(TSX: AVN.UN, NYSE: AAV) CALGARY, March 5 /PRNewswire-FirstCall/ --
Advantage Energy Income Fund ("Advantage" or the "Fund") is pleased
to announce the Fund's corporate year end reserves as of December
31, 2008. Year end financial and operating information will be
released on or about March 18, 2009. Overall, the Fund replaced
290% of annual production with the vast majority of reserve
additions realized through our successful 2008 drilling program at
Glacier, Alberta where the Fund commenced a significant development
drilling program on our Montney natural gas resource play. Based on
results to date, Advantage estimates that a total capital
investment in excess of $2.5 billion will be required to fully
develop our extensive Montney land holdings at Glacier. In 2008,
all-in Finding, Development and Acquisition ("FD&A") costs were
$7.67 per proven plus probable boe before changes in future
development capital ("FDC") and $16.70 per boe including changes in
FDC. Highly Successful 2008 Drilling Program at Glacier & Key
Properties leads to Efficient Reserve Additions - Our 2008 drilling
program resulted in the replacement of 285% of annual production at
a Finding and Development ("F&D") cost of $7.61 per proven and
probable boe before consideration of changes in FDC and $16.95 per
boe including the change in FDC. - At our Glacier Montney natural
gas resource play the 2008 F&D cost was $3.48 per proven and
probable boe before changes in FDC and $13.14 per boe including
changes in FDC. Advantage invested $101 million at Glacier in 2008
and increased proven and probable reserves by 29 mmboe and
confirmed horizontal well rates of 2.5 to 7.5 mmcfd (417 to 1,250
boe per day). Montney reserves are assigned to only 32 of our 88
sections. The reserve assignment is based on an average well
density of 2.4 wells per section of land although we currently have
regulatory approval to drill up to 8 wells per section consisting
of 4 wells in the Upper and 4 wells in the Lower Montney zones.
Adjacent operators are currently evaluating 16 wells per section
which may lead to significant future reserve additions. Further
delineation drilling is required to evaluate the undeveloped land
potential in the remaining 56 sections. Our independent reserve
evaluator, Sproule Associates Limited ("Sproule") included the
following comment in their December 31, 2008 Glacier reserves
report: "The Proved and Probable reserves assigned by Sproule to
the Montney zone at Glacier, as of December 31, 2008 represent a
significant increase in reserve assignment compared to the December
31, 2007 reserves assigned. However, the reserves assigned still
represent a relatively small percentage of the total resource
potential for the Upper and Lower Montney zone on the Glacier land
holdings." - The balance of our 2008 capital development program of
$155 million was directed to key properties such as Nevis, Martin
Creek, Willesden Green, Northville, Brazeau and Youngstown where
better than expected results were obtained. - At Nevis, continued
light oil drilling in the Wabamun formation extended the field and
resulted in numerous wells with initial production exceeding 200
boe per day. A 35 gross (27 net) well Horseshoe Canyon coal bed
methane drilling program in 2008 also confirmed several more phases
of future drilling. A total of 47 gross (38.8 net) wells were
drilled at a 100% success rate for a total expenditure of $50
million and added 2,980 boe per day of initial production. - At
Martin Creek, approximately $17 million was invested in a
successful 10 well gross (8 net) drilling program in early 2008
which added 1,490 boe per day of initial production. - At Willesden
Green, a new light oil pool was discovered with the drilling of 2
gross (2 net) wells with initial combined production of 800 boe per
day. In addition, 3 gross (3 net) wells were successfully drilled
for liquids rich natural gas production from the Rock Creek
formation. - At Northville, Brazeau and Youngstown, 6 gross (4.3
net) wells were successfully drilled adding additional reserves and
defined additional drilling locations. - The 2008 capital program
totaled $263.5 million of which $255.9 million was invested in
development activities and $7.6 million was expended on a
complimentary acquisition at our Nevis property. The Nevis
acquisition resulted in increasing our working interest in 9 gross
sections of land and provided future drilling locations on an
additional 4 gross sections for Horseshoe Canyon coal bed methane.
Included in our 2008 capital expenditures were $20 million of
strategic undeveloped land acquisitions, the majority of which was
located at Glacier. A total of 124 gross (86.8 net) wells were
drilled in 2008 at a 99% success rate. - Advantage's total drilling
inventory has grown to over 1,000 drilling locations of which 560
is in our conventional assets and over 440 has been confirmed in
our Glacier Montney natural gas resource play. The drilling
inventory at Glacier could exceed 800 locations depending on the
density of horizontal wells that will ultimately be drilled per
section of land. Company Interest Reserves increase 15% (11% on a
per Unit basis) primarily from Organic Drilling Results - Proven
and probable reserves increased 15% to 174.8 mmboe from 152.2 mmboe
at year end 2007. Proven reserves increased 7% to 102.3 mmboe from
95.6 mmboe at year end 2007. The Fund's proven plus probable
reserve life index increased 26% to 15.2 years compared to 12.1
years at the end of 2007. Natural gas reserves calculate to a
reserve life index of 15.9 years, and crude oil and natural gas
liquids calculate to a reserve life index of 13.9 years indicative
of a very stable producing platform with significant upside
potential. - Ninety eight percent (33.8 mmboe) of total P+P reserve
additions (34.4 mmboe) were a result of the Fund's successful
drilling program. - Proven and probable reserves per trust unit
increased 11% and proven reserves increased 4% per trust unit
compared to year end 2007. - Advantage's total proven and probable
reserves consist of 67% natural gas and 33% crude oil and natural
gas liquids. Net Asset Value & Recycle Ratio - The net asset
value ("NAV") calculated using Sproule's December 31, 2008 reserves
report and price forecasts results in a before tax value of $14.03
per trust unit at a 10% discount rate. - Based on a 2008 operating
netback of $36.54 per boe, the one year recycle ratio is 4.8 times
using the FD&A cost of $7.67 per boe before changes to FDC and
2.2 times using the FD&A cost of $16.70 per boe including the
changes to FDC. Well Positioned for Future Organic Growth -
Advantage is well positioned to grow by developing our significant
natural gas resource at Glacier and continued exploitation and
optimization of our long life conventional assets. - The reserve
potential at Glacier which is measured in "TCF's" of natural gas is
economic at less than $5 Cdn per mcf. Advantage will utilize a
disciplined financial approach to development in order to yield
significant long term value growth for Unitholders. As at December
31, 2008 Sproule has assigned 223 BCF (0.223 TCF) of proven and
probable natural gas reserves to Glacier which will require future
development capital of approximately $0.4 million. Advantage
estimates that fully developing the Montney resource potential at
Glacier will require additional capital expenditures in excess of
$2.5 billion over the life of the project which, if properly
deployed, could result in significant reserve and production
growth. RESERVES Advantage engaged our independent qualified
reserves evaluator Sproule Associates Ltd. ("Sproule") to update
the reserves analysis for the Fund in accordance with National
Instrument 51-101 and the COGE Handbook. Highlights - Company
Interest Reserves (Working Interests plus Royalty Interests
Receivable) December 31, December 31, 2008 2007
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Proved plus probable reserves (mboe) 174,767 152,203 Present Value
of reserves discounted at 10%, before tax P+P ($000) $ 2,663,437 $
2,462,610 Net Asset Value per Unit discounted at 10%, before tax $
14.03 $ 12.96 Reserve Life Index (proved plus probable - years)(1)
15.2 12.1 Reserves per Unit (proved plus probable)(2) 1.22 1.10
Bank debt per boe of reserves(3) $ 3.36 $ 3.60 Convertible
debentures per boe of reserves(3) $ 1.25 $ 1.48 (1) Based on Q4
average production and company interest reserves. (2) Based on
142.8 million Units outstanding at December 31, 2008, and 138.3
million Units outstanding as December 31, 2007. (3) BOE's may be
misleading, particularly if used in isolation. In accordance with
NI 51-101, a BOE conversion ratio for natural gas of 6 Mcf: 1 bbl
has been used which is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Company Interest
Reserves (Working Interests plus Royalty Interests Receivable)
Summary as at December 31, 2008 Natural Light & Gas Oil Medium
Oil Heavy Oil Liquids Natural Gas Equivalent (mbbl) (mbbl) (mbbl)
(mmcf) (mboe)
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Proved Developed Producing 19,853 2,359 5,469 266,762 72,141
Developed Non-producing 279 208 248 28,904 5,553 Undeveloped 3,744
312 1,147 116,574 24,631 Total Proved 23,876 2,879 6,864 412,240
102,325
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Probable 16,064 3,712 3,991 292,046 72,442 Total Proved + Probable
39,940 6,591 10,855 704,286 174,767
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Gross Working Interest Reserves (Working Interest only) Summary as
at December 31, 2008 Natural Light & Gas Oil Medium Oil Heavy
Oil Liquids Natural Gas Equivalent (mbbl) (mbbl) (mbbl) (mmcf)
(mboe)
-------------------------------------------------------------------------
Proved Developed Producing 19,560 2,329 5,407 264,099 71,313
Developed Non-producing 254 204 245 28,484 5,451 Undeveloped 3,730
312 1,143 116,503 24,602 Total Proved 23,544 2,845 6,795 409,086
101,366
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Probable 15,928 3,697 3,970 290,738 72,052 Total Proved + Probable
39,473 6,542 10,765 699,824 173,418
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Present Value of Future Net Revenue using Sproule price and cost
forecasts(1) ($000) Before Income Taxes Discounted at 0% 5% 10%
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Proved Developed Producing $ 2,586,932 $ 1,781,161 $ 1,394,029
Developed Non-producing 164,372 122,933 97,495 Undeveloped 627,257
361,683 223,136 Total Proved 3,378,561 2,265,777 1,714,660
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Probable 3,026,305 1,534,620 948,777 Total Proved + Probable $
6,404,866 $ 3,800,397 $ 2,663,437
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(1) Advantage's crude oil, natural gas and natural gas liquid
reserves were evaluated using Sproule's product price forecast
effective December 31, 2008 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 revenue estimated by Sproule represents the fair
market value of the reserves. Sproule Price Forecasts The present
value of future net revenue at December 31, 2008 was based upon
crude oil and natural gas pricing assumptions prepared by Sproule
effective December 31, 2008. These forecasts are adjusted for
reserve 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: Edmonton
Alberta WTI Light AECO-C Henry Hub Exchange Crude Oil Crude Oil
Natural Gas Natural Gas Rate Year ($US/bbl) ($Cdn/bbl) ($Cdn/mmbtu)
($US/mmbtu) ($US/$Cdn)
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2009 53.73 65.35 6.82 6.30 0.80 2010 63.41 72.78 7.56 7.32 0.85
2011 69.53 79.95 7.84 7.56 0.85 2012 79.59 86.57 8.38 8.49 0.90
2013 92.01 94.97 9.20 9.74 0.95 2014 93.85 96.89 9.41 9.94 0.95
2015 95.72 98.85 9.62 10.14 0.95 The Sproule price forecast does
not include the impact of Advantage's commodity price hedging
program. We currently have 56% of our net natural gas production
hedged at an average price of $8.09 Cdn/mmbtu for 2009 and 48%
hedged for 2010 at an average price of $7.46 Cdn/mmbtu. Crude oil
hedges include 46% of our net crude oil production hedged at an
average floor price of $69.38 Cdn/bbl for 2009 and 26 % hedged for
2010 at an average price of $67.83 Cdn/bbl. Net Asset Value using
Sproule price and cost forecasts (Before Income Taxes) The
following net asset value ("NAV") table shows what is normally
referred to as a "produce-out" NAV calculation under which the
current value of the Fund's reserves would be produced at forecast
future prices and costs. The value is a snapshot in time and is
based on various assumptions including commodity prices and foreign
exchange rates that vary over time. ($000, except per Unit amounts)
0% 5% 10%
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Net asset value per Unit(1) - December 31, 2007 $ 32.05 $ 18.95 $
12.96
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Present value proved and probable reserves $ 6,404,866 $ 3,800,397
$ 2,663,437 Undeveloped acreage and seismic(2) 159,412 159,412
159,412 Working capital (deficit) and other (12,257) (12,257)
(12,257) Convertible debentures (219,195) (219,195) (219,195) Bank
debt (587,404) (587,404) (587,404) Net asset value - December 31,
2008 $ 5,745,422 $ 3,140,953 $ 2,003,993
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Net asset value per Unit(1) - December 31, 2008 $ 40.23 $ 21.99 $
14.03
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(1) Based on 142.8 million Units outstanding at December 31, 2008,
and 138.3 million Units outstanding at December 31, 2007. (2)
Internal estimate Gross Working Interest Reserves Reconciliation
Natural Light & Gas Oil Medium Oil Heavy Oil Liquids Natural
Gas Equivalent Proved (mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Opening balance Dec. 31, 2007 26,154 2,237 7,840 350,933 94,720
Extensions 496 0 254 19,565 4,011 Improved recovery 318 0 324
41,909 7,627 Discoveries 240 0 56 1,120 483 Economic factors (49)
446 314 14,250 3,086 Technical revisions (492) 532 (1,170) 23,761
2,831 Acquisitions 0 0 1 2,522 420 Dispositions 0 0 0 0 0
Production (3,123) (370) (824) (44,973) (11,812)
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Closing balance at Dec. 31, 2008 23,544 2,845 6,795 409,087 101,366
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Natural Light & Gas Oil Proved + Medium Oil Heavy Oil Liquids
Natural Gas Equivalent Probable (mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Opening balance Dec. 31, 2007 43,630 5,508 11,613 541,546 151,009
Extensions 741 0 442 40,241 7,890 Improved recovery 567 0 835
120,454 21,478 Discoveries 336 0 67 1,423 641 Economic factors
(138) 1,098 418 21,044 4,885 Technical revisions (2,540) 306
(1,788) 16,677 (1,243) Acquisitions 0 0 2 3,412 570 Dispositions 0
0 0 0 0 Production (3,123) (370) (824) (44,973) (11,812)
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Closing balance at Dec. 31, 2008 39,473 6,542 10,765 699,824
173,418
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Finding, Development & Acquisitions Costs ("FD&A")(1)
FD&A Costs - Gross Working Interest Reserves excluding Future
Development Capital Proved + Proved Probable
-------------------------------------------------------------------------
Capital expenditures ($000) $ 255,937 $ 255,937 Acquisitions net of
dispositions ($000) 6,680 6,680
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Total capital ($000) $ 262,617 $ 262,617
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Total mboe, end of period 101,366 173,418 Total mboe, beginning of
period 94,720 151,009 Production, mboe 11,812 11,812
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Reserve additions, mboe 18,458 34,221
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FD&A costs ($/boe) $ 14.23 $ 7.67 Three year average FD&A
Costs ($/boe) $ 25.09 $ 16.35 F&D costs ($/boe) $ 14.56 $ 7.61
Three year average F&D costs ($/boe) $ 20.82 $ 12.10 NI 51-101
FD&A Costs - Gross Working Interest Reserves including Future
Development Capital Proved + Proved Probable
-------------------------------------------------------------------------
Capital expenditures ($000) $ 255,937 $ 255,937 Acquisitions net of
dispositions ($000) 6,680 6,680 Net change in Future Development
Capital ($000) 188,096 308,734
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Total capital ($000) $ 450,713 $ 571,351
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Reserve additions, mboe 18,458 34,221
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FD&A costs ($/boe) $ 24.42 $ 16.70 Three year average FD&A
Costs ($/boe) $ 27.55 $ 19.42 F&D costs ($/boe) $ 31.62 $ 16.95
Three year average F&D costs ($/boe) $ 27.34 $ 19.34 (1) Under
NI 51-101, the methodology to be used to calculate FD&A costs
includes incorporating changes in future development capital
("FDC") required to bring the proved undeveloped and probable
reserves to production. For continuity, Advantage has presented
herein FD&A costs calculated both excluding and including FDC.
The aggregate of the exploration and development costs incurred in
the most recent financial year and the change during that year in
estimated future development costs 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 reserves
on production. In all cases, the FD&A number is calculated by
dividing the identified capital expenditures by the applicable
reserve additions. Boes may be misleading, particularly if used in
isolation. A boe 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. Advisory The information in this press release contains
certain forward-looking statements. These statements relate to
future events or our future 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 "seek", "anticipate", "plan", "continue",
"estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should",
"believe", "would" and similar expressions. These statements
involve substantial known and unknown risks and uncertainties,
certain of which are beyond Advantage's control, including: the
impact of general economic conditions; industry conditions; changes
in laws and regulations including the adoption of new environmental
laws and regulations and changes in how they are interpreted and
enforced; fluctuations in commodity prices and foreign exchange and
interest rates; stock market volatility and market valuations;
volatility in market prices for oil and natural gas; liabilities
inherent in oil and natural gas operations; uncertainties
associated with estimating oil and natural gas reserves;
competition for, among other things, capital, acquisitions, of
reserves, undeveloped lands and skilled personnel; incorrect
assessments of the value of acquisitions; changes in income tax
laws or changes in tax laws and incentive programs relating to the
oil and gas industry and income trusts; geological, technical,
drilling and processing problems and other difficulties in
producing petroleum reserves; and obtaining required approvals of
regulatory authorities. Advantage's actual 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. Except
as required by law, Advantage undertakes no obligation to publicly
update or revise any forward-looking statements. For additional
risk factors in respect of Advantage and its business, please refer
to it Annual Information Form dated March 28, 2008 which is
available on SEDAR at http://www.sedar.com/. References in this
press release to initial test production rates, initial "flow"
rates and "flush" production rates 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. While encouraging, readers are cautioned not to
place reliance on such rates in calculating the aggregate
production for the Fund. Barrels of oil equivalent (boe) or billion
of cubic feet of gas equivalent (BcfGE) may be misleading,
particularly if used in isolation. A boe conversion ratio has been
calculated using a conversion rate of six thousand cubic feet of
natural gas to one barrel and a BcfGE conversion ratio has been
calculated using a conversion rate of 1 million barrels of oil to
six billion cubic feet of gas. Such conversion rates are based on
an energy equivalency conversion method application at the burner
tip and do not represent an economic value equivalency at the
wellhead. DATASOURCE: Advantage Energy Income Fund CONTACT:
Investor Relations, Toll free: 1-866-393-0393; Advantage Energy
Income Fund, 700, 400 - 3rd Avenue SW, Calgary, Alberta, T2P 4H2,
Phone: (403) 718-8000, Fax: (403) 718-8300, Web Site:
http://www.advantageincome.com/, E-mail:
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