Advantage Announces First Quarter 2014 Financial and Operating Results

Advantage Announces First Quarter 2014 Financial and Operating Results 
Completed Transition to a Pure Play Montney Producer 
(TSX: AAV, NYSE: AAV) 
CALGARY, May 13, 2014 /CNW/ - Advantage Oil & Gas Ltd. ("Advantage" or the 
"Corporation") is pleased to report the unconsolidated financial and operating 
results (excludes Longview Oil Corp. "Longview") for the three months ended 
March 31, 2014. 
In the last twelve months, Advantage transitioned into a highly focused pure 
play Montney producer.  This has contributed to strong first quarter 2014 
results which included: 


        --  108% increase in funds from operations per share from
            $0.13/share to $0.27/share
        --  $111 million reduction in total debt to $188 million
        --  68% decrease in operating cost from $0.86/mcfe to $0.28/mcfe
        --  57% decrease in cash G&A costs from $0.47/mcfe to $0.20/mcfe

During the first quarter of 2014, Advantage completed the final steps to 
simplify the Corporation's capital structure, reduce administration and costs. 
Advantage's capital structure was simplified and strengthened through the sale 
of the Longview shares for gross proceeds of $94 million and the sale of our 
Questfire investments for gross proceeds of $17.5 million. On February 1, 
2014, the technical services agreement between Advantage and Longview was 
terminated. This reduced our administrative costs and resulted in a motivated 
team of 25 employees who are focused on the Corporation's three year 
development plan.

Advantage's industry leading cost structure resulted in a first quarter 2014 
operating netback which represented 84% of our realized natural gas pricing.  
This strong operating margin is a significant factor in Advantage's Glacier 
three year development plan which is based on an average natural gas price of 
AECO Cdn $3.75/GJ over the period.  The three year plan is targeted to deliver 
100% production per share growth and 190% cash flow per share growth while 
maintaining an average total debt to cash flow ratio of 1.5.  Production is 
expected to grow to 183 mmcfe/d in 2015, 205 mmcfe/d in 2016 and 245 mmcfe/d 
in 2017. Production growth at Glacier has already replaced the sale of 
approximately 33.6 mmcfe/d (5,600 boe/d) of non-core conventional assets which 
closed in April 2013.

Consistent with our hedging strategy to maintain downside natural gas price 
protection, Advantage has hedged an average of 50% of its forecast production 
for 2014 and 2015 at an average price of AECO Cdn $3.85/mcf.  Advantage has 
also secured an initial hedge position on 12% of its forecast average 
production for 2016 through to Q1 2017 at an average price of AECO Cdn 
$4.07/mcf.

With the completed transition of Advantage to a pure play Montney producer, 
our board, management and staff are entirely focused on development of our 
Montney resource including the execution of our three year Glacier development 
plan.
                                                 Three months ended        
    Advantage Unconsolidated Results(1)                  March 31          
                                                  2014         2013        
                                                                       
    Financial ($000, except as otherwise                               
    indicated)                                               
    Sales including realized hedging           $  55,239    $  41,598      
      per boe                                  $   29.83    $   21.75      
    Funds from operations                      $  45,449    $  21,484      
      per share(2)                             $    0.27    $    0.13      
      per boe                                  $   24.56    $   11.23      
    Total capital expenditures                 $  49,287    $  54,107      
    Working capital deficit(3)                 $  17,082    $  49,027      
    Bank indebtedness                          $  84,654    $ 164,025      
    Convertible debentures (face value)        $  86,250    $  86,250      
    Shares outstanding at end of period (000)    169,096      168,383      
    Basic weighted average shares (000)          168,700      168,383      
    Operating                                                              
    Daily Production                                                       
      Natural gas (mcf/d)                        122,481      119,692      
      Crude oil and NGLs (bbls/d)                    164        1,308      
      Total mcfe/d(4)                            123,465      127,540      
      Total boe/d(4)                              20,578       21,257      
    Average prices (including hedging)                                     
      Natural gas ($/mcf)                      $    4.89    $    3.04      
      Crude oil and NGLs ($/bbl)               $   94.10    $   75.58      
                                                                         
    (1) Non-consolidated financial and operating highlights for Advantage
    excluding Longview.
    (2) Based on basic weighted average shares outstanding. 
    (3) Working capital deficit includes trade and other receivables,
    prepaid expenses and deposits, and trade and other accrued liabilities.
    (4) A boe and mcfe conversion ratio has been calculated using a
    conversion rate of six thousand cubic feet of natural gas equivalent to
    one barrel of oil.

Strong Funds from Operations due to Increased Glacier Production, Improved 
Cost Structure and Higher Natural Gas Prices
        --  Funds from operations for the first quarter of 2014 increased
            112% to $45.4 million or $0.27 per share as compared to the
            first quarter of 2013 (excluding dividends from Longview), and
            exceeded our budget. The increased funds from operations have
            been primarily attributable to the growth in Glacier
            production, significantly improved commodity prices and lower
            operating cost, interest and G&A expense.
        --  Advantage's operating netback during the first quarter of 2014
            was $4.45/mcfe which is 84% of our realized natural gas price
            of $5.29/mcfe, excluding hedging. This strong cash margin is
            due to the industry leading low cost structure at Glacier and
            is a key success factor in our go forward three year
            development plan.
        --  Production increased 14% to 123.5 mmcfe/d (20,578 boe/d) for
            the first quarter of 2014 compared to the fourth quarter of
            2013.  Production during the first quarter was in line with our
            earlier estimate of 122 mmcfe/d to 126 mmcfe/d which included
            minor Glacier plant outages required to accommodate
            construction work and integration of new well facility pads. 
            Current production of 135 mmcfe/d is on-track with our Phase
            VII development plan.
        --  Advantage's total cash cost structure including operating
            costs, royalties, interest and cash G&A expense decreased 45%
            from $1.76/mcfe in the first quarter of 2013 to $0.97 /mcfe in
            the first quarter of 2014.  The decrease is attributable to
            divestment of higher cost non-core assets, reduced debt and the
            focus on improving efficiencies in all aspects as we continue
            our development at Glacier.
        --  Operating costs decreased 68% to $0.28/mcfe ($1.65/boe) in the
            first quarter of 2014 compared to the same period in 2013.
        --  Royalties were 4.6% during the first quarter of 2014 compared
            to 4.5% in the first quarter of 2013.
        --  G&A cash expenses decreased 57% to 0.20/mcfe in the first
            quarter of 2014 compared to the same period in 2013.
        --  Total capital expenditures in the first quarter of 2014 were
            $49.3 million which was $14.6 million lower than budgeted due
            to improved drilling efficiencies that resulted in lower per
            well drilling costs than anticipated.
        --  Bank indebtedness outstanding at March 31, 2014 was $84.7
            million, a decrease of $69.0 million since December 31, 2013
            due to the increase in funds from operations and net proceeds
            received from the disposition of investments in Longview and
            Questfire Energy Corp. The $84.7 million of bank debt at March
            31, 2014 represents a 28% draw on our available credit facility
            of $300 million.

Glacier Operations On-Track with Three Year Development Plan

Solid Production from Recent Slickwater Frac'd Wells
        --  A total of 12 new Phase VI Montney wells have been brought on
            production to support the current production rate of
            approximately 135 mmcfe/d. Many of these new wells are still
            restricted to manage frac sand flow back and better sustained
            productivity.  A total of 10 Phase VI wells remain in inventory
            and will be brought on stream as required to maintain the 135
            mmcfe/d production rate through the balance of 2014. 
            Additionally, a total of six new Phase VII wells have been rig
            released to date.
        --  Advantage's record Phase VI Upper Montney well at 05-20-76-12W6
            is still producing at a restricted rate of 7.0 mmcf/d with a
            wellhead pressure of 8,100 kpa after 111 days of production. To
            date, the 05-20-76-12W6 well has produced 0.92 bcf.
        --  A new Phase VI Lower Montney well located in the northwest
            quadrant of our Glacier land block at 16-33-76-13W6 came on
            production at 10 mmcf/d and has produced at this rate for 45
            days.  This is the first Lower Montney well drilled in the
            northwest quadrant of Glacier and was originally tested at a
            final production test rate of 5 mmcf/d at a final flowing
            pressure of 9,270 kpa after 72 hours of flow.  The
            16-33-76-13W6 well was frac'd with a 20 stage slickwater frac
            and the well has continued to clean up after the initial
            production test period. We believe the increased volume of
            slickwater used in this frac requires more clean up time
            compared to previous wells and the higher number of fracs could
            result in improved longer term production characteristics
            compared to older wells.
        --  Our Phase VI Lower Montney wells located in the western portion
            of Glacier at 15-31-75-13W6 and 10-31-75-13W6 were initially
            brought on production at rates of up to 15 mmcf/d and 11 mmcf/d
            and are still producing at restricted rates of 5.3 mmcf/d and
            6.7 mmcf/d after 165 days of production.  Each well has
            produced approximately 1.2 bcf during this period. These wells
            were completed with slickwater and modified completion
            techniques and continue to demonstrate improved performance
            compared to older Lower Montney wells.
        --  Since the winter of 2012, a total of 13 Upper and Lower Montney
            wells completed with slickwater and brought on production are
            exhibiting production performance at or above our Phase VII
            budget type curve (based on an average initial 30 day
            production rate of 6.9 mmcf/d).
        --  Advantage's record Middle Montney well located at 12-02-76-12W6
            demonstrated a final production test rate of 13 mmcf/d
            including 20 bbls/mmcf of free condensate, and was initially
            brought on production at restricted rates of up to 9.5 mmcf/d
            and is still flowing at a restricted rate of 6.5 mmcf/d after
            60 days of production. The 12-02-76-12W6 well has been
            restricted to control the amount of free condensate that our
            facilities can handle at this time since our Glacier gas plant
            does not currently have liquid extraction or condensate
            stabilization processes installed.

Glacier Phase VII Glacier Development Program Update
        --  The Glacier Phase VII drilling program was accelerated into the
            first quarter of 2014 due to lower than anticipated capital
            expenditures in our Phase VI program.
        --  To date, six of our 33 Phase VII wells have been rig released.
            One drilling rig is currently drilling our first six well pad
            through spring break-up. Two additional drilling rigs will be
            deployed once weather conditions permit access to new drilling
            sites.   Well completion activities will also commence once
            weather conditions permit transport of completion equipment to
            well sites that have been rig released.
        --  Engineering design for the installation of a shallow cut
            liquids extraction process, condensate stabilization and
            additional gas compression at our 100% owned Glacier gas plant
            has been completed. Equipment orders will be finalized
            shortly.  The plant expansion is designed to increase the dry
            and liquids rich gas processing capacity to satisfy our three
            year development plan requirements of 245 mmcfe/d by 2017.  By
            June 2015, we expect Glacier production to increase from 135
            mmcfe/d to 183 mmcfe/d.
        --  Design plans have been finalized for increasing the
            transportation capacity of the sales gas lateral which connects
            the Glacier gas plant to TransCanada Pipeline's main sales
            pipeline to accommodate our three year development plan and
            beyond.  Field survey work has commenced.

Advantage's strong operating and financial achievements combined with 
simplification of the corporate structure have positioned the Corporation as 
an industry leading low cost Montney producer with strong growth. We look 
forward to reporting results on our progress as we execute Advantage's Glacier 
three year development plan.

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", "can", "will", "project", "predict", 
"potential", "targeting", "intend", "could", "might", "should", "believe", 
"would" and similar expressions and include statements relating to, among 
other things, Advantage's anticipated production per share growth and cash 
flow per share growth, including the targeted amount and timing of achievement 
thereof; expectations as to future natural gas prices;  estimated tax pools; 
expected  increases in production in 2015, 2016 and 2017 resulting from 
Advantage's Glacier three year development plan; expectations of future debt 
to cash flow ratios; expectations as to the number of wells in Advantage's 
Phase VI Program required to provide sufficient production inventory to 
maintain production at anticipated levels through to the end of 2014; 
expectations regarding tie-ins of Phase VI wells; expected number of future 
drilling locations; anticipated drilling plans, including drilling rigs to be 
deployed and number of wells to be included in Advantage's Phase VII drilling 
program; anticipated timing of completion of expansion of Glacier gas plant 
and effect of engineering design on processing capacity, including the amount 
of such processing capacity; and the status of design plans to increase 
transportation capacity of the sales gas lateral which connects the Glacier 
gas plant to TransCanada Pipeline's main sales pipeline. 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.

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; 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; the effect of acquisitions; 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, including 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; 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; 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; 
ability to obtain 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 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; 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; the impact of increasing competition; the price of crude oil and 
natural gas; 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 crude 
oil and natural gas properties in the manner currently contemplated; current 
or, where applicable, proposed assumed industry conditions, laws and 
regulations will continue in effect or as anticipated; 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.

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 
securities laws.

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.

References in this press release to final production test rates, initial test 
production rates, production type curves,  restricted rates and 30 day 
production rates and other short-term 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 and are not indicative of long term performance or of 
ultimate recovery. While encouraging, readers are cautioned not to place 
reliance on such rates in calculating the aggregate production for Advantage. 
A pressure transient analysis or well-test interpretation has not been carried 
out in respect of all wells. Accordingly, the Corporation cautions that the 
test results should be considered to be preliminary.

The Corporation discloses several financial measures that do not have any 
standardized meaning prescribed under International Financial Reporting 
Standards ("IFRS"). These financial measures include operating netbacks and 
debt to cash flow ratio. Management believes that these financial measures are 
useful supplemental information to analyze operating performance and provide 
an indication of the results generated by the Corporation's principal business 
activities. Investors should be cautioned that these measures should not be 
construed as an alternative to net income or other measures of financial 
performance as determined in accordance with IFRS. Advantage's method of 
calculating these measures may differ from other companies, and accordingly, 
they may not be comparable to similar measures used by other companies. Please 
see the Corporation's most recent Management's Discussion and Analysis, which 
is available at www.sedar.com and www.advantageog.com for additional 
information about these financial measures, including a reconciliation of 
funds from operations to cash provided by operating activities.

The following abbreviations used in this press release have the meanings set 
forth below:
    bbls    barrels
    mbbls   thousand barrels
    mmbbls  million barrels
    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
    mboe    thousand barrels of oil equivalent
    mmboe   million barrels of oil equivalent
    mcf     thousand cubic feet
    mmcf    million cubic feet
    bcf     Billion cubic feet
    tcf     trillion cubic feet
    mcfe    thousand cubic feet equivalent on the basis of six thousand
            cubic feet of natural gas for one barrel of oil or NGLs
    mmcfe/d million cubic feet equivalent per day
    tcfe    trillion cubic feet equivalent



SOURCE  Advantage Oil & Gas Ltd. 
Investor Relations Toll free: 1-866-393-0393 
ADVANTAGE OIL & GAS LTD. 300, 440 - 2nd Avenue SW Calgary, Alberta T2P 5E9 
Phone: (403) 718-8000 Fax: (403) 718-8332 Web 
Site:www.advantageog.com E-mail:ir@advantageog.com 
To view this news release in HTML formatting, please use the following URL: 
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CO: Advantage Oil & Gas Ltd.
ST: Alberta
NI: OIL ERN  
-0- May/14/2014 01:55 GMT
 
 
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