2022 Fourth Quarter Report
Financial Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income and comprehensive income
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash used in financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital surplus (1)
Bank indebtedness
Net debt (1)
Operating Highlights
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/Mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales (1)
Realized losses on derivatives (1)
Processing and other income (1)
Royalty expense (1)
Operating expense (1)
Transportation expense (1)
Operating netback (1)
Q4
Three months ended
December 31
Year ended
December 31
2022
2021
2022
2021
223,200
113,462
0.63
180,248
112,558
(49,718)
(69,060)
124,205
24.29
0.69
49,687
74,518
71,564
177,200
121,336
1,854
1,092
2,680
5,626
299,684
55,573
5.65
86.39
43.66
(4.76)
0.60
(5.31)
(3.39)
(4.43)
26.37
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
71,227
16.15
0.37
58,384
12,843
6,865
167,345
160,480
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
950,458
337,761
1.81
187,022
502,378
(209,091)
(269,585)
492,035
411,354
2.17
190,077
223,152
(83,411)
(117,782)
516,790
25.39
2.76
241,790
275,000
71,564
177,200
121,336
1,972
1,082
3,039
6,093
298,053
55,769
5.55
92.48
46.69
(7.08)
0.45
(5.22)
(3.16)
(4.43)
27.25
234,824
13.01
1.24
149,403
85,421
6,865
167,345
160,480
1,101
844
2,548
4,493
269,710
49,445
3.38
50.92
27.26
(4.13)
‐
(1.53)
(2.49)
(3.90)
15.21
(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 ........................................................................................................................................................................ 3
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS ....................................................................................... 10
CONSOLIDATED FINANCIAL STATEMENTS .................................................................................................................... 56
Independent Auditor’s Report .............................................................................................................................. 57
Consolidated Statements of Financial Position .................................................................................................... 62
Consolidated Statements of Comprehensive Income (Loss) ................................................................................ 63
Consolidated Statements of Changes in Shareholders’ Equity ............................................................................. 64
Consolidated Statements of Cash Flows ............................................................................................................... 65
Notes to the Consolidated Financial Statements ................................................................................................. 66
ADVISORY .................................................................................................................................................................... 105
Advantage Energy Ltd. - 1
MESSAGE TO SHAREHOLDERS
Advantage Energy Ltd. ("Advantage" or the "Corporation") is pleased to report 2022 year‐end financial and operating
results as well as year‐end 2022 reserves.
Advantage achieved exceptional results during 2022, delivering clean, secure energy during the global energy
shortage. Cash flow from operations was unprecedented, allowing the Corporation to buy back 11% of our
outstanding shares in 8 months, returning $241 million to our shareholders, in addition to reducing net debt(a) by
24% to $121 million. Every well drilled in 2022 achieved payout(a) in under 9 months with an average payout(a) of 5
months.
Looking Forward
To maximize shareholder value, Advantage remains focused on growing AFF per share(a) while maintaining a net debt
target of approximately $200 million. Advantage’s three‐year plan is to deliver annual production growth of
approximately 10% with annual spending between $250 million and $300 million. All excess cash will be returned to
shareholders via share buybacks.
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. - 2
RESERVES
Advantage engaged its independent qualified reserves evaluator Sproule Associates Ltd. ("Sproule") to evaluate its
year‐end reserves as of December 31, 2022 in accordance with National Instrument 51‐101 – Standards of Disclosure
for Oil and Gas Activities ("NI 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 Advantage’s oil and gas
reserves, including its reserves on a net interest basis (after royalty burdens and including royalty interests) is
included in Advantage's Annual Information Form dated February 23, 2023 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)
Notes:
December 31
2022
585,648
December 31
2021(4)
553,365
4,745,165
27.16
28.9
3.41
0.30
3,353,076
16.55
31.6
2.90
0.30
(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 171.7million shares outstanding at December 31, 2022 and 190.8 million at December 31, 2021.
(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, 2021 contained in a report
of Sproule dated February 11, 2022 using the IQRE average product price forecast effective December 31, 2021.
(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. - 3
Corporation Gross (before royalties) Working Interest Reserves Summary as at December 31, 2022
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)
Total Oil
Equivalent
(Mboe)
3,074
48
9,310
12,432
7,024
19,456
768,058
28,687
1,482,033
2,278,778
907,549
3,186,329
7,821
254
16,575
24,650
10,487
35,137
138,905
5,083
272,891
416,879
168,769
585,648
Total Oil Equivalent Corporation Gross (before royalties)
Working Interest Reserves Summary
532,034
553,365
585,648
)
e
o
b
M
(
2020
2021
2022
Proved Developed Producing
Proved Undeveloped
Proved Developed Non‐producing
Probable
Advantage Energy Ltd. - 4
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
Notes:
Before Income Taxes Discounted at
0%
10%
15%
3,067,918
121,378
5,300,607
8,489,903
4,515,559
13,005,462
1,661,348
56,199
1,666,337
3,383,883
1,361,282
4,745,165
1,377,090
44,540
1,091,351
2,512,981
938,053
3,451,035
(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, 2022, 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
$
(
2,191
2,205
3,353
3,384
1,483
709
2020
1,148
2021
Total Proved
Probable
Total Proved Plus Probable
4,745
1,361
2022
Advantage Energy Ltd. - 5
IQRE Average Forecasts and Assumptions
The net present value of future net revenue at December 31, 2022 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, 2022. 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
($Cdn/bbl)
103.76
97.74
95.27
95.58
97.07
99.01
100.99
AECO‐C
Spot
($Cdn/MMbtu)
4.23
4.40
4.21
4.27
4.34
4.43
4.51
Edmonton
Pentanes Plus
($Cdn/bbl)
106.22
101.35
98.94
100.19
101.74
103.78
105.85
Edmonton
Butane
($Cdn/bbl)
53.88
52.67
51.42
51.61
52.39
53.44
54.51
Edmonton
Propane
($Cdn/bbl)
39.80
39.14
39.74
39.86
40.47
41.28
42.11
Operating
Cost Inflation
Rate
%/year
‐
2.33
2.00
2.00
2.00
2.00
2.00
Capital Cost
Inflation Rate
%/year
‐
2.33
2.00
2.00
2.00
2.00
2.00
Exchange
Rate
($US/$Cdn)(3)
0.75
0.77
0.77
0.77
0.78
0.78
0.78
Year
2023
2024
2025
2026
2027
2028
2029
Year
2023
2024
2025
2026
2027
2028
2029
Advantage Energy Ltd. - 6
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, 2021
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, 2022
Notes:
Before Income Taxes Discounted at
0%
$ 45.99
13,005,462
15,791
172,533
(94,705)
(177,200)
12,921,881
$ 75.28
10%
$ 16.55
4,745,165
15,791
172,533
(94,705)
(177,200)
4,661,584
$ 27.16
15%
$ 11.66
3,451,035
15,791
172,533
(94,705)
(177,200)
3,367,454
$ 19.62
(1) Based on 171.7 million shares outstanding at December 31, 2022 and 190.8 million at December 31, 2021.
(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) Working capital excludes the working capital balance incurred by the Corporation’s subsidiary, Entropy. Other is
calculated as current and non‐current derivative asset less current and non‐current derivative liability.
Advantage Energy Ltd. - 7
Company Gross (before royalties) Working Interest Reserves Reconciliation
Proved
Opening balance December 31, 2021
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions
Dispositions
Economic factors(3)
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
8,355
Conventional
Natural Gas
(Mmcf)
2,177,121
Natural Gas
Liquids
(Mbbl)
22,709
Total Oil
Equivalent
(Mboe)
393,918
2,887
1,785
‐
‐
‐
125
(720)
122,015
69,470
‐
‐
‐
18,963
(108,789)
3,153
131
‐
‐
‐
161
(1,504)
26,376
13,494
‐
‐
‐
3,447
(20,355)
Closing balance at December 31, 2022
12,432
2,278,778
24,650
416,879
Proved Plus Probable
Opening balance December 31, 2021
Extensions and improved recovery (1)
Technical revisions (2)
Discoveries
Acquisitions
Dispositions
Economic factors (3)
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
17,566
Conventional
Natural Gas
(Mmcf)
3,016,263
Natural Gas
Liquids
(Mbbl)
33,088
Total Oil
Equivalent
(Mboe)
553,365
2,481
(40)
‐
‐
‐
169
(720)
143,276
126,858
‐
‐
‐
8,722
(108,789)
3,319
141
‐
‐
‐
93
(1,504)
29,679
21,244
‐
‐
‐
1,716
(20,355)
Closing balance at December 31, 2022
19,456
3,186,329
35,137
585,648
Notes:
(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 plus probable future drilling locations. (ii)
As per COGE Handbook guidance: Glacier/Valhalla/Progress future proved locations were scheduled to be
developed within seven years (two including a plant expansion plus five) and probable future locations were
developed within nine years of the required ten years for probable reserves. (iii) Wembley/Pipestone future
proved locations were scheduled within the requirement to be developed within five years and probable future
locations within ten years for probable reserves.
(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. - 8
Corporation Finding and Development Cost ("F&D")
Corporation 2022 F&D Cost – Gross (before royalties) Working Interest Reserves Including Future
Development Capital(1)(2)(3)
Net capital expenditures, excluding intangible assets ($000)(4)(5)
Net change in Future Development Capital ($000)
Total capital ($000)
Total mboe, end of year
Total mboe, beginning of year
Production, mboe
Reserve additions, mboe
2022 F&D cost ($/boe) (4)(5)
2021 F&D cost ($/boe) (4)(5)
Three‐year average F&D cost ($/boe) (4)(5)
Notes:
Proved
218,914
105,196
324,110
416,879
393,918
(20,355)
43,316
$ 7.48
$ 6.54
$ 5.80
Proved
Plus Probable
218,914
129,511
348,425
585,648
553,365
(20,355)
52,638
$ 6.62
$ 5.82
$ 4.63
(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) Excludes $19.0 million of development cost related to the Corporation’s Phase 1a CCS project and net capital
expenditures incurred by the Corporation’s subsidiary, Entropy.
(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. - 9
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
For the three months and years ended December 31, 2022 and 2021
Advantage Energy Ltd. - 10
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
The following Management’s Discussion and Analysis ("MD&A"), dated as of February 23, 2023, 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, 2022, and should be read in
conjunction with the December 31, 2022, 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
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income and comprehensive income
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash used in financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital surplus (1)
Bank indebtedness
Net debt (1)
Three months ended
December 31
Year ended
December 31
2022
2021
2022
2021
223,200
113,462
0.63
180,248
112,558
(49,718)
(69,060)
124,205
24.29
0.69
49,687
74,518
71,564
177,200
121,336
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
71,227
16.15
0.37
58,384
12,843
6,865
167,345
160,480
950,458
337,761
1.81
187,022
502,378
(209,091)
(269,585)
492,035
411,354
2.17
190,077
223,152
(83,411)
(117,782)
516,790
25.39
2.76
241,790
275,000
71,564
177,200
121,336
234,824
13.01
1.24
149,403
85,421
6,865
167,345
160,480
(1) Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial
measures used by other entities. Please see "Specified Financial Measures" for the composition of such specified financial measure, an
explanation of how such specified financial measure provides useful information to a reader and the purposes for which Management of
Advantage uses the specified financial measure, and/or where required, a reconciliation of the specified financial measure to the most
directly comparable IFRS measure.
(2) Based on basic weighted average shares outstanding.
Advantage Energy Ltd. - 11
Operating Highlights
Operating
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/Mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales
Realized losses on derivatives
Processing and other income
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Three months ended
December 31
Year ended
December 31
2022
2021
2022
2021
1,854
1,092
2,680
5,626
299,684
55,573
816
1,012
2,524
4,352
261,530
47,940
1,972
1,082
3,039
6,093
298,053
55,769
1,101
844
2,548
4,493
269,710
49,445
5.65
86.39
43.66
(4.76)
0.60
(5.31)
(3.39)
(4.43)
26.37
4.17
54.70
36.11
(8.41)
‐
(2.02)
(2.92)
(4.48)
18.28
5.55
92.48
46.69
(7.08)
0.45
(5.22)
(3.16)
(4.43)
27.25
3.38
50.92
27.26
(4.13)
‐
(1.53)
(2.49)
(3.90)
15.21
(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. - 12
Corporate Update
2023 Guidance
On December 1, 2022, the Corporation announced its 2023 budget (see News Release dated December 1, 2022). The
Corporation’s capital program is focused on prudent adjusted funds flow per share growth via high rate‐of‐return
development drilling into existing infrastructure.
The below table summarizes Advantage’s 2023 guidance:
Forward Looking Information(1)
Cash Used in Investing Activities (2) ($ millions)
Total Average Production (boe/d)
Liquids Production (% of total average production)
Royalty Rate (%)
Operating Expense ($/boe)
Transportation Expense ($/boe)
G&A/Finance Expense ($/boe)
2023 Guidance(3)
250 to 280
59,000 to 62,500
~12%
9 to 12
3.25
4.75
1.40
(1) Forward‐looking statements and information representing Management estimates. Please see “Forward‐Looking Information and Other
Advisories”.
(2) Cash Used in Investing Activities is the same as Net Capital Expenditures as no change in non‐cash working capital is assumed between
years and other differences are immaterial.
(3) Guidance and actual numbers are for Advantage Energy Ltd. only and excludes its subsidiary, Entropy Inc.
2022 Guidance Update
The below table summarizes Advantage’s 2022 guidance compared to actual 2022 financial and operational results:
Net Capital Expenditures ($ millions)
Average Production (boe/day)
Liquids Production (bbls/day)
Royalty Rate (%)
Operating Expense ($/boe)
Transportation Expense ($/boe)
G&A/Finance Expense(5) ($/boe)
Original
2022 Guidance(1)
170 to 200
52,000 to 55,000
5,400 to 5,800
7 to 9
2.45
4.35
1.55
Q1 2022
Revision(2)
‐
‐
‐
12 to 17
‐
4.85 to 5.15
‐
Q2 2022
Revision(3)
210 to 230
53,500 to 56,500
5,800 to 6,200
‐
‐
‐
‐
Q3 2022
Revision(4)
‐
‐
‐
11 to 13
3.05
4.45 to 4.65
‐
2022
Actual(6)
238.0
55,769
6,093
11.2
3.16
4.43
1.65
Notes:
(1)
(2)
(3)
(4)
(5)
(6) Guidance and actual numbers are for Advantage Energy Ltd. only and excludes its subsidiary, Entropy Inc.
See December 31, 2021 MD&A dated February 24, 2022.
See March 31, 2022 MD&A dated April 29, 2022.
See June 30, 2022 MD&A dated July 28, 2022.
See September 30, 2022 MD&A dated October 27, 2022.
Finance expense includes foreign exchange and excludes accretion of decommissioning liability and unsecured debentures.
Advantage Energy Ltd. - 13
Corporate Update (continued)
2022 Guidance Update (continued)
Net Capital Expenditures
The Corporation increased net capital expenditures guidance in the second quarter of 2022 to between $210 million
and $230 million as a result of adding 1.5 net new drills, continued inflation, and increased frac intensity across all
assets. Advantage incurred net capital expenditures of $238.0 million, 3% over our revised 2022 guidance range.
Under the Government of Canada’s proposed refundable investment tax credit ("ITC") for Carbon Capture, Utilization
and Storage ("CCUS") projects, the Corporation expects it is entitled to recover approximately $15 million to $20
million of its incurred net capital expenditures on the Glacier Gas Plant Phase 1 CCS project constructed by Advantage.
As the ITC has yet to receive royal ascent in the House of Commons, the Corporation was unable to recognize this
benefit as at December 31, 2022.
Production
As a result of strong operational execution, 2022 production guidance was increased in the second quarter of 2022
to between 53,500 boe/d and 56,500 boe/d with liquids production between 5,800 bbls/d and 6,200 bbls/d.
Advantage’s total production and liquids production averaged within our revised guidance range.
Royalty Rate
Given the increased commodity price environment and accelerated royalty payouts realized on the Corporation’s
wells, the Corporation increased its royalty rate guidance range in the first quarter of 2022 to between 12% and 17%,
further revising to between 11% and 13% during the third quarter of 2022. The Corporation’s actual royalty rate was
within our revised guidance range.
Operating Expense
As a result of continued inflation, higher than expected third‐party processing fees associated with increased volumes
at Wembley, and increased costs associated with the high commodity price environment, the Corporation increased
operating expense guidance in the third quarter of 2022 to $3.05/boe, with actual operating expense per boe coming
in modestly 4% above our revised range.
Transportation Expense
Subsequent to Advantage securing additional Empress transportation capacity, the Corporation’s transportation
expense guidance was increased to between $4.85/boe and $5.15/boe in the first quarter of 2022. Transportation
expense guidance was reduced to between $4.45/boe and $4.65/boe, due to lower‐than‐expected tolls and fuel
costs, with actual transportation expense being just below our revised guidance at $4.43/boe.
G&A/Finance Expense
Advantage’s G&A/Finance expense of $1.65/boe was 6% higher than guidance due to incremental G&A costs
associated with increased staffing levels, and increased interest on bank indebtedness due to increased interest rates
and share buybacks totaling $241 million (see "Corporate Update – Share Buyback Program").
Advantage Energy Ltd. - 14
Corporate Update (continued)
Share Buyback Program
Advantage dedicated all free cash flow in 2022 towards purchasing for cancellation, common shares of the
Corporation. This was achieved through purchasing 13.3 million common shares under a normal course issuer bid
("NCIB"), and 8.9 million common shares under a substantial issuer bid ("SIB"), resulting in $241.0 million being
returned to the Corporation’s shareholders under the share buyback program (see "Shareholders’ Equity").
Subsequent to December 31, 2022, the Corporation purchased 5.4 million common shares under the NCIB, achieving
the maximum number of common shares that could be purchased under the Corporation’s current NCIB. Advantage
plans to apply for renewal of the NCIB in April 2023.
Entropy
On March 25, 2022, Entropy Inc. ("Entropy") announced a strategic $300 million investment agreement with
Brookfield Global Transition Fund ("Brookfield") to scale up deployment of Entropy’s CCS technology. In connection
with the investment agreement, on April 5, 2022, Entropy issued an unsecured debenture for $25.0 million, which is
non‐recourse to Advantage.
In the third quarter of 2022, Entropy completed commissioning on its first post combustion CCS project at the Glacier
Gas Plant. Commissioning of Phase 1 (47,000 tonnes per annum of CO2e ("TPA")) was completed as expected with
"first carbon" injected into permanent geological storage during August, with process optimization and testing
ongoing. Entropy believes this is the world’s first commercial project to capture and sequester carbon dioxide from
the combustion of natural gas.
Now that Entropy’s advanced technology has been proven at Glacier, Entropy has begun expanding its team with a
focus on commercial growth in the United States and Canada. Entropy’s near‐term projects include approximately
1.5 mmtpa of post‐combustion projects, including Glacier (200,000 tpa), Athabasca Leismer (440,000 tpa), the CRC
project (400,000 tpa) and an additional Alberta project on turbines and boilers (450,000 tpa). All of these projects
have the potential to advance to procurement and construction during 2023 and represent first‐in‐kind deployment
of CCS technology. Mid‐term and long‐term projects remain well in excess of 10 mmtpa.
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)
10,000
8,000
6,000
4,000
d
/
s
l
b
b
Three months ended
December 31
2022
1,854
1,092
2,680
5,626
299,684
55,573
10
90
2021
816
1,012
2,524
4,352
261,530
47,940
9
91
%
Change
127
8
6
29
15
16
Average Daily Production
Year ended
December 31
2022
1,972
1,082
3,039
6,093
298,053
55,769
11
89
2021
1,101
844
2,548
4,493
269,710
49,445
9
91
%
Change
79
28
19
36
11
13
300
250
200
271
274
272
262
288
318
286
300
150
2,000
4,609
4,290
4,724
4,352
4,908
7,378
6,447
5,626
‐
Q1 21
Q2 21
Q3 21
Liquids (bbls/d)
Q4 21
Q1 22
Q2 22
Q3 22
Q4 22
Natural gas (MMcf/d)
100
50
0
d
/
f
c
M
M
For the three months ended December 31, 2022, Advantage recorded total production averaging 55,573 boe/d,
while achieving record total production of 55,769 boe/d for the year ended December 31, 2022, increasing 16% and
13%, respectively, compared to the same periods of the prior year.
Natural gas production for the three months and year ended December 31, 2022 averaged 300 MMcf/d and 298
MMcf/d, respectively, increases of 15% and 11% compared to the same periods of the prior year. Advantage’s
natural gas production increased as a result of continued development at Glacier and Valhalla, where the
Corporation continues to drill among the top producing natural gas wells in the Alberta Montney (see "Cash Used in
Investing Activities and Net Capital Expenditures"). Advantage was able to successfully maintain natural gas
production at the Glacier Gas Plant through periods of severe cold weather experienced during the fourth quarter,
while "firm service" restrictions on TC Energy’s NGTL system impacted the industry and our ability to produce an
additional 5 MMcf/d of natural gas during the quarter.
Liquids production for the three months and year ended December 31, 2022 averaged 5,626 bbls/d and 6,093 bbls/d,
respectively, increases of 29% and 36% compared to the same periods of the prior year, as a result of our liquids
development focus whereby additional Wembley wells were brought onstream in 2022 (see "Cash Used in Investing
Activities and Net Capital Expenditures").
Advantage expects total annual production to increase to between 59,000 and 62,500 boe/d in 2023 based on the
Corporation’s planned 2023 capital program (see "Corporate Update").
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
2022
2021
%
Change
Year ended
December 31
2022
2021
%
Change
6.49
5.65
99.70
106.58
67.05
85.48
86.39
5.10
5.68
6.04
6.26
4.94
5.16
5.57
5.77
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
82.63
110.06
77.17
93.26
19
35
10
11
23
21
58
9
15
20
18
15
11
(5)
2
7
18
6.82
5.55
113.84
119.34
71.26
93.58
92.48
5.24
5.57
6.50
6.47
5.52
6.05
6.29
6.31
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
94.23
119.56
67.96
80.33
72
64
47
46
49
52
82
45
56
68
63
62
68
66
72
39
49
Average Exchange rate ($US/$CDN)
0.7363
0.7937
(7)
0.7687
0.7976
(4)
(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, 2022
was $85.48/bbl and $93.58/bbl, respectively, increases of 21% and 52% compared to the same periods of the prior
year. Realized crude oil, condensate and NGL prices excluding derivatives all increased in 2022 when compared to
2021 largely due to the Ukrainian‐Russian war. Liquids prices in the fourth quarter of 2022 declined from their highs
in the second quarter due to economic global recession concerns. 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,
2022 was $6.49/Mcf and $6.82/Mcf, respectively, increases of 19% and 72% 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 have significant market exposure at Dawn, Empress, Emerson, Chicago and
Ventura.
Advantage Energy Ltd. - 17
Commodity Prices and Marketing (continued)
Advantage continues to invest in additional transportation commitments to diversify production to alternative
markets, thereby reducing price volatility and achieving higher operating netbacks (see "Transportation Expense").
In the first quarter of 2022, Advantage added 47.4 MMcf/d of firm transportation capacity to Empress, AB on the
NGTL system for a 4‐year term commencing April 2022. During the third quarter of 2022, Advantage added an
additional 23.7 MMcf/d of firm transportation capacity to Empress for a 3‐year term commencing September 2022.
Beginning in November 2022, Advantage began pre‐commissioning deliveries of 12,500 MMbtu/d on the Alliance
pipeline in connection with its agreement with Competitive Power Ventures ("CPV"), whereby Advantage receives a
Chicago Citygate price, less Alliance tolls. Upon commissioning of the CPV Three Rivers plant in 2023, Advantage will
deliver 25,000 MMbtu/d, receiving a PJM based spark‐spread pricing formula.
Advantage has certain marketing transactions whereby the price received for downstream market exposure is
exchanged for AECO plus a premium that well exceeds the transportation cost to that market. Although these
transactions resulted in premium pricing versus AECO, AECO underperformed by a larger margin in the third quarter
of 2022, offsetting the gains and resulting in lower recognized revenue during that quarter.
The following table outlines the Corporation’s 2022 and 2023 forward‐looking natural gas market exposure, excluding
hedging.
Forward‐looking 2023(2)
2022
Effective
production
(MMcf/d)(1)
90.9
10.9
89.2
24.3
51.5
20.3
15.0
18.8
320.8(2)
Percentage of Natural
Gas Production
(%)
28
3
28
8
16
6
5
6
100
Effective
production
(MMcf/d) (1)
128.8
47.9
32.1
4.5
52.7
17.1
15.0
‐
298.1
Percentage of Natural
Gas Production
(%)
43
16
11
1
18
6
5
‐
100
Sales Markets
AECO
AECO premium(3)
Empress
Emerson
Dawn
Chicago
Ventura
PJM power price(4)
Total
(1)
(2)
(3)
(4)
Converted on the basis of 1 Mcf = 1.055056 GJ and 1 Mcf = 1 Mmbtu.
Represents the midpoint of our 2023 guidance for natural gas production volumes (see News Release dated December 1, 2022).
Represents marketing transactions where the price received for the Corporation’s downstream market exposure is priced at AECO plus
a fixed basis premium, which is greater than the transportation cost to reach such downstream markets.
Sales are based upon a spark‐spread pricing formula, providing Advantage exposure to PJM power prices, back‐stopped with a natural
gas price collar.
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
2022
17,006
10,707
16,532
44,245
178,955
223,200
43.66
2021
6,823
8,940
12,629
28,392
130,863
159,255
36.11
%
Change
149
20
31
56
37
40
21
Year ended
December 31
2022
81,938
47,129
79,042
208,109
742,349
950,458
46.69
2021
31,209
25,226
44,423
100,858
391,177
492,035
27.26
%
Change
163
87
78
106
90
93
71
Natural Gas and Liquids Sales
)
s
n
o
i
l
l
i
m
$
(
$99.4
$99.1
22%
78%
22%
78%
$134.4
21%
79%
$159.3
18%
82%
$177.6
21%
79%
$314.3
24%
76%
$235.4
22%
$223.2
20%
78%
80%
Q1 21
Q2 21
Q3 21
Q4 21
Q1 22
Q2 22
Q3 22
Q4 22
Natural gas sales (% of Total)
Liquids sales (% of Total)
Total ($ millions)
Natural gas and liquids sales for the three months and year ended December 31, 2022, increased by $63.9 million or
40% and $458.4 million or 93%, respectively, compared to the same corresponding periods of 2021.
For the year ended December 31, 2022, natural gas sales increased by $351.2 million or 90%, compared to 2021, due
to a 72% 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 $107.3 million, or 106%, due to a
52% increase in realized liquids prices (see “Commodity Prices and Marketing"), accompanied with a 36% increase in
liquids production volumes (see "Production").
For the three months ended December 31, 2022, natural gas sales increased by $48.1 million or 37%, compared to
the corresponding period in 2021, due to a 19% increase in realized gas prices (see "Commodity Prices and
Marketing"), accompanied with a 15% increase in natural gas production volumes (see "Production"). Fourth quarter
liquids sales increased by $15.9 million, or 56%, due to a 21% increase in realized liquids prices (see "Commodity
Prices and Marketing"), accompanied with a 29% increase 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 to
reduce the volatility of cash provided by operating activities supporting our Montney development by diversifying
sales to different physical markets and entering into financial commodity and foreign exchange derivative contracts.
Advantage’s Credit Facilities (as defined herein) allow us to enter 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, 2022, and 2021 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
Foreign exchange
Interest rate
Natural gas embedded derivative
Unsecured debentures
Total
Gains (losses) on derivatives
Natural gas
Crude oil
Foreign exchange
Interest rate
Natural gas embedded derivative
Unsecured debentures
Total
Three months ended
December 31
2022
2021
Year ended
December 31
2022
2021
(23,114)
470
(1,700)
‐
(24,344)
69,436
(524)
2,329
‐
(8,609)
(3,651)
58,981
46,322
(54)
629
‐
(8,609)
(3,651)
34,637
(30,646)
(6,489)
218
(171)
(37,088)
49,607
5,831
(67)
171
28,957
‐
84,499
18,961
(658)
151
‐
28,957
‐
47,411
(138,871)
(2,430)
(2,729)
(104)
(144,134)
29,647
(20)
(687)
136
42,176
(3,965)
67,287
(109,224)
(2,450)
(3,416)
32
42,176
(3,965)
(76,847)
(58,909)
(17,353)
2,368
(684)
(74,578)
16,480
2,074
(4,525)
666
54,305
‐
69,000
(42,429)
(15,279)
(2,157)
(18)
54,305
‐
(5,578)
Advantage Energy Ltd. - 20
Financial Risk Management (continued)
Natural gas
For the three months and year ended December 31, 2022, Advantage realized net losses on natural gas derivatives
of $23.1 million and $138.9 million, respectively, due to the settlement of contracts with average derivative contract
prices that were below average market prices.
For the three months and year ended December 31, 2022, Advantage recognized a net unrealized gain on natural gas
derivatives of $69.4 million and $29.6 million, respectively. Unrealized gains are a result of changes in the fair value
of the Corporation’s outstanding natural gas derivative contracts accompanied with the settlement of contracts. For
the three months and year ended December 31, 2022, the change in the fair value of our outstanding natural gas
derivative contracts was impacted by the increased asset valuation of our natural gas derivative contracts due to the
expiration of contracts at lower fixed prices, weakening Henry Hub prices, and narrowing of the AECO/Henry Hub
basis.
Crude oil
For the three months and year ended December 31, 2022, Advantage realized a net gain on crude oil derivatives of
$0.5 million and a net loss of $2.4 million, respectively. The gain in the three months ended December 31, 2022, is
due to the settlement of contracts with average derivative contract prices that were above average market prices as
a result of the decline in WTI prices during the quarter. The loss for the year ended December 31, 2022, is 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 2022. For the three months ended December 31, 2022, Advantage recognized a net
unrealized loss on crude oil derivatives of $0.5 million. The valuation of our crude oil derivative contracts is due to
timing of 2022 contracts concluding, while not entering any further crude oil futures contracts at this time.
Foreign exchange
For the three months and year ended December 31, 2022, Advantage realized a loss on foreign exchange derivatives
of $1.7 million and $2.7 million, respectively, while recognizing an unrealized gain of $2.3 million and an unrealized
loss of $0.7 million, respectively. The $2.3 million unrealized gain for the three months ended December 31, 2022 is
due to the realization of losses throughout the period resulting in a lower liability at December 31, 2022.
Interest rate
Advantage has no outstanding interest rate derivative contracts as at December 31, 2022.
Advantage Energy Ltd. - 21
Financial Risk Management (continued)
Natural gas embedded derivative
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 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 gains (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, 2022, the Corporation’s embedded derivative resulted in an unrealized gain on the natural gas embedded
derivative of $42.2 million as a result of strengthening PJM power prices relative to the host contract.
Unsecured debentures derivative
The Entropy unsecured debentures have exchange features that meet the definition of a derivative liability, as the
exchange features allow the unsecured debentures to be potentially exchanged for a variable number of Entropy
common shares (see "Unsecured Debentures"). The Corporation will record unrealized gains (losses) as the valuation
of the conversion option changes. For the year ended December 31, 2022, the Entropy unsecured debentures
derivative liability resulted in an unrealized loss of $4.0 million due to the increased value of the conversion option.
Advantage Energy Ltd. - 22
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, 2023 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, 2022 and February 23, 2023, the Corporation had the following commodity and foreign exchange
derivative contracts in place:
Description of Derivative
Term
Volume
Price
Natural gas – AECO 7A
Fixed price swap
April 2023 to October 2023
18,956 Mcf/d
Cdn $4.35/Mcf
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
Fixed price swap
November 2022 to March 2023
April 2023 to October 2023
105,000 Mcf/d US $4.98/Mcf
US $3.35/Mcf
25,000 Mcf/d
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
Basis swap
April 2023 to December 2024
January 2023 to March 2023
40,000 Mcf/d
Henry Hub less US $1.19/Mcf
5,000 Mcf/d Henry Hub less US $0.98/Mcf
Natural gas ‐ Dawn
Fixed price swap
April 2023 to October 2023
15,000 Mcf/d US $2.92/Mcf(1)
Description of Derivative
Term
Notional Amount
Rate
Forward rate ‐ CAD/USD
Average rate currency swap February 2021 to January 2023
Average rate currency swap
Average rate currency swap March 2022 to February 2023
Average rate currency swap May 2022 to March 2023
June 2021 to May 2023
(1) Contract entered into subsequent to December 31, 2022
US $ 750,000/month
US $ 2,000,000/month
US $ 1,500,000/month
US $1,000,000/month
1.2850
1.2025
1.2719
1.2850
Advantage Energy Ltd. - 23
Processing and Other Income
Processing and other income ($000)
per boe
Three months ended
December 31
2022
3,091
0.60
2021
‐
‐
%
Change
nm
nm
Year ended
December 31
2022
2021
9,082
0.45
%
Change
nm
nm
‐
‐
Advantage earned processing income from contracts entered in 2022 whereby the Corporation charges third‐parties
to utilize excess capacity at the Glacier Gas Plant and the Progress battery.
Net Sales of Purchased Natural Gas
Three months ended
December 31
2022
2021
Sales of purchased natural gas ($000)
Natural gas purchases ($000)
Net sales of purchased natural gas ($000)
per boe
‐
‐
‐
‐
%
Change
nm
nm
nm
nm
‐
‐
‐
‐
Year ended
December 31
2022
2021
4,826
(4,756)
70
‐
%
Change
nm
nm
nm
nm
‐
‐
‐
‐
The Corporation purchased natural gas volumes to satisfy physical sales commitments during the second quarter
planned downtime at the Glacier Gas Plant. Advantage realized $4.8 million of revenue from the sale of purchased
natural gas while the natural gas volumes were purchased for a total of $4.8 million.
Royalty Expense
Royalty expense ($000)
per boe
Royalty rate (%)(1)
(1) Percentage of natural gas and liquids sales.
Three months ended
December 31
2022
27,154
5.31
2021
8,928
2.02
%
Change
204
163
Year ended
December 31
2022
106,257
5.22
2021
27,530
1.53
%
Change
286
241
12.2
5.6
6.6
11.2
5.6
5.6
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, 2022, increased by $18.2 million and $78.7
million, respectively, compared to the same periods of the prior year. The increase in royalty expense was due to
significantly higher natural gas and liquids prices accompanied with increased production and royalty rates. Royalties
paid on new wells drilled in Alberta are typically low until the initial capital investment is recovered at which time the
royalty rate will increase based on the magnitude of production and commodity price. With the much higher
commodity price environment and well productivity, Advantage’s new wells quickly payout the initial capital invested
thereby resulting in higher royalty rates than historically experienced. Advantage expects royalty rates to range from
9% to 12% in 2023.
Advantage Energy Ltd. - 24
Operating Expense
Operating expense ($000)
per boe
Three months ended
December 31
2022
17,344
3.39
2021
12,870
2.92
%
Change
35
16
Year ended
December 31
2022
64,269
3.16
2021
44,893
2.49
%
Change
43
27
Operating expense for the three months and year ended December 31, 2022, increased by $4.5 million and $19.4
million, increases of 35% and 43%, respectively. The higher operating expense was attributed to the increases in total
production, additional third‐party processing fees associated with higher production at Wembley, inflation impacts,
and higher insurance premiums and property taxes tied to generating increased natural gas and liquids sales.
Operating expense per boe increased by 16% and 27%, respectively, largely due to higher liquids production from
our Wembley area.
Advantage expects 2023 annual operating expense per boe to remain consistent at approximately $3.25/boe (see
"Corporate Update").
Transportation Expense
Natural gas ($000)
Liquids ($000)
Total transportation expense ($000)
per boe
Three months ended
December 31
2022
2021
20,651
1,986
22,637
4.43
18,019
1,749
19,768
4.48
%
Change
15
14
15
(1)
Year ended
December 31
2022
2021
81,313
8,780
90,093
4.43
64,876
5,564
70,440
3.90
%
Change
25
58
28
14
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, 2022
increased by $2.9 million and $19.6 million, respectively, increases of 15% and 28%. The increase in transportation
expenses are a result of the increased NGTL tolls, higher fuel costs associated with increased natural gas prices,
additional downstream natural gas transportation and additional liquids transportation associated with higher liquids
production.
Advantage expects 2023 annual transportation expense per boe to average approximately $4.75/boe (see "Corporate
Update"), slightly higher than 2022 as a result of increased liquids production and expected tolls increases.
Advantage Energy Ltd. - 25
Operating Netback
Natural gas and liquids sales
Realized losses on derivatives
Processing and other income
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Natural gas and liquids sales
Realized losses on derivatives
Processing and other income
Net sales of purchased natural gas
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Three months ended
December 31
2022
2021
$000
223,200
(24,344)
3,091
(27,154)
(17,344)
(22,637)
134,812
per boe
43.66
(4.76)
0.60
(5.31)
(3.39)
(4.43)
26.37
$000
159,255
(37,088)
‐
(8,928)
(12,870)
(19,768)
80,601
per boe
36.11
(8.41)
‐
(2.02)
(2.92)
(4.48)
18.28
Year ended
December 31
2022
2021
$000
950,458
(144,134)
9,082
70
(106,257)
(64,269)
(90,093)
554,857
per boe
46.69
(7.08)
0.45
‐
(5.22)
(3.16)
(4.43)
27.25
$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
(1) 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, 2022, Advantage’s operating netback increased by 67% and
102%, respectively, or $8.09/boe and $12.04/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"), as well as higher royalty expense due to the increased natural gas and liquids
sales (see "Royalty Expense").
General and Administrative Expense
General and administrative expense ($000)
per boe
Employees at December 31
Three months ended
December 31
2022
2021
5,389
1.05
4,940
1.12
%
Change
9
(6)
Year ended
December 31
2022
2021
22,283
1.09
52
19,860
1.10
42
%
Change
12
(1)
24
General and administrative ("G&A") expense for the three months and year ended December 31, 2022, increased by
$0.4 million and $2.4 million, respectively, increases of 9% and 12%. For the three months and year ended December
31, 2022, the Corporation’s G&A expense increased largely due to an increase in employees including hires to
properly resource the Entropy business, and other incremental G&A expense incurred by Entropy.
Advantage Energy Ltd. - 26
Share‐based Compensation
Share‐based compensation ($000)
Capitalized ($000)
Cash settled awards ($000)
Share‐based compensation expense ($000)
per boe
Three months ended
December 31
2022
1,843
(560)
‐
1,283
0.25
2021
1,761
(561)
‐
1,200
0.27
%
Change
5
‐
nm
7
(7)
Year ended
December 31
2022
2021
7,766
(2,242)
‐
5,524
0.27
6,786
(2,051)
(682)
4,053
0.22
%
Change
14
9
nm
36
23
The Corporation’s long‐term compensation plan for 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 $1.3 million and $5.5 million of share‐based compensation expense during the three
months and year ended December 31, 2022, respectively, and capitalized $0.6 million and $2.2 million. For the year
ended December 31, 2022, total share‐based compensation increased by 36%, as a result of an increase in grants
from a higher head count, accompanied with increased weighting of performance awards issued versus cash‐based
awards, compared to prior years.
Finance Expense
Cash finance expense ($000)
per boe
Accretion expense ($000)
Total finance expense ($000)
per boe
Three months ended
December 31
2022
2021
5,161
1.01
470
5,631
1.10
4,565
1.04
251
4,816
1.09
%
Change
13
(3)
87
17
1
Year ended
December 31
2022
2021
18,690
0.92
1,737
20,427
1.00
20,081
1.11
1,108
21,189
1.17
%
Change
(7)
(17)
57
(4)
(15)
Advantage realized higher cash finance expense during the three months ended December 31, 2022, as a result of
increasing interest rates on bank indebtedness, partially offset by a lower average outstanding bank indebtedness
when compared to the same period in 2021.
Advantage realized lower cash finance expense for the year ended December 31, 2022, as a result of decreased
average outstanding bank indebtedness when compared to the same periods in 2021, partially offset by an increase
in interest rates on bank indebtedness, and interest on unsecured debentures. 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.
On April 5, 2022, the Corporation’s subsidiary Entropy issued a $25 million unsecured debenture that is non‐recourse
to Advantage. The unsecured debenture bears an interest rate of 8% that Entropy can elect to pay in cash or pay‐in‐
kind. Any paid‐in‐kind interest is added to the aggregate principal amount of the unsecured debenture. For the three
months and year ended December 31, 2022, Entropy incurred interest of $0.5 million and $1.5 million, respectively,
that was paid in cash (see "Unsecured Debentures").
Advantage Energy Ltd. - 27
Depreciation Expense and Impairment Recovery
Depreciation expense ($000)
per boe
Impairment recovery ($000)
Three months ended
December 31
2022
32,349
6.33
‐
2021
25,998
5.89
(340,653)
%
Change
24
7
nm
Year ended
December 31
2022
133,917
6.58
‐
2021
106,786
5.92
(340,653)
%
Change
25
11
nm
The increase in depreciation expense during the three months and year ended December 31, 2022, was attributable
to an increased net book value associated with the Corporation’s natural gas and liquids properties subsequent to
booking an impairment reversal of $340.7 million in the fourth quarter of 2021, accompanied with increased 2022
production (see "Production").
Income Taxes
Income tax expense ($000)
Effective tax rate (%)
Three months ended
December 31
2022
35,621
23.9
2021
108,890
23.2
%
Change
(67)
3
Year ended
December 31
2022
105,138
23.7
2021
121,092
22.7
%
Change
(13)
4
Deferred income taxes arise from differences between the accounting and tax bases of our assets and liabilities. For
the three months and year ended December 31, 2022, the Corporation recognized a deferred income tax expense of
$35.6 million and $105.1 million, respectively. As at December 31, 2022, the Corporation had a deferred income tax
liability of $201.4 million. Advantage expects it will not be subject to cash taxes until calendar 2025 due to over $1
billion in tax pools.
The estimated tax pools available at December 31, 2022 are as follows:
($ 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
218.3
68.5
12.2
411.8
240.5
135.1
32.5
6.4
1,125.3
Advantage Energy Ltd. - 28
Net Income and Comprehensive Income attributable to Advantage shareholders
Net income and comprehensive income
attributable to Advantage shareholders
($000)
per share ‐ basic
per share ‐ diluted
Three months ended
December 31
2022
2021
%
Change
Year ended
December 31
2022
2021
%
Change
113,962
0.63
0.61
360,035
1.90
1.81
(68)
(67)
(66)
338,667
1.81
1.75
411,523
2.17
2.07
(18)
(16)
(16)
Advantage recognized net income attributable to Advantage shareholders of $114.0 million and $338.7 million for
the three months and year ended December 31, 2022, respectively. For the year ended December 31, 2022, net
income and comprehensive income attributable to Advantage shareholders was lower when compared to 2021 due
to the non‐cash impairment recovery of $340.7 million offset by a deferred tax expense of $121.1 million, recognized
in the fourth quarter of 2021. This is significantly offset by the much higher operating netback in 2022 driven by
higher realized pricing (see "Operating Netback").
Advantage Energy Ltd. - 29
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
Year ended
December 31
2022
112,558
1,144
10,503
124,205
24.29
0.69
2021
67,464
253
3,510
71,227
16.15
0.37
2022
502,378
2,215
12,197
516,790
25.39
2.76
2021
223,152
1,033
10,639
234,824
13.01
1.24
(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, 2022)
Increase
Decrease
$395.5
$9.1
$69.6
$19.7
$1.8
$78.7
$19.4
$516.8
)
s
n
o
i
l
l
i
m
$
(
$62.9
$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.
Other includes net sales of purchased natural gas, G&A expense, finance expense (excluding accretion of decommissioning liability and
unsecured debentures) and foreign exchange gain.
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, 2022, Advantage realized cash provided by operating activities
of $112.6 million and $502.4 million, respectively, increases of $45.1 million and $279.2 million when compared to
the same periods of 2021. After adjusting for non‐cash changes in working capital and expenditures on
decommissioning liability, the Corporation realized adjusted funds flow of $124.2 million and $516.8 million,
increases of $53.0 million and $282.0 million when compared to the same periods of 2021. Adjusted funds flow of
$516.8 million for the year ended December 31, 2022 includes $521.3 million attributable to Advantage and $4.5
million of net expenses attributable to Entropy. The increase in cash provided by operating activities and adjusted
funds flow for the three months and year ended December 31, 2022 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 higher
realized losses on derivatives, and increased royalty expense (see "Financial Risk Management" and "Royalty
Expense").
Advantage Energy Ltd. - 30
Cash Used in Investing Activities and Net Capital Expenditures
($000)
Drilling, completion and workovers
Well equipping and facilities
Property, plant and equipment Entropy (1)
Property acquisitions
Other
Expenditures on property, plant and equipment
Expenditures on exploration and evaluation assets
Expenditures on intangible assets (1)
Net capital expenditures (2)
Changes in non‐cash working capital
Project funding received
Cash used in investing activities
Three months ended
December 31
2022
2021
32,178
15,143
1,554
‐
342
49,217
‐
470
49,687
19,373
‐
69,060
44,509
13,132
‐
72
22
57,735
323
326
58,384
(13,431)
(14)
44,939
Year ended
December 31
2022
146,539
90,555
2,849
‐
827
240,770
‐
1,020
241,790
27,800
(5)
269,585
2021
114,697
31,912
‐
1,545
81
148,235
677
491
149,403
(11,564)
(20,057)
117,782
(1) Cost incurred by the Corporation’s subsidiary, Entropy.
(2) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
Net Capital Expenditures(1)
$86.0
$58.4
1%
52%
22%
1%
$47.6
1%
$58.5
19%
3%
$31.4
14%
85%
$22.5
7%
23%
70%
76%
48%
42%
57%
$49.7
1%
30%
4%
78%
65%
)
s
n
o
i
l
l
i
m
$
(
$37.2
25%
75%
Q1 21
Q2 21
Q3 21
Q4 21
Q1 22
Q2 22
Q3 22
Q4 22
Exploration and evaluation assets, property acquisitions & other (% of Total)
Well equipping and facilities (% of Total)
Net capital expenditures ($000)
Carbon capture and storage & intangible assets (% of Total)
Drilling, completion and workovers (% of Total)
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
Advantage and Entropy invested $49.7 million and $241.8 million on property, plant, and equipment, exploration
and evaluation assets and intangible assets during the three months and year ended December 31, 2022.
Advantage Energy Ltd. - 31
Cash Used in Investing Activities and Net Capital Expenditures (continued)
The following table summarizes wells drilled, completed and on production for the year ended December 31, 2022:
(# of wells)
Glacier
Valhalla
Wembley
Progress
Glacier
Year ended
December 31, 2022
Completed
Gross (Net)
10 (10.0)
4 (4.0)
9 (7.5)
‐
On production
Gross (Net)
15 (13.0)
4 (4.0)
9 (7.5)
‐
23 (21.5)
28 (24.5)
Drilled
Gross (Net)
12 (12.0)
4 (4.0)
6 (4.5)
2 (2.0)
24 (22.5)
Production at Advantage’s Glacier gas property has continued to grow, surpassing a peak production level of 50,000
boe/d during the first half of 2022 after being the focus of our 2021 capital program. During the first half of 2022, 5.0
gross (3.0 net) wells were brought on production. Drilling resumed during the second half of 2022 with 12 wells rig
released and 10 wells completed. All 10 of these wells were placed on production later in the fourth quarter with
production climbing and surpassing 2022 levels in January 2023. Production is expected to continue to grow into the
second quarter of 2023 when raw gas capacity of the Glacier Gas Plant will be expanded to 425 MMcf/d and wells
drilled during the first quarter of 2023 are brought on production.
During 2022, a total of 15 gross wells (13.0 net) were brought on production with exceptional well performance
driving average peak IP30 rate of the wells to 12.4 MMcf/d raw natural gas, despite wells being choked back to
minimize erosional risks and impacts on existing nearby wells.
Construction and commissioning of the Glacier Gas Plant Phase 1 CCS and waste heat recovery project designed to
reduce emissions by 47,000 TPA of CO2e, was completed as expected with "first carbon" injected into permanent
geological storage during August. This milestone is an important step for Advantage and Entropy in developing
modular CCS technology and continuing to lower corporate emissions to achieve the Corporation’s net zero 2025
target. Under the Government of Canada’s proposed refundable ITC for CCUS projects, the Corporation expects it is
entitled to recover approximately $15 million to $20 million of its incurred net capital expenditures. As the ITC has
yet to receive royal ascent in the House of Commons, the Corporation is unable to recognize this benefit as at
December 31, 2022.
Valhalla
Advantage drilled 4.0 gross (4.0 net) wells at Valhalla during 2022. Two wells were placed on production during the
second quarter and two wells placed on production in the third quarter. The wells’ IP30 average production rate was
1,179 boe/d (4.8 MMcf/d natural gas, 282 bbls/d condensate and 92 bbls/d NGLs) despite the wells being choked
back to minimize erosional risks. All Valhalla production flows through Advantage‐owned infrastructure to our Glacier
Gas Plant. Strong well results support Management’s view that our Valhalla asset will continue to play a pivotal role
in the Corporation's liquids‐rich gas development plan.
Advantage Energy Ltd. - 32
Cash Used in Investing Activities and Net Capital Expenditures (continued)
Wembley
At Wembley, development of this oil‐weighted property was weighted to the first half of 2022 with an active program
consisting of 3.0 gross (3.0 net) wells drilled, 6.0 gross (6.0 net) wells completed and 6.0 gross (6.0 net) wells placed
on production. The Wembley asset is now connected to two major processing facilities providing sufficient gas
processing capacity for future growth. Following the last group of wells in the second quarter being placed on
production, the property achieved record production.
Drilling resumed in the third quarter with 3.0 gross (1.5 net) wells rig released, completed and placed on production
later in the fourth quarter. One of the wells on the pad has targeted a new development layer that will be evaluated
by Advantage for the first time in Wembley to further evaluate this multi‐layer oil‐weighted property. Following up
on the success of 2022, seven additional wells are scheduled to be drilled during the first half of 2023 and will utilize
existing capacity in our 100% owned Wembley compressor site and liquids handling hub.
Progress
Construction of the first phase (inlet separation and compression) of our 100% owned Progress compressor site and
liquids handling hub was completed early in the second quarter providing additional gas and liquids handling at
Progress, generating processing income with a 5‐year commitment from a third‐party that will utilize excess capacity
at this facility and the Glacier Gas Plant, while freeing up capacity at Valhalla. Construction of Phase 2, which will add
water handling and disposal is taking place in the first quarter of 2023 and will accommodate additional production
from two wells drilled during the fourth quarter. These wells will be placed on production during the second quarter
of 2023 following the commissioning of the expanded site.
Entropy
Entropy incurred $3.9 million of net capital expenditures during the year ended December 31, 2022, including $1.0
million related to the technology development and testing of Entropy’s proprietary carbon capture solvents and
processes (intangible assets), and $2.9 million related to initial engineering and design work for the Athabasca
Leismer CCS project, and optimization costs for the Glacier Gas Plant Phase 1 CCS project.
Advantage Energy Ltd. - 33
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. Transportation commitments are required to ensure our production is delivered to sales
markets and Advantage actively manages our portfolio in conjunction with our future development plans ensuring
we are properly diversified to multiple markets. Of our total transportation commitments, $238 million is required
for delivery of natural gas and liquids production to Alberta markets, while Advantage has proactively committed to
$212 million in additional transportation to diversify natural gas production to the Dawn, Empress and Emerson
markets, with the objective of reducing price volatility and achieving higher operating netbacks (see “Transportation
Expense”). Contractual obligations comprise those liabilities to third‐parties incurred for the purpose of financing
Advantage’s business and development, including our bank indebtedness.
The following table is a summary of the Corporation’s remaining commitments and contractual obligations.
Advantage has no guarantees or off‐balance sheet arrangements other than as disclosed.
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Performance Awards
Lease liability
Financing liability
Bank indebtedness (2)
‐ principal
‐ interest
Unsecured debentures (3)
Total contractual obligations
Total future payments
Total
1.9
53.7
450.0
505.6
13.6
2.3
158.8
180.0
20.3
25.0
400.0
905.6
2023
0.4
7.9
74.5
82.8
6.0
0.5
12.7
‐
13.5
‐
32.7
115.5
Payments due by period
2026
2025
0.4
0.4
7.0
9.5
60.1
72.3
67.5
82.2
2024
0.4
10.0
74.5
84.9
5.9
0.5
12.7
180.0
6.8
‐
205.9
290.8
1.7
0.5
12.7
‐
‐
‐
14.9
97.1
‐
0.4
12.7
‐
‐
‐
13.1
80.6
2027
0.3
7.0
48.2
55.5
‐
0.3
12.7
‐
‐
‐
13.0
68.5
Beyond
‐
12.3
120.4
132.7
‐
0.1
95.3
‐
‐
25.0
120.4
253.1
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability.
(2) As at December 31, 2022 the Corporation’s bank indebtedness was governed by a credit facility agreement with a syndicate of financial
institutions. The Credit Facility has a tenor of two years with a maturity date in June 2024 and is subject to an annual review and extension
by the lenders. During the revolving period, a review of the maximum borrowing amount occurs annually on or before May and semi‐
annually on or before November. There can be no assurance that the Credit Facilities will be renewed at the current borrowing base level
at that time. During the term, no principal payments are required until the revolving period matures in June 2024 in the event of a
reduction, or the Credit Facility not being renewed. Management fully expects that the facilities will be extended at each annual review.
(3) The unsecured debentures are a liability of Entropy and are non‐recourse to Advantage. The principal balance of unsecured debenture
bears an interest rate of 8%, which can paid‐in‐kind, or cash, at the discretion of Entropy (see "Unsecured Debentures").
Advantage Energy Ltd. - 34
Liquidity and Capital Resources
The following table is a summary of the Corporation’s capitalization structure:
($000, except as otherwise indicated)
Bank indebtedness (non‐current)
Unsecured debentures
Working capital surplus(1)
Net debt (1)
Shares outstanding
Shares closing market price ($/share)
Market capitalization
Total capitalization
Net debt to adjusted funds flow ratio (1)
Year ended
December 31, 2022
Year ended
December 31, 2021
177,200
15,700
(71,564)
121,336
171,652,768
9.47
1,625,552
1,746,888
0.2
167,345
‐
(6,865)
160,480
190,828,976
7.41
1,414,043
1,574,523
0.7
(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, 2022, Advantage had a $350 million Credit Facility of which $157.8 million or 45% was available
after deducting letters of credit of US$9 million outstanding (see "Bank Indebtedness and Credit Facilities"). The
Corporation’s adjusted funds flow was utilized to fund our capital expenditure program of $241.8 million and
repurchase and cancel 22.2 million common shares for $241.0 million (see "Corporate Update – Share Buyback
Program"). The Corporation had net debt of $121.3 million as at December 31, 2022, below our net debt target of
$200 million, with a net debt to adjusted funds flow ratio of 0.2 times. Advantage continues to be focused on
preserving a strong balance sheet, maintaining a disciplined commodity risk management program, and successfully
executing its multi‐year development plan. Advantage intends to allocate all free cash flow in 2023 towards the
Corporation’s share buyback program, while maintaining our net debt target of $200 million.
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. - 35
Bank Indebtedness and Credit Facilities
As at December 31, 2022, Advantage had bank indebtedness outstanding of $177.2 million, an increase of $9.9 million
since December 31, 2021. 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 Alberta Energy Regulator ("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. On June 17,
2022, the Credit Facilities were renewed 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 Credit Facility has a tenor of two years with a
maturity date in June 2024 and is subject to an annual review and extension by the lenders. During the revolving
period, a review of the maximum borrowing amount occurs annually on or before May 31 and semi‐annually on or
before November 30. During the term, no principal payments are required until the revolving period matures in June
2024 in the event of a reduction, or the Credit Facility not being renewed. The Corporation had letters of credit of
US$9 million outstanding at December 31, 2022 (December 31, 2021 ‐ US$9 million). Subsequent to December 31,
2022 the Corporation issued additional letters of credit of $2.8 million. The Credit Facilities do not contain any
financial covenants, but the Corporation is subject to various affirmative and negative covenants under its Credit
Facilities. The Corporation was in compliance with all covenants as at December 31, 2022 and December 31, 2021.
Advantage had a working capital surplus of $71.6 million as at December 31, 2022, an increase in the surplus of $64.7
million compared to December 31, 2021 due to increased receivables from 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.
Unsecured Debentures
On March 25, 2022, the Corporation’s subsidiary Entropy entered into an investment agreement with Brookfield,
who provided a capital commitment of $300 million. Entropy will issue unsecured debentures to fund CCS projects
that reach final investment decision as certain predetermined return thresholds are met. Under the terms of the
unsecured debentures, Entropy and the respective investor have options that provide for the unsecured debentures
to be exchanged for Entropy common shares at an exchange price of $10 per share, subject to adjustment in certain
circumstances. The investor has the option to exchange the outstanding unsecured debentures to Entropy for
Entropy common shares at any time while Entropy may commence a mandatory exchange of unsecured debentures
for Entropy common shares in advance of an initial public offering. The unsecured debentures have a term of 10
years, if not exchanged prior thereto, which are to be repaid at the end of the term in an amount equal to or greater
of the principal amount and the investor’s pro rata share of the fair market value of Entropy and are non‐recourse to
Advantage. Each debenture issued by Entropy bears an interest rate of 8% per annum that Entropy can elect to pay
in cash or pay‐in‐kind, due on a quarterly basis. Any paid‐in‐kind interest is added to the aggregate principal, subject
to certain limitations.
On April 5, 2022, Entropy issued unsecured debentures and received an initial $25.0 million in gross proceeds and
incurred $3.8 million of issuance cost. For the year ended December 31, 2022, Entropy incurred interest of $1.5
million that was paid in cash.
Advantage Energy Ltd. - 36
Other Liabilities
In 2020, Advantage sold a 12.5% interest in the Corporation’s Glacier Gas Plant 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 sale and
volume commitment agreement are treated as a financing transaction with an effective interest rate of 9.1%. During
the third quarter of 2022, as part of the planned capital expansion of the Glacier Gas Plant, the working interest
partner participated and provided $5.0 million in additional financing, with the volume commitment fee being revised
to $0.696/Mcf for the remainder of the term. For the year ended December 31, 2022, the Corporation made cash
payments of $12.3 million (December 31, 2020 ‐ $12.0 million) under the take‐or‐pay volume commitment
agreement.
As at December 31, 2022, Advantage had a decommissioning liability of $41.9 million (December 31, 2021 – $62.5
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 $62.8 million
(December 31, 2021 – $57.6 million), with 69% of these costs to be incurred beyond 2050. Actual spending on
decommissioning for the year ended December 31, 2022 was $2.2 million (December 31, 2021 – $1.0 million).
Advantage continues to maintain an industry leading LMR of 28.4, demonstrating that the Corporation has no issues
addressing its abandonment, remediation, and reclamation obligations.
Non‐controlling interest ("NCI")
At December 31, 2020, Advantage owned 100% of Entropy, 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, 2022, the net loss and comprehensive loss attributed to non‐controlling interest
was $0.9 million (December 31, 2021 ‐ $0.2 million).
Advantage Energy Ltd. - 37
Shareholders’ Equity
On April 7, 2022, the TSX approved the Corporation commencing a NCIB. Pursuant to the NCIB, Advantage was
permitted to purchase for cancellation, from time‐to‐time, as it considered advisable, up to a maximum of 18,704,019
common shares of the Corporation. The NCIB commenced on April 13, 2022 and is scheduled to terminate on April
12, 2023 or such earlier time as the NCIB is completed or terminated at the option of Advantage. Purchases pursuant
to the NCIB were made on the open market through the facilities of the TSX or alternative trading systems. The price
that Advantage paid for its common shares under the NCIB was the prevailing market price on the TSX at the time of
such purchase. All common shares acquired under the NCIB were cancelled. For the year ended December 31, 2022,
the Corporation purchased 13.3 million common shares for cancellation at an average price of $10.52 per common
share for a total of $140.1 million under the NCIB. As at February 23, 2023, having purchased and cancelled the
maximum number of common shares that could be purchased under the Corporation's current NCIB, Advantage
concluded its NCIB.
On November 10, 2022, the Corporation commenced a SIB pursuant to which it offered to purchase for cancellation
up to $100 million of its common shares through a modified Dutch auction. The SIB was completed on December 20,
2022, with the Corporation taking up 8,928,571 common shares at a price of $11.20 per common share, representing
an aggregate purchase of $100 million and 4.9% of the total number of Advantage’s issued and outstanding common
shares as at the time the SIB was commenced. The Corporation incurred $0.9 million in transaction costs in
connection with the SIB which were included in the cost of acquiring the common shares.
As at December 31, 2022, a total of 4.0 million Performance Share Units were outstanding under the Restricted and
Performance Award Incentive Plan, which represents 2.3% of Advantage’s total outstanding common shares. During
April 2022, 1,585,888 Performance Share Units matured and, subject to a performance payout multiplier, were
settled with the issuance of 3,056,992 common shares.
As at February 23, 2023, Advantage had 166.3 million common shares outstanding.
Annual Financial Information
The following is a summary of select financial information of the Corporation for the years indicated.
Total revenues ($000)
Net income (loss) attributable to Advantage
shareholders ($000)
Per share ‐ basic
Per share ‐ diluted
Total assets ($000)
Total non‐current liabilities ($000)
Year ended
December 31, 2022
803,901
Year ended
December 31, 2021
458,927
Year ended
December 31, 2020
236,156
338,667
1.81
1.75
2,216,958
544,478
411,523
2.17
2.07
1,994,990
444,258
(284,045)
(1.51)
(1.51)
1,533,709
436,531
Advantage Energy Ltd. - 38
Quarterly Performance
($000, except as otherwise indicated)
Financial Statement Highlights
Na tura l ga s a nd l i qui ds s a l es
Net i ncome (l os s ) a nd comprehens i ve i ncome (l os s )
per ba s i c s ha re (2)
Ba s i c wei ghted a vera ge s ha res (000)
Ca s h provi ded by opera ti ng a cti vi ti es
Ca s h provi ded by (us ed i n) fi na nci ng a cti vi ti es
Ca s h us ed i n i nves ti ng a cti vi ti es
Other Financial Highlights
Adjus ted funds fl ow (1)
per boe (1)
per ba s i c s ha re (1)(2)
Net ca pi ta l expendi tures (1)
Free ca s h fl ow (1)
Worki ng ca pi ta l s urpl us (defi ci t) (1)
Ba nk i ndebtednes s
Net debt (1)
Operating Highlights
Producti on
Crude oi l (bbl s /d)
Condens a te (bbl s /d)
NGLs (bbl s /d)
Tota l l i qui ds producti on (bbl s /d)
Na tura l ga s (mcf/d)
Tota l producti on (boe/d)
Avera ge pri ces (i ncl udi ng rea l i zed deri va ti ves )
Na tura l ga s ($/mcf)
Li qui ds ($/bbl )
Operating Netback ($/boe)
Na tura l ga s a nd l i qui ds s a l es
Rea l i zed l os s es on deri va ti ves
Proces s i ng a nd other i ncome
Net s a l es of purcha s ed na tura l ga s
Roya l ty expens e
Opera ti ng expens e
Tra ns porta ti on expens e
Opera ti ng netba ck (1)
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
223,200
113,463
0.63
180,248
112,558
(49,718)
235,392
40,568
0.22
186,717
123,224
(71,048)
314,297
164,234
0.86
190,415
157,439
(37,556)
177,569
19,496
0.10
190,829
109,157
(50,769)
(69,060)
(42,822)
(80,720)
(76,983)
159,255
359,956
1.90
190,829
67,464
(27,423)
(44,939)
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)
124,205
96,651
187,056
108,878
71,227
63,353
46,266
53,978
24.29
0.69
46,838
77,367
71,564
177,200
121,336
19.39
0.52
58,519
38,132
46,960
113,804
82,432
34.05
0.98
47,570
139,486
77,858
106,776
22.85
0.57
86,014
22,864
(19,115)
117,558
44,301
136,673
16.15
0.37
58,384
12,843
6,865
167,345
160,480
13.77
0.33
31,352
32,001
29,914
193,828
163,914
10.17
0.24
22,482
23,784
27,595
219,856
192,261
12.04
0.29
37,185
16,793
27,516
240,428
212,912
1,854
1,092
2,680
5,626
2,168
1,049
3,230
6,447
2,858
1,128
3,392
7,378
997
1,057
2,854
4,908
816
1,012
2,524
4,352
1,038
1,002
2,684
4,724
1,163
637
2,490
4,290
1,395
721
2,493
4,609
299,684
286,328
317,976
288,226
261,530
271,804
274,328
271,262
55,573
54,168
60,374
52,946
47,940
50,025
50,011
49,819
5.65
86.39
43.66
(4.76)
0.60
‐
(5.31)
(3.39)
(4.43)
26.37
4.61
87.89
6.75
107.83
47.23
(12.58)
0.46
‐
(5.80)
(3.72)
(4.48)
21.11
57.21
(8.50)
0.41
‐
(6.17)
(2.75)
(4.44)
35.76
5.04
82.48
37.26
(2.19)
0.30
0.01
(3.42)
(2.79)
(4.36)
24.81
4.17
50.92
36.11
(8.41)
‐
‐
(2.02)
(2.92)
(4.48)
18.28
3.48
49.68
29.19
(5.21)
‐
‐
(1.75)
(2.38)
(3.86)
15.99
2.81
47.21
21.76
(2.12)
‐
‐
(1.20)
(2.21)
(3.72)
12.51
3.07
48.11
22.16
(0.87)
‐
‐
(1.13)
(2.45)
(3.57)
14.14
(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 2022 and for the preceding seven
quarters. Production was steady in 2021 before decreasing in the fourth quarter due to unplanned "firm service"
restrictions on TC Energy’s NGTL system but then subsequently increased during 2022 with a return to normal
production levels and bringing onstream newly drilled wells.
Advantage Energy Ltd. - 39
Quarterly Performance (continued)
Natural gas and liquids sales and adjusted funds flow increased significantly in the first quarter of 2022 through the
fourth quarter of 2022 due to increased production accompanied with strong natural gas and liquids benchmark
prices. Natural gas and liquids sales were highest in the second quarter of 2022 due to an exceptionally strong pricing
and production environment. 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. As a result of strong commodity prices, the Corporation generated significant net income, cash provided by
operating activities, and free cash flow in 2022.
Climate change‐related risk and opportunities
Advantage is committed to positive action on emissions reduction. Advantage’s expects Scope 1 and 2 emissions to
be reduced by approximately 20% with the completion of the Glacier Gas Plant Phase 1 CCS project. Advantage
expects a further 40% reduction once Phase 2 is complete. 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 Advantage retains a significant ownership of Entropy. For further information on the Corporation’s
sustainability results and targets, please view our sustainability reports and information available on the
Corporation’s website: https://www.advantageog.com/sustainability.
Glacier Gas Plant CCS Project
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. Commissioning of Phase 1 (47,000 TPA CO2e) was completed in the third quarter of 2022 with "first carbon"
injected into permanent geological storage during August (see "Net Capital Expenditures"). Analysis of final project
capital for Glacier CCS Phase 1 indicates that future projects are on‐track to achieve a capital cost of
$475/tonne/annum (capture only, including inflation) for high‐quality mid‐sized projects, and lower for large
projects.
Entropy is preparing to install its patent‐pending Integrated Carbon Capture and StorageTM ("iCCSTM") equipment at
Glacier (Phase 1b), that is expected to be completed in 2023. Phase 1b is designed to capture and store an additional
16,000 TPA CO2e and will be the first deployment of Entropy's iCCSTM product, whereby a new 5,000 horsepower gas
compressor package will come directly from the fabricator with Entropy's built‐in carbon capture process equipment,
reducing energy intensity and total installed cost significantly below the cost of a retrofit installation.
Phase 2 is expected to begin construction in 2024 and will reduce the Corporation’s emissions by 136,000 TPA CO2e.
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".
Advantage Energy Ltd. - 40
Climate change‐related risk and opportunities (continued)
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 Alberta plants and including its carbon capture and sequestration
program, we have generated carbon credits every year through 2020 and have incurred minimal payment
obligations.
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 cash generating units ("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. - 41
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). 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 fair value of unsecured debentures, judgments are required related to the choice of a pricing
model, the estimation of share price, volatility, the interest rates, and the expected term of the underlying
instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact
on the Corporation’s future operating results.
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, 2022.
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, 2022.
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, 2022. 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. - 42
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, 2022. 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, 2022 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. - 43
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
Year ended
December 31
2022
112,558
1,144
10,503
124,205
2021
67,464
253
3,510
71,227
2022
502,378
2,215
12,197
516,790
2021
223,152
1,033
10,639
234,824
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
2022
2021
69,060
(19,373)
‐
49,687
44,939
13,431
14
58,384
Year ended
December 31
2022
269,585
(27,800)
5
241,790
2021
117,782
11,564
20,057
149,403
Advantage Energy Ltd. - 44
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
Year ended
December 31
2022
112,558
(69,060)
29,876
1,144
‐
74,518
2021
67,464
(44,939)
(9,921)
253
(14)
12,843
2022
502,378
(269,585)
39,997
2,215
(5)
275,000
2021
223,152
(117,782)
(925)
1,033
(20,057)
85,421
Operating netback is comprised of natural gas and liquids sales, realized gains (losses) on derivatives, processing and
other income, net sales of purchased natural gas, net of expenses resulting from field operations, including royalty
expense, operating expense and transportation expense. 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
Processing and other income
Net sales of purchased natural gas
Royalty expense
Operating expense
Transportation expense
Operating netback
Three months ended
December 31
Year ended
December 31
2022
223,200
(24,344)
3,091
‐
(27,154)
(17,344)
(22,637)
134,812
2021
159,255
(37,088)
‐
‐
(8,928)
(12,870)
(19,768)
80,601
2022
950,458
(144,134)
9,082
70
(106,257)
(64,269)
(90,093)
554,857
2021
492,035
(74,578)
‐
‐
(27,530)
(44,893)
(70,440)
274,594
Advantage Energy Ltd. - 45
Specified Financial Measures (continued)
Non‐GAAP Ratios (continued)
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
Year ended
December 31
2022
124,205
180,248
0.69
2021
71,227
190,829
0.37
2022
516,790
187,022
2.76
2021
234,824
190,077
1.24
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.
($000, except as otherwise indicated)
Adjusted funds flow
Total production (boe/d)
Days in period
Total production (boe)
Adjusted funds flow per BOE ($/boe)
Operating netback per BOE
Three months ended
December 31
Year ended
December 31
2022
124,205
55,573
92
5,112,716
24.29
2021
71,227
47,940
92
4,410,480
16.15
2022
516,790
55,769
365
20,355,685
25.39
2021
234,824
49,445
365
18,047,425
13.01
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.
($000, except as otherwise indicated)
Operating netback
Total production (boe/d)
Days in period
Total production (boe)
Operating netback per BOE ($/boe)
Three months ended
December 31
Year ended
December 31
2022
134,812
55,573
92
5,112,716
26.37
2021
80,601
47,940
92
4,410,480
18.28
2022
554,857
55,769
365
20,355,685
27.25
2021
274,594
49,445
365
18,047,425
15.21
Advantage Energy Ltd. - 46
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
2022
49,687
124,205
0.4
2021
58,384
71,227
0.8
Year ended
December 31
2022
241,790
516,790
0.5
2021
149,403
234,824
0.6
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
2022
121,336
516,790
0.2
2021
160,480
234,824
0.7
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, 2022 and December 31, 2021 is as follows:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Trade and other accrued liabilities
Working capital surplus
December 31
2022
December 31
2021
48,940
92,816
14,613
(84,805)
71,564
25,238
54,769
3,483
(76,625)
6,865
Advantage Energy Ltd. - 47
Specified Financial Measures (continued)
Capital Management 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, 2022 and December 31, 2021 is as follows:
Bank indebtedness (non‐current)
Unsecured debentures
Working capital surplus
Net debt
Supplementary Financial Measures
Average Realized Prices
December 31
2022
December 31
2021
177,200
15,700
(71,564)
121,336
167,345
‐
(6,865)
160,480
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. - 48
Specified Financial Measures (continued)
Supplementary 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
G&A expense per boe
Natural gas and liquids sales per boe
Net sales of purchased natural gas per boe
Operating expense per boe
Processing and other income per boe
Realized losses on derivatives per boe
Royalty expense per boe
Share‐based compensation expense per boe
Transportation expense per boe
Capital Efficiency
Capital efficiency is calculated by dividing net capital expenditures by the average production additions of the
applicable year to replace the corporate decline rate and deliver production growth, expressed in $/boe/d. Net
capital expenditures used in the calculation excludes expenditures related to carbon capture and storage assets
which Entropy has agreed to acquire ($19.0 million), and Entropy capital spending as these expenditures are not
related to production additions. Capital efficiency is considered by Management to be a useful performance measure
as a common metric used to evaluate the efficiency with which capital activity is allocated to achieve production
additions.
Finding, Development and Acquisition Costs ("FD&A")
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 2022 and 2021 Reserves Report.
Payout
The point at which all costs associated with a well are recovered from the operating netback of the well. Payout is
considered by management to be a useful performance measure as a common metric used to evaluate capital
allocation decisions.
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.
Advantage Energy Ltd. - 49
Oil and Gas information
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.
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, such as IP30, are useful in confirming the presence of
hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production
and decline thereafter and are not indicative of long‐term performance or of ultimate recovery. Additionally, such
rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers
are cautioned not to place reliance on such rates in calculating the aggregate production of Advantage.
Production estimates contained herein are expressed as anticipated average production over the calendar year. In
determining anticipated production for the year 2023 Advantage considered historical drilling, completion and
production results for prior years and took into account the estimated impact on production of the Corporation’s
2023 expected drilling and completion activities.
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 – Standards of Disclosure for Oil and Gas Activities ("NI 51‐101").
Advantage Energy Ltd. - 50
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
TPA
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 NI 51‐101
‐ Natural Gas Liquids as defined in NI 51‐101
‐ Conventional Natural Gas as defined in NI 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
‐ tonnes per annum
‐ not meaningful information
Advantage Energy Ltd. - 51
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 focus of the Corporation's 2023
capital program; the Corporation's 2023 capital guidance including its anticipated cash used in investing activities,
total average production, liquids production (% of total average production), royalty rate, operating expense,
transportation expense and G&A/finance expense; the incurred net capital expenditures that the Corporation
estimates that it will recover under the ITC for CCUS projects on the Glacier Gas Plant Phase 1 CCS project; the
Corporation's expectations that it will apply to renew its NCIB in April 2023; the anticipated benefits to be derived
from Entropy's strategic investment agreement with Brookfield; Entropy's focus on commercial growth in the United
States and Canada; the anticipated timing of the procurement and construction of Entropy's near‐term projects and
their anticipated capture rates; Entropy's expectations that its mid‐term and long‐term projects remain well in excess
of 10 mmtpa; the Corporation's 2023 production guidance; that Advantage will continue to invest in additional
transportation commitments and the anticipated benefits to be derived therefrom; the anticipated timing of when
the CPV Three Rivers plant will be commissioned and the average capacity that Advantage expects to deliver in
connection therewith; the Corporation's forecasted 2023 natural gas market exposure including the anticipated
effective production rate; the Corporation's commodity risk management program and financial risk management
program and the anticipated benefits to be derived therefrom; 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; that royalties paid on new wells drilled in Alberta are typically low until the initial capital investment is
recovered; the Corporation's anticipated 2023 annual operating expense per boe and transportation expense per
boe; the Corporation's estimated tax pools and its expectations that it will not be subject to cash taxes until calendar
2025; the Corporation's expectations that the raw gas capacity of the Glacier Gas Plant will be expanded and that
wells drilled in the first quarter of 2023 will be brought onto production and the anticipated benefits to be derived
therefrom; the anticipated capture rate of the Glacier Gas Plant Phase 1 CCS and waste heat recovery project; that
Entropy's modular technology will lower corporate emissions; the Corporation's expectations that it will achieve "net
zero" Scope 1 and 2 emissions by 2025; the Corporation's expectations that its Valhalla asset will continue to play a
pivotal role in the Corporation's liquids‐rich gas development plan; that the Corporation's Wembley asset will provide
sufficient gas processing capacity for future growth; the number of wells that the Corporation expects to be drilled
at Wembley in the first half of 2023; the anticipated timing of the construction of the Corporation's Progress
compressor site and liquids handling hub and the anticipated benefits to be derived therefrom; the Corporation's
commitments and contractual obligations and the anticipated payments in connection therewith and the anticipated
timing thereof; Advantage's ability to actively manage its portfolio in conjunction with its future development plans
and its ability to ensure that the Corporation is properly diversified into multiple markets; that the Corporation will
allocate all free cash flow in 2023 towards the Corporation’s share buyback program, while maintaining its net debt
target of $200 million; that the Corporation will monitor its capital structure and make adjustments according to
market conditions; 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 terms of the Corporation's Credit Facilities, including the timing of the next review of the Credit
Facilities and the Corporation's expectations regarding the extension of the Credit Facilities at each annual review;
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; the terms of Entropy's unsecured debentures; the anticipated
undiscounted, uninflated cash flows required to settle the Corporation's decommissioning liability and the
Advantage Energy Ltd. - 52
Forward‐Looking Information and Other Advisories (continued)
anticipated timing that such costs will be incurred; the Corporation's anticipated reductions in Scope 1 and 2
emissions and the anticipated timing thereof; Entropy's business plan and the anticipated benefits to be derived
therefrom; Entropy's expectations that
its future projects are on‐track to achieve a capital cost of
C$475/tonne/annum (capture only, including inflation) for high‐quality mid‐sized projects, and lower for large
projects; the anticipated timing of Glacier Phase 1b and the anticipated results to be derived therefrom; the
statements under "critical accounting estimates" in this MD&A; and other matters.
These forward‐looking statements involve substantial known and unknown risks and uncertainties, many of which
are beyond our control, including, but not limited to, risks related to changes in general economic 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; delays in timing of facility installation; 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 risk that the Corporation may not apply to renew its NCIB when anticipated,
or at all; the risk that the Corporation may not have sufficient financial resources to acquire its common shares
pursuant to an NCIB in the future; the lack of availability of qualified personnel or management; ability to access
sufficient capital from internal and external sources; credit risk; that Advantage will not be able to achieve "net zero"
emissions by 2025; that Entropy's existing planned capital projects may not result in completed CCS projects; the
price of and market for carbon credits and offsets; current and future carbon prices and royalty regimes; the risk that
Entropy's strategic investment agreement with Brookfield may not lead to the results anticipated; the risk that the
procurement and construction of Entropy's near‐term projects may not occur when anticipated, or at all; the risk
that the CPV Three Rivers plant may not be commissioned when anticipated, or at all; the risk that the Corporation's
commodity risk management program and financial risk management program may not achieve the results
anticipated; the risk that the Corporation's annual operating expense per boe and transportation expense per boe
may be greater than anticipated; the risk that the Corporation may be subject to cash taxes prior to calendar 2025;
the risk that the raw gas capacity of the Glacier Gas Plant may not be expanded and that the wells drilled in the first
quarter of 2023 may not be brought onto production when anticipated, or at all; the risk that Entropy's modular
technology may not lower corporate emissions and that the Corporation may not achieve "net zero" Scope 1 and 2
emissions when anticipated, or at all; the risk that the Corporation's Valhalla asset may not play a pivotal role in the
Corporation's liquids‐rich gas development plan; the risk that the Corporation's Wembley asset may not provide
sufficient gas processing capacity for future growth; the risk that the Corporation may drill less wells at Wembley in
the first half of 2023 than anticipated; the risk that the construction of the Corporation's Progress compressor site
Advantage Energy Ltd. - 53
Forward‐Looking Information and Other Advisories (continued)
and liquids handling hub may not be completed when anticipated, or at all; the risk that Advantage may not actively
manage its portfolio in conjunction with its future development plans or ensure that the Corporation is properly
diversified into multiple markets; the risk that the Corporation may not allocate all of its free cash flow in 2023
towards the Corporation’s share buyback program or maintain its net debt target of $200 million; the risk that the
Corporation may not satisfy all of its liabilities and commitments and meet its future obligations as they become due;
the risk that the undiscounted, uninflated cash flows required to settle the Corporation's decommissioning liability
may be greater than anticipated; the risk that Entropy's future projects may have a greater capital cost than
anticipated; 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 produce, 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 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 its 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 the Corporation will have sufficient financial resources to purchase its shares under NCIBs in the future;
and that the estimates of the Corporation’s production, reserves and resources volumes and the assumptions related
thereto (including commodity prices and development costs) are accurate in all material respects.
Management has included the above summary of assumptions and risks related to forward‐looking information
provided in this MD&A in order to provide shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other purposes. Advantage’s actual results, performance
or achievement could differ materially from those expressed in, or implied by, these forward‐looking statements and,
accordingly, no assurance can be given that any of the events anticipated by the forward‐looking statements will
transpire or occur, or if any of them do so, what benefits that Advantage will derive there from. Readers are cautioned
that the foregoing lists of factors are not exhaustive. These forward‐looking statements are made as of the date of
this MD&A and Advantage disclaims any intent or obligation to update publicly any forward‐looking statements,
whether as a result of new information, future events or results or otherwise, other than as required by applicable
securities laws.
The future acquisition by the Corporation of the Corporation's common shares pursuant to its share buyback program
(including through an NCIB or an SIB), if any, and the level thereof is uncertain. Any decision to acquire common
shares of the Corporation pursuant to the share buyback program 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
Advantage Energy Ltd. - 54
Forward‐Looking Information and Other Advisories (continued)
other conditions existing at such future time including, without limitation, contractual restrictions and satisfaction of
the solvency tests imposed on the Corporation under applicable corporate law. There can be no assurance of the
number of common shares of the Corporation that the Corporation will acquire pursuant to its share buyback
program, if any, in the future.
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 2023 capital guidance
including its anticipated cash used in investing activities, royalty rate, operating expense, transportation expense and
G&A/finance expense; the incurred net capital expenditures that the Corporation estimates that it will recover under
the ITC for CCUS projects on the Glacier Gas Plant Phase 1 CCS project; 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 2023 annual operating expense per boe and transportation expense
per boe; the Corporation's estimated tax pools and its expectations that it will not be subject to cash taxes until
calendar 2025; the Corporation's commitments and contractual obligations and the anticipated payments in
connection therewith and the anticipated timing thereof; that the Corporation will allocate all free cash flow in 2023
towards the Corporation’s share buyback program, while maintaining its net debt target of $200 million; the
anticipated undiscounted, uninflated cash flows required to settle the Corporation's decommissioning liability and
the anticipated timing that such costs will be incurred; and Entropy's expectations that future projects are on‐track
to achieve a capital cost of C$475/tonne/annum (capture only, including inflation) for high‐quality mid‐sized projects,
and lower for large projects; 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.
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 23, 2023
Advantage Energy Ltd. - 55
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
Advantage Energy Ltd. - 56
Independent auditor’s report
To the Shareholders of Advantage Energy Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Advantage Energy Ltd. and its subsidiaries (together, the Corporation) as at
December 31, 2022 and 2021, 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, 2022 and 2021;
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, 2022. 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 natural gas and liquids properties within
property, plant and equipment
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 $1,921 million of net
natural gas and liquids properties as at
December 31, 2022. Depreciation expense for
these properties was $133.2 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. Proved plus probable
reserves are determined using key assumptions
related to the estimated future cost of developing
and extracting those reserves, recovery factors
and future natural gas and liquids prices. The
proved and probable reserves are estimated by
the Corporation’s independent qualified reserve
evaluator (“management’s expert”).
We determined that this is a key audit matter due
to (i) the judgments by management, including the
use of management’s expert, when estimating the
proved plus probable reserves and (ii) a high
degree of auditor judgment, subjectivity, and effort
in performing procedures relating to the key
assumptions used by management.
Our approach to addressing the matter included
the following procedures, among others:
Tested how management determined the total
proved plus probable reserves, which
included the following:
The work of management’s expert was
used in performing the procedures to
evaluate the reasonableness of the
proved and probable reserves used to
determine depreciation expense. As a
basis for using this work, the competence,
capabilities and objectivity of
management’s expert 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 expert, tests of the data
used by management’s expert and an
evaluation of management’s expert’s
findings.
Evaluated the reasonableness of key
assumptions used by management in
developing the estimates, including:
o estimates of recovery factors and
future costs of developing and
extracting proved and probable
reserves by considering the past
performance of the Corporation and
whether these assumptions were
consistent with evidence obtained in
other areas of the audit, as applicable.
o
future natural gas and liquids prices
by comparing forecasts with other
reputable third party industry
forecasts.
Recalculated the units-of-production rates
used to calculate depreciation expense.
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
express 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, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard. When we read
the information, other than the consolidated financial statements and our auditor’s report thereon, included
in the annual report, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
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.
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 23, 2023
Advantage Energy Ltd.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
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
Total non‐current assets
Total assets
LIABILITIES
Current liabilities
Trade and other accrued liabilities
Derivative liability
Current portion of non‐current liabilities
Total current liabilities
Non‐current liabilities
Derivative liability
Bank indebtedness
Financing Liability
Unsecured debentures
Unsecured debentures – derivative liability
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
Notes
December 31
2022
December 31
2021
5
6
11
11
7
8
9
10
11
13, 15
11
12
13
14
14
15
16
17
18
48,940
92,816
14,613
22,357
178,726
93,993
15,791
1,844
4,011
1,922,593
2,038,232
2,216,958
84,805
2,197
20,800
107,802
‐
177,200
90,436
15,700
9,744
49,976
201,422
544,478
652,280
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
76,625
2,765
11,224
90,614
12,315
167,345
89,792
‐
‐
78,522
96,284
444,258
534,872
2,105,013
142,817
(684,577)
1,563,253
1,425
1,564,678
2,216,958
2,370,716
110,315
(1,023,244)
1,457,787
2,331
1,460,118
1,994,990
Commitments (note 26)
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. - 62
Advantage Energy Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts)
Revenues
Natural gas and liquids sales
Sales of purchased natural gas
Processing and other income
Royalty expense
Natural gas and liquids revenue
Losses on derivatives
Total revenues
Expenses
Operating expense
Transportation expense
Natural gas purchases
General and administrative expense
Share‐based compensation expense
Depreciation expense
Impairment recovery
Exploration and evaluation expense
Finance expense
Foreign exchange gain
Total expenses (recovery)
Income before taxes and non‐controlling interest
Income tax expense
Net income and comprehensive income
before non‐controlling interest
Net income (loss) and comprehensive income (loss) attributable to:
Advantage shareholders
Non‐controlling interest
Net income per share attributable to Advantage shareholders
Basic
Diluted
See accompanying Notes to the Consolidated Financial Statements
Year ended
December 31
Notes
2022
2021
21
21
21
11
21
22
19
8,10
10
7
23
16
18
20
20
950,458
4,826
9,082
(106,257)
858,109
(76,847)
781,262
64,269
90,093
4,756
22,283
5,524
133,917
‐
‐
20,427
(2,906)
338,363
492,035
‐
‐
(27,530)
464,505
(5,578)
458,927
44,893
70,440
‐
19,860
4,053
106,786
(340,653)
84
21,189
(171)
(73,519)
442,899
(105,138)
532,446
(121,092)
337,761
411,354
338,667
(906)
337,761
411,523
(169)
411,354
$ 1.81
$ 1.75
$ 2.17
$ 2.07
Advantage Energy Ltd. - 63
Advantage Energy Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Balance, December 31, 2021
Net income and comprehensive income
Share‐based compensation (note 19(b))
Settlement of Performance Share Units
Common shares repurchased (note 17)
Balance, December 31, 2022
Balance, December 31, 2020
Net income and comprehensive income
Share‐based compensation (note 19(b))
Settlement of Performance Share Units
Issuance of Entropy common shares to
non‐controlling interest (note 18)
Balance, December 31, 2021
Share
capital
2,370,716
‐
‐
6,948
(272,651)
2,105,013
Contributed
surplus
110,315
‐
7,766
(6,948)
31,684
142,817
Deficit
(1,023,244)
338,667
‐
‐
‐
(684,577)
Share
capital
2,360,647
‐
‐
10,069
‐
‐
2,370,716
Contributed
surplus
114,280
‐
6,786
(10,751)
‐
‐
110,315
Deficit
(1,434,767)
411,523
‐
‐
‐
‐
(1,023,244)
Non‐
controlling
interest
2,331
(906)
‐
‐
‐
1,425
Non‐
controlling
interest
‐
(169)
‐
‐
‐
2,500
2,331
Total
shareholders’
equity
1,460,118
337,761
7,766
‐
(240,967)
1,564,678
Total
shareholders’
equity
1,040,160
411,354
6,786
(682)
‐
2,500
1,460,118
See accompanying Notes to the Consolidated Financial Statements
Advantage Energy Ltd. - 64
Advantage Energy Ltd.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Operating Activities
Income before taxes and non‐controlling interest
Add (deduct) items not requiring cash:
Unrealized gains on derivatives
Share‐based compensation expense
Depreciation expense
Impairment recovery
Exploration and evaluation expense
Accretion of decommissioning liability
Accretion of unsecured debentures
Expenditures on decommissioning liability
Changes in non‐cash working capital
Cash provided by operating activities
Financing Activities
Common shares repurchased
Increase (decrease) in bank indebtedness
Net proceeds from unsecured debentures
Net proceeds from financing liability
Principal repayment of lease liability
Principal repayment of financing liability
Cash used in financing activities
Investing Activities
Exploration and evaluation assets additions
Intangible assets additions
Property, plant and equipment additions
Project funding received
Changes in non‐cash working capital
Cash used in investing activities
Increase 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
2022
2021
442,899
532,446
11
19(b)
8,10
10
7
15(d)
14
15(d)
25
17
12
14
13
15(c)
13
7
9
10
15(b)
25
(67,287)
5,524
133,917
‐
‐
1,420
317
(2,215)
(12,197)
502,378
(240,967)
9,855
21,162
5,000
(358)
(3,783)
(209,091)
‐
(1,020)
(240,770)
5
(27,800)
(269,585)
23,702
25,238
48,940
(69,000)
4,053
106,786
(340,653)
84
1,108
‐
(1,033)
(10,639)
223,152
‐
(79,760)
‐
‐
(275)
(3,376)
(83,411)
(677)
(491)
(148,235)
20,057
11,564
(117,782)
21,959
3,279
25,238
Advantage Energy Ltd. - 65
Advantage Energy Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
All tabular amounts expressed in thousands of Canadian dollars, except as otherwise indicated.
1. Business and structure of Advantage Energy Ltd.
Advantage Energy Ltd. and its subsidiaries (together "Advantage" or the "Corporation") is an energy producer
with a significant position in the Montney resource play located in Western Canada. Additionally, the Corporation
provides carbon capture and storage solutions to emitters of carbon dioxide through its subsidiary, Entropy Inc.
("Entropy"). Advantage is domiciled and incorporated in Canada under the Business Corporations Act (Alberta).
Advantage’s head office address is 2200, 440 – 2nd Avenue SW, Calgary, Alberta, Canada. The Corporation’s
common shares are listed on the Toronto Stock Exchange under the symbol "AAV".
2. Basis of preparation
(a) Statement of compliance
The Corporation prepares its consolidated financial statements in accordance with International Financial
Reporting Standards ("IFRS"). Certain information provided for the prior year has been reclassified to conform
to the presentation adopted for the year ended December 31, 2022.
The accounting policies applied in these consolidated financial statements are based on IFRS issued and
outstanding as of February 23, 2023, 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. - 66
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, a private Canadian corporation of which Advantage owns 90%
(note 18). 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 Share Units
Deferred revenue
Lease liability
Financing liability
Unsecured debentures
Unsecured debentures – derivative liability
Measurement Category
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Advantage Energy Ltd. - 67
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
Derivative assets and liabilities
Derivative instruments executed by the Corporation to manage risk are classified as fair value through profit
and loss and are recorded on the Consolidated Statement of Financial Position as derivatives asset 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.
The Corporation’s unsecured debentures include an embedded derivative due to the equity conversion
features. The unsecured debentures are initially measured at fair value and are separated out into their
liability and derivative components. The unsecured debentures liability is recorded on the Statement of
Financial Position at amortized cost. The unsecured debentures derivative liability, which represents the
equity conversion feature, is separately valued with changes in fair value recognized through profit and loss.
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. - 68
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.
(iii) 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 and
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. - 69
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 or
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. - 70
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. - 71
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 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.
The Entropy Stock Option Plan ("Stock Option Plan") authorizes the Board of Directors of Entropy 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.
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
Advantage’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 Advantage. 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. - 72
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, and processing income earned under fixed fee contracts.
Natural gas and liquids sales are 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.
Processing income is recognized when the Corporation has satisfied its performance obligation which is
satisfied as each unit of raw gas is handled and processed by Advantage. The transaction price Advantage
charges third‐parties is a fixed charge per unit processed.
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.
Advantage Energy Ltd. - 73
3. Significant accounting policies (continued)
(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.
(l) Share capital
Financial instruments issued by the Corporation are classified as equity only to the extent that they do not
meet the definition of a financial liability or financial asset. Incremental costs directly attributable to the issue
of shares and share options are recognized as a deduction from equity. Common shares repurchased by the
Corporation are treated as a reduction of share capital based on the average carrying value of the common
shares, with the difference between the repurchase price and average carrying value being allocated to
contributed surplus.
(m) 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.
(n) Government grants and investment tax credits
The Corporation may receive government grants which provide 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.
Under the proposed Government of Canada’s refundable investment tax credit for Carbon Capture,
Utilization and Storage ("CCUS") program, the Corporation is eligible to recover a portion of its capital
expenditures on qualified CCUS projects. Investment tax credits under this program are recorded as a
reduction of the cost of the asset. Claims for investment tax credits are accrued upon the Corporation
attaining reasonable assurance of collections from the Canada Revenue Agency.
Advantage Energy Ltd. - 74
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 estimated by an independent qualified reserve evaluator
and determined using recovery factors and future natural gas and liquids prices. Future development costs
are estimated using assumptions as to the number of wells required to produce the reserves, the cost of such
wells and associated production facilities and other capital costs.
(b) Determination of cash generating unit
The Corporation’s assets are required to be aggregated into CGUs for the purpose of calculating impairment
based on their ability to generate largely independent cash inflows. Factors considered in the classification
include the integration between assets, shared infrastructure, the existence of common sales points,
geography and geologic structure. The classification of assets and allocation of corporate assets into CGUs
requires significant judgment and may impact the carrying value of the Corporation’s assets in future periods.
(c) 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.
Advantage Energy Ltd. - 75
4. Significant accounting judgments, estimates and assumptions (continued)
(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) Unsecured debentures
Determining the fair value of unsecured debentures requires judgments related to the choice of a pricing
model, the estimation of share price, volatility, interest rates, and the expected term of the underlying
instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a
significant impact on the Corporation’s future operating results.
(f) 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.
(g) 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.
(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. - 76
5. Cash and cash equivalents
Cash at financial institutions
December 31
2022
48,940
December 31
2021
25,238
Cash at financial institutions earn interest at floating rates based on daily deposit rates. As at December 31, 2022
cash at financial institutions included US$9.7 million (December 31, 2021 ‐ US$6.3 million). The Corporation only
deposits cash with major financial institutions of high‐quality credit ratings. Included in cash and cash equivalents
as at December 31, 2022 is $13.1 million held by the Corporation’s subsidiary, Entropy, of which $10.0 million is
held in a cashable guaranteed investment certificate earning an interest rate of 4.4%.
6. Trade and other receivables
Trade receivables
Receivables from joint venture partners
7. Exploration and evaluation assets
Balance at December 31, 2020
Additions
Lease expiries
Transferred to property, plant and equipment (note 10)
Balance at December 31, 2021
Additions
Lease expiries
Transferred to property, plant and equipment (note 10)
Balance at December 31, 2022
December 31
2022
87,047
5,769
92,816
December 31
2021
49,887
4,882
54,769
20,580
677
(84)
(460)
20,713
‐
‐
(4,922)
15,791
Advantage Energy Ltd. - 77
8. Right‐of‐use assets
Cost
Balance at December 31, 2020
Additions
Expired leases
Balance at December 31, 2021
Additions
Expired leases
Balance at December 31, 2022
Accumulated depreciation
Balance at December 31, 2020
Depreciation
Expired leases
Balance at December 31, 2021
Depreciation
Expired leases
Balance at December 31, 2022
Net book value
At December 31, 2021
At December 31, 2022
9. Intangible assets
Cost
Balance at December 31, 2020
Intellectual property acquisition (note 18)
Additions
Balance at December 31, 2021
Additions
Balance at December 31, 2022
Accumulated amortization
Balance at December 31, 2020
Amortization
Balance at December 31, 2021 and December 31, 2022
Net book value
At December 31, 2021
At December 31, 2022
Total
2,504
169
(35)
2,638
339
‐
2,977
468
326
(35)
759
374
‐
1,133
1,879
1,844
‐
2,500
491
2,991
1,020
4,011
‐
‐
‐
2,991
4,011
The Corporation has not incurred amortization on its intangible assets in 2021 or 2022 as the assets are not
available for use. Amortization will be recognized once commercial operations commence.
Advantage Energy Ltd. - 78
10. Property, plant and equipment
Cost
Balance at December 31, 2020
Additions
Capitalized share‐based compensation (note 19(b))
Changes in decommissioning liability (note 15(d))
Transferred from exploration and
evaluation assets (note 7)
Balance at December 31, 2021
Additions
Capitalized share‐based compensation (note 19(b))
Changes in decommissioning liability (note 15(d))
Transferred from exploration and
evaluation assets (note 7)
Balance at December 31, 2022
Accumulated depreciation
Balance at December 31, 2020
Depreciation
Impairment recovery
Balance at December 31, 2021
Depreciation
Balance at December 31, 2022
Net book value
At December 31, 2021
At December 31, 2022
Natural Gas
and Liquids
Properties
Furniture and
Equipment
2,811,316
148,154
2,051
1,505
460
2,963,486
239,943
2,242
(19,734)
4,922
3,190,859
1,371,238
106,227
(340,653)
1,136,812
133,224
1,270,036
6,692
81
‐
‐
‐
6,773
827
‐
‐
‐
7,600
5,278
233
‐
5,511
319
5,830
Total
2,818,008
148,235
2,051
1,505
460
2,970,259
240,770
2,242
(19,734)
4,922
3,198,459
1,376,516
106,460
(340,653)
1,142,323
133,543
1,275,866
1,826,674
1,920,823
1,262
1,770
1,827,936
1,922,593
During the year ended December 31, 2022, Advantage capitalized general and administrative expenditures
directly related to development activities of $6.8 million, included in additions (year ended December 31, 2021 ‐
$7.8 million).
Included in additions to natural gas and liquids properties is $2.8 million in expenditures incurred by the
Corporation’s subsidiary, Entropy (year ended December 31, 2021 ‐ $nil).
Advantage included future development costs of $2.1 billion (December 31, 2021 ‐ $2.0 billion) in natural gas and
liquids properties costs subject to depreciation.
Advantage Energy Ltd. - 79
10. Property, plant and equipment (continued)
2022: Impairment assessment
For the year ended December 31, 2022, the Corporation evaluated its natural gas and liquids properties for
indicators of any potential impairment. As a result of this assessment, no indicators were identified, and no
impairment test was performed.
2021: Impairment recovery assessment
At December 31, 2021, there were indicators of impairment recovery identified in the Corporation’s Greater
Glacier CGU as a result of improved forward commodity prices for natural gas and crude oil.
The Corporation performed an impairment reversal test using an after‐tax discounted future cash flow of proved
and probable reserves(1), utilizing an inflation rate of 2% and a discount rate of 10%. The following table
summarizes the price forecast used in the Corporation’s discounted cash flow estimates as of December 31, 2021:
Year
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
WTI
($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. - 80
11. Financial risk management
Financial assets and liabilities recorded or disclosed at fair value in the statements of financial position are
categorized based on the level associated with the inputs used to measure their fair value.
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 categorized as level 2 in the fair value hierarchy and 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.
The Corporation’s unsecured debentures – derivative liability is categorized as level 3 in the fair value
hierarchy as multiple inputs such as volatility, probability of a future change of control event, and share price
are unobservable inputs.
Fair value less costs of disposition used to determine the recoverable amounts of Advantage’s Greater Glacier
CGU at December 31, 2021 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. - 81
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
Foreign exchange
Interest rate
Natural gas embedded derivative
Unsecured debenture derivative
Total
Gains (losses) on derivatives
Natural gas
Crude oil
Foreign exchange
Interest rate
Natural gas embedded derivative
Unsecured debenture derivative
Total
Year ended
December 31
2022
2021
(138,871)
(2,430)
(2,729)
(104)
(144,134)
29,647
(20)
(687)
136
42,176
(3,965)
67,287
(109,224)
(2,450)
(3,416)
32
42,176
(3,965)
(76,847)
(58,909)
(17,353)
2,368
(684)
(74,578)
16,480
2,074
(4,525)
666
54,305
‐
69,000
(42,429)
(15,279)
(2,157)
(18)
54,305
‐
(5,578)
Advantage Energy Ltd. - 82
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 asset (liability)
Crude oil derivative asset
Foreign exchange derivative liability
Interest rate derivative liability
Natural gas embedded derivative asset
Unsecured debentures derivative liability (note 14)
Net derivative asset
Consolidated statement of financial position classification
Current derivative asset
Non‐current derivative asset
Current derivative liability
Non‐current derivative liability
Unsecured debentures derivative liability (note 14)
Net derivative asset
(a) Credit risk
December 31
2022
December 31
2021
16,475
‐
(2,197)
‐
99,875
(9,744)
104,409
(13,172)
20
(1,510)
(136)
57,699
‐
42,901
22,357
93,993
(2,197)
‐
(9,744)
104,409
282
57,699
(2,765)
(12,315)
‐
42,901
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, which 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
2022
92,816
3,720
116,350
212,886
December 31
2021
54,769
1,858
57,981
114,608
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. - 83
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, 2022, $0.2 million of trade and other receivables are outstanding for 90 days
or more (December 31, 2021 – $0.2 million). 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, 2022, the average expected credit loss for trade and other receivables
was 0.63% (December 31, 2021 – 0.60%).
The Corporation’s most significant customers, three North American oil and natural gas marketers, account
for $63.8 million of the trade and other receivables at December 31, 2022 (December 31, 2021 – $33.8
million).
(b) Liquidity risk
The Corporation is subject to liquidity risk attributed from trade and other accrued liabilities, derivative
liabilities, lease liabilities, performance awards, financing liabilities, unsecured debentures 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 5 and
12 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.
The unsecured debentures held by Entropy are non‐recourse to Advantage, and have a term of 10 years, if
not exchanged for common shares, which are to be repaid at the end of the term. Debentures issued by
Entropy bear an interest rate of 8% per annum, which can be paid‐in‐kind, or cash, due on a quarterly basis,
at the discretion of Entropy.
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. - 84
11. Financial risk management (continued)
(b) Liquidity risk (continued)
The timing of undiscounted cash outflows and contractual maturities relating to financial liabilities as at
December 31, 2022 and 2021 are as follows:
December 31, 2022
Trade and other accrued liabilities
Deferred Share Units
Derivative liability
Performance Awards
Lease liability
Financing liability
Bank indebtedness ‐ principal
‐ interest (1)
Unsecured debentures(2)
December 31, 2021
Trade and other accrued liabilities
Deferred Share Units
Derivative liability
Performance Awards
Lease liability
Financing liability
Bank indebtedness ‐ principal
‐ interest (1)
Undiscounted
cash flows(3)
84,805
6,528
2,197
13,776
2,377
158,827
180,000
19,926
25,000
493,436
Undiscounted
cash flows(3)
76,625
4,773
15,080
17,666
2,331
162,657
168,000
6,255
453,387
Less than
one year
84,805
1,941
2,197
6,105
475
12,702
‐
13,284
‐
121,509
Less than
one year
76,625
‐
2,765
5,644
339
12,045
‐
5,038
102,456
One to
three years
‐
‐
‐
7,671
960
25,439
180,000
6,642
‐
220,712
One to
three years
‐
‐
12,315
12,022
750
24,123
168,000
1,217
218,427
Beyond
‐
4,587
‐
‐
942
120,686
‐
‐
25,000
151,215
Beyond
‐
4,773
‐
‐
1,242
126,489
‐
‐
132,504
(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.
(2) The unsecured debentures are a liability of Entropy and are non‐recourse to Advantage. The principal balance of unsecured
debentures bears an interest rate of 8%, which can be paid‐in‐kind, or cash, at the discretion of Entropy.
(3) The undiscounted cash flows equal the carrying value, with the exception of performance awards, lease liability, financing
liability and unsecured debentures.
The Corporation’s bank indebtedness is governed by credit facility agreements with a syndicate of financial
institutions (note 12). The Credit Facility has a tenor of two years with a maturity date in June 2024 and is
subject to an annual review and extension by the lenders. During the revolving period, a review of the
maximum borrowing amount occurs annually on or before May and semi‐annually on or before November.
There can be no assurance that the Credit Facilities will be renewed at the current borrowing base level at
that time. During the term, no principal payments are required until the revolving period matures in June
2024 in the event of a reduction, or the Credit Facility not being renewed. Management fully expects that
the facilities will be extended at each annual review.
Advantage Energy Ltd. - 85
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, 2022 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 PJM electricity price
Net Income (Loss) Impact
($ millions)
+10%
(1.0)
(7.8)
(4.0)
9.3
(10)%
1.0
7.6
4.0
(14.5)
As at December 31, 2022 and February 23, 2023, the Corporation had the following commodity derivative
contracts in place:
Description of
Derivative
Term
Volume
Price
Natural gas – AECO 7A
Fixed price swap
April 2023 to October 2023
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
Fixed price swap
November 2022 to March 2023
April 2023 to October 2023
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
Basis swap
April 2023 to December 2024
January 2023 to March 2023
18,956 Mcf/d
Cdn $4.35/Mcf
105,000 Mcf/d
25,000 Mcf/d
US $4.98/Mcf
US $3.35/Mcf
40,000 Mcf/d
5,000 Mcf/d
Henry Hub less US $1.19/Mcf
Henry Hub less US $0.98/Mcf
Natural gas ‐ Dawn
Fixed price swap
April 2023 to October 2023
15,000 Mcf/d US $2.92/Mcf(1)
(1) Contract entered into subsequent to December 31, 2022
Advantage Energy Ltd. - 86
11. Financial risk management (continued)
(c) Commodity price risk (continued)
Natural Gas ‐ Embedded Derivative
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 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, 2022 the
fair value of the natural gas embedded derivative resulted in an asset of $99.9 million (December 31, 2021 –
$57.7 million asset).
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, 2022, 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.
(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 from time‐to‐time will enter into fixed interest
rate swaps to mitigate interest rate risk. As at December 31, 2022, the Corporation had no outstanding
interest rate hedges in place. Had the borrowing rate been different by 100 basis points throughout the year
ended December 31, 2022, net income and comprehensive income would have changed by $0.8 million
(December 31, 2021 – $1.6 million) based on the average debt balance outstanding during the year.
(e) Foreign exchange risk
Foreign exchange risk is the risk that future cash flows will fluctuate as a result of changes in the 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, 2022, net income and comprehensive income
would have changed by $7.2 million (December 31, 2021 – $2.6 million).
Advantage Energy Ltd. - 87
11. Financial risk management (continued)
(e) Foreign exchange risk (continued)
As at December 31, 2022, 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
Term
Notional Amount
Rate
February 2021 to January 2023
June 2021 to May 2023
March 2022 to February 2023
May 2022 to March 2023
US $ 750,000/month
US $ 2,000,000/month
US $ 1,500,000/month
US $ 1,000,000/month
1.2850
1.2025
1.2719
1.2850
As at December 31, 2022 the fair value of the foreign exchange derivatives outstanding resulted in an liability
of $2.2 million (December 31, 2021 – $1.5 million liability).
(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, unsecured debentures, and share capital. Advantage may manage its capital structure by
issuing new shares, repurchasing outstanding shares, obtaining additional financing through bank
indebtedness, refinancing current debt, issuing other financial or equity‐based instruments, declaring a
dividend, adjusting capital spending, or disposing of assets. The capital structure is reviewed by Management
and the Board of Directors on an ongoing basis.
Advantage Energy Ltd. - 88
11. Financial risk management (continued)
(f) Capital management (continued)
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
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, 2022 and December 31, 2021 is as follows:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and deposits
Trade and other accrued liabilities
Working capital surplus
Net Debt
December 31
2022
48,940
92,816
14,613
(84,805)
71,564
December 31
2021
25,238
54,769
3,483
(76,625)
6,865
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, 2022 and December 31, 2021 is as follows:
Bank indebtedness (non‐current) (note 12)
Unsecured debentures (note 14)
Working capital surplus
Net debt
December 31
2022
177,200
15,700
(71,564)
121,336
December 31
2021
167,345
‐
(6,865)
160,480
Advantage’s capital structure as at December 31, 2022 and December 31, 2021 is as follows:
Net debt
Shares outstanding (note 17)
Share closing market price ($/share)
Market Capitalization
Total Capitalization
December 31
2022
121,336
171,652,768
9.47
1,625,552
1,746,888
December 31
2021
160,480
190,828,976
7.41
1,414,043
1,574,523
Advantage Energy Ltd. - 89
12. Bank indebtedness
Revolving credit facility
Discount on bankers’ acceptance and other fees
Balance, end of year
December 31
2022
180,000
(2,800)
177,200
December 31
2021
168,000
(655)
167,345
As at December 31, 2022, 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.
In June 2022, the Credit Facilities were renewed with no changes to the borrowing base. The Credit Facility has a
tenor of two years with a maturity date in June 2024 and is subject to an annual review and extension by the
lenders. During the revolving period, a review of the maximum borrowing amount occurs annually on or before
May and semi‐annually on or before November. There can be no assurance that the Credit Facilities will be
renewed at the current borrowing base level at that time. During the term, no principal payments are required
until the revolving period matures in June 2024 in the event of a reduction, or the Credit Facility not being
renewed. 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 0.625% to 1.125% 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 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.
Advantage Energy Ltd. - 90
12. Bank indebtedness (continued)
The Credit Facilities contain standard commercial covenants for credit facilities of this nature. The Corporation
did not have any financial covenants at December 31, 2022 and 2021, but the Corporation is subject to various
affirmative and negative covenants under its Credit Facilities. 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, 2022 the
Corporation had a 28.4 LMR (December 31, 2021 – 25.6 LMR). All other applicable non‐financial covenants were
met at December 31, 2022 and 2021. 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, 2022, the average effective interest rate on the outstanding amounts under the
facilities was approximately 6.2% (December 31, 2021 – 4.7%). The Corporation had letters of credit of US$9.0
million outstanding at December 31, 2022 (December 31, 2021 – US$9.0 million).
13. Financing Liability
In 2020, Advantage sold a 12.5% interest in the Corporation’s Glacier Gas Plant for $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. During the third quarter of 2022, as part of the planned capital expansion of the
Glacier Gas Plant, the working interest partner chose to participate pursuant to the agreement and provided $5.0
million in additional financing, with the volume commitment fee being revised to $0.696/Mcf for the remainder
of the term. The volume commitment agreement is treated as a financing transaction with an effective interest
rate associated with the financing transaction of 9.1%.
A reconciliation of the financing liability is provided below:
Balance, beginning of the year
Additions
Interest expense
Financing payments
Balance, end of year
Current financing liability
Non‐current financing liability
14. Unsecured debentures
Year ended
December 31, 2022
93,488
5,000
8,537
(12,320)
94,705
4,269
90,436
Year ended
December 31, 2021
96,864
‐
8,669
(12,045)
93,488
3,696
89,792
On March 25, 2022, the Corporation’s subsidiary Entropy entered into an investment agreement with an investor
who provided a capital commitment of $300 million. Entropy will issue unsecured debentures to fund carbon
capture and storage projects that reach final investment decision as certain predetermined return thresholds are
met. Under the terms of the agreement, Entropy and the investor have options that provide for the unsecured
debentures to be exchanged for commons shares at an exchange price of $10 per share, subject to adjustment in
certain circumstances. The investor has the option to exchange the outstanding unsecured debentures for
common shares at any time while Entropy may commence a mandatory exchange of unsecured debentures for
common shares in advance of an initial public offering ("IPO"). The unsecured debentures have a term of 10 years,
if not exchanged for common shares, which are to be repaid at the end of the term in the amount greater of the
principal amount and the investor’s pro rata share of the fair market value of Entropy and are non‐recourse to
Advantage.
Advantage Energy Ltd. - 91
14. Unsecured debentures (continued)
Each debenture issued by Entropy bears an interest rate of 8% per annum that Entropy can elect to pay in cash or
pay‐in‐kind, due on a quarterly basis. Any paid‐in‐kind interest is added to the aggregate principal, subject to
certain limitations.
On April 5, 2022, Entropy issued unsecured debentures and received $25.0 million gross proceeds and incurred
$3.8 million of issuance costs. For the year ended December 31, 2022, Entropy incurred interest of $1.5 million
that was paid in cash, and $0.3 million of accretion expense.
The exchange features of the unsecured debentures meet the definition of a derivative liability, as the exchange
features allow the unsecured debentures to be potentially exchanged for a variable amount of common shares,
and as such does not meet the fixed‐for‐fixed criteria for equity classification. The unsecured debenture ‐
derivative liability is classified as Level 3 within the fair value hierarchy.
The following table provides a summary of the outstanding aggregate principal balance of the Corporation’s
unsecured debentures:
Aggregate principal balance, beginning of the year
Unsecured debentures issued
Aggregate principal balance, end of year
December 31
2022
‐
25,000
25,000
The following tables disclose the components associated with the unsecured debentures at initial recognition.
The changes in the unsecured debentures are as follows:
Balance, beginning of the year
Initial recognition
Issuance costs
Accretion expense
Balance, end of year
December 31
2022
‐
19,221
(3,838)
317
15,700
The changes in the unsecured debentures ‐ derivative liability related to the exchange features are as follows:
Balance, beginning of the year
Initial recognition
Revaluation
Balance, end of year
December 31
2022
‐
5,779
3,965
9,744
The Corporation determined the value of the conversion feature using a probability weighted Black‐Scholes
calculation. Unobservable inputs used to determine the valuation at December 31, 2022 includes estimated share
price, estimated timing of an IPO, share price volatility and credit spread. The below table provides the impact to
the valuation of the derivative liability by adjusting the inputs below:
$ millions
$1 change in estimated share price
10% change in volatility
1% change in credit spread
1 year change in estimated timing of an IPO
Increase
1.5
1.0
0.4
1.8
(Decrease)
(1.5)
(1.0)
(0.4)
(2.5)
Advantage Energy Ltd. - 92
15. Provisions and other liabilities
Performance Awards (note 19(c))
Deferred Share Units (note 19(d))
Deferred revenue (a)
Project funding grant (b)
Lease liability (c)
Decommissioning liability (d)
Balance, end of year
Current provisions and other liabilities
Non‐current provisions and other liabilities
(a) Deferred revenue
Year ended
December 31, 2022
9,277
6,528
6,603
‐
2,154
41,945
66,507
16,531
49,976
Year ended
December 31, 2021
9,970
4,773
6,603
57
2,173
62,474
86,050
7,528
78,522
Deferred revenue represents an advance payment received by Advantage in consideration for the future
sales of natural gas. The balance has been classified as short‐term as the performance obligation related to
the deferred revenue is expected to be satisfied in 2023.
(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.
(c) Lease liability
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, 2022
2,173
339
93
(451)
2,154
434
1,720
Year ended
December 31, 2021
2,279
169
96
(371)
2,173
364
1,809
Advantage Energy Ltd. - 93
15. Provisions and other liabilities (continued)
(d) Decommissioning liability
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 2023
and 2078. A risk‐free rate of 3.28% (December 31, 2021 ‐ 1.76%) and an inflation factor of 2.0% (December
31, 2021 – 2.0%) were used to calculate the fair value of the decommissioning liability at December 31, 2022.
As at December 31, 2022, the total estimated undiscounted, uninflated cash flows required to settle the
Corporation’s decommissioning liability was $62.8 million (December 31, 2021 – $57.6 million).
A reconciliation of the decommissioning liability is provided below:
Balance, beginning of the year
Accretion expense
Liabilities incurred
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, 2022
62,474
1,420
2,003
(1,189)
(20,548)
(2,215)
41,945
2,000
39,945
Year ended
December 31, 2021
60,894
1,108
1,737
(1,800)
1,568
(1,033)
62,474
2,000
60,474
Advantage Energy Ltd. - 94
16. Income taxes
The provision for income taxes is as follows:
Current income tax expense
Deferred income tax expense
Income tax expense
Year ended
December 31, 2022
Year ended
December 31, 2021
‐
105,138
105,138
‐
121,092
121,092
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 before taxes and non‐controlling interest
Combined federal and provincial income tax rates
Expected income tax expense
Increase (decrease) in income taxes resulting from:
Non‐deductible share‐based compensation
Valuation allowance
Other
Income tax expense
Effective tax rate
Year ended
December 31, 2022
442,899
Year ended
December 31, 2021
532,446
23.0 % 23.0 %
122,463
101,867
1,280
910
1,081
105,138
23.7 %
937
‐
(2,308)
121,092
22.7 %
The movement in deferred income tax assets and liabilities without taking into consideration the offsetting of
balances within the same tax jurisdiction is as follows:
At December 31, 2021
Credited (charged)
to income
At December 31, 2022
Deferred income tax assets:
Decommissioning liability
Non‐capital losses
Financing liability
Other
Deferred income tax liabilities:
Property, plant and equipment
Derivative asset/liability
Other
Deferred income tax liability
14,369
167,352
21,502
22,022
225,245
(311,239)
(9,867)
(423)
(321,529)
(96,284)
(4,208)
(73,547)
(870)
217
(78,408)
(10,188)
(16,388)
(154)
(26,730)
(105,138)
10,161
93,805
20,632
22,239
146,837
(321,427)
(26,255)
(577)
(348,259)
(201,422)
Advantage Energy Ltd. - 95
At December 31, 2020
Credited (charged)
to income
At December 31, 2021
16. Income taxes (continued)
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)
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)
The estimated tax pools available at December 31, 2022 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
14,369
167,352
21,502
‐
22,022
225,245
(311,239)
(9,867)
(423)
(321,529)
(96,284)
218,327
68,470
12,242
411,805
240,549
135,119
32,506
6,421
1,125,439
The non‐capital loss carry forward balances expire no earlier than 2029.
No deferred tax asset has been recognized for capital losses of $135 million (December 31, 2021 – $147 million).
Recognition is dependent on the realization of future taxable capital gains.
Advantage Energy Ltd. - 96
17. 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, 2020
Shares issued on Performance Share Unit settlements
Contributed surplus transferred on Performance Share Unit settlements
Balance at December 31, 2021
Shares issued on Performance Share Unit settlements (note 19 (a))
Contributed surplus transferred on Performance Share Unit settlements
Shares purchased and cancelled under NCIB
Shares purchased and cancelled under SIB
Balance at December 31, 2022
188,112,797
2,716,179
‐
190,828,976
3,056,992
‐
(13,304,629)
(8,928,571)
171,652,768
Share capital
($000)
2,360,647
‐
10,069
2,370,716
‐
6,948
(163,157)
(109,494)
2,105,013
For the year ended December 31, 2022, the Corporation purchased 22.2 million common shares for
cancellation for a total of $241.0 million. Share capital was reduced by $272.7 million while contributed
surplus was increased by $31.7 million, representing the excess average carrying value of the common shares
over the purchase price.
(c) Normal Course Issuer Bid ("NCIB")
On April 7, 2022, the Toronto Stock Exchange (the "TSX") approved the Corporation commencing a NCIB.
Pursuant to the NCIB, Advantage will purchase for cancellation, from time to time, as it considers advisable,
up to a maximum of 18,704,019 common shares of the Corporation. The NCIB commenced on April 13, 2022
and is scheduled to terminate on April 12, 2023 or such earlier time as the NCIB is completed or terminated
at the option of Advantage.
Purchases pursuant to the NCIB were made on the open market through the facilities of the TSX or alternative
trading systems. The price that Advantage paid for its common shares under the NCIB was the prevailing
market price on the TSX at the time of such purchase. All Common shares acquired under the NCIB were
cancelled.
For the year ended December 31, 2022, the Corporation purchased 13.3 million common shares for
cancellation at an average price of $10.52 per common share for a total of $140.1 million. Subsequent to
December 31, 2022, the Corporation purchased 5.4 million common shares for a total of $47.9 million,
reaching the maximum number of common shares that can be purchased under the NCIB.
(d) Substantial Issuer Bid ("SIB")
On November 10, 2022, the Corporation commenced a SIB pursuant to which it offered to purchase for
cancellation up to $100 million of its common shares through a modified Dutch auction. The SIB was
completed on December 20, 2022, with the Corporation taking up 8.9 million common shares at a price of
$11.20 per common share, representing an aggregate purchase of $100 million and 4.9% of the total number
of Advantage’s issued and outstanding common shares. The Corporation incurred $0.9 million in transaction
cost in connection with the SIB which were included in the cost of acquiring the common shares.
Advantage Energy Ltd. - 97
18. 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
19. Long‐term compensation plans
Year ended
December 31
2022
2021
2,331
‐
(906)
1,425
‐
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, 2022, 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, 2020
Granted
Settled
Forfeited
Balance at December 31, 2021
Granted
Settled
Forfeited
Balance at December 31, 2022
Performance Share Units
5,243,598
1,247,026
(1,549,658)
(60,282)
4,880,684
720,641
(1,585,888)
(32,491)
3,982,946
During April 2022, 1,585,888 Performance Share Units matured and were settled with the issuance of
3,056,992 common shares.
Advantage Energy Ltd. - 98
19. Long‐term compensation plans (continued)
(b) Share‐based compensation expense
Share‐based compensation expense after capitalization for the years ended December 31, 2022 and 2021
are as follows:
Total share‐based compensation
Capitalized (note 10)
Cash settled awards
Share‐based compensation expense
Year ended
December 31
2022
2021
7,766
(2,242)
‐
5,524
6,786
(2,051)
(682)
4,053
(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 15) 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
Performance Awards settled
Balance, end of year
Current
Non‐current
(d) Deferred Share Units
Year ended
December 31, 2022
Year ended
December 31, 2021
9,970
5,902
46
(6,641)
9,277
5,553
3,724
4,620
5,284
66
‐
9,970
5,107
4,863
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, 2020
Granted
Settled
Balance at December 31, 2021
Granted
Settled
Balance at December 31, 2022
Deferred Share Units
629,330
105,140
(90,377)
644,093
45,217
‐
689,310
Advantage Energy Ltd. - 99
19. Long‐term compensation plans (continued)
(d) Deferred Share Units (continued)
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:
Balance, beginning of the year
Granted
Revaluation of outstanding Deferred Share Units
Settled
Balance, end of year
Current
Non‐current
Year ended
December 31, 2022
Year ended
December 31, 2021
4,773
425
1,330
‐
6,528
1,941
4,587
1,076
418
3,599
(320)
4,773
‐
4,773
20. Net income per share attributable to Advantage shareholders
The calculations of basic and diluted net income per share are derived from both net income attributable to
Advantage shareholders and weighted average shares outstanding, calculated as follows:
Net income attributable to Advantage shareholders
Basic and diluted
Weighted average shares outstanding
Basic
Performance Share Units
Diluted
Net income per share attributable to Advantage shareholders
Basic ($/share)
Diluted ($/share)
Year ended
December 31
2022
2021
338,667
411,523
187,022,242
6,847,114
193,869,356
190,077,376
8,526,599
198,603,975
$ 1.81
$ 1.75
$ 2.17
$ 2.07
Advantage Energy Ltd. - 100
21. Revenues
(a) 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, 2022 and 2021, natural gas and liquids sales was as follows:
Crude oil
Condensate
NGLs
Liquids
Natural Gas
Natural gas and liquids sales
Year ended
December 31
2022
81,938
47,129
79,042
208,109
2021
31,209
25,226
44,423
100,858
742,349
391,177
950,458
492,035
At December 31, 2022, receivables from contracts with customers, which are included in trade and other
receivables, were $84.6 million (December 31, 2021 ‐ $49.5 million).
(b) Sales of purchased natural gas
During the year ended December 31, 2022, the Corporation purchased natural gas volumes to satisfy physical
sales commitments. Purchases and sales of natural gas from third‐parties was as follows:
Sales of purchased natural gas
Natural gas purchases
Net sales of purchased natural gas
(c) Processing and other income
Year ended
December 31
2022
4,826
(4,756)
70
2021
‐
‐
‐
During the year ended December 31, 2022, the Corporation earned income from the processing of third‐
party natural gas at the Corporation’s gas plant. Processing and other income was as follows:
Processing income
Other
Total processing and other income
Year ended
December 31
2022
8,783
299
9,082
2021
‐
‐
‐
Advantage Energy Ltd. - 101
22. 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 (note 10)
General and administrative expense
23. Finance expense
Interest on bank indebtedness (note 12)
Interest on provisions and other liabilities (note 13, 15(c), 19(c))
Accretion of decommissioning liability (note 15(d))
Interest and accretion on unsecured debentures (note 14)
Interest income
Total finance expense
24. 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
2022
21,920
1,330
1,601
2,043
2,197
29,091
(6,808)
22,283
2021
19,673
3,599
1,286
1,995
1,148
27,701
(7,841)
19,860
Year ended
December 31
2022
9,364
8,676
1,420
1,796
(829)
20,427
2021
11,250
8,831
1,108
‐
‐
21,189
Year ended
December 31
2022
2021
4,972
4,753
9,725
4,903
5,075
9,978
(1) Represents the grant date fair value of Performance Share Units and Performance Awards granted.
As at December 31, 2022, there is a commitment of $4.8 million (December 31, 2021 – $4.4 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, 2022, Advantage incurred
and charged $1.8 million (December 31, 2021 – $0.8 million) in G&A to Entropy in connection with the
Management Services Agreement.
Advantage Energy Ltd. - 102
25. 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 Share Units
Project funding
Related to operating activities
Related to financing activities
Related to investing activities
Year ended
December 31
2022
2021
(38,047)
(11,130)
8,180
(693)
1,755
(62)
(39,997)
(12,197)
‐
(27,800)
(39,997)
(26,278)
(1,462)
39,618
5,350
3,697
(20,000)
925
(10,639)
‐
11,564
925
The following table provides a detailed breakdown of the cash and non‐cash changes in financing liabilities arising
from financing activities:
Year ended
December 31
2022
2021
(240,967)
310,000
(298,000)
(10,019)
21,162
5,000
(451)
(12,320)
(225,595)
‐
30,000
(110,000)
(10,288)
‐
‐
(371)
(12,045)
(102,704)
7,874
93
8,537
16,504
10,528
96
8,669
19,293
(209,091)
(83,411)
Cash flows
Common shares repurchased
Draws on credit facility
Repayment of credit facility
Bankers’ acceptance and other fees
Net proceeds from unsecured debentures
Net proceeds from financing liability
Lease payments
Financing payments
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 used in financing activities
Advantage Energy Ltd. - 103
26. Commitments
At December 31, 2022 Advantage had commitments relating to building operating cost of $1.9 million, processing
commitments of $53.7 million and transportation commitments of $450 million. The estimated remaining
payments are as follows:
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Total
1.9
53.7
450.0
505.6
2023
0.4
7.9
74.5
82.8
Payments due by period
2026
2025
0.4
0.4
7.0
9.5
60.1
72.3
67.5
82.2
2024
0.4
10.0
74.5
84.9
2027
0.3
7.0
48.2
55.5
Beyond
‐
12.3
120.4
132.7
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability.
Advantage Energy Ltd. - 104
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; that Advantage will focus
on growing AFF per share while maintaining its net debt target; Advantage's anticipated production growth and
annual spending over the next three years; the focus of the Corporation's 2023 capital program; the Corporation's
2023 capital guidance including its anticipated cash used in investing activities, total average production, liquids
production (% of total average production), royalty rate, operating expense, transportation expense and
G&A/finance expense; the incurred net capital expenditures that the Corporation estimates that it will recover under
the ITC for CCUS projects on the Glacier Gas Plant Phase 1 CCS project; the Corporation's expectations that it will
apply to renew its NCIB in April 2023; the anticipated benefits to be derived from Entropy's strategic investment
agreement with Brookfield; Entropy's focus on commercial growth in the United States and Canada; the anticipated
timing of the procurement and construction of Entropy's near‐term projects and their anticipated capture rates;
Entropy's expectations that its mid‐term and long‐term projects remain well in excess of 10 mmtpa; the Corporation's
2023 production guidance; that Advantage will continue to invest in additional transportation commitments and the
anticipated benefits to be derived therefrom; the anticipated timing of when the CPV Three Rivers plant will be
commissioned and the average capacity that Advantage expects to deliver in connection therewith; the Corporation's
forecasted 2023 natural gas market exposure including the anticipated effective production rate; the Corporation's
commodity risk management program and financial risk management program and the anticipated benefits to be
derived therefrom; 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; that royalties paid on new wells
drilled in Alberta are typically low until the initial capital investment is recovered; the Corporation's anticipated 2023
annual operating expense per boe and transportation expense per boe; the Corporation's estimated tax pools and
its expectations that it will not be subject to cash taxes until calendar 2025; the Corporation's expectations that the
raw gas capacity of the Glacier Gas Plant will be expanded and that wells drilled in the first quarter of 2023 will be
brought onto production and the anticipated benefits to be derived therefrom; the anticipated capture rate of the
Glacier Gas Plant Phase 1 CCS and waste heat recovery project; that Entropy's modular technology will lower
corporate emissions; the Corporation's expectations that it will achieve "net zero" Scope 1 and 2 emissions by 2025;
the Corporation's expectations that its Valhalla asset will continue to play a pivotal role in the Corporation's liquids‐
rich gas development plan; that the Corporation's Wembley asset will provide sufficient gas processing capacity for
future growth; the number of wells that the Corporation expects to be drilled at Wembley in the first half of 2023;
the anticipated timing of the construction of the Corporation's Progress compressor site and liquids handling hub
and the anticipated benefits to be derived therefrom; the Corporation's commitments and contractual obligations
and the anticipated payments in connection therewith and the anticipated timing thereof; Advantage's ability to
actively manage its portfolio in conjunction with its future development plans and its ability to ensure that the
Corporation is properly diversified into multiple markets; that the Corporation will allocate all free cash flow in 2023
towards the Corporation’s share buyback program, while maintaining its net debt target of $200 million; that the
Corporation will monitor its capital structure and make adjustments according to market conditions; 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 terms of
the Corporation's Credit Facilities, including the timing of the next review of the Credit Facilities and the Corporation's
expectations regarding the extension of the Credit Facilities at each annual review; the Corporation's ability to satisfy
Advantage Energy Ltd. - 105
Forward‐Looking Information and Other Advisories (continued)
all liabilities and commitments and meet future obligations as they become due and the means for satisfying such
future obligations; the terms of Entropy's unsecured debentures; the anticipated undiscounted, uninflated cash flows
required to settle the Corporation's decommissioning liability and the anticipated timing that such costs will be
incurred; the Corporation's anticipated reductions in Scope 1 and 2 emissions and the anticipated timing thereof;
Entropy's business plan and the anticipated benefits to be derived therefrom; Entropy's expectations that its future
projects are on‐track to achieve a capital cost of C$475/tonne/annum (capture only, including inflation) for high‐
quality mid‐sized projects, and lower for large projects; the anticipated timing of Glacier Phase 1b and the anticipated
results to be derived therefrom; the statements under "critical accounting estimates" in the 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; delays in timing of facility installation; 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 risk that Advantage may not grow AFF per share; the risk that
Advantage may not return all excess cash to its shareholders via buybacks; the failure to extend the credit facilities
at each annual review; competition from other producers; the risk that the Corporation may not apply to renew its
NCIB when anticipated, or at all; the risk that the Corporation may not have sufficient financial resources to acquire
its common shares pursuant to an NCIB in the future; the lack of availability of qualified personnel or management;
ability to access sufficient capital from internal and external sources; credit risk; that Advantage will not be able to
achieve "net zero" emissions by 2025; that Entropy's existing planned capital projects may not result in completed
CCS projects; the price of and market for carbon credits and offsets; current and future carbon prices and royalty
regimes; the risk that Entropy's strategic investment agreement with Brookfield may not lead to the results
anticipated; the risk that the procurement and construction of Entropy's near‐term projects may not occur when
anticipated, or at all; the risk that the CPV Three Rivers plant may not be commissioned when anticipated, or at all;
the risk that the Corporation's commodity risk management program and financial risk management program may
not achieve the results anticipated; the risk that the Corporation's annual operating expense per boe and
transportation expense per boe may be greater than anticipated; the risk that the Corporation may be subject to
cash taxes prior to calendar 2025; the risk that the raw gas capacity of the Glacier Gas Plant may not be expanded
and that the wells drilled in the first quarter of 2023 may not be brought onto production when anticipated, or at all;
the risk that Entropy's modular technology may not lower corporate emissions and that the Corporation may not
achieve "net zero" Scope 1 and 2 emissions when anticipated, or at all; the risk that the Corporation's Valhalla asset
Advantage Energy Ltd. - 106
Forward‐Looking Information and Other Advisories (continued)
may not play a pivotal role in the Corporation's liquids‐rich gas development plan; the risk that the Corporation's
Wembley asset may not provide sufficient gas processing capacity for future growth; the risk that the Corporation
may drill less wells at Wembley in the first half of 2023 than anticipated; the risk that the construction of the
Corporation's Progress compressor site and liquids handling hub may not be completed when anticipated, or at all;
the risk that Advantage may not actively manage its portfolio in conjunction with its future development plans or
ensure that the Corporation is properly diversified into multiple markets; the risk that the Corporation may not
allocate all of its free cash flow in 2023 towards the Corporation’s share buyback program or maintain its net debt
target of $200 million; the risk that the Corporation may not satisfy all of its liabilities and commitments and meet its
future obligations as they become due; the risk that the undiscounted, uninflated cash flows required to settle the
Corporation's decommissioning liability may be greater than anticipated; the risk that Entropy's future projects may
have a greater capital cost than anticipated; and the risks and uncertainties described in the Corporation’s Annual
Information Form which is available at www.sedar.com and www.advantageog.com. Readers are also referred to risk
factors described in other documents Advantage files with Canadian securities authorities.
With respect to forward‐looking statements contained in this document, in addition to other assumptions identified
herein, Advantage has made assumptions regarding, but not limited to: current and future prices of oil and natural
gas; 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 produce, 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 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 its 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 the Corporation will have sufficient financial resources to purchase its shares under NCIBs in the future;
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 common shares pursuant to its share buyback program
(including through an NCIB or an SIB), if any, and the level thereof is uncertain. Any decision to acquire common
shares of the Corporation pursuant to the share buyback program 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 and satisfaction of
the solvency tests imposed on the Corporation under applicable corporate law. There can be no assurance of the
number of common shares of the Corporation that the Corporation will acquire pursuant to its share buyback
program, if any, 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,
Advantage Energy Ltd. - 107
Forward‐Looking Information and Other Advisories (continued)
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: that Advantage will focus on
growing AFF per share while maintaining its net debt target of $200 million; Advantage's anticipated annual spending
over the next three years; the Corporation's 2023 capital guidance including its anticipated cash used in investing
activities, royalty rate, operating expense, transportation expense and G&A/finance expense; the incurred net capital
expenditures that the Corporation estimates that it will recover under the ITC for CCUS projects on the Glacier Gas
Plant Phase 1 CCS project; 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
2023 annual operating expense per boe and transportation expense per boe; the Corporation's estimated tax pools
and its expectations that it will not be subject to cash taxes until calendar 2025; the Corporation's commitments and
contractual obligations and the anticipated payments in connection therewith and the anticipated timing thereof;
that the Corporation will allocate all free cash flow in 2023 towards the Corporation’s share buyback program, while
maintaining its net debt target of $200 million; the anticipated undiscounted, uninflated cash flows required to settle
the Corporation's decommissioning liability and the anticipated timing that such costs will be incurred; and Entropy's
expectations that future projects are on‐track to achieve a capital cost of C$475/tonne/annum (capture only,
including inflation) for high‐quality mid‐sized projects, and lower for large projects; 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 this document was
made as of the date of this document 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
document is not conclusive and is subject to change.
Advantage Energy Ltd. - 108
Oil and Gas Information
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.
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.
References in this document to short‐term production rates, such as IP30, are useful in confirming the presence of
hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production
and decline thereafter and are not indicative of long‐term performance or of ultimate recovery. Additionally, such
rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers
are cautioned not to place reliance on such rates in calculating the aggregate production of Advantage.
Production estimates contained herein are expressed as anticipated average production over the calendar year. In
determining anticipated production for the year 2023 Advantage considered historical drilling, completion and
production results for prior years and took into account the estimated impact on production of the Corporation’s
2023 expected drilling and completion activities.
Sproule was engaged as an independent qualified reserve evaluator to evaluate Advantage’s year‐end reserves as of
December 31, 2022 (“Sproule 2022 Reserves Report”) in accordance with NI 51‐101 and the COGE Handbook.
Reserves are stated on a gross (before royalties) working interest basis unless otherwise indicated. Additional details
are provided in the accompanying tables to this release and additional reserve information as required under NI 51‐
101 are included in our Annual Information Form which is available at www.sedar.com and www.advantageog.com.
The recovery and reserve estimates of reserves provided in this document are estimates only, and there is no
guarantee that the estimated reserves will be recovered. Actual reserves may eventually prove to be greater than,
or less than, the estimates provided herein.
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. - 109
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 34 of the Corporation’s Consolidated Management’s
Discussion & Analysis for the year ended December 31, 2022, 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 2022 and 2021 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 17, 2023
Advantage Energy Ltd. - 110
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
NCIB
PJM
SIB
WTI
means “Mixed Sweet Blend”, the reference price paid for conventionally produced light sweet
crude oil at Edmonton, Alberta
means "Normal course issuer bid"
a regional transmission organization that coordinates the movement of wholesale electricity in the
Mid Atlantic region of the US
Means "Substantial issuer bid"
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 NI 51‐101
Natural gas
Conventional Natural Gas as defined in NI 51‐101
"NGLs" &
"condensate"
Liquids
Natural Gas Liquids as defined in NI 51‐101
Total of crude oil, condensate and NGLs
Advantage Energy Ltd. - 111
Transfer Agent
Computershare Trust Company of Canada
Corporate Office
2200, 440 – 2nd Avenue SW
Calgary, Alberta T2P 5E9
(403) 718‐8000
Contact Us
Toll free: 1‐866‐393‐0393
Email: ir@advantageog.com
Visit our website at www.advantageog.com
Toronto Stock Exchange Trading Symbol
AAV
Directors
Jill T. Angevine (1)(3)(4)
Stephen E. Balog(2)(4)
Michael Belenkie
Deirdre M. Choate(1)(3)(4)
Donald M. Clague (1)(2)(3)(4)
Paul G. Haggis (1)(2)(3)(4)
Norman W. MacDonald(1)(2)
Andy J. Mah(2)
Janine J. McArdle(1)(4)
(1) Member of Audit Committee
(2) Member of Reserves and Health, Safety and Environment
Committee
(3) Member of Compensation Committee
(4) Member of Governance & Sustainability Committee
Officers
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
ATB Financial
Business Development Bank of Canada
Wells Fargo Bank N.A., /Canada Branch
Independent Reserve Evaluators
Sproule Associates Limited
Legal Counsel
Burnet, Duckworth and Palmer LLP
Advantage Energy Ltd. - 112
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. - 113