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Advantage Announces First Quarter 2014 Financial and Operating Results

    Advantage Announces First Quarter 2014 Financial and Operating Results

PR Newswire

CALGARY, May 13, 2014

Completed Transition to a Pure Play Montney Producer

(TSX: AAV, NYSE: AAV)

CALGARY, May 13, 2014 /PRNewswire/ - 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.

Contact:

Investor Relations
Toll free: 1-866-393-0393

ADVANTAGE OIL & GAS LTD.
300, 440 - 2^nd Avenue SW
Calgary, Alberta
T2P 5E9
Phone: (403) 718-8000
Fax: (403) 718-8332
Web Site:www.advantageog.com
E-mail:ir@advantageog.com
 
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