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 and 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 and 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  To view this news release in HTML formatting, please use the following URL:  CO: Advantage Oil & Gas Ltd. ST: Alberta NI: OIL ERN  
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