Current AAV Stock Info

Advantage Oil & Gas Ltd. (ticker: AAV) said that the company’s board of directors has approved a 2018 capital budget of $175 million. The budget is funded through cash flow and will advance the Montney development and increase liquids production growth through 2018. Other assets at Glacier, Valhalla, Wembley, and Progress will also be developed.

Advantage recently developed a four well pad at Valhalla, which demonstrated a combined initial production flow rate of 6,410 BOEPD comprised of 32 MMcf/day gas and 1,075 bbls/day of liquids (based on Glacier gas plant shallow cut extraction process) with certain liquid yields comprised of 90% free condensate/oil in excess of 100 bbls/MMcf.

Advantage Oil & Gas: $175 Million 2018 Budget from Cash Flow

Source: Advantage Oil & Gas Ltd.

Middle Montney results at Glacier in 2017 confirmed well performance improvements from frac design technology changes. These changes will be applied to high liquids rich areas and reservoir layers within the company’s Montney lands. In addition, well results from Wembley and Progress are expected to be available by early 2018.

The corporation’s 2018 capital budget of $175 million maintains a year-end 2018 total debt to cash flow of 1.3x (AECO price of CDN$1.75/Mcf and WTI $55 US/bbl) and provides for:

  • Cash flow of $175 million to $200 million and positive net income based on an AECO price range of CDN$1.75/Mcf to $2.25/Mcf and a WTI oil price of $55 US/bbl. Total year-end 2018 debt to cash flow ranges from 1.0x to 1.3x.
  • 10% Annual average production increase to 260 MMcfe/day (43,330 BOEPD)
  • 50% increase in annual average liquids production to 1,900 bbls/day (73% condensate). Liquids revenue grows by 61%
  • 80% increase in 2018 liquids production exit rate over 2017 to approximately 2,400 bbls/day
  • $30 million to further advance liquids rich development at Valhalla, Wembley, and Progress
  • An initial facility installation at Valhalla to transport higher liquids production for processing at the Glacier gas plant
  • Preferential focus on liquids rich Middle Montney production/development at Glacier and deferring dry gas drilling and on-stream dates to provide flexibility to ramp up gas production later in 2018 or 2019 subject to strengthening prices
  • Completion of the Glacier gas plant expansion by the second quarter of 2018 to increase liquids handling capacity to 6,800 bbls/day and raw gas processing to 400 MMcf/d, accommodating future growth
  • Total corporate cash costs of $1.10/Mcfe for 2018 (royalties, operating, transportation, G&A and finance expenses, including Dawn, Ontario transportation tolls on ~20% of gas production)
  • All-in 2018 estimated annual capital efficiency of $11,400 per BOEPD

Glacier development

Capital investment at Glacier in 2018 is targeted at $145 million, allowing flexibility during the year to modify spending, since the majority of well operations are planned in the second half.  Planned expenditures includes $35 million to complete the Glacier gas plant expansion.  Well operations include completion and equipping of standing wells that were drilled in 2017 and a second half 2018 drilling program that is weighted toward liquids rich wells.

Advantage Oil & Gas: $175 Million 2018 Budget from Cash Flow

Source: Advantage Oil & Gas Ltd., November 2017

Advantage’s 2018 production target is supported by a year-end 2017 inventory of 12 completed standing wells, 18 drilled standing wells, and available Glacier gas plant capacity.  The number of wells drilled in the second half of 2018 can be varied sufficiently to provide the option for a broad range of production in 2019, said the company.

Completion of the Glacier gas plant expansion by the second quarter of 2018 will increase raw gas processing capacity from 250 MMcf/d to 400 MMcf/d with propane plus (C3+) liquids handling capacity increasing to 6,800 bbls/day.  This expansion has been designed to accommodate gas and liquids compositions from the Valhalla and Progress areas, and provides immediate cost efficiencies for processing Valhalla liquids rich natural gas in 2018. This also allows for efficient processing of additional liquids rich natural gas from the Middle Montney at Glacier and undeveloped lands as Advantage increases its focus on developing its liquids rich Montney resources.

Advantage Oil & Gas: $175 Million 2018 Budget from Cash Flow

Source: Advantage Oil & Gas Ltd., November 2017

Additional infrastructure expenditures include a new sales gas meter station on the Alliance Pipeline system, continuing expansion of the field gas gathering system and installation of power lines to begin selling surplus Glacier electrical power into the Alberta grid. These initiatives provide options to further diversify markets, create additional revenue, and maintain cost efficiencies.

Valhalla, Wembley, and Progress

Advantage’s 2018 budget includes an investment of $30 million to advance delineation and development of three land blocks at Valhalla, Wembley, and Progress, consisting of 94 sections (60,160 net acres) of land outside of Glacier. The $30 million includes $20 million to install a compressor station at Valhalla and $10 million to drill two land retention wells at Progress (which were delayed from 2017) and the equipping and tie-in of the Wembley well.

Advantage Oil & Gas: $175 Million 2018 Budget from Cash Flow

Source: Advantage Oil & Gas Ltd., November 2017

Each land block consists of approximately 30 contiguous sections within the liquids rich areas of Valhalla, Wembley, and Progress. These land blocks create the economies of scale to support scalable drilling programs and are located such that production economics can be enhanced by connecting back to the Glacier gas plant. Advantage’s 94 sections of lands outside Glacier were acquired for a total cost of $18 million.

Valhalla four well pad

Advantage recently completed a four well pad at Valhalla. These wells were drilled in the Upper and Middle Montney with an average lateral length of 1,300 meters, with a frac spacing of 46 meters at an average drill, complete, equip and tie-in cost of $4.6 million per well.

The wells demonstrated an average gas production rate of 8.1 MMcf/d at an average flowing pressure of 9,725 kpa after an average 80 hour flow period. Individual well C3+ liquid yields of 20 bbls/MMcf to in-excess of 100 bbls/MMcf with free condensate and/or oil compositions of up to 90% were recovered.

Advantage utilized reduced frac spacing and different mechanical systems, compared to its initial three Valhalla evaluation wells, and had an initial natural gas productivity improvement of 320%. The three earlier wells have been produced in-line to our Glacier gas plant through a smaller diameter pipeline without compression and have demonstrated low decline behavior over 12 months of production.

The new four well pad will be initially produced at restricted rates by free flowing into the existing pipeline starting in the second quarter of 2018, until the compressor station is completed by the fourth quarter of 2018. The new 40 MMcf/d Valhalla compressor station provides a cost effective initial infrastructure investment to facilitate future development.

These initial well results support economic development and are further enhanced by accessing additional low cost gas processing capacity provided by Advantage’s 100% owned Glacier gas plant and infrastructure.  The compressor station is also located such that production from other land blocks could be tied-in and transported to the Glacier gas plant. Future plans to expand this facility and the gathering pipeline to Glacier will be evaluated in 2018.

Advantage said, “The company believes in continued refinement of completion techniques. Longer laterals and more frac stages in this liquids corridor could continue to further improve future results, as it has at Glacier.” The corporation’s advanced frac technology expertise will be applied to east Glacier (higher liquids) as well as our other undeveloped lands.

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