |
73,203 |
492,035 |
245,085 |
Net income (loss) and comprehensive income (loss) |
359,956 |
24,168 |
411,354 |
(284,045) |
per basic share (2) |
1.90 |
0.13 |
2.17 |
(1.51) |
Basic weighted average shares (000) |
190,829 |
188,113 |
190,077 |
187,761 |
Cash provided by operating activities |
67,464 |
30,260 |
223,152 |
100,714 |
Cash provided by (used in) financing activities |
(27,423) |
5,071 |
(83,411) |
48,087 |
Cash used in investing activities |
(44,939) |
(37,325) |
(117,782) |
(158,621) |
Other Financial Highlights |
||||
Adjusted funds flow (1) |
71,227 |
31,738 |
234,824 |
104,661 |
per boe (1) |
16.15 |
7.92 |
13.01 |
6.37 |
per basic share (1)(2) |
0.37 |
0.17 |
1.24 |
0.56 |
Net capital expenditures (1) |
58,384 |
32,390 |
149,403 |
157,935 |
Free cash flow (deficit) (1) |
12,843 |
(652) |
85,421 |
(53,274) |
Working capital (surplus) deficit (1) |
(2,092) |
4,292 |
(2,092) |
4,292 |
Bank indebtedness |
167,345 |
247,105 |
167,345 |
247,105 |
Net debt (1) |
165,253 |
251,397 |
165,253 |
251,397 |
(1) |
Specified financial measure which is not a standardized measure under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar specified financial measures used by other entities. Please see “Specified Financial Measures” for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of Advantage uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure. |
(2) |
Based on basic weighted average shares outstanding. |
Operating Highlights
|
Three months ended December 31 |
Year ended December 31 |
||
2021 |
2020 |
2021 |
2020 |
|
Operating |
||||
Production |
||||
Crude oil (bbls/d) |
816 |
1,653 |
1,101 |
1,664 |
Condensate (bbls/d) |
1,012 |
653 |
844 |
715 |
NGLs (bbls/d) |
2,524 |
2,234 |
2,548 |
2,029 |
Total liquids production (bbls/d) |
4,352 |
4,540 |
4,493 |
4,408 |
Natural gas (Mcf/d) |
261,530 |
233,949 |
269,710 |
243,081 |
Total production (boe/d) |
47,940 |
43,532 |
49,445 |
44,922 |
Average realized prices (including realized |
||||
Natural gas ($/Mcf) |
4.17 |
2.45 |
3.38 |
2.02 |
Liquids ($/bbl) |
54.70 |
41.29 |
50.92 |
37.43 |
Operating Netback ($/boe) |
||||
Natural gas and liquids sales(2) |
36.11 |
18.28 |
27.26 |
14.91 |
Realized losses on derivatives(2) |
(8.41) |
(0.74) |
(4.13) |
(0.28) |
Royalty expense(2) |
(2.02) |
(0.77) |
(1.53) |
(0.64) |
Operating expense(2) |
(2.92) |
(2.68) |
(2.49) |
(2.43) |
Transportation expense(2) |
(4.48) |
(3.62) |
(3.90) |
(3.39) |
Operating netback (1) (2) |
18.28 |
10.47 |
15.21 |
8.17 |
(1) |
Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see “Specified Financial Measures” for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of Advantage uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure. |
(2) |
Specified financial measure which is a supplementary financial measure. Please see “Specified Financial Measures” for the composition of such supplementary financial measure. |
Reserves Highlights |
PDP |
1P |
2P |
2021 Reserves (million boe) |
121.3 |
393.9 |
553.4 |
2021 FD&A Cost ($/per boe, including FDC) (a) |
$5.23 |
$6.54 |
$5.82 |
2021 Recycle ratio(a) |
3.5 |
2.8 |
3.1 |
2020 Recycle ratio(a) |
1.2 |
2.9 |
3.7 |
2021 Reserves Increase Over 2020 |
10.4% |
1.8% |
4.0% |
RESERVES SUMMARY TABLES
Company Gross (before royalties) Working Interest Reserves Summary as at December 31, 2021
Light & |
Conventional |
Natural |
Total Oil |
|
Proved |
||||
Developed Producing |
1,252 |
681,611 |
6,445 |
121,299 |
Developed Non-producing |
23 |
24,113 |
405 |
4,447 |
Undeveloped |
7,080 |
1,471,397 |
15,860 |
268,173 |
Total Proved |
8,355 |
2,177,121 |
22,709 |
393,918 |
Probable |
9,212 |
839,142 |
10,379 |
159,447 |
Total Proved + Probable |
17,566 |
3,016,263 |
33,088 |
553,365 |
(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 |
1,762,965 |
1,051,069 |
884,897 |
Developed Non-producing |
96,017 |
53,724 |
45,536 |
Undeveloped |
3,843,452 |
1,100,003 |
667,220 |
Total Proved |
5,702,434 |
2,204,796 |
1,597,653 |
Probable |
3,269,713 |
1,148,280 |
821,846 |
Total Proved + Probable |
8,972,147 |
3,353,076 |
2,419,499 |
(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, 2021 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, 2021 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, 2021. 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 |
Edmonton |
Edmonton |
Edmonton |
Exchange |
2022 |
86.82 |
3.56 |
43.38 |
57.49 |
91.85 |
0.80 |
2023 |
80.73 |
3.21 |
35.92 |
50.17 |
85.53 |
0.80 |
2024 |
78.01 |
3.05 |
34.62 |
48.53 |
82.98 |
0.80 |
2025 |
79.57 |
3.11 |
35.31 |
49.50 |
84.63 |
0.80 |
2026 |
81.16 |
3.17 |
36.02 |
50.49 |
86.33 |
0.80 |
2027 |
82.78 |
3.23 |
36.74 |
51.50 |
88.05 |
0.80 |
2028 |
84.44 |
3.30 |
37.47 |
52.53 |
89.82 |
0.80 |
Company Gross (before royalties) Working Interest Reserves Reconciliation(2)
Proved |
Light & |
Conventional |
Natural Gas |
Total Oil |
Opening balance Dec. 31, 2020 |
8,245 |
2,142,386 |
21,714 |
387,023 |
Extensions and improved recovery |
231 |
91,760 |
816 |
16,341 |
Technical revisions(1) |
180 |
21,058 |
1,216 |
4,905 |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
2,715 |
11 |
463 |
Dispositions |
– |
– |
– |
– |
Economic factors |
101 |
17,646 |
191 |
3,232 |
Production |
(402) |
(98,444) |
(1,238) |
(18,048) |
Closing balance at Dec. 31, 2021 |
8,355 |
2,177,121 |
22,709 |
393,918 |
Proved Plus Probable |
Light & |
Conventional |
Natural Gas |
Total Oil |
Opening balance Dec. 31, 2020 |
14,083 |
2,929,142 |
29,760 |
532,034 |
Extensions and improved recovery |
4,044 |
194,885 |
2,504 |
39,030 |
Technical revisions(1) |
(262) |
(22,954) |
1,923 |
(2,165) |
Discoveries |
– |
– |
– |
– |
Acquisitions |
– |
3,463 |
13 |
590 |
Dispositions |
– |
– |
– |
– |
Economic factors |
103 |
10,171 |
126 |
1,924 |
Production |
(402) |
(98,444) |
(1,238) |
(18,048) |
Closing balance at Dec. 31, 2021 |
17,566 |
3,016,263 |
33,088 |
553,365 |
(1) |
Technical revisions accounted for 20% of the total proved additions and 5% 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 2021 FD&A Costs – Gross (before royalties) Working Interest Reserves including FDC (1)(2)(3)
Proved |
Proved + Probable |
|
Net capital expenditures ($000)(a) |
148,912 |
148,912 |
Net change in FDC ($000) |
14,087 |
80,305 |
Total capital ($000) |
162,999 |
229,217 |
Total mboe, end of year |
393,918 |
553,365 |
Total mboe, beginning of year |
387,023 |
532,034 |
Production, mboe |
(18,047) |
(18,047) |
Reserve additions, mboe |
24,942 |
39,378 |
2021 FD&A costs ($/boe) (a) |
$6.54 |
$5.82 |
2020 FD&A costs ($/boe) (a) |
$3.63 |
$2.80 |
Three-year average FD&A costs ($/boe) (a) |
$4.47 |
$4.40 |
(1) |
FD&A 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 2020 are indicated below:
Reserve |
Light & |
Conventional |
Natural Gas |
Total Oil |
% |
PDP |
1.25 |
0.68 |
6.44 |
121.3 |
10% |
1P |
8.35 |
2.18 |
22.71 |
393.9 |
2% |
2P |
17.57 |
3.02 |
33.09 |
553.4 |
4% |
The total number of 2P future well locations booked in the Sproule 2021 Reserves Report are illustrated in the following table:
Sproule Number of Gross Horizontal Wells Booked |
|||
Developed |
Undeveloped |
Total |
|
Glacier |
243 |
272 |
515 |
Valhalla |
14 |
17 |
31 |
Wembley |
8 |
38 |
46 |
Progress |
6 |
12 |
18 |
Total |
271 |
339 |
610 |
The Corporation’s audited consolidated financial statements for the fiscal year ended December 31, 2021 together with the notes thereto, and Management’s Discussion and Analysis for the year ended December 31, 2021 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.