Advantage’s 2023 capital program is focused on prudent cash flow per share growth via high rate-of-return development drilling into existing infrastructure. Top-line production is planned to grow by 11% year-over-year, and all free cash flow (“FCF”)(a) will remain allocated to the Corporation’s share buyback program.
2023 Budget Highlights
- Adjusted funds flow (“AFF”) per share(b) is expected to grow by 25% year-over-year, based on strip pricing dated November 14, 2022 and planned share buybacks.
- Corporate production is expected to average between 59,000 and 62,500 boe/d, an increase of approximately 11% year-over-year. Production estimates include provisions for a major 14-day plant turnaround at Glacier in May and likely NGTL restrictions during the summer.
- Liquids production is expected to grow by more than 20% year-over-year, driven by continued drilling at Wembley.
- Corporate production decline rate is expected to be approximately 24%.
- Cash used in investing activities is planned to be between $250 million and $280 million, representing a payout ratio(b) of under 50% prior to share buybacks. Capital estimates include provisions for inflation of 15-20% from a year earlier, though Advantage is actively seeking lower cost service providers and suppliers.
- Drilling for the year is planned to include approximately 25 net wells, with approximately 55% of the program focused at Glacier and the remaining targeting oil and liquids at Wembley and Valhalla.
- The previously announced Glacier Gas Plant expansion to 425 mmcf/d capacity is planned to be completed early in the second quarter of 2023.
- Net debt(a) target remains at $200 million, although net debt(a) is currently under $80 million.
- Following the completion of our current substantial issuer bid (“SIB”, see press release dated November 7, 2022) of up to $100 million on December 16, 2022, Advantage will resume its normal course issuer bid (“NCIB”). Advantage will plan to renew the NCIB in April 2023 and additional SIB’s may be required to achieve our net debt(a) target.
- Advantage expects it will not be subject to cash taxes until calendar 2024 due to over $1 billion in high-quality tax pools.
a. |
Non-GAAP Financial Measure which does not have a standardized meaning under IFRS and may not be comparable to similar non-GAAP financial measures used by other entities. Please see Advisory. |
b. |
Non-GAAP Ratio which does not have a standardized meaning under IFRS and may not be comparable to similar non-GAAP ratios used by other entities. Please see Advisory for a description of how such non-GAAP ratio is calculated, including the non-GAAP financial measures comprising such non-GAAP ratio. |
Highlights of the Three-Year Strategic Plan
- Annual production is expected to grow by at least 10% in each of the next three years, exceeding 75,000 boe/d by 2025.
- Cash used in investing activities is planned to remain between $250 million and $300 million per year (including provisions for inflation).
- On average, Advantage plans to drill approximately 26 net wells per year to achieve growth targets, with current tier 1 inventory estimated at 531 wells plus over 1,000 additional economic locations.
- Gas and liquids processing capacity at the Glacier/Valhalla/Progress complex is expected to climb in increments to 500 mmcf/d by the end of 2025 at a cost of approximately $40 million per year for three years.
- Planned production growth will be managed in conjunction with transportation service growth and hedging, with a focus on non-AECO markets prior to the commissioning of LNG Canada.
2023 Guidance Summary (1)
Cash Used in Investing Activities (2) (millions) |
$250 to $280 |
Average Production (boe/day) |
59,000 to 62,500 |
Liquids Production (%) |
~12% |
Royalty Rate (%) |
9% to 12% |
Operating Expense ($/boe) |
$3.25 |
Transportation Expense ($/boe) |
$4.75 |
G&A/Finance Expense ($/boe) |
$1.40 |
Notes: |
|
(1) |
Forward-looking statements and information representing Management estimates. 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. See Advisory. |
(3) |
Budget and guidance numbers are for Advantage Energy Ltd. only and exclude Entropy Inc. (“Entropy”). |
Marketing Update
Advantage has hedged 16% of 2023 forecast natural gas production at an average of US$4.19/mmbtu. AECO market exposure continues to be the most volatile component of our revenue portfolio due to recurring issues related to NGTL expansion delays and unpredictable maintenance related operating practices. Total exposure to AECO is now less than 25% of our production over the 2023-2024 period and 9% during summer 2023.
Sustainability Update
Advantage is pleased to provide an update to its 2021 Sustainability Report, which is available on our website at www.advantageog.com. Advantage’s Board of Directors continues to be actively engaged in the oversight of sustainability and ESG matters as well as risk management. The update includes key sustainability metrics for the year ended 2021, progress on prior established sustainability targets, and ongoing initiatives to prioritize ESG aspects in our operations and work towards our target of “Net Zero” Scope 1 and 2 emissions by 2025.
Looking Forward
In order to maximize shareholder returns, Advantage’s priority is growing AFF per share(b). To optimize growth of AFF(a), Advantage will target organic production growth of over 10% per year throughout our three-year corporate plan, depending on commodity pricing. Despite significant progress with our share buybacks, our net debt(a) levels remain below the corporate target of $200 million, so in the coming quarters, share repurchases are expected to exceed FCF(a) materially.
Advantage continues to demonstrate enhanced well productivity across the asset base as a result of advanced subsurface analysis and well execution. Our most recent pad in the northeast corner of Glacier has delivered IP30s of 11.0, 11.2, 13.1 and 15.4 mmcf/d (raw), amongst our best pads ever. One additional well on this pad remains shut-in awaiting pipeline capacity. These prolific results have been spread broadly across our assets, which has resulted in Advantage promoting approximately 125 drilling locations into our top-tier inventory of 531 wells (a 34% increase since 2020). Our three-year strategic plan demonstrates how we will convert this inventory into production and cash flow.
With commodity prices remaining robust, Advantage is in a strong position to grow total shareholder returns by delivering moderate production growth into existing infrastructure, enhancing corporate resilience and scale. By growing our liquids assets more rapidly than gas-weighted assets, revenue will be derived more evenly from multiple commodities, reducing exposure to gas price volatility. Cash-generating investments in infrastructure will continue, and our energy transition subsidiary, Entropy, will pursue rapid growth in carbon capture and storage (“CCS”) projects. Advantage is on the pathway to net-zero emissions by 2025[1], primarily through Entropy’s revenue-generating carbon capture and storage projects, including the Glacier CCS project.
Advantage looks forward to advancing the Corporation’s strategy through the dynamic markets ahead.
_____________________________ |
1 See Advantage’s 2021 Sustainability Report. Success in achieving net-zero on this timeline is predicated on functional CCS regulatory frameworks at both the federal and provincial levels. |
For more details, Advantage has posted an updated corporate presentation at www.advantageog.com.
Advantage Energy Ltd.
2200, 440 – 2nd Avenue SW
Calgary, Alberta T2P 5E9
Phone: (403) 718-8000
Fax: (403) 718-8332
Web Site: www.advantageog.com
E-mail: ir@advantageog.com