Advantage Announces Intention to Convert to a Growth Oriented Corporation and a Strategic Asset Disposition Program to Increase
19 Mars 2009 - 3:37AM
PR Newswire (US)
(TSX: AVN.UN, NYSE: AAV) CALGARY, March 18 /PRNewswire-FirstCall/
-- Advantage Energy Income Fund ("Advantage" or the "Fund") is
pleased to announce that the Board of Directors of Advantage Oil
& Gas Ltd., on behalf of the Fund has unanimously approved a
conversion of the Fund to a growth oriented corporation which,
subject to approval of Advantage's unitholders as well as customary
court and regulatory approvals, is anticipated to be completed on
or about June 30, 2009. The conversion will enable Advantage to
pursue a business plan that is focused on the development and
growth of our Montney natural gas resource play at Glacier, Alberta
where the Fund has demonstrated success in adding significant low
cost natural gas reserves. The conversion will have the added
benefit of removing the uncertainty surrounding the upcoming
changes in Canadian tax law whereby the government will begin
imposing taxes on income trusts on January 1, 2011. Our independent
reserve evaluator, Sproule Associates Limited ("Sproule"), was
engaged to complete a Montney resource assessment on our 89 section
land block at Glacier. The Sproule Resource Assessment Report
indicates that Advantage's Montney land holdings at Glacier are
estimated to have 3.4 TCF of original raw natural gas-in-place with
Advantage's working interest ownership of original raw natural
gas-in-place at 2.9 TCF. The proven and probable raw natural gas
reserves assigned as of December 31, 2008 to Advantage's working
interest ownership at Glacier represents 8% of the original raw
natural gas-in-place in the Upper Montney and Lower Montney zones.
Drilling activity in 2008 at Glacier resulted in reserve additions
of 29 million boe at a Finding and Development cost of $3.48 per
proven and probable boe before changes in future development
capital ("FDC") and $13.14 per proven and probable boe including
changes in FDC. Our 2008 drilling and production testing activity
demonstrated horizontal well rates of 2.5 to 7.5 mmcfd (417 to
1,250 boe per day) which has reduced the future development risk.
The Fund has identified a drilling inventory in excess of 440
locations based on our drilling results to date. The Fund also
announces that it has retained Tristone Capital Inc. to assist with
the disposition of properties producing up to 11,300 boe per day of
light oil and natural gas properties. The net proceeds from these
sales or sales of other oil and gas properties will initially be
used to reduce outstanding bank debt to improve Advantage's
financial flexibility. Advantage may also draw down its credit
facilities in the future to redeem certain of the Fund's
convertible debentures. Furthermore, as another step to increase
Advantage's financial flexibility and to focus on development and
growth at Glacier, Advantage will discontinue payment of cash
distributions. Advantage intends to direct future cash flow towards
capital expenditures and debt repayment. The conversion to a growth
oriented corporation will not be contingent on the magnitude of
asset sales completed. Montney Growth Potential at Glacier Drives
Conversion Plan - The Fund's 2008 drilling program resulted in the
replacement of 285% of annual production at a Finding and
Development cost of $7.61 per proven and probable boe before
consideration of changes in FDC and $16.95 per proven and probable
boe including the change in FDC (refer to Advantage year-end 2008
reserves press release dated March 5, 2009 for additional details).
- The majority of reserve additions in 2008 are attributed to our
drilling program at Glacier where Advantage invested $101 million
which resulted in proven and probable reserve additions of 29
million boe at a Finding and Development cost of $3.48 per boe
before changes in FDC and $13.14 per boe including changes in FDC.
Reserves were assigned to only 32 of our 89 sections of Montney
acreage based on an average well density of 2.4 wells per section.
Advantage currently has regulatory approval to drill 8 wells per
section consisting of 4 wells in each of the Upper Montney and
Lower Montney zones. Future delineation drilling is required to
evaluate the undeveloped land potential in the remaining 57
sections. Based on our 2008 activity, Advantage has identified 440
future drilling locations with the potential to exceed 800
locations depending on the density of horizontal wells that may be
drilled per section of land. Advantage anticipates that in excess
of $2.5 billion will be required for this 440 well development
which is estimated to be economic at less than $5 per mcf. -
Activity undertaken to date in 2008 and 2009 at Glacier includes
the drilling of 10 gross (8.7 net) horizontal wells and 13 gross
(12.3 net) vertical wells. Horizontal wells have demonstrated
production and test rates of 2.5 to 7.5 mmcfd (417 to 1,250 boe per
day) from the Upper Montney and Lower Montney zones. Combined test
results to date from the drilling program have demonstrated
approximately 40 mmcfd of initial productivity (9 gross horizontal
wells and 9 gross vertical wells have been tested). - Advantage
completed construction of a 22.5 kilometer pipeline in January 2009
with initial production of approximately 10 mmcfd of Montney
natural gas. Additional compression facilities are scheduled for
completion early in the second quarter of 2009 which will allow
production to be increased to 20 to 25 mmcfd. Advantage plans to
increase production capacity to 50 mmcfd in 2010 and to 100 mmcfd
in 2011 which will require additional vertical and horizontal
drilling coupled with facilities expansion. - Future development at
Glacier will continue to focus on a balanced investment program
directed at land retention and acquisition, vertical and horizontal
drilling to prove up Montney reserves, and infrastructure expansion
to increase production. Sproule Associates Limited Montney Resource
Assessment - An updated resource assessment completed by our
independent reserve evaluator, Sproule Associates Limited
("Sproule") effective February 28, 2009 indicated that Advantage's
Montney land holdings at Glacier are estimated to have 3.4 TCF of
original raw natural gas-in- place. Advantage's working interest
ownership of original raw natural gas-in-place is estimated to be
2.9 TCF in the Upper Montney and Lower Montney zones. The proven
and probable raw natural gas reserves assigned as of December 31,
2008 to Advantage's working interest ownership at Glacier
represents 8% of the original raw natural gas- in-place in the
Upper Montney and Lower Montney zones. - The ultimate raw
recoverable gas volumes were estimated by Sproule based on the
following range of recovery factors: ----------------------------
Recovery Category Factor ---------------------------- Low Estimate
38% ---------------------------- Best Estimate 52%
---------------------------- High Estimate 66%
---------------------------- - The following table sets out
Sproule's estimate of Advantage's working interest sales gas
volumes at Glacier:
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Ultimate Contingent Natural Gas Resource and Reserves
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Proven and Additional Ultimate Contingent Probable Reserve
Contingent Natural Gas Resources at December 31, 2008 Resources and
Reserves Category (TCF) (TCF) (TCF)
---------------------------------------------------------------------
Low Estimate .21 .8 1.01
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Best Estimate .21 1.1 1.31
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High Estimate .21 1.5 1.71
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Asset Sales & Distributions Discontinued to Improve Financial
Flexibility - Advantage has initiated a process for the sale of
certain assets located in Northeast British Columbia, West Central
Alberta and Northern Alberta of up to 11,300 boe per day of
production. Advantage has retained Tristone Capital Inc. to assist
in this process and proposals are anticipated by mid May 2009. -
The selected assets will be available in four distinct packages
varying in size from approximately 1,600 to 5,400 boe per day of
production and contain both light oil and natural gas. - The net
proceeds from these sales or sales of other oil and gas properties
will initially be used to reduce outstanding bank debt to improve
Advantage's financial flexibility. Advantage may also draw down its
credit facilities in the future to redeem certain of the Fund's
convertible debentures. - Advantage will discontinue cash
distributions with the final cash distribution paid on March 16,
2009 to unitholders of record as of February 27, 2009. - Going
forward, Advantage does not anticipate paying dividends in the
immediate future and will instead, direct cash flow to capital
expenditures and debt repayment. Corporate Conversion - The Board
of Directors believes that conversion to a corporation combined
with the asset disposition program and debt reduction initiative
will position Advantage to pursue the significant development
potential at Glacier and to continue development of our
conventional assets. These changes will also allow Advantage to
capitalize on future external opportunities that may materialize in
the current environment. - Assuming asset sales of approximately
10,000 to 11,300 boe per day of production are completed, Advantage
will have the following attributes: - Production of approximately
20,000 to 22,000 boe per day (60% natural gas, 40% oil and natural
gas liquids) from a focused asset base. - Annual cash flow estimate
of approximately $145 to $155 million (based on $U.S. 45.00 WTI,
$U.S. 4.25 per mcf Nymex, $0.78 Cdn/U.S. and includes hedging
contracts currently in place). - A strong multi-year hedging
program that will reduce cash flow volatility. It is expected that
Advantage will continue to employ a systematic and disciplined
hedging program into the future to ensure that a significant level
of cash flow is available for capital program requirements.
Advantage's current hedging program is summarized below:
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Natural gas Crude Oil
------------------------------------------------------------------
Year mmcfd $Cdn/mcf bbls/d $Cdn/bbl
------------------------------------------------------------------
2009 58.2 $8.09 3,814 $69.38
------------------------------------------------------------------
2010 47.4 $7.46 2,000 $67.83
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- A solid drilling inventory comprised of 440 Montney locations at
Glacier and over 250 locations at other key conventional
properties. - Advantage will be in a stronger financial position to
capitalize on the recently announced Alberta royalty incentive
program which provides for a $200 per meter drilling royalty credit
(subject to a ceiling based on company size) and a maximum 5%
royalty rate for wells drilled or brought on-stream between April
1, 2009 and March 31, 2010. - As at December 31, 2008, the Fund has
approximately $1.8 billion of tax pools which can be used by
Advantage to shelter future taxable income. In general, properties
sold through the asset disposition program will reduce the pool
balances in an amount equal to the sale proceeds. - Under the
planned conversion, Advantage unitholders will receive one share in
the corporation for each Advantage trust unit they hold. The
conversion is intended to be tax deferred for Canadian residents
but will be a taxable event for a U.S. taxpayer. For a U.S.
taxpayer, any gain or loss would be a capital gain or loss if
Advantage units are held as capital assets; long term capital gains
of non-corporate U.S. taxpayers are generally taxed at favorable
rates and the deductibility of capital losses is subject to
limitations. - Following the completion of the conversion,
Advantage will assume all the obligations of the Fund in respect of
the Fund's outstanding convertible debentures. - The planned
conversion will be accomplished by plan of arrangement and requires
the approval of Advantage unitholders, as well as customary court
and regulatory approvals. A management information circular and
proxy statement outlining the details of the conversion will be
mailed to Advantage unitholders in connection with a unitholder
meeting expected to be scheduled on or about June 29, 2009. To be
implemented, the conversion must be approved by not less than
two-thirds of the votes cast by unitholders voting at the
unitholder meeting. Closing of the conversion is anticipated to be
on June 30, 2009. Financial Advisors - RBC Capital Markets and
Scotia Waterous Inc. are acting as financial advisors to Advantage.
A conference call and webcast will be held on Thursday, March 19,
2009 at 9:00 a.m. MST (11:00 a.m. EST). The conference call can be
accessed toll-free at 1-800-595-8550. A replay of the call will be
available from approximately 11:00 a.m. MST on March 19, until
approximately midnight, April 2, 2009 and can be accessed by
dialing toll free 1-877-289-8525. The passcode required for
playback is 21301137 followed by the pound sign. A live web cast of
the conference call will be accessible via the Internet on
Advantage's website at http://www.advantageincome.com/. Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of the
United States Private Securities Litigation Reform Act of 1995.
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
"seek", "anticipate", "plan", "continue", "estimate",
"demonstrate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should",
"believe", "would" and similar expressions and include statements
relating to, among other things, individual wells, regions,
properties or projects. 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
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. 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 "productivity", initial
"flow" rates, "flush" production rates and "behind pipe production"
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. "TCF"
stands for trillion cubic feet of natural 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. This news release contains
references to estimates of natural gas classified as discovered
petroleum initially in place and contingent resources which are
not, and should not be confused with, estimates of oil and gas
reserves. "Discovered petroleum initially in place" is defined in
the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook")
as the quantity of hydrocarbons that are estimated to be in place
within a known accumulation. Discovered petroleum initially in
place is divided into recoverable and unrecoverable portions, with
the estimated future recoverable portion classified as reserves and
contingent resources. "Contingent resources" is defined in the COGE
Handbook as the quantity of petroleum that is estimated to be
potentially recoverable from known accumulations using established
technology or technology under development which are not currently
considered to be commercially recoverable due to one or more
contingencies. There is no certainty that it will be commercially
viable to produce any portion of the discovered petroleum initially
in place or contingent resources. There are a number of
contingencies associated with the development of the Montney
resources relating to performance from new and existing wells,
future drilling programs, the lack of infrastructure, well density
per section, recovery factors and development necessarily involves
known and unknown risks and uncertainties, including those risks
identified in this press release. The estimates of discovered
petroleum initially in place and contingent resources represents
the best estimate, as defined in the COGE Handbook, of such
resources. The contingent resources estimated by Sproule have not
been adjusted for risk based on the chance of development. There is
no certainty that the resources will be developed and, if
developed, there is no certainty that it will be commercially
viable to produce any portion of the reported contingent resources
for the Montney zones. Finding and development costs have been
calculated in accordance with section 5.15 of National Instrument
51-101 Standards of Disclosure for Oil and Gas Activities which
requires changes in FDC to be included in the calculation of
finding and development costs. Advantage has also provided the
calculation of future development costs excluding changes in FDC as
indicated above. 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 reserve additions for that
year. The disclosure of finding and development costs does not
include comparative information of finding and development costs
for the years ended 2007 and 2006 as finding and development costs
were not calculated for the Glacier properties for the years ended
2007 and 2006. 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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