The prospectus supplement, the
corresponding base shelf prospectus and any amendment thereto in
connection with this offering will be accessible through SEDAR+
within two business days
(TSX: AAV)
/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
CALGARY,
AB, June 10, 2024 /CNW/ - Advantage Energy
Ltd. ("Advantage" or the "Corporation"), is pleased to announce
that it has entered into a definitive asset purchase agreement to
acquire high-quality, synergistic Charlie
Lake and Montney assets
(the "Assets") from a private seller for cash consideration of
$450 million (the "Acquisition"),
subject to closing adjustments. The Acquisition is expected to
close by the end of June 2024,
pending closing conditions, including the receipt of necessary
regulatory approvals.
The Acquisition will be funded through a combination of common
equity, convertible debentures and an upsized credit facility. The
Corporation has entered into an agreement with a syndicate of
underwriters to raise gross proceeds of approximately $65 million of subscription receipts and
$125 million of extendible
convertible unsecured subordinated debentures on a bought deal
basis, with TD Securities Inc. and Scotiabank as joint bookrunners.
The Corporation has also entered a debt commitment letter, led by
Scotiabank and jointly underwritten with National Bank of
Canada and RBC Capital Markets,
for a committed and upsized $650
million revolving credit facility.
Strategic Rationale
The Acquisition capitalizes on a rare opportunity to consolidate
a high-quality, liquids-weighted asset that is contiguous with our
existing core areas and complementary to our dominant
infrastructure platform. The Assets include more than ten years of
top-tier Charlie Lake oil
inventory that compares favorably with Advantage's top-tier
Wembley oil assets.
Pro-forma, the deal is immediately accretive on all core metrics
including adjusted funds flow ("AFF") per share(a),
production per share, and free cash flow ("FCF")(a) per
share. Over the next 18 months, Advantage plans to maximize
FCF(a) by eliminating redundant infrastructure spending,
integrating synergies, rerouting production, and reducing drilling
capital. While the Acquisition will result in a step change in
production, capital spending in 2025 is not expected to increase
compared to our prior stand-alone outlook.
(a)
|
Specified financial measure which is not a
standardized measure under International Financial Reporting
Standards ("IFRS") and may not be comparable to similar specified
financial measures used by other entities. Please see "Specified
Financial Measures" for the composition of such specified financial
measure, an explanation of how such specified financial measure
provides useful information to a reader and the purposes for which
Management of Advantage uses the specified financial measure, and
where required, a reconciliation of the specified financial measure
to the most directly comparable IFRS measure.
|
Key Acquisition Highlights
- Increased scale and efficiency in our core operating
areas. The Acquisition is expected to add approximately 14,100
boe/d (6,685 bbls/d oil, 810 bbls/d NGLs, and 39.7 mmcf/d natural
gas) of production in Glacier, Valhalla, Progress, and Gordondale, enabling
multi-zone development across portions of our existing land base.
The Assets include complementary infrastructure, with over 60
mmcf/d of gas handling capacity and 22,500 bbl/d of liquids
handling capacity.
- High quality oil-weighted production and drilling
inventory. The Assets include 163 net sections of Charlie Lake rights in the premium productive
fairway, with over 100 top-tier locations mapped and drill-ready.
Pro-forma, total liquids production is expected to increase to
approximately 13,600 bbls/d (9,300 bbls/d oil and 4,300 bbls/d
NGLs) in the first half of 2025, more than double the same period
in 2024, increasing our operating netback(a) over the
next twelve months by approximately 11% while improving the balance
of our commodities price exposure. Liquids volumes are heavily
weighted to higher-value oil and condensate.
- Highly accretive transaction. The Acquisition is
expected to be immediately accretive on key metrics, including 24%
higher AFF per share(a) (assuming current forward
pricing) and 12% higher production per share over the next twelve
months. The purchase price of $450
million equates to attractive metrics of approximately 3.2x
operating income(a), $32,000/boe/d(a) on production, and
$10.51 per boe of proved
reserves.
- Increased FCF. Lower relative spending and higher
netbacks are expected to deliver an increased FCF profile. On
current forward pricing, Advantage expects FCF(a) in
2025 to be almost double our prior outlook.
- Lower payout ratio. On current forward pricing, our
pro-forma payout ratio(a) falls to 73% (from 86%) over
the next twelve months and to 61% (from 73%) in 2025.
- Material synergies. Unique operational overlap and
integration opportunities should allow Advantage to significantly
reduce its capital spending and operating costs of the Assets. A
portion of the acquired gas volumes are planned to be rerouted into
our new Progress gas plant, reducing drilling expenditures. Certain
infrastructure investments that were planned by the prior operator
will become redundant. The Assets include third-party gas
processing capacity which will unlock incremental, highly economic
growth at Wembley.
- Significant Montney
upside. The Acquisition includes 70 net sections of highly
prospective Montney lands, with 37
net sections in the greater Progress area and 33 net sections
adjacent to Attachie/Inga.
Revised Corporate Outlook
Advantage's long-term focus on maximizing AFF per share growth
remains unchanged. As a result of the Acquisition, Advantage now
expects to exceed our per-share growth targets, so our strategy
will temporarily shift towards moderating organic growth spending
and maximizing the pace of de-levering. Based on the larger
production base and structurally higher AFF levels, we have
adjusted our net debt target to $450
million (0.9x net debt to trailing AFF ratio(a)
in 2025 at forward pricing). As we approach our net debt target,
forecasted to be by year-end 2025, our capital allocation focus
will shift back to AFF per share growth and shareholder
returns.
While de-levering, Advantage intends to reduce exposure to
commodities price risk via a moderate hedging program. Currently
hedging levels are approximately 22% of pro-forma oil and natural
gas production through year-end 2025. Subject to changing
supply/demand fundamentals, Advantage expects to hedge between 30%
and 50% of its total production.
We remain focused on our existing development assets in the
Montney. However, upon closing the
Acquisition, fewer wells will be needed to fill our
Glacier-Progress gas plant complex than previously planned.
Additional capital reductions are possible due to synergies from
regional infrastructure consolidation and production optimization.
Advantage expects annual production to grow by roughly 20% in 2024
and 14% in 2025.
Advantage plans to hold production from the acquired
Charlie Lake assets at current
levels for the foreseeable future, with a focus on drilling only
the highest return wells and seamless integration of the
Assets.
Advantage plans to host an Investor Day in the fall of 2024 to
update investors on its integration of the Charlie Lake assets and our updated strategic
plan through 2026.
Reserves
Booked reserves for the Assets are primarily highly economic
Charlie Lake oil locations.
Following a lengthy delineation program by the prior operator, the
lands have been extensively high-graded with more than a decade of
top-tier development locations and will compete for capital
with our Tier 1 locations at Wembley.
Summary of Acquired Reserves(1)
As of December 31,
2023
|
Light Crude
Oil and
Medium Crude
Oil (Mbbl)
|
Natural Gas
Liquids
(Mbbl)
|
Conventional
Natural Gas
(Mmcf)
|
Total Oil
Equivalent
(Mboe)
|
|
Proved Developed
Producing
|
5,390
|
836
|
41,712
|
13,179
|
|
Total Proved
|
19,035
|
2,710
|
126,491
|
42,827
|
|
Total Proved +
Probable
|
29,826
|
4,090
|
192,003
|
65,916
|
|
Notes:
|
(1)
|
Reserves estimates
are based upon an evaluation by McDaniel & Associates
Consultants Ltd. ("McDaniel") with an effective date of December
31, 2023 computed using the average of the forecasts by McDaniel,
GLJ Petroleum Consultants Ltd. and Sproule Associates Ltd.
effective December 31, 2023, prior to the provision for
income taxes, interests, debt services charges and general and
administrative expenses. Represents gross working interest reserves
before royalties. It should not be assumed that the
discounted future net revenue estimated by McDaniel represents the
fair market value of the reserves.
|
(2)
|
Assumes that
development of reserves will occur, without regard to the likely
availability of funding required for that
development.
|
(3)
|
Approximately 1% of
the current production and 4% of the year-end 2023 reserves
attributable to the Assets are subject to rights of first refusal
held by third parties. The information set forth in this news
release assumes that none of these rights of first refusal will be
exercised by such parties. To the extent that such rights are
exercised, the above pro-forma financial, operational and reserves
information will be modified to the extent that such Assets are not
acquired by Advantage.
|
|
|
|
|
|
|
|
Year-end 2023 reserves do not reflect the prior operator's
successful drilling program in the first half of this year, which
included a Glacier Charlie Lake well that delivered an initial
30-day production rate (IP30) of 1,350 boe/d (1,100 bbls/d oil, 31
bbls/d NGLs, and 1.3 mmcf/d natural gas).
2024 Forward Looking
Information(1)
|
Current
Guidance(1)(2)
|
Pro-forma Guidance(1)(2)
|
|
Cash Used in Investing
Activities (millions) (3)
|
$220 to
$250
|
$280 to
$310
|
|
Average Production
(boe/d)
|
65,000
to 68,000
|
72,000
to 74,000
|
|
Liquids Production
(%)
|
~10%
|
~13%
|
|
Royalty Rate
(%)
|
7% to 9%
|
9% to 10%
|
|
Operating Expense
($/boe) (4)
|
$3.85
|
$5.00
|
|
Transportation Expense
($/boe) (4)
|
$3.95
|
$3.50
|
|
G&A/Finance Expense
($/boe) (4)
|
$1.90
|
$2.50
|
|
Notes:
|
(1)
|
Forward-looking
statements and information representing Management estimates.
Pro-forma assumes the Acquisition and the Offering closes as
expected. Refer to "Forward Looking Information
Advisory".
|
(2)
|
Guidance numbers are
for Advantage Energy Ltd. only including the Assets and exclude
Entropy Inc.
|
(3)
|
Cash Used in
Investing Activities is the same as net capital expenditures as no
change in non-cash working capital is assumed between years and
other differences are immaterial. Please see "Specified
Financial Measures".
|
(4)
|
Specified financial
measure which is not a standardized measure under IFRS and may not
be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures" for the
composition of such specified financial measure, an explanation of
how such specified financial measure provides useful information to
a reader and the purposes for which Management of Advantage uses
the specified financial measure, and where required, a
reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
|
Acquisition Financing
The purchase price and transaction expenses related to the
Acquisition will be funded with a combination of: (i) net proceeds
from a bought deal offering consisting of $65 million of subscription receipts and
$125 million principal amount of
extendible convertible unsecured subordinated debentures, and (ii)
draws on an upsized $650 million
credit facility.
In connection with the Acquisition, Advantage has entered into a
debt commitment letter, led by Scotiabank and jointly underwritten
with National Bank of Canada and
RBC Capital Markets, to provide a committed and upsized
$650 million revolving credit
facility ("Upsized Credit Facility") to replace its existing
$350 million revolving credit
facility. The Toronto-Dominion Bank has provided a lead order
commitment in support of the Upsized Credit Facility and will enter
the bank syndicate.
Additionally, Advantage has entered into an
agreement with a syndicate of underwriters (the "Underwriters"),
led by TD Securities Inc. and Scotiabank, pursuant to which the
Underwriters have agreed to purchase from the Corporation, on a
bought deal basis, 5,910,000 subscription receipts at a price of
$11.00 per Subscription Receipt for
gross proceeds of approximately $65
million (the "Subscription Receipts") (the "Equity
Offering") and $125 million aggregate
principal amount of 5.0% extendible convertible unsecured
subordinated debentures (the "Debentures") at a price of
$1,000 per debenture (the "Debenture
Offering", and together with the Equity Offering, the "Offering").
Closing of the Offering is expected to occur on or about
June 18, 2024 (the "Closing
Date").
Advantage has granted to the Underwriters
over-allotment options exercisable, in whole or in part, at any
time and from time to time until the earlier of (i) the
30th day following the closing date of the Offering, and
(ii) the Termination Time (as defined below) or the Debenture
Termination Time (as defined below), as applicable, to purchase up
to an additional 886,500 Subscription Receipts and up to an
additional $18.75 million aggregate
principal amount of Debentures, on the same terms and conditions as
the Equity Offering and the Debenture Offering, respectively, to
cover over-allotments and for market stabilization purposes. Any
exercise of over-allotment options, in whole or in part, will
reduce the draw on the credit facility at the closing of the
Acquisition.
Each Subscription Receipt will entitle the holder thereof to
automatically receive, without payment of any additional
consideration or further action on the part of the holder, one
common share of Advantage (each, a "Common Share") upon closing of
the Acquisition.
The proceeds from the sale of the Subscription Receipts (the
"Escrowed Proceeds") will be held by Computershare Trust Company of
Canada, as subscription receipt
agent (the "Subscription Receipt Agent"). If (i) by 5:00 p.m. (Calgary time) on July
31, 2024; (a) an escrow release notice and direction (the
"Escrow Release Notice and Direction") is not delivered to the
Subscription Receipt Agent prior to such time; or (b) an Escrow
Release Notice and Direction has been delivered to the Subscription
Receipt Agent prior to such time, but the Escrowed Proceeds are
subsequently returned to the Subscription Receipt Agent and no
further Escrow Release Notice and Direction is delivered to the
Subscription Receipt Agent prior to such time; (ii) the definitive
agreement for the Acquisition is terminated; (iii) the Corporation
gives notice to TD Securities Inc. and Scotiabank, on behalf of the
Underwriters, that it does not intend to proceed with the
Acquisition; or (iv) the Corporation announces to the public that
it does not intend to proceed with the Acquisition (each, a
"Termination Event" and the time of the earliest of such
Termination Event to occur, the "Termination Time" and the date on
which such Termination Time occurs, the "Termination Date"), the
Subscription Receipt Agent will pay to each holder of Subscription
Receipts, no earlier than the third business day following the
Termination Date, an amount per Subscription Receipt equal to the
issue price in respect of such Subscription Receipt, plus such
holder's proportionate share of any interest and other income
received or credited on the investment of the Escrowed Proceeds
between the Closing Date and the Termination Date.
The Debentures will bear interest at a rate of
5.0% per annum from the Closing Date, payable semi-annually in
arrears on June 30 and December 31 in each year, commencing December 31, 2024. The initial maturity
date of the Debentures will be the Debenture Termination Date (as
defined below) (the "Initial Maturity Date"), which will be no
later than July 31, 2024. Upon
closing of the Acquisition, the Initial Maturity Date will be
automatically extended to June 30,
2029 (the "Final Maturity Date"). Provided that the
maturity date for the Debentures is extended to the Final Maturity
Date, the Debentures will be convertible at the option of the
holder into Common Shares at any time prior to 5:00 p.m. (Calgary time) on the earliest of: (i) the last
business day immediately prior to the Final Maturity Date, and (ii)
the last business day immediately preceding the date specified by
the Corporation for redemption of the Debentures, at a conversion
price of $14.58 per Common Share (the
"Conversion Price"), being a ratio of 68.5871 Common Shares per
$1,000 principal amount of
Debentures, subject to adjustment in certain events to be described
in the trust indenture to be entered into by the Corporation and
Computershare Trust Company of Canada governing the Debentures.
If: (i) the closing of the Acquisition does not occur by
5:00 p.m. (Calgary time) on July
31, 2024; (ii) the definitive agreement for the Acquisition
is terminated; (iii) the Corporation gives notice to TD Securities
Inc. and Scotiabank, on behalf of the Underwriters, that it does
not intend to proceed with the Acquisition; or (iv) the Corporation
announces to the public that it does not intend to proceed with the
Acquisition (each, a "Debenture Termination Event" and the time of
the earliest of such Debenture Termination Event to occur, the
"Debenture Termination Time" and the date on which such Debenture
Termination Time occurs, the "Debenture Termination Date"), the
maturity date of the Debentures will remain the Initial Maturity
Date and the holders shall be entitled to receive the principal
amount of the Debentures at par together with all accrued and
unpaid interest thereon.
It is a condition of closing that the Subscription Receipts, the
Debentures, the Common Shares issuable pursuant to the terms of the
Subscription Receipts and the Common Shares to be issued upon
conversion, redemption or maturity of the Debentures be listed on
the Toronto Stock Exchange ("TSX"). The Common Shares currently
trade on the TSX under the symbol "AAV".
The Subscription Receipts and the Debentures will be offered in
all provinces of Canada (excluding
Québec) by way of a prospectus supplement to Advantage's short form
base shelf prospectus dated June 10,
2024 (the "Base Shelf Prospectus") to be filed on
June 12, 2024 (the "Prospectus
Supplement"). In addition, the Subscription Receipts and the
Debentures may be offered in the United
States in transactions exempt from registration under the
U.S. Securities Act of 1933, as amended (the "U.S.
Securities Act") and applicable state securities laws.
This announcement does not constitute an offer to sell or a
solicitation of an offer to buy securities in the United States, nor may any securities
referred to herein be offered or sold in the United States absent registration or an
exemption from registration under the U.S. Securities Act and the
rules and regulations thereunder. The securities referred to herein
have not been and will not be registered under the U.S. Securities
Act or any state securities laws. Accordingly, the Offered Shares
may not be offered or sold within the
United States except in transactions exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
Access to the Base Shelf Prospectus, the Prospectus Supplement,
and any amendments to the documents are provided in accordance with
securities legislation relating to procedures for providing access
to a base shelf prospectus, a prospectus supplement and any
amendment to the documents. The Base Shelf Prospectus is, and the
Prospectus Supplement will be (within two business days from the
date hereof), accessible through SEDAR+ at www.sedarplus.ca. An
electronic or paper copy of the Base Shelf Prospectus, the
corresponding Prospectus Supplement (when filed) and any amendments
to the documents may be obtained, without charge, from TD
Securities Inc. at 1625 Tech Avenue, Mississauga, Ontario L4W 5P5 Attention:
Symcor, NPM, or by telephone at (289) 360-2009 or by email at
sdcconfirms@td.com, by providing such contact with an email address
or address, as applicable. Prospective investors should read the
Base Shelf Prospectus and Prospectus Supplement (when filed) and
the other documents the Company has filed on SEDAR+ before making
an investment decision.
Advisors
TD Securities is acting as exclusive financial advisor on the
Acquisition. Scotiabank is acting as strategic advisor on the
Acquisition.
Burnet, Duckworth & Palmer LLP is acting as legal counsel to
Advantage with respect to the Acquisition, the revised credit
facilities and the Offering. Paul, Weiss, Rifkind, Wharton &
Garrison LLP is acting as U.S. legal counsel to Advantage with
respect to the Offering. Blake, Cassels & Graydon LLP is acting
as Canadian legal counsel to the Underwriters with respect to the
Offering.
National Bank Financial and RBC Capital Markets acted as
financial advisors to the vendor.
Forward-Looking Information Advisory
The information in this press release contains certain
forward-looking statements, including within the meaning of
applicable securities laws. 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 "anticipate", "continue",
"demonstrate", "expect", "may", "can", "will", "believe", "would"
and similar expressions and include statements relating to, among
other things: Advantage's position, strategy and development plans;
the anticipated timing, conditions and sources of funding of the
Acquisition and the anticipated benefits to be derived therefrom,
including, but not limited to anticipated increases in Advantage's
AFF per share and production per share over the next twelve months,
increases in its FCF in 2025 and decreases in its payout ratio over
the next twelve months and in 2025; anticipated levels of
production of the assets being acquired pursuant to the
Acquisition; anticipated synergies resulting from the Acquisition
allowing Advantage to reduce its future capital spending and
operating costs; Advantage's plans to maximize FCF and the
anticipated means thereof; Advantage's expectations that its
capital spending in 2025 will not increase compared to its prior
outlook; Advantage's long-term focus of maximizing AFF per share
growth and share buybacks; Advantage's expectations that it
will exceed its per-share growth targets as a result of the
Acquisition and its expectation that its strategy will temporarily
shift towards moderating organic growth spending and maximizing the
pace of de-levering; Advantage's net debt and net debt/AFF targets
and the anticipated timing thereof; Advantage's hedging program and
the anticipated benefits to be derived therefrom; Advantage's
future drilling plans at certain of its locations as a result of
the Acquisition and its anticipated production growth in 2024 and
2025; that Advantage will host an Investor Day and the anticipated
contents and timing thereof; Advantage's pro forma 2024 guidance,
including its anticipated cash used in investing activities,
average daily production, liquids production, royalty rate,
operating expense, transportation expense and G&A/finance
expense; Advantage's anticipated means of financing the
Acquisition, including the anticipated terms and timing thereof;
Advantage's expectations that the Subscription Receipts, the
Debentures and the Common Shares issuable pursuant to the terms of
the Subscription Receipts and the Debentures will be listed on the
TSX; that Advantage will file a Prospectus Supplement and the
anticipated timing thereof; and the Corporation's expectations that
it will continue to deliver clean, reliable, sustainable energy,
and contribute to a reduction in global emissions by displacing
high-carbon fuels. 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. In addition,
forward-looking statements contained in this document include,
statements relating to "reserves", which are by their nature
forward-looking statements, as they involve the implied assessment,
based on certain estimates and assumptions that the reserves
described can be profitably produced in the future. The recovery
and reserve estimates of Advantage's reserves provided herein are
estimates only and there is no guarantee that the estimated
reserves will be recovered.
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; Advantage's success at acquisition, exploitation
and development of reserves; unexpected drilling results; changes
in commodity prices, currency exchange rates, net 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 and processing 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; 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; the risk that the Corporation may not have access to
sufficient capital from internal and external sources; the risk
that the Acquisition or the Acquisition financings may not close
when anticipated, or at all, and may not result in the benefits
anticipated; the risk that Advantage may not satisfy all closing
conditions or receive all necessary regulatory approvals for the
Acquisition when anticipated, or at all; the risk that Advantage's
capital spending in 2025 may be greater than anticipated; the risk
that third parties may exercise rights of first refusal over
certain of the Assets; the risk that the assets being acquired
pursuant to the Acquisition may have lower levels of production
than anticipated; the risk that the Acquisition may not lead to the
financial results anticipated; the risk that Advantage may
not exceed its per-share growth targets as a result of the
Acquisition; the risk that Advantage may not meet its net debt or
net debt/AFF targets when anticipated, or at all; the risk that
Advantage's hedging program may not result in the benefits
anticipated; the risk that Advantage's production in 2024 and 2025
may be less than anticipated; the risk that Advantage may not
complete the Acquisition financings when anticipated on the terms
anticipated, or at all; the risk that the Subscription Receipts,
the Debentures and the Common Shares issuable pursuant to the terms
of the Subscription Receipts and the Debentures may not be listed
on the TSX; the risk that Advantage may not file a Prospectus
Supplement when anticipated, or at all; and the risk that
the Corporation may not continue to deliver clean, reliable,
sustainable energy, or contribute to a reduction in global
emissions. Many of these risks and uncertainties and additional
risk factors are described in the Corporation's Annual Information
Form which is available at
www.sedarplus.ca ("SEDAR+") 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 and future
commodity prices and royalty regimes; the Corporation's current and
future hedging program; future exchange rates; royalty rates;
future operating costs; future transportation costs and
availability of product transportation capacity; availability of
skilled labor; availability of drilling and related equipment;
timing and amount of net capital expenditures; the impact of
increasing competition; the price of crude oil and natural gas; the
number of new wells required to achieve the budget objectives; 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 properties in the manner currently
contemplated; current or, where applicable, proposed assumed
industry conditions, laws and regulations will continue in effect
or as anticipated; that the Corporation will have sufficient
financial resources to purchase its shares pursuant to its share
buyback program in the future; 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; the closing of the Acquisition and the
Acquisition financings will occur when anticipated and on the terms
anticipated without the significant exercise by third parties of
rights of first refusal over certain of the Assets; ability to meet
the conditions to closing of the Acquisition, including receipt of
regulatory approvals; ability to meet the conditions to closing of
the Offering, including the listing of the Subscription Receipts,
the Debentures and the Common Shares issuable pursuant to the terms
of the Subscription Receipts and the Debentures on the
TSX; that Advantage will modify its pro-forma
financial, operational and reserves information to the extent that
the Assets are not acquired by it; anticipated debt
levels, operational expenses and tax rates following closing of the
Acquisition and Financing; the performance of Advantage's business
and the assets Acquired pursuant to the Acquisition; impacts of the
acquisition on the Corporation's hedging program; and timing and
receipt of regulatory approvals. Readers are cautioned that the
foregoing lists of factors are not exhaustive.
The future acquisition by the Corporation of the
Corporation's shares pursuant to a share buyback program, if any,
and the level thereof is uncertain. Any decision to implement a
share buyback program or acquire shares of the Corporation will be
subject to the discretion of the board of directors of the
Corporation and may depend on a variety of factors, including,
without limitation, the Corporation's business performance,
financial condition, financial requirements, growth plans, expected
capital requirements and other conditions existing at such future
time including, without limitation, contractual restrictions,
satisfaction of the solvency tests imposed on the Corporation under
applicable corporate law and receipt of regulatory approvals. There
can be no assurance that the Corporation will buyback any shares of
the Corporation in the future.
Management has included the above summary of assumptions and
risks related to forward-looking information above and in its
continuous disclosure filings on SEDAR+ in order to provide
shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other
purposes. Advantage's actual results, performance or achievement
could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits that Advantage will derive there from. Readers are
cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this
news 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.
This press release contains information that may be
considered a financial outlook under applicable securities laws
about the Corporation's potential financial position, including,
but not limited to: Advantage's anticipated increases in its AFF
per share over the next twelve months, increases in its FCF in 2025
and decreases in its payout ratio over the next twelve months and
in 2025 as a result of the Acquisition; Advantage's expectations
that its capital spending in 2025 will not increase compared to its
prior outlook; Advantage's net debt and net debt/AFF targets
and the anticipated timing thereof; Advantage's hedging program and
the anticipated benefits to be derived therefrom; Advantage's pro
forma 2024 guidance, including its anticipated cash used in
investing activities, average daily production, liquids production,
royalty rate, operating expense, transportation expense and
G&A/finance expense; and Advantage's anticipated means of
financing the Acquisition, including the anticipated terms and
timing thereof; all of which are subject to numerous
assumptions, risk factors, limitations and qualifications,
including those set forth in the above paragraphs. The actual
results of operations of the Corporation and the resulting
financial results will vary from the amounts set forth in this
press release and such variations may be material. This information
has been provided for illustration only and with respect to future
periods are based on budgets and forecasts that are speculative and
are subject to a variety of contingencies and may not be
appropriate for other purposes. Accordingly, these estimates are
not to be relied upon as indicative of future results. Except as
required by applicable securities laws, the Corporation undertakes
no obligation to update such financial outlook. The financial
outlook contained in this press release was made as of the date of
this press release and was provided for the purpose of providing
further information about the Corporation's potential future
business operations. Readers are cautioned that the financial
outlook contained in this press release is not conclusive and is
subject to change.
This press release contains forward-looking statements which
are estimates of Advantage's 2024 and 2025 operating and financial
results including production, adjusted funds flow, capital spending
and FCF. The foregoing estimates are based on various assumptions
and are provided for illustration only and are based on forecasts
that have not been finalized and are subject to change and a
variety of contingencies including prior results. In addition, the
foregoing estimates and assumptions underlying the 2025 forecasts
are Management prepared only and have not been approved by the
Board of Directors of Advantage. These forecasts are made as of the
date of this presentation and except as required by applicable
securities laws, Advantage undertakes no obligation to update such
forecasts. In addition to the assumptions listed above, Advantage
has made the following assumptions with respect to the 2024 and
2025 forecasts contained in this presentation, unless otherwise
specified:
- The Acquisition and the Offering closes as
expected.
- Production growth of approximately 20% in 2024 and 14% in
2025 with the proportion of liquids representing 13% in 2024 and
16% in 2025.
- Net capital expenditures of $280
million to $310 million for
each of 2024 and 2025.
- Assumed no share buybacks until net debt target of
$450 million is achieved.
- Commodity prices utilizing forward pricing assumptions: WTI
US$/bbl (2024–$78, 2025–$73), AECO $CDN/GJ (2024–$1.80,
2025–$2.95), FX $CDN/$US (2024–1.36, 2025–1.35).
- Current hedges (See Advantage's
website).
- Advantage expects it will not be subject to cash taxes until
calendar 2027 due to its over $1
billion in high-quality tax pools (See note 15 "Income
taxes" in Advantage's Consolidated Financial Statements for the
year ended December 31, 2023 for
estimated tax pools available). Tax pools are increased for net
capital expenditures and reduced for tax pools used to reduce
taxable income in a specific year.
Oil and Gas Information
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 short-term production
rates, such as IP30, 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. Additionally, such rates may also include recovered "load
oil" fluids used in well completion stimulation. While encouraging,
readers are cautioned not to place reliance on such rates in
calculating the aggregate production of Advantage.
Reserves
The reserves disclosures contained in this news release with
respect to the assets associated with the Acquisition are derived
from the evaluation by McDaniel & Associates Consultants Ltd.
("McDaniel"), the Vendor's independent reserves evaluators,
dated June 7, 2024 with an effective
date of December 31, 2023 (the
"McDaniel Acquisition Report"). The McDaniel Acquisition
Report was prepared using assumptions and methodology guidelines
outlined in the COGE Handbook and in accordance with National
Instrument 51-101 – Standards of Disclosure for Oil and Gas
Activities ("NI 51-101"). The reserves have been categorized
in accordance with the reserves definitions as set out in the COGE
Handbook, which are set out below. Reserves are estimated remaining
quantities of petroleum anticipated to be recoverable from known
accumulations, as of a given date, based on the analysis of
drilling, geological, geophysical, and engineering data; the use of
established technology; and specified economic conditions, which
are generally accepted as being reasonable. Reserves are further
classified according to the level of certainty associated with the
estimates and may be sub‐classified based on development and
production status. Proved reserves are those quantities of
petroleum, which, by analysis of geoscience and engineering data,
can be estimated with reasonable certainty to be economically
producible from a given date forward, from known reservoirs and
under existing economic conditions, operating methods and
government regulations. Probable reserves are those additional
quantities of petroleum that are less certain to be recovered than
proved reserves, but which, together with proved reserves, are as
likely as not to be recovered. It should not be assumed that the
future net revenues included in this news release represent the
fair market value of the reserves. The estimates of reserves and
future net revenue for individual properties may not reflect the
same confidence level as estimates of reserves and future net
revenue for all properties due to the effects of
aggregation.
Drilling Locations
This press release discloses drilling locations in three
categories: (i) proved locations; (ii) probable locations; and
(iii) unbooked locations. In respect of the Acquired Assets, proved
locations and probable locations are derived from the McDaniel
Acquisition Report and account for drilling locations that have
associated proved and/or probable reserves, as applicable. Unbooked
locations are internal estimates based on prospective acreage and
an assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations do not have attributed reserves. In respect of the assets
to be acquired pursuant to the Acquisition, of the 100 gross
drilling locations identified herein, 72 gross are proved
locations, 21 gross are probable locations and 7 gross are unbooked
locations. Unbooked locations have been identified by
management as an estimation of Advantage's multi‐year drilling
activities based on evaluation of applicable geologic, seismic,
engineering, production and reserves information. There is no
certainty that Advantage will drill all unbooked drilling locations
and if drilled there is no certainty that such locations will
result in additional oil and gas reserves or production. The
drilling locations on which Advantage actually drills wells will
ultimately depend upon the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices,
costs, actual drilling results, additional reservoir information
that is obtained and other factors. While certain of the unbooked
drilling locations have been de-risked by drilling existing wells
in relative close proximity to such unbooked drilling locations,
some of the other unbooked drilling locations are further away from
existing wells where management has less information about the
characteristics of the reservoir and therefore there is more
uncertainty whether wells will be drilled in such locations, and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves or production.
Specified Financial Measures
Throughout this news release, Advantage discloses certain
measures to analyze financial performance, financial position, and
cash flow. These non-GAAP and other financial measures do not have
any standardized meaning prescribed under IFRS and therefore may
not be comparable to similar measures presented by other entities.
The non-GAAP and other financial measures should not be considered
to be more meaningful than GAAP measures which are determined in
accordance with IFRS, such as net income (loss) and comprehensive
income (loss), cash provided by operating activities, and cash used
in investing activities, as indicators of Advantage's performance.
Management believes that these measures provide an indication of
the results generated by the Corporation's principal business
activities and provide useful supplemental information for analysis
of the Corporation's operating performance and liquidity. Refer to
the Corporation's most recent Management's Discussion and Analysis
for the three months ended March 31,
2024, which is available at www.sedarplus.ca and
www.advantageog.com for additional information about certain
specified financial measures, including reconciliations to the
nearest GAAP measures and disclosures of historical specified
financial measures, as applicable.
Non-GAAP Financial Measures
Net Capital Expenditures
Net capital expenditures include total capital expenditures
related to property, plant and equipment, exploration and
evaluation assets and intangible assets. Management considers this
measure reflective of actual capital activity for the period as it
excludes changes in working capital related to other periods and
excludes cash receipts on government grants. The results of the
Corporation's subsidiary Entropy Inc. are also excluded from the
calculation of net capital expenditures to provide users with the
ability to assess Advantage's results from its oil and gas
operations.
Adjusted Funds Flow
The Corporation considers adjusted funds flow to be a useful
measure of Advantage's ability to generate cash from the production
of natural gas and liquids, which may be used to settle outstanding
debt and obligations, support future capital expenditures plans, or
return capital to shareholders. Changes in non-cash working capital
are excluded from adjusted funds flow as they may vary
significantly between periods and are not considered to be
indicative of the Corporation's operating performance as they are a
function of the timeliness of collecting receivables and paying
payables. Expenditures on decommissioning liabilities are excluded
from the calculation as the amount and timing of these expenditures
are unrelated to current production and are partially discretionary
due to the nature of our low liability.
Free Cash Flow ("FCF")
Advantage computes FCF as adjusted funds flow less net
capital expenditures. Advantage uses FCF as an indicator of the
efficiency and liquidity of Advantage's business by measuring its
cash available after net capital expenditures to settle outstanding
debt and obligations and potentially return capital to shareholders
by paying dividends or buying back common shares.
Operating Income or Operating Netback
Operating income or operating netback is comprised of natural
gas and liquids sales, realized gains (losses) on derivatives,
processing and other income, net sales of purchased natural gas,
net of expenses resulting from field operations, including royalty
expense, operating expense and transportation expense. The
Corporation considers operating income or operating netback to be a
useful measure of Advantage's ability to generate cash from
production from field operations which may be used to satisfy other
expenses, settle outstanding debt and obligations, support future
capital expenditures plans, or return capital to
shareholders.
Non-GAAP Ratios
Adjusted Funds Flow per Share
Adjusted funds flow per share is derived by dividing adjusted
funds flow by the basic weighted average shares outstanding of the
Corporation. Management believes that adjusted funds flow per share
provides investors an indicator of funds generated from the
business that could be allocated to each shareholder's equity
position.
Net Debt to Adjusted Funds Flow
Net debt to adjusted funds flow is derived by dividing net
debt, which is a capital management measure, by adjusted funds flow
for the previous four quarters, which is a non-GAAP financial
measure. Net debt to adjusted funds flow is a coverage ratio that
provides Management and users the ability to determine how long it
would take the Corporation to repay its debt if it devoted all of
its adjusted funds flow to debt repayment.
Payout Ratio
Payout ratio is calculated by dividing net capital
expenditures by adjusted funds flow. Advantage uses payout ratio as
an indicator of the efficiency and liquidity of Advantage's
business by measuring its cash available after net capital
expenditures to settle outstanding debt and obligations and
potentially return capital to shareholders by paying dividends or
buying back common shares.
Operating Netback per BOE
Operating netback per BOE is calculated as operating income
divided by boe of production for the reporting period.
Operating netback per BOE provides Management and users with a
measure to compare the profitability of field operations between
companies, development areas and specific wells.
Capital Management Measures
Net Debt
Net debt is a capital management financial measure that
provides Management and users with a measure to assess the
Corporation's liquidity. The results of the Corporation's
subsidiary Entropy Inc. are also excluded from the calculation of
net debt to provide users with the ability to assess Advantage's
results from its oil and gas operations. Net debt is not a
standardized measure and therefore may not be comparable with the
calculation of similar measures by other entities.
Supplementary Financial Measures
Dollars per BOE figures
Throughout this press release, the Corporation presents
certain financial figures, in accordance with IFRS, stated in
dollars per boe. These figures are determined by dividing the
applicable financial figure as prescribed under IFRS by the
Corporation's total production for the respective period. Below is
a list of figures which have been presented in this press release
in $ per boe:
- G&A/Finance expense per boe
- Operating expense per boe
- Transportation expense per boe
- Purchase price per boe
- Purchase price per boe of proved reserves
Capital Efficiency
Capital efficiency is calculated by dividing net capital
expenditures by the average production additions of the applicable
year to replace the corporate decline rate and deliver production
growth, expressed in $/boe/d. Net capital expenditures used in the
calculation excludes acquisitions and dispositions, and net capital
expenditures incurred by Entropy as these expenditures are not
related to production additions. Capital efficiency is considered
by Management to be a useful performance measure as a common metric
used to evaluate the efficiency with which capital activity is
allocated to achieve production additions.
The following abbreviations used in this press release
have the meanings set forth below:
bbl
|
one
barrel
|
bbls
|
barrels
|
bbls/d
|
barrels per
day
|
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
|
boe/d
|
barrels of oil
equivalent of natural gas per day
|
COGE
Handbook
|
the "Canadian Oil
and Gas Evaluation Handbook" maintained by the Society of Petroleum
Evaluation Engineers (Calgary Chapter), as amended from time to
time
|
mboe
|
thousand barrels of
oil equivalent of natural gas
|
mcf
|
thousand 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
|
mm
|
million
|
mmcf/d
|
million cubic feet
per day
|
IP30
|
average initial
production rate over 30 consecutive days
|
liquids
|
includes NGLs,
condensate and crude oil
|
NGLs and
condensate
|
Natural Gas Liquids
as defined in National Instrument 51-101
|
natural
gas
|
Conventional Natural
Gas as defined in National Instrument 51-101
|
crude
oil
|
Light Crude Oil and
Medium Crude Oil as defined in National Instrument
51-101
|
NPV10
|
net present value
using a 10% discount rate
|
SOURCE Advantage Energy Ltd.