2019 Annual Report
Financial and Operating Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Sales including realized derivatives (3)
Net income (loss) and comprehensive income (loss)
per basic share (2)
Cash provided by operating activities (4)
Cash provided by financing activities (4)
Cash used in investing activities
Basic weighted average shares (000)
Other Financial Highlights (1)
Adjusted funds flow
per boe
per basic share (2)
Net capital expenditures
Working capital deficit
Bank indebtedness
Net debt
Operating
Daily Production
Natural gas (mcf/d)
Liquids (bbls/d)
Total production (mcfe/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/mcf) (3)
Liquids ($/bbl)
Operating Netback ($/boe)
Sales of natural gas and liquids from production
Net sales of natural gas purchased from third parties (1)
Realized gains (losses) on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended
December 31
2019
2018
Year ended
December 31
2019
2018
76,921 $
(1,844) $
$
(0.01)
39,965 $
20,037 $
50,365 $
186,911
$
44,452
$
10.20
$
0.23
59,609
$
7,996 $
$
$
295,624
303,620
73,979 $
25,162 $
$
0.14
41,627 $
11,739 $
50,723 $
185,942
46,301
11.02
0.25
51,187
1,912
270,918
272,830
$
$
$
$
$
$
$
275,237 $
(24,654) $
$
(0.13)
156,063 $
24,317 $
173,640 $
186,659
155,180
9.59
0.83
184,922
$
$
$
$
7,996 $
$
$
295,624
303,620
266,035
3,031
284,221
47,370
262,269
1,974
274,113
45,686
249,802
2,700
266,002
44,334
2.58
49.09
17.69
0.00
(0.04)
(0.51)
(1.89)
(3.46)
11.79
$
$
$
$
2.70
49.23
$
$
2.49
49.14
16.86 $
0.00
0.74
(0.39)
(1.73)
(3.18)
12.30
$
15.53
(0.09)
1.48
(0.29)
(1.98)
(3.50)
11.15
$
$
$
$
250,604
11,119
0.06
149,240
63,937
213,734
186,040
150,378
9.89
0.81
201,086
1,912
270,918
272,830
240,959
1,491
249,905
41,651
2.47
62.12
14.62
0.07
1.86
(0.17)
(1.82)
(3.33)
11.23
(1) Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
(2) Based on basic weighted average shares outstanding.
(3) Excludes net sales of natural gas purchased from third parties.
(4) Cash provided by operating activities and cash provided by financing activities for the three months and year ended December 31, 2018 has
been adjusted to conform to the presentation adopted for the periods ended December 31, 2019.
CONTENTS
MESSAGE TO SHAREHOLDERS .......................................................................................................................................... 2
RESERVES ...................................................................................................................................................................................... 4
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS ........................................................................... 9
CONSOLIDATED FINANCIAL STATEMENTS ..............................................................................................................36
Independent Auditor’s Report ..............................................................................................................................................37
Consolidated Statements of Financial Position ..................................................................................................................41
Consolidated Statements of Comprehensive Income (Loss) ...........................................................................................42
Consolidated Statements of Changes in Shareholders’ Equity ........................................................................................43
Consolidated Statements of Cash Flows .............................................................................................................................44
Notes to the Consolidated Financial Statements ...............................................................................................................45
ADVISORY ...................................................................................................................................................................................77
Advantage Oil & Gas Ltd. - 1
MESSAGE TO SHAREHOLDERS
Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is pleased to announce its 2019 results, including
considerable progress on liquids growth, continued operational excellence of our low-cost natural gas foundation, and solid
performance on our 2019 objectives. With modern, low emissions-intensity assets and our Glacier Carbon Sequestration
project, the Corporation continues to proudly deliver clean and sustainable energy, contributing to a reduction in global
emissions by displacing high-carbon fuels.
We are proud of our Team’s 2019 achievements and thank Advantage’s Board of Directors and our shareholders for their
support. We look forward to reporting on our progress as the Team continues to execute on our liquids-focused
development plan.
Accomplishments during 2019 included:
• Record annual production of 44,334 boe/d, an increase of 6% (250 mmcf/d natural gas and 2,700 bbls/d liquids).
• Record quarterly natural gas production of 266 mmcf/d in the fourth quarter of 2019 during a period of elevated
AECO prices.
•
Increased liquids production by 81% to average 2,700 bbls/d in the fourth quarter of 2019. Liquids comprised
18% of total revenue.
• Discovery of a light oil pool at Progress, elevating the asset to a top tier investment priority. Production began in
the first quarter of 2020 above management expectations.
• Commissioned a 40 mmcf/d and 2,000 bbls/d liquids hub at our Valhalla asset, which alleviated a facility
restriction.
•
Initial production from our first well at Pipestone/Wembley in the fourth quarter of 2019.
• Achieved hedging and market diversification gains of $32 million.
•
Increased CO2e sequestration credits by 59% to 90,500 tonnes.
• Achieved operating costs of $1.98/boe.
• Delivered on 2019 plan with capital spending reduced from $225 million to $185 million.
• Proved developed producing ("PDP") reserves increased by 21%.
• PDP finding and development cost ("F&D") of $5.38/boe.
• PDP recycle ratio of 2.2.
• Proved plus probable ("2P") condensate/light oil reserves increased by 45%.
• Total 2P liquids reserves increased by 15%.
a. Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for
reconciliations to the nearest measure calculated in accordance with GAAP.
Advantage Oil & Gas Ltd. - 2
2019 Operating and Financial Results Summary
• Annual 2019 cash provided by operating activities of $156 million and adjusted funds flow(a) of $155 million or
$0.83/share
Year-end net debt(a) was $304 million on a $400 million bank credit facility, resulting in a net debt to adjusted
funds flow(a) ratio of 2.0.
Looking Forward
By the fourth quarter of 2020, Advantage anticipates that several additional critical milestones in oil development will have
been accomplished, leading to a step change in liquids production and revenue. Advantage will remain diligent in
monitoring commodity and industry trends and respond accordingly to retain a strong balance sheet while advancing our
multi-year strategy to increase exposure to high value commodities, while supplementing our low-cost, resilient natural gas
foundation.
a. Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see Advisory for
reconciliations to the nearest measure calculated in accordance with GAAP
Advantage Oil & Gas Ltd. - 3
RESERVES
Advantage engaged our independent qualified reserves evaluator Sproule Associates Ltd. (“Sproule”) to evaluate our year-
end reserves as of December 31, 2019 in accordance with National Instrument 51-101 and the Canadian Oil and Gas
Evaluation Handbook.
Reserves and production information included herein is stated on a gross working interest basis (before royalty burdens
and excluding royalty interests) unless noted otherwise. Certain tables may not add due to rounding. In addition to the
information disclosed in this annual report, more detailed information on our oil and gas reserves, including our reserves
on a net interest basis (after royalty burdens and including royalty interests) is included in Advantage's Annual Information
Form dated February 27, 2020 and is available at www.advantageog.com and www.sedar.com.
Highlights – Gross Working Interest Reserves
Proved plus probable reserves (mboe)
Net Present Value of future net revenue of 2P reserves
discounted at 10%, before tax ($000) (1)
Net Asset Value per Share discounted at 10%, before tax (2)
Reserve Life Index (proved plus probable - years) (3)
Reserves per share (proved plus probable - boe) (2)
Bank indebtedness per boe of reserves (proved plus probable)
December 31
2019
465,705
$
$
$
2,205,731
10.11
26.9
2.49
0.63
December 31
2018(4)
432,186
$
$
$
2,169,187
10.54
25.9
2.32
0.63
(1) Assumes that development of each property will occur, without regard to the likely availability to the Corporation of
funding required for that development.
(2) Based on 186.9 million shares outstanding at December 31, 2019 and 185.9 million at December 31, 2018.
(3) Based on fourth quarter average production and Corporation interest reserves.
(4) Reserves based upon an evaluation by Sproule with an effective date of December 31, 2018 contained in a report of
Sproule dated January 30, 2019 using Sproule's product price forecast effective December 31, 2018.
Corporation Gross (before royalties) Working Interest Reserves Summary as at December 31, 2019
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
Conventional
Natural Gas
(Mmcf)
Natural Gas
Liquids
(Mbbl)
Total Oil
Equivalent
(Mboe)
232
2,215
4,233
6,679
5,973
12,652
595,907
35,912
1,302,300
1,934,120
591,922
2,526,042
6,414
1,506
15,873
23,792
8,254
32,046
105,963
9,706
237,156
352,824
112,880
465,705
Proved
Developed Producing
Developed Non-producing
Undeveloped
Total Proved
Probable
Total Proved Plus Probable
(1) Tables may not add due to rounding.
Advantage Oil & Gas Ltd. - 4
Corporation Net Present Value of Future Net Revenue using Sproule price and cost forecasts(1)(2)(3)
($000)
Proved
Developed Producing
Developed Non-producing
Undeveloped
Total Proved
Probable
Total Proved Plus Probable
Before Income Taxes Discounted at
0%
10%
15%
$
$
1,725,541
213,394
2,194,028
4,132,963
2,289,288
6,422,251
$
$
909,505
125,305
473,956
1,508,766
696,966
2,205,731
$
$
741,899
105,203
201,754
1,048,856
477,451
1,526,307
(1) Advantage's light crude oil and medium crude oil, conventional natural gas and natural gas liquid reserves were
evaluated using Sproule's product price forecast effective December 31, 2019 prior to the provision for income taxes,
interests, debt services charges and general and administrative expenses. It should not be assumed that the discounted
future net revenue estimated by Sproule represents the fair market value of the reserves.
(2) Assumes that development of reserves will occur, without regard to the likely availability to the Corporation of funding
required for that development.
(3) Future Net Revenue incorporates Managements' estimates of required abandonment and reclamation costs, including
expected timing such costs will be incurred, associated with all wells, facilities and infrastructure.
(4) Table may not add due to rounding.
Advantage Oil & Gas Ltd. - 5
Sproule Price Forecasts and Assumptions
The net present value of future net revenue at December 31, 2019 was based upon light crude oil and medium crude oil,
conventional natural gas and natural gas liquids pricing assumptions prepared by Sproule effective December 31, 2019.
These forecasts are adjusted for reserves quality, transportation charges and the provision of any applicable sales contracts.
The price assumptions used over the next seven years are summarized in the table below:
WTI Cushing
Oklahoma
40o API
($US/bbl)
61.00
65.00
67.00
68.34
69.71
71.10
72.52
Edmonton
Pentanes Plus
($Cdn/bbl)
76.32
80.52
80.00
81.68
83.38
85.13
86.90
Year
2020
2021
2022
2023
2024
2025
2026
Year
2020
2021
2022
2023
2024
2025
2026
Canadian Light
Sweet Crude
Oil 40o API
($Cdn/bbl)
73.84
78.51
78.73
80.30
81.91
83.54
85.21
AECO-C Spot
($Cdn/MMbtu)
2.04
2.27
2.81
2.89
2.98
3.06
3.15
Henry Hub
($US/MMbtu)
2.80
3.00
3.25
3.32
3.38
3.45
3.52
Dawn
($Cdn/MMbtu)
3.58
3.80
3.96
4.04
4.13
4.21
4.30
Alliance
Chicago Spot
($Cdn/MMbtu)
3.58
3.80
3.96
4.04
4.13
4.21
4.30
Edmonton
Butane
($Cdn/bbl)
37.72
43.90
47.74
48.69
49.67
50.66
51.67
Edmonton
Propane
($Cdn/bbl)
25.07
31.84
32.43
33.26
34.12
34.99
35.88
Operating
Cost Inflation
Rate
%/year
-
1.0
2.0
2.0
2.0
2.0
2.0
Capital Cost
Inflation Rate
%/year
-
1.0
2.0
2.0
2.0
2.0
2.0
Exchange
Rate
($US/$Cdn)
0.76
0.77
0.80
0.80
0.80
0.80
0.80
Net Asset Value using Sproule price and cost forecasts (Before Income Taxes)
The following net asset value ("NAV") table shows what is normally referred to as a "produce-out" NAV calculation under
which the current value of the Corporation’s reserves would be produced at forecast future prices and costs. The value is
a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary
over time
($000, except per share amounts)
Net asset value per share (1) - December 31, 2018
Present value proved and probable reserves
Undeveloped land (2)
Working capital and other (3)(4)
Bank indebtedness
Net asset value - December 31, 2019
Net asset value per share (1) - December 31, 2019
$
$
$
Before Income Taxes Discounted at
0%
31.85
10%
10.54
15%
6.94
$
$
6,422,251 $
20,703
(40,280)
(295,624)
6,107,050
32.67
$
2,205,731
20,703
(40,280)
(295,624)
1,890,530
10.11
$
$
1,526,307
20,703
(40,280)
(295,624)
1,211,106
6.48
(1) Based on 186.9 million shares outstanding at December 31, 2019 and 185.9 million at December 31, 2018.
(2) The value of undeveloped land is based on book value.
(3) Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see
"Non-GAAP Measures".
(4) Other is calculated as current and non-current derivative asset less current and non-current derivative liability.
Advantage Oil & Gas Ltd. - 6
Corporation Gross (before royalties) Working Interest Reserves Reconciliation
Proved
Opening balance December 31, 2018
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions (3)
Dispositions
Economic factors (4)
Production
Light Crude Oil
and Medium
Crude Oil (5)
(Mbbl)
3,011
3,473
215
-
-
-
(5)
(15)
Conventional
Natural Gas
(Mmcf)
1,777,022
28,996
219,310
-
12
-
(42)
(91,178)
Natural Gas
Liquids (6)
(Mbbl)
25,884
3,181
(4,293)
-
40
-
(49)
(970)
Total Oil
Equivalent
(Mboe)
325,065
11,487
32,474
-
42
-
(61)
(16,182)
Closing balance at December 31, 2019
6,679
1,934,120
23,792
352,824
Proved Plus Probable
Opening balance December 31, 2018
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions (3)
Dispositions
Economic factors (4)
Production
Light Crude Oil
and Medium
Crude Oil (5)
(Mbbl)
4,404
9,390
(1,122)
-
-
-
(5)
(15)
Conventional
Natural Gas
(Mmcf)
2,360,157
73,771
183,318
-
18
-
(44)
(91,178)
Natural Gas
Liquids (6)
(Mbbl)
34,423
6,019
(7,454)
-
59
-
(31)
(970)
Total Oil
Equivalent
(Mboe)
432,186
27,704
21,977
-
62
-
(43)
(16,182)
Closing balance at December 31, 2019
12,652
2,526,042
32,046
465,705
(1) Extensions and improved recovery accounted for 26% of the total proved additions and 56% of the total proved plus
probable additions. Extensions and improved recovery changes were the result of wells drilled in 2019.
(2) Technical revisions accounted for 74% of the total proved additions and 44% of the total proved plus probable
additions. The technical revisions were a result of stronger well performance than forecasted in the prior year and
reduced NGL yields.
(3) Acquisitions were a result of land swaps completed in 2019.
(4) Economic factor changes were primarily related to lower forecasted prices for conventional natural gas and associated
NGLs.
(5) Light crude oil and medium crude oil includes condensate.
(6) The Corporation’s closing proved plus probable NGLs contains 49% of pentanes plus.
Advantage Oil & Gas Ltd. - 7
Corporation Finding and Development Cost (“F&D”)
Corporation 2019 F&D Cost – Gross (before royalties) Working Interest Reserves Including Future
Development Capital(1)(2)(3)
Net capital expenditures ($000)(4)
Net change in Future Development Capital ($000)
Total capital ($000)
Total mboe, end of year
Total mboe, beginning of year
Production, mboe
Reserve additions, mboe
2019 F&D cost ($/boe)
2018 F&D cost ($/boe)
Three-year average F&D cost ($/boe)
$
$
$
$
Proved
184,922
2,402
187,324
352,824
325,065
16,182
43,941
4.26
8.33
5.97
Proved
Plus Probable
184,922
110,096
295,018
465,705
432,186
16,182
49,701
5.94
8.04
6.03
$
$
$
$
(1) F&D cost is calculated by dividing total capital by reserve additions during the applicable period. Total capital includes
both capital expenditures incurred and changes in FDC required to bring the proved undeveloped and probable
reserves to production during the applicable period. Reserve additions is calculated as the change in reserves from the
beginning to the ending of the applicable period excluding production.
(2) The aggregate of the exploration and development costs incurred in the most recent financial year and the change
during that year in estimated FDC generally will not reflect total finding and development costs related to reserves
additions for that year. Changes in forecast FDC occur annually as a result of development activities, acquisition and
disposition activities and capital cost estimates that reflect Sproule’s best estimate of what it will cost to bring the
proved undeveloped and probable reserves on production.
(3) The change in FDC is primarily from incremental undeveloped locations.
(4) Non-GAAP Measure which may not be comparable to similar non-GAAP measures used by other entities. Please see
"Non-GAAP Measures".
Advantage Oil & Gas Ltd. - 8
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
For the three months and years ended December 31, 2019 and 2018
Advantage Oil & Gas Ltd. - 9
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”), dated as of February 27, 2020, provides a detailed
explanation of the consolidated financial and operating results of Advantage Oil & Gas Ltd. (“Advantage”, the
“Corporation”, “us”, “we” or “our”) for the three months and year ended December 31, 2019 and should be read in
conjunction with the December 31, 2019 audited consolidated financial statements. The consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”), representing generally
accepted accounting principles (“GAAP”) for publicly accountable enterprises in Canada. All references in the MD&A and
consolidated financial statements are to Canadian dollars unless otherwise indicated.
This MD&A contains non-GAAP measures and forward-looking information. Readers are advised to read this MD&A in
conjunction with both the “Non-GAAP Measures” and “Forward-Looking Information and Other Advisories” found at
the end of this MD&A.
Financial Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Sales including realized derivatives (3)
Net income (loss) and comprehensive income (loss)
per basic share (2)
Cash provided by operating activities (4)
Cash provided by financing activities (4)
Cash used in investing activities
Basic weighted average shares (000)
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1) (2)
Net capital expenditures (1)
Working capital deficit (1)
Bank indebtedness
Net debt (1)
$
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended
December 31
2019
2018
Year ended
December 31
2019
2018
76,921 $
(1,844) $
(0.01) $
39,965 $
20,037 $
50,365 $
186,911
73,979 $
25,162 $
0.14 $
41,627 $
11,739 $
50,723 $
185,942
275,237 $
(24,654) $
(0.13) $
156,063 $
24,317 $
173,640 $
186,659
$
44,452
$
10.20
$
0.23
59,609
$
7,996 $
$
$
295,624
303,620
46,301
$
11.02 $
0.25 $
51,187 $
1,912 $
270,918 $
272,830 $
155,180
9.59
0.83
184,922
$
$
$
$
7,996 $
$
$
295,624
303,620
250,604
11,119
0.06
149,240
63,937
213,734
186,040
150,378
9.89
0.81
201,086
1,912
270,918
272,830
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
(2) Based on basic weighted average shares outstanding.
(3) Excludes net sales of natural gas purchased from third parties.
(4) Cash provided by operating activities and cash provided by financing activities for the three months and year ended December 31, 2018 has been
adjusted to conform to the presentation adopted for the periods ended December 31, 2019.
Advantage Oil & Gas Ltd. - 10
Operating Highlights
Operating
Daily Production
Natural gas (mcf/d)
Liquids (bbls/d)
Total production (mcfe/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/mcf) (2)
Liquids ($/bbl)
Operating Netback ($/boe)
Sales of natural gas and liquids from production
Net sales of natural gas purchased from third parties (1)
Realized gains (losses) on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Three months ended
December 31
2019
2018
Year ended
December 31
2019
2018
266,035
3,031
284,221
47,370
262,269
1,974
274,113
45,686
249,802
2,700
266,002
44,334
240,959
1,491
249,905
41,651
$
$
$
$
2.58
49.09
$
$
2.70
49.23
17.69 $
0.00
(0.04)
(0.51)
(1.89)
(3.46)
11.79
$
16.86
0.00
0.74
(0.39)
(1.73)
(3.18)
12.30
$
$
$
$
2.49
49.14
$
$
2.47
62.12
15.53 $
(0.09)
1.48
(0.29)
(1.98)
(3.50)
11.15
$
14.62
0.07
1.86
(0.17)
(1.82)
(3.33)
11.23
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see “Non-GAAP Measures”.
(2) Excludes net sales of natural gas purchased from third parties.
Advantage Oil & Gas Ltd. - 11
Natural Gas and Liquids Sales
Three months ended
December 31
($000)
Natural gas sales (1)
Realized gains (losses) on derivatives
Natural gas sales including derivatives
Liquids sales
Realized gains on derivatives
Liquids sales including derivatives
Sales including realized derivatives
$
$
$
$
2019
63,784 $
(552)
63,232 $
%
change
2018
61,917
3,121 (118) %
65,038
3 % $ 203,223 $ 188,528
28,269
23,587
(3) % $ 226,810 $ 216,797
Year ended
December 31
2019
2018
%
change
8 %
(17) %
5 %
13,318
371
13,689 $
8,941
-
8,941
49 %
nm
53 % $
48,056
371
48,427 $
33,807
-
33,807
42 %
nm
43 %
76,921 $
73,979
4 % $ 275,237 $ 250,604
10 %
(1) Excludes net sales of natural gas purchased from third parties and unrealized derivative gains and losses.
Sales Including Realized Derivatives
$73,378
9%
91%
$57,928
19%
81%
$45,319
15%
85%
$81,372
12%
$73,979
12%
88%
88%
$60,017
20%
$56,927
23%
80%
77%
$76,921
18%
82%
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Natural gas sales including derivatives ($000)
Liquids sales including derivatives ($000)
Sales including realized derivatives ($000)
Advantage’s natural gas and liquids sales including realized gains (losses) on derivatives was $76.9 million for the three
months ended December 31, 2019, a 4% increase to the same period of 2018, primarily attributed to the Corporation’s
increased liquids production. Natural gas and liquids sales including realized gains (losses) on derivatives, for the year ended
December 31, 2019, was $275.2 million, a 10% increase as compared to 2018, as a result of the Corporation’s continued
progression on both gas and liquids production (see “Production”).
Advantage increased natural gas production during the fourth quarter of 2019 in response to increased AECO pricing (see
“Production”), resulting in a 92% increase in natural gas sales, when compared to the third quarter of 2019. For the year
ended December 31, 2019, natural gas sales increased $14.7 million or 8% as a result of higher natural gas production.
Advantage continues to focus on market diversification and hedging which has strengthened and enhanced our natural gas
sales.
Liquids sales for the three months and year ended December 31, 2019 increased by $4.4 million or 49% and $14.2 million
or 42%, respectively, as a result of significantly increased liquids production, partially offset by weaker realized liquids prices.
Liquids contributed 18% of total revenue for the year ended December 31, 2019, including realized gains (losses) on
derivatives.
Realized gains (losses) on derivatives during the three months and year ended December 31, 2019 were $(0.2) million and
$24.0 million, respectively. Realized gains (losses) on derivatives and changes from prior periods are the result of differences
in natural gas and liquids prices, and contracts outstanding during the three months and year ended December 31, 2019
and 2018 (see “Commodity Price Risk Management and Market Diversification”).
Advantage Oil & Gas Ltd. - 12
Production
Natural gas (mcf/d)
Liquids (bbls/d)
Total production - mcfe/d
- boe/d
Natural gas (%)
Liquids (%)
Three months ended
December 31
2019
266,035
3,031
284,221
47,370
94 %
6 %
2018
262,269
1,974
274,113
45,686
96 %
4 %
%
change
1 %
54 %
4 %
4 %
Average Daily Production
Year ended
December 31
2019
249,802
2,700
266,002
44,334
94 %
6 %
2018
240,959
1,491
249,905
41,651
96 %
4 %
%
change
4 %
81 %
6 %
6 %
5,000
4,000
3,000
2,000
1,000
0
d
/
s
l
b
b
232
206
263
262
257
1,105
1,067
1,804
1,974
2,030
242
234
3,142
3,031
266
2,580
Q1 18
Q2 18
Q3 18
Q4 18
Liquids production (bbls/d)
Q1 19
Q2 19
Natural gas production (mmcf/d)
Q3 19
Q4 19
270
180
90
0
d
/
f
c
m
m
Advantage achieved record total production for the three months and year ended December 31, 2019, increasing 4% and
6% respectively over the comparative periods of 2018. The increase in total production was primarily attributed to liquids
production from successful well results at east Glacier and Valhalla, including commencement of our new compressor and
liquids handling facility at Valhalla in the first half of 2019, along with initial production from Advantage’s first
Pipestone/Wembley 12-25 well beginning in the fourth quarter of 2019. Liquids production for the three months and year
ended December 31, 2019 increased 54% and 81%, respectively, as compared to the same periods of 2018. Advantage’s
development plan continues our greater focus on liquids-rich development in our Progress and Pipestone/Wembley light
oil assets that is planned to enhance and diversify our production, revenues and cash provided by operating activities.
During the fourth quarter of 2019, the Corporation increased natural gas production and throughput at our 100% owned
Glacier Gas Plant following the implementation of operational changes on the NGTL system (Temporary Service
Protocol). By shutting-in approximately 10 mmcf/d of production in the second and third quarters of 2019 when AECO
prices were low, the Corporation was able to bring these volumes online in the fourth quarter at a higher AECO price.
Advantage Oil & Gas Ltd. - 13
Commodity Prices and Marketing
Average Realized Prices
Natural gas
Excluding derivatives ($/mcf)(1)
Including derivatives ($/mcf)(1)
Liquids
Excluding derivatives ($/bbl)
Including derivatives ($/bbl)
Average Benchmark Prices
Natural Gas
AECO daily ($/mcf)
AECO monthly ($/mcf)
Dawn daily ($US/mmbtu)
Chicago Citygate ($US/mmbtu)
Henry Hub ($US/mmbtu)
Oil
WTI ($US/bbl)
MSW Edmonton ($/bbl)
Three months ended
December 31
2019
2018
%
change
Year ended
December 31
2019
2018
%
change
$
$
$
$
$
$
$
$
$
$
$
2.61 $
2.58 $
2.57
2.70
47.76 $
49.09 $
49.23
49.23
1 %
(4) %
(3) %
- %
$
$
2.23
2.49
$
$
2.14
2.47
4 %
1 %
$ 48.76
$ 49.14
$ 62.12
$ 62.12
(22) %
(21) %
2.47 $
2.33 $
2.23 $
2.51 $
2.34 $
1.56
1.90
3.78
3.62
3.65
58 %
23 %
(41) %
(31) %
(36) %
$
$
$
$
$
1.75
1.62
2.40
2.53
2.51
$
$
$
$
$
1.50
1.53
3.13
3.05
3.08
17 %
6 %
(23) %
(17) %
(19) %
56.96 $
66.89 $
59.10
48.27
(4) %
39 %
$ 56.99
$ 69.22
$ 64.96
$ 69.15
(12) %
- %
Average Exchange rate (US$/CDN$)
0.7576
0.7569
- %
0.7537
0.7717
(2) %
(1) Excludes net sales of natural gas purchased from third parties.
Advantage’s realized natural gas price excluding derivatives for the three months and year ended December 31, 2019
increased 1% to $2.61/mcf and 4% to $2.23/mcf, respectively, as compared to the same periods of 2018. This increase
was primarily attributed to increased AECO prices and increased Chicago Citygate sales arrangements, offset by decreased
prices in the Dawn market. Additionally, the Corporation’s strategy of ramping up natural gas production as AECO prices
increased in the fourth quarter of 2019 further strengthen our realized natural gas price for the year ended December 31,
2019 (see “Production”).
Advantage sells natural gas into the AECO, Dawn and Chicago markets. Both of the Dawn and Chicago markets have
generated higher realized prices as compared to AECO for the year ended December 31, 2019. Advantage’s firm
transportation service to Dawn of 52,700 mcf/d is a ten-year commitment and represents approximately 21% of our current
natural gas production. The Dawn market has provided the Corporation with physical market diversification and exposure
to higher prices, net of associated transportation expense (see “Transportation Expense”). Starting November 1, 2018,
Advantage entered into sales arrangements for 20,000 mcf/d at Chicago Citygate prices, net of a fixed differential, that
increased to 40,000 mcf/d in April 2019, which represents approximately 14% of our current natural gas production.
Realized liquids prices excluding derivatives decreased by 3% and 22% for the three months and year ended December 31,
2019, respectively, compared to the same periods of the prior year. The decrease has been primarily a result of lower WTI
prices and the underlying price differential on which many of our contracts are based. Advantage’s current liquids mix is
comprised of 71% pentanes, condensate and light oil, which generally attract higher market prices than our other natural
gas liquids.
Advantage Oil & Gas Ltd. - 14
Commodity Price Risk Management and Market Diversification
The Corporation’s financial results and condition are impacted primarily by the prices received for natural gas and liquids
production. Natural gas and liquids prices can fluctuate widely and are determined by supply and demand factors, including
available access to transportation, weather, general economic conditions in consuming and producing regions throughout
North America and political factors. Management has been proactive in entering into derivative contracts for the purposes
of reducing the volatility of cash provided by operating activities in support of our Montney development plans.
Advantage’s Credit Facilities (as defined herein) allow us to enter into fixed price derivative contracts on up to 75% of total
estimated natural gas and liquids production over the first three years and up to 50% over the fourth and fifth years. In
addition, the Credit Facilities allow us to enter into basis swap arrangements to any natural gas price point in North America
for up to 100,000 mmbtu/d with a maximum term of seven years. Basis swap arrangements are excluded from hedged
production limits.
Our natural gas production and corresponding derivative contracts resulted in the realization of the following fixed market
prices and variable market exposures for 2019:
January 1 to December 31, 2019
Volumes Contracted
(mmcf/d)(1)
Average Minimum Price
% of
Estimated Production
Fixed Price
AECO fixed price swaps
Dawn fixed price swaps
Variable Price
AECO physical
Dawn physical
Chicago physical
AECO / Henry Hub basis swaps
Total Natural Gas
93.7
24.6
118.3
63.4
28.1
35.0
5.0
131.5
249.8
$2.11/mcf
US$2.96/mcf (2)
AECO
Dawn (2)
Chicago less US$1.19/mcf
Henry Hub less US$0.95/mcf
38 %
10 %
48 %
25 %
11 %
14 %
2 %
52 %
100 %
(1) All volumes contracted converted to mcf on the basis of 1 mcf = 1.055056 GJ and 1 mcf = 1 mmbtu.
(2) Transportation under our firm commitment from AECO to Dawn is approximately $1.10/mcf.
Advantage Oil & Gas Ltd. - 15
Commodity Price Risk Management and Market Diversification (continued)
Our natural gas production and corresponding derivative contracts are expected to result in the realization of the following
fixed market prices and variable market exposures for 2020:
January 1 to December 31, 2020
Volumes Contracted
(mmcf/d)(1)
Average Minimum Price
% of
Estimated Production
Fixed Price
AECO fixed price swaps
Dawn fixed price swaps
Midwest fixed price swaps
Variable Price
AECO physical
Dawn physical
Empress physical
Emerson physical
Midwest physical
Total Natural Gas (6)
$1.62/mcf
US$3.15/mcf (2)
Henry Hub less US$1.07/mcf
AECO
Dawn (2)
Empress (3)
Emerson (4)
Chicago, Ventura & Henry
Hub less differentials (5)
42.7
2.5
50.0
95.2
45.4
50.2
4.2
4.5
40.0
144.3
239.5
18 %
1 %
21 %
40 %
18 %
21 %
2 %
2 %
17 %
60 %
100 %
(1) All volumes contracted converted to mcf on the basis of 1 mcf = 1.055056 GJ and 1 mcf = 1 mmbtu.
(2) Transportation under our firm commitment from AECO to Dawn is approximately $1.10/mcf.
(3) Transportation under our firm commitment from AECO to Empress is approximately $0.18/mcf.
(4) Transportation under our firm commitment from Empress to Emerson is approximately $0.63/mcf.
(5) Refer to the Corporation’s website for details on differentials: http://www.advantageog.com/investors/hedging.
(6) Represents the midpoint of our guidance for 2020 natural gas volumes (see News Release dated January 8, 2020).
A summary of realized and unrealized derivative gains and losses for the three months and year ended December 31, 2019
and 2018 are as follows:
($000)
Realized gains (losses) on derivatives
Unrealized gains (losses) on derivatives
Gains (losses) on derivatives
Three months ended
December 31
Year ended
December 31
2019
(181) $
(16,867)
(17,048) $
2018
2019
2018
3,121 $
22,722
25,843 $
23,958 $
(73,904)
(49,946) $
28,269
(9,139)
19,130
$
$
For the year ended December 31, 2019, Advantage recognized realized gains on derivatives due to the settlement of
contracts with average derivative contract prices that were above average market prices. For the three months and year
ended December 31, 2019, Advantage recognized unrealized losses on derivatives of $16.9 million and $73.9 million,
respectively, resulting from a decrease in the fair value of our future derivative contracts to a net liability of $32.3 million,
compared to a net asset of $41.6 million at December 31, 2018. The decrease in the fair value of our outstanding derivative
contracts during 2019 was attributable to the change in valuation of the derivative contracts due to strengthening AECO
natural gas prices and weakening of Henry Hub, tightening of the AECO/ Henry Hub basis, and $24.0 million of actual
cash received from derivative settlements. The fair value of the net derivative asset or liability is the estimated value to settle
the outstanding contracts as at a point in time. As such, unrealized derivative gains and losses do not impact adjusted funds
flow and the actual gains or losses realized on eventual cash settlement can vary materially due to subsequent fluctuations
in commodity prices as compared to the valuation assumptions. Remaining derivative contracts will settle between January
1, 2020 and December 31, 2024.
Advantage Oil & Gas Ltd. - 16
Sales of Natural Gas Purchased from Third Parties
Three months ended
December 31
2019
2018
%
change
Year ended
December 31
2019
2018
%
change
Sales of natural gas purchased from third
parties ($000)
Natural gas purchased from third
parties ($000)
Net sales of natural gas purchased
from third parties ($000)
per boe
$
$
$
$
-
-
-
-
$
$
-
-
-
-
- %
$
857
$
5,078
(83) %
- %
(2,362)
(3,967)
(40) %
$
- %
- % $
$
(1,505)
(0.09) $
1,111
0.07
(235) %
(229) %
Advantage infrequently purchases natural gas volumes from third parties to satisfy physical delivery commitments during
brief plant outages. During the year ended December 31, 2019, Advantage realized $0.9 million of revenue from the sale
of purchased natural gas while the natural gas volumes were purchased for a total of $2.4 million. During year ended
December 31, 2018, Advantage had a scheduled plant expansion shutdown and purchased $4.0 million of natural gas
volumes from third parties while realizing $5.1 million of revenue from the sale of this purchased natural gas.
Royalty Expense
Royalty expense ($000)
per boe
Royalty rate (percentage of natural gas
and liquids sales)
Three months ended
December 31
2019
2,231 $
0.51 $
2018
1,654
0.39
$
$
%
change
35 % $
31 % $
Year ended
December 31
2019
4,690 $
0.29 $
2018
2,583
0.17
%
change
82 %
71 %
2.9 %
2.3 %
0.6 %
1.9 %
1.2 %
0.7 %
Advantage pays royalties to the owners of mineral rights from which we have mineral leases. The Corporation has mineral
leases with provincial governments, individuals and other companies. Our current average royalty rates are determined by
various royalty regimes that incorporate factors including well depths, completion data, well production rates, and
commodity prices. Royalties also include the impact of Gas Cost Allowance (“GCA”) which is a reduction of royalties
payable to the Alberta Provincial Government (the “Crown”) to recognize capital and operating expenditures incurred by
Advantage in the gathering and processing of the Crown’s share of our natural gas production.
Royalty expense for the three months and year ended December 31, 2019 increased due to higher sales attributable to the
increase in both natural gas and liquids production when compared to the same periods in 2018. Royalty expense for the
year ended December 31, 2019 additionally had a more significant increase as a result of a larger refund received for GCA
adjustments in 2018. The slight increase in royalty rates was primarily due to increased liquids production. Advantage’s
corporate royalty rate has continued to remain low due to GCA received from the Crown.
Advantage Oil & Gas Ltd. - 17
Operating Expense
Operating expense ($000)
per boe
Three months ended
December 31
2019
8,225 $
1.89 $
2018
7,262
1.73
$
$
%
change
13 % $
9 % $
Year ended
December 31
2018
27,593
1.82
2019
31,967 $
1.98 $
%
change
16 %
9 %
Operating expense for the three months and year ended December 31, 2019 increased to $8.2 million and $32.0 million
compared to the respective periods of 2018. The increase in total operating expense was attributable to a higher number
of producing wells, commissioning of our new Valhalla liquids handling hub, and initial production at Pipestone/Wembley.
With our continuing liquid-rich development in our new asset areas, we anticipate operating expense will increase with
higher liquids production, additional Advantage owned infrastructure at Pipestone/Wembley and Progress, and processing
of Pipestone/Wembley production at third-party facilities.
Operating expense per boe for the three months and year ended December 31, 2019 was $1.89 and $1.98, respectively. The
higher operating costs per boe were in-line with Advantage’s guidance expectations of cost associated with increased liquids
production. Advantage expects to maintain low operating expense per boe while continuing to progress development of
our high-return liquids projects which is anticipated to enhance netbacks.
Transportation Expense
Natural gas ($000)
Liquids ($000)
Total transportation expense ($000)
per boe
Three months ended
December 31
2019
13,148 $
1,924
15,072 $
3.46 $
2018
11,805
1,545
13,350
3.18
$
$
$
%
change
11 % $
25 %
13 % $
9 % $
Year ended
December 31
2019
49,990 $
6,617
56,607 $
3.50 $
2018
45,930
4,764
50,694
3.33
%
change
9 %
39 %
12 %
5 %
Transportation expense represents the cost of transporting our natural gas and liquids to the sales points, including
associated fuel costs. Transportation expense for the three months and year ended December 31, 2019 increased by 13%
and 12% respectively, compared to the same periods of 2018. The increase in total transportation expense was attributable
to increased natural gas and liquids production and associated firm commitments (see “Production” and “Commodity Price
Risk Management and Market Diversification”).
Advantage Oil & Gas Ltd. - 18
Operating Netback
Three months ended
December 31
2019
2018
Sales of natural gas and liquids from production
Net sales of natural gas purchased from third parties (1)
Realized gains (losses) on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
$000
77,102
-
(181)
(2,231)
(8,225)
(15,072)
51,393
$
$
per boe
$
17.69 $
-
(0.04)
(0.51)
(1.89)
(3.46)
11.79 $
$000
70,858
-
3,121
(1,654)
(7,262)
(13,350)
51,713 $
per boe
16.86
$
-
0.74
(0.39)
(1.73)
(3.18)
12.30
$
Year ended
December 31
2019
2018
Sales of natural gas and liquids from production
Net sales of natural gas purchased from third parties (1)
Realized gains on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
$000
$ 251,279
(1,505)
23,958
(4,690)
(31,967)
(56,607)
$ 180,468 $
per boe
$
$000
15.53 $ 222,335
1,111
(0.09)
28,269
1.48
(2,583)
(0.29)
(27,593)
(1.98)
(50,694)
(3.50)
11.15 $ 170,845 $
per boe
14.62
$
0.07
1.86
(0.17)
(1.82)
(3.33)
11.23
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
Advantage’s operating netback for the three months ended December 31, 2019 was $51.4 million or $11.79/boe, which
was comparable to the same period in 2018.
For the year ended December 31, 2019, Advantage’s operating netback was $180.5 million or $11.15/boe, an increase of
$9.6 million compared to the same period in 2018. Advantage recognized a significant increase in sales of natural gas and
liquids as a result of increased production, particularly the focus on liquids-rich development, and revenue enhancements
through market diversification (see “Commodity Price Risk Management and Market Diversification”). The increased
operating netback was offset by decreased realized gains on derivatives (see “Commodity Price Risk Management and
Market Diversification”) and slightly higher cost primarily associated with increased liquids production.
Advantage Oil & Gas Ltd. - 19
General and Administrative Expense
General and administrative expense ($000)
per boe
Employees at December 31
Three months ended
December 31
2019
$
$
3,456 $
0.79 $
2018
2,083
0.50
%
change
Year ended
December 31
2019
2018
66 % $ 11,802 $
0.73 $
58 % $
38
8,873
0.58
32
%
change
33 %
26 %
19 %
General and administrative (“G&A”) expense for the three months and year ended December 31, 2019 increased primarily
due to an increase in number of head office and field employees during the year and the implementation of a new cash-
based Performance Award Incentive plan. For the year ended December 31, 2019, the Corporation made lease payments
in the amount of $0.5 million, which are no longer recorded under G&A as a result of adopting IFRS 16 – Leases on
January 1, 2019.
Share-based Compensation
Share-based compensation ($000)
Capitalized ($000)
Share-based compensation expense ($000) $
per boe
$
$
Three months ended
December 31
2019
2,434 $
(898)
1,536 $
$
0.35
2018
2,190
(813)
1,377
0.33
%
change
11 % $
10 %
12 % $
6 % $
Year ended
December 31
2019
8,556 $
(3,157)
5,399 $
$
0.33
2018
8,208
(3,046)
5,162
0.34
%
change
4 %
4 %
5 %
(3) %
The Corporation’s current long-term compensation plan to employees consists of a balanced approach between a cash-
based Performance Award Incentive Plan (see “General and Administrative Expense”) and a share-based Restricted and
Performance Award Incentive Plan. Under the Restricted and Performance Award Incentive Plan, Performance Share
Units are granted to service providers of Advantage to align the interests of these individuals with those of shareholders.
Capitalized share-based compensation is attributable to personnel involved with the development of the Corporation’s
capital projects. The Corporation recognized $5.4 million of share-based compensation expense during the year ended
December 31, 2019 and capitalized $3.2 million. The slight increase as compared to 2018 was primarily attributed to an
increase in staff during the year, partially offset by a reduction due to allocating a portion of annual long-term compensation
grants to the new cash-based Performance Award Incentive Plan.
Finance Expense
Cash expense ($000)
per boe
Accretion expense ($000)
Total finance expense ($000)
per boe
Three months ended
December 31
2019
3,426 $
0.79 $
243
3,669 $
0.84 $
$
$
$
$
2018
3,068
0.73
236
3,304
0.79
%
change
12 % $
8 % $
3 %
11 % $
6 % $
Year ended
December 31
2019
13,513 $
0.84 $
936
14,449 $
0.89 $
2018
10,827
0.71
1,030
11,857
0.78
%
change
25 %
18 %
(9) %
22 %
14 %
Advantage realized higher cash finance expense during the three months and year ended December 31, 2019 due to higher
average outstanding bank indebtedness. As anticipated in our development plan, Advantage’s average bank debt was higher
as compared to 2018 but the Corporation continues to maintain a strong balance sheet. Advantage’s interest rates are
primarily based on short-term bankers’ acceptance rates plus a stamping fee and determined by net debt to the trailing four
quarters Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio as calculated pursuant to our
Credit Facilities.
Advantage Oil & Gas Ltd. - 20
Depreciation Expense
Depreciation expense ($000)
per boe
Three months ended
December 31
2019
25,865 $
5.93 $
2018
33,065
7.87
$
$
Year ended
December 31
%
change
2019
(22) % $ 119,474 $ 119,042
7.83
(25) % $
7.38 $
2018
%
change
- %
(6) %
Depreciation of natural gas and liquids properties is provided on the units-of–production method based on total proved
and probable reserves, including future development costs, on a component basis. The rate of depreciation expense per
boe has decreased during 2019 due to the continued efficiency of our reserve additions.
Taxes
Income tax expense (recovery) ($000)
Three months ended
December 31
2019
1,863 $
$
2018
9,632
%
change
(81) % $
Year ended
December 31
2019
(19,879) $
2018
5,841
%
change
(440) %
Deferred income taxes arise from differences between the accounting and tax bases of our assets and liabilities. For the
year ended December 31, 2019, the Corporation recognized a deferred income tax recovery of $19.9 million as a result of
a loss before tax, and the Job Creation Tax Cut Act (“Bill 3”). Bill 3 was enacted during the second quarter of 2019 by the
Alberta Government and decreased the Corporation’s provincial corporate tax rate to 11% (from 12%) on July 1, 2019,
with a further 1% rate reductions every year on January 1 until the provincial corporate tax rate is 8% on January 1, 2022.
As at December 31, 2019, the Corporation had a deferred income tax liability of $58.5 million.
The estimated tax pools available at December 31, 2019 are as follows:
($ millions)
Canadian development expenses
Canadian exploration expenses
Canadian oil and gas property expenses
Non-capital losses
Undepreciated capital cost
Capital losses
Scientific research and experimental development expenditures
Other
$
$
212.4
67.4
14.3
746.7
283.4
157.9
32.5
7.4
1,522.0
Advantage Oil & Gas Ltd. - 21
Net Income (Loss) and Comprehensive Income (Loss)
Three months ended
December 31
2019
2018
%
change
Year ended
December 31
2019
2018
%
change
Net income (loss) and comprehensive
income (loss) ($000)
per share - basic
per share - diluted
$
$
$
$
(1,844)
(0.01) $
(0.01) $
25,162
(107) %
$
0.14 (107) % $
0.13 (108) % $
(24,654)
$
(0.13) $
(0.13) $
11,119
0.06
0.06
(322) %
(317) %
(317) %
Advantage recognized a net loss of $1.8 million and $24.7 million for the three months and year ended December 31, 2019,
respectively. The decreases in net income (loss) and comprehensive income (loss) were primarily due to unrealized losses
on derivatives. Advantage recognized unrealized losses on derivatives for the year ended December 31, 2019 of $73.9
million. Unrealized derivative gains and losses do not impact adjusted funds flow and the actual gains or losses realized on
eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices as compared to the
valuation assumptions (see “Commodity Price Risk Management and Market Diversification”). Excluding unrealized losses
on derivatives and deferred income taxes that can create income volatility, Advantage’s earnings for the year ended
December 31, 2019 would have been $29.4 million, 13% higher than 2018 of $26.1 million. Advantage has continued to
deliver strong operating and financial results during periods of significant commodity price volatility as a result of market
diversification, commodity price risk management and maintaining low costs.
Advantage Oil & Gas Ltd. - 22
Cash Provided by Operating Activities and Adjusted Funds Flow
($000, except as otherwise indicated)
Cash provided by operating activities
Expenditures on decommissioning liability
Changes in non-cash working capital
Adjusted funds flow (1)
Adjusted funds flow per share (1)
Three months ended
December 31
Year ended
December 31
2019
39,965 $
85
4,402
44,452 $
$
0.23
2018
41,627 $
1,045
3,629
46,301 $
0.25 $
2019
156,063 $
1,911
(2,794)
155,180 $
$
0.83
2018
149,240
1,782
(644)
150,378
0.81
$
$
$
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
For the three months and year ended December 31, 2019, Advantage realized adjusted funds flow of $44.4 million or
$0.23/share and $155.2 million or $0.83/share, respectively. Advantage realized higher adjusted funds flow for the year
ended December 31, 2019 as a result of higher production including increased liquids, and stronger realized natural gas
prices including revenue enhancements through market diversification. These increases were offset by lower realized gains
on derivatives (see “Commodity Price Risk Management and Market Diversification”) and higher cost associated with
increased liquids production (see “Operating Netback”).
Change in Adjusted Funds Flow
(Year ended December 31, 2019)
Increase
Decrease
14,623
14,321
4,311
2,616
2,107
4,374
5,913
2,929
2,686
794
150,378
155,180
180,000
160,000
140,000
)
0
0
0
$
(
120,000
100,000
(1) The change in sales of natural gas and liquids from production related to the change in production is determined by multiplying the prior year
realized price by current year production.
(2) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
(3) Finance expense excludes accretion of decommissioning liability.
(4) Other includes other income, settlement of performance share units and unrealized gains on foreign exchange.
Advantage Oil & Gas Ltd. - 23
Contractual Obligations and Commitments
The Corporation has contractual obligations in the normal course of operations including purchases of assets and services,
operating agreements, transportation and processing commitments, sales contracts and bank indebtedness. These
obligations are of a recurring and consistent nature and impact the Consolidated Statement of Cash Flows in an ongoing
manner. The following table is a summary of the Corporation’s remaining contractual obligations and commitments.
Advantage has no guarantees or off-balance sheet arrangements other than as disclosed.
($ millions)
Building operating cost (1)
Processing
Transportation
Bank indebtedness (2)
- principal
- interest
Total contractual obligations
Total
2020
Payments due by period
2023
2022
2021
2024
$
3.1 $
64.6
521.7
0.4 $
1.1
47.0
0.4 $
3.9
53.9
0.4 $
8.5
62.0
0.4 $
8.5
57.0
Beyond
1.1
34.1
248.6
0.4 $
8.5
53.2
295.6
17.2
$ 902.2 $
295.6
5.6
-
11.6
60.1 $ 359.4 $
-
-
70.9 $
-
-
65.9 $
-
-
-
-
62.1 $ 283.8
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability.
(2) As at December 31, 2019 the Corporation’s bank indebtedness was governed by a credit facility agreement with a syndicate of financial
institutions. Under the terms of the agreement, the facility is reviewed semi-annually, with the next review scheduled in April 2020. The facility
is revolving and extendible at each annual review for a further 364-day period at the option of the syndicate. If not extended, the credit facility is
converted at that time into a one-year term facility, with the principal payable at the end of such one-year term. Management fully expects that
the facility will be extended at each annual review.
Liquidity and Capital Resources
The following table is a summary of the Corporation’s capitalization structure:
($000, except as otherwise indicated)
Bank indebtedness (non-current)
Working capital deficit (1)
Net debt (1)
Shares outstanding
Shares closing market price ($/share)
Market capitalization
Total capitalization
Net debt to adjusted funds flow (1)
December 31
2019
$
$
$
$
$
295,624 $
7,996
303,620 $
186,910,848
$
2.75
514,005 $
817,625 $
2.0
December 31
2018
270,918
1,912
272,830
185,942,141
1.98
368,165
640,995
1.8
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
Advantage has a $400 million Credit Facility of which $94.1 million or 23% was available at December 31, 2019 after
deducting letters of credit of US$6 million outstanding (see “Bank Indebtedness, Credit Facilities and Other Obligations”).
The Corporation’s adjusted funds flow and bank indebtedness was utilized to fund our capital expenditure program of
$184.9 million for the year ended December 31, 2019. This resulted in a net debt to adjusted funds flow ratio of 2.0 times
as at December 31, 2019, as expected. Advantage continues to be focused on maintaining a strong balance sheet, a
disciplined commodity risk management program, a low-cost structure, and substantial available liquidity such that it is well
positioned to continue successfully executing its multi-year development plan.
Advantage Oil & Gas Ltd. - 24
Liquidity and Capital Resources (continued)
Advantage monitors its capital structure and makes adjustments according to market conditions in an effort to meet its
objectives given the current outlook of the business and industry in general. The capital structure of the Corporation is
composed of working capital, bank indebtedness, and share capital. Advantage may manage its capital structure by issuing
new common shares, repurchasing outstanding common shares, obtaining additional financing through bank indebtedness,
refinancing current debt, issuing other financial or equity-based instruments, declaring a dividend, or adjusting capital
spending. The capital structure is reviewed by Management and the Board of Directors on an ongoing basis. Management
of the Corporation’s capital structure is facilitated through its financial and operational forecasting processes. Selected
forecast information is frequently provided to the Board of Directors. This continual financial assessment process further
enables the Corporation to mitigate risks. The Corporation continues to satisfy all liabilities and commitments as they come
due.
Bank Indebtedness, Credit Facilities and Other Obligations
As at December 31, 2019, Advantage had bank indebtedness outstanding of $295.6 million, an increase of $24.7 million
since December 31, 2018. Advantage’s Credit Facilities have a borrowing base of $400 million that is collateralized by a $1
billion floating charge demand debenture covering all assets of the Corporation and has no financial covenants (the “Credit
Facilities”). Under the Credit Facilities, the Corporation must ensure at all times that its Liability Management Rating as
determined by the Alberta Energy Regulator is not less than 2.0. The borrowing base for the Credit Facilities is determined
by the banking syndicate through an evaluation of our reserve estimates based upon their own commodity price
assumptions. Revisions or changes in the reserve estimates and commodity prices can have either a positive or a negative
impact on the borrowing base. In October 2019, the semi-annual redetermination of the Credit Facilities borrowing base
was completed, with no changes to the borrowing base of $400 million, comprised of a $20 million extendible revolving
operating loan facility from one financial institution and a $380 million extendible revolving loan facility from a syndicate
of financial institutions. The next semi-annual review is scheduled to occur in April 2020. There can be no assurance that
the Credit Facilities will be renewed at the current borrowing base level at that time.
Advantage had a working capital deficit of $8.0 million as at December 31, 2019, an increase of $6.1 million compared to
December 31, 2018 due to differences in the timing of capital expenditures and related payments. Our working capital
includes cash and cash equivalents, trade receivables, prepaid expenses and deposits, trade payables and other accrued
liabilities. Working capital varies primarily due to the timing of such items, the current level of business activity including
our capital expenditure program, commodity price volatility, and seasonal fluctuations. We do not anticipate any problems
in meeting future obligations as they become due as they can be satisfied with cash provided by operating activities and our
available Credit Facilities.
Shareholders’ Equity
As at December 31, 2019, a total of 0.8 million Stock Options and 3.9 million Performance Share Units were outstanding,
which represents 2.5% of Advantage’s total outstanding common shares. No Stock Options were exercised during the year
ended December 31, 2019. During April 2019, 598,069 Performance Share Units vested and were settled with the issuance
of 968,707 common shares. As at February 27, 2020, Advantage had 186.9 million common shares outstanding.
Advantage Oil & Gas Ltd. - 25
Cash Used in Investing Activities and Net Capital Expenditures
Three months ended
December 31
Year ended
December 31
($000)
Drilling, completion and workovers
Well equipping and facilities
Other
Expenditures on property, plant and equipment
Expenditures on exploration and evaluation assets
Net capital expenditures (1)
Changes in non-cash working capital
Cash used in investing activities
2019
27,734 $
31,482
167
59,383
226
59,609 $
(9,244)
50,365 $
$
$
$
2019
2018
2018
95,883
29,330 $ 104,382 $
102,947
76,506
20,138
159
517
159
198,989
181,405
49,627
2,097
3,517
1,560
51,187 $ 184,922 $ 201,086
12,648
(11,282)
50,723 $ 173,640 $ 213,734
(464)
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
Advantage invested $59.6 million and $184.9 million on property, plant, equipment and exploration and evaluation assets
during the three months and year ended December 31, 2019, respectively. During 2019, Advantage drilled 14.7 net wells
focusing on liquid-rich Montney opportunities across our acreage position.
Progress
During the year, Advantage announced a Montney light oil pool discovery and appraisal at Progress, Alberta, on our 100%
owned 50 net section land block (see News Release dated September 3, 2019). Advantage has drilled and completed four
successful Montney wells at Progress over the last two years, with the most recent located at 16-36-76-10W6 being
completed in the third quarter of 2019. This discovery including the three previous wells, elevates the Progress asset to be
a significant element of the Corporation’s liquids development program along with Pipestone/Wembley, Valhalla and east
Glacier. The Progress lands were acquired over the last five years and appraisal began in 2017.
The oil wells will be initially tied-in to Advantage’s 100% owned Glacier and Valhalla infrastructure for gas processing and
liquids extraction, making use of existing facility capacity and an existing section of unused Advantage pipeline. Final tie-in
is expected to be completed in the first quarter of 2020. Design and procurement of equipment has begun on a new 5,000
bbl/d oil battery which will be located on the Progress land block. Commissioning is targeted for the fourth quarter of
2020 where the liquids will be extracted at the new battery and the gas will be sent to the Glacier Gas Plant for processing.
The initial Progress wells represent another milestone in demonstrating that each of Advantage’s land blocks (Glacier,
Pipestone/Wembley, Valhalla and Progress) feature high-quality resource with attractive economics. With these results at
Progress, the asset will complement the Corporation’s liquids development plan and is viewed by Management as
competitive with Pipestone/Wembley.
Pipestone/Wembley
Our Pipestone/Wembley land block is in a condensate fairway where significant industry drilling successes in multiple
layers has occurred. Industry drilling adjacent to our lands have targeted multiple Montney layers with results demonstrating
liquids-rich gas accumulations in all layers to date.
In 2019 Advantage drilled 7 gross (7.0 net) Montney wells and one water disposal well at Pipestone/Wembley. The wells
are in various stages of completion/flowback/production. The property has transitioned from our first well completed in
the first quarter of 2018 to construction of a 5,000 bbl/d oil battery starting in the fourth quarter of 2019. The facility is
targeted for commissioning in April 2020. This battery will allow the property to move to continuous production following
commissioning.
Advantage Oil & Gas Ltd. - 26
Cash Used in Investing Activities and Net Capital Expenditures (continued)
Valhalla
During the year 5 gross (4.7 net) wells were drilled, completed and placed on production at Valhalla. The wells produce
through our Valhalla compressor station which is connected to our Glacier Gas Plant. These wells, along with our previous
Valhalla wells, have filled our 40 mmcf/d compressor station that was commissioned in late 2018 and early 2019.
Glacier
Glacier activity during the year was focused on completing a 10 well Middle Montney pad in the first quarter of 2019 and
bringing those wells on production through the second and third quarters of 2019. These wells, along with the Valhalla
wells helped increase our corporate liquids production during 2019.
Corporate
Advantage’s current standing well inventory consists of nine total wells. Seven are completed and being tied in; and two
are in various stages of completion.
Advantage holds a total of 210 net sections (134,400 net acres) of Doig/Montney rights with 122 of those net sections
outside of Glacier in the Valhalla, Progress and Pipestone/Wembley areas that have potential for liquids-rich and multi-
layer development.
Annual Financial Information
The following is a summary of select financial information of the Corporation for the years indicated.
Year ended
December 31, 2019
Year ended
December 31, 2018
Year ended
December 31, 2017
Total sales ($000) (1)
Net income (loss) ($000)
Per share - basic
Per share - diluted
Total assets ($000)
Long-term financial liabilities ($000) (2)
$
$
$
$
$
$
251,279
(24,654)
(0.13)
(0.13)
1,818,454
295,624
$
$
$
$
$
$
(1) Before royalties and excludes sales of natural gas purchased from third parties.
(2) Long-term financial liabilities is comprised of bank indebtedness.
222,335
11,119
0.06
0.06
1,771,197
270,918
$
$
$
$
$
$
231,764
95,039
0.51
0.50
1,691,182
208,978
Advantage Oil & Gas Ltd. - 27
Quarterly Performance
($000, except as otherwise indicated)
Financial Statement Highlights
Sales including realized derivatives (3)
Net income (loss) and comprehensive income (loss)
per basic share (2)
Cash provided by operating activities (4)
Cash provided by (used in) financing activities (4)
Cash used in investing activities
Basic weighted average shares (000)
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Working capital (surplus) deficit (1)
Bank indebtedness
Net debt (1)
Operating Highlights
Daily Production
Natural gas (mcf/d)
Liquids (bbls/d)
Total production (mcfe/d)
Total production (boe/d)
Average prices (including realized derivatives)
Natural gas ($/mcf) (3)
Liquids($/bbl)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Operating Netback ($/boe)
Sales of natural gas and liquids from production
$
Net sales of natural gas purchased from third parties (1) $
Realized gains (losses) on derivatives
$
Royalty (expense) recovery
Operating expense
Transportation expense
Operating netback (1)
$
$
$
$
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
76,921
(1,844)
(0.01)
39,965
20,115
50,365
186,911
44,452
10.20
0.23
59,609
7,996
295,624
303,620
266,035
3,031
284,221
47,370
2.58
49.09
17.69
-
(0.04)
(0.51)
(1.89)
(3.46)
11.79
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,927
(26,863)
(0.14)
27,323
5,010
36,258
186,911
27,928
7.21
0.15
48,313
13,322
275,594
288,916
233,625
3,142
252,477
42,080
2.04
45.32
11.98
(0.03)
2.72
(0.06)
(2.12)
(3.58)
8.91
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
60,017
3,372
0.02
44,292
(20,309)
27,303
186,858
32,777
8.38
0.18
19,578
(1,891)
270,495
268,604
242,409
2,580
257,889
42,982
2.17
51.76
13.14
-
2.20
0.02
(1.89)
(3.56)
9.91
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
81,372
681
0.00
44,483
19,501
59,714
185,942
50,023
12.38
0.27
57,422
(9,325)
290,612
281,287
257,219
2,030
269,401
44,900
3.11
51.93
18.90
(0.35)
1.23
(0.57)
(2.02)
(3.40)
13.79
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
73,979
25,162
0.14
41,627
11,739
50,723
185,942
46,301
11.02
0.25
51,187
1,912
270,918
272,830
262,269
1,974
274,113
45,686
2.70
49.23
16.86
-
0.74
(0.39)
(1.73)
(3.18)
12.30
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
57,928
(8,852)
(0.05)
27,950
11,005
39,085
186,065
32,035
7.63
0.17
47,502
8,169
259,179
267,348
262,841
1,804
273,665
45,611
1.93
67.90
13.33
-
0.47
(0.19)
(1.61)
(3.09)
8.91
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
45,319
(15,294)
(0.08)
21,009
12,852
38,701
186,190
23,160
7.20
0.12
25,324
3,206
250,189
253,395
205,712
1,067
212,114
35,352
2.05
72.32
11.65
0.35
2.43
0.33
(2.06)
(3.75)
8.95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
73,378
10,103
0.05
58,654
28,341
85,225
185,963
48,882
13.63
0.26
77,073
13,779
237,319
251,098
232,456
1,105
239,086
39,848
3.19
66.11
16.19
-
4.27
(0.34)
(1.94)
(3.44)
14.74
(1) Non-GAAP measure which may not be comparable to similar non-GAAP measures used by other entities. Please see "Non-GAAP Measures".
(2) Based on basic weighted average shares outstanding.
(3) Excludes net sales of natural gas purchased from third parties.
(4) Cash provided by operating activities and cash provided by (used in) financing activities for each quarter in 2018 has been adjusted to conform
to the presentation adopted for each quarter in 2019.
The table above highlights the Corporation’s performance for the fourth quarter of 2019 and for the preceding seven
quarters. Advantage’s production volumes were reduced during the first and second quarters of 2018 as a result of Glacier
Gas Plant expansion activities, with production increasing significantly afterwards following the completion of the 400
mmcf/d expansion. Production decreased in the second and third quarters of 2019 due to Advantage proactively shutting-
in dry natural gas exposed to periods of extremely low AECO pricing. Advantage ramped up natural gas production in the
fourth quarter of 2019 in response to an increase in AECO pricing.
Advantage Oil & Gas Ltd. - 28
Quarterly Performance (continued)
Sales and adjusted funds flow that began to strengthen into the first quarter of 2018 due to improving commodity prices,
subsequently deteriorated as natural gas prices weakened in the second and third quarters of 2018 associated with NGTL
system maintenance. Both sales and adjusted funds flow improved from the third quarter of 2018 to the first quarter of
2019 largely as a result of higher production, especially increased liquids production, and stronger realized prices. Sales and
adjusted funds flow that were weaker in the second and third quarters of 2019 due to decreased production and lower
realized natural gas prices, benefited significantly from a continued increase in liquids production and our market
diversification portfolio, including derivatives. Sales and adjusted funds flow increased in the fourth quarter of 2019 as a
result of increased production and stronger natural gas prices. From early 2018 to 2019, cash provided by operating activities
experienced greater fluctuations than adjusted funds flow due to changes in non-cash working capital, which primarily
resulted from the amount and timing of trade payable settlements and accounts receivable collections.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires Management to make certain judgments and
estimates. Changes in these judgments and estimates could have a material impact on the Corporation’s financial results
and financial condition.
Management relies on the estimate of reserves as prepared by the Corporation’s independent qualified reserves evaluator.
The process of estimating reserves is critical to several accounting estimates. The process of estimating reserves is complex
and requires significant judgments and decisions based on available geological, geophysical, engineering and economic data.
These estimates may change substantially as additional data from ongoing development and production activities becomes
available and as economic conditions impact natural gas and liquids prices, operating expense, royalty burden changes, and
future development costs. Reserve estimates impact net income (loss) and comprehensive income (loss) through
depreciation and impairment of natural gas and liquids properties. After tax discounted cashflows are used to ensure the
carrying amount of the Corporation’s natural gas and liquids properties are recoverable. The discount rate used is subject
to judgement and may impact the carrying value of the Corporation’s natural gas and liquids properties. The reserve
estimates are also used to assess the borrowing base for the Credit Facilities. Revision or changes in the reserve estimates
can have either a positive or a negative impact on asset values, net income (loss), comprehensive income (loss) and the
borrowing base of the Corporation.
The Corporation’s assets are required to be aggregated into CGUs for the purpose of calculating impairment based on their
ability to generate largely independent cash inflows. Factors considered in the classification include the integration between
assets, shared infrastructures, the existence of common sales points, geography, geologic structure, and the manner in which
Management monitors and makes decisions about its operations. The classification of assets and allocation of corporate
assets into CGUs requires significant judgment and may impact the carrying value of the Corporation’s assets in future
periods.
Management’s process of determining the provision for deferred income taxes and the provision for decommissioning
liability costs and related accretion expense are based on estimates. Estimates used in the determination of deferred income
taxes provisions are significant and can include expected future tax rates, expectations regarding the realization or settlement
of the carrying amount of assets and liabilities and other relevant assumptions. Estimates used in the determination of
decommissioning liability cost provisions and accretion expense are significant and can include proved and probable
reserves, future production rates, future commodity prices, future costs, future interest rates and other relevant
assumptions. Revisions or changes in any of these estimates can have either a positive or a negative impact on asset and
liability values, net income (loss) and comprehensive income (loss).
In accordance with IFRS, derivative assets and liabilities are recorded at their fair values at the reporting date, with gains
and losses recognized directly into comprehensive income (loss) in the same period. The fair value of derivatives
outstanding is an estimate based on pricing models, estimates, assumptions and market data available at that time. As such,
the recognized amounts are non-cash items and the actual gains or losses realized on eventual cash settlement can vary
materially due to subsequent fluctuations in commodity prices as compared to the valuation assumptions.
Advantage Oil & Gas Ltd. - 29
Critical Accounting Estimates (continued)
In determining the lease term for leases, management considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant
event or a significant change in circumstances occurs which affects this assessment.
Changes in Accounting Policies
On January 1, 2019, the Corporation adopted IFRS 16 - Leases. Additional information regarding the adoption of the
standard and the impact can be found in the Consolidated Financial Statements for the year ended December 31, 2019.
Accounting Pronouncements not yet Adopted
A description of additional accounting standards and interpretations that will be adopted in future periods can be found in
the notes to the Consolidated Financial Statements for the year ended December 31, 2019.
Evaluation of Disclosure Controls and Procedures
Advantage’s Chief Executive Officer and Chief Financial Officer have designed disclosure controls and procedures
(“DC&P”), or caused it to be designed under their supervision, to provide reasonable assurance that material information
relating to the Corporation is made known to them by others, particularly during the period in which the annual filings are
being prepared, and information required to be disclosed by the Corporation in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time
periods specified in securities legislation.
Management of Advantage, including our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Corporation’s DC&P as at December 31, 2019. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that the DC&P are effective as of the end of the year, in all material respects.
Evaluation of Internal Controls over Financial Reporting
Advantage’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining internal
control over financial reporting (“ICFR”). They have designed ICFR, or caused it to be designed under their supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. The control framework Advantage’s officers used to design the
Corporation’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations.
Management of Advantage, including our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Corporation’s ICFR as at December 31, 2019. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that the ICFR are effective as of the end of the year, in all material respects.
Advantage’s Chief Executive Officer and Chief Financial Officer are required to disclose any change in the ICFR that
occurred during our most recent interim period that has materially affected, or is reasonably likely to materially affect, the
Corporation’s ICFR. No material changes in the ICFR were identified during the interim period ended December 31, 2019
that have materially affected, or are reasonably likely to materially affect, our ICFR.
It should be noted that while the Chief Executive Officer and Chief Financial Officer believe that the Corporation’s design
of DC&P and ICFR provide a reasonable level of assurance that they are effective, they do not expect that the control
system will prevent all errors and fraud. A control system, no matter how well conceived or operated, does not provide
absolute, but rather is designed to provide reasonable assurance that the objective of the control system is met. The
Corporation’s ICFR may not prevent or detect all misstatements because of inherent limitations. Additionally, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with the Corporation’s policies and procedures.
Advantage Oil & Gas Ltd. - 30
Non-GAAP Measures
The Corporation discloses several financial and performance measures in the MD&A that do not have any standardized
meaning prescribed under GAAP. These financial and performance measures include “net capital expenditures”, “ working
capital”, “net debt”, “adjusted funds flow”, “net debt to adjusted funds flow”, “operating netback” and “net sales of natural
gas purchased from third parties”, which should not be considered as alternatives to, or more meaningful than “net income
(loss)”, “comprehensive income (loss)”, “cash provided by operating activities”, “cash used in investing activities”, or
individual expenses presented within the consolidated statement of comprehensive income (loss) as determined in
accordance with GAAP. 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. Advantage’s method of calculating these measures may differ from other companies,
and accordingly, they may not be comparable to similar measures used by other companies.
Net Capital Expenditures
Net capital expenditures include total capital expenditures related to property, plant and equipment and exploration and
evaluation assets. Management considers this measure reflective of actual capital activity for the period as it excludes
changes in working capital related to other periods. Please see “Cash Used in Investing Activities and Net Capital
Expenditures” for a reconciliation to the nearest measure calculated in accordance with GAAP, cash used in investing
activities.
Working Capital
Working capital includes cash and cash equivalents, trade and other receivables, prepaid expenses and deposits and trade
and other accrued liabilities. Working capital provides Management and users with a measure of the Corporation’s operating
liquidity. Please see “Liquidity and Capital Resources”.
Net Debt
Net debt is comprised of bank indebtedness and working capital. Net debt provides Management and users with a measure
of the Corporation’s indebtedness and expected settlement of net liabilities in the next year. Please see “Liquidity and
Capital Resources”.
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, and to support future
capital expenditures plans. 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 natural of our low liability. Please see “Cash Provided by Operating Activities and
Adjusted Funds Flow” for a reconciliation to the nearest measure calculated in accordance with GAAP, cash provided by
operating activities. Adjusted funds flow has also been presented per boe, by dividing adjusted funds flow by total
production in boe for the reporting period, and per basic share, by dividing by the basic weighted average shares outstanding
of the Corporation.
Net Debt to Adjusted Funds Flow
Net debt to adjusted funds flow is calculated by dividing net debt by adjusted fund flow for the previous four quarters. 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 its adjusted funds flow to debt repayment. Please see “Liquidity
and Capital Resources”.
Advantage Oil & Gas Ltd. - 31
Non-GAAP Measures (continued)
Operating Netback
Advantage calculates operating netback on a total and per boe basis. Operating netback is comprised of sales revenue,
realized gains (losses) on derivatives and net sales of natural gas purchased from third parties, net of expenses resulting
from field operations, including royalty expense, operating expense and transportation expense. Operating netback provides
Management and users with a measure to compare the profitability of field operations between companies, development
areas and specific wells. Please see “Operating Netback”.
Net Sales of Natural Gas Purchased from Third Parties
Net sales of natural gas purchased from third parties represents the revenue or loss generated from the sale of natural gas
volumes purchased from third parties, after deducting the cost to purchase the volumes. The purchase and sale transactions
are non-routine and are considered by Management to be related for performance purposes.
Conversion Ratio
The term “boe” or barrels of oil equivalent and “mcfe” or thousand cubic feet equivalent may be misleading, particularly
if used in isolation. A boe or mcfe conversion ratio of six thousand cubic feet of natural gas equivalent to one barrel of oil
(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. As the value ratio between natural gas and crude oil based on the current
prices of natural gas and crude oil 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.
Abbreviations
Terms and abbreviations that are used in this MD&A that are not otherwise defined herein are provided below:
bbl(s)
bbls/d
boe
boe/d
GJ
mcf
mcf/d
mcfe
mcfe/d
mmbtu
mmbtu/d
mmcf
mmcf/d
“Liquids” or “NGLs”
Natural gas
AECO
MSW
NGTL
WTI
nm
- barrel(s)
- barrels per day
- barrels of oil equivalent (6 mcf = 1 bbl)
- barrels of oil equivalent per day
- gigajoules
- thousand cubic feet
- thousand cubic feet per day
- thousand cubic feet equivalent (1 bbl = 6 mcf)
- thousand cubic feet equivalent per day
- million British thermal units
- million British thermal units per day
- million cubic feet
- million cubic feet per day
- Natural Gas Liquids as defined in National Instrument 51-101
- Conventional Natural Gas as defined in National Instrument 51-101
- a notional market point on TransCanada Pipeline Limited’s NGTL system where
the purchase and sale of natural gas is transacted
- price for mixed sweet crude oil at Edmonton, Alberta
- NOVA Gas Transmission Ltd.
- West Texas Intermediate, price paid in U.S. dollars at Cushing, Oklahoma, for
crude oil of standard grade
- not meaningful information
Advantage Oil & Gas Ltd. - 32
Forward-Looking Information and Other Advisories
This MD&A contains certain forward-looking statements and forward-looking information (collectively, "forward-looking
statements"), which are based on our current internal expectations, estimates, projections, assumptions and beliefs. These
forward-looking statements relate to future events or our future performance. All statements other than statements of
historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the
use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar or related expressions. These
statements are not guarantees of future performance.
In particular, forward-looking statements in this MD&A include, but are not limited to, statements about our strategy,
plans, objectives, priorities and focus and the benefits to be derived therefrom; the Corporation’s focus on market
diversification; the Corporation's hedging activities; expectation that greater focus on liquids-rich development in the
Corporation’s Progress and Pipestone/Wembley assets will enhance and diversify production, revenues and cash provided
by operating activities; terms of the Corporation's derivative contracts, including their purposes, the timing of settlement
of such contracts and the expected realization of fixed market prices and variable market exposures for 2020; anticipation
that the Corporation’s operating expense will increase and the reasons therefor; expectation that the Corporation will
maintain low operating expense per boe and the reasons therefor; estimated tax pools and liability; future commitments
and contractual obligations; terms of the Corporation's Credit Facilities, including timing of the next review of the Credit
Facilities, the Corporation's expectations regarding extension of Advantage's Credit Facilities at each annual review; the
Corporation's strategy for managing its capital structure, including the use of equity financing arrangements, share
repurchases, obtaining additional financing through bank indebtedness, refinancing current debt, issuing other financial or
equity-based instruments, declaring a dividend or adjusting capital spending; the Corporation's ability to satisfy all liabilities
and commitments and meet future obligations as they become due; timing for final tie-in and equipping of wells at Progress;
anticipated timing of infrastructure commissioning at Pipestone/Wembley and the benefits to be derived therefrom; the
statements under "critical accounting estimates" in this MD&A; and other matters.
These forward-looking statements involve substantial known and unknown risks and uncertainties, many of which are
beyond our control, including, but not limited to, risks related to changes in general economic, market and business
conditions; continued volatility in market prices for oil and natural gas; the impact of significant declines in market prices
for oil and natural gas; stock market volatility; changes to legislation and regulations and how they are interpreted and
enforced; our ability to comply with current and future environmental or other laws; actions by governmental or regulatory
authorities including increasing taxes, regulatory approvals, changes in investment or other regulations; changes in tax laws,
royalty regimes and incentive programs relating to the oil and gas industry; the effect of acquisitions; our success at
acquisition, exploitation and development of reserves; unexpected drilling results; failure to achieve production targets on
timelines anticipated or at all; changes in commodity prices, currency exchange rates, capital expenditures, reserves or
reserves estimates and debt service requirements; the occurrence of unexpected events involved in the exploration for, and
the operation and development of, oil and gas properties; hazards such as fire, explosion, blowouts, cratering, and spills,
each of which could result in substantial damage to wells, production facilities, other property and the environment or in
personal injury; changes or fluctuations in production levels; individual well productivity; delays in anticipated timing of
drilling and completion of wells; lack of available capacity on pipelines; delays in timing of facility installation; delays in
obtaining stakeholder and regulatory approvals; the failure to extend the credit facilities at each annual review; competition
from other producers; the lack of availability of qualified personnel or management; ability to access sufficient capital from
internal and external sources; credit risk; and the risks and uncertainties described in the Corporation’s Annual Information
Form which is available at www.sedar.com and www.advantageog.com. Readers are also referred to risk factors described
in other documents Advantage files with Canadian securities authorities.
With respect to forward-looking statements contained in this MD&A, in addition to other assumptions identified herein,
Advantage has made assumptions regarding, but not limited to: current and future prices of oil and natural gas; that the
current commodity price and foreign exchange environment will continue or improve; conditions in general economic and
financial markets; effects of regulation by governmental agencies; receipt of required stakeholder and regulatory approvals;
royalty regimes; future exchange rates; royalty rates; future operating costs; availability of skilled labour; availability of
Advantage Oil & Gas Ltd. - 33
Forward-Looking Information and Other Advisories (continued)
drilling and related equipment; timing and amount of capital expenditures; the impact of increasing competition; the price
of crude oil and natural gas; that the Corporation will have sufficient cash flow, debt or equity sources or other financial
resources required to fund its capital and operating expenditures and requirements as needed; that the Corporation’s
conduct and results of operations will be consistent with its expectations; that the Corporation will have the ability to
develop the Corporation’s crude oil and natural gas properties in the manner currently contemplated; availability of pipeline
capacity; that current or, where applicable, proposed assumed industry conditions, laws and regulations will continue in
effect or as anticipated as described herein; and that the estimates of the Corporation’s production, reserves and resources
volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all
material respects.
Management has included the above summary of assumptions and risks related to forward-looking information provided
in this MD&A 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 MD&A 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 MD&A contains metrics commonly used in the oil and natural gas industry which have been prepared by management
such as “operating netback”. These terms do not have standard meaning and may not be comparable to similar measures
presented by other companies and, therefore, should not be used to make such comparisons. Management uses these oil
and natural gas metrics for its own performance measurements, and to provide shareholders with measures to compare
Advantage’s operations overtime. Readers are cautioned that the information provided by these metrics, or that can be
derived from metrics presented in the MD&A, should not be relied upon for investment or other purposes. Refer above
to “Non-GAAP Measures” section of this MD&A for additional disclosure on “operating netback”.
References to natural gas or liquids production in the MD&A refer to conventional natural gas and natural gas liquids,
respectively, product types as defined in National Instrument 51-101.
Certain information contained herein may be considered "analogous information" as defined in National Instrument 51-
101. In particular, this document discloses that the Montney formation are liquids-rich gas accumulations in all layers in
adjacent lands to those of the Corporation. Such analogous information has not been prepared in accordance with National
Instrument 51-101 and the Canadian Oil and Gas Evaluation Handbook and the Corporation is unable to confirm whether
such information has been prepared by a qualified reserves evaluator. Such information is not intended to be a projection
of future results. Such information is based on independent public data and public information received from other
producers and the Corporation has no way of verifying the accuracy of such information. Such information has been
presented to help demonstrate the basis for the Corporation's business plans and strategies. There is no certainty that such
results will be achieved by the Corporation and such information should not be construed as an estimate of future reserves
or future production levels.
Advantage Oil & Gas Ltd. - 34
Additional Information
Additional information relating to Advantage can be found on SEDAR at www.sedar.com and the Corporation’s website
at www.advantageog.com. Such other information includes the annual information form, the management information
circular, press releases, material change reports, material contracts and agreements, and other financial reports. The annual
information form will be of particular interest for current and potential shareholders as it discusses a variety of subject
matter including the nature of the business, description of our operations, general and recent business developments, risk
factors, reserves data and other oil and gas information.
February 27, 2020
Advantage Oil & Gas Ltd. - 35
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Advantage Oil & Gas Ltd. - 36
Independent auditor’s report
To the Shareholders of Advantage Oil & Gas Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Advantage Oil & Gas Ltd. and its subsidiaries (together, the Company) as at
December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated statements of financial position as at December 31, 2019 and 2018;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
PricewaterhouseCoopers LLP
111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Advantage Oil & Gas Ltd. - 38
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
Advantage Oil & Gas Ltd. - 39
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Ryan Lundeen.
Chartered Professional Accountants
Calgary, Alberta
February 27, 2020
Advantage Oil & Gas Ltd. - 40
Advantage Oil & Gas Ltd.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
Notes
December 31
2019
December 31
2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Derivative asset
Total current assets
Non-current assets
Derivative asset
Exploration and evaluation assets
Right-of-use assets
Property, plant and equipment
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other accrued liabilities
Derivative liability
Current portion of non-current liabilities
Total current liabilities
Non-current liabilities
Derivative liability
Lease liability
Bank indebtedness
Decommissioning liability
Other long-term liabilities
Deferred income tax liability
Total non-current liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
5
6
10
10
7
8
9
10
11,13
10
11
12
13
16
14
15
$
$
$
13,099 $
29,318
1,487
2,025
45,929
6,359
28,350
2,178
29,593
66,480
-
20,703
2,354
1,749,468
1,772,525
1,818,454 $
12,943
22,613
-
1,669,161
1,704,717
1,771,197
51,900 $
11,173
1,550
64,623
38,799
94
-
38,893
23,136
2,271
295,624
56,989
1,252
58,462
437,734
502,357
822
-
270,918
50,028
-
78,341
400,109
439,002
2,349,703
117,116
(1,150,722)
1,316,097
1,818,454 $
2,342,689
115,574
(1,126,068)
1,332,195
1,771,197
$
Commitments (note 23)
See accompanying Notes to the Consolidated Financial Statements
On behalf of the Board of Directors of Advantage Oil & Gas Ltd.:
Paul G. Haggis, Director: _______________ Andy J. Mah, Director: _______________
Advantage Oil & Gas Ltd. - 41
Advantage Oil & Gas Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts)
Revenues
Sales of natural gas and liquids from production
Sales of natural gas purchased from third parties
Royalty expense
Natural gas and liquids revenue
Gains (losses) on derivatives
Other income
Total revenues and other income
Expenses
Operating expense
Transportation expense
Natural gas purchased from third parties
General and administrative expense
Share-based compensation expense
Depreciation expense
Finance expense
Total expenses
Income (loss) before taxes
Income tax recovery (expense)
Net income (loss) and comprehensive income (loss)
Net income (loss) per share
Basic
Diluted
See accompanying Notes to the Consolidated Financial Statements
Year ended
December 31
Notes
2019
2018
18
18
10
18
19
16
8,9
20
14
17
$
$
$
$
251,279
857
(4,690)
247,446
(49,946)
27
197,527
31,967
56,607
2,362
11,802
5,399
119,474
14,449
242,060
(44,533)
19,879
(24,654)
(0.13)
(0.13)
$
$
$
$
222,335
5,078
(2,583)
224,830
19,130
188
244,148
27,593
50,694
3,967
8,873
5,162
119,042
11,857
227,188
16,960
(5,841)
11,119
0.06
0.06
Advantage Oil & Gas Ltd. - 42
Advantage Oil & Gas Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Notes
Balance, December 31, 2018
Net loss and comprehensive loss
Share-based compensation
Settlement of Performance Share Units
Balance, December 31, 2019
16(c)
15, 16(b)
Share
capital
$ 2,342,689
-
-
7,014
$ 2,349,703
Contributed
surplus
Deficit
$
$
115,574 $ (1,126,068) $
-
8,556
(7,014)
117,116 $ (1,150,722) $
(24,654)
-
-
Total
shareholders’
equity
1,332,195
(24,654)
8,556
-
1,316,097
Notes
Balance, December 31, 2017
Net income and comprehensive income
Share-based compensation
Settlement of Performance Share Units
Proceeds on share cancellations
Share repurchases
Balance, December 31, 2018
Share
capital
$ 2,340,801 $
Contributed
surplus
16(c)
15, 16(b)
15
15
-
-
1,906
-
(18)
$ 2,342,689 $
110,077
-
8,208
(2,711)
-
-
115,574
Total
shareholders’
equity
1,311,676
11,119
8,208
(805)
2,015
(18)
1,332,195
Deficit
$ (1,139,202) $
11,119
-
-
2,015
-
$ (1,126,068) $
See accompanying Notes to the Consolidated Financial Statements
Advantage Oil & Gas Ltd. - 43
Advantage Oil & Gas Ltd.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Operating Activities
Income (loss) before taxes
Add (deduct) items not requiring cash:
Unrealized losses on derivatives
Unrealized gains on foreign exchange
Share-based compensation expense
Depreciation expense
Accretion of decommissioning liability
Settlement of Performance Share Units
Expenditures on decommissioning liability
Changes in non-cash working capital
Cash provided by operating activities
Financing Activities
Increase in bank indebtedness
Principal repayment of leases
Proceeds on share cancellations
Share repurchases
Cash provided by financing activities
Investing Activities
Payments on property, plant and equipment
Payments on exploration and evaluation assets
Cash used in investing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying Notes to the Consolidated Financial Statements
Notes
2019
2018
Year ended
December 31
$
(44,533)
$
16,960
10
16
8,9
13
16
13
22
12
11
15
15
9,22
7
73,904
-
5,399
119,474
936
-
(1,911)
2,794
156,063
24,706
(389)
-
-
24,317
9,139
(449)
5,162
119,042
1,030
(506)
(1,782)
644
149,240
61,940
-
2,015
(18)
63,937
(170,123)
(3,517)
(173,640)
6,740
6,359
13,099
$
(211,637)
(2,097)
(213,734)
(557)
6,916
6,359
$
Advantage Oil & Gas Ltd. - 44
Advantage Oil & Gas Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
All tabular amounts expressed in thousands of Canadian dollars, except as otherwise indicated.
1. Business and structure of Advantage Oil & Gas Ltd.
Advantage Oil & Gas Ltd. and its subsidiaries (together “Advantage” or the “Corporation”) is an intermediate natural
gas and liquids development and production Corporation with a significant position in the Montney resource play
located in Western Canada.
Advantage is domiciled and incorporated in Canada under the Business Corporations Act (Alberta). Advantage’s head
office address is 2200, 440 – 2nd Avenue SW, Calgary, Alberta, Canada. The Corporation’s common shares are listed
on the Toronto Stock Exchange under the symbol “AAV”.
2. Basis of preparation
(a) Statement of compliance
The Corporation prepares its consolidated financial statements in accordance with International Financial
Reporting Standards (“IFRS”). Certain information provided for the prior year has been reclassified to conform
to the presentation adopted for the year ended December 31, 2019.
The accounting policies applied in these consolidated financial statements are based on IFRS issued and
outstanding as of February 27, 2020, the date the Board of Directors approved the statements.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except as detailed in the
Corporation’s accounting policies in note 3.
The methods used to measure fair values of derivative instruments are discussed in note 10.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional
currency.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all years presented in these financial statements
and notes.
(a) Cash and cash equivalents
Cash consists of balances held with banks, and other short-term highly liquid investments with original maturities
of three months or less from inception.
(b) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Corporation. Control exists when the Corporation has power to
govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that currently are exercisable are taken into account. The financial statements
of subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases.
Advantage Oil & Gas Ltd. - 45
3. Significant accounting policies (continued)
(b) Basis of consolidation (continued)
(ii) Joint arrangements
A portion of the Corporation’s natural gas and liquids activities involve joint operations. The consolidated
financial statements include the Corporation’s share of these joint operations and a proportionate share of the
relevant revenue and costs.
(c) Financial instruments
Financial instruments are classified as amortized cost, fair value through other comprehensive income (loss) or fair
value through profit and loss. The Corporation’s classification of each identified financial instrument is provided
below:
Financial Instrument
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Derivative assets and liabilities
Trade and other accrued liabilities
Lease liability
Bank indebtedness
Other long-term liabilities
Derivative assets and liabilities
Measurement Category
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Derivative instruments executed by the Corporation to manage market risk are classified as fair value through
profit and loss and are recorded on the Consolidated Statement of Financial Position as derivatives assets and
liabilities measured at fair value. Gains and losses on these instruments are recorded as gains and losses on
derivatives in the Consolidated Statement of Comprehensive Income (Loss) in the period they occur. Gains and
losses on derivative instruments are comprised of cash receipts and payments associated with periodic settlement
that occurs over the life of the instrument, and non-cash gains and losses associated with changes in the fair values
of the instruments, which are remeasured at each reporting date.
Impairment of Financial Assets
The Corporation applies an expected credit loss (“ECL”) to financial assets measured at amortized cost and debt
investments measured at fair value through other comprehensive income (loss). For the Corporation’s financial
assets measured at amortized cost, loss allowances are determined based on the ECL over the asset’s lifetime.
ECLs are a probability-weighted estimate of credit losses, considering possible default events over the expected
life of a financial asset. ECLs are measured as the present value of all cash shortfalls (i.e. the difference between
the cash flows due to the Corporation in accordance with the contract and the cash flows that the Corporation
expects to receive) over the life of the financial asset, discounted at the effective interest rate specific to the financial
asset.
Advantage Oil & Gas Ltd. - 46
3. Significant accounting policies (continued)
(d) Property, plant and equipment and exploration and evaluation assets
(i) Recognition and measurement
Exploration and evaluation costs
Pre-license costs are recognized in the Consolidated Statement of Comprehensive Income (Loss) as incurred.
All exploratory costs incurred subsequent to acquiring the right to explore for natural gas and liquids before
technical feasibility and commercial viability of the area have been established are capitalized. Such costs can
typically include costs to acquire land rights, geological and geophysical costs and exploration well costs.
Exploration and evaluation costs are not depreciated and are accumulated in cost centers by well, field or
exploration area and carried forward pending determination of technical feasibility and commercial viability.
The technical feasibility and commercial viability of extracting a mineral resource from exploration and
evaluation assets is considered to be generally determinable when proved or probable reserves are determined
to exist. Upon determination of proved or probable reserves, exploration and evaluation assets attributable to
those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to
property, plant and equipment, net of any impairment loss.
Management reviews and assesses exploration and evaluation assets to determine if technical feasibility and
commercial viability exist. If Management decides not to continue the exploration and evaluation activity, the
unrecoverable costs are charged to exploration and evaluation expense in the period in which the
determination occurs.
Property, plant and equipment
Items of property, plant and equipment, which include natural gas and liquids properties, are measured at cost
less accumulated depreciation and accumulated impairment losses. Costs include lease acquisition, drilling and
completion, production facilities, decommissioning costs, geological and geophysical costs and directly
attributable general and administrative costs and share-based compensation related to development and
production activities, net of any government incentive programs.
When significant parts of an item of property, plant and equipment, including natural gas and liquids
properties, have different useful lives, they are accounted for as separate items (major components).
(ii) Subsequent costs
Costs incurred subsequent to development and production that are significant are recognized as natural gas
and liquids property only when they increase the future economic benefits embodied in the specific asset to
which they relate. All other expenditures are recognized in comprehensive income (loss) as incurred. Such
capitalized natural gas and liquids costs generally represent costs incurred in developing proved and probable
reserves and producing or enhancing production from such reserves, and are accumulated on a field or area
basis. The carrying amount of any replaced or sold component is derecognized in accordance with our policies.
The costs of the day-to-day servicing of property, plant and equipment are recognized in the Consolidated
Statement of Comprehensive Income (Loss) as incurred.
Advantage Oil & Gas Ltd. - 47
3. Significant accounting policies (continued)
(d) Property, plant and equipment and exploration and evaluation assets (continued)
(iii) Depreciation
The net carrying value of natural gas and liquids properties is depreciated using the units-of-production
(“UOP”) method by reference to the ratio of production in the period to the related proved and probable
reserves, taking into account estimated future development costs necessary to bring those reserves into
production. Future development costs are estimated taking into account the level of development required to
produce the reserves. These estimates are reviewed by independent reserve engineers at least annually.
(iv) Dispositions
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposition with the carrying amount of property, plant and equipment and are recognized net
within other income (expenses) in the Consolidated Statement of Comprehensive Income (Loss).
(v) Impairment
The carrying amounts of the Corporation’s property, plant and equipment are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable
amount is estimated. For the purpose of impairment testing of property, plant and equipment, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or
“CGU”).
Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical
feasibility and commercial viability, and facts and circumstances suggest that the carrying amount exceeds the
recoverable amount. Exploration and evaluation assets are allocated to CGUs or groups of CGUs for the
purposes of assessing such assets for impairment.
The recoverable amount of an asset or a CGU is the greater of its “value-in-use” and its “fair value less costs
of disposition”. In assessing value-in-use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. Value-in-use is generally computed by reference to the present value of the future cash
flows expected to be derived from production of proved and probable reserves. Fair value less costs of
disposition is assessed utilizing market valuation based on an arm’s length transaction between active
participants. In the absence of any such transactions, fair value less costs of disposition is estimated by
discounting the expected after-tax cash flows of the CGUs at an after-tax discount rate that reflects the risk of
the properties in the CGUs. The discounted cash flow calculation is then increased by a tax-shield calculation,
which is an estimate of the amount that a prospective buyer of the CGU would be entitled. The carrying value
of the CGUs is reduced by the deferred tax liability associated with its property, plant and equipment.
Impairment losses on property, plant and equipment are recognized in the Consolidated Statement of
Comprehensive Income (Loss) as impairment of natural gas and liquids properties and are separately disclosed.
An impairment of exploration and evaluation assets is recognized as exploration and evaluation expense in the
Consolidated Statement of Comprehensive Income (Loss).
Advantage Oil & Gas Ltd. - 48
3. Significant accounting policies (continued)
(e) Decommissioning liability
A decommissioning liability is recognized if, as a result of a past event, the Corporation has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation. Decommissioning liabilities are determined by discounting the expected future
cash flows at a risk-free rate.
(f) Leases
Accounting policy prior the adoption of IFRS 16 – Leases
Operating lease payments are recognized as an expense in net income (loss) and comprehensive income (loss) on
a straight-line basis over the lease term. Finance leases are capitalized and recorded at lower of the fair value of
the leased item or the present value of the minimum lease payments with the obligation recorded as a liability.
Each lease payment is allocated between the lease liability and finance expense. The finance expense is charged to
the Statement of Comprehensive Income (Loss) over the lease term to produce a constant periodic rate of interest
on the remaining balance of the liability for each reporting period. Leased assets are depreciated over the shorter
of the asset’s useful life and the lease term on a straight-line basis.
Accounting policy after the adoption of IFRS 16 – Leases
Leases are recognized as a right-of-use (“ROU”) asset with a corresponding liability at the date of which the leased
asset is available for use by the Corporation. Each lease payment is allocated between the lease liability and finance
expense. The finance expense is charged to the Statement of Comprehensive Income (Loss) over the lease term
to produce a constant periodic rate of interest on the remaining balance of the liability for each reporting period.
The ROU asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. ROU assets are measured
at cost comprising the amount of the initial measurement of lease liability, any lease payments made at or before
the commencement date and any initial direct costs and restoration costs. Lease liabilities include the net present
value of fixed payments, less any lease incentives receivable, variable lease payments that are based on an index or
a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase
option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the
lease, if the lease term reflects the lessee exercising that option. It is remeasured when there is a change in the
future lease payments arising from a change in an index or rate, if there is a change in the amount expected to be
payable under a residual value guarantee or if there is a change in the assessment of whether the Corporation will
exercise a purchase, extension or termination option that is within the control of the Corporation. The lease
payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the
Corporation’s incremental borrowing rate.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as
an expense in the Statement of Comprehensive Income (Loss). Short-term leases are leases with a lease term of 12
months or less. The Corporation applies a single discount rate to portfolios of leases with similar characteristics.
A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease
and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the
increase in scope. For a modification that is not a separate lease or where the increase in consideration is not
commensurate, at the effective date of the lease modification, the Corporation will remeasure the lease liability
using the Corporation’s incremental borrowing rate, when the rate implicit to the lease is not readily available, with
a corresponding adjustment to the ROU asset. A modification that decreases the scope of the lease will be
accounted for by decreasing the carrying amount of the ROU asset, and recognizing a gain or loss in the Statement
of Comprehensive Income (Loss) that reflects the proportionate decrease in scope.
Advantage Oil & Gas Ltd. - 49
3. Significant accounting policies (continued)
(g) Share-based compensation
The Corporation accounts for share-based compensation expense based on the fair value of rights granted under
its share-based compensation plans.
Advantage’s Stock Option Plan (“Stock Option Plan”) authorizes the Board of Directors to grant Stock Options
to service providers, including directors, officers, employees and consultants of Advantage. Compensation costs
related to the Stock Options are recognized as share-based compensation expense over the vesting period at fair
value.
Advantage’s Restricted and Performance Award Incentive Plan provides share-based compensation to service
providers. Awards granted under this plan, Performance Share Units, may be settled in cash or in shares. As the
Corporation generally intends to settle the Awards in shares, the plan is considered and accounted for as “equity-
settled”. Compensation costs related to Performance Share Units are recognized as share-based compensation
expense over the vesting period at fair value.
As compensation expense is recognized, contributed surplus is recorded until the Performance Share Units vest
or Stock Options are exercised, at which time the appropriate common shares are then issued to the service
providers and the contributed surplus is transferred to share capital.
(h) Long-term compensation
The Corporation’s Performance Award Incentive Plan allows the Corporation to grant cash Performance Awards
to service providers. The present value of payments to be made under the Performance Award Incentive Plan are
recognized as general and administrative expense as the corresponding service is provided by the service provider.
A liability is recognized for the amount expected to be paid if the Corporation has a present legal or constructive
obligation to pay this amount, as a result of past service provided by the service provider, and the obligation can
be estimated reliably.
(i) Revenue
The Corporation’s revenue is comprised of natural gas and liquids sales to customers under fixed and variable
volume contracts. Revenue is recognized when the Corporation has satisfied its performance obligations which
occurs upon the delivery of volumes to the customer. The transaction price used to determine revenue from natural
gas and liquids sales is the market price, net of any marketing and fractionation fees for sales as specified in the
contract. Payments are normally received from customers within 30 days following the end of the production
month. The Corporation’s revenue transactions do not include any financing components. The Corporation does
not have any long-term contracts with unfulfilled performance obligations and does not disclose information about
remaining performance obligations with an original expected duration of 12 months or less.
Advantage Oil & Gas Ltd. - 50
3. Significant accounting policies (continued)
(j) Income tax
Income tax expense or recovery comprises current and deferred income tax. Income tax expense or recovery is
recognized in income or loss except to the extent that it relates to items recognized directly in shareholders’ equity.
Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to income tax payable in respect of previous years.
Deferred income tax is recognized using the liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred income tax is not recognized on the initial recognition of assets or liabilities in a transaction
that is not a business combination, and at the time of the transaction, affects neither accounting income nor taxable
income. Deferred income tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilized. Deferred income tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred
income tax assets and liabilities are only offset when they are within the same legal entity and same tax jurisdiction.
Deferred income tax assets and liabilities are presented as non-current.
(k) Net income (loss) per share
Basic net income (loss) per share is calculated by dividing the net income (loss) attributable to common
shareholders of the Corporation by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is determined by adjusting the net income (loss) attributable to common
shareholders and the weighted average number of common shares outstanding for the effects of dilutive
instruments such as Performance Share Units and Stock Options using the treasury stock method.
(l) Investment tax credits
Investment tax credits relating to Scientific Research and Experimental Development claims are considered an
income tax credit and are offset against our income tax expense when they become probable of realization.
(m) Newly adopted accounting policies
IFRS 16 – Leases (“IFRS 16”)
Adoption
The Corporation adopted IFRS 16 effective January 1, 2019, and the standard was applied using the modified
retrospective method. The modified retrospective method does not require restatement of prior period financial
information as it recognizes the cumulative effect, if any, as an adjustment to opening retained earnings and applies
the standard prospectively. Accordingly, comparative information in the Corporation’s consolidated financial
statements are not restated and continues to be reported under IAS 17 - Leases.
Advantage Oil & Gas Ltd. - 51
3. Significant accounting policies (continued)
(n) Newly adopted accounting policies (continued)
Transition
On adoption of IFRS 16, the Corporation has recognized ROU assets and a corresponding lease liability in relation
to all lease arrangements, excluding commitments in relation to arrangements not containing leases (service
agreements), measured at the present value of the remaining lease payments as at January 1, 2019. ROU assets and
a lease liability of $2.6 million were recorded as of January 1, 2019, with no impact on the Corporation’s deficit.
When measuring the lease liability, the Corporation discounts lease payments using the interest rate implicit in the
lease, or the Corporation’s incremental borrowing rate if the interest rate implicit in the lease cannot be readily
determined. The weighted-average incremental borrowing rate applied on adoption was 4.3%.
The following table reconciles the Corporation’s commitments at December 31, 2018, as previously disclosed in
the Corporation’s consolidated financial statements, to the lease liability recognized on initial adoption of IFRS 16
at January 1, 2019:
Commitments, disclosed as at December 31, 2018
Non-lease components
Contracts assessed as service agreements
Net lease liability commitments
Discounted effect
Lease liability as at January 1, 2019
(n) Accounting pronouncements not yet adopted
(i) IFRS 3
$
$
377,271
(3,580)
(370,490)
3,201
(557)
2,644
Business Combinations (“IFRS 3”), has been amended to revise the definition of a business to include an input
and a substantive process that together significantly contribute to the ability to create outputs. The amendment
to IFRS 3 is effective for the years beginning on or after January 1, 2020. The Corporation has determined
that the amendments to IFRS 3 will have no impact on the Consolidated Financial Statements.
(ii) IAS 1 and IAS 8
Presentation of financial statements (“IAS 1”) and IAS 8 – Accounting policies, changes in accounting
estimates and errors (“IAS 8”), have been amended to (i) use a consistent definition of materiality throughout
IFRSs and the Conceptual Framework for Financial Reporting; (ii) clarify the explanation of the definition of
material; and (iii) incorporate guidance in IAS 1 regarding immaterial information. The amendments to IAS 1
and IAS 8 are effective for the years beginning on or after January 1, 2020. The Corporation has determined
that the amendments to IAS 1 and IAS 8 will have no impact on the Consolidated Financial Statements.
Advantage Oil & Gas Ltd. - 52
4. Significant accounting judgments, estimates and assumptions
The preparation of consolidated financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates, and differences could be material.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimates are revised and in any future years affected. Significant estimates and
judgments made in the preparation of the consolidated financial statements are outlined below.
(a) Reserves base
The natural gas and liquids properties are depreciated on a UOP basis at a rate calculated by reference to proved
and probable reserves determined in accordance with National Instrument 51-101 “Standards of Disclosure for
Oil and Gas Activities” and incorporating the estimated future cost of developing and extracting those reserves.
Proved plus probable reserves are determined using estimates of natural gas and liquids in place, recovery factors
and future natural gas and liquids prices. Future development costs are estimated using assumptions as to the
number of wells required to produce the reserves, the cost of such wells and associated production facilities and
other capital costs.
(b) Determination of cash generating unit
The Corporation’s assets are required to be aggregated into CGUs for the purpose of calculating impairment based
on their ability to generate largely independent cash inflows. Factors considered in the classification include the
integration between assets, shared infrastructure, the existence of common sales points, geography and geologic
structure. The classification of assets and allocation of corporate assets into CGUs requires significant judgment
and may impact the carrying value of the Corporation’s assets in future periods.
(c) Impairment indicators and calculation of impairment
At each reporting date, Advantage assesses whether or not there are circumstances that indicate a possibility that
the carrying values of exploration and evaluation assets and property, plant and equipment are not recoverable, or
impaired. Such circumstances include, but are not limited to, incidents of physical damage, deterioration of
commodity prices, changes in the regulatory environment, a reduction in estimates of proved and probable
reserves, or significant increases to expected costs to produce and transport reserves.
When management judges that circumstances indicate potential impairment, property, plant and equipment are
tested for impairment by comparing the carrying values to their recoverable amounts. The recoverable amounts of
CGUs are determined based on the higher of value-in-use calculations and fair values less costs of disposition.
These calculations require the use of estimates and assumptions, that are subject to change as new information
becomes available including information on future commodity prices, expected production volumes, quantities of
reserves, discount rates, future development costs and operating costs.
(d) Derivative assets and liabilities
Derivative assets and liabilities are recorded at their fair values at the reporting date, with gains and losses
recognized directly into comprehensive income (loss) in the same period. The fair value of derivatives outstanding
is an estimate based on pricing models, estimates, assumptions and market data available at that time. As such, the
recognized amounts are non-cash items and the actual gains or losses realized on eventual cash settlement can vary
materially due to subsequent fluctuations in market prices as compared to the valuation assumptions.
Advantage Oil & Gas Ltd. - 53
4. Significant accounting judgments, estimates and assumptions (continued)
(e) Share-based compensation
The Corporation’s share-based compensation expense is subject to measurement uncertainty as a result of
estimates and assumptions related to the expected performance multiplier, forfeiture rates, expected life, market
based vesting conditions and underlying volatility of the price of the Corporation’s common shares.
(f) Decommissioning liability
Decommissioning costs will be incurred by the Corporation at the end of the operating life of the Corporation’s
facilities and properties. The ultimate decommissioning liability is uncertain and can vary in response to many
factors including changes to relevant legal requirements, the emergence of new restoration techniques, experience
at other production sites, or changes in the risk-free discount rate. The expected timing and amount of expenditure
can also change in response to changes in reserves or changes in laws and regulations or their interpretation. As a
result, there could be significant adjustments to the provisions established which would affect future financial
results.
(g) Leases
Management assesses new contracts at inception to determine whether it contains a lease. This assessment involves
the exercise of judgement about whether the asset is specified for the Corporation, whether the Corporation
obtains substantially all the economic benefits from use of that asset, and whether the Corporation has the right
to direct the use of the asset.
In determining the lease term, management considers all facts and circumstances that create an economic incentive
to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant
event or a significant change in circumstances occurs which affects this assessment.
Lease liabilities that are recognized have been estimated using a discount rate equal to the Corporation’s
incremental borrowing rate. This rate represents the rate the Corporation would incur to obtain the funds necessary
to purchase an asset of a similar value, with similar payment terms and security in a similar economic environment.
(h) Income taxes
Income tax laws and regulations are subject to change. Deferred tax liabilities that arise from temporary differences
between recorded amounts on the statement of financial position and their respective tax bases will be payable in
future periods. The amount of a deferred tax liability is subject to management’s best estimate of when a temporary
difference will reverse and expected changes in income tax rates. These estimates by nature involve significant
measurement uncertainty.
Advantage Oil & Gas Ltd. - 54
5. Cash and cash equivalents
Cash at financial institutions
December 31
2019
13,099 $
December 31
2018
6,359
$
Cash at financial institutions earns interest at floating rates based on daily deposit rates. As at December 31, 2019, cash
at financial institutions included US$0.9 million (December 31, 2018 – US$1.9 million). The Corporation only deposits
cash with major financial institutions of high-quality credit ratings.
6. Trade and other receivables
Trade receivables
Receivables from joint venture partners
Other
7. Exploration and evaluation assets
Balance at December 31, 2017
Additions
Transferred to property, plant and equipment (note 9)
Balance at December 31, 2018
Additions
Transferred to property, plant and equipment (note 9)
Balance at December 31, 2019
December 31
2019
28,021 $
December 31
2018
25,955
414
883
29,318 $
524
1,871
28,350
$
$
$
$
$
22,143
2,097
(1,627)
22,613
3,517
(5,427)
20,703
Advantage Oil & Gas Ltd. - 55
8. Right-of-use assets
Cost
Balance at January 1, 2019 (note 3)
Additions (note 11)
Expired leases
Balance at December 31, 2019
Accumulated depreciation
Balance at January 1, 2019
Depreciation
Expired leases
Balance at December 31, 2019
Net book value
At January 1, 2019
At December 31, 2019
Buildings
Other
Total
2,458 $
282
(422)
2,318 $
186 $
-
-
186
$
2,644
282
(422)
2,504
Buildings
Other
Total
$
-
534
(422)
112 $
$
-
38
-
38 $
-
572
(422)
150
Buildings
Other
Total
2,458 $
2,206 $
186 $
148 $
2,644
2,354
$
$
$
$
$
$
Advantage Oil & Gas Ltd. - 56
9. Property, plant and equipment
Cost
Balance at December 31, 2017
Additions
Capitalized share-based compensation (note 16)
Changes in decommissioning liability (note 13)
Transferred from exploration and evaluation assets (note 7)
Balance at December 31, 2018
Additions
Capitalized share-based compensation (note 16)
Changes in decommissioning liability (note 13)
Transferred from exploration and evaluation assets (note 7)
Balance at December 31, 2019
Accumulated depreciation
Balance at December 31, 2017
Depreciation
Balance at December 31, 2018
Depreciation
Balance at December 31, 2019
Net book value
At December 31, 2018
At December 31, 2019
Natural gas
and liquids
properties
Furniture and
equipment
$
$
$
2,242,201 $
198,531
3,046
3,867
1,627
2,449,272 $
180,888
3,157
9,220
5,427
2,647,964 $
5,766 $
159
-
-
-
5,925 $
517
-
-
-
6,442 $
Total
2,247,967
198,690
3,046
3,867
1,627
2,455,197
181,405
3,157
9,220
5,427
2,654,406
Natural gas
and liquids
properties
Furniture and
equipment
Total
$
$
$
662,433 $
118,801
781,234
118,634
899,868 $
4,561 $
241
4,802
268
5,070 $
666,994
119,042
786,036
118,902
904,938
Natural gas
and liquids
properties
Furniture and
equipment
$
$
1,668,038 $
1,748,096 $
1,123 $
1,372 $
Total
1,669,161
1,749,468
During the year ended December 31, 2019, Advantage capitalized general and administrative expenditures directly
related to development activities of $5.0 million included in additions (year ended December 31, 2018 – $4.2 million).
Advantage included future development costs of $1.8 billion (December 31, 2018 – $1.7 billion) in property, plant and
equipment costs subject to depreciation.
Advantage Oil & Gas Ltd. - 57
9. Property, plant and equipment (continued)
Impairment assessment
For the year ended December 31, 2019, the Corporation identified an indicator of impairment following decreases in
the outlook of future natural gas commodity prices in the North American market. The Corporation performed an
impairment test using after-tax discounted future cash flows of proved and probable reserves, utilizing an inflation rate
of 2% and a discount rate of 10%. The following table summarizes the price forecast used in the Corporation’s
discounted cash flow estimates:
WTI
($US/bbl)
61.00
65.00
67.00
68.34
69.71
71.10
72.52
73.97
75.45
76.96
78.50
+2% per year
Year
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
(1) Price forecast obtained from the Corporation’s independent qualified reserves evaluator effective January 1, 2020.
AECO
($Cdn/mmbtu)
2.04
2.27
2.81
2.89
2.98
3.06
3.15
3.24
3.33
3.42
3.51
+2% per year
Exchange Rate
($US/$Cdn)
0.76
0.77
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
Henry Hub
($US/mmbtu)
2.80
3.00
3.25
3.32
3.38
3.45
3.52
3.59
3.66
3.73
3.81
+2% per year
The Corporation’s CGUs were not impaired at December 31, 2019.
Advantage Oil & Gas Ltd. - 58
10. Financial risk management
As at December 31, 2019, there were no significant differences between the carrying amounts reported on the
Consolidated Statement of Financial Position and the estimated fair values of the Corporation’s financial instruments
due to the short terms to maturity and the floating interest rate on the bank indebtedness.
Fair value is determined following a three-level hierarchy:
Level 1: Quoted prices in active markets for identical assets and liabilities. The Corporation does not have any financial
assets or liabilities that require level 1 inputs.
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Such
inputs can be corroborated with other observable inputs for substantially the complete term of the contract. Derivative
assets and liabilities are measured at fair value on a recurring basis. For derivative assets and liabilities, pricing inputs
include quoted forward prices for commodities, foreign exchange rates, volatility and risk-free rate discounting, all of
which can be observed or corroborated in the marketplace. The actual gains and losses realized on eventual cash
settlement can vary materially due to subsequent fluctuations in commodity prices as compared to the valuation
assumptions.
Level 3: Fair value is determined using inputs that are not observable. Advantage has no assets or liabilities that use
level 3 inputs.
The Corporation’s activities expose it to a variety of financial risks that arise as a result of its exploration, development,
production, and financing activities such as:
•
•
•
•
credit risk;
liquidity risk;
price risk;
interest rate risk; and
• foreign exchange risk.
Advantage Oil & Gas Ltd. - 59
10. Financial risk management (continued)
(a) Credit risk
Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Corporation’s receivables from natural gas
and liquids marketers and companies with whom we enter into derivative contracts. The maximum exposure to
credit risk is as follows:
Trade and other receivables
Deposits
Derivative assets
December 31
2019
29,318 $
472
2,025
31,815 $
$
$
December 31
2018
28,350
1,299
42,536
72,185
Trade and other receivables, deposits, and derivative assets are subject to credit risk exposure and the carrying
values reflect Management’s assessment of the associated maximum exposure to such credit risk. Advantage
mitigates such credit risk by closely monitoring significant counterparties and dealing with a broad selection of
counterparties that diversify risk within the sector. The Corporation’s deposits are due from the Alberta Provincial
government and are viewed by Management as having minimal associated credit risk. To the extent that Advantage
enters derivatives to manage market price risk, it may be subject to credit risk associated with counterparties with
which it contracts. Credit risk is mitigated by entering into contracts with only stable, creditworthy parties and
through frequent reviews of exposures to individual entities. In addition, the Corporation only enters into
derivative contracts with major banks and international energy firms to further mitigate associated credit risk.
Substantially all of the Corporation’s trade and other receivables are due from customers concentrated in the North
American oil and gas industry. As such, trade and other receivables are subject to normal industry credit risks. As
at December 31, 2019, $0.2 million or 0.7% of trade and other receivables are outstanding for 90 days or more
(December 31, 2018 – $0.2 million or 0.9% of trade and other receivables). The Corporation believes the entire
balance is collectible, and in some instances has the ability to mitigate risk through withholding production or
offsetting payables with the same parties. At December 31, 2019, the average expected credit loss for trade and
other receivables was 0.25% (December 31, 2018 – 0.03%). At December 31, 2019, the Corporation did not record
an expected credit loss against trade and other receivables (December 31, 2018 – nil).
The Corporation’s most significant customer, a North American oil and natural gas marketer, accounts for $13.4
million of the trade and other receivables at December 31, 2019 (December 31, 2018 – $10.2 million).
Advantage Oil & Gas Ltd. - 60
10. Financial risk management (continued)
(b) Liquidity risk
The Corporation is subject to liquidity risk attributed from trade and other accrued liabilities, derivative liabilities,
lease liabilities, other long-term liabilities and bank indebtedness. Trade and other accrued liabilities are all due
within one year of the Consolidated Statement of Financial Position date. The Corporation’s lease liability and
other long-term liabilities are mostly due between one and three years. Advantage does not anticipate any problems
in satisfying these obligations from cash provided by operating activities and the existing credit facilities.
The Corporation’s bank indebtedness is subject to $400 million credit facility agreements. Although the credit
facilities are a source of liquidity risk, the facilities also mitigate liquidity risk by enabling Advantage to manage
interim cash flow fluctuations. The terms of the credit facilities are such that they provide Advantage adequate
flexibility to evaluate and assess liquidity issues if and when they arise. Additionally, the Corporation regularly
monitors liquidity related to obligations by evaluating forecasted cash flows, optimal debt levels, capital spending
activity, working capital requirements, and other potential cash expenditures. This continual financial assessment
process further enables the Corporation to mitigate liquidity risk.
To the extent that Advantage enters derivatives to manage market price risk, it may be subject to liquidity risk as
derivative liabilities become due. While the Corporation has elected not to follow hedge accounting, derivative
instruments are not entered for speculative purposes and Management closely monitors existing market risk
exposures. As such, liquidity risk is mitigated since any losses realized are offset by increased cash flows realized
from the higher commodity price environment.
The timing of cash outflows relating to financial liabilities as at December 31, 2019 and 2018 are as follows:
December 31, 2019
Trade and other accrued liabilities
Derivative liability
Lease liability
Other long-term liabilities
Bank indebtedness - principal
- interest (1)
Less than
one year
One to
three years
Beyond
Total
$
$
51,900 $
11,173
266
-
-
- $
- $
16,644
809
1,252
298,000
6,492
1,462
-
-
17,154
80,493 $
9,480
326,185 $
-
7,954 $
51,900
34,309
2,537
1,252
298,000
26,634
414,632
(1)
Interest on bank indebtedness was calculated assuming conversion of the revolving credit facility to a one-year term facility at the
next annual facility review.
Advantage Oil & Gas Ltd. - 61
10. Financial risk management (continued)
(b) Liquidity risk (continued)
December 31, 2018
Trade and other accrued liabilities
Derivative liability
Bank indebtedness - principal
- interest (1)
Less than
one year
One to
three years
Total
38,799
$
- $
94
-
11,649
50,542 $
822
273,000
5,585
279,407 $
38,799
916
273,000
17,234
329,949
$
$
(1)
Interest on bank indebtedness was calculated assuming conversion of the revolving credit facility to a one-year term facility at the
next annual facility review.
The Corporation’s bank indebtedness does not have specific maturity dates. It is governed by credit facility
agreements with a syndicate of financial institutions (note 12). Under the terms of the agreements, the facilities are
reviewed annually, with the next review scheduled in April 2020. The facilities are revolving and are extendible at
each annual review for a further 364-day period at the option of the syndicate. If not extended, the credit facilities
are converted at that time into one-year term facilities, with the principal payable at the end of such one-year terms.
Management fully expects that the facilities will be extended at each annual review.
(c) Price risk
Advantage’s derivative assets and liabilities are subject to price risk as their fair values are based on assumptions
regarding forward market prices. The Corporation enters into non-financial derivatives to manage price risk
exposure relative to actual commodity production and does not utilize derivative instruments for speculative
purposes. Changes to price assumptions can have a significant effect on the fair value of the derivative assets and
liabilities and thereby impact earnings. The estimated impact to net income (loss) for the year ended December 31,
2019 resulting from a 10% change to significant price assumptions is as follows:
Price Assumptions
Forward AECO natural gas price
Forward Henry Hub natural gas price
Forward basis differential between Henry Hub and AECO natural gas prices
Forward Dawn natural gas price
Forward WTI crude oil price
Net Income
(Loss) Impact
($ millions)
1.9
1.6
5.3
0.2
2.0
$
$
$
$
$
Advantage Oil & Gas Ltd. - 62
10. Financial risk management (continued)
(c) Price risk (continued)
The Corporation’s derivative contracts are classified as Level 2 within the fair value hierarchy. As at December 31,
2019, the Corporation had the following derivative contracts in place:
Description of
Derivative
Term
Volume
Price
Natural Gas - AECO
Fixed price swap November 2019 to March 2020
Fixed price swap November 2019 to March 2020
January 2020 to March 2020
Fixed price swap
April 2020 to October 2020
Fixed price swap
Fixed price swap(1) April 2020 to October 2020
18,956 mcf/d Cdn $2.29/mcf
9,478 mcf/d Cdn $2.21/mcf
9,478 mcf/d Cdn $2.27/mcf
47,391 mcf/d Cdn $1.36/mcf
9,478 mcf/d Cdn $1.82/mcf
Natural Gas - Dawn
Fixed price swap November 2019 to March 2020
10,000 mcf/d US $3.16/mcf
Natural gas - Henry Hub NYMEX
Fixed price swap
Fixed price swap(1) February 2020 to December 2020
Fixed price swap(1) April 2020 to October 2020
January 2020 to December 2020
20,000 mcf/d US $2.31/mcf
20,000 mcf/d US $2.28/mcf
20,000 mcf/d US $2.09/mcf
Natural Gas - AECO/Henry Hub Basis Differential
Basis swap
Basis swap
Basis swap
Basis swap
Basis swap
Basis swap
Basis swap
November 2019 to March 2020
November 2019 to March 2020
January 2020 to December 2020
January 2020 to December 2024
January 2021 to December 2024
January 2021 to December 2024
January 2021 to December 2024
20,000 mcf/d Henry Hub less US $0.975/mcf
10,000 mcf/d Henry Hub less US $0.8875/mcf
5,000 mcf/d Henry Hub less US $1.20/mcf
15,000 mcf/d Henry Hub less US $1.20/mcf
5,000 mcf/d Henry Hub less US $1.135/mcf
2,500 mcf/d Henry Hub less US $1.185/mcf
17,500 mcf/d Henry Hub less US $1.20/mcf
Oil - WTI NYMEX
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
January 2020 to March 2020
January 2020 to March 2020
April 2020 to June 2020
July 2020 to December 2020
(1) Contract entered into subsequent to December 31, 2019
500 bbls/d US $58.05/bbl
500 bbls/d US $57.76/bbl
1,000 bbls/d US $56.53/bbl
1,000 bbls/d US $55.44/bbl
Advantage Oil & Gas Ltd. - 63
10. Financial risk management (continued)
(c) Price risk (continued)
As at December 31, 2019 the fair value of the derivatives outstanding resulted in an aggregate asset of $2.0 million
(December 31, 2018 – $42.5 million) and an aggregate liability of $34.3 million (December 31, 2018 – $0.9 million).
The fair value of the commodity risk management derivatives has been allocated to current and non-current assets
and liabilities based on the expected timing of cash settlements.
The table below summarizes the realized and unrealized gains (losses) on derivatives recognized in net income
(loss).
Realized gains on derivatives
Unrealized losses derivatives
Gains (losses) on derivatives
(d) Interest rate risk
Year ended
December 31, 2019
23,958
Year ended
December 31, 2018
28,269
$
(73,904)
(49,946) $
(9,139)
19,130
$
$
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The
interest charged on the outstanding bank indebtedness fluctuates with the interest rates posted by the lenders. The
Corporation is exposed to interest rate risk and has not entered into any mitigating interest rate hedges or swaps.
Had the borrowing rate been different by 100 basis points throughout the year ended December 31, 2019, net
income (loss) and comprehensive income (loss) would have changed by $2.1 million (December 31, 2018 – $1.8
million) based on the average debt balance outstanding during the year.
(e) Foreign exchange risk
Foreign exchange risk is the risk that future cash flows will fluctuate as a result of changes in the Cdn$/US$
exchange rate. While the majority of the Corporation’s natural gas and liquids sales are settled in Canadian dollars,
certain natural gas and oil prices where the Corporation markets its natural gas and liquids production are
denominated in US dollars. The Corporation has not entered into any mitigating forward exchange rate contracts.
Had the Cdn$/US$ foreign exchange rate been different by $0.02 throughout the year ended December 31, 2019,
net income (loss) and comprehensive income (loss) would have changed by $2.4 million.
Advantage Oil & Gas Ltd. - 64
10. Financial risk management (continued)
(f) Capital management
The Corporation manages its capital with the following objectives:
To ensure sufficient financial flexibility to achieve the ongoing business objectives including replacement of
production, funding of future growth opportunities, and pursuit of accretive acquisitions; and
To maximize shareholder return through enhancing the share value.
Advantage monitors its capital structure and makes adjustments according to market conditions in an effort to
meet its objectives given the current outlook of the business and industry in general. The capital structure of the
Corporation is composed of working capital (cash and cash equivalents, trade and other receivables, prepaid
expenses and deposits and trade and other accrued payables), bank indebtedness, and share capital. Advantage may
manage its capital structure by issuing new shares, repurchasing outstanding shares, obtaining additional financing
either through bank indebtedness or convertible debenture issuances, refinancing current debt, issuing other
financial or equity-based instruments, declaring a dividend, adjusting capital spending, or disposing of assets. The
capital structure is reviewed by Management and the Board of Directors on an ongoing basis.
Advantage’s capital structure as at December 31, 2019 and 2018 is as follows:
Bank indebtedness (non-current) (note 12)
Working capital deficit (1)
Net debt (2)
Shares outstanding (note 15)
Share closing market price ($/share)
Market Capitalization
Total Capitalization
December 31
2019
295,624
7,996
303,620
186,910,848
2.75
514,005
817,625
$
$
$
$
$
$
$
December 31
2018
270,918
1,912
272,830
185,942,141
1.98
368,165
640,995
$
(1) Working capital is a non-GAAP measure that includes cash and cash equivalents, trade and other receivables, prepaid expenses and
deposits and trade and other accrued payables.
(2) Net debt is a non-GAAP measure that includes bank indebtedness net of working capital.
Advantage Oil & Gas Ltd. - 65
11. Lease liability
Balance at January 1, 2019 (note 3)
Additions (note 8)
Interest expense (note 20)
Lease payments
Balance, at December 31, 2019
Current lease liability
Non-current lease liability
Year ended
December 31, 2019
2,644
282
104
(493)
2,537
266
2,271
$
$
$
$
The Corporation incurs lease payments related to its head office and other miscellaneous equipment. The Corporation
has recognized a lease liability in relation to all lease arrangements measured at the present value of the remaining lease
payments using the Corporation’s weighted-average incremental borrowing rate of 4.3%.
The following table details the undiscounted cash flows and contractual maturities of the Corporation’s lease liability,
as at December 31, 2019:
Less than 1 year
1-3 years
4-5 years
Beyond 5 years
Total undiscounted future lease payments
As at
December 31, 2019
360
680
750
1,242
3,032
$
$
Advantage Oil & Gas Ltd. - 66
12. Bank indebtedness
Revolving credit facility
Discount on bankers’ acceptance and other fees
Balance, end of year
December 31
2019
298,000
(2,376)
295,624
$
$
$
$
December 31
2018
273,000
(2,082)
270,918
As at December 31, 2019, the Corporation had credit facilities with a borrowing base of $400 million. The Credit
Facilities are comprised of a $20 million extendible revolving operating loan facility from one financial institution and
a $380 million extendible revolving credit facility from a syndicate of financial institutions.
In October 2019, the semi-annual redetermination of the Credit Facilities borrowing base was completed, with no
changes to the borrowing base. The revolving period for the Credit Facilities will end in April 2020 unless extended at
the option of the syndicate for a further 364-day period. If not extended, the credit facility will be converted at that
time into a one-year term facility, with the principal payable at the end of such one-year term. The Credit Facilities are
subject to re-determination of the borrowing base semi-annually in October and April of each year, with the next
annual review scheduled to occur in April 2020. There can be no assurance that the Credit Facilities will be renewed at
the current borrowing base level at that time. The borrowing base is determined based on, among other things, a
thorough evaluation of Advantage's reserve estimates based upon the lenders commodity price assumptions. Revisions
or changes in the reserve estimates and commodity prices can have either a positive or a negative impact on the
borrowing base. In the event that the lenders reduce the borrowing base below the amount drawn at the time of
redetermination, the Corporation has 60 days to eliminate any shortfall by repaying amounts in excess of the new re-
determined borrowing base.
Amounts borrowed under the Credit Facilities bear interest at rates ranging from LIBOR plus 1.5% to 3.5% per annum,
and Canadian prime or US base rate plus 0.5% to 2.5% per annum, in each case, depending on the type of borrowing
and the Corporation’s debt to Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio.
Undrawn amounts under the Credit Facilities bear a standby fee ranging from 0.3375% to 0.7875% per annum,
dependent on the Corporation’s debt to EBITDA ratio. Repayments of principal are not required prior to maturity
provided that the borrowings under the Credit Facilities do not exceed the authorized borrowing base and the
Corporation is in compliance with all covenants, representations and warranties.
The Credit Facilities prohibit the Corporation from entering into any fixed price derivative contract, excluding basis
swaps, where the term of such contract exceeds five years. Further, the aggregate of such contracts cannot hedge
greater than 75% of total estimated natural gas and liquids production over the first three years and 50% over the
fourth and fifth years. In addition, the Credit Facilities allow us to enter into basis swap arrangements to any natural
gas price point in North America for up to 100,000 MMbtu/day with a maximum term of seven years. Basis swap
arrangements do not count against the limitations on hedged production.
The Credit Facilities contain standard commercial covenants for credit facilities of this nature. The Corporation did
not have any financial covenants at December 31, 2019 and 2018. Under the Credit Facilities, the Corporation must
ensure at all times that its Liability Management Rating (“LMR”) is not less than 2.0. As at December 31, 2019 the
Corporation had a 26.6 LMR (December 31, 2018 – 26.2 LMR). All other applicable non-financial covenants were met
at December 31, 2019 and 2018. Breach of any covenant will result in an event of default in which case the Corporation
has 30 days to remedy such default. If the default is not remedied or waived, and if required by the lenders, the
administrative agent of the lenders has the option to declare all obligations under the credit facilities to be immediately
due and payable without further demand, presentation, protest, days of grace, or notice of any kind. The Credit Facilities
are collateralized by a $1 billion floating charge demand debenture covering all assets. For the year ended December
31, 2019, the average effective interest rate on the outstanding amounts under the facilities was approximately 4.2%
(December 31, 2018 – 4.3%). The Corporation had letters of credit of US$6 million outstanding at December 31, 2019
(December 31, 2018 – US$5 million).
Advantage Oil & Gas Ltd. - 67
13. Decommissioning liability
The Corporation’s decommissioning liability results from net ownership interests in natural gas and liquids assets
including well sites, gathering systems and processing facilities, all of which will require future costs of decommissioning
under environmental legislation. These costs are expected to be incurred between 2020 and 2079. A risk-free rate of
1.67% (December 31, 2018 – 2.15%) and an inflation factor of 2.0% (December 31, 2018 – 2.0%) were used to calculate
the fair value of the decommissioning liability at December 31, 2019. A reconciliation of the decommissioning liability
is provided below:
Balance, beginning of the year
Accretion expense (note 20)
Liabilities incurred
Change in estimates
Effect of change in risk-free rate and inflation rate factor
Liabilities settled
Balance, end of year (1)
Year ended
December 31, 2019
50,028
$
Year ended
December 31, 2018
46,913
936
1,773
(668)
8,115
(1,911)
58,273
$
1,030
1,381
(760)
3,246
(1,782)
50,028
$
$
(1)
Included in the balance of the Corporation’s decommissioning liability for the year ended December 31, 2019 is $1,284 which is expected
to be settled within one year and included in the current portion of non-current liabilities.
14. Income taxes
The provision for income taxes is as follows:
Current income tax expense
Deferred income tax (recovery) expense
Income tax (recovery) expense
December 31
2019
-
(19,879)
(19,879)
$
$
December 31
2018
-
5,841
5,841
$
$
The provision for income taxes varies from the amount that would be computed by applying the combined federal and
provincial income tax rates for the following reasons:
Income (loss) before taxes
Combined federal and provincial income tax rates
Expected income tax expense (recovery)
Increase (decrease) in income taxes resulting from:
Non-deductible share-based compensation
Change in provincial corporate tax rate (1)
Other
Income tax (recovery) expense
Effective tax rate
Year ended
December 31, 2019
$
(44,533)
$
26.50 %
(11,801)
1,431
(9,421)
(88)
(19,879)
44.64 %
$
$
Year ended
December 31, 2018
16,960
27.00 %
4,579
2,002
-
(740)
5,841
34.44 %
(1) The Corporation’s provincial corporate tax rate decreased to 11% (from 12%) on July 1, 2019, with a further 1% rate reduction every year
on January 1 until the provincial corporate tax rate is 8% on January 1, 2022.
Advantage Oil & Gas Ltd. - 68
14. Income taxes (continued)
The movement in deferred income tax liabilities and assets without taking into consideration the offsetting of balances
within the same tax jurisdiction is as follows:
Deferred income tax liability
Balance at December 31, 2017
Charged (credited) to income
Balance at December 31, 2018
Credited to loss
Balance at December 31, 2019
Property, plant
and equipment
$
Derivative
Asset/liability
13,705
(2,468)
11,237
(18,892)
(7,655)
281,711 $
15,193
296,904 $
(25,196)
271,708 $
$
$
Deferred income tax asset
Balance at December 31, 2017
Charged (credited) to income
Balance at December 31, 2018
Charged to loss
Balance at December 31, 2019
Decommissioning
liability
$
$
$
(12,666)
(877)
(13,543)
81
(13,462)
Non-capital
losses
(186,445)
(6,623)
(193,068)
19,821
(173,247)
$
$
$
Net deferred income tax liability
Balance at December 31, 2017
Charged to income
Balance at December 31, 2018
Credited to loss
Balance at December 31, 2019
The estimated tax pools available at December 31, 2019 are as follows:
Canadian development expenses
Canadian exploration expenses
Canadian oil and gas property expenses
Non-capital losses
Undepreciated capital cost
Capital losses
Scientific research and experimental development expenditures
Other
Other
-
121
121
(121)
-
Other
(23,805)
495
(23,310)
4,428
(18,882)
$
$
$
$
$
$
Total
295,416
12,846
308,262
(44,209)
264,053
Total
(222,916)
(7,005)
(229,921)
24,330
(205,591)
72,500
5,841
78,341
(19,879)
58,462
212,417
67,361
14,271
746,749
283,355
157,869
32,506
7,401
1,521,929
$
$
$
$
$
$
$
$
$
$
$
The non-capital loss carry forward balances above expire no earlier than 2023.
No deferred tax asset has been recognized for capital losses of $158 million (December 31, 2018 – $158 million).
Recognition is dependent on the realization of future taxable capital gains.
Advantage Oil & Gas Ltd. - 69
15. Share capital
(a) Authorized
The Corporation is authorized to issue an unlimited number of shares without nominal or par value.
(b) Issued
Common Shares
Balance at December 31, 2017
Shares issued on Performance Share Unit settlements
Contributed surplus transferred on Performance Share Unit settlements
Share cancellations
Share repurchases
Balance at December 31, 2018
Shares issued on Performance Share Unit settlements (note 16 (b))
Contributed surplus transferred on Performance Share Unit settlements
Balance at December 31, 2019
185,963,186 $
239,791
-
(256,387)
(4,449)
185,942,141 $
968,707
-
186,910,848 $
Amount
2,340,801
-
1,906
-
(18)
2,342,689
-
7,014
2,349,703
The Corporation’s common shares are publicly traded on the Toronto Stock Exchange. The Corporation
voluntarily de-listed its common shares from the New York Stock Exchange effective September 21, 2018.
During August 2018, in accordance with sunset clauses associated with past common share conversions, 256,387
common shares were cancelled and $2.0 million of proceeds were recognized as a reduction to deficit.
On March 27, 2018, Advantage commenced an odd-lot share repurchase program for registered and beneficial
shareholders of Advantage who owned 99 or fewer common shares. The program was voluntary and allowed odd-
lot holders to sell all, but not less than all, of their common shares without incurring brokerage fees. The program
expired on June 19, 2018 and 4,449 shares were repurchased under the program for a total of $18 thousand.
Advantage Oil & Gas Ltd. - 70
16. Long-term compensation plans
(a) Stock Option Plan
Under the Stock Option Plan, service providers are granted Stock Options with exercise prices that approximate
the market price of common shares at the date of grant. Share-based compensation costs of the Stock Option Plan
are determined using a Black-Scholes valuation model, using weighted average assumptions as follows:
Volatility
Expected forfeiture rate
Dividend rate
Risk-free rate
41%
0.98%
0%
1.05%
Volatility is based on historical stock prices at the close-of-trade-day over a historical time period.
The following tables summarize information about changes in Stock Options outstanding at December 31, 2019:
Balance at December 31, 2017
Forfeited
Balance at December 31, 2018
Forfeited
Expired
Balance at December 31, 2019
Stock Options
2,005,857
(16,708)
1,989,149
(38,691)
(1,110,009)
840,449
Weighted-Average
Exercise Price
$
$
$
6.30
6.82
6.29
6.82
5.87
6.82
Stock Options Outstanding
Weighted
Average
Remaining
Contractual
Life - Years
0.26
Number of
Stock
Options
Outstanding
840,449
Stock Options Exercisable
Weighted
Average
Exercise
Price
6.82
Number of
Stock
Options
Exercisable
840,449
Weighted
Average
Exercise
Price
6.82
Range of
Exercise Price
$6.82
No Stock Options were exercised during the year ended December 31, 2019.
Advantage Oil & Gas Ltd. - 71
16. Long-term compensation plans (continued)
(b) Restricted and Performance Award Incentive Plan – Restricted and Performance Share Units
Under the Restricted and Performance Award Incentive Plan, service providers can be granted two types of equity
incentive awards: Restricted Share Units and Performance Share Units. Such grants vest on the third anniversary
of the grant date and are subject to a Payout Multiplier that is determined based on the achievement of corporate
performance measures during that three-year period, as approved by the Board of Directors. As at December 31,
2019, no Restricted Share Units have been granted.
The following table is a continuity of Performance Share Units:
Balance at December 31, 2017
Granted
Settled
Forfeited
Balance at December 31, 2018
Granted
Settled
Forfeited
Balance at December 31, 2019
Performance Share Units
1,580,299
1,695,135
(248,688)
(87,495)
2,939,251
1,670,929
(598,069)
(64,535)
3,947,576
During April 2019, 598,069 Performance Share Units matured and were settled with the issuance of 968,707
common shares.
(c) Share-based compensation expense
Share-based compensation recognized by plan for the years ended December 31, 2019 and 2018 is as follows:
Stock Options
Performance Share Units
Total share-based compensation
Capitalized (note 9)
Share-based compensation expense
Year ended
December 31
2019
$
-
8,556
8,556
(3,157)
5,399 $
2018
57
8,151
8,208
(3,046)
5,162
$
$
Advantage Oil & Gas Ltd. - 72
16. Long-term compensation plans (continued)
(d) Performance Award Incentive Plan – Performance Awards
Under the Performance Award Incentive Plan, service providers can be granted cash Performance Awards. Such
grants vest on the third anniversary of the grant date and are subject to a Payout Multiplier that is determined based
on the achievement of corporate performance measures during that three-year period, as approved by the Board of
Directors. Performance Awards are amortized to general and administrative expense with the recording of a long-
term liability until eventually settled in cash.
The following table is a continuity of the Corporation’s long-term liability related to outstanding Performance
Awards:
Balance, beginning of the year
Amortization of Performance Awards
Interest expense (note 20)
Balance, end of year
Year ended
December 31, 2019
-
1,247
5
1,252
$
$
17. Net income (loss) per share
The calculations of basic and diluted net income (loss) per share are derived from both net income (loss) and weighted
average shares outstanding, calculated as follows:
Net income (loss)
Basic and diluted
Weighted average shares outstanding
Basic
Performance Share Units
Diluted
Net income (loss) per share
Basic
Diluted
Year ended
December 31
2019
2018
$
(24,654) $
11,119
186,658,719
-
186,658,719
186,039,947
4,892,004
190,931,951
$
$
(0.13) $
(0.13) $
0.06
0.06
Advantage Oil & Gas Ltd. - 73
18. Revenues
(a) Sales of natural gas and liquids from production
Advantage’s revenue is comprised of natural gas and liquids sales to multiple customers. For the year ended
December 31, 2019 and 2018, revenue realized from natural gas and liquids sales was as follows:
Natural gas
Liquids
Natural gas and liquids sales
Year ended
December 31
2019
203,223 $
48,056
251,279 $
2018
188,528
33,807
222,335
$
$
At December 31, 2019, receivables from contracts with customers, which are included in trade and other
receivables, were $27.8 million (December 31, 2018 – $25.2 million).
(b) Sales of natural gas purchased from third parties
During the year ended December 31, 2019 and 2018, the Corporation purchased natural gas volumes from third
parties to satisfy physical sales commitments. Purchases and sales of natural gas from third parties was as follows:
Sales of natural gas purchased from third parties
Natural gas purchased from third parties
$
$
857
(2,362)
$
$
19. General and administrative expense (“G&A”)
Year ended
December 31
2019
2018
5,078
(3,967)
$
Year ended
December 31
2019
12,868
1,503
1,486
941
16,798
(4,996)
11,802
$
2018
9,756
1,381
1,371
515
13,023
(4,150)
8,873
Personnel
Professional fees
Information technology cost
Office rent and administration cost
Total G&A
Capitalized
General and administrative expense
$
$
Advantage Oil & Gas Ltd. - 74
20. Finance expense
Interest on bank indebtedness (note 12)
Accretion of decommissioning liability (note 13)
Interest on lease liability and other long-term liability (note 11, 16)
Losses (gains) on foreign exchange
Total finance expense
21. Related party transactions
Key management compensation:
The compensation paid or payable to officers and directors is as follows:
Salaries, director fees and short-term benefits
Share-based compensation and Performance Awards (1)
Year ended
December 31
2019
13,159 $
936
109
245
14,449 $
2018
10,922
1,030
-
(95)
11,857
Year ended
December 31
2019
2018
4,215 $
4,790
9,005 $
3,283
4,600
7,883
$
$
$
$
(1) Represents the grant date fair value of Stock Options, Performance Share Units and Performance Awards granted.
As at December 31, 2019, there is a commitment of $4.2 million (December 31, 2018 – $3.4 million) related to change
of control or termination of employment of officers.
22. Supplementary cash flow information
Changes in non-cash working capital is comprised of:
Source (use) of cash:
Trade and other receivables
Prepaid expense and deposits
Trade and other accrued liabilities
Other long-term liabilities
Related to operating activities
Related to financing activities
Related to investing activities
Cash interest paid
Cash income taxes paid
Year ended
December 31
2019
2018
(968)
691
13,101
1,252
14,076
2,794
-
11,282
14,076
13,807
-
$
$
$
$
$
$
777
(576)
(12,205)
-
(12,004)
644
-
(12,648)
(12,004)
11,981
-
$
$
$
$
$
$
Advantage Oil & Gas Ltd. - 75
23. Commitments
At December 31, 2019, Advantage had commitments relating to building operating cost of $3.1 million, processing
commitments of $64.6 million and transportation commitments of $521.7 million. The estimated remaining payments
are as follows:
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Total
2020
Payments due by period
2023
2022
2021
$
3.1 $
64.6
521.7
$ 589.4 $
0.4 $
1.1
47.0
48.5 $ 58.2 $
0.4 $
3.9
53.9
0.4 $
8.5
62.0
70.9 $
0.4 $
8.5
57.0
65.9 $
2024
Beyond
1.1
0.4 $
34.1
8.5
248.6
53.2
62.1 $ 283.8
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability. See note 11 for the remaining payments under the
Corporation’s lease liability.
Advantage Oil & Gas Ltd. - 76
ADVISORY
This document contains certain forward-looking statements and forward-looking information (collectively, "forward-
looking statements"), which are based on our current internal expectations, estimates, projections, assumptions and beliefs.
These forward-looking statements relate to future events or our future performance. All statements other than statements
of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by
the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar or related expressions. These
statements are not guarantees of future performance.
In particular, forward-looking statements in this document include, but are not limited to, statements about our strategy,
plans, objectives, priorities and focus and the benefits to be derived therefrom; the expectation that the Corporation will
continue to deliver clean and sustainable energy, contributing to a reduction in global emissions by displacing high-carbon
fuels; the expectation that several additional critical milestones in oil development will have been accomplished by the
fourth quarter of 2020; the expectation that the Corporation will retain a strong balance sheet while advancing our multi-
year strategy to increase exposure to high value commodities; the Corporation’s focus on market diversification; the
Corporation's hedging activities; expectation that greater focus on liquids-rich development in the Corporation’s Progress
and Pipestone/Wembley assets will enhance and diversify production, revenues and cash provided by operating activities;
terms of the Corporation's derivative contracts, including their purposes, the timing of settlement of such contracts and
the expected realization of fixed market prices and variable market exposures for 2020; anticipation that the Corporation’s
operating expense will increase and the reasons therefor; expectation that the Corporation will maintain low operating
expense per boe and the reasons therefor; estimated tax pools and liability; future commitments and contractual obligations;
terms of the Corporation's Credit Facilities, including timing of the next review of the Credit Facilities, the Corporation's
expectations regarding extension of Advantage's Credit Facilities at each annual review; the Corporation's strategy for
managing its capital structure, including the use of equity financing arrangements, share repurchases, obtaining additional
financing through bank indebtedness, refinancing current debt, issuing other financial or equity-based instruments,
declaring a dividend or adjusting capital spending; the Corporation's ability to satisfy all liabilities and commitments and
meet future obligations as they become due; timing for final tie-in and equipping of wells at Progress; anticipated timing of
infrastructure commissioning at Pipestone/Wembley and the benefits to be derived therefrom; the statements under
"critical accounting estimates" in this document; and other matters.
In addition, statements relating to "reserves" 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. Advantage’s actual decisions, activities, results, performance or achievement
could differ materially from those expressed in, or implied by, such forward-looking statements and accordingly, no
assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if
any of them do, what benefits that Advantage will derive from them.
These forward-looking statements involve substantial known and unknown risks and uncertainties, many of which are
beyond our control, including, but not limited to, risks related to changes in general economic, market and business
conditions; continued volatility in market prices for oil and natural gas; the impact of significant declines in market prices
for oil and natural gas; stock market volatility; changes to legislation and regulations and how they are interpreted and
enforced; our ability to comply with current and future environmental or other laws; actions by governmental or regulatory
authorities including increasing taxes, regulatory approvals, changes in investment or other regulations; changes in tax laws,
royalty regimes and incentive programs relating to the oil and gas industry; the effect of acquisitions; our success at
acquisition, exploitation and development of reserves; unexpected drilling results; failure to achieve production targets on
timelines anticipated or at all; changes in commodity prices, currency exchange rates, capital expenditures, reserves or
reserves estimates and debt service and gas properties; hazards such as fire, explosion, blowouts, cratering, and spills, each
of which could result in substantial damage to wells, production facilities, other property and the environment or in personal
injury; changes or fluctuations in production levels; individual well productivity; delays in anticipated timing of drilling and
completion of wells; lack of available capacity on pipelines; delays in obtaining stakeholder and regulatory approvals; the
failure to extend the credit facilities at each annual review; competition from other producers; the lack of availability of
Advantage Oil & Gas Ltd. - 77
Advisory (continued)
qualified personnel or management; ability to access sufficient capital from internal and external sources; credit risk; and
the risks and uncertainties described in the Corporation’s Annual Information Form which is available at www.sedar.com
and www.advantageog.com. Readers are also referred to risk factors described in other documents Advantage files with
Canadian securities authorities.
With respect to forward-looking statements contained in this document, in addition to other assumptions identified herein,
Advantage has made assumptions regarding, but not limited to: current and future prices of oil and natural gas; that the
current commodity price and foreign exchange environment will continue or improve; conditions in general economic and
financial markets; effects of regulation by governmental agencies; receipt of required stakeholder and regulatory approvals;
royalty regimes; future exchange rates; royalty rates; future operating costs; availability of skilled labour; availability of
drilling and related equipment; timing and amount of capital expenditures; the impact of increasing competition; the price
of crude oil and natural gas; that the Corporation will have sufficient cash flow, debt or equity sources or other financial
resources required to fund its capital and operating expenditures and requirements as needed; that the Corporation’s
conduct and results of operations will be consistent with its expectations; that the Corporation will have the ability to
develop the Corporation’s crude oil and natural gas properties in the manner currently contemplated; availability of pipeline
capacity; that current or, where applicable, proposed assumed industry conditions, laws and regulations will continue in
effect or as anticipated as described herein; and that the estimates of the Corporation’s production, reserves and resources
volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all
material respects.
Management has included the above summary of assumptions and risks related to forward-looking information provided
in this document 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 document 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.
References to natural gas or liquids production in the annual report refer to conventional natural gas and natural gas liquids,
respectively, product types as defined in National Instrument 51-101.
Certain information contained herein may be considered "analogous information" as defined in National Instrument 51-
101. In particular, this document discloses that the Montney formation are liquids-rich gas accumulations in all layers in
adjacent lands to those of the Corporation. Such analogous information has not been prepared in accordance with National
Instrument 51-101 and the Canadian Oil and Gas Evaluation Handbook and the Corporation is unable to confirm whether
such information has been prepared by a qualified reserves evaluator. Such information is not intended to be a projection
of future results. Such information is based on independent public data and public information received from other
producers and the Corporation has no way of verifying the accuracy of such information. Such information has been
presented to help demonstrate the basis for the Corporation's business plans and strategies. There is no certainty that such
results will be achieved by the Corporation and such information should not be construed as an estimate of future reserves
or future production levels.
The term “boe” or barrels of oil equivalent and “mcfe” or thousand cubic feet equivalent may be misleading, particularly
if used in isolation. A boe or mcfe conversion ratio of six thousand cubic feet of natural gas equivalent to one barrel of oil
(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. As the value ratio between natural gas and crude oil based on the current
prices of natural gas and crude oil 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.
Advantage Oil & Gas Ltd. - 78
Advisory (continued)
This document contains a number of oil and gas metrics, including operating netback, F&D, recycle ratio and reserve life
index which do not have standardized meanings or standard methods of calculation and therefore such measures may not
be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics
have been included herein to provide readers with additional measures to evaluate the Corporation's performance; however,
such measures are not reliable indicators of the future performance of the Corporation and future performance may not
compare to the performance in previous periods and therefore such metrics should not be unduly relied upon. Management
uses these oil and gas metrics for its own performance measurements and to provide securityholders with measures to
compare Advantage's operations over time. Readers are cautioned that the information provided by these metrics, or that
can be derived from the metrics presented in this document, should not be relied upon for investment or other purposes.
Operating netback is calculated by adding natural gas and liquids sales, realized gains (losses) on derivatives and net sales
of natural gas purchased from third parties, net of expenses resulting from field operations, including royalty expense,
operating expense and transportation expense.
Recycle ratio is calculated by dividing Advantage’s fourth quarter operating netback by the calculated F&D cost of the
applicable year and expressed as a ratio. Reserve life index is calculated by dividing the total volume of reserves by the
fourth quarter production rate and expressed in years. Reserves per share is calculated as the total volume of reserves
divided by the number of common shares issued and outstanding at year end.
The recovery and reserve estimates of reserves provided in this annual report are estimates only, and there is no guarantee
that the estimated reserves will be recovered. Actual reserves may eventually prove to be greater than, or less than, the
estimates provided herein.
Non-GAAP Measures
The Corporation discloses several financial and performance measures in the annual report that do not have any
standardized meaning prescribed under GAAP. These financial and performance measures include “net capital
expenditures”, “ working capital”, “net debt”, “adjusted funds flow”, “net debt to adjusted funds flow”, “operating
netback”, and “net sales of natural gas purchased from third parties”, which should not be considered as alternatives to,
or more meaningful than “net income (loss)”, “comprehensive income (loss)”, “cash provided by operating activities”,
“cash used in investing activities”, or individual expenses presented within the consolidated statement of comprehensive
income (loss) as determined in accordance with GAAP. 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. Advantage’s method of calculating these measures may
differ from other companies, and accordingly, they may not be comparable to similar measures used by other companies.
Net Capital Expenditures
Net capital expenditures include total capital expenditures related to property, plant and equipment and exploration and
evaluation assets. Management considers this measure reflective of actual capital activity for the period as it excludes
changes in working capital related to other periods. Please see “Cash Used in Investing Activities and Net Capital
Expenditures” in the MD&A for a reconciliation to the nearest measure calculated in accordance with GAAP, cash used
in investing activities.
Working Capital
Working capital includes cash and cash equivalents, trade and other receivables, prepaid expenses and deposits and trade
and other accrued liabilities. Working capital provides Management and users with a measure of the Corporation’s operating
liquidity. Please see “Liquidity and Capital Resources” in the MD&A.
Advantage Oil & Gas Ltd. - 79
Non-GAAP Measures (continued)
Net Debt
Net debt is comprised of bank indebtedness and working capital. Net debt provides Management and users with a measure
of the Corporation’s indebtedness and expected settlement of net liabilities in the next year. Please see “Liquidity and
Capital Resources” in the MD&A.
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, and to support future
capital expenditures plans. 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 natural of our low liability. Please see “Cash Provided by Operating Activities and
Adjusted Funds Flow” in the MD&A for a reconciliation to the nearest measure calculated in accordance with GAAP, cash
provided by operating activities. Adjusted funds flow has also been presented per boe, by dividing adjusted funds flow by
total production in boe for the reporting period, and per basic share, by dividing by the basic weighted average shares
outstanding of the Corporation.
Net Debt to Adjusted Funds Flow
Net debt to adjusted funds flow is calculated by dividing net debt by adjusted fund flow for the previous four quarters. 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 its adjusted funds flow to debt repayment. Please see “Liquidity
and Capital Resources” in the MD&A.
Operating Netback
Advantage calculates operating netback on a total and per boe basis. Operating netback is comprised of sales revenue,
realized gains (losses) on derivatives and net sales of natural gas purchased from third parties, net of expenses resulting
from field operations, including royalty expense, operating expense and transportation expense. Operating netback provides
Management and users with a measure to compare the profitability of field operations between companies, development
areas and specific wells. Please see “Operating Netback” in the MD&A.
Net Sales of Natural Gas Purchased from Third Parties
Net sales of natural gas purchased from third parties represents the revenue or loss generated from the sale of natural gas
volumes purchased from third parties, after deducting the cost to purchase the volumes. The purchase and sale transactions
are non-routine and are considered by Management to be related for performance purposes.
Additional Information
Additional information relating to Advantage can be found on SEDAR at www.sedar.com and the Corporation’s website
at www.advantageog.com. Such other information includes the annual information form, the management information
circular, press releases, material change reports, material contracts and agreements, and other financial reports. The annual
information form will be of particular interest for current and potential shareholders as it discusses a variety of subject
matter including the nature of the business, description of our operations, general and recent business developments, risk
factors, reserves data and other oil and gas information.
March 20, 2020
Advantage Oil & Gas Ltd. - 80
ABBREVIATIONS
Crude Oil and Natural Gas Liquids
Natural Gas
bbl
bbls
Mbbls
NGLs
BOE or boe
Mboe
MMboe
boe/d
bbls/d
Other
AECO
Henry Hub
WTI
barrel
barrels
thousand barrels
natural gas liquids
barrel of oil equivalent
thousand barrels of oil equivalent Mcfe
Mcf
MMcf
bcf/d
Mcf/d
MMcf/d million cubic feet per day
thousand cubic feet
million cubic feet
billion cubic feet per day
thousand cubic feet per day
thousand cubic feet of natural gas equivalent, using the
ratio of 6 Mcf of natural gas being equivalent to one bbl
of oil
million barrels of oil equivalent MMcfe/d million cubic feet of natural gas equivalent per day
barrels of oil equivalent per day MMbtu
barrels of oil per day
million British Thermal Units
Gigajoules per day
GJ/d
a notional market point on the NGTL system, located at the AECO ‘C’ hub in Southeastern Alberta,
where the purchase and sale of natural gas is transacted
a central delivery location, located near Louisiana’s Gulf Coast connecting several intrastate and interstate
pipelines, that serves as the official delivery location for futures contracts on the NYMEX
means West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for the
crude oil standard grade
Advantage Oil & Gas Ltd. - 81
Independent Reserve Evaluators
Sproule Associates Limited
Legal Counsel
Burnet, Duckworth and Palmer LLP
Transfer Agent
Computershare Trust Company of Canada
Corporate Office
2200, 440 – 2nd Avenue SW
Calgary, Alberta T2P 5E9
(403) 718-8000
Contact Us
Toll free: 1-866-393-0393
Email: ir@advantageog.com
Visit our website at www.advantageog.com
Toronto Stock Exchange Trading Symbol
AAV
Directors
Jill T. Angevine (1)(3)(4)
Stephen E. Balog (1)(2)(3)(4)
Grant B. Fagerheim (2)(3)
Paul G. Haggis (1)(2)(3)(4)
Andy J. Mah
Ronald A. McIntosh (2)(4)
(1) Member of Audit Committee
(2) Member of Reserve Evaluation Committee
(3) Member of Compensation Committee
(4) Member of Governance Committee
Officers
Andy J. Mah, CEO
Mike Belenkie, President and COO
Craig Blackwood, CFO
Neil Bokenfohr, Senior Vice President
David Sterna, Vice President, Marketing and Commercial
John Quaife, Vice President, Finance
Corporate Secretary
Jay P. Reid, Partner
Burnet, Duckworth and Palmer LLP
Auditors
PricewaterhouseCoopers LLP
Bankers
The Bank of Nova Scotia
National Bank of Canada
Royal Bank of Canada
Canadian Imperial Bank of Commerce
The Bank of Tokyo-Mitsubishi UFJ, Ltd., Canada Branch
Alberta Treasury Branches
Wells Fargo Bank N.A., /Canada Branch
Advantage Oil & Gas Ltd. - 82
Corporate Office
2200, 440 – 2nd Avenue SW
Calgary, Alberta T2P 5E9
(403) 718-8000
Contact Us
Toll free: 1-866-393-0393
Email: ir@advantageog.com
Visit our website at www.advantageog.com