Quarterly / Earnings Reports | Third Quarter (3Q) Update | Drilling Activity

Advantage Oil & Gas Details Q3 2019 Results

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   |    Thursday,October 31,2019

Advantage Oil & Gas Ltd. reported its Q3 2019 results.

Development is proceeding as planned on Advantage's significant Montney oil and liquids assets, and exposure to light oil and condensate revenue continues to increase.  The Corporation's measured delineation program also resulted in the discovery of a light oil pool on our 50 net section Progress land block in the third quarter of 2019 (see Advantage press release dated September 3, 2019).  With this discovery, the Progress asset has become Advantage's fourth liquids development asset, further strengthening our portfolio of high-quality resource.  Advantage now holds a total of 210 net sections of Montney/Doig rights at Glacier, Valhalla, Progress and Pipestone/Wembley.

During the third quarter of 2019, liquids production increased to 3,142 bbls/d, up 74% year-over-year and 22% versus second quarter of 2019.  Liquids accounted for 23% of revenue in the third quarter of 2019, on-track to the Corporation's target of approximately 50% of revenue from liquids in 2021.

Consistent with our previously stated production management strategy, Advantage shut-in significant volumes of AECO-exposed dry natural gas during extremely low-price periods in the third quarter of 2019.  Over the entire quarter, the shut-in volumes averaged 13 mmcf/d (2,160 boe/d). Total production averaged 42,080 boe/d with natural gas production of 233.6 mmcf/d and average AECO daily prices of $0.91/mcf over the third quarter of 2019.

On October 15, 2019, TC Energy implemented the Temporary Service Protocol ("TSP") on the NGTL system.  The TSP is an operating procedure which modifies the NGTL pipeline balancing mechanism during times of maintenance between April and October.  AECO prices increased to average over $2.60/mcf for the remainder of October, and accordingly Advantage has maximized natural gas production levels, subject to NGTL firm service restrictions.

Highlights:

• Total production was 43,310 boe/d for the nine months of 2019 (7% higher than 2018), with third quarter 2019 production of 42,080 boe/d.
• Liquids production was 2,588 bbls/d for the nine months of 2019 (95% higher than 2018), with third quarter 2019 liquids production of 3,142 bbls/d (74% higher than 2018).
• Generated adjusted funds flow^(a) of $110.7 million ($0.59/share) for the nine months of 2019 with net capital expenditures of $125.3 million. During the third quarter of 2019, adjusted funds flow^(a) was $27.9 million ($0.15/share).
• Achieved $37.6 million of gains from our market diversification portfolio, including $24.1 million of hedging gains, over the nine months of 2019. This resulted in an average realized natural gas price of $2.45/mcf compared to the average daily AECO price of $1.51/mcf.
• Maintained low cost structure with royalty costs of $0.21/boe, operating costs of $2.01/boe, transportation costs of $3.51/boe and general & administrative costs of $0.71/boe over the nine months of 2019.
• Retained strong financial flexibility with total debt to adjusted funds flow^(a) of 1.8x at the end of the third quarter 2019. Advantage's credit facility has been recently reconfirmed at $400 million following its semi-annual banking syndicate review

Operations Update

Glacier/Valhalla Middle Montney

At Glacier, all 10 middle Montney wells that were completed in the first quarter of 2019 were brought on production, at or above expectations, by the third quarter.  At Valhalla, the final 5 wells from the first quarter 2019 program were tied-in and began production.  Successful well results at both Glacier and Valhalla provided the liquids production growth in the second and third quarters.

Pipestone/Wembley

At Pipestone/Wembley, a 4-well pad targeting oil in the D3 zone was drilled during the third quarter 2019, with completions planned for November and production expected to begin at year-end.  In October 2019, three additional D3 wells were drilled, plus one water disposal, with completions planned in early 2020.

Advantage's first D3 well (12-25) at Pipestone/Wembley began producing to a new third-party gas plant in October 2019, approximately one month behind schedule.  The commissioning of the new facility continues, though run times have been lower than anticipated.

Construction has commenced on Advantage's Pipestone/Wembley 5,000 bbls/day liquids handing hub and south block pipeline gathering system.  The liquids hub is expected to be completed by the second quarter of 2020.

Progress

The 16-36 discovery well and three previous Montney oil wells at Progress (see Advantage press release dated September 3, 2019) remain shut-in awaiting tie-in.  Construction of the Progress to Valhalla pipeline commenced in the third quarter of 2019 with delays caused by wet weather conditions.  Production is anticipated to begin by year-end 2019, flowing at restricted rates to the Advantage Glacier Gas Plant via 100% owned infrastructure.  Engineering design of a new 5,000 bbls/d Progress liquids handling hub, which will allow higher rates of production and lower flowing pressures, is underway.

Looking Forward

Advantage expects to maximize gas production for the remainder of the year.  The Corporation anticipates reduced AECO price volatility and improved prices through this winter as a result of extremely low Alberta natural gas storage levels and an apparent contraction in industry supply as a result of reduced investment.  Advantage also believes that the combined impacts of the TSP effective during next summer, the continued expansion of the NGTL system in 2020 and 2021 resulting in 3.1 Bcf/d of new demand and more favorable TCPL mainline tolls will result in improved support for Canadian natural gas prices.

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 and enhance shareholder returns.