Advantage Announces Fourth Quarter and Year End 2018 Operating & Financial Results

Company Advantage Oil & Gas Ltd. 
Tags Hedging, Strategy - Upstream, Capital Spending, Guidance, Strategy - Corporate, Financial & Operating Data
Date February 28, 2019

Advantage Oil & Gas Ltd. ("Advantage" or the "Corporation") is pleased to announce its 2018 results, culminating in increased liquids development, successful revenue diversification, and operational excellence.  These accomplishments, combined with an emphasis on capital and financial discipline, will continue to strengthen the Corporation's solid business and advance its multi-year liquids development plan.

Highlights from our 2018 accomplishments include:

  • Record annual production of 41,651 boe/d including a 22% increase in liquids
  • $59 million gain through marketing diversification initiatives
  • Low operating expenses of $1.80/boe
  • Year-end total debt(a) to adjusted funds flow(a) ratio of 1.8
  • 3 year capital efficiency(a) of $13,400/boe/d
  • Increased Montney holdings by acquiring 17 net sections (10,880 acres) of complimentary lands for $2 millionresulting in total land ownership of 206 net sections (131,840 acres)
  • 30% improvement in the liquids-rich Montney productivity per well through frac design enhancements
  • Completed Glacier plant expansion and new Valhalla liquids hub to accommodate liquids development strategy
  • Increased CO2e sequestration credits by 59% to 90,500 tonnes
  • Participated in several industry advocacy initiatives and continued to explore marketing opportunities

We are proud of our Team's 2018 achievements and thank Advantage's Board of Directors and our shareholders for their support. We look forward to reporting on our progress as our Team continues to advance Advantage's multi-year liquids development plan.

2018 Operating and Financial Results Summary 

  • Record annual and fourth quarter production of 41,651 boe/d (249.9 mmcfe/d) and 45,686 boe/d (274.1 mmcfe/d), respectively, representing increases of 6% and 12% compared to the same periods of 2017.
  • Annual liquids production increased 22% to 1,491 bbls/d and generated a 40% increase in liquids revenue over 2017.
  • Achieved low annual 2018 costs including royalty costs of $0.18/boe, operating costs of $1.80/boe, transportation expenses of $3.36/boe, general and administrative costs of $0.60/boe and finance costs of $0.72/boe.
  • Annual 2018 cash provided by operating activities of $160 million and adjusted funds flow(a) of $150 million was supported by $59 million market diversification gains (includes realized gains on derivatives and revenue less transportation realized from physical sales arrangements involving markets outside of AECO). Advantage's revenue exposure to AECO daily prices was 22% in 2018 and is anticipated to be 20% in 2019.
  • Year-end total debt(a) was $273 million resulting in a total debt(a) to adjusted funds flow(a) ratio of 1.8 and an undrawn bank credit facility of $120 million.

Strengthened Market Diversification and Hedging

On November 1, 2018, Advantage began receiving Midwest U.S. prices on 20,000 mcf/d, increasing to 40,000 mcf/d in April 2019. This arrangement complements our Dawn, Ontario market where we delivered 52,700 mcf/d in 2018.

For 2019, Advantage has fixed price hedges on 45% of our estimated natural gas production at an average price of Cdn $2.46/mcf, with 29% of production remaining exposed to AECO. In the summer when prices are anticipated to be more volatile, 52% of estimated natural gas production is hedged at an average price of Cdn $2.13/mcf, with only 19% of production remaining exposed to AECO.

Looking Forward

As previously communicated (see Advantage press release February 11, 2019) the Corporation's 2019 net capital expenditures(a) guidance range was reduced to $185 to $215 million from $210 to $240 million as a result of accelerated spending. Our 2019 production guidance range remains between 43,500 and 46,500 boe/d (261 and 279 mmcfe/d).

Advantage is planning to invest approximately $65 million through the first quarter of 2019 which is expected to substantially provide the well productivity to achieve our 2019 annual production guidance.  Liquids production is forecast to begin increasing through the second quarter as we tie-in new wells at east Glacier and Valhalla.  Production from our Pipestone/Wembley asset is targeted to be brought on-stream during the third quarter when third party processing capacity is available.

Investment for the remainder of 2019 will be reviewed during the second quarter of 2019. The Corporation has identified capital projects of up to $100 million which could be deferred from our 2019 plan with minimal 2019 production impact. Capital deferrals will be prioritized to minimize impact on the highest-return liquids projects.

Advantage will remain diligent in monitoring commodity and industry trends and respond accordingly to retain a strong balance sheet while advancing our multi-year strategy to increase liquids development.

2018 Operating and Financial Summaries

  Three months ended  Year ended 
Financial Highlights  December 31  December 31 
($000, except as otherwise indicated)  2018  2017  2018    2017 
           
Financial Statement Highlights           
Sales including realized hedging (3)  73,979  65,779  250,604    259,611 
Net income and comprehensive income  25,162  21,425  11,119    95,039 
per basic share(2)  0.14  0.12  0.06    0.51 
Cash provided by operating activities  44,790  29,848  160,162    186,401 
Cash provided by financing activities  8,576  50,659  53,015    48,945 
Cash used in investing activities  50,723  73,591  213,734    228,430 
Basic weighted average shares (000)  185,942  185,963  186,040    185,641 
Other Financial Highlights           
Adjusted funds flow(1)  46,301  43,883  150,378    183,202 
per mcfe  1.84  1.94  1.65    2.13 
per basic share (2)  0.25  0.24  0.81    0.99 
Net capital expenditures (1)  52,000  73,723  203,834    248,774 
Working capital deficit  1,912  13,808  1,912    13,808 
Bank indebtedness  270,918  208,978  270,918    208,978 
Total debt (1)  272,830  222,786  272,830    222,786 

   
(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. 
(3)  Excludes net sales of natural gas purchased from third parties. 

  Three months ended    Year ended 
Operating Highlights  December 31    December 31 
  2018    2017    2018    2017 
               
Operating               
Daily Production               
Natural gas (mcf/d)  262,269    237,780    240,959    228,583 
Liquids (bbls/d)  1,974    1,227    1,491    1,218 
Total mcfe/d  274,113    245,142    249,905    235,891 
Total boe/d  45,686    40,857    41,651    39,315 
Average prices (including realized hedging)               
Natural gas ($/mcf) (2)  2.70    2.69    2.47    2.82 
Liquids ($/bbl)  49.23    60.48    62.12    54.28 
Operating Netback ($/mcfe)               
Sales of natural gas and liquids from production  2.81    2.38    2.44    2.69 
Net sales of natural gas purchased from third parties(1)      0.01   
Realized gains on derivatives  0.12    0.53    0.31    0.32 
Royalty expense  (0.07)    (0.07)    (0.03)    (0.07) 
Operating expense  (0.29)    (0.26)    (0.30)    (0.25) 
Transportation expense  (0.53)    (0.50)    (0.56)    (0.40) 
Operating netback(1)  2.04    2.08    1.87    2.29 

   
(1)  Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures". 
(2)  Excludes net sales of natural gas purchased from third parties. 

The Corporation's audited consolidated financial statements for the fiscal year ended December 31, 2018 together with the notes thereto, and Management's Discussion and Analysis for the year ended December 31, 2018 have been filed on SEDAR and are available on the Corporation's website at . The Corporation's audited consolidated financial statements for the fiscal year ended December 31, 2017 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.

 Net Capital Expenditures

Net capital expenditures include total capital expenditures related to property, plant and equipment and exploration and evaluation assets incurred during the period. Management considers this measure reflective of actual capital activity for the period as it excludes changes in working capital related to other periods. A reconciliation between net capital expenditures and the nearest measure calculated in accordance with GAAP, cash used in investing activities, is provided below:

    Year ended 
    December 31 
($000)  2018    2017 
Cash used in investing activities  213,734    228,430 
Changes in non-cash working capital  (12,648)    17,098 
Capitalized stock-based compensation  2,748    3,245 
Net capital expenditures(1)  203,834    248,773 
         
(1)  Includes cash and non-cash capitalized stock-based compensation.       

Adjusted Funds Flow

The Corporation considers adjusted funds flow to be a useful measure of Advantage's ability to generate cash from the production of natural gas and liquids, which may be used to settle outstanding debt and obligations, and to support future capital expenditures plans. Changes in non-cash working capital and expenditures on decommissioning liabilities are excluded from adjusted funds flow as they may vary significantly between periods and are not considered to be indicative of the Corporation's operating performance as they are a function of the timeliness of collecting receivables or paying payables. A reconciliation between adjusted funds flow and the nearest measure calculated in accordance with GAAP, cash provided by operating activities, is provided below:

      Year ended 
      December 31 
($000s)    2018  2017 
Cash provided by operating activities    160,162  186,401 
  Expenditure on decommissioning liability    1,782  1,190 
  Changes in non-cash working capital    (644)  2,542 
  Finance expense(1)    (10,922)  (6,931) 
Adjusted funds flow     150,378  183,202 
         
(1)  Finance expense excludes non-cash accretion expense. 

Operating Netback

Operating netback is comprised of sales revenue and realized gains of derivatives, net of expenses resulting from field operations, including royalty expense, operating expense and transportation expense. Operating netback provides Management and users with a measure to compare the profitability of field operations between companies, development areas and specific wells.

 Total Debt

Total debt is comprised of bank indebtedness and working capital deficit. Total debt provides Management and users with a measure of the Corporation's indebtedness and expected settlement of net liabilities in the next year. A detailed calculation of total debt is provided below:

($000)  December 31, 2018    December 31, 2017 
Bank indebtedness   270,918    208,978 
Working capital deficit   1,912    13,808 
Total debt  272,830    222,786 

Capital Efficiency

Three-year and single year capital efficiency is calculated by dividing total capital development costs for oil and gas activities including drilling, completion, facilities, infrastructure, office and capitalized general and administrative costs (excluding abandonment and reclamation costs, exploration and evaluation costs, and acquisition and disposition related costs and proceeds) by the average production additions of the applicable year to replace base production declines and deliver production growth targets, expressed in $/boe/d. Capital efficiency is considered by management to be a useful performance measure as a common metric used to evaluate the efficiency with which capital activity is allocated to achieve production additions.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd