Advantage Announces Second Quarter 2018 Operating & Financial Results

Source Press Release
Company Advantage Oil & Gas Ltd. 
Tags Hedging, Capital Spending, Financial & Operating Data, Strategy - Corporate
Date August 02, 2018

Advantage Oil & Gas Ltd. ("Advantage" or the "Corporation") successfully commissioned its major gas plant expansion project in the second quarter of 2018 at the Corporation's 100% owned Glacier sour gas facility.  This is a strategic milestone in the development of Advantage's Montney resource as our expanded Glacier gas plant now contains significant spare capacity to accommodate future liquids-rich production growth from Glacier and our additional land blocks at Valhalla, Wembley/Pipestone and Progress.  The expansion increased processing capacity of raw gas to 400 mmcf/d (second largest Alberta producer owned licensed sour gas plant) and shallow cut liquids extraction to 6,800 bbls/d, providing approximately 125 mmcf/d of current spare raw gas processing capacity.  This spare capacity supports Advantage's higher focus on increasing its liquid-rich production and also provides flexibility to readily increase natural gas production in response to price improvements.

In April 2018, Advantage provided updated guidance which included moderated natural gas production in response to low prices and confirmed plans to redirect more of its future capital investments into the Corporation's significant and growing inventory of liquids-rich drilling opportunities. 

During the second quarter of 2018, average production was 212.1 mmcfe/d (35,352 boe/d), including liquids production of 1,067 bbls/d (70% condensate), with total per unit cash costs of $1.21/mcfe.  Total cash costs are expected to return to approximately $1.10/mcfe to $1.20/mcfe, including operating costs of $0.24/mcfe to $0.28/mcfe, for the remainder of 2018 due to higher production rates. Capital expenditures during the quarter of $25.8 million were largely funded from cash flow of $23.2 million ($0.12/share) despite a 58% decrease in the AECO daily natural gas price.  The Corporation renewed its annual credit facility of $400 million with improved borrowing terms and maintained a strong balance sheet with a total debt to trailing 12 month cash flow ratio of 1.7.  Current production is approximately 270 mmcfe/d (45,000 boe/d) including liquids production of approximately 1,700 bbls/d. 

Advantage's increased focus on liquids-rich activities during the second half of 2018 includes commencing production from 5 standing liquids-rich Middle Montney wells and the commencement of a drilling program which includes 10 Middle Montney wells in east Glacier and an additional 5 liquids-rich wells at Valhalla.  Construction plans were finalized for Advantage's new Valhalla facility which includes a compressor station and liquids handling hub with project completion scheduled in the fourth quarter of 2018. 

At our ultra-rich liquids asset at Wembley/Pipestone, we advanced work on selecting routes to extend Advantage's current gathering pipeline system into this area and have secured a firm third party processing arrangement for up to 10 mmcf/d of capacity beginning in the latter half of 2019 for added flexibility and optionality.  Our excitement continues to build in regard to the upside value of Advantage's entire Wembley/Pipestone land block based on recently released industry well test information on each side of our asset.

The Corporation strengthened its commodity hedging position by monetizing certain in-the-money 2018and 2019 NYMEX-AECO differential swaps and applying the proceeds towards the acquisition of 62 mmcf/d of AECO monthly settled puts at $1.42 per mcf for June through September 2018 and 62 mmcf/d of enhanced AECO fixed price swaps at $1.77 per mcf for the April 2019 to October 2019 period. The restructuring of these transactions provides Advantage with greater price and cash flow certainty during planned third party maintenance activities which have and are anticipated to create significant gas price volatility.  For the second half of 2018 the Corporation has total fixed price hedges for 112 mmcf/d with 77 mmcf/d at an AECO average price of $2.29 Cdn/mcf and 35 mmcf/d at a Dawn average price of $2.85US/mmbtu.  In 2019, Advantage has 81 mmcf/d hedged with 75 mmcf/d at an AECO average price of $2.26 Cdn/mcf and 6 mmcf/d at a Dawn average price of $3.13 US/mmbtu.  The Corporation's AECO price exposure is estimated by Management to be approximately 25% of total revenue through to 2020 as a result of the Advantage's revenue diversification program. 

Operations Update

Glacier

Six Middle Montney and two Lower Montney wells located on an eight well pad in the western portion of Glacier were completed in the first quarter of 2018 and were designed to evaluate the impact of tighter frac spacing in an area where there are few Middle Montney wells.

The six Middle Montney wells on this pad contained an average frac count of 34 stages per well representing a 76% increase over our previous Middle Montney wells.  Four of the six wells have been placed on production with flow duration ranging from 30 to 100 days. On average, the wells have flowed 62 days at an average restricted rate of 8.3 mmcf/d representing a 62% increase over our unrestricted type curve.  Production rates remain restricted on all wells with a current average flowing wellhead pressure of 8,600 kPa

The two Lower Montney wells have been on restricted production for 17 days averaging 7.5 mmcf/d with current flowing pressures of 10,000 kPa which significantly exceeds the flowing pressure assumption in our average dry gas type curve.

We have spud the first well of a 10 well Middle Montney pad located in east Glacier where initial C3+ liquid yields have been approximately 50 to 80 bbls/mmcf  (approximately 50% C5+) and the knowledge gained in recent well completions in the western portion of Glacier will be used to further enhance well performance.

Valhalla

One of the standing Middle Montney wells was placed on production during the second quarter of 2018 and has produced under restricted flow at approximately 6 mmcf/d (20% above Advantage's Middle Montney average well type curve) at a flowing pressure of 6,900 kPa for 73 days.  Well production from Valhalla will remain restricted until Advantage's new Valhalla facility, which includes 40 mmcf/d of compression and liquids handling equipment, is completed in the fourth quarter of 2018.   This facility will increase the throughput capacity of our existing pipeline connecting Valhalla to Advantage's Glacier gas plant.   Two standing Upper Montney wells will also be brought on-production after the Valhalla facility is completed. 

Advantage will drill a new 5 well liquids-rich pad at Valhalla as part of our upcoming winter drillingprogram.   

Wembley/Pipestone

Construction work is scheduled to begin in August 2018 on the tie-in of Advantage's first delineation wellat 12-25-72-8W6.  This well will be tied-in to a third party producer facility on a 'best-efforts' processing basis as available capacity continues to be increasingly constrained due to industry successes in this prolific condensate/oil fairway.

We continue to advance work towards extending Advantage's current gathering pipelines into this area and have secured a firm third party processing arrangement beginning in the latter half of 2019 that can provide up to 10 mmcf/d of capacity for added optionality. Advantage's facility and pipeline construction is expected to occur during the first half of 2020; although, Advantage will be prepared to commence this work earlier if the timeline can be shortened.

Recently released industry wells which offset our Wembley/Pipestone land block demonstrate similar results to our 12-25 well which was production tested earlier this year at 1,312 boe/d with 819 bbls/d of liquids including 624 bbls/d of wellhead condensate/oil and 2.9 mmcf/d of gas. 

Second Quarter 2018

Operating and Financial Summary

  Three months ended    Six months ended 
Financial and Operating Highlights  June 30    June 30 
  2018    2017    2018    2017 
               
Financial ($000, except as otherwise indicated)               
Sales including realized hedging (3)  45,319    69,169    118,697    142,126 
Net income (loss) and comprehensive income (loss)  (15,294)    18,339    (5,191)    60,588 
  per basic share  (0.08)    (0.05)    (0.03)    0.33 
Funds from operations(1)  23,160    48,625    72,042    102,597 
  per basic share  0.12    0.26    0.39    0.55 
Net capital expenditures  25,761    31,462    103,397    85,253 
Working capital deficit  3,206    6,950    3,206    6,950 
Bank indebtedness  250,189    134,128    250,189    134,128 
Basic weighted average shares (000)  186,190    185,790    186,077    185,319 
Operating               
Daily Production               
  Natural gas (mcf/d)  205,712    225,844    219,009    228,363 
  Liquids (bbls/d)  1,067    1,098    1,086    1,124 
  Total mcfe/d  212,114    232,432    225,525    235,107 
  Total boe/d  35,352    38,739    37,588    39,185 
Average prices (including hedging)               
  Natural gas ($/mcf) (3)  2.05    3.09    2.65    3.17 
  Liquids ($/bbl)  72.32    57.27    69.17    55.47 
Cash netbacks ($/mcfe)(1)               
  Sales of natural gas and liquids from production  1.94    3.16    2.34    3.17 
  Net sales of natural gas purchased from third parties(1)  0.06      0.03   
  Realized gains on derivatives  0.41    0.11    0.57    0.17 
  Royalty expense  0.06    (0.15)      (0.13) 
  Operating expense  (0.34)    (0.27)    (0.33)    (0.25) 
  Transportation expense  (0.63)    (0.37)    (0.60)    (0.37) 
Operating netback(1)  1.50    2.48    2.01    2.59 
  General and administrative  (0.13)    (0.12)    (0.10)    (0.11) 
  Settlement of Performance Awards  (0.03)      (0.01)   
  Finance expense  (0.14)    (0.07)    (0.12)    (0.08) 
  Other income                                                         0.01     
Cash netbacks(1)  1.20    2.30    1.78    2.40 

   
(1)  Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. 
(2)  Based on basic weighted average shares outstanding. 
(3)  Excludes net sales of natural gas purchased from third parties. 

The Corporation's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2018 together with the notes thereto, and Management's Discussion and Analysis for the three and six months ended June 30, 2018 have been filed on SEDAR and with the SEC and are available on the Corporation's website at .

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd