PR Newswire
CALGARY, Feb. 7, 2017
Record Low Proved Developed Producing Reserve Addition Cost of $0.84/mcfe ($5.04/boe) Underscores Outperformance In All Reserve Categories
(TSX: AAV, NYSE: AAV)
CALGARY, Feb. 7, 2017 /PRNewswire/ - Advantage Oil & Gas Ltd. ("Advantage" or the "Corporation") is pleased to report that the Corporation achieved record low reserves addition costs and capital efficiencies in 2016 which continues to demonstrate the ongoing strength of its industry leading low cost and profitable natural gas development at its Glacier Montney property. Year-on-year gains in well production performance generated significant positive technical revisions that accounted for 46% of proved plus probable ("2P") reserve additions while Advantage's development and delineation drilling program at Glacier contributed the balance of natural gas and liquids reserves additions. 2P reserves grew 13% to 2.2 Tcfe (366.1 million boe) including natural gas liquids which increased by 17% to 23.5 million barrels.
During 2016, Advantage brought 15 new wells on-production which helped increase annual production by 44% over 2015. These wells and the improved performance of historical producing wells contributed to a 26% increase in proved developed producing ("PDP") reserves at a record low finding and development ("F&D") cost of $0.84/mcfe ($5.04/boe) and a PDP recycle ratio of 3.4. The Corporation's 2P reserve additions replaced 429% of its 2016 annual production while lower future development capital combined with significant positive technical revisions resulted in a negative 2016 F&D cost of -$0.01/mcfe (-$0.06/ boe) and a three year average 2P F&D cost including the change in future development capital ("FDC") of $0.46/mcfe ($2.76/boe).
As the Corporation continues to advance its Montney growth plan and expand its 100% owned Glacier gas plant to 400 mmcf/d (66,670 boe/d), we believe Advantage's Glacier development is and will continue to be an industry leading and competitive North American low cost natural gas supply source as demonstrated by record achievements in its operating, financial and reserve addition results in 2016.
PDP reserves increased 26% to 381 Bcfe at a F&D cost of $0.84/mcfe ($5.04/boe). PDP reserves increased due to the recognition of 15 new wells that were brought on-production in 2016 and higher reserves assignments on historical producing wells due to shallower longer term declines than previously assumed.
Proved ("1P") reserves increased 20% to 1.53 Tcfe (255.1 million boe) at a F&D cost of $0.25/mcfe ($1.49/boe) including the change in FDC. Reserve increases resulted from technical revisions which accounted for 60% of the 1P reserves additions and the conversion of probable locations to the proved reserves category as a result of Advantage's successful drilling program.
2P reserves increased 13% to 2.20 Tcfe (366.1 million boe) at a F&D cost including the change in FDC of -$0.01/mcfe (-$0.06/boe). 2P FDC decreased by $131 million reflective of lower future well costs which were partly offset by increases in facilities costs to include an upsized Glacier gas plant expansion to 400 mmcf/d and future infrastructure costs including a frac water supply system, gas gathering system expansions and additional utilities. This reduction in FDC is due to Advantage's ongoing achievements in improving capital efficiencies and lowering costs which has reduced capital requirements to support growth. The 2016 2P reserves include an addition of 24 new Glacier Montney well locations including 10 undeveloped locations that were added in 2016. A total of 307 undeveloped locations were booked in the 2016 reserve report. Management estimates approximately 1,100 total Montney locations remain undrilled at Glacier.
The Corporation replaced 429% of its 2016 annual production on a 2P basis, 438% on a 1P basis and 206% on a PDP basis at Recycle Ratios of -266.6x (7.0x excluding the change in FDC), 11.4x and 3.4x, respectively. The strong recycle ratios reinforces Advantage's industry leading low cost structure which continues to support strong netbacks and profit margins. These recycle ratios included the Corporation's hedges and were achieved in the environment where the AECO daily natural gas price averaged Cdn $2.16/mcf in 2016.
At year-end 2016, Advantage's 2P reserves grew 13% and 18% on a debt adjusted basis and 1P reserves grew 20% and 26% on a debt adjusted per share basis compared to year-end 2015.
Since Advantage's Glacier Montney development program began in 2008, 2P reserves have grown 3,800% to 2.2 Tcfe (366.1 million boe) with a 2P reserve Net Present Value of $2.2 Billion as at December 31, 2016 (10% discount factor on a pre-tax basis).
The cumulative efficiencies achieved to date have allowed the Corporation to continue to deliver profitable and sustainable growth. This is further reflected in our 2017 through 2019 strategic growth plan which is targeted to deliver 52% production growth per share (16% on an average annual production per share basis) while reducing estimated year-end total debt to trailing cash flow to 0.2x in 2019 at an average AECO natural gas price of Cdn $2.95/mcf ($2.80/GJ) as outlined in Advantage's "2017 Budget and Development Plan" press release dated November 28, 2016.
Notable 2016 Reserve Changes and Analysis
Sproule Associates Ltd. ("Sproule") was engaged as an independent qualified reserve evaluator to evaluate Advantage's year-end reserves as of December 31, 2016 ("Sproule 2016 reserve report") in accordance with National Instrument 51-101 ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook"). Reserves are stated on a gross (before royalties) working interest basis unless otherwise indicated. Additional details are provided in the accompanying tables to this release and additional reserve information as required under NI 51-101 will be included in our Annual Information Form which will be filed on SEDAR on or before March 31, 2017.
All references to 2016 operational and financial results are estimates only and have not been reviewed or audited by our independent auditor. Advantage is expected to release its fourth quarter and year-end results after markets close on March 2, 2017.
Reserve | Conventional | NGLs | Total Gas | % Change from |
PDP | 0.36 | 3.65 | 0.38 | 26% |
1P | 1.44 | 15.53 | 1.53 | 20% |
2P | 2.06 | 23.54 | 2.20 | 13% |
| Sproule # of Gross Horizontal Wells Booked | Sproule Average EUR/well (bcf raw /well) | |
| Developed | Undeveloped | Undeveloped |
Upper | 102 | 141 | 5.9 |
Middle | 22 | 82 | 4.9 |
Lower | 43 | 84 | 6.4 |
Total | 167 | 307 | |
2016 Summary Results
During the fourth quarter of 2016 production increased 42% over the same period in 2015 to 221 mmcfe/d and Advantage outperformed its annual 2016 Guidance targets (please refer to Advantage's Operational Update press release dated January 18, 2017).
Key operational results during the fourth quarter of 2016 and for calendar 2016 are indicated below:
| | Q4 2016E | 2016E |
Production (mmcfe/d) | | 221 | 203 |
Royalties % | | 5.6% | 3.0% |
Operating Cost ($/mcfe) | | $0.22 | $0.27 |
Operating netback ($/mcfe) | | $2.83 | $2.46 |
Capital Expenditures ($ millions) | | $30 | $128 |
Total Debt including working capital ($ millions) | | $159 | $159 |
(References to 2016 operational and financial results are estimates only and have not been reviewed or audited by our independent auditor. Advantage is expected to release its fourth quarter and year-end results after markets close on March 2, 2017)
Looking Forward
The Sproule 2016 reserve report demonstrates another year of highly efficient reserve additions at Glacier reaffirming the exceptional quality of our Montney asset and the outstanding achievements of our team who accomplished this in a safe and environmentally responsible manner. Looking ahead, Advantage remains highly focused on maintaining operational and financial flexibility in conjunction with growth plans that generate profitability during lower commodity price cycles while preserving significant upside torque. We look forward to reporting on our progress through 2017.
RESERVE SUMMARY TABLES
Company Gross (before royalties) Working Interest Reserves
Summary as at December 31, 2016
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