Advantage announces strategic asset acquisition and concurrent financing

Advantage announces strategic asset acquisition and concurrent financing
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.

Advantage announces strategic asset acquisition and concurrent financing/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

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