(TSX: AAV)
CALGARY,
AB, Feb. 23, 2023 /CNW/ - Advantage Energy
Ltd. ("Advantage" or the "Corporation") is pleased to report 2022
year-end financial and operating results as well as year-end 2022
reserves.
Advantage achieved exceptional results during 2022, delivering
clean, secure energy during the global energy shortage. Cash
flow from operations was unprecedented, allowing the Corporation to
buy back 11% of our outstanding shares in 8 months, returning
$241 million to our shareholders, in
addition to reducing net debt(a) by 24% to $121 million. Every well drilled in 2022
achieved payout(a) in under 9 months with an average
payout(a) of 5 months.
2022 Year-End Financial Highlights
- Record cash provided by operating activities of $502.4 million
- Record adjusted funds flow ("AFF")(a) of
$517 million or $2.76/share
- Record free cash flow ("FCF")(a) of $275 million (53% of AFF)
- Cash used in investing activities was $270 million
- Net capital expenditures(a) were $242 million, including costs related to carbon
capture and storage ("CCS") at Glacier. Advantage anticipates
receiving an investment tax credit of approximately $15 million to $20
million from the Canada Revenue Agency related to the CCS
investment, although this credit could not be recognized in 2022
absent the substantial enactment of the legislation
- Net income of $338 million or
$1.81/share
- Operating expenses remained low at $3.16/boe
- Net debt(a) decreased to $121
million (a 24% reduction year-over-year) while net debt to
AFF(a) ratio fell to 0.2x
- Purchased 22.2 million shares (11%) through our buyback
program, returning $241 million to
shareholders. Subsequent to the year-end, Advantage purchased an
additional 5.4 million shares, returning an additional $47 million to shareholders
2022 Operating Highlights
- Record annual average production of 55,769 boe/d (298.1 mmcf/d
natural gas, 6,093 bbls/d liquids), an increase of 13% over
2021
- Liquids production of 6,093 bbls/d (1,972 bbls/d oil, 1,082
bbls/d condensate, and 3,039 bbls/d NGLs), an increase of 36% over
2021
- Of all Alberta Montney wells
drilled in 2022, 8 of the top 10 gas producers were Advantage's,
based on IP90 rates
- At Glacier, 12 gross (12.0 net) wells were drilled. Average
initial well performance is now more than double our historical
type curve
- At Valhalla, 4 gross (4.0 net)
wells were drilled with an average IP30 of 1,179 boe/d (4.8 mmcf/d
natural gas, 282 bbls/d condensate and 92 bbls/d NGLs)
- At Wembley, 6 gross (4.5 net)
wells were drilled, increasing asset production to 5,600 boe/d (15
mmcf/d natural gas, 2,000 bbls/d oil, and 1,100 bbls/d NGLs)
- At Progress, 2 gross (2.0 net) wells were drilled, tie-in
expected Q2 2023
- Capital efficiency(a) was approximately $12,050/boe/d, not including costs related to the
first phase of carbon capture at Glacier and capital spending by
Entropy
- Phase 1 of Entropy's post-combustion carbon capture and storage
project at Glacier is now fully operational, reducing corporate
emissions and achieving world-leading performance
2022 Reserves Highlights
- Proved Developed Producing ("PDP") reserves increased 15%, with
finding, development and acquisition ("FD&A") (a)
costs of $6.10/boe including Future
Development Capital ("FDC")
- Net present value of PDP reserves increased 58% to $1.7 billion (before tax, 10% discount rate) or
$9.68/share
- Proved plus Probable ("2P") reserves increased 6%, with
FD&A(a) costs of $6.62/boe including FDC
- Net present value of 2P reserves increased 42% to $4.7 billion (before tax, 10% discount rate) or
$27.64/share
- PDP reserve additions replaced(a) 186% of
production
- 2P reserve additions replaced(a) 259% of
production
- Recycle ratios(a) were 4.3x for PDP and 4.0x for
2P
- Reserves life index ("RLI") (a) was 7 years for PDP
and 29 years for 2P, based on the Corporation's average fourth
quarter 2022 production rate of 55,573 boe/d (299.7 mmcf/d natural
gas, 1,854 bbls/d oil, 1,092 bbls/d condensate, and 2,680 bbls/d
NGLs)
(a)
|
Specified financial
measure which is not a standardized measure under International
Financial Reporting Standards ("IFRS") and may not be comparable to
similar specified financial measures used by other entities. Please
see "Specified Financial Measures" for the composition of such
specified financial measure, an explanation of how such specified
financial measure provides useful information to a reader and the
purposes for which Management of Advantage uses the specified
financial measure, and where required, a reconciliation of the
specified financial measure to the most directly comparable IFRS
measure.
|
Looking Forward
To maximize shareholder value, Advantage remains focused on
growing AFF per share(a) while maintaining a net
debt target of approximately $200
million. Advantage's three-year plan is to deliver
annual production growth of approximately 10% with annual spending
between $250 million and $300 million. All excess cash will be returned to
shareholders via share buybacks.
With modern, low emissions-intensity assets and the Glacier
carbon capture and sequestration asset, the Corporation continues
to proudly deliver clean, reliable, sustainable energy,
contributing to a reduction in global emissions by displacing
high-carbon fuels. Advantage wishes to thank our employees,
Board of Directors and our shareholders for their ongoing
support.
Below are complete tables showing financial highlights,
operating highlights and reserves results.
Financial
Highlights
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
2022
|
2021
|
2022
|
2021
|
Financial Statement
Highlights
|
|
|
|
|
Natural gas and liquids
sales
|
223,200
|
159,255
|
950,458
|
492,035
|
Net income and
comprehensive income
|
113,462
|
359,956
|
337,761
|
411,354
|
per basic
share (2)
|
0.63
|
1.90
|
1.81
|
2.17
|
Basic weighted average
shares (000)
|
180,248
|
190,829
|
187,022
|
190,077
|
Cash provided by
operating activities
|
112,558
|
67,464
|
502,378
|
223,152
|
Cash used in financing
activities
|
(49,718)
|
(27,423)
|
(209,091)
|
(83,411)
|
Cash used in investing
activities
|
(69,060)
|
(44,939)
|
(269,585)
|
(117,782)
|
Other Financial
Highlights
|
|
|
|
|
Adjusted funds flow
(1)
|
124,205
|
71,227
|
516,790
|
234,824
|
per boe
(1)
|
24.29
|
16.15
|
25.39
|
13.01
|
per basic share
(1)(2)
|
0.69
|
0.37
|
2.76
|
1.24
|
Net capital
expenditures (1)
|
49,687
|
58,384
|
241,790
|
149,403
|
Free cash flow
(1)
|
74,518
|
12,843
|
275,000
|
85,421
|
Working capital surplus
(1)
|
71,564
|
6,865
|
71,564
|
6,865
|
Bank
indebtedness
|
177,200
|
167,345
|
177,200
|
167,345
|
Net debt
(1)
|
121,336
|
160,480
|
121,336
|
160,480
|
(1)
|
Specified financial
measure which is not a standardized measure under International
Financial Reporting Standards ("IFRS") and may not be comparable to
similar specified financial measures used by other entities. Please
see "Specified Financial Measures" for the composition of such
specified financial measure, an explanation of how such specified
financial measure provides useful information to a reader and the
purposes for which Management of Advantage uses the specified
financial measure, and where required, a reconciliation of the
specified financial measure to the most directly comparable IFRS
measure.
|
(2)
|
Based on basic weighted
average shares outstanding.
|
Operating
Highlights
|
Three months
ended
December
31
|
Year
ended
December
31
|
|
2022
|
2021
|
2022
|
2021
|
Operating
|
|
|
|
|
Production
|
|
|
|
|
Crude oil
(bbls/d)
|
1,854
|
816
|
1,972
|
1,101
|
Condensate
(bbls/d)
|
1,092
|
1,012
|
1,082
|
844
|
NGLs
(bbls/d)
|
2,680
|
2,524
|
3,039
|
2,548
|
Total
liquids production (bbls/d)
|
5,626
|
4,352
|
6,093
|
4,493
|
Natural
gas (Mcf/d)
|
299,684
|
261,530
|
298,053
|
269,710
|
Total
production (boe/d)
|
55,573
|
47,940
|
55,769
|
49,445
|
Average realized prices
(including realized derivatives)(2)
|
|
|
|
|
Natural
gas ($/Mcf)
|
5.65
|
4.17
|
5.55
|
3.38
|
Liquids
($/bbl)
|
86.39
|
54.70
|
92.48
|
50.92
|
Operating Netback
($/boe)
|
|
|
|
|
Natural
gas and liquids sales(2)
|
43.66
|
36.11
|
46.69
|
27.26
|
Realized
losses on derivatives(2)
|
(4.76)
|
(8.41)
|
(7.08)
|
(4.13)
|
Processing
and other income
|
0.60
|
-
|
0.45
|
-
|
Royalty expense(2)
|
(5.31)
|
(2.02)
|
(5.22)
|
(1.53)
|
Operating
expense(2)
|
(3.39)
|
(2.92)
|
(3.16)
|
(2.49)
|
Transportation expense(2)
|
(4.43)
|
(4.48)
|
(4.43)
|
(3.90)
|
Operating
netback (1)
|
26.37
|
18.28
|
27.25
|
15.21
|
(1)
|
Specified financial
measure which is not a standardized measure under IFRS and may not
be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures" for the
composition of such specified financial measure, an explanation of
how such specified financial measure provides useful information to
a reader and the purposes for which Management of Advantage uses
the specified financial measure, and where required, a
reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
|
(2)
|
Specified financial
measure which is a supplementary financial measure. Please see
"Specified Financial Measures" for the composition of such
supplementary financial measure.
|
Reserves
Highlights
|
PDP
|
1P
|
2P
|
2022 Reserves (million
boe)
|
138.9
|
416.9
|
585.6
|
2022 FD&A Cost
($/per boe, including FDC) (1)
|
6.10
|
7.48
|
6.62
|
2022 Recycle
ratio(1)
|
4.3
|
3.5
|
4.0
|
2021 Recycle
ratio(1)
|
3.5
|
2.8
|
3.1
|
2022 Reserves Increase
Over 2021
|
14.5 %
|
5.8 %
|
5.8 %
|
(1)
|
Specified financial
measure which is not a standardized measure under IFRS and may not
be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures" for the
composition of such specified financial measure, an explanation of
how such specified financial measure provides useful information to
a reader and the purposes for which Management of Advantage uses
the specified financial measure, and where required, a
reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
|
RESERVES SUMMARY TABLES
Company Gross (before royalties) Working Interest Reserves
Summary as at December 31,
2022
|
Light
&
Medium
Crude Oil
(mbbl)
|
Conventional
Natural Gas
(mmcf)
|
Natural
Gas Liquids
(mbbl)
|
Total Oil
Equivalent
(mboe)
|
Proved
|
|
|
|
|
Developed
Producing
|
3,074
|
768,058
|
7,821
|
138,905
|
Developed
Non-producing
|
48
|
28,687
|
254
|
5,083
|
Undeveloped
|
9,310
|
1,482,033
|
16,575
|
272,891
|
Total
Proved
|
12,432
|
2,278,778
|
24,650
|
416,879
|
Probable
|
7,024
|
907,549
|
10,487
|
168,769
|
Total Proved +
Probable
|
19,456
|
3,186,329
|
35,137
|
585,648
|
(1) Table may not
add due to rounding.
|
Company Net Present Value of Future Net Revenue using the IQRE
Average Forecasts (1)(2)(3)($000)
|
Before Income Taxes
Discounted at
|
|
0 %
|
10 %
|
15 %
|
Proved
|
|
|
|
Developed
Producing
|
3,067,918
|
1,661,348
|
1,377,090
|
Developed
Non-producing
|
121,378
|
56,199
|
44,540
|
Undeveloped
|
5,300,607
|
1,666,337
|
1,091,351
|
Total
Proved
|
8,489,903
|
3,383,883
|
2,512,981
|
Probable
|
4,515,559
|
1,361,282
|
938,053
|
Total Proved +
Probable
|
13,005,462
|
4,745,165
|
3,451,035
|
(1)
|
Advantage's light and
medium oil, conventional natural gas and natural gas liquid
reserves were evaluated using the IQRE Average Forecast effective
December 31, 2022 prior to the provision for income taxes,
interests, debt services charges and general and administrative
expenses. It should not be assumed that the discounted future net
revenue estimated by Sproule (as defined herein) represents the
fair market value of the reserves.
|
(2)
|
Assumes that
development of reserves will occur, without regard to the likely
availability to the Corporation of funding required for that
development.
|
(3)
|
Future Net Revenue
incorporates Managements' estimates of required abandonment and
reclamation costs, including expected timing such costs will be
incurred, associated with all wells, facilities and
infrastructure.
|
(4)
|
Table may not add due
to rounding.
|
IQRE Average Forecasts
The net present value of future net revenue at December 31, 2022 was based upon light and medium
oil, conventional natural gas and natural gas liquid pricing
assumptions, which were computed by using the average of the
forecasts ("IQRE Average Forecast") prepared by McDaniel
& Associates Consultants Ltd., GLJ Petroleum Consultants and
Sproule effective December 31,
2022. These forecasts are adjusted for reserves quality,
transportation charges and the provision of any applicable sales
contracts. The price assumptions used over the next seven years are
summarized in the table below:
Year
|
Canadian
Light Sweet
Crude 40o
API
($Cdn/bbl)
|
Alberta
AECO-C
Natural Gas
($Cdn/mmbtu)
|
Edmonton
Propane
($Cdn/bbl)
|
Edmonton
Butane
($Cdn/bbl)
|
Edmonton
Pentanes
Plus
($Cdn/bbl)
|
Exchange
Rate
($US/$Cdn)
|
2023
|
103.76
|
4.23
|
39.80
|
53.88
|
106.22
|
0.75
|
2024
|
97.74
|
4.40
|
39.14
|
52.67
|
101.35
|
0.77
|
2025
|
95.27
|
4.21
|
39.74
|
51.42
|
98.94
|
0.77
|
2026
|
95.58
|
4.27
|
39.86
|
51.61
|
100.19
|
0.77
|
2027
|
97.07
|
4.34
|
40.47
|
52.39
|
101.74
|
0.78
|
2028
|
99.01
|
4.43
|
41.28
|
53.44
|
103.78
|
0.78
|
2029
|
100.99
|
4.51
|
42.11
|
54.51
|
105.85
|
0.78
|
Company Gross (before royalties) Working Interest Reserves
Reconciliation(2)
Proved
|
Light &
Medium
Crude Oil
(Mbbl)
|
Conventional
Natural Gas
(MMcf)
|
Natural Gas
Liquids
(Mbbl)
|
Total Oil
Equivalent
(Mboe)
|
Opening balance Dec.
31, 2021
|
8,355
|
2,177,121
|
22,709
|
393,918
|
Extensions and improved
recovery
|
2,887
|
122,015
|
3,153
|
26,376
|
Technical
revisions(1)
|
1,785
|
69,470
|
131
|
13,494
|
Discoveries
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
-
|
Dispositions
|
-
|
-
|
-
|
-
|
Economic
factors
|
125
|
18,963
|
161
|
3,447
|
Production
|
(720)
|
(108,789)
|
(1,504)
|
(20,355)
|
Closing balance at
Dec. 31, 2022
|
12,432
|
2,278,778
|
24,650
|
416,879
|
Proved Plus
Probable
|
Light &
Medium
Crude Oil
(Mbbl)
|
Conventional
Natural Gas
(MMcf)
|
Natural Gas
Liquids
(Mbbl)
|
Total Oil
Equivalent
(Mboe)
|
Opening balance Dec.
31, 2021
|
17,566
|
3,016,263
|
33,088
|
553,365
|
Extensions and improved
recovery
|
2,481
|
143,276
|
3,319
|
29,679
|
Technical
revisions(1)
|
(40)
|
126,858
|
141
|
21,244
|
Discoveries
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
-
|
Dispositions
|
-
|
-
|
-
|
-
|
Economic
factors
|
169
|
8,722
|
93
|
1,716
|
Production
|
(720)
|
(108,789)
|
(1,504)
|
(20,355)
|
Closing balance at
Dec. 31, 2022
|
19,456
|
3,186,329
|
35,137
|
585,648
|
(1)
|
Technical revisions
accounted for 31% of the total proved additions and 40% of the
total proved plus probable additions. Percentage of each category
calculated by dividing the technical revisions in the category by
the total reserve additions in the same category before
production.
|
(2)
|
Tables may not add due
to rounding.
|
Company 2022 FD&A Costs – Gross (before royalties) Working
Interest Reserves including FDC (1)(2)(3)
|
Proved
|
Proved +
Probable
|
Net capital
expenditures ($000)(a)(4)
|
218,914
|
218,914
|
Net change in FDC
($000)
|
105,196
|
129,511
|
Total capital
($000)
|
324,110
|
348,425
|
|
|
|
Total mboe, end of
year
|
416,879
|
585,648
|
Total mboe, beginning
of year
|
393,918
|
553,365
|
Production,
mboe
|
(20,355)
|
(20,355)
|
Reserve additions,
mboe
|
43,316
|
52,638
|
|
|
|
2022 FD&A costs
($/boe) (a)
|
$7.48
|
$6.62
|
2021 FD&A costs
($/boe) (a)
|
$6.54
|
$5.82
|
Three-year average
FD&A costs ($/boe) (a)
|
$5.80
|
$4.63
|
(1)
|
FD&A costs are
calculated by dividing total capital by reserve additions during
the applicable period. Total capital includes both capital
expenditures incurred and changes in FDC required to bring the
proved undeveloped and probable undeveloped reserves to production
during the applicable period. Reserves additions are calculated as
the change in reserves from the beginning to the ending of the
applicable period excluding production.
|
(2)
|
The aggregate of the
exploration and development costs incurred in the most recent
financial year and the change during that year in estimated FDC
generally will not reflect total finding and development costs
related to reserves additions for that year. Changes in forecast
FDC occur annually as a result of development activities,
acquisition and disposition activities and capital cost estimates
that reflect Sproule's best estimate of what it will cost to bring
the proved undeveloped and probable undeveloped reserves on
production.
|
(3)
|
The change in FDC is
primarily from incremental undeveloped locations.
|
(4)
|
Excludes expenditures
related to CCS assets which Entropy has agreed to acquire ($19.0
million), and Entropy capital spending.
|
The reserves by category and year-over-year changes compared to
2021 are indicated below:
Reserve
Category
|
Light &
Medium
Crude Oil
Million
bbls
|
Conventional
Natural Gas
Tcf
|
NaturalGas
Liquids
Million
bbls
|
Total Oil
Equivalent
Million
boe
|
%
Change from
2021
|
PDP
|
3.07
|
0.77
|
7.82
|
138.9
|
15 %
|
1P
|
12.43
|
2.28
|
24.65
|
416.9
|
6 %
|
2P
|
19.46
|
3.19
|
35.14
|
585.6
|
6 %
|
The total number of 2P future well locations booked in the Sproule
2022 Reserves Report are illustrated in the following table:
Sproule Number of
Gross Wells Booked
|
|
Developed
|
Undeveloped
|
Total
|
Glacier
|
262
|
252
|
514
|
Valhalla
|
20
|
20
|
40
|
Wembley
|
17
|
39
|
56
|
Progress
|
6
|
14
|
20
|
Total
|
305
|
325
|
630
|
The Corporation's audited consolidated financial statements
for the fiscal year ended December 31,
2022 together with the notes thereto, and Management's
Discussion and Analysis for the year ended December 31, 2022 have been filed on SEDAR and
are available on the Corporation's website at
https://www.advantageog.com/investors/financial-reports. The
Corporation's audited consolidated financial statements for the
fiscal year ended December 31, 2021
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.
Forward-Looking Information Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of
applicable securities laws. These statements relate to future
events or our future intentions or performance. All statements
other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "anticipate", "continue",
"demonstrate", "expect", "may", "can", "will", "believe", "would"
and similar expressions and include statements relating to, among
other things, Advantage's position, strategy and development plans
and the benefits to be derived therefrom; that the Corporation will
grow its AFF per share while maintaining approximately $200 million of net debt; Advantage's three-year
plan including its anticipated production growth and capital and
its expectations that it will buy back its shares with all excess
cash; that Advantage is well positioned to generate significant
shareholder value; the investment tax credit that Advantage expects
to receive from the Canada Revenue Agency; and the Corporation's
expectations that it will continue to deliver clean, reliable,
sustainable energy, and contribute to a reduction in global
emissions by displacing high-carbon fuels. Advantage's actual
decisions, activities, results, performance or achievement could
differ materially from those expressed in, or implied by, such
forward-looking statements and accordingly, no assurances can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur or, if any of them do, what
benefits that Advantage will derive from them. In addition,
forward-looking statements contained in this document include,
statements relating to "reserves", which are by their nature
forward-looking statements, as they involve the implied assessment,
based on certain estimates and assumptions that the reserves
described can be profitably produced in the future. The recovery
and reserve estimates of Advantage's reserves provided herein are
estimates only and there is no guarantee that the estimated
reserves will be recovered.
These statements involve substantial known and unknown risks
and uncertainties, certain of which are beyond Advantage's control,
including, but not limited to: changes in general economic, market
and business conditions; industry conditions, including as a result
of demand and supply effects resulting from the COVID-19 pandemic;
actions by governmental or regulatory authorities including
increasing taxes and changes in investment or other regulations;
changes in tax laws, royalty regimes and incentive programs
relating to the oil and gas industry; Advantage's success at
acquisition, exploitation and development of reserves; unexpected
drilling results; changes in commodity prices, currency exchange
rates, net capital expenditures, reserves or reserves estimates and
debt service requirements; the occurrence of unexpected events
involved in the exploration for, and the operation and development
of, oil and gas properties, including hazards such as fire,
explosion, blowouts, cratering, and spills, each of which could
result in substantial damage to wells, production and processing
facilities, other property and the environment or in personal
injury; changes or fluctuations in production levels; delays in
anticipated timing of drilling and completion of wells; individual
well productivity; competition from other producers; the lack of
availability of qualified personnel or management; credit risk;
changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are
interpreted and enforced; our ability to comply with current and
future environmental or other laws; stock market volatility and
market valuations; liabilities inherent in oil and natural gas
operations; competition for, among other things, capital,
acquisitions of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; geological,
technical, drilling and processing problems and other difficulties
in producing petroleum reserves; ability to obtain required
approvals of regulatory authorities; the risk that the Corporation
may not have access to sufficient capital from internal and
external sources; the risk that the Corporation may not grow its
AFF per share while maintaining approximately $200 million of net debt; the risk that
Advantage's future production may be less than anticipated; the
risk that the Corporation may not buy back its shares with all
excess cash; the risk that the Corporation may not have sufficient
financial resources to acquire its common shares pursuant to its
share buyback program in the future; the risk that Advantage may
not generate significant shareholder value; the risk that Advantage
may not receive the investment tax credit from the Canada Revenue
Agency when anticipated, or at all; and the risk that the
Corporation may not continue to deliver clean, reliable,
sustainable energy, or contribute to a reduction in global
emissions. Many of these risks and uncertainties and additional
risk factors are described in the Corporation's Annual Information
Form which is available at
www.sedar.com ("SEDAR") and
www.advantageog.com. Readers are also referred to risk
factors described in other documents Advantage files with Canadian
securities authorities.
With respect to forward-looking statements contained in this
press release, Advantage has made assumptions regarding, but not
limited to: conditions in general economic and financial markets;
the impact and duration thereof that the COVID-19 pandemic will
have on (i) the demand for crude oil, NGLs and natural gas, (ii)
the supply chain including the Corporation's ability to obtain the
equipment and services it requires, and (iii) the Corporation's
ability to produce, transport and/or sell its crude oil, NGLs and
natural gas; effects of regulation by governmental agencies;
current and future commodity prices and royalty regimes; the
Corporation's current and future hedging program; future exchange
rates; royalty rates; future operating costs; future transportation
costs and availability of product transportation capacity;
availability of skilled labor; availability of drilling and related
equipment; timing and amount of net capital expenditures; the
impact of increasing competition; the price of crude oil and
natural gas; the number of new wells required to achieve the budget
objectives; that the Corporation will have sufficient cash flow,
debt or equity sources or other financial resources required to
fund its capital and operating expenditures and requirements as
needed; that the Corporation's conduct and results of operations
will be consistent with its expectations; that the Corporation will
have the ability to develop the Corporation's properties in the
manner currently contemplated; current or, where applicable,
proposed assumed industry conditions, laws and regulations will
continue in effect or as anticipated; that the Corporation will
have sufficient financial resources to purchase its shares pursuant
to its share buyback program in the future; and the estimates of
the Corporation's production and reserves volumes and the
assumptions related thereto (including commodity prices and
development costs) are accurate in all material respects. Readers
are cautioned that the foregoing lists of factors are not
exhaustive.
The future acquisition by the Corporation of the
Corporation's shares pursuant to a share buyback program, if any,
and the level thereof is uncertain. Any decision to implement a
share buyback program or acquire shares of the Corporation will be
subject to the discretion of the board of directors of the
Corporation and may depend on a variety of factors, including,
without limitation, the Corporation's business performance,
financial condition, financial requirements, growth plans, expected
capital requirements and other conditions existing at such future
time including, without limitation, contractual restrictions,
satisfaction of the solvency tests imposed on the Corporation under
applicable corporate law and receipt of regulatory approvals. There
can be no assurance that the Corporation will buyback any shares of
the Corporation in the future.
Management has included the above summary of assumptions and
risks related to forward-looking information above and in its
continuous disclosure filings on SEDAR in order to provide
shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other
purposes. Advantage's actual results, performance or achievement
could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits that Advantage will derive there from. Readers are
cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this
news release and Advantage disclaims any intent or obligation to
update publicly any forward-looking statements, whether as a result
of new information, future events or results or otherwise, other
than as required by applicable securities laws.
This press release contains information that may be
considered a financial outlook under applicable securities laws
about the Corporation's potential financial position, including,
but not limited to, the that the Corporation will grow its AFF per
share while maintaining approximately $200
million of net debt; Advantage's three-year plan including
its anticipated capital and its expectations that it will buy back
its shares with all excess cash; and the investment tax credit that
Advantage expects to receive from the Canada Revenue Agency; all of
which are subject to numerous assumptions, risk factors,
limitations and qualifications, including those set forth in the
above paragraphs. The actual results of operations of the
Corporation and the resulting financial results will vary from the
amounts set forth in this press release and such variations may be
material. This information has been provided for illustration only
and with respect to future periods are based on budgets and
forecasts that are speculative and are subject to a variety of
contingencies and may not be appropriate for other purposes.
Accordingly, these estimates are not to be relied upon as
indicative of future results. Except as required by applicable
securities laws, the Corporation undertakes no obligation to update
such financial outlook. The financial outlook contained in this
press release was made as of the date of this press release and was
provided for the purpose of providing further information about the
Corporation's potential future business operations. Readers are
cautioned that the financial outlook contained in this press
release is not conclusive and is subject to change.
Oil and Gas Information
Barrels of oil equivalent (boe) and thousand cubic feet of
natural gas equivalent (mcfe) may be misleading, particularly if
used in isolation. Boe and mcfe conversion ratios have been
calculated using a conversion rate of six thousand cubic feet of
natural gas equivalent to one barrel of oil. A boe and mcfe
conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
Sproule Associates Limited ("Sproule") was engaged as an
independent qualified reserve evaluator to evaluate Advantage's
year-end reserves as of December 31,
2022 ("Sproule 2022 Reserves 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 about February 24, 2022. The recovery and reserve
estimates of reserves provided in this news release are estimates
only, and there is no guarantee that the estimated reserves will be
recovered. Actual reserves may eventually prove to be greater than,
or less than, the estimates provided herein.
This press release discloses undeveloped drilling locations
in two categories: (i) proved locations; and (ii) probable
locations. Proved locations and probable locations are derived from
the Sproule 2022 Reserves Report and account for drilling locations
that have associated proved and/or probable reserves, as
applicable. Of the 325 total undeveloped drilling locations
identified herein, 272 are proved locations with 215 in Glacier, 18
in Valhalla, 29 in Wembley and 10 in Progress. Of the 53 probable
locations, 37 are in Glacier, 2 in Valhalla, 10 in Wembley and 4 in Progress.
References in this press release to short-term production
rates, such as IP30 and IP90, are useful in confirming the presence
of hydrocarbons, however such rates are not determinative of the
rates at which such wells will commence production and decline
thereafter and are not indicative of long term performance or of
ultimate recovery. Additionally, such rates may also include
recovered "load oil" fluids used in well completion stimulation.
While encouraging, readers are cautioned not to place reliance on
such rates in calculating the aggregate production of
Advantage.
Specified Financial Measures
Throughout this news release, Advantage discloses certain
measures to analyze financial performance, financial position, and
cash flow. These non-GAAP and other financial measures do not have
any standardized meaning prescribed under IFRS and therefore may
not be comparable to similar measures presented by other entities.
The non-GAAP and other financial measures should not be considered
to be more meaningful than GAAP measures which are determined in
accordance with IFRS, such as net income (loss) and comprehensive
income (loss), cash provided by operating activities, and cash used
in investing activities, as indicators of Advantage's
performance.
Non-GAAP Financial Measures
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, support future capital expenditures plans, or
return capital to shareholders. Changes in non-cash working capital
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 and paying
payables. Expenditures on decommissioning liabilities are excluded
from the calculation as the amount and timing of these expenditures
are unrelated to current production and are partially discretionary
due to the nature of our low liability. A reconciliation of the
most directly comparable financial measure has been provided
below:
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000)
|
2022
|
2021
|
2022
|
2021
|
Cash provided by
operating activities
|
112,558
|
67,464
|
502,378
|
223,152
|
Expenditures on decommissioning liability
|
1,144
|
253
|
2,215
|
1,033
|
Changes in
non-cash working capital
|
10,503
|
3,510
|
12,197
|
10,639
|
Adjusted funds
flow
|
124,205
|
71,227
|
516,790
|
234,824
|
Net Capital Expenditures
Net capital expenditures include total capital expenditures
related to property, plant and equipment, exploration and
evaluation assets and intangible assets. Management considers this
measure reflective of actual capital activity for the period as it
excludes changes in working capital related to other periods and
excludes cash receipts on government grants. A reconciliation of
the most directly comparable financial measure has been provided
below:
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000)
|
2022
|
2021
|
2022
|
2021
|
Cash used in investing
activities
|
69,060
|
44,939
|
269,585
|
117,782
|
Changes in
non-cash working capital
|
(19,373)
|
13,431
|
(27,800)
|
11,564
|
Project
funding received
|
-
|
14
|
5
|
20,057
|
Net capital
expenditures
|
49,687
|
58,384
|
241,790
|
149,403
|
Free Cash Flow
Advantage computes free cash flow as adjusted funds flow less
net capital expenditures. Advantage uses free cash flow as an
indicator of the efficiency and liquidity of Advantage's business
by measuring its cash available after net capital expenditures to
settle outstanding debt and obligations and potentially return
capital to shareholders by paying dividends or buying back common
shares. A reconciliation of the most directly comparable financial
measure has been provided below:
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000)
|
2022
|
2021
|
2022
|
2021
|
Cash provided by
operating activities
|
112,558
|
67,464
|
502,378
|
223,152
|
Cash used in investing
activities
|
(69,060)
|
(44,939)
|
(269,585)
|
(117,782)
|
Changes in non-cash working
capital
|
29,876
|
(9,921)
|
39,997
|
(925)
|
Expenditures on decommissioning
liability
|
1,144
|
253
|
2,215
|
1,033
|
Project
funding received
|
-
|
(14)
|
(5)
|
(20,057)
|
Free cash
flow
|
74,518
|
12,843
|
275,000
|
85,421
|
Operating Netback
Operating netback is comprised of sales revenue and realized
gains (losses) on 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.
The composition of operating netback is as follows:
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000)
|
2022
|
2021
|
2022
|
2021
|
Natural gas and liquids
sales
|
223,200
|
159,255
|
950,458
|
492,035
|
Realized losses on
derivatives
|
(24,344)
|
(37,088)
|
(144,134)
|
(74,578)
|
Processing and other
income
|
3,091
|
-
|
9,082
|
-
|
Net sales of purchased
natural gas
|
-
|
-
|
70
|
-
|
Royalty
expense
|
(27,154)
|
(8,928)
|
(106,257)
|
(27,530)
|
Operating
expense
|
(17,344)
|
(12,870)
|
(64,269)
|
(44,893)
|
Transportation
expense
|
(22,637)
|
(19,768)
|
(90,093)
|
(70,440)
|
Operating
netback
|
134,812
|
80,601
|
554,857
|
274,594
|
Non-GAAP Ratios
Adjusted Funds Flow per Share
Adjusted funds flow per share is derived by dividing adjusted
funds flow by the basic weighted average shares outstanding of the
Corporation. Management believes that adjusted funds flow per share
provides investors an indicator of funds generated from the
business that could be allocated to each shareholder's equity
position.
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
2022
|
2021
|
2022
|
2021
|
Adjusted funds
flow
|
124,205
|
71,227
|
516,790
|
234,824
|
Weighted average shares
outstanding (000)
|
180,248
|
190,829
|
187,022
|
190,077
|
Adjusted funds flow per
share ($/share)
|
0.69
|
0.37
|
2.76
|
1.24
|
Adjusted Funds Flow per boe
Adjusted funds flow per boe is derived by dividing adjusted
funds flow by the total production in boe for the reporting
period. Adjusted funds flow per boe is a useful ratio that
allows users to compare the Corporation's adjusted funds flow
against other competitor corporations with different rates of
production.
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
2022
|
2021
|
2022
|
2021
|
Adjusted funds
flow
|
124,205
|
71,227
|
516,790
|
234,824
|
|
|
|
|
|
Total production
(boe/d)
|
55,573
|
47,940
|
55,769
|
49,445
|
Days in
period
|
92
|
92
|
365
|
365
|
Total production
(boe)
|
5,112,716
|
4,410,480
|
20,355,685
|
18,047,425
|
Adjusted funds flow per
boe ($/boe)
|
24.29
|
16.15
|
25.39
|
13.01
|
Operating netback per boe
Operating netback per boe is derived by dividing each
component of the operating netback by the total production in boe
for the reporting period. Operating netback per boe provides
Management and users with a measure to compare the profitability of
field operations between companies, development areas and specific
wells against other competitor corporations with different rates of
production.
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
2022
|
2021
|
2022
|
2021
|
Operating
netback
|
134,812
|
80,601
|
554,857
|
274,594
|
|
|
|
|
|
Total production
(boe/d)
|
55,573
|
47,940
|
55,769
|
49,445
|
Days in
period
|
92
|
92
|
365
|
365
|
Total production
(boe)
|
5,112,716
|
4,410,480
|
20,355,685
|
18,047,425
|
Operating
netback per boe ($/boe)
|
26.37
|
18.28
|
27.25
|
15.21
|
Payout Ratio
Payout ratio is calculated by dividing net capital
expenditures by adjusted funds flow. Advantage uses payout ratio as
an indicator of the efficiency and liquidity of Advantage's
business by measuring its cash available after net capital
expenditures to settle outstanding debt and obligations and
potentially return capital to shareholders by paying dividends or
buying back common shares.
|
Three months
ended
December
31
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
2022
|
2021
|
2022
|
2021
|
Net capital
expenditures
|
49,687
|
58,384
|
241,790
|
149,403
|
Adjusted funds
flow
|
124,205
|
71,227
|
516,790
|
234,824
|
Payout ratio
|
0.4
|
0.8
|
0.5
|
0.6
|
Net Debt to Adjusted Funds Flow Ratio
Net debt to adjusted funds flow is calculated by dividing net
debt by adjusted fund flow for the previous four quarters. Net debt
to adjusted funds flow is a coverage ratio that provides Management
and users the ability to determine how long it would take the
Corporation to repay its bank indebtedness if it devoted all its
adjusted funds flow to debt repayment.
|
|
Year
ended
December
31
|
($000, except as
otherwise indicated)
|
|
|
2022
|
2021
|
Net Debt
|
|
|
121,336
|
160,480
|
Adjusted funds flow
(prior four quarters)
|
|
|
516,790
|
234,824
|
Net debt to adjusted
funds flow ratio
|
|
|
0.2
|
0.7
|
Finding, Development and Acquisition Costs ("FD&A")
FD&A cost is calculated based on adding net capital
expenditures and the net change in future development capital
("FDC"), divided by reserve additions for the year from the Sproule
2022 and 2021 Reserves Report.
Payout
The point at which all costs associated with a well are
recovered from the operating netback of the
well. Payout is considered by Management to be a useful
performance measure as a common metric used to evaluate capital
allocation decisions.
Capital Efficiency
Capital efficiency is calculated by dividing net capital
expenditures by the average production additions of the applicable
year to replace the corporate decline rate and deliver production
growth, expressed in $/boe/d. Net capital expenditures used
in the calculation excludes expenditures related to carbon capture
and storage assets which Entropy has agreed to acquire
($19.0 million), and Entropy capital
spending as these expenditures are not related to production
additions. 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.
Recycle Ratio
Recycle ratio is calculated by dividing Advantage's fourth
quarter operating netback by the calculated FD&A cost of the
applicable year and expressed as a ratio. Management uses recycle
ratio to relate the cost of adding reserves to the expected
operating netback to be generated.
Capital Management Measures
Working Capital
Working capital is a capital management financial measure
that provides Management and users with a measure of the
Corporation's short-term operating liquidity. By excluding short
term derivatives and the current portion of provision and other
liabilities, Management and users can determine if the
Corporation's energy operations are sufficient to cover the
short-term operating requirements. Working capital is not a
standardized measure and therefore may not be comparable with the
calculation of similar measures by other entities.
A summary of working capital as at December 31, 2022 and 2021 is as follows:
|
December
31
2022
|
December
31
2021
|
Cash and cash
equivalents
|
48,940
|
25,238
|
Trade and other
receivables
|
92,816
|
54,769
|
Prepaid expenses and
deposits
|
14,613
|
3,483
|
Trade and other accrued
liabilities
|
(84,805)
|
(76,625)
|
Working capital
surplus
|
71,564
|
6,865
|
Net Debt
Net debt is a capital management financial measure that
provides Management and users with a measure to assess the
Corporation's liquidity. Net debt is not a standardized measure and
therefore may not be comparable with the calculation of similar
measures by other entities.
A summary of the reconciliation of net debt as at
December 31, 2022 and 2021 is as
follows:
|
|
December
31
2022
|
December
31
2021
|
Bank indebtedness
(non-current)
|
|
177,200
|
167,345
|
Unsecured
debentures
|
|
15,700
|
-
|
Working capital
surplus
|
|
(71,564)
|
(6,865)
|
Net
debt
|
|
121,336
|
160,480
|
Supplementary financial measures
Corporate Decline Rate
Corporate decline rate is calculated by identifying the
actual or forecasted production of all the wells onstream at the
start of the year, then tracking their cumulative decline by the
end of the year, expressed as a percentage.
Reserve additions replaced
Reserve additions replaced is calculated by dividing reserves
net volume additions by the current annual production and expressed
as a percentage. Management uses this measure to determine the
relative change of its reserves base over a period of time.
Reserves life index
Reserves life index is calculated by dividing the total
volume of reserves by the fourth quarter production rate and
expressed in years.
"Average realized prices (including realized derivatives)
natural gas" is comprised of natural gas sales, as determined in
accordance with IFRS, divided by the Corporation's natural gas
production.
"Average realized prices (including realized derivatives)
liquids" is comprised of crude oil, condensate and NGL's sales, as
determined in accordance with IFRS, divided by the Corporation's
crude oil, condensate and NGL's production.
"Natural gas and liquids sales per boe" is comprised of
natural gas sales and liquids sales, as determined in accordance
with IFRS, divided by the Corporation's total natural gas and
liquids production.
"Operating expense per boe" is comprised of operating
expense, as determined in accordance with IFRS, divided by the
Corporation's total production.
"Realized losses on derivatives per boe" is comprised of
realized losses on derivatives, as determined in accordance with
IFRS, divided by the Corporation's total production.
"Royalty expense per boe" is comprised of royalty expense, as
determined in accordance with IFRS, divided by the Corporation's
total production.
"Transportation expense per boe" is comprised of
transportation expense, as determined in accordance with IFRS,
divided by the Corporation's total production.
The following abbreviations used in this press release
have the meanings set forth below:
bbl
|
one
barrel
|
bbls
|
barrels
|
bbls/d
|
barrels per
day
|
boe
|
barrels of oil
equivalent of natural gas, on the basis of one barrel of oil or
NGLs for six thousand cubic feet of natural gas
|
boe/d
|
barrels of oil
equivalent of natural gas per day
|
mbbl
|
thousand
barrels
|
mboe
|
thousand barrels of
oil equivalent of natural gas
|
mcf
|
thousand cubic
feet
|
mcf/d
|
thousand cubic feet
per day
|
mcfe
|
thousand cubic feet
equivalent on the basis of six thousand cubic feet of natural gas
for one barrel of oil or NGLs
|
mmcf
|
million cubic
feet
|
mmcf/d
|
million cubic feet
per day
|
mmbtu
|
million British
thermal units
|
mmcfe/d
|
million cubic feet
equivalent per day
|
tcf
|
trillion cubic
feet
|
Liquids
|
Includes NGLs,
condensate and crude oil
|
NGLs and
condensate
|
Natural Gas Liquids
as defined in National Instrument 51-101
|
Natural
Gas
|
Conventional Natural
Gas as defined in National Instrument 51-101
|
Crude
Oil
|
Light Crude Oil and
Medium Crude Oil as defined in National Instrument
51-101
|
SOURCE Advantage Energy Ltd.