Advantage Announces Disposition of Non-core Assets, Glacier Montney Update,
Appointment of Financial Advisors and Natural Gas Hedging for 2013
CALGARY, Feb. 5, 2013
(TSX: AAV, NYSE: AAV)
CALGARY, Feb. 5, 2013 /PRNewswire/ - Advantage Oil & Gas Ltd. ("Advantage" or
the "Corporation") (TSX/NYSE: AAV) is pleased to provide the following
Disposition of Non-Core Assets
*Since the commencement of our non-core asset disposition process,
Advantage has closed four separate sales transactions and recently signed
a definitive agreement with a fifth party which, on a combined basis,
constitute the sale of substantially all of our non-core assets.
*Four transactions representing a total of approximately 420 boe/d provided
total net cash proceeds of $27.8 million. The first two transactions
closed during Q3 2012 for net cash proceeds of $10.9 million, the third
transaction closed during Q4 2012 for $3.0 million and the fourth
transaction closed during Q1 2013 for $13.9 million.
*A definitive agreement (the "Transaction") has been signed with Questfire
Energy Corp. (a TSX-V listed company) for the sale of approximately 5,900
boe/d for consideration consisting of $55 million of cash, $27 million
Convertible Senior Secured Debentures (the "Debentures") and 1.5 million
Class B shares. All customary closing adjustments between the effective
date of November 1, 2012 and the closing date will be applied to the
Debenture. The Transaction is anticipated to close by the end of Q1 2013
and is subject to satisfaction of customary closing conditions.
*The net cash proceeds from all five transactions will be used to reduce
outstanding bank indebtedness.
*Advantage's credit facility will be revised due to the non-core asset
dispositions and is currently under review. Advantage's current credit
facilities are $300 million and total bank debt outstanding is anticipated
to be approximately $110 to $115 million at the end of Q1 2013 assuming
the Transaction closes by then.
*Upon closing of the non-core asset dispositions, Advantage's major assets
will be our signature Glacier Montney property, with production of 90 to
100 mmcf/d (15,000 to 16,600 boe/d), operating costs of approximately
$0.30/mcf ($1.80/boe) and a royalty rate of 5%, and our 45% interest in
Longview Oil Corp.
Glacier Montney Update - Revised Completion Techniques Improve Well Results &
Expands Resource Potential
Middle Montney - New Wells Demonstrate Higher Test Rates & Validate Liquid
*During the spring of 2012, 5 gross (5 net) initial Middle Montney
horizontal wells were drilled into three separate sub-layers of the Middle
Montney formation (see Advantage press release dated March 15, 2012).
Four of these five wells were completed and production tested at rates of
1.1 to 4.4 mmcf/d at flowing pressures of 0.4 mpa to 3.9 mpa and flow
times of 60 hours to 144 hours utilizing our standard completion design.
The remaining Middle Montney well is expected to be completed before
*In order to further assess the extent of the liquids rich fairway at
Glacier and to investigate the impact of alternative completion techniques
on well productivity, we drilled three additional evaluation wells in Q4
2012 all of which targeted the same Middle Montney sub-layer.
*Two of these new wells have been completed and tested with the third new
well undergoing completion operations at this time. A combination of
slick water and binary frac fluids were utilized with modified completion
*The test results show significant improvement with the first Middle
Montney well testing at a production rate of 7.5 mmcf/d at a flowing
pressure of 8.6 mpa at the end of a 66 hour flow period. The second
Middle Montney well was production tested at a rate of 3.7 mmcf/d at a
flowing pressure of 3.3 mpa at the end of a 120 hour flow period. Both
wells flowed free condensate during the test and gas compositions confirm
our earlier estimates of natural gas liquid yields (see Advantage press
release dated March 15, 2012). The average test rate of these two Middle
Montney wells was 5.6 mmcf/d representing a 115% improvement compared to
the average of the initial 4 wells that were production tested during the
spring of 2012.
*Production from our earlier Middle Montney wells continue to exhibit
shallow declines, consistent natural gas liquids content and confirm that
a large resource potential exists for future development.
*We are very encouraged with the improved well test productivities and we
believe that there is potential for further completion optimization as we
continue to collect data and analyze the frac results.
*To date, a total of 8 Middle Montney wells have been drilled on our 80
section (net) Glacier land block with the potential for development
drilling of up to 4 individual sub layers within the Middle Montney
Lower Montney - New Well Test Rates Rank Among Best Wells at Glacier
*Two Lower Montney wells that were drilled in our 2011/2012 winter program
were also completed utilizing modified completion techniques. These wells
were completed with a combination of slick water and binary fluids and
demonstrated tremendous improvement in well productivity compared to our
earlier Lower Montney wells.
*The first Lower Montney well was production tested at a rate of 12.5
mmcf/d at a flowing pressure of 8.2 mpa after 66 hours. The second Lower
Montney well production tested at a rate of 14.6 mmcf/d at a flowing
pressure of 10.0 mpa after 51 hours.
*The average test rate of these two Lower Montney wells represent a 490%
improvement over the average test rate of our earlier Lower Montney wells
and rank among the top quartile of our Upper Montney well test rates.
*These test results demonstrate the potential for further development of
the Lower Montney formation across our land block which could lead to a
significant increase in production, reserves and contingent resources at
*To date, only 14 gross (10.7 net) Lower Montney wells have been drilled on
our 80 section Glacier land block.
Upper Montney - Continued Strong Results Maintain Production
*As a result of low natural gas prices during the first half of 2012 we
decided to defer the completion of 11 gross (11 net) Upper Montney wells
that were drilled in our 2011/2012 winter program and maintain production
at Glacier between 90 mmcf/d to 100 mmcf/d. Since July 2012, a total of 5
of these Upper Montney wells have been completed to maintain production
with a further 6 wells remaining in inventory. We estimate that production
at Glacier can be maintained between 90 mmcf/d to 100 mmcf/d to the fourth
quarter of 2013 with our combined inventory of Upper, Middle and Lower
*Production test results in the Upper Montney continue to be strong with an
average test rate of 7 mmcf/d at 6.5 mpa after 66 hours of flow based on
Upper Montney wells drilled during our 2011/2012 winter program.
*Our current plans include the utilization of modified completion
techniques on 6 gross (6 net) existing Upper Montney wells. Results from
these completions are anticipated prior to spring break-up and will be
reported in the coming months.
*To date, a total of 79 gross (73 net) Upper Montney wells have been
drilled on our 80 net section land block at Glacier.
Appointment of Financial Advisors to Initiate Strategic Alternatives Process
*Advantage has retained FirstEnergy Capital Corp. and RBC Capital Markets
as co-advisors to provide advice as we initiate the review of our
strategic alternatives. The Board continues to believe that our core
Glacier asset is materially undervalued in the context of the
Corporation's current market valuation and we are committed to evaluating
all options to maximize shareholder value.
*As part of this process, we expect that an additional update to our
year-end 2012 reserves report (expected to be released during the latter
half of March 2013) will be prepared to reflect well results subsequent to
December 31, 2012. In addition, an updated Glacier resource assessment
will be completed which incorporates all of our well results and core
analysis that have been conducted since our last report was prepared on
February 29, 2012.
*It is the Corporation's current intention not to disclose developments
with respect to this process until the Board of Directors has approved a
specific transaction or otherwise determines that disclosure is necessary
or appropriate. The Corporation cautions that there are no assurances or
guarantees that this process will result in any transactions or, if any
transactions are undertaken the terms or timing of any such transactions.
*Advantage has entered into the following natural gas hedges for 2013:
Term of Contract Volume Fixed Price
Natural Gas - AECO
January 2013 to December 2013 14,217 mcf/d $3.51/mcf
April 2013 to October 2013 9,478 mcf/d $3.14/mcf
April 2013 to October 2013 9,478 mcf/d $3.17/mcf
April 2013 to October 2013 4,739 mcf/d $2.95/mcf
July 2013 to September 2013 4,739 mcf/d $3.22/mcf
*The natural gas hedges amount to a 2013 annual average of approximately
29,300 mcf/day at an average price of $3.30/mcf.
*As part of the Transaction with Questfire Energy Corp. Advantage has
agreed to enter into the following commodity hedges which will be assumed
by the purchaser upon closing:
Term of Contract Volume Fixed Price
Natural Gas - AECO
March 2013 to December 2013 13,269 mcf/d $3.22/mcf
January 2014 to December 2014 7,583 mcf/d $3.54/mcf
Crude Oil - WTI Canadian
March 2013 to December 2013 250 bbls/d $97.25/bbl
January 2014 to December 2014 200 bbls/d $94.80/bbl
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 the
terms of non-core property dispositions and anticipated timing of completion
thereof; strategic alternatives process and the anticipated benefits
therefrom; anticipated review of the Corporations Credit Facility expected use
of proceeds from non-core property dispositions; expected production from the
Glacier area and for the Corporation as a whole; test rates; our future
operating and financial results; supply and demand for crude oil and natural
gas; projections of royalty rates and operating costs; the Corporation's
drilling and completion plans; plans for development of the Upper, Middle and
Lower Montney; the Corporation's business strategy and it plans for its
assets; and the Corporation's expectations regarding its ability to protect
Advantage's business in the current industry and economic environment. In
addition, statements relating to "reserves" or "resources" are deemed to be
forward-looking statements, as they involve the implied assessment, based on
certain estimates and assumptions, that the resources and reserves described
can be profitably produced in the future.
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
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; the intended use of the net proceeds of
any disposition of non-core assets might change if the board of directors of
Advantage determines that it would be in the best interests of Advantage to
deploy the proceeds for some other purpose; failure to complete the non-core
property dispositions, failure to realize the benefits from or complete a
transaction pursuant to the strategic alternative process; industry
conditions; actions by governmental or regulatory authorities including
increasing taxes, 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, 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;
hazards such as fire, explosion, blowouts, cratering, and spills, each of
which could result in substantial damage to wells, production facilities,
other property and the environment or in personal injury; changes or
fluctuations in production levels; competition from other producers; credit
risk; individual well productivity; 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;
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;
geological, technical, drilling and processing problems and other difficulties
in producing petroleum reserves; obtaining required approvals of regulatory
authorities and ability to access sufficient capital from internal and
external sources. 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 and www.advantageog.com. Readers are also referred
to risk factors described in other documents Advantage files with Canadian
With respect to forward-looking statements contained in this press release,
Advantage has made assumptions regarding among other things: conditions in
general economic and financial markets; effects of regulation by governmental
agencies; current commodity prices and royalty regimes; future exchange rates;
royalty rates; future operating costs; availability of skilled labor;
availability of drilling and related equipment; timing and amount of capital
expenditures; and the impact of increasing competition.
These forward-looking statements are made as of the date of this press 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
Barrels of oil equivalent (boe) 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 of oil. A boe
conversion ratio of 6 mcf:1 bbls 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.
Any references in this press release to initial and/or final test or
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. These test results are not
necessarily indicative of long-term performance or ultimate recovery. While
encouraging, readers are cautioned not to place reliance on such rates in
calculating the aggregate production for the Corporation.
SOURCE Advantage Oil & Gas Ltd.
Toll free: 1-866-393-0393
Advantage Oil & Gas Ltd.
700, 400 - 3^rd Avenue SW
Phone: (403) 718-8000
Fax: (403) 718-8300
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