2021 Fourth Quarter Report
Financial Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income (loss) and comprehensive income (loss)
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash provided by (used in) financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital (surplus) deficit (1)
Bank indebtedness
Net debt (1)
Operating Highlights
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/Mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales (1)
Realized losses on derivatives (1)
Royalty expense (1)
Operating expense (1)
Transportation expense (1)
Operating netback (1)
Q4
Three months ended
December 31
Year ended
December 31
2021
2020
2021
2020
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
71,227
16.15
0.37
58,384
12,843
(2,092)
167,345
165,253
816
1,012
2,524
4,352
261,530
47,940
4.17
54.70
36.11
(8.41)
(2.02)
(2.92)
(4.48)
18.28
73,203
24,168
0.13
188,113
30,260
5,071
(37,325)
31,738
7.92
0.17
32,390
(652)
4,292
247,105
251,397
492,035
411,354
2.17
190,077
223,152
(83,411)
(117,782)
245,085
(284,045)
(1.51)
187,761
100,714
48,087
(158,621)
234,824
13.01
1.24
149,403
85,421
(2,092)
167,345
165,253
104,661
6.37
0.56
157,935
(53,274)
4,292
247,105
251,397
1,653
653
2,234
4,540
233,949
43,532
1,101
844
2,548
4,493
269,710
49,445
1,664
715
2,029
4,408
243,081
44,922
2.45
41.29
18.28
(0.74)
(0.77)
(2.68)
(3.62)
10.47
3.38
50.92
27.26
(4.13)
(1.53)
(2.49)
(3.90)
15.21
2.02
37.43
14.91
(0.28)
(0.64)
(2.43)
(3.39)
8.17
(1)
Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
(2) Based on basic weighted average shares outstanding.
CONTENTS
MESSAGE TO SHAREHOLDERS ...................................................................................................................... 2
RESERVES ...................................................................................................................................................... 4
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS ...................................................................... 11
CONSOLIDATED FINANCIAL STATEMENTS .................................................................................................. 51
Independent Auditor’s Report ................................................................................................................ 52
Consolidated Statements of Financial Position ....................................................................................... 57
Consolidated Statements of Comprehensive Income (Loss) ................................................................... 58
Consolidated Statements of Changes in Shareholders’ Equity ................................................................ 59
Consolidated Statements of Cash Flows .................................................................................................. 60
Notes to the Consolidated Financial Statements..................................................................................... 61
ADVISORY ................................................................................................................................................... 99
Advantage Energy Ltd. - 1
MESSAGE TO SHAREHOLDERS
Advantage Energy Ltd. ("Advantage" or the "Corporation") achieved record results during 2021, while capital
spending remained modest. Advantage’s long history of disciplined capital deployment continued, with every well
drilled since the second half of 2020 achieving payout in under one year and many achieving payout in under 5
months. The Corporation has a line‐of‐sight to eliminate net debt during the third quarter (based on current strip
commodity prices) and intends to initiate a share buyback program in second quarter pending regulatory approval.
Advantage’s affiliate Entropy Inc. continues to make progress on its previously announced financing (see News
Release dated December 30, 2021) and remains on‐track to close during the first quarter of 2022.
In order to maximize shareholder returns, Advantage’s priority is growing adjusted funds flow per share(a) while
maintaining a strong balance sheet and enhancing profitability through all phases of the commodities cycle. With
commodity pricing remaining strong, production spiking, long‐term demand likely to continue to grow, decades of
high‐quality inventory and significant existing capacity at Advantage‐owned facilities, Advantage is well positioned
to continue generating significant shareholder value.
Operational Update
Advantage expects 2022 average production to increase to between 52,000 boe/d and 55,000 boe/d based on the
Corporation’s 2022 capital program (see News Release dated December 6, 2021). In March, five days of downtime
are planned at Glacier for a plant turnaround and to complete final construction of the Phase 1 CCS project.
In anticipation of gas supply shortages and elevated pricing, Advantage accelerated $10 million of spending
from January into December. As a result, January production was approximately 57,000 boe/d, with the
Glacier Gas Plant periodically exceeding 375 mmcf/d (gross raw). Drilling focus has now shifted to oil and
condensate targets at Wembley, Valhalla and Progress, with minimal new Glacier volumes expected to come
onstream for the remainder of 2022.
At Wembley, construction of the trunk‐line tying Advantage’s oil battery to Keyera’s Pipestone Processing Facility is
nearing completion, on‐time and on‐budget with 2022 costs of $10 million. Once complete, Advantage will have
access to a total of 40 mmcf/d of firm processing capacity in the area. Production at Wembley is expected to grow
through 2022, with 6 recently‐drilled wells coming on production in the second quarter and drilling of one additional
pad toward the end of the year.
At Progress, a new compressor station which was partially constructed prior to the pandemic is nearing completion,
on‐time and on‐budget with 2022 costs of $12 million. In addition to increasing system capacity for Advantage wells,
the compressor will service firm‐contracted third‐party volumes of 10 mmcf/d generating $5.5 million of processing
revenue on an annualized basis. These volumes are incremental to the existing 11 mmcf/d of third‐party gas
processed through Advantage’s owned infrastructure.
The Corporation has hedged 22% of its natural gas production for first quarter of 2022, 36% for summer 2022, 27%
for winter 2022/23 and 8% for summer 2023.
Share Buyback Program
As Advantage believes there may be times when the market price of its common shares does not fully reflect the
underlying value of its business, or when buying back shares may provide superior returns versus acquiring third‐
party assets. The Corporation intends to launch a share buyback program during the second quarter, subject to
receiving regulatory approval and compliance with applicable laws. The primary goals of the buyback program are to
provide returns to shareholders in a tax efficient manner, to improve per share metrics and to help maintain an
efficient capital structure.
Advantage Energy Ltd. - 2
Indigenous Education Scholarship Program
Advantage is pleased to support Indigenous students in communities near Advantage’s operations in Alberta.
Advantage aims to provide students with funding to pursue post‐secondary education opportunities to benefit both
the students and Alberta’s energy industry. Annual scholarships will be open to all students but primarily awarded
to students pursuing studies in engineering, operations, geosciences, environmental studies, and trades related to
the energy industry. Applications for Advantage’s Indigenous Education Scholarship program will be accepted
between March 1st to July 15th of each year and scholarships will be announced prior to August 15th. To apply for the
Scholarship Award, please email scholarship@advantageog.com for an application form and further instructions.
Board Retirement
As a part of Advantage’s board succession planning, Mr. Ron McIntosh plans to retire on May 5, 2022, after 24 years
of service with Advantage and predecessor companies. The Advantage team thanks him deeply for his dedication
and wishes him all the best in his retirement. The new Chair of the Board will be appointed after Advantage’s annual
general and special meeting on May 5, 2022.
Looking Forward
In order to maximize shareholder returns, Advantage’s priority is growing adjusted funds flow per share(a) while
maintaining a strong balance sheet. The capital program for the second half of 2022 will focus on oil‐weighted growth
which delivers outsized adjusted funds flow growth per unit of production growth, at current strip commodity pricing.
While total production for 2022 is expected to grow by approximately 8%, relative adjusted funds flow is expected
to grow by over 25%, assuming the same commodity prices.
At current strip commodity prices, Advantage expects 2022 AFF(a) to be more than double what it was in 2021. We
are on‐track to generate significant free cash flow(a) of over $140 million in the first half of 2022 and approach zero
net debt(a) in the third quarter. Advantage’s decision to advance $10 million in capital spending from early 2022 into
December 2021 has significantly benefited the Corporation with average production of approximately 57,000 boe/d
in January 2022, coinciding with elevated gas prices, resulting in payout(a) of new wells in under 5 months.
Advantage’s 2022 capital program ($170 million to $200 million) is weighted towards the first quarter with spending
of approximately $76 million or 40% of the total 2022 budget. Production is expected to average between 52,000
boe/d and 55,000 boe/d in 2022 (see News Release dated December 6, 2021). In March, five days of downtime are
planned at Glacier for a plant turnaround and to complete final construction of the Phase 1 CCS project, with
production expected to average 52,000 boe/d during the first quarter.
The Corporation has $1.4 billion of tax pools which are expected to provide cash tax deferrals for several years.
With modern, low emissions‐intensity assets and the Glacier carbon capture and sequestration asset, the
Corporation continues to proudly deliver clean, reliable, sustainable energy, contributing to a reduction in
global emissions by displacing high‐carbon fuels. Advantage wishes to thank our employees, Board of Directors
and our shareholders for their ongoing support.
(a)
Specified financial measure which is not a standardized measure under International Financial Reporting Standards ("IFRS") and may not be
comparable to similar specified financial measures used by other entities. Please see "Specified Financial Measures" for the composition of such
specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for
which management of Advantage uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the
most directly comparable IFRS measure
Advantage Energy Ltd. - 3
RESERVES
Advantage engaged our independent qualified reserves evaluator Sproule Associates Ltd. (“Sproule”) to evaluate our
year‐end reserves as of December 31, 2021 in accordance with National Instrument 51‐101 and the Canadian Oil and
Gas Evaluation Handbook ("COGE 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 24, 2022 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)(5)
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
2021
553,365
December 31
2020(4)
532,034
3,353,076
16.55
31.6
2.90
0.30
2,191,072
9.77
33.5
2.83
0.46
(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 190.8 million shares outstanding at December 31, 2021 and 188.1 million at December 31, 2020.
(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, 2020 contained in a report
of Sproule dated February 23, 2021 using Sproule's product price forecast effective December 31, 2020.
(5) Specified financial measure which may not be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures".
Advantage Energy Ltd. - 4
Corporation Gross (before royalties) Working Interest Reserves Summary as at December 31, 2021
Proved
Developed Producing
Developed Non‐producing
Undeveloped
Total Proved
Probable
Total Proved Plus Probable
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
Conventional
Natural Gas
(Mmcf)
Natural Gas
Liquids
(Mbbl)
1,252
23
7,080
8,355
9,212
17,566
681,611
24,113
1,471,397
2,177,121
839,142
3,016,263
6,445
405
15,860
22,709
10,379
33,088
Total Oil
Equivalent
(Mboe)
121,299
4,447
268,173
393,918
159,447
553,365
Total Oil Equivalent Corporation Gross (before royalties)
Working Interest Reserves Summary
532,034
553,365
465,705
)
e
o
b
M
(
2019
2020
2021
Proved Developed Producing
Proved Undeveloped
Total Proved Plus Probable
Proved Developed Non‐producing
Probable
Advantage Energy Ltd. - 5
Corporation Net Present Value of Future Net Revenue using IQRE Average 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
10%
0%
15%
1,762,965
96,017
3,843,452
5,702,434
3,269,713
8,972,147
1,051,069
53,724
1,100,003
2,204,796
1,148,280
3,353,076
884,897
45,536
667,220
1,597,653
821,846
2,419,499
(1) Advantage's light crude oil and medium crude oil, conventional natural gas and natural gas liquid reserves were
evaluated using the average of the forecasts ("IQRE Average Forecast”) prepared by McDaniel & Associates
Consultants Ltd., GLJ Petroleum Consultants and Sproule effective December 31, 2021, 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.
Net Present Value of Future Net Revenue
Before Income Taxes Discounted at 10%
)
s
n
o
i
l
l
i
m
$
(
2,206
2,191
2,205
1,509
1,483
697
2019
709
2020
Total Proved
Total Probable
Total Proved Plus Probable
3,353
1,148
2021
Advantage Energy Ltd. - 6
IQRE Average Forecasts and Assumptions
The net present value of future net revenue at December 31, 2021 was based upon light and medium oil,
conventional natural gas and natural gas liquid pricing assumptions, which was computed by using the IQRE Average
Forecast effective December 31, 2021. 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:
Canadian Light
Sweet Crude Oil
40o API
($Cdn/bbl)
86.82
80.73
78.01
79.57
81.16
82.78
84.44
AECO‐C
Spot
($Cdn/MMbtu)
3.56
3.21
3.05
3.11
3.17
3.23
3.30
Edmonton
Pentanes Plus
($Cdn/bbl)
91.85
85.53
82.98
84.63
86.33
88.05
89.82
Edmonton
Butane
($Cdn/bbl)
57.49
50.17
48.53
49.50
50.49
51.50
52.53
Edmonton
Propane
($Cdn/bbl)
43.38
35.92
34.62
35.31
36.02
36.74
37.47
Operating
Cost Inflation
Rate
%/year
0.00
2.33
2.00
2.00
2.00
2.00
2.00
Capital Cost
Inflation Rate
%/year
0.00
2.33
2.00
2.00
2.00
2.00
2.00
Exchange
Rate
($US/$Cdn)(3)
0.80
0.80
0.80
0.80
0.80
0.80
0.80
Year
2022
2023
2024
2025
2026
2027
2028
Year
2022
2023
2024
2025
2026
2027
2028
Advantage Energy Ltd. - 7
Net Asset Value using IQRE Average 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, 2020
Net present value proved and probable reserves
Undeveloped land (2)
Working capital and other (3)(4)
Financing liability
Bank indebtedness
Net asset value ‐ December 31, 2021 (3)
Net asset value per share (1)(3) ‐ December 31, 2021
Before Income Taxes Discounted at
0%
$ 33.27
8,972,147
20,713
44,993
(93,488)
(167,345)
8,777,020
$ 45.99
10%
$ 9.77
3,353,076
20,713
44,993
(93,488)
(167,345)
3,157,949
$ 16.55
15%
$ 6.26
2,419,499
20,713
44,993
(93,488)
(167,345)
2,224,372
$ 11.66
(1) Based on 190.8 million shares outstanding at December 31, 2021 and 188.1 million at December 31, 2020.
(2) The value of undeveloped land is based on book value.
(3) Specified financial measure which may not be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures".
(4) Other is calculated as current and non‐current derivative asset less current and non‐current derivative liability.
Advantage Energy Ltd. - 8
Company Gross (before royalties) Working Interest Reserves Reconciliation
Proved
Opening balance December 31, 2020
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions
Dispositions
Economic factors(3)
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
8,245
Conventional
Natural Gas
(Mmcf)
2,142,386
Natural Gas
Liquids
(Mbbl)
21,714
Total Oil
Equivalent
(Mboe)
387,023
231
180
‐
‐
‐
101
(402)
91,760
21,058
‐
2,715
‐
17,646
(98,444)
816
1,216
‐
11
‐
191
(1,238)
16,341
4,905
‐
463
‐
3,232
(18,048)
Closing balance at December 31, 2021
8,355
2,177,121
22,709
393,918
Proved Plus Probable
Opening balance December 31, 2020
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions
Dispositions
Economic factors (3)
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
14,083
4,044
(262)
‐
‐
‐
103
(402)
Conventional
Natural Gas
(Mmcf)
2,929,142
194,885
(22,954)
‐
3,463
‐
10,171
(98,444)
Natural Gas
Liquids
(Mbbl)
29,760
2,504
1,923
‐
13
‐
126
(1,238)
Total Oil
Equivalent
(Mboe)
532,034
39,030
(2,165)
‐
590
‐
1,924
(18,048)
Closing balance at December 31, 2021
17,566
3,016,263
33,088
553,365
(1) Reserve additions for Infill Drilling, Extensions and Improved Recovery are combined and reported as "Extensions
and Improved Recovery". Extensions and Improved Recovery changes: (i) Revisions to the Glacier development
plan with well optimization that combined or added proved or proved and probable future drilling locations
mainly on lands acquired in 2021; (ii) As per COGE Handbook guidance: Glacier/Valhalla/Progress future proved
locations were scheduled to be developed within seven (two including a plant expansion plus five) years and
probable future locations were developed within eight years of the required ten years for probable reserves; and
(iii) Wembley/Pipestone added probable future locations resulting in an increase in the Light Crude Oil and
Medium Crude Oil category.
(2) Technical revisions changes: (i) Increased well performance of existing and future drilling locations and (ii) minor
upward adjustments to NGL yields for gas processed through the Glacier Gas Plant.
(3) Economic factor changes were primarily related to higher forecasted prices for Conventional Natural Gas,
associated NGLs and Light Crude Oil.
(4) Table may not add due to rounding.
Advantage Energy Ltd. - 9
Corporation Finding and Development Cost (“F&D”)
Corporation 2021 F&D Cost – Gross (before royalties) Working Interest Reserves Including Future
Development Capital(1)(2)(3)
Net capital expenditures, excluding intangible assets ($000)(4)
Net change in Future Development Capital ($000)
Total capital ($000)
Total mboe, end of year
Total mboe, beginning of year
Production, mboe
Reserve additions, mboe
2021 F&D cost ($/boe) (4)
2020 F&D cost ($/boe) (4)
Three‐year average F&D cost ($/boe) (4)
Proved
148,912
14,087
162,999
393,918
387,023
(18,047)
24,942
$ 6.54
$ 3.63
$ 4.47
Proved
Plus Probable
148,912
80,305
229,217
553,365
532,034
(18,047)
39,378
$ 5.82
$ 2.80
$ 4.40
(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) Specified financial measure which may not be comparable to similar specified financial measures used by other
entities. Please see "Specified Financial Measures".
Advantage Energy Ltd. - 10
(Formerly, Advantage Oil & Gas Ltd.)
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
For the three months and years ended December 31, 2021 and 2020
Advantage Energy Ltd. - 11
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
On May 18, 2021, Advantage Oil & Gas Ltd. changed its name to Advantage Energy Ltd. as approved by its
shareholders. The following Management’s Discussion and Analysis (“MD&A”), dated as of February 24, 2022,
provides a detailed explanation of the consolidated financial and operating results of Advantage Energy Ltd.
(“Advantage”, the “Corporation”, “us”, “we” or “our”) for the three months and year ended December 31, 2021 and
should be read in conjunction with the December 31, 2021 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 specified financial measures such as non‐GAAP financial measures, non‐GAAP financial ratios,
capital management measures, supplementary financial measures and forward‐looking information. Readers are
advised to read this MD&A in conjunction with both the “Specified Financial Measures” and “Forward‐Looking
Information and Other Advisories” found at the end of this MD&A.
Financial Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income (loss) and comprehensive income (loss)
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash provided by (used in) financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital (surplus) deficit (1)
Bank indebtedness
Net debt (1)
Three months ended
December 31
Year ended
December 31
2021
2020
2021
2020
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
71,227
16.15
0.37
58,384
12,843
(2,092)
167,345
165,253
73,203
24,168
0.13
188,113
30,260
5,071
(37,325)
31,738
7.92
0.17
32,390
(652)
4,292
247,105
251,397
492,035
411,354
2.17
190,077
223,152
(83,411)
(117,782)
245,085
(284,045)
(1.51)
187,761
100,714
48,087
(158,621)
234,824
13.01
1.24
149,403
85,421
(2,092)
167,345
165,253
104,661
6.37
0.56
157,935
(53,274)
4,292
247,105
251,397
(1)
Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial
measures used by other entities. Please see "Specified Financial Measures" for the composition of such specified financial measure, an
explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of
Advantage uses the specified financial measure, and/or where required, a reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
(2) Based on basic weighted average shares outstanding.
Advantage Energy Ltd. - 12
Operating Highlights
Operating
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/Mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales
Realized losses on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Three months ended
December 31
Year ended
December 31
2021
2020
2021
2020
816
1,012
2,524
4,352
261,530
47,940
1,653
653
2,234
4,540
233,949
43,532
1,101
844
2,548
4,493
269,710
49,445
1,664
715
2,029
4,408
243,081
44,922
4.17
54.70
36.11
(8.41)
(2.02)
(2.92)
(4.48)
18.28
2.45
41.29
18.28
(0.74)
(0.77)
(2.68)
(3.62)
10.47
3.38
50.92
27.26
(4.13)
(1.53)
(2.49)
(3.90)
15.21
2.02
37.43
14.91
(0.28)
(0.64)
(2.43)
(3.39)
8.17
(1) Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial
measures used by other entities. Please see "Specified Financial Measures" for the composition of such specified financial measure, an
explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of
Advantage uses the specified financial measure, and/or where required, a reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
Advantage Energy Ltd. - 13
Corporate Update
2022 Guidance
On December 6, 2021, the Corporation announced its 2022 budget (see News Release dated December 6, 2021).
Advantage’s 2022 capital program will be focused on growing adjusted funds flow per share by continuing to drill
high rate‐of‐return targets in areas with existing infrastructure capacity. An escalating emphasis will be placed on
increasing liquids revenue and making infrastructure investments that either increase third‐party processing revenue
or establish carbon revenue for Entropy. With a current expected payout ratio of less than 0.50, Advantage plans to
dedicate free cash flow towards debt reduction. The below table summarizes Advantage’s 2022 guidance:
Forward Looking Information(1)
Cash Used in Investing Activities (2) ($ millions)
Average Production (boe/d)
Liquids Production (bbls/d)
Royalty Rate (%)
Operating Expense ($/boe)
Transportation Expense ($/boe)
G&A/Finance Expense ($/boe)
2022 Guidance
170 to 200
52,000 to 55,000
5,400 to 5,800
7 to 9
2.45
4.35
1.55
(1) Forward‐looking statements and information representing Management estimates. Please see “Forward‐Looking Information and Other
Advisories”.
(2) Cash Used in Investing Activities is the same as Net Capital Expenditures as no change in non‐cash working capital is assumed between
years and other differences are immaterial.
2021 Guidance Update
The Corporation’s 2021 financial and operational results were largely within guidance expectations. The below table
summarizes Advantage’s 2021 guidance compared to actual 2021 financial and operational results:
Net capital expenditures ($ millions)(3)(5)
Average Production (boe/day)(2)
Liquids Production (% of total production)(1)
Royalty Rate (%)(1)
Operating Expense ($/boe) (1)
Transportation Expense ($/boe) (1)
G&A/Finance Expense ($/boe) (1)(4)
2021 Guidance
140 to 150
48,000 to 51,000
8 to 9
3 to 5
2.55
4.15
2.00
2021 Actual
149.4
49,445
9.1
5.6
2.49
3.90
2.20
% Variance from
2021 Guidance
‐
‐
0.1
0.6
(2)
(6)
10
Notes:
(1)
(2)
(3)
(4)
(5)
See News Release dated October 29, 2020 for initial forward looking information.
See News Release dated February 25, 2021 for revised forward looking information.
See News Release dated August 31, 2021 for revised forward looking information.
Finance expense excludes accretion of decommissioning liability.
Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
Advantage Energy Ltd. - 14
Corporate Update (continued)
2021 Guidance Update (continued)
Advantage incurred a royalty rate that was 0.6% above our 2021 range, which was a result of the increased pricing
environment for natural gas. The Corporation incurred transportation expense that was 6% below 2021 guidance,
which was largely due to lower‐than‐expected pipeline tolls. The Corporation incurred G&A and finance expense that
was 10% above 2021 guidance, which was due to a significant increase in the valuation of the Deferred Share Units
liability as a result of the 333% increase in share price, which accounted for an additional $0.20/boe in G&A expense.
Entropy Inc.
In March 2021, Advantage created Entropy Inc. (“Entropy”), a private cleantech company focused on commercializing
energy‐transition technologies. Entropy’s Modular Carbon Capture and Storage (“MCCS”) technology can be
retrofitted to most point‐source industrial emissions, including sectors that are difficult to decarbonize like power
generation, blue hydrogen, liquified natural gas, oil and gas processing, and production of cement and steel.
Combining Entropy’s technology and world‐class solvent, Entropy23TM, Entropy expects to play an important role in
the effort to decarbonize. Entropy plans to commit capital to build carbon capture and storage (“CCS”) facilities in
exchange for virtually all associated environmental attributes (carbon credits, clean fuel regulation credits, incentive
tax credits, etc.)
On May 5, 2021, Entropy issued common shares to Allardyce Bower Holdings Inc. (“ABC”) in exchange for intellectual
property, resulting in Advantage and ABC owning 90% and 10% of Entropy, respectively. Advantage has recognized
a non‐controlling interest in shareholders’ equity, representing the carrying value of the 10% shareholding of Entropy
held by outside interests.
On December 30, 2021, Entropy and a leading energy transition investor agreed to the terms of an exclusive, non‐
binding financing agreement expected to provide sufficient capital for the execution of Entropy's near‐term growth
plan, including a structured initial commitment of $300 million, which is expected to be completed in 2022.
Advantage Energy Ltd. - 15
Production
Average Daily Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Liquids (% of total production)
Natural gas (% of total production)
Three months ended
December 31
2021
816
1,012
2,524
4,352
261,530
47,940
9
91
2020
1,653
653
2,234
4,540
233,949
43,532
10
90
%
Change
(51)
55
13
(4)
12
10
Average Daily Production
Year ended
December 31
2021
1,101
844
2,548
4,493
269,710
49,445
9
91
2020
1,664
715
2,029
4,408
243,081
44,922
10
90
%
Change
(34)
18
26
2
11
10
7,000
6,000
5,000
4,000
3,000
2,000
1,000
‐
d
/
s
l
b
b
256
244
238
234
271
274
272
262
3,714
4,646
4,729
4,540
4,609
4,290
4,724
4,352
250
200
150
100
50
0
d
/
f
c
M
M
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
Liquids (bbls/d)
Natural gas (MMcf/d)
For the three months ended December 31, 2021, Advantage recorded total production averaging 47,940 boe/d,
while achieving record annual total production of 49,445 boe/d for the year ended December 31, 2021, increasing
10% compared to the same periods of the prior year.
Natural gas production for the three months and year ended December 31, 2021 averaged 262 MMcf/d and 270
MMcf/d, respectively, increases of 12% and 11% compared to the same periods of the prior year. Advantage’s
natural gas production increased as a result of 22 gross (21.4 net) wells brought onstream at Glacier, and 2 gross
(2.0 net) wells brought onstream at Valhalla, with 9 gross (8.4 net) natural gas wells being brought onstream in the
fourth quarter of 2021. Natural gas production decreased in the fourth quarter of 2021 from the third quarter of
2021 due to unplanned “firm service” restrictions on TC Energy’s NGTL system.
Liquids production for the three months and year ended December 31, 2021 averaged 4,352 bbls/d and 4,493 bbls/d,
respectively, a decrease of 4% and an increase of 2% compared to the same periods of the prior year. Liquids
production has remained relatively flat, with associated liquids from natural gas drilling offsetting normal declines.
Advantage expects total annual production to increase to between 52,000 and 55,000 boe/d in 2022 based on the
Corporation’s planned 2022 capital program (see “Corporate Update”). In the first quarter of 2022, Advantage
planned and budgeted downtime at the Glacier Gas Plant, as is occasionally required for preventative maintenance,
and to complete final construction and installation of the Phase 1 CCS project. This downtime will result in first
quarter 2022 production being at the low end of our provided annual production range.
Advantage Energy Ltd. - 16
Commodity Prices and Marketing
Average Realized Prices(2)
Natural gas
Excluding derivatives ($/Mcf)
Including derivatives ($/Mcf)
Liquids
Crude oil ($/bbl)
Condensate ($/bbl)
NGLs ($/bbl)
Total liquids excluding derivatives ($/bbl)
Total liquids including derivatives ($/bbl)
Average Benchmark Prices
Natural gas (1)
AECO daily ($/Mcf)
AECO monthly ($/Mcf)
Empress daily ($/Mcf)
Henry Hub ($US/MMbtu)
Emerson 2 daily ($US/MMbtu)
Dawn daily ($US/MMbtu)
Chicago Citygate ($US/MMbtu)
Ventura ($US/MMbtu)
Liquids
WTI ($US/bbl)
MSW Edmonton ($/bbl)
Three months ended
December 31
2021
2020
%
Change
Year ended
December 31
2021
2020
%
Change
5.44
4.17
90.89
96.02
54.39
70.91
54.70
4.66
4.93
5.02
5.32
4.30
4.65
5.86
5.63
2.67
2.45
46.91
50.27
27.04
37.62
41.29
2.64
2.76
2.62
2.47
2.23
2.25
2.48
2.45
77.17
93.26
42.66
50.64
104
70
94
91
101
88
32
77
79
92
115
93
107
136
130
81
84
3
3.97
3.38
77.66
81.89
47.77
61.50
50.92
3.62
3.57
3.88
3.97
3.41
3.61
3.78
3.66
2.16
2.02
37.92
46.18
24.35
33.01
37.43
2.23
2.22
2.25
1.99
1.84
1.87
1.98
1.87
67.96
80.33
39.40
46.08
0.7976
0.7478
84
67
105
77
96
86
36
62
61
72
99
85
93
91
96
72
74
7
Average Exchange rate ($US/$CDN)
0.7937
0.7695
(1) GJ converted to Mcf on the basis of 1 Mcf = 1.055056 GJ and 1 Mcf = 1 MMbtu.
(2) Average realized prices in this table are considered specified financial measures which may not be comparable to similar specified financial
measures used by other entities. Please see "Specified Financial Measures".
Liquids
Advantage’s realized liquids price excluding derivatives for the three months and year ended December 31, 2021
was $70.91/bbl and $61.50/bbl, respectively, increases of 89% and 86% compared to the same periods of the prior
year. Realized crude oil, condensate and NGL prices excluding derivatives all increased significantly for the three
months and year ended December 31, 2021, due to significantly improved WTI prices, with continued global
economic recovery from the COVID‐19 pandemic demand reduction. The price that Advantage receives for crude oil
and condensate production is largely driven by global supply and demand and the Edmonton light sweet oil and
condensate price differentials. Approximately 64% of our liquids production is comprised of crude oil, condensate
and pentanes, which generally attracts higher market prices than other NGLs.
Natural gas
Advantage’s realized natural gas price excluding derivatives for the three months and year ended December 31,
2021 was $5.44/Mcf and $3.97/Mcf, respectively, which was a 104% increase and an 84% increase compared to the
same periods of the prior year. These increases were attributed to higher natural gas benchmark prices in all markets
where Advantage physically delivers natural gas and has market diversification exposure. Advantage has realized
natural gas prices higher than AECO as we currently also have market exposure at Dawn, Empress, Emerson, Chicago
and Ventura.
Advantage Energy Ltd. - 17
Commodity Prices and Marketing (continued)
Advantage’s natural gas exposure consists of the AECO, Empress, Emerson, Dawn, Chicago and Ventura markets.
Advantage holds physical transportation beyond AECO to Empress, Emerson and Dawn, incurring additional
transportation expense to deliver production to these markets (see “Transportation Expense”). Our Chicago and
Ventura contracts are netback arrangements where the Corporation incurs a fixed differential with the net amount
being recorded to revenue.
The following table outlines the Corporation’s 2022 forward‐looking natural gas market exposure, and 2021 actual
natural gas market exposure, excluding hedging.
2022(2)
2021
Effective
production
(MMcf/d)(1)
132.6
43.1
4.5
75.1
17.1
15.0
287.4(3)
Percentage of Natural
Gas Production
(%)
46
15
2
26
6
5
100
Effective
production
(MMcf/d) (1)
101.6
25.3
6.7
72.8
48.3
15.0
269.7
Percentage of Natural
Gas Production
(%)
38
9
2
27
18
6
100
Sales Markets
AECO
Empress
Emerson
Dawn
Chicago
Ventura
Total
(1)
(2)
(3)
All volumes contracted converted to Mcf on the basis of 1 Mcf = 1.055056 GJ and 1 Mcf = 1 MMbtu.
Natural gas market exposure based on contracts in‐place at December 31, 2021.
Represents the midpoint of our 2022 guidance for natural gas production volumes (see New Release dated December 6, 2021).
Advantage Energy Ltd. - 18
Natural gas and liquids sales
($000, except as otherwise indicated)
Crude oil
Condensate
NGLs
Liquids
Natural gas
Natural gas and liquids sales
per boe
Three months ended
December 31
2021
2020
6,823
8,940
12,629
28,392
130,863
159,255
36.11
7,134
3,020
5,558
15,712
57,491
73,203
18.28
%
Change
(4)
196
127
81
Year ended
December 31
2021
31,209
25,226
44,423
100,858
2020
23,096
12,085
18,080
53,261
%
Change
35
109
146
89
128
118
98
391,177
191,824
492,035
27.26
245,085
14.91
104
101
83
Natural Gas and Liquids Sales
)
s
n
o
i
l
l
i
m
$
(
$64.2
23%
77%
$47.6
16%
84%
$60.1
25%
75%
$73.2
21%
79%
$99.4
$99.1
22%
22%
78%
78%
$159.3
18%
$134.4
21%
82%
79%
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
Natural gas sales (% of Total)
Liquids sales (% of Total)
Total ($ millions)
Natural gas and liquids sales for the three months and year ended December 31, 2021, increased by $86.1 million or
118% and $247.0 million or 101%, respectively, compared to the same corresponding periods of 2020.
For the year ended December 31, 2021, natural gas sales increased by $199.4 million or 104%, compared to 2020,
due to an 84% increase in realized gas prices (see “Commodity Prices and Marketing”), accompanied with an 11%
increase in natural gas production volumes (see “Production”). Liquids sales increased by $47.6 million, or 89%, due
to an 86% increase in realized liquids prices (see “Commodity Prices and Marketing”), accompanied with a 2%
increase in liquids production volumes (see “Production”).
For the three months ended December 31, 2021, natural gas sales increased by $73.4 million or 128%, compared to
the corresponding period in 2020, due to a 104% increase in realized gas prices (see “Commodity Prices and
Marketing”), accompanied with a 12% increase in natural gas production volumes (see “Production”). Fourth quarter
liquids sales increased by $12.7 million, or 81%, due to an 88% increase in realized liquids prices (see “Commodity
Prices and Marketing”), offset by a 4% decrease in liquids production volumes (see “Production”).
Advantage Energy Ltd. - 19
Financial Risk Management
The Corporation’s financial results and condition are impacted primarily by the prices received for natural gas, crude
oil, condensate and NGLs production. Natural gas, crude oil, condensate and NGLs 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 and political factors. Additionally, certain commodity prices
are transacted and denominated in US dollars. Advantage has been proactive in commodity risk management for the
purposes of reducing the volatility of cash provided by operating activities that supports our Montney development
by diversifying sales to different physical markets and entering into financial commodity, foreign exchange derivative
contracts. Advantage’s Credit Facilities (as defined herein) allow us to enter fixed price derivative contracts on up to
75% of total estimated 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 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.
The Corporation enters into financial risk management derivative contracts to manage the Corporation’s exposure
to commodity price risk, foreign exchange risk and interest rate risk. A summary of realized and unrealized derivative
gains and losses for the three months and year ended December 31, 2021, and 2020 are as follows:
Realized gains (losses) on derivatives
Natural gas
Crude oil
Foreign exchange
Interest rate
Total
Unrealized gains (losses) on derivatives
Natural gas
Crude oil
Natural gas embedded derivative
Foreign exchange
Interest rate
Total
Gains (losses) on derivatives
Natural gas
Crude oil
Natural gas embedded derivative
Foreign exchange
Interest rate
Total
Three months ended
December 31
2021
2020
Year ended
December 31
2021
2020
(30,646)
(6,489)
218
(171)
(37,088)
49,607
5,831
28,957
(67)
171
84,499
18,961
(658)
28,957
151
‐
47,411
(4,805)
1,532
475
(151)
(2,949)
27,023
(4,097)
3,394
1,942
39
28,301
22,218
(2,565)
3,394
2,417
(112)
25,352
(58,909)
(17,353)
2,368
(684)
(74,578)
16,480
2,074
54,305
(4,525)
666
69,000
(42,429)
(15,279)
54,305
(2,157)
(18)
(5,578)
(12,148)
7,121
696
(309)
(4,640)
1,354
(776)
3,394
3,015
(802)
6,185
(10,794)
6,345
3,394
3,711
(1,111)
1,545
Advantage Energy Ltd. - 20
Financial Risk Management (continued)
Natural gas
For the three months and year ended December 31, 2021, Advantage realized net losses on natural gas derivatives
of $30.6 million and $58.9 million, respectively, due to the settlement of contracts with average derivative contract
prices that were below average market prices. During the year ended December 31, 2021, the Corporation took
advantage of periods of significant widening of the AECO/Henry Hub basis and unwound positions of the
Corporation’s AECO/Henry Hub differential basis swaps for proceeds of $1.1 million. The Corporation would have
incurred an additional $0.5 million in realized losses for the year ended December 31, 2021 if the positions were not
unwound.
For the three months and year ended December 31, 2021, Advantage recognized a net unrealized gain on natural gas
derivatives of $49.6 million and $16.5 million, respectively. For the three months and year ended December 31, 2021,
the change in the fair value of our outstanding derivative contracts was due to the Corporation prudently unwinding
a portion of our AECO/Henry Hub basis differential contracts, accompanied with the timing of 2021 fixed AECO and
Henry Hub contracts concluding, while entering new Henry Hub fixed contracts at increased prices.
Crude oil
For the three months and year ended December 31, 2021, Advantage realized net losses on crude oil derivatives of
$6.5 million and $17.4 million, respectively, due to the settlement of contracts with average derivative contract prices
that were below average market prices as a result of the increase in WTI prices in 2021. For the three months and
year ended December 31, 2021, Advantage recognized a net unrealized gain on crude oil derivatives of $5.8 million
and $2.1 million, respectively. The increased valuation of our crude oil derivative contracts is due to timing of 2021
contracts concluding, while entering new crude oil contracts that have increased fixed WTI prices.
Natural gas embedded derivative
During the year ended December 31, 2020, Advantage entered into a long‐term gas supply agreement under which
Advantage will supply 25,000 MMbtu/d of natural gas for a 10‐year period, commencing in early 2023. Commercial
terms of the agreement are based upon a spark‐spread pricing formula, providing Advantage exposure to PJM power
prices, back‐stopped with a natural gas price collar. The contract contains an embedded derivative as a result of the
spark‐spread pricing formula and the natural gas price collar. The Corporation defined the host contract as a natural
gas sales arrangement with a fixed price of US $2.50/MMbtu. The Corporation will have unrealized gain (losses) on
the embedded derivative based on movements in the forward curve for PJM power prices. The Corporation will not
have realized gains (losses) on the embedded derivative until the Corporation begins delivering natural gas in 2023.
For the year ended December 31, 2021, the Corporation’s embedded derivative resulted in an unrealized gain on the
natural gas embedded derivative of $54.3 million as a result of strengthening PJM power prices.
Foreign exchange
For the three months and year ended December 31, 2021, Advantage realized a gain on foreign exchange derivatives
of $0.2 million and $2.4 million, respectively, while recognizing an unrealized loss of $2.2 million. The $2.2 million
unrealized loss is a result of the value of the Canadian dollar being higher than the Corporation’s average hedged
foreign exchange rate position at December 31, 2021.
Interest rate
For the three months and year ended December 31, 2021, Advantage realized losses on interest rate derivatives of
$0.2 million and $0.7 million, respectively, while recognizing unrealized gains of $0.2 million and $0.7 million,
respectively. The $0.7 million unrealized gain is a result of interest rates being lower than the Corporation’s average
hedged interest rate position at December 31, 2021.
Advantage Energy Ltd. - 21
Financial Risk Management (continued)
The fair value of derivative assets and liabilities 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 and
losses realized on eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices,
foreign exchange rates and interest rates as compared to the valuation assumptions. Remaining derivative contracts
will settle between January 1, 2022 and December 31, 2024, apart from the Corporation’s natural gas embedded
derivative which is expected to be settled between the years 2023 and 2033.
As at December 31, 2021 and February 24, 2022, the Corporation had the following commodity, interest rate and
foreign exchange derivative contracts in place:
Description of Derivative
Term
Volume
Price
Natural gas ‐ AECO
Fixed price swap
November 2021 to March 2022
4,739 Mcf/d
Cdn $4.48/Mcf
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
November 2021 to March 2022
April 2022 to October 2022
April 2022 to October 2022
November 2022 to March 2023
April 2023 to October 2023
55,000 Mcf/d
55,000 Mcf/d
50,000 Mcf/d
85,000 Mcf/d
25,000 Mcf/d
US $3.44/Mcf
US $3.62/Mcf
US $4.54/Mcf (1)
US $4.67/Mcf (1)
US $3.35/Mcf (1)
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
November 2022 to December 2024 40,000 Mcf/d
Henry Hub less US $1.19/Mcf
Crude oil ‐ WTI NYMEX
Fixed price swap
January 2022 to June 2022
500 bbls/d
US $75.00/bbl
Description of Derivative
Term
Notional Amount
Rate
One‐month bankers’ acceptance – CDOR
Fixed interest rate swap
Fixed interest rate swap
April 2020 to March 2022
April 2020 to March 2022
$ 100,000,000
$ 75,000,000
0.83%
0.79%
Forward rate ‐ CAD/USD
Average rate currency swap
Average rate currency swap February 2021 to January 2023
Average rate currency swap
Average rate currency swap August 2021 to July 2022
Average rate currency swap March 2022 to February 2023
June 2020 to May 2022
June 2021 to May 2023
US $ 2,000,000/month
US $ 750,000/month
US $ 2,000,000/month
US $ 1,000,000/month
US $ 1,500,000/month
1.3495
1.2850
1.2025
1.2499
1.2719 (1)
(1) Contract entered into subsequent to December 31, 2021.
Advantage Energy Ltd. - 22
Royalty Expense
Three months ended
December 31
2021
2020
Royalty expense ($000)
per boe
Royalty rate (%)(1)
(1) Percentage of natural gas and liquids sales.
8,928
2.02
5.6
%
Change
191
162
3,067
0.77
4.2
1.4
Year ended
December 31
2021
2020
27,530
1.53
5.6
%
Change
163
139
10,474
0.64
4.3
1.3
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, 2021 increased by $5.9 million and $17.1 million,
respectively, increases of 191% and 163%. The increase in royalty expense for each period was largely due to higher
natural gas royalties from the significant increase in AECO natural gas prices.
Operating Expense
Operating expense ($000)
per boe
Three months ended
December 31
2021
12,870
2.92
2020
10,750
2.68
%
Change
20
9
Year ended
December 31
2021
44,893
2.49
2020
40,005
2.43
%
Change
12%
2%
Operating expense for the three months and year ended December 31, 2021 increased by $2.1 million and $4.9
million, respectively, increases of 20% and 12%. For the three months ended December 31, 2021, the Corporation
had an increase in operating expense largely due to the 10% increase in total production and additional cost required
to maintain production and infrastructure during the period of severe cold weather that occurred in the quarter. For
the year ended December 31, 2021, operating expense increased relative to the 10% increase in total production, as
there were no significant changes in operating expense per boe when compared to 2020.
Advantage expects 2022 annual operating expense per boe to remain consistent at $2.45/boe (see “Corporate
Update”).
Advantage Energy Ltd. - 23
Transportation Expense
Natural gas ($000)
Liquids ($000)
Total transportation expense ($000)
per boe
Three months ended
December 31
2021
2020
18,019
1,749
19,768
4.48
13,266
1,222
14,488
3.62
%
Change
36
43
36
24
Year ended
December 31
2021
2020
64,876
5,564
70,440
3.90
49,414
6,403
55,817
3.39
%
Change
31
(13)
26
15
Transportation expense represents the cost of transporting our natural gas and liquids production to the sales points,
including associated fuel costs. Transportation expense for the three months and year ended December 31, 2021
increased by $5.3 million and $14.6 million, respectively, increases of 36% and 26%. The increase in transportation
expense for both periods was largely due to the Corporation having additional transportation associated with physical
deliveries to Dawn, Empress and Emerson that began in November of 2020, accounting for $12.0 million of the yearly
increase in natural gas transportation when compared to 2020. (see “Commodity Prices and Marketing”). Production
transported to these markets generally results in premium realized prices as experience by the Corporation in 2021.
In addition, the Corporation also incurred higher NGTL fuel costs tied to the increase in AECO, accounting for $2.9
million of the yearly increase when compared to 2020.
Advantage expects 2022 annual transportation expense per boe to increase to $4.35/boe (see “Corporate Update”),
largely due expected NGTL toll increases, accompanied with additional firm Empress service beginning in April 2022.
Operating Netback
Natural gas and liquids sales
Realized losses on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Natural gas and liquids sales
Realized losses on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Three months ended
December 31
2021
2020
$000
159,255
(37,088)
(8,928)
(12,870)
(19,768)
80,601
per boe
$000
per boe
36.11
(8.41)
(2.02)
(2.92)
(4.48)
18.28
73,203
(2,949)
(3,067)
(10,750)
(14,488)
41,949
Year ended
December 31
18.28
(0.74)
(0.77)
(2.68)
(3.62)
10.47
2021
2020
$000
492,035
(74,578)
(27,530)
(44,893)
(70,440)
274,594
per boe
27.26
(4.13)
(1.53)
(2.49)
(3.90)
15.21
$000
245,085
(4,640)
(10,474)
(40,005)
(55,817)
134,149
per boe
14.91
(0.28)
(0.64)
(2.43)
(3.39)
8.17
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures ".
Advantage Energy Ltd. - 24
Operating Netback (continued)
For the three months and year ended December 31, 2021, Advantage’s operating netback increased by 92% and
105%, respectively, or $7.81/boe and $7.04/boe. The increase in the Corporation’s operating netback per boe for
both periods was primarily due to the increase in natural gas and liquids sales as a result of significantly increased
natural gas and crude oil benchmark prices (see “Commodity Prices and Marketing”). This increase was partially offset
by realized losses on derivatives similarly due to significantly increased natural gas and crude oil benchmark prices
(see “Financial Risk Management“).
General and Administrative Expense
General and administrative expense ($000)
per boe
Employees at December 31
Three months ended
December 31
2021
2020
4,940
1.12
4,416
1.10
%
Change
12
2
Year ended
December 31
2021
2020
19,860
1.10
42
11,315
0.69
39
%
Change
76
59
8
General and administrative (“G&A”) expense for the three months and year ended December 31, 2021 increased by
$0.5 million and $8.5 million, respectively, increases of 12% and 75%. For the year ended December 31, 2021, the
Corporation’s G&A increased primarily due to the higher valuation of the Deferred Share Units liability included in
G&A which is revalued each reporting period, accounting for $4.1 million of the G&A increase when compared to
2020 as a result of the 333% increase in share price. Additionally, Advantage had an increase of $1.9 million in G&A
expense incurred under the cash‐based performance award incentive plan when compared to 2020 (see “Share‐
based Compensation”). The remaining G&A increase is primarily a result of increased staffing levels in 2021.
Share‐based Compensation
Share‐based compensation ($000)
Capitalized ($000)
Share‐based compensation expense ($000)
per boe
Three months ended
December 31
2021
1,761
(561)
1,200
0.27
2020
1,973
(689)
1,284
0.32
%
Change
(11)
(19)
(7)
(16)
Year ended
December 31
2021
2020
6,104
(2,051)
4,053
0.22
8,108
(2,830)
5,278
0.32
%
Change
(25)
(28)
(23)
(31)
The Corporation’s 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 Corporation’s restricted and performance award incentive plan,
Performance Share Units are granted to service providers of Advantage which cliff vest after three years from grant
date. Capitalized share‐based compensation is attributable to personnel involved with the development of the
Corporation’s capital projects.
The Corporation recognized $1.2 million and $4.1 million of share‐based compensation expense during the three
months and year ended December 31, 2021, respectively, and capitalized $0.6 million and $2.1 million, respectively.
For the year ended December 31, 2021, total share‐based compensation decreased by 25%, as a result of current
grants of long‐term compensation being balanced between 50% Performance Share Units and 50% Performance
Awards (see “General and Administrative Expense”) rather than entirely share‐based compensation. Additionally, in
the second quarter of 2021, certain Performance Share Units were settled in cash as opposed to common shares,
resulting in a reclassification between share‐based compensation and G&A of approximately $0.7 million.
Advantage Energy Ltd. - 25
Finance Expense
Cash finance expense ($000)
per boe
Accretion expense ($000)
Total finance expense ($000)
per boe
Three months ended
December 31
2021
2020
4,434
1.01
251
4,685
1.06
5,795
1.45
225
6,020
1.50
%
Change
(24)
(30)
(12)
(22)
(29)
Year ended
December 31
2021
2020
19,910
1.10
1,108
21,018
1.16
18,173
1.11
797
18,970
1.15
%
Change
10
(1)
39
11
1
Advantage realized lower cash finance expense during the three months ended December 31, 2021 as a result of
decreased average outstanding bank indebtedness when compared to the same period in 2020. Advantage’s bank
indebtedness 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 realized higher cash finance expense during
the year ended December 31, 2021, due to the 15‐year volume commitment agreement in the Glacier Gas Plant
which is treated as a financing transaction. Payments relating to the financing liability began July 1, 2020, and the
Corporation incurred $8.8 million in interest expense associated with these payments for the year ended December
31, 2021.
The Corporation’s Credit Facilities are exposed to interest rate risk. Interest rate risk is the risk that future cash flows
will fluctuate as a result of changes in market interest rates. Management has been proactive in entering into interest
rate derivative contracts for the purposes of reducing the volatility of interest. The Corporation has a $175 million
notional amount of fixed interest rate swaps covering April 2020 to March 2022 at a weighted average fixed rate of
0.81%. See “Financial Risk Management” for a summary of realized and unrealized interest rate derivative gains and
losses.
Depreciation and Impairment Expense (Recovery)
Depreciation expense ($000)
per boe
Impairment expense (recovery) ($000)
Three months ended
December 31
2021
25,998
5.89
(340,653)
2020
25,224
6.30
‐
%
Change
3
(7)
nm
Year ended
December 31
2021
106,786
5.92
(340,653)
2020
110,896
6.74
361,000
%
Change
(4)
(12)
nm
The decrease in depreciation expense during 2021 was attributable to a lower net book value associated with the
Corporation’s natural gas and liquids properties subsequent to booking an impairment in the first quarter of 2020,
offset by increased production in 2021 (see “Production).
For the three months ended December 31, 2021, the Corporation identified an indicator of impairment recovery as
a result of a recovery in forward commodity prices for natural gas and crude oil. The Corporation performed an
impairment reversal test on the Corporation’s previously impaired Greater Glacier (“Cash Generating Unit”) CGU
using after‐tax discounted future cash flows of proved and probable reserves, utilizing a discount rate of 10%, which
resulted in a full impairment recovery of $340.7 million (net of depreciation).
Advantage Energy Ltd. - 26
Taxes
Income tax expense (recovery) ($000)
Effective tax rate (%)
Three months ended
December 31
2021
108,890
23.2
2020
9,138
27.4
%
Change
nm
Year ended
December 31
2021
121,092
22.7
2020
(83,270)
22.7
%
Change
nm
Deferred income taxes arise from differences between the accounting and tax bases of our assets and liabilities. For
the year ended December 31, 2021, the Corporation recognized a deferred income tax expense of $121.1 million.
The expense for the year ended December 31, 2021 is a result of generating income before taxes and non‐controlling
interest of $411.4 million which was largely driven by the $340.7 million impairment recovery recognized in the fourth
quarter. As at December 31, 2021, the Corporation had a deferred income tax liability of $96.3 million.
The estimated tax pools available at December 31, 2021 are as follows:
($ 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
199.9
68.0
12.8
727.6
213.4
146.6
32.6
6.5
1,407.4
Net Income (Loss) and Comprehensive Income (Loss) attributable to Advantage shareholders
Net income (loss) and comprehensive
income (loss) attributable to Advantage
shareholders ($000)
per share ‐ basic
per share ‐ diluted
Three months ended
December 31
2021
2020
%
Change
Year ended
December 31
2021
2020
%
Change
360,035
1.90
1.81
24,168
0.13
0.12
nm
nm
nm
411,523
2.17
2.07
(284,045)
(1.51)
(1.51)
nm
nm
nm
Advantage recognized net income attributable to Advantage shareholders of $360.0 million and $411.5 million for
the three months and year ended December 31, 2021, respectively. For the year ended December 31, 2021, net
income and comprehensive income attributable to Advantage shareholders was higher when compared to 2020
largely due to the non‐cash impairment recovery of $340.7 million offset by a deferred tax expense of $121.1 million.
Additionally, the Corporation had increased unrealized gains on derivatives compared to the same periods of 2020
due to the increase in the embedded derivative (see “Financial Risk Management ”).
Advantage Energy Ltd. - 27
Cash Provided by Operating Activities and Adjusted Funds Flow (“AFF”)
($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 boe (1)
Adjusted funds flow per share (1)
Three months ended
December 31
2021
2020
67,464
253
3,510
71,227
16.15
0.37
30,260
610
868
31,738
7.92
0.17
Year ended
December 31
2021
223,152
1,033
10,639
234,824
13.01
1.24
2020
100,714
1,080
2,867
104,661
6.37
0.56
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
Change in Adjusted Funds Flow(3)
(Year ended December 31, 2021)
Increase
Decrease
$223.0
)
s
n
o
i
l
l
i
m
$
(
$23.9
$104.7
$69.9
$14.6
$17.1
$4.9
$8.5
$1.7
$234.8
(1)
(2)
(3)
The change in natural gas and liquids sales related to the change in production is determined by multiplying the prior period realized
price by current period production.
Finance expense excludes accretion of decommissioning liability.
Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
For the three months and year ended December 31, 2021, Advantage realized cash provided by operating activities
of $67.5 and $223.2 million, respectively, increases of $37.2 million and $122.4 million when compared to the same
periods of 2020. After adjusting for or non‐cash changes in working capital and expenditures on decommissioning
liability, the Corporation realized adjusted funds flow of $71.2 million and $234.8 million, increases of $39.5 million
and $130.2 million when compared to the same periods of 2020. The increase in cash provided by operating activities
and adjusted funds flow for the three months and year ended December 31, 2021 was largely due to the increase in
natural gas and liquids sales as a result of both significantly higher natural gas and crude oil benchmark prices and
increased total production (see “Commodity Prices and Marketing” and “Production”). This increase was partially
offset by increased realized losses on derivatives (see “Financial Risk Management“).
Advantage Energy Ltd. - 28
Cash Used in Investing Activities and Net Capital Expenditures
($000)
Drilling, completion and workovers
Well equipping and facilities
Property acquisitions
Other
Expenditures on property, plant and equipment
Expenditures on exploration and evaluation assets
Expenditures on intangible assets
Net capital expenditures (1)
Changes in non‐cash working capital
Project funding received
Cash used in investing activities
Three months ended
December 31
2021
2020
44,509
13,132
72
22
57,735
323
326
58,384
(13,431)
(14)
44,939
25,584
5,998
‐
778
32,360
30
‐
32,390
4,935
‐
37,325
Year ended
December 31
2021
114,697
31,912
1,545
81
148,235
677
491
149,403
(11,564)
(20,057)
117,782
2020
73,768
82,213
‐
971
156,952
983
‐
157,935
686
‐
158,621
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
$93.6
1%
Cash Used in Investing Activities and Net Capital Expenditures
63%
)
s
n
o
i
l
l
i
m
$
(
$65.2
36%
$44.9
$10.7
$32.4
2%
$21.3
30%
$37.3
19%
79%
100%
$11.2
70%
$58.4
1%
23%
$37.2
25%
75%
$15.1
$31.4
1%
$22.5
7%
$20.8
23%
70%
$36.9
14%
85%
$44.9
76%
Q2 20
Q1 20
Cash used in investing activities ($ millions)
Well equipping and facilities (% of Total)
Net capital expenditures ($ millions)
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
Drilling, completion and workovers (% of Total)
Exploration and evaluation assets & other (% of Total)
Advantage invested $58.4 million and $149.4 million on property, plant, and equipment, exploration and evaluation
assets and intangible assets during the three months and year ended December 31, 2021. On August 31, 2021,
Advantage announced an increase in our 2021 capital program by $20 million to a guidance range of $140 million to
$150 million (see New Release dated August 31, 2021). The additional capital optimized fourth quarter 2021
operational continuity and is delivering higher production into the winter markets.
Advantage Energy Ltd. - 29
Cash Used in Investing Activities and Net Capital Expenditures (continued)
Advantage continued its focus on natural gas development at Glacier and natural gas and liquids development at
Valhalla through much of 2021, with the drilling program shifting to oil development in Wembley during the fourth
quarter of 2021.
Glacier
Advantage’s foundational Glacier gas property has been the focus of our 2021 capital program with 20 gross (17.4
net) wells drilled and 27 gross (24.4 net) wells completed. Drilling performance resulted in the average time from
spud to rig release being 9.1 days. Well performance has also been exceptional with the 22 gross (21.4 net) wells
placed on production in 2021 achieving an average, peak IP30 rate of 9840 Mcf/d, despite being choked back to
minimize erosional risks and impacts on existing wells.
Valhalla
Advantage drilled 2 gross (2.0 net) wells in Valhalla during 2021. These wells were completed and brought on
production during the third quarter. The wells initial 30‐day average production rates were 2,410 boe/d (consisting
of 10.3 MMcf/d natural gas and 693 bbls/d condensate) and 1,995 boe/d (consisting of 9.4 MMcf/d natural gas, 426
bbls/d condensate), at 29% and 21% liquids, respectively (raw volumes measured at wellsite separator). Both wells
are flowing through Advantage infrastructure to our Glacier facility. The wells confirm Management’s view that the
Valhalla asset will play a critical role in the Corporation's liquids‐rich gas development plan.
Wembley/ Progress
At Wembley, development of this oil‐weighted property resumed in the fourth quarter of 2021 and continues in the
first quarter of 2022. Six wells being drilled will be completed during first quarter of 2022 and placed on production
in the second quarter of 2022.
Corporate
In the first half of 2021, Advantage closed two complementary asset acquisitions consisting of 12.4 net sections of
highly prospective Doig/Montney rights contiguous to our existing land base. This increases our Doig/Montney land
position to 228 net sections (145,920 net acres) and enhances our inventory of drill locations for gas and liquids‐rich
wells. The acquisitions were facilitated by Advantage’s dominant infrastructure position in the area. Total production
of the assets was 130 boe/d (0.8 MMcf/d natural gas and 5 bbls/d NGLs), which was already tied into Advantage’s
Glacier Gas Plant.
As of December 31, 2021, Advantage has incurred $20 million of cost related to the construction of the Phase 1 CCS
project which was offset by funding from the Government of Alberta’s Industrial Energy Efficiency and Carbon
Capture Utilization and Storage Program.
Entropy Inc.
During the year, Entropy incurred $0.5 million in net capital expenditures related to the Corporation’s technology
development program at the University of Regina’s Clean Energy Technologies Research Institute for the
development and testing of proprietary carbon capture solvents.
Advantage Energy Ltd. - 30
Commitments and Contractual Obligations
The Corporation has commitments and contractual obligations in the normal course of operations. Such
commitments include operating costs for our head office lease, natural gas processing costs associated with third‐
party facilities, and transportation costs for delivery of our natural gas and liquids (crude oil, condensate and NGLs)
production to sales points. Although such commitments are required to ensure our production is delivered to sales
markets, Advantage actively manages our portfolio of commitments in conjunction with our future development
plans and to ensure we are properly diversified to multiple markets. Contractual obligations comprise those liabilities
to third parties incurred for the purpose of financing Advantage’s business and development, including our bank
indebtedness.
The following table is a summary of the Corporation’s remaining commitments and contractual obligations.
Advantage has no guarantees or off‐balance sheet arrangements other than as disclosed.
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Performance Awards
Lease liability
Financing liability
Bank indebtedness (2)
‐ principal
‐ interest
Total contractual obligations
Total future payments
Total
2.3
59.6
455.0
516.9
17.3
2.4
162.5
168.0
6.2
356.4
873.3
2022
0.4
5.9
65.5
71.8
5.6
0.4
12.0
‐
5.0
23.0
94.8
Payments due by period
2025
2024
0.4
0.4
9.5
10.0
57.8
59.6
67.7
70.0
2023
0.4
7.9
62.5
70.8
6.0
0.4
12.0
168.0
1.2
187.6
258.4
5.7
0.4
12.1
‐
‐
18.2
88.2
‐
0.4
12.0
‐
‐
12.4
80.1
2026
0.4
7.0
50.6
58.0
Beyond
0.3
19.3
159.0
178.6
‐
0.4
12.0
‐
‐
12.4
70.4
‐
0.4
102.4
‐
‐
102.8
281.4
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability.
(2) As at December 31, 2021 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 May 2022. 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.
)
s
n
o
i
l
l
i
m
$
(
70.0
60.0
50.0
40.0
30.0
20.0
10.0
‐
$65.5
10%
47%
43%
2022
Transportation Commitments
$62.5
$59.6
17%
42%
41%
2023
20%
44%
36%
2024
$57.8
19%
45%
36%
2025
$50.6
21%
48%
31%
2026
Natural Gas Transportation
Liquids Transportation
Natural Gas Market Diversification Transportation
Total Transportation
Advantage Energy Ltd. - 31
Liquidity and Capital Resources
The following table is a summary of the Corporation’s capitalization structure:
($000, except as otherwise indicated)
Bank indebtedness (non‐current)
Working capital (surplus) deficit (1)
Net debt (1)
Shares outstanding
Shares closing market price ($/share)
Market capitalization
Total capitalization
Net debt to adjusted funds flow ratio (1)
Year ended
December 31, 2021
167,345
(2,092)
165,253
190,828,976
7.41
1,414,043
1,579,296
0.7
Year ended
December 31, 2020
247,105
4,292
251,397
188,112,797
1.71
321,673
573,070
2.4
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
As at December 31, 2021, Advantage had a $350 million Credit Facility of which $171.2 million or 49% was available
after deducting letters of credit of US$9 million outstanding (see “Bank Indebtedness, Credit Facilities and Other
Liabilities”). The Corporation’s adjusted funds flow was utilized to fund our capital expenditure program of $149.4
million and decrease bank indebtedness by $79.8 million with a net debt to adjusted funds flow ratio of 0.7 times.
Advantage continues to be focused on strengthening the balance sheet, maintaining a disciplined commodity risk
management program, and increasing available liquidity such that it is well positioned to continue successfully
executing its multi‐year development plan. Additionally, Advantage has experienced a significant increase in its
market capitalization during 2021 when compared to December 31, 2020, which provides the Corporation flexibility
in managing its capital structure.
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.
Advantage Energy Ltd. - 32
Bank Indebtedness, Credit Facilities and Other Liabilities
As at December 31, 2021, Advantage had bank indebtedness outstanding of $167.3 million, a decrease of $79.8
million since December 31, 2020. Advantage’s Credit Facilities have a borrowing base of $350 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 (“LMR") as determined by the AER 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 independent 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 November 2021, the semi‐annual
redetermination of the Credit Facilities borrowing base was completed with no changes to the borrowing base of
$350 million, comprised of a $30 million extendible revolving operating loan facility from one financial institution and
a $320 million extendible revolving loan facility from a syndicate of financial institutions. The next annual review is
scheduled to occur in May 2022. 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 surplus of $2.1 million as at December 31, 2021, an increase in the surplus of $6.4
million compared to December 31, 2020 due to increased receivables tied to higher commodity prices and differences
in the timing of capital expenditures and related payments. Our working capital includes cash and cash equivalents,
trade and other receivables, prepaid expenses and deposits, trade 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.
In 2020, Advantage closed the sale of a 12.5% interest in the Corporation’s 400 MMcf/d Glacier Gas Plant for proceeds
of $100 million (before transaction costs) and entered into a 15‐year take‐or‐pay volume commitment agreement
with the purchaser for 50 MMcf/d capacity at a fee of $0.66/Mcf. The volume commitment agreement is treated as
a financing transaction where Advantage is obligated to make fixed payments to the purchaser over the course of
the 15‐year term. The effective interest rate associated with the financing transaction is 9.1%. For the year ended
December 31, 2021, the Corporation made cash payments of $12.0 million (December 31, 2020 ‐ $6.1 million) under
the take‐or‐pay volume commitment agreement.
In the first quarter of 2021, the Corporation received a $20.0 million grant under the Government of Alberta’s
Industrial Energy Efficiency and Carbon Capture Utilization and Storage Program to be utilized solely for project
expenditures related to reducing carbon emissions. Advantage shall not use the funding for more than 75% of the
total project expenses, whereby any excess would result in a proportionate repayment of the project funding. As at
December 31, 2021, Advantage has incurred $20.0 million in eligible expenditures on the Phase 1 CCS project, which
is expected to be completed by the second quarter of 2022.
As at December 31, 2021, Advantage had a decommissioning liability of $62.5 million (December 31, 2020 – $60.9
million) for the future abandonment and reclamation of the Corporation’s natural gas and liquids properties. The
decommissioning liability includes assumptions in respect of actual costs to abandon and reclaim wells and facilities,
the time frame in which such costs will be incurred, annual inflation factors and discount rates. The total estimated
undiscounted, uninflated cash flows required to settle the Corporation’s decommissioning liability was $57.6 million
(December 31, 2020 – $55.2 million), with 56% of these costs to be incurred beyond 2050. Actual spending on
decommissioning for the year ended December 31, 2021 was $1.0 million (December 31, 2020 – $1.1 million).
Advantage continues to maintain an industry leading LMR of 25.6, demonstrating that the Corporation has no issues
addressing its abandonment, remediation, and reclamation obligations.
Advantage Energy Ltd. - 33
Non‐controlling interest (“NCI”)
At December 31, 2020, Advantage owned 100% of Entropy Inc., a private corporation engaged in commercializing
energy‐transition technologies.
On May 5, 2021, Entropy issued common shares to Advantage and Allardyce Bower Holdings Inc. (“ABC”) in exchange
for intangibles and intellectual property, resulting in Advantage and ABC owning 90% and 10% of Entropy,
respectively. Advantage consolidates 100% of Entropy and has recognized a non‐controlling interest in shareholders’
equity, representing the carrying value of the 10% shareholding of Entropy held by outside interests. ABC’s
contribution of intellectual property to Entropy resulted in the recognition of an intangible asset of $2.5 million.
For the year ended December 31, 2021, the net loss and comprehensive loss attributed to non‐controlling interest
was $0.2 million (December 31, 2020 ‐ nil).
Shareholders’ Equity
As at December 31, 2021, a total of 4.9 million Performance Share Units were outstanding under the Restricted and
Performance Award Incentive Plan, which represents 2.6% of Advantage’s total outstanding common shares. As at
February 24, 2022, Advantage had 190.8 million common shares outstanding.
Annual Financial Information
The following is a summary of select financial information of the Corporation for the years indicated.
Total sales ($000) (1)
Net income (loss) ($000)
Per share ‐ basic
Per share ‐ diluted
Total assets ($000)
Long‐term financial liabilities ($000) (2)
Year ended
December 31, 2021
492,035
411,354
2.17
2.07
1,994,990
260,833
Year ended
December 31, 2020
245,085
(284,045)
(1.51)
(1.51)
1,533,709
343,969
Year ended
December 31, 2019
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 are comprised of bank indebtedness and financing liability.
Advantage Energy Ltd. - 34
Quarterly Performance
($000, except as otherwise indicated)
Financial Statement Highlights
Na tura l ga s a nd l iquids s a les
Net income (l os s ) a nd comprehens i ve i ncome (l os s )
per bas i c s ha re (2)
Bas i c wei ghted a verage s hares (000)
Ca s h provided by opera ti ng acti vi ti es
Ca s h provided by (us ed i n) financi ng acti vi ties
Ca s h us ed i n inves ting a ctiviti es
Other Financial Highlights
Adjus ted funds fl ow (1)
per boe (1)
per bas i c s ha re (1)(2)
Net ca pi tal expenditures (1)
Free ca s h fl ow (1)
Working ca pita l (s urpl us ) defi cit (1)
Bank i ndebtednes s
Net debt (1)
Operating Highlights
Production
Crude oi l (bbls /d)
Condens a te (bbl s /d)
NGLs (bbl s /d)
Tota l li qui ds producti on (bbl s /d)
Na tura l ga s (mcf/d)
Tota l producti on (boe/d)
Avera ge pri ces (i ncl udi ng real i zed deri va ti ves )
Na tura l ga s ($/mcf)
Li qui ds ($/bbl )
Operating Netback ($/boe)
Na tura l ga s a nd l iquids s a les
Rea l ized ga ins (los s es ) on deri va tives
Royal ty expens e
Opera ting expens e
Trans portati on expens e
Opera ting netback (1)
2021
2020
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
71,227
16.15
0.37
58,384
12,843
2,092
167,345
165,253
816
1,012
2,524
4,352
261,530
47,940
4.17
54.70
36.11
(8.41)
(2.02)
(2.92)
(4.48)
18.28
134,354
43,098
0.23
190,829
46,988
(26,960)
(36,940)
99,053
8,725
0.04
190,501
57,134
(21,480)
(20,834)
99,373
(425)
0.00
188,113
51,566
(7,548)
(15,069)
63,353
46,266
53,978
13.77
0.33
31,352
32,001
(25,891)
193,828
167,937
1,038
1,002
2,684
4,724
271,804
50,025
3.48
53.42
29.19
(5.21)
(1.75)
(2.38)
(3.86)
15.99
10.17
0.24
22,482
23,784
(24,520)
219,856
195,336
1,163
637
2,490
4,290
274,328
50,011
2.81
56.91
21.76
(2.12)
(1.20)
(2.21)
(3.72)
12.51
12.04
0.29
37,185
16,793
(25,924)
240,428
214,504
1,395
721
2,493
4,609
271,262
49,819
3.07
53.20
22.16
(0.87)
(1.13)
(2.45)
(3.57)
14.14
73,203
24,168
0.13
188,113
30,260
5,071
(37,325)
31,738
7.92
0.17
32,390
(652)
4,292
247,105
251,397
1,653
653
2,234
4,540
233,949
43,532
2.45
37.62
18.28
(0.74)
(0.77)
(2.68)
(3.62)
10.47
60,063
(21,606)
(0.11)
188,113
25,271
(15,436)
(11,220)
23,571
5.76
0.13
21,252
2,319
9,093
241,161
250,254
1,812
605
2,312
4,729
238,315
44,448
1.81
34.59
14.69
(1.03)
(0.63)
(2.35)
(3.12)
7.56
47,634
(20,088)
(0.11)
187,901
24,357
23,492
(44,855)
17,259
4.19
0.09
10,663
6,596
3,295
354,199
357,494
2,018
627
2,001
4,646
243,749
45,271
1.72
17.56
11.56
0.23
(0.26)
(2.43)
(3.34)
5.76
64,185
(266,519)
(1.43)
186,911
20,826
34,960
(65,221)
32,093
7.59
0.17
93,630
(61,537)
34,284
330,644
364,928
1,172
979
1,563
3,714
256,463
46,458
2.11
44.61
15.18
0.38
(0.89)
(2.28)
(3.50)
8.89
(1)
Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
(2) Based on basic weighted average shares outstanding.
The table above highlights the Corporation’s performance for the fourth quarter of 2021 and for the preceding seven
quarters. Production decreased through 2020 associated with prudent capital restraint given the uncertain
commodity price environment and the COVID‐19 pandemic. Advantage’s second half 2020 capital program was
focused on Glacier as natural gas prices strengthened. New natural gas production came onstream late in 2020 due
to minor equipment delays impacting the completion of new wells and a third‐party facility outage, with production
in the first half of 2021 significantly increasing to 50,011 boe/d for the second quarter and remaining steady at
50,025 boe/d for the third quarter of 2021. Production decreased in the fourth quarter of 2021 due to unplanned
“firm service” restrictions on TC Energy’s NGTL system.
Advantage Energy Ltd. - 35
Quarterly Performance (continued)
Natural gas and liquids sales and adjusted funds flow was impacted by the decrease in commodity prices due to the
COVID‐19 pandemic which escalated at the end of the first quarter of 2020 and continued through the year. Natural
gas and liquids sales and adjusted funds flow increased significantly in the first through fourth quarter of 2021 as a
result of increased natural gas production accompanied with strong natural gas benchmark prices. 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. The Corporation incurred a large net loss in the first quarter of 2020 due to an impairment charge which
was triggered by the COVID‐19 pandemic impact on anticipated future commodity prices due to supply and demand
outlooks. This impairment charge was recovered in the fourth quarter of 2021, attributed to the significant
improvement in commodity prices, resulting in a significant increase to net income in the fourth quarter.
Climate change‐related risk and opportunities
Advantage is committed to positive action on emissions reduction. Advantage’s Scope 1 and 2 emissions are expected
to be reduced by approximately 20% starting in the second quarter of 2022 with the installation of the Phase I CCS
equipment at the Glacier Gas Plant with a further 40% reduction once Phase II is complete (planned for mid‐2023).
Advantage intends to achieve “net zero” Scope 1 and 2 emissions as early as 2025. In order to accomplish this,
Advantage’s subsidiary Entropy Inc. is pursuing a carbon capture and storage business plan that will result in negative
carbon emissions in excess of Advantage’s emissions, assuming that appropriate capitalization and commercial
agreements are achieved, and that Advantage retains a controlling ownership of Entropy. For further informational
on the Corporation’s sustainability results and targets, please view our sustainability report on the Corporation’s
website: https://www.advantageog.com/sustainability.
Capital Expenditures
Advantage has multiple capital projects planned at the Glacier Gas Plant to be constructed through its subsidiary
Entropy, that once completed, will lead to the Corporation progressing with its greenhouse gas (“GHG”) reduction
targets. Phase 1 which is currently under construction is expected to be onstream in the second quarter of 2022 and
will reduce the Corporations emissions by approximately 47,000 tonnes CO2e/year at a capital cost of $27 million.
Advantage received a grant of $20 million in 2021 under the Government of Alberta’s Industrial Energy Efficiency and
Carbon Capture Utilization and Storage Program to be used for the construction of the Phase 1 CCS project, with
Advantage providing the remaining $7 million of capital.
Phase 2 is expected to be onstream in the second quarter of 2023 and will reduce the Corporations emissions by
136,000 tonnes CO2e/year at a capital cost estimated at approximately $49 million. Upon completion of Phase 2,
Advantage will have achieved a new class of low emissions energy which the Corporation plans to market as “blue
natural gas”. Entropy is expected to incur the capital cost for the Phase 2 project.
Carbon Emissions Reporting and Taxes
All of Advantage’s production is in Alberta and governed by legislation regulating carbon emissions targets, reporting
and taxes. Facilities that exceed 100,000 tonnes of GHG emissions annually are subject to various emission
regulations under the Technology Innovation and Emissions Reduction Regulation (“TIER”) for large industrial
emitters. The Glacier Gas Plant has been subject to TIER or predecessor regulations since 2015. Due to our Glacier
Gas Plant’s emission efficiency relative to other plants and including its carbon capture and sequestration program,
we have generated carbon credits every year through 2020 and have incurred minimal payment obligations.
Advantage Energy Ltd. - 36
Impact of the COVID‐19 Pandemic
Advantage’s business and financial condition could be materially and adversely affected by the continuing COVID ‐19
pandemic. COVID‐19 and variant strains of the virus has led to ongoing uncertainty surrounding demand for
commodities, leading to volatile prices and currency exchange rates. The Corporation’s operations and business are
particularly sensitive to a reduction in the demand for, and prices of crude oil, NGLs and natural gas. Additionally, the
Corporation’s operations may face challenges due to disruptions to global supply chains, labor shortages; shelter‐in‐
place declarations and quarantine orders where the Corporation has operations. The potential direct and indirect
impacts of the COVID‐19 pandemic have been considered in Management’s estimates and assumptions at period
end and have been reflected in the Consolidated Financial Statements for the year ended December 31, 2021.
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, impairment and impairment reversals 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.
Advantage Energy Ltd. - 37
Critical Accounting Estimates (continued)
income taxes and the provision for
Management’s process of determining the provision for deferred
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. For embedded derivatives, Management assesses and determines the definition of the host contract
and the separate embedded derivative. The judgements made in determining the host contract can influence the fair
value of the embedded derivative.
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
There have been no changes in accounting policies during the year ended December 31, 2021.
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, 2021.
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, 2021. 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.
Advantage Energy Ltd. - 38
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, 2021. 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 quarter ended December
31, 2021 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 Energy Ltd. - 39
Specified Financial Measures
Throughout this MD&A and in other documents disclosed by the Corporation, Advantage discloses certain measures
to analyze financial performance, financial position, and cash flow. These non‐GAAP and other financial measures do
not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures
presented by other entities. The non‐GAAP and other financial measures should not be considered to be more
meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss) and
comprehensive income (loss), cash provided by operating activities, and cash used in investing activities, as indicators
of Advantage’s performance.
Non‐GAAP Financial Measures
Adjusted Funds Flow
The Corporation considers adjusted funds flow to be a useful measure of Advantage’s ability to generate cash from
the production of natural gas and liquids, which may be used to settle outstanding debt and obligations, support
future capital expenditures plans, or return capital to shareholders. Changes in non‐cash working capital are excluded
from adjusted funds flow as they may vary significantly between periods and are not considered to be indicative of
the Corporation’s operating performance as they are a function of the timeliness of collecting receivables and paying
payables. Expenditures on decommissioning liabilities are excluded from the calculation as the amount and timing of
these expenditures are unrelated to current production and are partially discretionary due to the nature of our low
liability. A reconciliation of the most directly comparable financial measure has been provided below:
($000)
Cash provided by operating activities
Expenditures on decommissioning liability
Changes in non‐cash working capital
Adjusted funds flow
Net Capital Expenditures
Three months ended
December 31
2021
2020
67,464
253
3,510
71,227
30,260
610
868
31,738
Year ended
December 31
2021
223,152
1,033
10,639
234,824
2020
100,714
1,080
2,867
104,661
Net capital expenditures include total capital expenditures related to property, plant and equipment, exploration
and evaluation assets and intangible assets. Management considers this measure reflective of actual capital activity
for the period as it excludes changes in working capital related to other periods and excludes cash receipts on
government grants. A reconciliation of the most directly comparable financial measure has been provided below:
($000)
Cash used in investing activities
Changes in non‐cash working capital
Project funding received
Net capital expenditures
Three months ended
December 31
2021
2020
44,939
13,431
14
58,384
37,325
(4,935)
‐
32,390
Year ended
December 31
2021
117,782
11,564
20,057
149,403
2020
158,621
(686)
‐
157,935
Advantage Energy Ltd. - 40
Specified Financial Measures (continued)
Non‐GAAP Financial Measures (continued)
Free Cash Flow
Advantage computes free cash flow as adjusted funds flow less net capital expenditures. Advantage uses free cash
flow as an indicator of the efficiency and liquidity of Advantage’s business by measuring its cash available after net
capital expenditures to settle outstanding debt and obligations and potentially return capital to shareholders by
paying dividends or buying back common shares. A reconciliation of the most directly comparable financial measure
has been provided below:
($000)
Cash provided by operating activities
Cash used in investing activities
Changes in non‐cash working capital
Expenditures on decommissioning liability
Project funding received
Free cash flow
Operating Netback
Three months ended
December 31
2021
2020
67,464
(44,939)
(9,921)
253
(14)
12,843
30,260
(37,325)
5,803
610
‐
(652)
Year ended
December 31
2021
223,152
(117,782)
(925)
1,033
(20,057)
85,421
2020
100,714
(158,621)
3,553
1,080
‐
(53,274)
Operating netback is comprised of sales revenue and realized gains (losses) on derivatives, 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. The composition of operating netback is as follows:
($000)
Natural gas and liquids sales
Realized losses on derivatives
Royalty expense
Operating expense
Transportation expense
Operating netback
Three months ended
December 31
Year ended
December 31
2021
159,255
(37,088)
(8,928)
(12,870)
(19,768)
80,601
2020
73,203
(2,949)
(3,067)
(10,750)
(14,488)
41,949
2021
492,035
(74,578)
(27,530)
(44,893)
(70,440)
274,594
2020
245,085
(4,640)
(10,474)
(40,005)
(55,817)
134,149
Advantage Energy Ltd. - 41
Specified Financial Measures (continued)
Non‐GAAP Ratios
Adjusted Funds Flow per Share
Adjusted funds flow per share is derived by dividing adjusted funds flow by the basic weighted average shares
outstanding of the Corporation. Management believes that adjusted funds flow per share provides investors an
indicator of funds generated from the business that could be allocated to each shareholder's equity position.
($000, except as otherwise indicated)
Adjusted funds flow
Weighted average shares outstanding (000)
Adjusted funds flow per share ($/share)
Adjusted Funds Flow per BOE
Three months ended
December 31
2021
71,227
190,829
0.37
2020
31,738
188,113
0.17
Year ended
December 31
2021
234,824
190,077
1.24
2020
104,661
187,761
0.56
Adjusted funds flow per boe is derived by dividing adjusted funds flow by the total production in boe for the reporting
period. Adjusted funds flow per boe is a useful ratio that allows users to compare the Corporation’s adjusted funds
flow against other competitor corporations with different rates of production.
($000, except as otherwise indicated)
Adjusted funds flow
Total production (boe/d)
Days in period
Total production (000 boe)
Adjusted funds flow per BOE ($/boe)
Operating netback per BOE
Three months ended
December 31
2021
2020
71,227
47,940
92
4,410
16.15
31,738
43,532
92
4,005
7.92
Year ended
December 31
2021
234,824
2020
104,661
49,445
365
18,047
13.01
44,922
366
16,441
6.37
Operating netback per boe is derived by dividing each component of the operating netback by the total production
in boe for the reporting period. Operating netback per boe provides Management and users with a measure to
compare the profitability of field operations between companies, development areas and specific wells against other
competitor corporations with different rates of production.
($000, except as otherwise indicated)
Operating netback
Total production (boe/d)
Days in period
Total production (000 boe)
Operating netback per BOE ($/boe)
Three months ended
December 31
2021
2020
80,600
47,940
92
4,410
18.28
41,949
43,532
92
4,005
10.47
Year ended
December 31
2021
274,593
2020
134,149
49,445
365
18,047
15.21
44,922
366
16,441
8.17
Advantage Energy Ltd. - 42
Specified Financial Measures (continued)
Non‐GAAP Ratios (continued)
Payout Ratio
Payout ratio is calculated by dividing net capital expenditures by adjusted funds flow. Advantage uses payout ratio
as an indicator of the efficiency and liquidity of Advantage's business by measuring its cash available after net capital
expenditures to settle outstanding debt and obligations and potentially return capital to shareholders by paying
dividends or buying back common shares.
($000, except as otherwise indicated)
Net capital expenditures
Adjusted funds flow
Payout ratio
Net Debt to Adjusted Funds Flow Ratio
Three months ended
December 31
2021
2020
58,384
71,227
0.8
32,390
31,738
1.0
Year ended
December 31
2021
149,403
234,824
0.6
2020
157,935
104,661
1.5
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 bank indebtedness if it devoted all its adjusted funds flow to debt
repayment.
($000, except as otherwise indicated)
Net Debt
Adjusted funds flow (prior four quarters)
Net debt to adjusted funds flow ratio
Capital Management Measures
Working capital
Year ended
December 31
2021
165,253
234,824
0.7
2020
251,397
104,661
2.4
Working capital is a capital management financial measure that provides Management and users with a measure of
the Corporation’s short‐term operating liquidity. By excluding short term derivatives and the current portion of
provision and other liabilities, Management and users can determine if the Corporation’s energy operations are
sufficient to cover the short‐term operating requirements. Working capital is not a standardized measure and
therefore may not be comparable with the calculation of similar measures by other entities.
A summary of working capital as at December 31, 2021 and December 31, 2020 is as follows:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Trade and other accrued liabilities
Working capital surplus (deficit)
December 31
2021
25,238
54,769
3,483
(81,398)
2,092
December 31
2020
3,279
28,491
2,021
(38,083)
(4,292)
Advantage Energy Ltd. - 43
Specified Financial Measures (continued)
Net Debt
Net debt is a capital management financial measure that provides Management and users with a measure to assess
the Corporation’s liquidity. Net debt is not a standardized measure and therefore may not be comparable with the
calculation of similar measures by other entities.
A summary of the reconciliation of net debt as at December 31, 2021 and December 31, 2020 is as follows:
Bank indebtedness (non‐current) (note 12)
Working capital (surplus) deficit
Net debt
Supplementary Financial Measures
Average Realized Prices
December 31
2021
167,345
(2,092)
165,253
December 31
2020
247,105
4,292
251,397
The Corporation discloses multiple average realized prices within the MD&A (see “Commodity Prices and
Marketing”). The determination of these prices are as follows:
“Natural gas excluding derivatives” is comprised of natural gas sales, as determined in accordance with IFRS, divided
by the Corporation’s natural gas production.
“Natural gas including derivatives” is comprised of natural gas sales, including realized gains (losses) on natural gas
derivatives, as determined in accordance with IFRS, divided by the Corporation’s natural gas production.
“Crude Oil” is comprised of crude oil sales, as determined in accordance with IFRS, divided by the Corporation’s crude
oil production.
“Condensate” is comprised of condensate sales, as determined in accordance with IFRS, divided by the Corporation’s
condensate production.
“NGLs” is comprised of NGLs sales, as determined in accordance with IFRS, divided by the Corporation’s NGLs
production.
“Total liquids excluding derivatives” is comprised of crude oil, condensate and NGLs sales, as determined in
accordance with IFRS, divided by the Corporation’s crude oil, condensate and NGLs production.
“Total liquids including derivatives” is comprised of crude oil, condensate and NGLs sales, including realized gains
(losses) on crude oil derivatives as determined in accordance with IFRS, divided by the Corporation’s crude oil,
condensate and NGLs production.
Advantage Energy Ltd. - 44
Specified Financial Measures (continued)
Dollars per BOE figures
Throughout the MD&A, the Corporation presents certain financial figures, in accordance with IFRS, stated in dollars
per boe. These figures are determined by dividing the applicable financial figure as prescribed under IRFS by the
Corporation’s total production for the respective period. Below is a list of figures which have been presented in the
MD&A in $ per boe:
Cash finance expense per boe
Depreciation expense per boe
Finance expense per boe
General and administrative expense per boe
Natural gas and liquids sales per boe
Operating expense per boe
Realized losses on derivatives per boe
Royalty expense per boe
Share‐based compensation expense per boe
Transportation expense per boe
Sustaining Capital
Sustaining capital is management’s estimate of the net capital expenditures required to drill, complete, equip and
tie‐in new wells to existing infrastructure thereby offsetting the corporate decline rate and maintain production at
existing levels.
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.
Advantage Energy Ltd. - 45
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
Crude oil
“NGLs" & “condensate”
Natural gas
Liquids
AECO
MSW
NGTL
WTI
CCS
MCCS
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
‐ Light Crude Oil and Medium Crude Oil as defined in National Instrument 51‐101
‐ Natural Gas Liquids as defined in National Instrument 51‐101
‐ Conventional Natural Gas as defined in National Instrument 51‐101
‐ Total of crude oil, condensate and NGLs
‐ 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
‐ Carbon Capture and Storage
‐ Modular Carbon Capture and Storage
‐ not meaningful information
Advantage Energy Ltd. - 46
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 revised guidance for 2021, and
the additional capital's ability to deliver higher production into the winter markets; the focus of Advantage's 2022
capital program and its ability to grow adjusted funds flow per share, increase liquids revenue and make
infrastructure investments that increase third‐party processing revenue or establish carbon revenue for Entropy; the
Corporation's expected payout ratio; that the Corporation will dedicate free cash flow towards debt reduction;
guidance for 2022 including the cash used in investing activities, average production, liquids production (% of total
production), royalty rate, operating expense, transportation expense and G&A/finance expense; that Entropy's non‐
binding financing agreement will lead to a completed financing and the anticipated timing and benefits to be derived
therefrom; anticipated production rates in 2022; the Corporation's forecasted 2022 natural gas market exposure
including the anticipated effective production rate; rate; the Corporation's expected number of wells to be drilled in
the first quarter of 2022 and placed on production in the second quarter of 2022; the Corporation's hedging activities
and the benefits to be derived therefrom; future commitments and contractual obligations and the anticipated
payments in connection therewith and the anticipated timing thereof; the Corporation's ability to ensure that it is
properly diversified to multiple markets; the terms of the Corporation's derivative contracts, including their purposes,
the timing of settlement of such contracts and the anticipated benefits to be derived therefrom; the Corporation's
anticipated 2022 annual operating expense per boe and transportation expense per boe; estimated tax pools; the
Corporation's anticipated; terms of the Corporation's Credit Facilities, including timing of the next review of the Credit
Facilities and the Corporation's expectations regarding extension of the Credit Facilities at each annual review; the
Corporation's ability to strengthen its balance sheet, maintain a disciplined commodity risk management program
and increase available liquidity; the Corporation's expectations that it is well positioned to continue successfully
executing its multi‐year development plan; expectations that Advantage's increase in market capitalization will
provide the Corporation with flexibility in managing its capital structure; the Corporation's strategy for managing its
capital structure, including 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 Corporation's ability to satisfy all liabilities and
commitments and meet future obligations as they become due and the means for satisfying such future obligations;
expectations that the Phase 1 CCS project will be completed by the second quarter of 2022; the Corporation's
anticipated reductions in Scope 1 and 2 emissions and the anticipated timing thereof; the Corporation's expectations
that it will achieve "net zero" Scope 1 and 2 emissions by 2025; the benefits to be derived from Entropy's planned
capital projects and the expectation that they will result in completed CCS projects and the anticipated timing
thereof; that the Phase 2 CCS project will come on‐stream and the anticipated benefits to be derived therefrom and
the anticipated timing thereof; 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 conditions
(including as a result of demand and supply effects resulting from the COVID‐19 pandemic and the actions of OPEC
and non‐OPEC countries) which will, among other things, impact demand for and market prices of the Corporation’s
products, market and business conditions; continued volatility in market prices for oil and natural gas; the impact of
Advantage Energy Ltd. - 47
Forward‐Looking Information and Other Advisories (continued)
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; the number of wells to be drilled in the first quarter of 2022 and placed on production in
the second quarter of 2022 will be less than anticipated lack of available capacity on pipelines; delays in timing of
facility installation; potential disruption of the Corporation’s operations as a result of the COVID‐19 pandemic
through potential loss of manpower and labour pools resulting from quarantines in the Corporation’s operating
areas, risk on the financial capacity of the Corporation's contract counterparties and potentially their ability to
perform contractual obligations, delays in obtaining stakeholder and regulatory approvals; performance or
achievement could differ materially from those expressed in, or implied by, the forward‐looking information; 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; that the Glacier CCS project will not come on‐stream when expected; that Advantage will not be able to achieve
"net zero" emissions by 2025; that Entropy's existing planned capital projects will not result in completed CCS
projects; the price of and market for carbon credits and offsets; current and future carbon prices and royalty regimes;
that Entropy's non‐binding financing may not be completed on the anticipated terms or at all; 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; the impact (and the duration thereof) that the COVID‐19 pandemic will have on (i) the demand for crude oil,
NGLs and natural gas, (ii) the supply chain, including the Corporation's ability to obtain the equipment and services
it requires, and (iii) the Corporation's ability to product, transport and/or sell its crude oil, NGLs 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 ability to
efficiently integrate assets acquired through acquisitions; 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 Entropy's non‐binding
financing agreement will lead to a completed financing; that Entropy's planned capital projects will lead to completed
CCS projects; 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.
Advantage Energy Ltd. - 48
Forward‐Looking Information and Other Advisories (continued)
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 information that may be considered a financial outlook under applicable securities laws about
the Corporation's potential financial position, including, but not limited to, the Corporation's expected payout ratio;
the Corporation's anticipated cash used in investing activities; anticipated average production, liquids production,
royalty rate, operating expenses, transportation expenses and G&A/finance expenses in 2022; and the Corporation's
expected 2022 annual operating expense per boe and transportation expense per boe; all of which are subject to
numerous assumptions, risk factors, limitations and qualifications, including those set forth in the above paragraphs.
The actual results of operations of the Corporation and the resulting financial results will vary from the amounts set
forth in this MD&A and such variations may be material. This information has been provided for illustration only and
with respect to future periods are based on budgets and forecasts that are speculative and are subject to a variety
of contingencies and may not be appropriate for other purposes. Accordingly, these estimates are not to be relied
upon as indicative of future results. Except as required by applicable securities laws, the Corporation undertakes no
obligation to update such financial outlook. The financial outlook contained in this MD&A was made as of the date
of this MD&A and was provided for the purpose of providing further information about the Corporation's potential
future business operations. Readers are cautioned that the financial outlook contained in this MD&A is not conclusive
and is subject to change.
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 “Specified Financial Measures” section of this MD&A
for additional disclosure on “operating netback”.
References in this MD&A to short‐term production rates are useful in confirming the presence of hydrocarbons,
however such rates are not determinative of the rates at which such wells will commence production and decline
thereafter and are not indicative of long‐term performance or of ultimate recovery. Additionally, such rates may also
include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not
to place reliance on such rates in calculating the aggregate production of Advantage.
References to natural gas, crude oil and condensate and NGLs production in the MD&A refer to conventional natural
gas, light crude oil and medium crude oil and natural gas liquids, respectively, product types as defined in National
Instrument 51‐101.
Advantage Energy Ltd. - 49
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 24, 2022
Advantage Energy Ltd. - 50
(Formerly, Advantage Oil & Gas Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
Advantage Energy Ltd. - 51
Independent auditor’s report
To the Shareholders of Advantage Energy Ltd. (formerly, 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 Energy Ltd. (formerly, Advantage Oil & Gas Ltd.) and its subsidiaries
(together, the “Corporation”) as at December 31, 2021 and 2020, 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 Corporation’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated statements of financial position as at December 31, 2021 and 2020;
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 significant accounting policies and
other explanatory information.
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 Corporation 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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
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.
Key audit matter
How our audit addressed the key audit matter
The impact of proved and probable reserves on
net property, plant and equipment (“PP&E”) for
the Corporation’s natural gas and liquids
properties
Refer to note 3 – Significant accounting policies,
note 4 – Significant accounting judgments,
estimates and assumptions and note 10 – Property,
plant and equipment to the consolidated financial
statements.
The Corporation has $1,826.7 million of net natural
gas and liquids properties as at December 31,
2021. Depreciation expense for these properties
was $106.2 million for the year then ended. Natural
gas and liquids properties are depreciated using the
units-of-production 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.
At each reporting date, the Corporation assesses
the carrying amounts of PP&E to determine
whether there is any indication of impairment or
impairment reversal. If any such indication exists,
the asset’s recoverable amount is estimated. PP&E
assets are tested for impairment or impairment
reversal by comparing the carrying values to their
recoverable amounts. For the purpose of
impairment and impairment reversal testing of
PP&E, assets are grouped into cash generating
units (“CGUs”) and recoverable amounts are
determined based on their fair values less costs of
disposition. Management estimated the fair value
less costs of disposition using the after-tax
discounted future cash flows of proved and
probable reserves. The proved and probable
reserves are prepared by the Corporation’s
independent qualified reserve evaluators
(“management’s experts”).
Our approach to addressing the matter included the
following procedures, among others:
•
•
The work of management’s experts was used
in performing the procedures to evaluate the
reasonableness of the proved and probable
reserves used to determine depreciation
expense and the recoverable amounts of PP&E
for the Corporation’s natural gas and liquids
properties. As a basis for using this work, the
competence, capabilities and objectivity of
management’s experts were evaluated, the
work performed was understood and the
appropriateness of the work as audit evidence
was evaluated. The procedures performed also
included evaluation of the methods and
assumptions used by management’s experts,
tests of the data used by management’s
experts and an evaluation of their findings.
Tested how management determined the
recoverable amount of the Corporation’s CGUs
and depreciation expense, which included the
following:
−
−
Evaluated the appropriateness of the
methods used by management in making
these estimates.
Tested the data used in determining these
estimates.
− Evaluated the reasonableness of significant
assumptions used by management in
developing the underlying estimates,
including:
○ Future commodity prices, expected
production volumes, quantities of
reserves, future development costs and
operating costs by considering the past
performance of the Corporation’s
CGUs and whether these assumptions
were consistent with evidence obtained
in other areas of the audit.
Advantage Energy Ltd. - 53
Key audit matter
How our audit addressed the key audit matter
○ Future commodity prices by comparing
forecasts with other reputable third
party industry forecasts.
○ The discount rate, through the
assistance of professionals with
specialized skill and knowledge in the
field of valuation.
•
Recalculated the units-of-production rates used
to calculate depreciation expense.
As at December 31, 2021, there were indicators of
impairment reversal identified in the Corporation’s
Greater Glacier CGU. As a result of the impairment
reversal tests performed, the Corporation
recognized an impairment reversal to the Greater
Glacier Area CGU of $340.7 million.
Significant assumptions developed by management
used to determine the recoverable amount of the
CGUs include future commodity prices, expected
production volumes, quantities of reserves,
discount rate, future development costs and
operating costs.
We determined that this is a key audit matter due to
(i) the significant judgments made by management,
including the use of management’s experts, when
developing the after-tax discounted future cash
flows of proved and probable reserves; (ii) a high
degree of auditor judgment, subjectivity and effort in
performing procedures relating to the significant
assumptions; and (iii) the audit effort that involved
the use of professionals with specialized skill and
knowledge in the field of valuation.
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
Advantage Energy Ltd. - 54
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
Corporation’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 Corporation or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting
process.
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 Corporation’s internal control.
Advantage Energy Ltd. - 55
•
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 Corporation’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 Corporation 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 Corporation 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.
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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Ryan Lundeen.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta
February 24, 2022
Advantage Energy Ltd. - 56
Advantage Energy Ltd. (Formerly, Advantage Oil & Gas Ltd.)
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
Notes
December 31
2021
December 31
2020
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
Intangible assets
Property, plant and equipment
Deferred income tax asset
Total non‐current assets
Total assets
LIABILITIES
Current liabilities
Trade and other accrued liabilities
Derivative liability
Current portion of provisions and other liabilities
Total current liabilities
Non‐current liabilities
Derivative liability
Bank indebtedness
Provisions and other liabilities
Deferred income tax liability
Total non‐current liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Total shareholders’ equity attributable to Advantage shareholders
Non‐controlling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
5
6
11
11
7
8
9
10
14
11
13
11
12
13
14
15
16
25,238
54,769
3,483
282
83,772
57,699
20,713
1,879
2,991
1,827,936
‐
1,911,218
1,994,990
81,398
2,765
11,224
95,387
12,315
167,345
163,541
96,284
439,485
534,872
3,279
28,491
2,021
6,862
40,653
4,140
20,580
2,036
‐
1,441,492
24,808
1,493,056
1,533,709
38,083
13,303
5,632
57,018
23,798
247,105
165,628
‐
436,531
493,549
2,370,716
110,315
(1,023,244)
1,457,787
2,331
1,460,118
1,994,990
2,360,647
114,280
(1,434,767)
1,040,160
‐
1,040,160
1,533,709
Commitments (note 24)
See accompanying Notes to the Consolidated Financial Statements
On behalf of the Board of Directors of Advantage Energy Ltd.:
Paul G. Haggis, Director: (signed) “Paul G. Haggis” Michael Belenkie, Director: (signed) “Michael Belenkie”
Advantage Energy Ltd. - 57
Advantage Energy Ltd. (Formerly, Advantage Oil & Gas Ltd.)
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts)
Revenues
Natural gas and liquids sales
Royalty expense
Natural gas and liquids revenue
Gains (losses) on derivatives
Total revenues
Expenses
Operating expense
Transportation expense
General and administrative expense
Share‐based compensation expense
Depreciation expense
Impairment expense (recovery)
Exploration and evaluation expense
Finance expense
Total expenses (recovery)
Income (loss) before taxes and non‐controlling interest
Income tax (expense) recovery
Net income (loss) and comprehensive income (loss)
before non‐controlling interest
Net income (loss) and comprehensive income (loss) attributable to:
Advantage shareholders
Non‐controlling interest
Net income (loss) per share attributable to Advantage shareholders
Basic
Diluted
See accompanying Notes to the Consolidated Financial Statements
Year ended
December 31
Notes
2021
2020
19
11
492,035
(27,530)
464,505
(5,578)
458,927
245,085
(10,474)
234,611
1,545
236,156
44,893
70,440
19,860
4,053
106,786
(340,653)
84
21,018
(73,519)
532,446
(121,092)
40,005
55,817
11,315
5,278
110,896
361,000
190
18,970
603,471
(367,315)
83,270
411,354
(284,045)
411,523
(169)
411,354
(284,045)
‐
(284,045)
$ 2.17
$ 2.07
$ (1.51)
$ (1.51)
20
17
8,10
10
7
21
14
16
18
18
Advantage Energy Ltd. - 58
Advantage Energy Ltd. (Formerly, Advantage Oil & Gas Ltd.)
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Balance, December 31, 2020
Net income and comprehensive income
Share‐based compensation (note 17(b))
Settlement of Performance Share Units
Issuance of Entropy common shares to
non‐controlling interest (note 16)
Balance, December 31, 2021
Balance, December 31, 2019
Net loss and comprehensive loss
Share‐based compensation (note 17(b))
Settlement of Performance Share Units
Balance, December 31, 2020
Share
capital
2,360,647
‐
‐
10,069
Contributed
surplus
114,280
‐
6,786
(10,751)
Deficit
(1,434,767)
411,523
‐
‐
Non‐
controlling
interest
‐
(169)
‐
‐
Total
shareholders’
equity
1,040,160
411,354
6,786
(682)
‐
2,370,716
‐
110,315
‐
(1,023,244)
2,500
2,331
2,500
1,460,118
Share
capital
2,349,703
‐
‐
10,944
2,360,647
Contributed
surplus
117,116
‐
8,108
(10,944)
114,280
Deficit
(1,150,722)
(284,045)
‐
‐
(1,434,767)
Non‐
controlling
interest
‐
‐
‐
‐
‐
Total
shareholders’
equity
1,316,097
(284,045)
8,108
‐
1,040,160
See accompanying Notes to the Consolidated Financial Statements
Advantage Energy Ltd. - 59
Advantage Energy Ltd. (Formerly, Advantage Oil & Gas Ltd.)
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Operating Activities
Income (loss) before taxes and non‐controlling interest
Add (deduct) items not requiring cash:
Unrealized gains on derivatives
Share‐based compensation expense
Depreciation expense
Impairment expense (recovery)
Exploration and evaluation expense
Accretion of decommissioning liability
Expenditures on decommissioning liability
Changes in non‐cash working capital
Cash provided by operating activities
Financing Activities
Decrease in bank indebtedness
Principal repayment of lease liability
Principal repayment of financing liability
Net proceeds from financing liability transaction
Cash provided by (used in) financing activities
Investing Activities
Payments on property, plant and equipment
Payments on exploration and evaluation assets
Payments on intangible assets
Project funding received
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
Year ended
December 31
Notes
2021
2020
532,446
(367,315)
11
17(b)
8,10
10
7
13
13
23
12
13
13
13
10,23
7
9
13
(69,000)
4,053
106,786
(340,653)
84
1,108
(1,033)
(10,639)
223,152
(79,760)
(275)
(3,376)
‐
(83,411)
(136,671)
(677)
(491)
20,057
(117,782)
21,959
3,279
25,238
(6,185)
5,278
110,896
361,000
190
797
(1,080)
(2,867)
100,714
(48,519)
(258)
(1,589)
98,453
48,087
(157,638)
(983)
‐
‐
(158,621)
(9,820)
13,099
3,279
Advantage Energy Ltd. - 60
Advantage Energy Ltd. (Formerly, Advantage Oil & Gas Ltd.)
Notes to the Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
All tabular amounts expressed in thousands of Canadian dollars, except as otherwise indicated.
1. Business and structure of Advantage Energy Ltd.
On May 18, 2021, Advantage Oil & Gas Ltd. changed its name to Advantage Energy Ltd. as approved by its
shareholders. Advantage Energy Ltd. and its subsidiaries (together “Advantage” or the “Corporation”) is a low‐
carbon energy producer 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”).
The accounting policies applied in these consolidated financial statements are based on IFRS issued and
outstanding as of February 24, 2022, 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 11. The methods
used to measure the fair value of the Corporation’s natural gas and liquids properties 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.
Advantage Energy Ltd. - 61
3. Significant accounting policies (continued)
(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.
These consolidated financial statements include the accounts of the Corporation and all subsidiaries over
which it has control, including Entropy Inc. (“Entropy”), a private Canadian corporation of which
Advantage owns 90% (note 16). All inter‐corporate balances, income and expenses resulting from inter‐
corporate transactions are eliminated.
(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
Bank indebtedness
Performance Awards
Deferred revenue
Financing liability
Measurement Category
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Advantage Energy Ltd. - 62
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
Derivative assets and liabilities
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. Embedded derivatives are separated from the host contract and
accounted for separately if the economic characteristics, risks of the host contract and the embedded
derivative are not closely related; a separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and the combined instrument is not measured at fair value through
profit and loss. Gains and losses on derivative 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.
(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 by well, field or exploration
area and carried forward pending determination of technical feasibility and commercial viability.
Advantage Energy Ltd. - 63
3. Significant accounting policies (continued)
(d) Property, plant and equipment and exploration and evaluation assets (continued)
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.
(ii) Subsequent costs
Costs incurred subsequent to development and production that are significant are recognized as natural
gas and liquids properties 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.
(iv) Depletion and 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.
Significant natural gas processing plants included in natural gas and liquids properties and furniture &
equipment are depreciated using the straight‐line method over the expected useful life. The estimated
useful lives for depreciable assets are as follows:
Natural gas processing plants
Furniture & equipment
50 years
5 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date by
management.
Advantage Energy Ltd. - 64
3. Significant accounting policies (continued)
(d) Property, plant and equipment and exploration and evaluation assets (continued)
(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 and impairment reversal
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 or impairment reversal. If any such
indication exists, the asset’s recoverable amount is estimated. For the purpose of impairment and
impairment reversal 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 and reversals of previous impairments on property, plant and equipment are
recognized in the Consolidated Statement of Comprehensive Income (Loss) as impairment expense
(recovery) 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 Energy Ltd. - 65
3. Significant accounting policies (continued)
(e) Intangible assets
Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible
assets are recognized at cost less any accumulated amortization and impairment losses. Intangible assets
with finite lives are amortized over the useful life and assessed for impairment when there is an indication
that the asset may be impaired. The Corporation may incur costs associated with research and development.
Expenditures during the research phase are expensed. Expenditures during the development phase are
capitalized only if certain criteria are met, including technical feasibility and the intent to develop and use
the technology. If these criteria are not met, the costs are expensed as incurred. The amortization expense
on intangible assets is recognized in the Consolidated Statements of Comprehensive Income (Loss).
(f) 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.
(g) Leases
Leases are recognized as a right‐of‐use (“ROU”) asset with a corresponding liability at the date 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.
Advantage Energy Ltd. - 66
3. Significant accounting policies (continued)
(h) Long‐term compensation
(i) 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.
(ii) Performance Awards
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.
(iii) Deferred Share Units (“DSU”)
DSUs are issued to Directors of the Corporation. Each DSU entitles participants to receive cash equal to
the price of the Corporation’s common shares, multiplied by the number of DSUs held. All DSUs vest
immediately upon grant and become payable upon retirement of the Director from the Board. A liability
for the expected cash payments is accrued over the life of the DSU using the fair value method based on
the Corporation’s share market price at the end of each reporting period, with the associated expense
charged to general and administrative expense.
Advantage Energy Ltd. - 67
3. Significant accounting policies (continued)
(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. For fixed basis physical delivery contracts, the Corporation records revenue net
of the fixed basis differential. Payments are normally received from customers within 30 days following the
end of the production month. 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.
(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 attributable to Advantage shareholders
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.
Advantage Energy Ltd. - 68
3. Significant accounting policies (continued)
(l) Non‐controlling interest
The Corporation accounts for transactions with non‐controlling interests as transactions with equity owners
of the Corporation. For purchases of shares from non‐controlling interests, the difference between any
consideration paid and the relevant ownership acquired of the carrying value of net assets of the subsidiary
is recorded in equity. Gains or losses on disposals of shares to non‐controlling interests are also recorded in
equity, unless the disposal results in the Corporation’s loss of control of the subsidiary, in which case the gain
or loss is recognized in net income and comprehensive income.
(m) Government grants and investment tax credits
The Corporation may receive government grants which provide immediate financial assistance as
compensation for capital expenditures or expenses to be incurred. Government grants are recognized when
there is reasonable assurance that the Corporation will comply with conditions attached to them and the
grants will be received. The Corporation recognizes government grants in the Consolidated Statement of
Comprehensive Income (Loss) on a systematic basis and in line with recognition of the expenditure that the
grants are intended to compensate. 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.
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.
Advantage Energy Ltd. - 69
4. Significant accounting judgments, estimates and assumptions (continued)
(c) Indicators of impairment or impairment reversal and calculation of impairment or impairment reversal
At each reporting date, Advantage assesses whether 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.
The Corporation also assesses whether there are circumstances that indicate that previously impaired assets
are now recoverable and need to be increased to their original carrying values.
When management judges that circumstances indicate potential impairment or impairment reversal,
property, plant, and equipment are tested for impairment or impairment reversal 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. For embedded derivatives, Management determines the definition of the host
contract and the separate embedded derivative. The judgments made in determining the host contract can
influence the fair value of the embedded derivative.
(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.
Advantage Energy Ltd. - 70
4. Significant accounting judgments, estimates and assumptions (continued)
(g) Leases
Management assesses new contracts at inception to determine whether it contains a lease. This assessment
involves the exercise of judgment 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. Deferred tax assets that arise from temporary differences between
recorded amounts on the statement of financial position and their respective tax bases are recognized to the
extent that it is probable that future taxable profit will be available against which the deductible temporary
differences and the carryforward of unused tax losses can be utilized. The amount of a deferred tax
asset/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 Energy Ltd. - 71
5. Cash and cash equivalents
Cash at financial institutions
December 31
2021
25,238
December 31
2020
3,279
Cash at financial institutions earn interest at floating rates based on daily deposit rates. As at December 31, 2021
cash at financial institutions included US$6.3 million (December 31, 2020 ‐ US$0.9 million). Included in cash and
cash equivalents as at December 31, 2021 is $8.5 million held solely for project expenditures related to reducing
carbon emissions, associated with the project funding grant. 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, 2019
Additions
Lease expiries
Transferred to property, plant and equipment (note 10)
Balance at December 31, 2020
Additions
Lease expiries
Transferred to property, plant and equipment (note 10)
Balance at December 31, 2021
December 31
2021
49,887
4,882
‐
54,769
December 31
2020
27,114
577
800
28,491
20,703
983
(190)
(916)
20,580
677
(84)
(460)
20,713
Advantage Energy Ltd. - 72
8. Right‐of‐use assets
Cost
Balance at December 31, 2019 and December 31, 2020
Additions
Expired leases
Balance at December 31, 2021
Accumulated depreciation
Balance at December 31, 2019
Depreciation
Balance at December 31, 2020
Depreciation
Expired leases
Balance at December 31, 2021
Net book value
At December 31, 2020
At December 31, 2021
9. Intangible assets
Cost
Balance at December 31, 2020
Intellectual property acquisition (note 16)
Research and development additions
Balance at December 31, 2021
Accumulated amortization
Balance at December 31, 2020
Amortization
Balance at December 31, 2021
Net book value
At December 31, 2020
At December 31, 2021
Buildings
2,318
‐
‐
2,318
112
284
396
285
‐
681
1,922
1,637
Other
Total
186
169
(35)
320
38
34
72
41
(35)
78
114
242
2,504
169
(35)
2,638
150
318
468
326
(35)
759
2,036
1,879
‐
2,500
491
2,991
‐
‐
‐
‐
2,991
The Corporation has not incurred amortization on its intangible assets in 2021 as the assets are not available for
use. Amortization will commence upon the project which the cost relates to being placed in-service in 2022.
Advantage Energy Ltd. - 73
10. Property, plant and equipment
Cost
Balance at December 31, 2019
Additions
Capitalized share‐based compensation (note 17(b))
Changes in decommissioning liability (note 13(e))
Transferred from exploration and evaluation assets (note 7)
Balance at December 31, 2020
Additions
Capitalized share‐based compensation (note 17(b))
Changes in decommissioning liability (note 13(e))
Transferred from exploration and evaluation assets (note 7)
Balance at December 31, 2021
Accumulated depreciation
Balance at December 31, 2019
Depreciation
Impairment expense
Balance at December 31, 2020
Depreciation
Impairment reversal
Balance at December 31, 2021
Net book value
At December 31, 2020
At December 31, 2021
Natural gas
and liquids
Properties
2,647,964
156,702
2,830
2,904
916
2,811,316
148,154
2,051
1,505
460
2,963,486
899,868
110,370
361,000
1,371,238
106,227
(340,653)
1,136,812
Furniture &
Equipment
6,442
250
‐
‐
‐
6,692
81
‐
‐
‐
6,773
Total
2,654,406
156,952
2,830
2,904
916
2,818,008
148,235
2,051
1,505
460
2,970,259
5,070
208
‐
5,278
233
‐
5,511
904,938
110,578
361,000
1,376,516
106,460
(340,653)
1,142,323
1,440,078
1,826,674
1,414
1,262
1,441,492
1,827,936
During the year ended December 31, 2021, Advantage capitalized general and administrative expenditures
directly related to development activities of $7.8 million, included in additions (year ended December 31, 2020 ‐
$5.4 million).
Advantage included future development costs of $2.0 billion (December 31, 2020 ‐ $1.9 billion) in property, plant
and equipment costs subject to depreciation.
Advantage Energy Ltd. - 74
10. Property, plant and equipment (continued)
2021: Impairment recovery assessment
At December 31, 2021, there were indicators of impairment recovery identified in the Corporation’s Greater
Glacier CGU as a result of improved forward commodity prices for natural gas and crude oil.
The Corporation performed an impairment reversal test using an after‐tax discounted future cash flow of proved
and probable reserves(1), utilizing an inflation rate of 2% and a discount rate of 10%. The following table
summarizes the price forecast used in the Corporation’s discounted cash flow estimates as of December 31, 2021:
Year
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
WTI
($US/bbl)
72.83
68.78
66.76
68.09
69.45
70.84
72.26
73.70
75.18
76.68
78.21
+2% per year
Henry Hub
($US/MMbtu)
3.85
3.44
3.17
3.24
3.30
3.37
3.44
3.50
3.58
3.65
3.72
+2% per year
AECO
($Cdn/MMbtu)
3.56
3.21
3.05
3.11
3.17
3.23
3.30
3.36
3.43
3.50
3.57
+2% per year
Exchange Rate
($US/$Cdn)
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
(1)
Sproule Associates Limited ("Sproule") conducted an Independent Qualified Reserves Evaluation, effective December 31, 2021, which
was prepared in accordance with definitions, standards, and procedures in the Canadian Oil and Gas Evaluation Handbook and NI
51‐101. The Independent Qualified Reserves Evaluation was computed using the average of the price forecasts by McDaniel &
Associates Consultants Ltd., GLJ Petroleum Consultants and Sproule effective January 1, 2022.
As a result of the impairment recovery test performed, the Corporation determined that the recoverable amount
of the Greater Glacier CGU exceeded the carrying amount, and a full impairment recovery of $340.7 million (net
of depreciation) was recognized. The estimated recoverable amount of the Greater Glacier CGU was $2.5 billion.
As at December 31, 2021, a 1% increase in the assumed discount rate, or a 5% decrease in the future cash flows
of proved and probable reserves while holding all other assumptions constant, would have no impact on the
impairment recovery recorded at December 31, 2021.
Advantage Energy Ltd. - 75
10. Property, plant and equipment (continued)
2020: Impairment assessment
As at December 31, 2020, the Corporation evaluated its natural gas and liquids properties for indicators of any
potential impairment or impairment reversal. As a result of this assessment, no indicators were identified, and
no impairment or impairment reversal was recorded for the three months ended December 31, 2020.
For the three months ended March 31, 2020, the Corporation identified an indicator of impairment following the
decrease in demand for crude oil as a result of the COVID‐19 pandemic, and the adequacy of supply management
efforts by the Organization of Petroleum Exporting Countries (“OPEC”) and non‐OPEC partners to address such
dramatic changes. These factors lead to a decrease in the outlook of commodity prices in the North American
market. The Corporation performed an impairment test using after‐tax discounted future cash flows of proved
and probable reserves, utilizing an inflation rate of 2% and a discount rate of 10%. The following table summarizes
the price forecast used in the Corporation’s discounted cash flow estimates as of March 31, 2020:
Year
2020 9 months
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
(1) Price forecast obtained from the Corporation’s independent qualified reserves evaluator effective April 1, 2020.
AECO
($Cdn/MMbtu)
1.43
2.05
2.33
2.41
2.48
2.56
2.64
2.71
2.80
2.88
2.96
+2% per year
Henry Hub
($US/MMbtu)
2.00
2.50
2.75
2.81
2.86
2.92
2.98
3.04
3.10
3.16
3.22
+2% per year
WTI
($US/bbl)
25.00
37.00
48.00
48.96
49.94
50.94
51.96
53.00
54.06
55.14
56.24
+2% per year
Exchange Rate
($US/$Cdn)
0.70
0.73
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
As a result of the impairment test performed at at March 31, 2020, the Corporation recorded an impairment
charge to the Greater Glacier CGU of $361 million ($277 million net of deferred tax). Our Wembley CGU was not
impaired at March 31, 2020.
As at March 31, 2020, a 1% increase in the assumed discount rate, or a 5% decrease in the future cash flows of
proved and probable reserves while holding all other assumptions constant, would result in the following
additional pre‐tax impairment expense being recognized:
Greater Glacier CGU
Wembley CGU
Total
1% increase in
discount rate
136,000
‐
136,000
5% decrease in
cash flows
72,000
‐
72,000
Advantage Energy Ltd. - 76
11. Financial risk management
As at December 31, 2021, 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 a portion of the Corporation’s
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,
interest 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 as compared to the valuation assumptions.
Level 3: Fair value is determined using inputs that are not observable. The Corporation’s natural gas
embedded derivative is categorized as level 3 in the fair value hierarchy as the long‐term portion of the PJM
forward price is an unobservable input. Fair value less costs of disposition used to determine the recoverable
amounts of Advantage’s Greater Glacier CGU at December 31, 2021 and December 31, 2020 were classified
as Level 3 in the fair value hierarchy as certain key assumptions were not based on observable market data,
but rather, Management's best estimates.
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;
commodity price risk;
interest rate risk; and
• foreign exchange risk.
Advantage Energy Ltd. - 77
11. Financial risk management (continued)
The Corporation enters into financial risk management derivative contracts to manage the Corporation’s
exposure to commodity price risk, foreign exchange risk and interest rate risk. The table below summarizes the
realized gains (losses) and unrealized gains (losses) on derivatives recognized in net income (loss).
Realized gains (losses) on derivatives
Natural gas
Crude oil
Foreign exchange
Interest rate
Total
Unrealized gains (losses) on derivatives
Natural gas
Crude oil
Natural gas embedded derivative
Foreign exchange
Interest rate
Total
Gains (losses) on derivatives
Natural gas
Crude oil
Natural gas embedded derivative
Foreign exchange
Interest rate
Total
Year ended
December 31
2021
2020
(58,909)
(17,353)
2,368
(684)
(74,578)
16,480
2,074
54,305
(4,525)
666
69,000
(42,429)
(15,279)
54,305
(2,157)
(18)
(5,578)
(12,148)
7,121
696
(309)
(4,640)
1,354
(776)
3,394
3,015
(802)
6,185
(10,794)
6,345
3,394
3,711
(1,111)
1,545
Advantage Energy Ltd. - 78
11. Financial risk management (continued)
The fair value of financial risk management derivatives has been allocated to current and non‐current assets and
liabilities based on the expected timing of cash settlements. The following table summarizes the estimated fair
market value of the Corporation’s outstanding financial risk management derivative contracts.
Derivative type
Natural gas derivative liability
Crude oil derivative asset (liability)
Natural gas embedded derivative asset
Foreign exchange derivative asset (liability)
Interest rate derivative liability
Net derivative asset (liability)
Consolidated statement of financial position classification
Current derivative asset
Non‐current derivative asset
Current derivative liability
Non‐current derivative liability
Net derivative asset (liability)
(a) Credit risk
December 31
2021
December 31
2020
(13,172)
20
57,699
(1,510)
(136)
42,901
(29,652)
(2,054)
3,394
3,015
(802)
(26,099)
282
57,699
(2,765)
(12,315)
42,901
6,862
4,140
(13,303)
(23,798)
(26,099)
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
2021
54,769
1,858
57,981
114,608
December 31
2020
28,491
911
11,002
40,404
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 commodity 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. The
Corporation only enters into derivative contracts with major banks and international energy firms to further
mitigate associated credit risk. In addition, the Corporation has an embedded derivative with a US power
company.
Advantage Energy Ltd. - 79
11. Financial risk management (continued)
(a) Credit risk (continued)
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, 2021, $0.2 million of trade and other receivables are outstanding for 90 days
or more (December 31, 2020 – $0.3). 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, 2021, the average expected credit loss for trade and other receivables was 0.60%
(December 31, 2020 – 0.58%). At December 31, 2021, the Corporation did not record an expected credit loss
against trade and other receivables (December 31, 2020 – nil).
The Corporation’s most significant customer, a North American oil and natural gas marketer, accounts for
$22.3 million of the trade and other receivables at December 31, 2021 (December 31, 2020 – $11.5 million).
(b) Liquidity risk
The Corporation is subject to liquidity risk attributed from trade and other accrued liabilities, derivative
liabilities, lease liabilities, financing liabilities, performance awards 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 Performance Awards are all payable within one to three years of the Consolidated Statement
of Financial Position date. The Corporation’s lease liability and financing liability are settled in a systematic
basis over their respective terms and will be settled over the next 6 and 13 years, respectively. 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 $350 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 commodity 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
commodity 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.
Advantage Energy Ltd. - 80
11. Financial risk management (continued)
(b) Liquidity risk (continued)
The timing of cash outflows relating to financial liabilities as at December 31, 2021 and 2020 are as follows:
December 31, 2021
Trade and other accrued liabilities
Derivative liability
Performance Awards
Lease liability
Financing liability
Bank indebtedness ‐ principal
‐ interest (1)
December 31, 2020
Trade and other accrued liabilities
Derivative liability
Performance Awards
Lease liability
Financing liability
Bank indebtedness ‐ principal
‐ interest (1)
Less than
one year
81,398
2,765
5,107
364
3,696
‐
5,038
98,368
Less than
one year
38,083
13,303
‐
256
3,376
‐
13,087
68,105
One to
three years
‐
12,315
4,863
728
7,742
168,000
1,217
194,865
One to
three years
‐
23,798
4,620
884
12,185
248,000
3,868
293,355
Beyond
‐
‐
‐
1,081
82,050
‐
‐
83,131
Beyond
‐
‐
‐
1,139
81,303
‐
‐
82,442
Total
81,398
15,080
9,970
2,173
93,488
168,000
6,255
376,364
Total
38,083
37,101
4,620
2,279
96,864
248,000
16,955
443,902
(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 May 2022. 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 term. Management fully expects that the facilities will be extended at
each annual review.
Advantage Energy Ltd. - 81
11. Financial risk management (continued)
(c) Commodity 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, 2021 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
Forward WTI crude oil price
Forward PJM electricity price
Net Income (Loss) Impact
($ millions)
+10%
(0.1)
(4.2)
(6.2)
(0.6)
29.0
(10)%
0.1
3.1
6.8
0.7
(31.7)
Advantage Energy Ltd. - 82
11. Financial risk management (continued)
(c) Commodity price risk
The Corporation’s commodity derivative contracts are classified as Level 2 within the fair value hierarchy. As
at December 31, 2021 (other than as indicated), the Corporation had the following commodity derivative
contracts in place:
Description of
Derivative
Natural gas ‐ AECO
Fixed price swap
Term
Volume
Price
November 2021 to March 2022
4,739 Mcf/d
Cdn $4.48/Mcf
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
November 2021 to March 2022
April 2022 to October 2022
April 2022 to October 2022
November 2022 to March 2023
April 2023 to October 2023
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
April 2023 to December 2024
Crude oil ‐ WTI NYMEX
Fixed price swap
January 2022 to June 2022
(1) Contract entered into subsequent to December 31, 2021.
Natural Gas ‐ Embedded Derivative
55,000 Mcf/d
55,000 Mcf/d
50,000 Mcf/d
85,000 Mcf/d
25,000 Mcf/d
US $3.44/Mcf
US $3.62/Mcf
US $4.54/Mcf (1)
US $4.67/Mcf (1)
US $3.35/Mcf (1)
40,000 Mcf/d
Henry Hub less US $1.19/Mcf
500 bbls/d
US $75.00/bbl
Advantage entered into a long‐term natural gas supply agreement under which Advantage will supply 25,000
MMbtu/d of natural gas for a 10‐year period, commencing in early 2023. Commercial terms of the agreement
are based upon a spark‐spread pricing formula, providing Advantage exposure to PJM electricity prices, back‐
stopped with a natural gas price collar. The contract contains an embedded derivative as a result of the spark‐
spread pricing formula and the natural gas price collar. The Corporation defined the host contract as a natural
gas sales arrangement with a fixed price of US $2.50/MMbtu. The Corporation will realize gains or losses
when the price received under the contract deviates from US $2.50/MMbtu. As at December 31, 2021 the
fair value of the natural gas embedded derivative resulted in an asset of $57.7 million (December 31, 2020 –
$3.4 million asset).
The Corporation’s natural gas embedded derivative contract is classified as Level 3 within the fair value
hierarchy. The Corporation determines the fair value of the embedded derivative contract by utilizing an
observable 5‐year PJM electricity forecast. The remaining unobservable period beyond 5‐years is estimated
using the implied inflation rate in the 5‐year PJM electricity forecast. At December 31, 2021, the implied
inflation rate in the 5‐year PJM power forecast averaged 1% per year. If the implied inflation rate in the 5‐
year PJM electricity forecast changed by 1%, the fair value of the embedded derivative would
increase/decrease by $1.5 million.
Advantage Energy Ltd. - 83
11. Financial risk management (continued)
(d) Interest rate risk
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 entered into fixed interest rate swaps to
mitigate interest rate risk. Had the borrowing rate been different by 100 basis points throughout the year
ended December 31, 2021, net income and comprehensive income would have changed by $1.6 million
(December 31, 2020 – $2.3 million) based on the average debt balance outstanding during the year.
The Corporation’s interest rate derivative contracts are classified as Level 2 within the fair value hierarchy.
As at December 31, 2021, the Corporation had the following interest rate derivative contracts in place:
Description of
Derivative
Term
Notional Amount
Rate
One‐month bankers’ acceptance ‐ CDOR
Fixed interest rate swap
Fixed interest rate swap
April 2020 to March 2022
April 2020 to March 2022
$ 100,000,000
$ 75,000,000
0.83%
0.79%
As at December 31, 2021 the fair value of the interest rate derivatives outstanding resulted in a liability of
$0.1 million (December 31, 2020 – $0.8 million liability). The fair value of the interest rate derivatives has
been allocated to current and non‐current assets and liabilities based on the expected timing of cash
settlements.
(e) Foreign exchange risk
Foreign exchange risk is the risk that future cash flows will fluctuate as a result of changes in the CAD/USD
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 entered into average rate currency swaps to
mitigate the Corporation’s exposure to foreign exchange risk. Had the CAD/USD foreign exchange rate been
different by $0.02 throughout the year ended December 31, 2021, net income and comprehensive income
would have changed by $2.6 million (December 31, 2020 – $4.9 million).
The Corporation’s foreign exchange derivative contracts are classified as Level 2 within the fair value
hierarchy. As at December 31, 2021, the Corporation had the following foreign exchange derivative contracts
in place:
Description of
Derivative
Forward rate ‐ CAD/USD
Average rate currency swap
Average rate currency swap
Average rate currency swap
Average rate currency swap
Average rate currency swap
Term
Notional Amount
Rate
June 2020 to May 2022
February 2021 to January 2023
June 2021 to May 2023
August 2021 to July 2022
March 2022 to February 2023
US $ 2,000,000/month
US $ 750,000/month
US $ 2,000,000/month
US $ 1,000,000/month
US $ 1,500,000/month
1.3495
1.2850
1.2025
1.2499
1.2719(1)
(1) Contract entered into subsequent to December 31, 2021.
Advantage Energy Ltd. - 84
11. Financial risk management (continued)
(e) Foreign exchange risk (continued)
As at December 31, 2021 the fair value of the foreign exchange derivatives outstanding resulted in an liability
of $1.5 million (December 31, 2020 – $3.0 million asset). The fair value of the foreign exchange derivatives
has been allocated to current and non‐current assets and liabilities based on the expected timing of cash
settlements.
(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), financing liabilities, 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.
Working capital
Working capital is a capital management financial measure that provides Management and users with a
measure of the Corporation’s short‐term operating liquidity. By excluding short term derivatives and the
current portion of provision and other liabilities, Management and users can determine if the Corporation’s
energy operations are sufficient to cover the short‐term operating requirements. Working capital is not a
standardized measure and therefore may not be comparable with the calculation of similar measures by
other entities.
A summary of working capital as at December 31, 2021 and December 31, 2020 is as follows:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Trade and other accrued liabilities
Working capital surplus (deficit)
December 31
2021
25,238
54,769
3,483
(81,398)
2,092
December 31
2020
3,279
28,491
2,021
(38,083)
(4,292)
Advantage Energy Ltd. - 85
11. Financial risk management (continued)
(f) Capital management (continued)
Net Debt
Net debt is a capital management financial measure that provides Management and users with a measure to
assess the Corporation’s liquidity. Net debt is not a standardized measure and therefore may not be
comparable with the calculation of similar measures by other entities.
A summary of the reconciliation of net debt as at December 31, 2021 and December 31, 2020 is as follows:
Bank indebtedness (non‐current) (note 12)
Working capital (surplus) deficit
Net debt
December 31
2021
167,345
(2,092)
165,253
December 31
2020
247,105
4,292
251,397
Advantage’s capital structure as at December 31, 2021 and December 31, 2020 is as follows:
Net debt
Shares outstanding (note 15)
Share closing market price ($/share)
Market Capitalization
Total Capitalization
12. Bank indebtedness
Revolving credit facility
Discount on bankers’ acceptance and other fees
Balance, end of year
December 31
2021
165,253
190,828,976
7.41
1,414,043
1,579,296
December 31
2020
251,397
188,112,797
1.71
321,673
573,070
December 31
2021
168,000
(655)
167,345
December 31
2020
248,000
(895)
247,105
As at December 31, 2021, the Corporation had credit facilities with a borrowing base of $350 million. The Credit
Facilities are comprised of a $30 million extendible revolving operating loan facility from one financial institution
and a $320 million extendible revolving credit facility from a syndicate of financial institutions.
Advantage Energy Ltd. - 86
12. Bank indebtedness (continued)
In November 2021, 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 June 2022 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 November and May
of each year, with the next annual review scheduled to occur in May 2022. 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 interest at Canadian bank prime
plus 2.5% to 4.5% per annum, and Canadian prime or US base rate plus 1.5% to 3.5% 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 0.6250% to 1.1250% 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 and the Corporation’s embedded derivative 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, 2021 and 2020. 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,
2021 the Corporation had a 25.6 LMR (December 31, 2020 – 24.7 LMR). All other applicable non‐financial
covenants were met at December 31, 2021 and 2020. 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, 2021, the average effective interest rate on the
outstanding amounts under the facilities was approximately 4.7% (December 31, 2020 – 4.3%). The Corporation
had letters of credit of US$9.0 million outstanding at December 31, 2021 (December 31, 2020 – US$15 million).
Advantage Energy Ltd. - 87
13. Provisions and other liabilities
Performance Awards (note 17(c))
Deferred revenue (a)
Project funding grant (b)
Lease liability (c)
Financing liability (d)
Decommissioning liability (e)
Balance, end of year
Current provisions and other liabilities
Non‐Current provisions and other liabilities
(a) Deferred revenue
Year ended
December 31, 2021
9,970
6,603
57
2,173
93,488
62,474
174,765
11,224
163,541
Year ended
December 31, 2020
4,620
6,603
‐
2,279
96,864
60,894
171,260
5,632
165,628
Deferred revenue represents an advance payment received by Advantage in consideration for the future
sales of natural gas.
(b) Project funding grant
The Corporation received a $20 million grant under the Government of Alberta’s “Industrial Energy Efficiency
and Carbon Capture Utilization and Storage Program” to be utilized solely for project expenditures related
to reducing carbon emissions. Advantage shall not use the funding for more than 75% of the total project
expenses, whereby any excess would result in a proportionate repayment of the project funding. The project
which the funding relates to is expected to be completed in the second quarter of 2022.
A reconciliation of the project funding is as follows:
Balance, beginning of the year
Project funding received
Interest earned
Project expenditures incurred
Balance, end of year
(c) Lease liability
Year ended
December 31, 2021
‐
20,000
57
(20,000)
57
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%.
A reconciliation of the lease liability is provided below:
Balance, beginning of the year
Additions
Interest expense
Lease payments
Balance, end of year
Current lease liability
Non‐current lease liability
Year ended
December 31, 2021
2,279
169
96
(371)
2,173
364
1,809
Year ended
December 31, 2020
2,537
‐
102
(360)
2,279
256
2,023
Advantage Energy Ltd. - 88
13. Provisions and other liabilities (continued)
(d) Financing liability
On July 2, 2020, Advantage closed the sale of a 12.5% interest in the Corporation’s 400 MMcf/d Glacier Gas
Plant for proceeds of $100 million (before transaction costs) and entered into a 15‐year take‐or‐pay volume
commitment agreement with the purchaser for 50 MMcf/d capacity at a fee of $0.66/Mcf. The volume
commitment agreement is treated as a financing transaction where Advantage is obligated to pay the
purchaser $180.8 million over the course of the 15‐year term. The effective interest rate associated with the
financing transaction is 9.1%.
A reconciliation of the financing liability is provided below:
Balance, beginning of the year
Additions, net of transaction cost
Interest expense
Financing payments
Balance, end of year
Current financing liability
Non‐current financing liability
(e) Decommissioning liability
Year ended
December 31, 2021
96,864
‐
8,669
(12,045)
93,488
3,696
89,792
Year ended
December 31, 2020
‐
98,453
4,483
(6,072)
96,864
3,376
93,488
The Corporation’s decommissioning liability results from net ownership interests in natural gas and liquids
assets including well sites, gathering systems and facilities, all of which will require future costs of
decommissioning under environmental legislation. These costs are expected to be incurred between 2022
and 2076. A risk‐free rate of 1.76% (December 31, 2020 ‐ 1.24%) and an inflation factor of 2.0% (December
31, 2020 – 1.5%) were used to calculate the fair value of the decommissioning liability at December 31, 2021.
As at December 31, 2021, the total estimated undiscounted, uninflated cash flows required to settle the
Corporation’s decommissioning liability was $57.6 million (December 31, 2020 – $55.2 million).
A reconciliation of the decommissioning liability is provided below:
Balance, beginning of the year
Accretion expense
Liabilities incurred
Plant disposition (note 13(d)) (note 9b)
Change in estimates
Effect of change in risk‐free rate and inflation rate factor
Liabilities settled
Balance, end of year
Current decommissioning liability
Non‐current decommissioning liability
Year ended
December 31, 2021
60,894
1,108
1,737
‐
(1,800)
1,568
(1,033)
62,474
2,000
60,474
Year ended
December 31, 2020
58,273
797
1,575
(625)
(690)
2,644
(1,080)
60,894
2,000
58,894
Advantage Energy Ltd. - 89
13. Provisions and other liabilities (continued)
(f) Contractual maturities
The following table details the undiscounted cash flows and contractual maturities of the Corporation’s
Performance Awards, lease liability and financing liability, as at December 31, 2021:
($ millions)
Performance Awards
Lease liability
Financing liability
Total fixed payments
Total
2022
17.3
2.4
162.5
182.2
5.6
0.4
12.0
18.0
Payments due by period
2025
2024
2023
6.0
0.4
12.0
18.4
5.7
0.4
12.1
18.2
‐
0.4
12.0
12.4
2026
‐
0.4
12.0
12.4
Beyond
‐
0.4
102.4
102.8
14. Income taxes
The provision for income taxes is as follows:
Current income tax expense
Deferred income tax expense (recovery)
Income tax expense (recovery)
Year ended
December 31, 2021
Year ended
December 31, 2020
‐
121,092
121,092
‐
(83,270)
(83,270)
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 and non‐controlling interest
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 unrecognized deferred income tax assets
Change in provincial corporate tax rate
Other
Income tax expense (recovery)
Effective tax rate
Year ended
December 31, 2021
532,446
Year ended
December 31, 2020
(367,316)
23.00 % 24.00 %
(88,156)
122,463
937
‐
‐
(2,308)
121,092
22.74 %
1,271
1,367
(541)
2,789
(83,270)
22.67 %
Advantage Energy Ltd. - 90
14. Income taxes (continued)
The movement in deferred income tax assets (liabilities) without taking into consideration the offsetting of
balances within the same tax jurisdiction is as follows:
At December 31, 2020
(Charged) credited
to income
At December 31, 2021
Deferred income tax assets:
Decommissioning liability
Non‐capital losses
Financing liability
Derivative asset/liability
Other
Deferred income tax liabilities:
Property, plant and equipment
Derivative asset/liability
Other
Deferred income tax asset (liability)
Deferred income tax assets:
Decommissioning liability
Non‐capital losses
Financing liability
Derivative asset/liability
Other
Deferred income tax liabilities:
Property, plant and equipment
Other
Deferred income tax asset (liability)
14,006
187,675
22,279
6,003
19,979
249,942
(225,074)
‐
(60)
(225,134)
24,808
363
(20,323)
(777)
(6,003)
2,043
(24,697)
(86,165)
(9,867)
(363)
(96,395)
(121,092)
14,369
167,352
21,502
‐
22,022
225,245
(311,239)
(9,867)
(423)
(321,529)
(96,284)
At December 31, 2019
(Charged) credited
to loss
At December 31, 2020
13,462
173,247
‐
7,655
18,907
213,271
(271,708)
(25)
(271,733)
(58,462)
544
14,428
22,279
(1,652)
1,072
36,671
46,634
(35)
46,599
83,270
14,006
187,675
22,279
6,003
19,979
249,942
(225,074)
(60)
(225,134)
24,808
Advantage Energy Ltd. - 91
14. Income taxes (continued)
The estimated tax pools available at December 31, 2021 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
199,934
68,038
12,848
727,607
213,416
146,619
32,506
6,421
1,407,389
The non‐capital loss carry forward balances above expire no earlier than 2023.
No deferred tax asset has been recognized for capital losses of $147 million (December 31, 2020 – $158 million).
Recognition is dependent on the realization of future taxable capital gains.
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
(# of shares)
Balance at December 31, 2019
Shares issued on Performance Share Unit settlements
Contributed surplus transferred on Performance Share Unit settlements
Balance at December 31, 2020
Shares issued on Performance Share Unit settlements (note 17 (a))
Contributed surplus transferred on Performance Share Unit settlements
Balance at December 31, 2021
186,910,848
1,201,949
‐
188,112,797
2,716,179
‐
190,828,976
Share capital
($000)
2,349,703
‐
10,944
2,360,647
‐
10,069
2,370,716
Advantage Energy Ltd. - 92
16. Non‐controlling interest (“NCI”)
At December 31, 2020, Advantage owned 100% of Entropy, a private cleantech company focused on
commercializing energy‐transition technologies.
On May 5, 2021, Entropy issued common shares to Allardyce Bower Holdings Inc. (“ABC”) in exchange for
intellectual property, resulting in Advantage and ABC owning 90% and 10% of Entropy, respectively. Advantage
has recognized a non‐controlling interest in shareholders’ equity, representing the carrying value of the 10%
shareholding of Entropy held by outside interests.
A reconciliation of the non‐controlling interest is provided below:
Balance, beginning of the year
Consideration contributed by NCI
Net loss and comprehensive loss attributable to NCI
Balance, end of year
17. Long‐term compensation plans
Year ended
December 31, 2021
‐
2,500
(169)
2,331
(a) Restricted and Performance Award Incentive Plan – 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. As at December 31, 2021, no
Restricted Share Units have been granted. Performance Share Units 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.
The following table is a continuity of Performance Share Units:
Balance at December 31, 2019
Granted
Settled
Forfeited
Balance at December 31, 2020
Granted
Settled
Forfeited
Balance at December 31, 2021
Performance Share Units
3,947,576
2,119,061
(664,496)
(158,543)
5,243,598
1,247,026
(1,549,658)
(60,282)
4,880,684
During April 2021, 1,549,658 Performance Share Units matured and were settled with the issuance of
2,716,179 common shares and $0.7 million of cash consideration.
Advantage Energy Ltd. - 93
17. Long‐term compensation plans (continued)
(b) Share‐based compensation expense
Share‐based compensation expense after capitalization for the years ended December 31, 2021 and 2020
are as follows:
Total share‐based compensation
Capitalized
Cash settled awards
Share‐based compensation expense
Year ended
December 31
2021
2020
6,786
(2,051)
(682)
4,053
8,108
(2,830)
‐
5,278
(c) 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 expensed to general and administrative
expense with the recording of a current and non‐current liability (note 13) until eventually settled in cash.
The following table is a continuity of the Corporation’s liability related to outstanding Performance Awards:
Balance, beginning of the year
Performance Award expense
Interest expense
Balance, end of year
Current
Non‐current
Year ended
December 31, 2021
4,620
5,284
66
9,970
5,107
4,863
Year ended
December 31, 2020
1,252
3,339
29
4,620
‐
4,620
Advantage Energy Ltd. - 94
17. Long‐term compensation plans (continued)
(d) Deferred Share Units
Deferred Share Units are issued to Directors of the Corporation. Each Deferred Share Unit entitles
participants to receive cash equal to the Corporation’s common shares, multiplied by the number of DSUs
held. All Deferred Share Units vest immediately upon grant and become payable upon retirement of the
Director from the Board.
The following table is a continuity of Deferred Share Units:
Balance at December 31, 2019
Granted
Balance at December 31, 2020
Granted
Settled
Balance at December 31, 2021
Deferred Share Units
441,863
187,467
629,330
105,140
(90,377)
644,093
The expense related to Deferred Share Units is calculated using the fair value method based on the
Corporation’s share price at the end of each reporting period and is charged to general and administrative
expense. The following table is a continuity of the Corporation’s liability related to outstanding Deferred
Share Units included in trade and other accrued liabilities:
Balance, beginning of the year
Granted
Revaluation of outstanding Deferred Share Units
Settled
Balance, end of year
Year ended
December 31, 2021
1,076
418
3,599
(320)
4,773
Year ended
December 31, 2020
1,215
364
(503)
‐
1,076
18. Net income (loss) per share attributable to Advantage shareholders
The calculations of basic and diluted net income (loss) per share are derived from both net income (loss)
attributable to Advantage shareholders and weighted average shares outstanding, calculated as follows:
Net income (loss) attributable to Advantage shareholders
Basic and diluted
Weighted average shares outstanding
Basic
Performance Share Units(1)
Diluted
Net income (loss) per share attributable to Advantage shareholders
Basic ($/share)
Diluted ($/share)
(1) Performance Share Units are non‐dilutive when the Corporation is in a loss position.
Advantage Energy Ltd. - 95
Year ended
December 31
2021
2020
411,523
(284,045)
190,077,376 187,761,408
‐
198,603,975 187,761,408
8,526,599
$ 2.17
$ 2.07
$ (1.51)
$ (1.51)
19. Natural gas and liquids sales
Advantage’s revenue is comprised of natural gas, crude oil & condensate and NGLs sales to multiple customers.
For the years ended December 31, 2021 and 2020, natural gas and liquids sales was as follows:
Crude oil
Condensate
NGLs
Liquids
Natural Gas
Natural gas and liquids sales
Year ended
December 31
2021
31,209
25,226
44,423
100,858
2020
23,096
12,085
18,080
53,261
391,177
191,824
492,035
245,085
At December 31, 2021, receivables from contracts with customers, which are included in trade and other
receivables, were $49.5 million (December 31, 2020 ‐ $27.1 million).
20. General and administrative expense
Personnel
Revaluation of outstanding Deferred Share Units
Professional fees
Information technology cost
Office rent and administration cost
Total general and administrative
Capitalized
General and administrative expense
21. Finance expense
Interest on bank indebtedness (note 12)
Interest on provisions and other liabilities (note 13, 17(c))
Accretion of decommissioning liability (note 13(e))
Other
Total finance expense
Year ended
December 31
2021
19,673
3,599
1,286
1,995
1,148
27,701
(7,841)
19,860
2020
14,488
(503)
431
1,580
748
16,744
(5,429)
11,315
Year ended
December 31
2021
11,250
8,831
1,108
(171)
21,018
2020
13,186
4,614
797
373
18,970
Advantage Energy Ltd. - 96
22. Related party transactions
(a) 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
2021
2020
4,903
5,075
9,978
3,664
5,024
8,688
(1) Represents the grant date fair value of Performance Share Units and Performance Awards granted.
As at December 31, 2021, there is a commitment of $4.4 million (December 31, 2020 – $4.0 million) related
to change of control or termination of employment of officers.
(b) Management Services Agreement
The Corporation entered into a Management Services Agreement with Entropy whereas Advantage provides
certain administrative, accounting, financial, strategic, planning and management services to Entropy, which
are in the in the normal course of operations. During the year ended December 31, 2021, the Corporation
incurred $0.8 million (December 31, 2020 – nil) in G&A recoveries, payable to Advantage in connection with
the Management Services Agreement.
23. 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
Performance Awards
Deferred revenue
Project funding
Related to operating activities
Related to financing activities
Related to investing activities
Cash interest paid
Cash income taxes paid
Year ended
December 31
2021
2020
(26,278)
(1,462)
43,315
5,350
‐
(20,000)
925
(10,639)
‐
11,564
925
20,150
‐
827
(534)
(13,817)
3,368
6,603
‐
(3,553)
(2,867)
‐
(686)
(3,553)
16,692
‐
Advantage Energy Ltd. - 97
23. Supplementary cash flow information (continued)
The following table provides a detailed breakdown of the cash and non‐cash changes in financing liabilities arising
from financing activities:
Cash flows
Draws on credit facility
Repayment of credit facility
Bankers’ acceptance and other fees
Lease payments
Financing payments
Net proceeds from financing liability transaction
Total cash flows
Non‐cash changes
Amortization of bankers’ acceptance and other fees
Lease interest expense
Financing liability Interest expense
Total non‐cash changes
Cash provided by (used in) financing activities
24. Commitments
Year ended
December 31
2021
2020
30,000
(110,000)
(10,288)
(371)
(12,045)
‐
(102,704)
75,000
(125,000)
(11,075)
(360)
(6,072)
98,453
30,946
10,528
96
8,669
19,293
12,556
102
4,483
17,141
(83,411)
48,087
At December 31, 2021 Advantage had commitments relating to building operating cost of $2.3 million, processing
commitments of $59.6 million and transportation commitments of $430.4 million. The estimated remaining
payments are as follows:
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Total
2.3
59.6
455.0
516.9
2022
0.4
5.9
65.5
71.8
Payments due by period
2025
2024
0.4
0.4
9.5
10.0
57.8
59.6
67.7
70.0
2023
0.4
7.9
62.5
70.8
2026
0.4
7.0
50.6
58.0
Beyond
0.3
19.3
159.0
178.6
(3) Excludes fixed lease payments which are included in the Corporation’s lease liability.
Advantage Energy Ltd. - 98
Forward‐Looking Information and Other Advisories
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 Corporation's
expectations that it will eliminate net debt during the third quarter of 2022; Advantage's plans to implement a share
buyback program and the anticipating timing thereof and benefits to be derived therefrom; Advantage's ability to
enhance profitability through all phases of the commodities cycles; anticipated growth in demand; that Advantage is
well positioned to generate significant shareholder value; the anticipated downtime at Glacier for plant turnaround
and that such downtime will lead to the completion of the Phase 1 CCS project; anticipated gas supply shortages and
elevated pricing; Advantage's expectations that minimal new Glacier volumes will come onstream for the remainder
of 2022; the anticipated timing and costs of the construction of the trunk‐line tying Advantage's oil battery to Keyera's
Pipestone Processing Facility at Wembley and the anticipated benefits to be derived therefrom upon completion; the
anticipated timing and costs of the construction of the new compressor station at Progress and the anticipated
benefits to be derived therefrom upon completion; the anticipated timing of Advantage's Indigenous Education
Scholarship program and the anticipated benefits to be derived therefrom; the anticipated timing of Mr. Ron
McIntosh's retirement and the appointment of his successor; Advantage's expectations that AFF will more than
double in 2022; Advantage's expectations that it will generate significant free cash flow of over $140 million in the
first half of 2022; the revised guidance for 2021, and the additional capital's ability to deliver higher production into
the winter markets; the focus of Advantage's 2022 capital program and its ability to grow adjusted funds flow per
share, increase liquids revenue and make infrastructure investments that increase third‐party processing revenue or
establish carbon revenue for Entropy; the Corporation's expected payout ratio; that the Corporation will dedicate
free cash flow towards debt reduction; guidance for 2022 including the cash used in investing activities, average
production, liquids production (% of total production), royalty rate, operating expense, transportation expense and
G&A/finance expense; that Entropy's non‐binding financing agreement will lead to a completed financing and the
anticipated timing and benefits to be derived therefrom; anticipated production rates in 2022; the Corporation's
forecasted 2022 natural gas market exposure including the anticipated effective production rate; rate; the
Corporation's expected number of wells to be drilled in the first quarter of 2022 and placed on production in the
second quarter of 2022; the Corporation's hedging activities and the benefits to be derived therefrom; future
commitments and contractual obligations and the anticipated payments in connection therewith and the anticipated
timing thereof; the Corporation's ability to ensure that it is properly diversified to multiple markets; the terms of the
Corporation's derivative contracts, including their purposes, the timing of settlement of such contracts and the
anticipated benefits to be derived therefrom; the Corporation's anticipated 2022 annual operating expense per boe
and transportation expense per boe; estimated tax pools; the Corporation's anticipated; terms of the Corporation's
Credit Facilities, including timing of the next review of the Credit Facilities and the Corporation's expectations
regarding extension of the Credit Facilities at each annual review; the Corporation's ability to strengthen its balance
sheet, maintain a disciplined commodity risk management program and increase available liquidity; the Corporation's
expectations that it is well positioned to continue successfully executing its multi‐year development plan;
expectations that Advantage's increase in market capitalization will provide the Corporation with flexibility in
managing its capital structure; the Corporation's strategy for managing its capital structure, including 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 Corporation's ability to satisfy all liabilities and commitments and meet future
Advantage Energy Ltd. - 99
Forward‐Looking Information and Other Advisories (continued)
obligations as they become due and the means for satisfying such future obligations; expectations that the Phase 1
CCS project will be completed by the second quarter of 2022; the Corporation's anticipated reductions in Scope 1
and 2 emissions and the anticipated timing thereof; the Corporation's expectations that it will achieve "net zero"
Scope 1 and 2 emissions by 2025; the benefits to be derived from Entropy's planned capital projects and the
expectation that they will result in completed CCS projects and the anticipated timing thereof; that the Phase 2 CCS
project will come on‐stream and the anticipated benefits to be derived therefrom and the anticipated timing thereof;
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 conditions
(including as a result of demand and supply effects resulting from the COVID‐19 pandemic and the actions of OPEC
and non‐OPEC countries) which will, among other things, impact demand for and market prices of the Corporation’s
products, 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; the number of wells to be drilled in the first quarter of 2022 and placed on production in
the second quarter of 2022 will be less than anticipated lack of available capacity on pipelines; delays in timing of
facility installation; potential disruption of the Corporation’s operations as a result of the COVID‐19 pandemic
through potential loss of manpower and labour pools resulting from quarantines in the Corporation’s operating
areas, risk on the financial capacity of the Corporation's contract counterparties and potentially their ability to
perform contractual obligations, delays in obtaining stakeholder and regulatory approvals; performance or
achievement could differ materially from those expressed in, or implied by, the forward‐looking information; 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; that the Glacier CCS project will not come on‐stream when expected; that Advantage will not be able to achieve
"net zero" emissions by 2025; that Entropy's existing planned capital projects will not result in completed CCS
projects; the price of and market for carbon credits and offsets; current and future carbon prices and royalty regimes;
that Entropy's non‐binding financing may not be completed on the anticipated terms or at all; Advantage will not
have sufficient capital to implement a share buyback program; Advantage will not enhance profitability through all
phases of the commodities cycles; the anticipated downtime at Glacier will not lead to the completion of the Phase
1 CCS project; the construction of the trunk‐line tying Advantage's oil battery to Keyera's Pipestone Processing Facility
at Wembley will not be completed when or for the costs anticipated; the construction of the new compressor station
at Progress will not be completed when or for the costs anticipated; Advantage's AFF and free cash flow will be less
than anticipated in 2022; 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.
Advantage Energy Ltd. - 100
Forward‐Looking Information and Other Advisories (continued)
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; the impact (and the duration thereof) that the COVID‐19 pandemic will have on (i) the demand for crude oil,
NGLs and natural gas, (ii) the supply chain, including the Corporation's ability to obtain the equipment and services
it requires, and (iii) the Corporation's ability to product, transport and/or sell its crude oil, NGLs 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 ability to
efficiently integrate assets acquired through acquisitions; 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 Entropy's non‐binding
financing agreement will lead to a completed financing; that Entropy's planned capital projects will lead to completed
CCS projects; 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; that Advantage
will have sufficient capital to implement a share buyback program; that Advantage will receive the required
regulatory approvals to initiate a share buyback program; that five days of downtown at Glacier will lead to a
completed Phases 1 CCS project; 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.
The future acquisition by the Corporation of the Corporation's shares pursuant to a share buyback program, if any,
and the level thereof is uncertain. Any decision to implement a share buyback program or acquire shares of the
Corporation will be subject to the discretion of the board of directors of the Corporation and may depend on a variety
of factors, including, without limitation, the Corporation's business performance, financial condition, financial
requirements, growth plans, expected capital requirements and other conditions existing at such future time
including, without limitation, contractual restrictions, satisfaction of the solvency tests imposed on the Corporation
under applicable corporate law and receipt of regulatory approvals. There can be no assurance that the Corporation
will buyback any shares of the Corporation in the future.
Management has included the above summary of assumptions and risks related to forward‐looking information
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.
This document contains information that may be considered a financial outlook under applicable securities laws
about the Corporation's potential financial position, including, but not limited to: the Corporation's expectations that
it will eliminate net debt during the third quarter of 2022; Advantage's expectations that AFF will more than double
in 2022; Advantage's expectations that it will generate significant free cash flow of over $140 million in the first half
Advantage Energy Ltd. - 101
Forward‐Looking Information and Other Advisories (continued)
of 2022; the Corporation's expected payout ratio; the Corporation's anticipated cash used in investing activities;
anticipated average production, liquids production, royalty rate, operating expenses, transportation expenses and
G&A/finance expenses in 2022; and the Corporation's expected 2022 annual operating expense per boe and
transportation expense per boe; all of which are subject to numerous assumptions, risk factors, limitations and
qualifications, including those set forth in the above paragraphs. The actual results of operations of the Corporation
and the resulting financial results will vary from the amounts set forth in this document and such variations may be
material. This information has been provided for illustration only and with respect to future periods are based on
budgets and forecasts that are speculative and are subject to a variety of contingencies and may not be appropriate
for other purposes. Accordingly, these estimates are not to be relied upon as indicative of future results. Except as
required by applicable securities laws, the Corporation undertakes no obligation to update such financial outlook.
The financial outlook contained in this MD&A was made as of the date of this MD&A and was provided for the
purpose of providing further information about the Corporation's potential future business operations. Readers are
cautioned that the financial outlook contained in this MD&A is not conclusive and is subject to change.
This document contains metrics commonly used in the oil and natural gas industry which have been prepared by
management such as “operating netback”, "net asset value", "reserve additions", "reserve per share" and "reserve
life index". 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 “Specified Financial Measures” section of this MD&A for additional disclosure on “operating netback”.
References in this document to short‐term production rates are useful in confirming the presence of hydrocarbons,
however such rates are not determinative of the rates at which such wells will commence production and decline
thereafter and are not indicative of long‐term performance or of ultimate recovery. Additionally, such rates may also
include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not
to place reliance on such rates in calculating the aggregate production of Advantage.
References to natural gas, crude oil and condensate and NGLs production in the document refer to conventional
natural gas, light crude oil and medium crude oil and natural gas liquids, respectively, product types as defined in
National Instrument 51‐101.
Advantage Energy Ltd. - 102
Specified Financial Measures
Throughout this document and in other documents disclosed by the Corporation, Advantage discloses certain
measures to analyze financial performance, financial position, and cash flow. These specified financial measures do
not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures
presented by other entities. The specified financial measures should not be considered to be more meaningful than
GAAP measures which are determined in accordance with IFRS, such as net income (loss) and comprehensive income
(loss), cash provided by operating activities, and cash used in investing activities, as indicators of Advantage’s
performance. Refer to “Specified Financial Measures” on page 29 of the Corporation’s Consolidated Management’s
Discussion & Analysis for the year ended December 31, 2021, which is available at www.sedar.com and
www.advantageog.com, for additional information about certain financial measures, including reconciliations to the
nearest GAAP measures, as applicable.
The Corporation has additional specified financial measures, not included in the Corporation’s MD&A that have been
disclosed in this document, as follows:
Finding, Development and Acquisition Costs (“FD&A”)
FD&A is a Non‐GAAP financial measures as it includes net capital expenditures. FD&A cost is calculated based on
adding net capital expenditures and the net change in future development capital ("FDC"), divided by reserve
additions for the year from the Sproule 2021 and 2020 Reserves Report.
Net Asset Value
Net asset value is a supplementary financial measure that includes the net present value of the future
revenue of its proved plus probable reserves (before income taxes, discounted at 0%, 10% and 15%),
working capital (including derivatives), financing liability and bank indebtedness. Management believes
that net asset value allows users in assessing the long‐term fair value of Advantage’s underlying reserves
assets after settling its outstanding financial obligations
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 18, 2022
Advantage Energy Ltd. - 103
ABBREVIATIONS
Crude Oil and Natural Gas Liquids
Natural Gas
bbl
bbls
Mbbls
NGLs
BOE or boe
Mboe
barrel
barrels
thousand barrels
natural gas liquids
barrel of oil equivalent
thousand barrels of oil
equivalent
thousand cubic feet
million cubic feet
billion cubic feet per day
thousand cubic feet per day
Mcf
MMcf
bcf/d
Mcf/d
MMcf/d million cubic feet per day
Mcfe
thousand cubic feet of natural gas equivalent, using the
ratio of 6 Mcf of natural gas being equivalent to one
bbl of oil
MMboe
boe/d
bbls/d
Other
AECO
CCS
CDOR
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
MMbtu/d million British Thermal Units per day
GJ/d
Gigajoules per day
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
means ”Carbon Capture and Storage”
means “Canadian Dollar Offered Rate”
Henry Hub
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
MSW
PJM
WTI
means “Mixed Sweet Blend”, the reference price paid for conventionally produced light sweet
crude oil at Edmonton, Alberta
a regional transmission organization that coordinates the movement of wholesale electricity in the
Mid Atlantic region of the US
means “West Texas Intermediate”, the reference price paid in U.S. dollars at Cushing, Oklahoma for
the crude oil standard grade
Crude oil
Light Crude Oil and Medium Crude Oil as defined in National Instrument 51‐101
Natural gas
Conventional Natural Gas as defined in National Instrument 51‐101
“NGLs” &
“condensate”
Liquids
Natural Gas Liquids as defined in National Instrument 51‐101
Total of crude oil, condensate and NGLs
Advantage Energy Ltd. - 104
Directors
Jill T. Angevine (1)(3)(4)
Stephen E. Balog (1)(2)(3)(4)
Deirdre M. Choate(1)(4)
Paul G. Haggis (1)(2)(3)(4)
Norman W. MacDonald(1)(2)
Andy J. Mah(2)
Ronald A. McIntosh (2)(4)
Donald M. Clague (1)(2)(3)
Michael Belenkie
(1) Member of Audit Committee
(2) Member of Reserve Evaluation Committee
(3) Member of Compensation Committee
(4) Member of Governance Committee
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
Officers
AAV
Michael Belenkie, President and CEO
Craig Blackwood, CFO
Neil Bokenfohr, Senior Vice President
David Sterna, Vice President, Marketing and Commercial
John Quaife, Vice President, Finance
Darren Tisdale, Vice President, Geosciences
Geoff Keyser, Vice President, Corporate Development
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
Independent Reserve Evaluators
Sproule Associates Limited
Legal Counsel
Burnet, Duckworth and Palmer LLP
Advantage Energy Ltd. - 105
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
Advantage Oil & Gas Ltd. - 106