Advantage Oil & Gas Ltd. is pleased to report solid third quarter 2020 financial and operating results and announce its 2021 capital program.
Production, operating costs and adjusted funds flow met or exceeded expectations, despite the volatile macroeconomic environment. Advantage's strong foundations have supported the Corporation through the pandemic, with a fortified balance sheet (net debt to adjusted funds flow ratio of 2.1x), low base decline (23%), low operating cost ($2.35/boe) and low sustaining capital (under $80 million per year required to sustain production for minimum of three years).
Advantage's 2021 capital program will target modest production growth (5-10%), with spending aimed at approximately 75% of projected adjusted funds flow. By focusing on highest rate-of-return, gas-weighted locations, adjusted funds flow growth will be maximized. Modest spending (~20% of total budget) will continue on future development initiatives, including infrastructure optimization, completion piloting in oil plays and expiry drilling.
Highlights for the quarter include:
- Cash provided by operating activities of $25.3 million
- Adjusted funds flow(a) of $23.6 million ($0.13 per share), with net capital expenditures(a) of $21.3 million ($2.3 million or 10% free cash flow(a))
- Total production of 44,448 boe/d (89% natural gas), an increase of 6% over third quarter 2019
- Liquids production achieved a record of 4,729 bbls/d (2,417 bbls/d crude oil and condensate, 2,312 bbls/d NGLs), up 51% from the third quarter 2019
- Gas production of 238 mmcf/d (up 2% from third quarter 2019), demonstrating the low decline rates of our natural gas assets, with only one Glacier well brought on-production in 2020
- Net loss was $21.6 million during the third quarter of 2020 due to lower realized gains on derivatives and $22.9 million unrealized losses on derivatives, partially offset by increased sales
- Reduced net debt from the second quarter of 2020 by $107.2 million, or 30%, as a result of proceeds from the sale of a 12.5% interest in the Glacier Gas Plant, together with free cash flow(a)
- Revolving credit facility of $350 million was renewed unchanged following completion of the fall semi-annual review
With a focus on delivering free cash flow and modest production growth, Advantage will continue to allocate capital primarily to high-return, short payout projects throughout our assets, and apply free cash flow to debt reduction.
a.Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for reconciliations to the nearest measure calculated in accordance with GAAP.
Key Objectives For 2021 Budget:
- Grow 2021 production between 5% and 10% with exceptional growth anticipated in adjusted funds flow ("AFF") based on current natural gas futures pricing
- 2021 net capital expenditures will target approximately 75% of AFF (2021 capital expected to be 10% to 15% below 2020 spending)
- Retain financial flexibility and discipline by targeting a net debt to AFF ratio approaching 1x by year-end 2021
Based on our current commodity price outlook for 2021, Advantage anticipates spending roughly three-quarters of its 2021 capital on Glacier gas-weighted development with 20% directed towards future development initiatives, including oil and liquids developments at Valhalla, Progress and Pipestone/Wembley. Advantage has maintained the flexibility to reallocate capital between assets should prices swing in favor of liquids development.
Advantage invested $21.3 million on property, plant, and equipment during the three months ended September 30, 2020. Advantage's capital activity was focused primarily on drilling operations at Glacier.
With increasing gas prices, additional capital has been allocated to our foundational Glacier gas property for the balance of 2020. A ten well program has been planned for the second half of 2020, with five of the wells drilled and rig released in the third quarter. The remaining five wells will be drilled in the fourth quarter, along with completions of the first six wells. The remaining four wells will be completed in the first quarter of 2021.
At Valhalla, production remained partially restricted thanks to the continued outperformance of area wells, and with the introduction of production piped in from the Progress asset through the Valhalla 40 mmcf/d compressor and liquids hub. With the addition of gas from Progress and one remaining well shut-in awaiting capacity at Valhalla, the facility is anticipated to be full for the balance of 2020.
Advantage's current standing well inventory consists of one well that is tied-in and five wells that are drilled and cased.
Advantage has hedged approximately 49% of its natural gas production for the fourth quarter of 2020. The Corporation continues to increase its hedging position in 2021 and currently has 33% of forecast natural gas production hedged between AECO, Henry Hub, Chicago and Dawn at an average equivalent price of US$2.56/Mmbtu, assuming adjustment for foreign exchange at $0.76. Advantage has 44% of its crude oil and condensate production hedged for the fourth quarter of 2020 with WTI swaps at an average price of US$55.44/bbl and 27% of its crude oil and condensate production hedged for 2021 at US$43.00/bbl.