Advantage Energy Ltd · TSX:AAV
Advantage Energy — Advantage Oil & Gas — Investor Presentation (December 2011)
32 slides from Advantage Energy's investor presentation, December 2011
Slide 1: Investor Presentation December 2011
Investor Presentation December 2011 December 2011 Page 1
Slide 2: Advantage Oil & Gas Ltd.
Advantage Oil & Gas Ltd. • Listed on TSX & NYSE AAV • Shares Outstanding (Basic) 165.9 million • Market Capitalization at December 1, 2011 $795 million • Q3 2011 Bank Debt (25% Drawn) $68 million Convertible Debentures Dec 2011 $63 million Jan 2015 $86 million • Enterprise Value $1,012 million • Lon
Slide 3: Why Invest in Advantage?
Why Invest in Advantage? • One of the largest Montney natural gas producers in the play (ranked 5th per Scotia Capital research Sept. 2011) • Development focused on our large contiguous land block at Glacier, Alberta since 2008 • Proven repeatability with production growth to 100 mmcf/d & 2P reserve
Slide 4: Q3 2011 Highlights
Q3 2011 Highlights • Phase IV Capital program underway with 3 drilling rigs at Glacier • Grow Glacier to 140 mmcf/d and further evaluate additional layers of the Montney formation • Wet weather created ~ 1.5 month delay in well drilling and completion activities but Phase IV program is on-track for
Slide 5: Significant Debt Reduction Provides Balance Sheet Strength
Significant Debt Reduction Provides Balance Sheet Strength Advantage’s Q3 2011 Balance Sheet Strength: $807 million • Total debt reduced by 73% since 2008 • Undrawn credit facility of $207 million • 63% ownership of Longview Oil Corp shares could be used to retire total debt position(1) $469 million
Slide 6: Capital Budget to Grow Corporate Production 24%
Capital Budget to Grow Corporate Production 24% • Capital Budget $216 million for 12 months ended June 30, 2012 • Capital program focused on Montney Phase IV development at Glacier • $200 million (93%) allocated to Glacier with 2 key objectives: i. Increase Glacier throughput to 140 mmcf/d $155 mill
Slide 7: Advantage – “Pure Play” Natural Gas Focus
Advantage – “Pure Play” Natural Gas Focus Company Total Montney Unconventional June Exit Production : 15,700 boe/d June Exit Production : 23,400 boe/d Gas/Oil % : 100/0 Gas/Oil % : 94/6 Avg. W.I. : 93% RLI: 24.3 yrs RLI: 31.7 yrs Liquids Rich Multi-zone CBM + Colorado Group June Exit Production : 4,
Slide 8: Glacier Development Driving Organic Production Growth & Lower Operating Costs
Glacier Development Driving Organic Production Growth & Lower Operating Costs Advantage Production Growth (1) Advantage Operating Costs boe/d $/boe Q3 2011 Operating Costs were 13.89 lower than guidance 138% Production Growth 12.11 10.66 8.44 ~ 5.90 ~ 5.75 2008 2009 2010 H1 2011 H2 2011E H1 2012E •
Slide 9: Glacier Growth Creates Low Corporate Operating Cost Structure
Glacier Growth Creates Low Corporate Operating Cost Structure $/boe (1) $25.00 Advantage is one of the lowest cost $20.00 producers among the Canadian intermediate oil and gas sector $15.00 $10.00 AAV $5.00 $0.00 (1) Based on Scotia Capital Inc. estimated 2012 operating & transportation costs for Ca
Slide 10: Natural Gas Production & Operating Cost Trend
Glacier Natural Gas Production & Operating Cost Trend 3.0 160.0 140.0 2.5 Glacier 100% W.I. Gas Plant On-Stream 120.0 2.0 100.0 mmcf/d $/mcf 1.5 80.0 50 mmcf/d 100 mmcf/d 140 mmcf/d $0.50/mcf $0.30/mcf $0.20/mcf 60.0 1.0 Initial 25 mmcf/d Op. Cost $1.50/mcf using 3rd party processing 40.0 0.5 20.0 0
Slide 11: Glacier Phase IV Development Program
Glacier Phase IV Development Program • Project cycle July 2011 to June 2012 • Capital program of $200 million is comprised of: • Drill, complete & equip 30 Montney wells (100% W.I.) $176 million • 11 wells to sustain 100 mmcf/d base • 19 wells to fill 140 mmcf/d plant capacity & provide inventory (i
Slide 12: Montney Location & Area Land Holders
Glacier – Location & Area Land Holders Shale CNRL CNRL ARC PENGROWTH ARC AAV Glacier SHELL Silt BIRCHCLIFF Sand TALISMAN MURPHY Tupper W ENCANA CNRL SWAN AAV GLACIER MURPHY ENCANA Montney Total Hz Well Production DEVON 400 (mmcfe/d) 350 APACHE CNRL 300 Advantage is one of the larger producers in the
Slide 13: Glacier’s Location Provides Technical & Economic Benefits
Glacier’s Location Provides Technical & Economic Benefits BC AB Glacier is located in Alberta and is within the over-pressured and extremely thick Montney siltstone fairway with Upper, Middle & Lower Montney Potential A 100 km A’ 09-36-79-20W6 05-09-76-13W6 01-21-77-11W6 c-42-F 93-P-09 A Upper Montn
Slide 14: Significant Future Drilling Potential at Glacier
Significant Future Drilling Potential at Glacier Only 60 net wells drilled as of June 30, 2011 at Glacier. Drill Inventory could exceed 900 locations Current Inventory # Net Wells of Future Drilling Drilled/Tested to Date Locations (1) Upper Montney 52 300 – 350 2 (partially tested as Middle Montney
Slide 15: Glacier – Drilling Results & Upside Potential Support Future Growth
Glacier – Drilling Results & Upside Potential Support Future Growth Phase III Upper Montney Test Rates mmcf/d(1) Glacier Production History Recent delineation drilling results confirm high quality reservoir across our land block 7.7 5.2 8.9 Glacier Development Phases 9.8 (mmcf/d) 8.7 10.6 Phase I Ph
Slide 16: Improved Well Production Enhances Economics
Glacier Improved Well Production Enhances Economics Advantage Glacier Area Upper Montney Horizontals Normalized 30 Day IP Production Rates 6000 38 recent wells with 5000 >9 fracs/well 1 year cumulative 0.9 bcf Glacier well economics based on 5 mmcf/d IP, 4000 5 bcf, $5.8 million/well, $4.00 Cdn real
Slide 17: Glacier – Strong Operating Netbacks & Recycle Ratios
Glacier – Strong Operating Netbacks & Recycle Ratios Glacier Operating Netbacks at 140 mmcfd Revenue ($Cdn/mcf) $3.00(1) $4.00(1) Royalties ($/mcf @ Royalty Rate 5.0%) $(0.15) $(0.20) Operating Costs ($/mcf) $(0.20) $(0.20) Operating Netback ($/mcf) $2.65 $3.60 (2) Recycle Ratio at $1.54/mcf F&D 1.7
Slide 18: Montney Well Economics – Sensitivity Analysis
Glacier Montney Well Economics – Sensitivity Analysis Low operating cost and attractive royalty structure drives strong economics even at low natural gas prices Glacier Montney Horizontal - NPV10% ($MM)(1) Glacier Montney Horizontal - Rate of Return (%)(1) 12 120 10 Rate of Return - % 100 8 NPV 10%
Slide 19: Glacier Expansion to 140 MMCFD Increases Free Operating Cash Flow
Glacier Expansion to 140 MMCFD Increases Free Operating Cash Flow Annualized Operating $184 Million* Cash Flow $128 Million* $84 Million Free Operating Cash Flow $58 Million Capital required to $100 Million maintain production $70 Million level Glacier 100 MMCFD Glacier 140 MMCFD *Annualized operati
Slide 20: Glacier Gas Plant Expansion
Glacier Gas Plant Expansion • Glacier gas plant (100% W.I.) will be expanded to 140 mmcf/d capacity by Q2 2012 for $13 million • Cost effective expansion due to optimization of existing equipment • Expansion beyond 140 mmcf/d will require: • Additional processing equipment • Expansion of gas plant •
Slide 21: Advantage Guidance – 12 Months ending June 2012
Advantage Guidance – 12 Months ending June 2012 Guidance H2 2011 H1 2012 12 Months Production Average (boe/d) 22,900 – 23,000 27,100 – 27,600 25,000 – 25,500 Exit Rate (boe/d) 24% production growth 28,500 – 29,500 Royalty Rate (%) 10% – 12% 10% – 12% 10% – 12% Operating Costs ($/boe) $5.80 – $5.90 $
Slide 22: Advantage Summary
Advantage Summary • Corporate production to grow 24% to 29,000 boe/d (H1 2012 exit) • Glacier growth to 140 mmcf/d increases cash flow & improves cost structure • Further evaluation of Lower & Middle Montney layers could add significant resource & reserves growth • Glacier drilling inventory could e
Slide 23: Advantage Contact Information
Advantage Contact Information Investor Relations 1.866.393.0393 [email protected] Andy Mah, P.Eng. President & Chief Executive Officer Craig Blackwood, C.A. Vice-President, Finance www.advantageog.com TSX:AAV NYSE:AAV Advantage Oil & Gas Ltd. Suite 700, 400 – 3rd Avenue SW Calgary, Alberta T2P 4H2
Slide 24: Appendix
Appendix December 2011 Page 24
Slide 25: Western Canada Main Natural Gas Trunklines
Western Canada Main Natural Gas Trunklines British Horn River Alberta Columbia Basin Ft. St. John Ft. McMurray Natural gas pipeline Glacier interconnection already exists between B.C. and Montney Grande Prairie Alberta Basin Kitimat Edmonton Prince George Calgary Spectra Canada Pacific Northern Vanc
Slide 26: Glacier – Wet Weather Conditions (June – July, 2011)
Glacier – Wet Weather Conditions (June – July, 2011) Main West Access Road “wash-out’ Drilling Lease Lease Access Road Wet Weather Bears!! December 2011 Page 26
Slide 27: Thick Montney “Siltstone” Supports Higher Reserve Recoveries
Glacier – Thick Montney “Siltstone” Supports Higher Reserve Recoveries Unconventional Marcellus Shale Horn River Shale Barnett “Shaley” silts Haynesville Arc Silt Shell Birchcliff Most active drilling area in Glacier Montney “Tight” sand Conventional Encana AAV Glacier the Montney Murphy Devon Silt
Slide 28: Recent M&A Activity
Recent M&A Activity Recent M&A Activity: Recent M&A Activity: • CNRL / Talisman • CNRL / Talisman • ARC / Storm • ARC / Storm CNRL • Pengrowth ARC PENGROWTH / Monterey • Pengrowth / Monterey • Apache / BP ARC • Apache / BP • Murphy SHELL / Cequence CNRL • Murphy / Cequence BIRCHCLIFF TALISMAN MURPHY
Slide 29: Montney Horizontal Well Production Range and Type Curve
Montney Horizontal Well Production Range and Type Curve Data includes Glacier, Swan, Tupper, Pouce Coupe South & Groundbirch The IP30 range and average type curve based on 320 wells with up to 48 months of production history 30 Day IP Distribution Source: Based on public data through IHS/Accumap and
Slide 30: Top Quartile Initial Production Rates (30 day) at Glacier
Top Quartile Initial Production Rates (30 day) at Glacier To date results at Glacier prove up a Glacier Production Growth to significant amount of acreage across the land 50 mmcfd in 20 months block and IP’s are comparable to EnCana Swan wells EnCana Swan EnCana Swan Advantage Glacier Advantage IP 3
Slide 31: Montney – Reserves/Well Could Exceed Expectations due to Silt/Sand Reservoir
Montney – Reserves/Well Could Exceed Expectations due to Silt/Sand Reservoir Barnett Shale Horizontal vs Montney Horizontal Montney type well @ Swan (based on 50 wells that have the longest production history) Barnett Shale type wells by operator Source: Facts are Stubborn Things, Oct. 25, 2009, Art
Slide 32: Advisory
Advisory The information in this presentation 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 s
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