2023 Fourth Quarter Report
Financial Highlights
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income and comprehensive income(3)
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash used in financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital surplus (1)
Bank indebtedness
Net debt (1)
Operating Highlights
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Average realized prices (including realized derivatives)
Natural gas ($/Mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales
Realized gains (losses) on derivatives
Processing and other income
Net sales of purchased natural gas
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
(1)
(2)
(3)
Q4
Three months ended
December 31
Year ended
December 31
2023
2022
2023
2022
147,137
41,026
0.25
163,939
89,048
(52,120)
(58,846)
82,494
13.11
0.50
39,938
42,556
18,651
212,854
222,022
3,254
1,264
3,345
7,863
363,124
68,384
2.84
81.55
23.39
0.98
0.39
‐
(1.64)
(3.61)
(4.08)
15.43
223,200
113,962
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
541,100
101,597
0.61
166,553
323,345
(70,263)
(282,761)
950,458
338,667
1.81
187,022
502,378
(209,091)
(269,585)
313,570
14.16
1.88
282,796
30,774
18,651
212,854
222,022
2,710
1,166
3,021
6,897
322,687
60,678
3.24
78.35
24.43
1.59
0.34
(0.01)
(1.92)
(3.81)
(4.09)
16.53
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
Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see "Specified Financial Measures".
Based on basic weighted average shares outstanding.
Net income and comprehensive income attributable to Advantage shareholders.
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 .................................................................................................... 61
Consolidated Statements of Comprehensive Income (Loss) ................................................................................ 62
Consolidated Statements of Changes in Shareholders’ Equity ............................................................................. 63
Consolidated Statements of Cash Flows ............................................................................................................... 64
Notes to the Consolidated Financial Statements ................................................................................................. 65
ADVISORY .................................................................................................................................................................... 103
Advantage Energy Ltd. - 1
MESSAGE TO SHAREHOLDERS
Advantage Energy Ltd. ("Advantage" or the "Corporation") is pleased to report 2023 year‐end financial and operating
results as well as year‐end 2023 reserves.
Advantage achieved exceptional results during 2023, including record production, improved well results, and
significant share buybacks, while ending the year below our net debt target. Additional achievements included an
unbudgeted $10 million acquisition of 53 net Montney sections at Conroy and successfully executing a 17‐day Glacier
plant turnaround.
Following a comprehensive review of our capital program, we have materially reduced our planned 2024 capital
expenditures by $40 million to between $220 million and $250 million. Thanks to continued outperformance of our
recent development program, we can deliver this reduced capital level without changing our production guidance or
compromising our long‐term adjusted funds flow ("AFF") per share focus.
2024 Capital Program Update
Advantage continuously reviews its capital program to adjust to rapidly changing supply/demand dynamics in North
America. Our 2024 capital spending guidance has been revised to a range of $220 million to $250 million (from $260
million to $290 million). Budgetary reductions include at least two fewer wells, the deferral of debottlenecking and
reliability projects, and a previously unbudgeted capital recovery. Production guidance remains unchanged, thanks
to continued outperformance of our development program.
Significant discretionary capital remains in the budget for the second half of 2024, including a steady one‐rig drilling
program and the first phase of the 150 mmcf/d Progress gas plant project, currently on‐schedule to be commissioned
mid‐year 2025. In the event that North American supply growth continues to overwhelm demand and create further
downward pressure on futures pricing, any discretionary investments that fail to meet threshold metrics may be
deferred allowing incremental free cash flow to be redeployed to the share buyback.
Based on current futures pricing, Advantage estimates capital spending will be approximately 75% of forecasted total
AFF for 2024 and 2025, preserving balance sheet flexibility and optionality for opportunistic, counter‐cyclical share
repurchases.
Marketing Update
Advantage has hedged approximately 20% of its forecast natural gas production for summer 2024, 11% for winter
2024/25, 5% for summer 2025 and 6% for winter 2025/26. Advantage has only approximately 8% exposure to AECO
volatility this summer through a combination of fixed price hedges and physical market diversification.
Looking Forward
To maximize shareholder value, Advantage remains focused on growing AFF per share(a) while maintaining a net
debt(a) target of $200 million to $250 million. Advantage’s three‐year plan is to deliver compounding AFF per share
growth via careful capital allocation, with annual spending between $220 million and $300 million and production
growth capped at 10%. 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 may not be comparable to similar specified financial measures used by other entities. Please see "Specified Financial
Measures".
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, 2023 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 March 4, 2024 and is available at www.advantageog.com
and www.sedarplus.ca.
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
2023
608,878
December 31
2022(4)
585,648
4,229,092
25.07
24.4
3.75
0.35
4,745,165
27.16
28.9
3.41
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 166.2 million shares outstanding at December 31, 2023 and 171.7 million at December 31, 2022.
(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, 2022 contained in a report
of Sproule dated February 22, 2023 using the IQRE average product price forecast effective December 31, 2022.
(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, 2023
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)
4,278
‐
8,343
12,622
6,795
19,416
819,376
62,250
1,455,505
2,337,130
957,328
3,294,457
9,462
380
18,210
28,051
12,334
40,385
150,303
10,755
269,137
430,195
178,683
608,878
Total Oil Equivalent Corporation Gross (before royalties)
Working Interest Reserves Summary
585,648
608,878
553,365
)
e
o
b
M
(
2021
Proved Developed Producing
Proved Undeveloped
Total Proved Plus Probable
2022
2023
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%
2,489,682
187,858
4,805,440
7,482,980
4,287,209
11,770,188
1,392,412
91,048
1,467,675
2,951,135
1,277,958
4,229,092
1,139,988
70,802
923,922
2,134,712
870,359
3,005,071
(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, 2023, 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
$
(
3,353
3,384
4,745
4,229
2,951
2,205
1,148
2021
1,361
2022
1,278
2023
Total Proved
Probable
Total Proved Plus Probable
Advantage Energy Ltd. - 5
IQRE Average Forecasts and Assumptions
The net present value of future net revenue at December 31, 2023 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, 2023. 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
($Cdn/bbl)
92.91
95.04
96.07
97.99
99.95
101.94
103.98
AECO‐C
Spot
($Cdn/MMbtu)
2.20
3.37
4.05
4.13
4.21
4.30
4.38
Edmonton
Pentanes Plus
($Cdn/bbl)
29.65
35.13
35.43
36.14
36.86
37.60
38.35
Edmonton
Butane
($Cdn/bbl)
47.69
48.83
49.36
50.35
51.35
52.38
53.43
Edmonton
Propane
($Cdn/bbl)
96.79
98.75
100.71
102.72
104.78
106.87
109.01
Operating
Cost Inflation
Rate
%/year
0.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
Capital Cost
Inflation Rate
%/year
0.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
Exchange
Rate
($US/$Cdn)
0.75
0.75
0.76
0.76
0.76
0.76
0.76
Year
2024
2025
2026
2027
2028
2029
2030
Year
2024
2025
2026
2027
2028
2029
2030
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, 2022
Net present value proved and probable reserves
Undeveloped land (2)
Working capital and other (3)(4)
Bank indebtedness
Financing liability
Net asset value ‐ December 31, 2023 (3)
Net asset value per share (1)(3) ‐ December 31, 2023
Notes:
Before Income Taxes Discounted at
0%
$ 75.28
11,770,188
15,960
127,196
(212,854)
(92,897)
11,607,593
10%
$ 27.16
4,229,092
15,960
127,196
(212,854)
(92,897)
4,066,497
15%
$ 19.62
3,005,071
15,960
127,196
(212,854)
(92,897)
2,842,476
$ 71.55
$ 25.07
$ 17.52
(1) Based on 166.2 million shares outstanding at December 31, 2023 and 171.7 million at December 31, 2022.
(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, 2022
Extensions and improved recovery (1)
Technical revisions (1)
Discoveries
Acquisitions
Dispositions
Economic factors
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
12,432
Conventional
Natural Gas
(Mmcf)
2,278,778
Natural Gas
Liquids
(Mbbl)
24,650
Total Oil
Equivalent
(Mboe)
416,879
2,607
(1,440)
‐
‐
‐
12
(989)
502,415
(325,118)
‐
‐
‐
(1,164)
(117,781)
7,752
(2,822)
‐
‐
‐
(1)
(1,528)
94,095
(58,448)
‐
‐
‐
(184)
(22,148)
Closing balance at December 31, 2023
12,622
2,337,130
28,051
430,195
Proved Plus Probable
Opening balance December 31, 2022
Extensions and improved recovery (1)
Technical revisions (1)
Discoveries
Acquisitions
Dispositions
Economic factors
Production
Light Crude Oil
and Medium
Crude Oil
(Mbbl)
19,456
Conventional
Natural Gas
(Mmcf)
3,186,329
Natural Gas
Liquids
(Mbbl)
35,137
Total Oil
Equivalent
(Mboe)
585,648
4,028
(3,079)
‐
‐
‐
‐
(989)
484,625
(258,568)
‐
‐
‐
(146)
(117,781)
9,859
(3,085)
‐
‐
‐
2
(1,528)
94,658
(49,258)
‐
‐
‐
(22)
(22,148)
Closing balance at December 31, 2023
19,416
3,294,458
40,385
608,878
Notes:
(1) Proved and Proved Plus Probable reserves have been reassigned to different areas to align with the Corporation's
current development plan, which includes the expansion of processing facilities at Progress and Valhalla to
develop reserves with higher liquid recoveries. Certain locations at Glacier have been removed and replaced by
new locations at Valhalla. The removed locations are reported as negative technical revisions and replaced new
locations categorized as extensions and improved recovery in the same table. Included in technical revisions, but
not apparent due to the large negative revisions, are positive revisions at existing wells and locations due to
increased performance, amounting to 15,647.2 Mboe Gross Proved and 17,983.7 Mboe Gross Proved Plus
Probable.
(2) Table may not add due to rounding.
Advantage Energy Ltd. - 8
Corporation Finding and Development Cost ("F&D")
Corporation 2023 F&D Cost – Gross (before royalties) Working Interest Reserves Including Future
Development Capital(1)(2)(3)
Net capital expenditures ($000)(4)(5)
Acquisitions
Net change in Future Development Capital ($000)
Total capital ($000)
Total mboe, end of year
Total mboe, beginning of year
Production, mboe
Reserve additions, mboe
2023 F&D cost ($/boe) (4)(5)
2022 F&D cost ($/boe) (4)(5)
Three‐year average F&D cost ($/boe) (4)(5)
Notes:
Proved
266,187
(10,159)
45,375
301,403
430,195
416,879
(22,148)
35,464
$8.50
$7.48
$7.60
Proved
Plus Probable
266,187
(10,159)
114,752
370,780
608,878
585,648
(22,148)
45,378
$8.17
$6.62
$6.90
(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 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, 2023 and 2022
Advantage Energy Ltd. - 10
CONSOLIDATED MANAGEMENT’S DISCUSSION & ANALYSIS
The following Management’s Discussion and Analysis ("MD&A"), dated as of March 4, 2024, 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, 2023, and should be read in
conjunction with the December 31, 2023, audited consolidated financial statements. The consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IFRS Accounting Standards" or "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 ratios, capital
management measures and 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" sections 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(3)
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
2023
2022
2023
2022
147,137
41,026
0.25
163,939
89,048
(52,120)
(58,846)
82,494
13.11
0.50
39,938
42,556
18,651
212,854
222,022
223,200
113,962
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
541,100
101,597
0.61
166,553
323,345
(70,263)
(282,761)
950,458
338,667
1.81
187,022
502,378
(209,091)
(269,585)
313,570
14.16
1.88
282,796
30,774
18,651
212,854
222,022
516,790
25.39
2.76
241,790
275,000
71,564
177,200
121,336
(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.
(3) Net income and comprehensive income attributable to Advantage Shareholders.
Advantage Energy Ltd. - 11
Operating Highlights
Three months ended
December 31
Year ended
December 31
2023
2022
2023
2022
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 gains (losses) on derivatives
Processing and other income
Net sales of purchased natural gas
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
3,254
1,264
3,345
7,863
363,124
68,384
1,854
1,092
2,680
5,626
299,684
55,573
2,710
1,166
3,021
6,897
322,687
60,678
1,972
1,082
3,039
6,093
298,053
55,769
2.84
81.55
23.39
0.98
0.39
‐
(1.64)
(3.61)
(4.08)
15.43
5.65
86.39
43.66
(4.76)
0.60
‐
(5.31)
(3.39)
(4.43)
26.37
3.24
78.35
24.43
1.59
0.34
(0.01)
(1.92)
(3.81)
(4.09)
16.53
5.55
92.48
46.69
(7.08)
0.45
‐
(5.22)
(3.16)
(4.43)
27.25
(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
2024 Guidance
On November 30, 2023, the Corporation announced its 2024 budget (see News Release dated November 30, 2023).
Advantage's 2024 capital program continues our focus on growing adjusted funds flow per share via disciplined
capital allocation between high rate‐of‐return development drilling and our share buyback program. To maximize
shareholder value, Advantage remains focused on growing adjusted funds flow per share, while maintaining a net
debt target of between $200 million and $250 million.
Thanks in part to exceptional well results, Advantage expects be able to deliver its 2024 program with reduced capital,
which is anticipated to range from $220 million to $250 million.
The below table summarizes Advantage’s 2024 guidance:
Forward Looking Information(1)
Cash Used in Investing Activities (2) ($ millions)
Total Average Production (boe/d)
Liquids Production (% of total average production)
Royalty Rate (%)
Operating Expense ($/boe)
Transportation Expense ($/boe)
G&A/Finance Expense ($/boe)
Net debt ($ millions)
Original
Guidance(3)
260 to 290
65,000 to 68,000
~10%
7 to 9
3.85
3.95
1.90
200 to 250
Revised
Guidance(3)
220 to 250
‐
‐
‐
‐
‐
‐
‐
(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 numbers are for Advantage Energy Ltd. only and excludes its subsidiary, Entropy Inc.
2023 Guidance Comparison
The below table summarizes Advantage’s 2023 guidance compared to actual 2023 financial and operational results:
Net capital expenditures ($ millions)
Total Average Production (boe/day)
Liquids Production (% of total average production)
Royalty Rate (%)
Operating Expense ($/boe)
Transportation Expense ($/boe)
G&A/Finance Expense(3) ($/boe)
Net debt ($ millions)
Original 2023
Guidance(1)(4)
250 to 280
59,000 to 62,500
~12%
9 to 12
3.25
4.75
1.40
170 to 230
Q2 2023
Revision(2)(4)
‐
‐
‐
7 to 9
3.65
4.50
2.00
‐
Notes:
(1)
(2)
(3)
(4) Guidance and actual numbers are for Advantage Energy Ltd. only and excludes its subsidiary, Entropy Inc.
See December 31, 2022 MD&A dated February 23, 2023.
See June 30, 2023 MD&A dated July 27, 2023.
Finance expense includes foreign exchange and excludes accretion of decommissioning liability.
2023
Actual(4)
266.2
60,678
11.4%
7.8
3.78
4.09
2.04
195.9
Advantage Energy Ltd. - 13
Corporate Update (continued)
2023 Guidance Comparison (continued)
Net Capital Expenditures
Actual net capital expenditures for the year ended December 31, 2023 was within Advantage’s guidance range
including the Corporation’s unbudgeted acquisition of 53 equivalent net sections in the Northeast British Columbia
liquids rich Montney trend at Conroy. Excluding this acquisition, net capital expenditures was to the lower end of
Advantage’s 2023 guidance at $256.0 million due to high capital efficiencies and stronger well results.
Production
As a result of strong operational execution, Advantage achieved annual total production within its 2023 guidance
range. Advantage’s liquids production was slightly below its guidance range at 11.4% of total production. The lower
liquids production was due to third‐party outages and unplanned downtime.
Royalty Rate
Given the decreased commodity price environment, the Corporation decreased its royalty rate guidance range in the
second quarter of 2023 to between 7% and 9%. The Corporation’s actual royalty rate was within its revised guidance
range.
Operating Expense
As a result of increased third‐party processing fees associated with higher volumes at Wembley, continued
inflationary pressures, and higher maintenance costs at the Glacier Gas Plant, the Corporation increased its operating
expense guidance in the second quarter of 2023 to $3.65/boe, with actual operating expense per boe coming within
4% of such revised guidance.
Transportation Expense
As a result of lower transportation fuel costs and lower than expected transportation costs for liquids, the
Corporation’s actual transportation expense was below its 2023 guidance at $4.09/boe.
G&A/Finance Expense
As a result of increases in interest rates throughout 2023, the Corporation increased its G&A/Finance expense
guidance to $2.00/boe. Advantage’s G&A/Finance expense of $2.04/boe was within 2% of our revised guidance.
Share Buyback Program
The Corporation has continued its share buyback program purchasing $13.1 million shares in 2023 at an average price
of $8.96 per share. The Corporation plans to continue to dedicate 100% of free cash flow to the buyback program
while current market conditions persist as part of its return of capital strategy.
Advantage Energy Ltd. - 14
Corporate Update (continued)
Entropy
Entropy Inc. ("Entropy") is a private corporation founded by Advantage, engaged in providing carbon capture and
storage ("CCS") solutions to emitters of carbon dioxide. While Advantage retains a majority ownership in Entropy,
it’s governance and funding are independent of Advantage.
On December 20, 2023, Entropy announced a strategic investment agreement with Canada Growth Fund Inc. ("CGF"),
whereby CGF has agreed to a $200 million investment in Entropy coupled with a fixed‐price carbon credit purchase
agreement ("Carbon Credit Offtake Commitment" or "CCO") of up to one million tonnes per annum ("tpa") (see News
Release dated December 20, 2023).
Under the terms of the CCO, CGF has committed to purchase up to 9 million tonnes (up to 600,000 tpa over a 15‐
year term, with the option of an additional 400,000 tpa at CGF’s discretion) of TIER or equivalent carbon credits from
Entropy projects. The initial project to benefit from the CCO is intended to be Advantage Glacier Phase 2, drawing up
to 185,000 tpa at an initial price of $86.50 per tonne, with annual escalation for a term of 15 years. The balance of
the remaining CCO will be available for Entropy to underwrite third‐party projects on terms that are expected to
provide similar investment returns to Advantage Glacier Phase 2. Upon successful deployment of the initial 600,000
tpa of CCO, CGF may make available a further 400,000 tpa of CCOs for additional Entropy Canadian CCS projects.
Advantage Energy Ltd. - 15
Production
Average Daily Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (Mcf/d)
Total production (boe/d)
Liquids (% of total production)
Natural gas (% of total production)
Three months ended
December 31
2023
3,254
1,264
3,345
7,863
363,124
68,384
11
89
2022
1,854
1,092
2,680
5,626
299,684
55,573
10
90
%
Change
76
16
25
40
21
23
Average Daily Production
Year ended
December 31
2023
2,710
1,166
3,021
6,897
322,687
60,678
11
89
2022
1,972
1,082
3,039
6,093
298,053
55,769
11
89
%
Change
37
8
(1)
13
8
9
d
/
s
l
b
b
10,000
8,000
6,000
4,000
2,000
‐
288
7,378
318
286
6,447
300
314
5,626
5,765
273
7,577
6,355
4,908
363
340
7,863
d
/
f
c
M
M
350
300
250
200
150
100
50
0
Q1 22
Q2 22
Q3 22
Liquids (bbls/d)
Q4 22
Q1 23
Q2 23
Q3 23
Q4 23
Natural gas (MMcf/d)
For the three months and year ended December 31, 2023, Advantage recorded record total production averaging
68,384 boe/d and 60,678 boe/d, respectively, increases of 23% and 9% compared to the same periods of the prior
year.
Natural gas production for the three months and year ended December 31, 2023 averaged 363 MMcf/d and 323
MMcf/d, respectively, increases of 21% and 8% compared to the same periods of the prior year. Advantage’s natural
gas production increased as a result of ongoing 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"). Throughout 2023 Advantage was able to successfully mitigate industry‐
wide interruptions from wildfires and severe temperatures, while managing "firm service" restrictions on TC Energy’s
NGTL system and completing the planned turnaround at the Glacier Gas Plant that took 17 days in May of 2023,
achieving production within our 2023 production guidance range.
Liquids production for the three months and year ended December 31, 2023 averaged 7,863 bbls/d and 6,897 bbls/d,
respectively, increases of 40% and 13% 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 2023 (see "Cash Used in Investing
Activities and Net Capital Expenditures").
Advantage expects total annual production to increase to between 65,000 and 68,000 boe/d in 2024 based on the
Corporation’s planned 2024 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 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
2023
2022
%
Change
Year ended
December 31
2023
2022
%
Change
2.64
2.84
97.89
97.88
59.49
81.55
81.55
2.30
2.66
2.32
2.74
1.99
2.28
2.29
2.23
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
78.26
99.56
82.63
110.06
(59)
(50)
(2)
(8)
(11)
(5)
(6)
(55)
(53)
(62)
(56)
(60)
(56)
(59)
(61)
(5)
(10)
2.92
3.24
94.35
98.80
56.10
78.35
78.35
2.64
2.93
2.65
2.53
2.20
2.33
2.30
2.26
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
77.57
100.60
94.23
119.56
(57)
(42)
(17)
(17)
(21)
(16)
(15)
(50)
(47)
(59)
(61)
(60)
(61)
(63)
(64)
(18)
(16)
Average Exchange rate ($US/$CAD)
0.7346
0.7363
‐
0.7409
0.7687
(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, 2023
was $81.55/bbl and $78.35/bbl, respectively, decreases of 5% and 16% compared to the same periods of the prior
year. Realized crude oil, condensate and NGL prices excluding derivatives all decreased in 2023 when compared to
2022 largely due to increasing global supply and slowing demand growth. 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 73% of our liquids production is comprised of crude oil,
condensate and pentanes, which generally attracts higher market prices than other liquids.
Advantage Energy Ltd. - 17
Commodity Prices and Marketing (continued)
Natural gas
Advantage’s realized natural gas price excluding derivatives for the three months and year ended December 31,
2023 was $2.64/Mcf and $2.92/Mcf, respectively, decreases of 59% and 57% compared to the same periods of the
prior year. These decreases were attributed to lower natural gas benchmark prices in all markets where Advantage
physically delivers natural gas and has market diversification exposure. North American natural gas benchmark
prices have decreased from the extreme highs experienced in 2022 largely due to strong North American natural gas
production accompanied by a mild 2023 winter resulting in gas inventories rising above historical averages.
Advantage’s natural gas exposure consists of the AECO, Empress, Emerson, Dawn, Chicago and Ventura markets.
Additionally, beginning in April 2023, the Corporation began deliveries of 25,000 MMbtu/d pursuant to a long‐term
natural gas supply agreement whereby Advantage receives a PJM electricity‐based spark‐spread price, less Alliance
tolls. Advantage incurs additional transportation expense to deliver production beyond AECO to the Empress,
Emerson and Dawn markets (see "Transportation Expense"). Our Chicago and Ventura contracts are netback
arrangements where the Corporation incurs a fixed price differential with the net amount recorded to revenue.
The following table outlines the Corporation’s 2024 forward‐looking natural gas market exposure, and 2023 actual
natural gas market exposure, excluding hedging.
Forward‐looking 2024(2)
2023
Sales Markets
AECO
AECO Other(4)
Empress
Emerson
Dawn
Chicago
Ventura
PJM electricity price(5)
Total
Effective
production
(MMcf/d)(1)
99.3
30.5
80.1
43.1
52.7
15.9
12.5
25.0
359.1(3)
Percentage of Natural
Gas Production
(%)
28%
8%
22%
12%
15%
4%
4%
7%
100%
Actual
production
(MMcf/d) (1)
88.3
28.7
71.0
28.8
51.5
22.9
13.8
17.7
322.7
Percentage of Natural
Gas Production
(%)
27%
9%
22%
9%
16%
7%
4%
6%
100%
(1)
(2)
(3)
(4)
(5)
All volumes contracted converted on the basis of 1 Mcf = 1.055056 GJ and 1 Mcf = 1 Mmbtu.
Natural gas market exposure based on contracts in‐place at December 31, 2023.
Represents the midpoint of our 2024 guidance for natural gas production volumes (see News Release dated November 30, 2023).
Transactions that are priced at AECO but may include either a premium or discount to AECO as negotiated with counterparties.
Sales are based upon a spark‐spread pricing formula, providing Advantage exposure to PJM electricity 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
2023
29,304
11,382
18,306
58,992
88,145
147,137
23.39
2022
17,006
10,707
16,532
44,245
178,955
223,200
43.66
%
Change
72
6
11
33
(51)
(34)
(46)
Year ended
December 31
2023
93,330
42,047
61,856
197,233
343,867
541,100
24.43
2022
81,938
47,129
79,042
208,109
742,349
950,458
46.69
%
Change
14
(11)
(22)
(5)
(54)
(43)
(48)
Natural Gas and Liquids Sales
$314.3
24%
76%
$235.4
22%
$223.2
20%
78%
80%
)
s
n
o
i
l
l
i
m
$
(
$177.6
21%
79%
$146.0
28%
72%
$107.2
41%
59%
$140.7
$147.1
39%
40%
61%
60%
Q1 22
Q2 22
Q3 22
Q4 22
Q1 23
Q2 23
Q3 23
Q4 23
Natural gas sales (% of Total)
Liquids sales (% of Total)
Total ($ millions)
Natural gas and liquids sales for the three months and year ended December 31, 2023, decreased by $76.1 million,
or 34%, and $409.4 million, or 43%, respectively, compared to the same corresponding periods of 2022.
For the year ended December 31, 2023, natural gas sales decreased by $398.5 million or 54%, compared to 2022,
due to a 57% decrease in realized gas prices (see "Commodity Prices and Marketing"), partially offset by an 8%
increase in natural gas production volumes (see "Production"). Liquids sales decreased by $10.9 million, or 5%, due
to a 16% decrease in realized liquids prices (see "Commodity Prices and Marketing"), partially offset by a 13% increase
in liquids production volumes (see "Production").
For the three months ended December 31, 2023, natural gas sales decreased by $90.8 million or 51%, compared to
the corresponding period in 2022, due to a 59% decrease in realized gas prices (see "Commodity Prices and
Marketing"), partially offset by a 21% increase in natural gas production volumes (see "Production"). Fourth quarter
liquids sales increased by $14.7 million, or 33%, due to a 40% increase in liquids production volumes (see
"Production"), partially offset by a 5% decrease in realized liquids prices (see "Commodity Prices and Marketing").
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, 2023, and 2022 are as follows:
($000)
Realized gains (losses) on derivatives
Natural gas
Crude oil
Foreign exchange
Interest rate
Natural gas embedded derivative
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
Three months ended
December 31
2023
2022
Year ended
December 31
2023
2022
6,636
‐
(27)
‐
(469)
6,140
17,264
‐
682
‐
12,777
365
31,088
23,900
‐
655
‐
12,308
365
37,228
(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
38,184
‐
(2,033)
‐
(908)
35,243
6,233
‐
3,090
‐
(13,192)
(5,606)
(9,475)
44,417
‐
1,057
‐
(14,100)
(5,606)
25,768
(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)
Advantage Energy Ltd. - 20
Financial Risk Management (continued)
Natural gas
For the three months and year ended December 31, 2023, Advantage realized net gains on natural gas derivatives of
$6.6 million and $38.2 million, respectively, due to the settlement of contracts with average derivative contract prices
that were above average market prices.
For the three months and year ended December 31, 2023, Advantage recognized a net unrealized gain on natural gas
derivatives of $17.3 million and $6.2 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, 2023, 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
weakening natural gas prices.
Foreign exchange
For the three months and year ended December 31, 2023, Advantage realized a loss on foreign exchange derivatives
of nil and $2.0 million, respectively, while recognizing an unrealized gain of $0.7 million and $3.1 million, respectively.
The $0.7 million unrealized gain for the three months ended December 31, 2023 is due to the strengthening of the
forward strip rate of the Canadian dollar versus the US dollar. The $3.1 million unrealized gain for the year ended
December 31, 2023 is a result of the decreased liability valuation associated with the foreign exchange contracts that
settled in the first six months of 2023 coupled with the new foreign exchange contracts entered into during 2023
that are in an asset position at December 31, 2023.
Natural gas embedded derivative
Advantage has a long‐term natural gas supply agreement under which Advantage will supply 25,000 MMbtu/d of
natural gas for a 10‐year period, that commenced in April 2023. Commercial terms of the agreement are based upon
a spark‐spread price, 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 price 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 realized gains (losses) on the embedded derivative when the realized
settlement price differs from US$2.50/MMbtu, resulting in a realized loss of $0.9 million for the year ended December
31, 2023 (year ended December 31, 2022 – nil). The Corporation will have unrealized gains (losses) on the embedded
derivative based on movements in the forward curve for PJM electricity prices. For the three months and year ended
December 31, 2023 the Corporation recognized an unrealized gain on the natural gas embedded derivative of $12.8
million and an unrealized loss of $13.2 million, respectively. The unrealized gain for the three months ended is due
to strengthening PJM electricity prices resulting in an increased asset position of the derivative compared to the third
quarter of 2023. The unrealized loss for the year ended December 31, 2023 is due to weakening of PJM electricity
prices compared with the year end of December 31, 2022 resulting in a lower asset position of the derivative.
Unsecured debentures derivative
The Corporation’s subsidiary Entropy issued unsecured debentures that 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,
2023, the Entropy unsecured debentures derivative liability resulted in an unrealized loss of $5.6 million due to the
increased value of the conversion option which increased as a result of a higher estimated share price subsequent to
CGF’s investment agreement with Entropy announced in the fourth quarter of 2023.
Advantage Energy Ltd. - 21
Financial Risk Management (continued)
The fair value of derivative assets and liabilities is the estimated value to settle the outstanding contracts as at a point
in time. As such, unrealized derivative gains and losses do not impact adjusted funds flow and the actual gains and
losses realized on eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices,
foreign exchange rates and interest rates as compared to the valuation assumptions. Remaining derivative contracts
will settle between January 1, 2024 and March 31, 2025, apart from the Corporation’s natural gas embedded
derivative which is expected to be settled between the years 2024 and 2033.
As at December 31, 2023 and March 4, 2024, the Corporation had the following commodity and foreign exchange
derivative contracts in place:
Description of Derivative
Term
Volume
Price
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
January 2024 to December 2024
20,000 Mcf/d
US $3.41/Mcf
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
January 2024 to December 2024
40,000 Mcf/d
Henry Hub less US $1.19/Mcf
Natural gas ‐ AECO
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Natural gas ‐ Chicago
Fixed price swap
Natural gas ‐ Dawn
Fixed price swap
23,695 Mcf/d
January 2024 to March 2024
April 2024 to October 2024
56,869 Mcf/d
November 2024 to December 2024 37,913 Mcf/d
33,174 Mcf/d
January 2025 to March 2025
23,695 Mcf/d
April 2025 to October 2025
28,435 Mcf/d
November 2025 to March 2026
$3.34/Mcf
$2.60/Mcf(1)
$3.42/Mcf(1)
$3.46/Mcf(1)
$2.97/Mcf(1)
$4.05/Mcf(1)
January 2024 to March 2024
15,000 Mcf/d
US $3.88/Mcf
January 2024 to March 2024
10,000 Mcf/d
US $3.07/Mcf
Description of Derivative
Term
Notional Amount
Rate
Forward rate ‐ CAD/USD
Average rate currency swap
Average rate currency swap
January 2024 to August 2024
US $ 2,000,000/month
January 2024 to September 2024 US $ 1,000,000/month
1.3558
1.3650
(1) Contains contracts entered into subsequent to December 31, 2023.
Advantage Energy Ltd. - 22
Processing and Other Income
Processing and other income ($000)
per boe
Three months ended
December 31
2023
2022
2,484
0.39
3,091
0.60
%
Change
(20)
(35)
Year ended
December 31
2023
2022
7,627
0.34
9,082
0.45
%
Change
(16)
(24)
Advantage earns processing income from contracts whereby the Corporation charges third‐parties to utilize excess
capacity at its Glacier Gas Plant and Progress battery. For the three months and year ended December 31, 2023, the
Corporation generated processing and other income of $2.5 million and $7.6 million, respectively, decreases of 20%
and 16% compared to the same periods of the prior year. The decrease in processing income is due to lower volumes
processed for third‐parties compared to the prior year attributed to the planned turnaround at the Glacier Gas Plant
in May and the prioritization of the Corporation’s own production volumes over third‐party volumes.
Net Sales of Purchased Natural Gas
Three months ended
December 31
2023
2022
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
2023
3,124
(3,371)
2022
4,826
(4,756)
(247) 70
(0.01)
‐
%
Change
(35)
(29)
nm
nm
During the year ended December 31, 2023, the Corporation purchased natural gas volumes to satisfy physical sales
commitments during the planned turnaround at the Glacier Gas Plant in the second quarter of 2023.
Royalty Expense
Royalty expense ($000)
per boe
Royalty rate (%)(1)
(1) Percentage of natural gas and liquids sales.
Three months ended
December 31
2023
10,302
1.64
2022
27,154
5.31
%
Change
(62)
(69)
Year ended
December 31
2023
42,432
1.92
2022
106,257
5.22
%
Change
(60)
(63)
7.0
12.2
(5.2)
7.8
11.2
(3.4)
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, 2023, decreased by $16.9 million and $63.8
million, respectively, compared to the same periods of the prior year. The decrease in royalty expense for each period
was primarily due to lower natural gas and liquids prices when compared to 2022 resulting in a lower royalty rate
paid on natural gas and liquids sales.
Advantage expects royalty rates to range from 7% to 9% in 2024.
Advantage Energy Ltd. - 23
Operating Expense
Operating expense ($000)
per boe
Three months ended
December 31
2023
22,724
3.61
2022
17,344
3.39
%
Change
31
6
Year ended
December 31
2023
84,453
3.81
2022
64,269
3.16
%
Change
31
21
Operating expense for the three months and year ended December 31, 2023, increased by $5.4 million and $20.2
million, increases of 31% and 31%, respectively, compared to the same periods of the prior year. The higher operating
expense was attributed to additional third‐party processing fees associated with higher liquids production at
Wembley, inflationary impacts, and increased maintenance costs at the Glacier Gas Plant and Valhalla Liquids Hub
related to hot weather experienced in the summer.
Operating expense per boe for the three months and year ended December 31, 2023 was $3.61/boe and $3.81/boe,
respectively. The increase in operating expense per boe when compared to the same periods of the prior year is
attributed to the higher costs primarily associated with increased liquids production. For the year ended December
31, 2023, operating expense per boe was inflated due to downtime in the second quarter associated with the planned
17‐day turnaround at the Glacier Gas Plant, while operating costs are primarily fixed.
Advantage expects 2024 annual operating expense per boe to be comparable to 2023 at approximately $3.85/boe
(see "Corporate Update").
Transportation Expense
Natural gas ($000)
Liquids ($000)
Total transportation expense ($000)
per boe
Three months ended
December 31
2023
2022
21,337
4,327
25,664
4.08
20,651
1,986
22,637
4.43
%
Change
3
118
13
(8)
Year ended
December 31
2023
2022
77,364
13,239
90,603
4.09
81,313
8,780
90,093
4.43
%
Change
(5)
51
1
(8)
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 ended December 31, 2023 increased
by $3.0 million, or 13% compared to the same period of the prior year. The increase in transportation expenses is a
result of the higher gas volumes and additional liquids transportation associated with the KAPS pipeline system and
higher liquids production.
Transportation expense for the year ended December 31, 2023 increased by $0.5 million or 1%. The increase in
transportation expenses is due to additional liquids transportation associated with higher liquids production and tolls
incurred on the KAPS pipeline system whereby the Corporation began shipping liquids production in the third quarter
of 2023, partially offset by lower natural gas transportation costs due to lower fuel costs.
Transportation expense per boe fell for both the three months and year ended December 31, 2023 as a result of
lower fuel costs when compared to 2022.
Advantage expects 2024 annual transportation expense per boe to average approximately $3.95/boe (see "Corporate
Update"), as a result of slightly higher gas production as a % of total production.
Advantage Energy Ltd. - 24
Operating Netback
Natural gas and liquids sales
Realized gains (losses) on derivatives
Processing and other income
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
Natural gas and liquids sales
Realized gains (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
2023
2022
$000
147,137
6,140
2,484
(10,302)
(22,724)
(25,664)
97,071
per boe
23.39
0.98
0.39
(1.64)
(3.61)
(4.08)
15.43
$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
Year ended
December 31
2023
2022
per boe
$000
24.43
541,100
1.59
35,243
7,627
0.34
(247) (0.01)
(1.92)
(3.81)
(4.09)
16.53
(42,432)
(84,453)
(90,603)
366,235
$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
(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, 2023, Advantage’s operating netback decreased by 28% and
34%, respectively, or $10.94/boe and $10.72/boe. The decrease in the Corporation’s operating netback per boe for
both periods was primarily due to the decrease in natural gas and liquids sales as a result of lower natural gas and
crude oil benchmark prices (see "Commodity Prices and Marketing"). This decrease was partially offset by realized
gains on derivatives from lower natural gas benchmark prices (see "Financial Risk Management"), and lower royalty
expenses (see "Royalty Expense").
Advantage Energy Ltd. - 25
General and Administrative Expense
General and administrative ($000)
Capitalized ($000)
General and administrative expense ($000)
per boe
Employees at December 31
Three months ended
December 31
2023
8,687
(1,486)
7,201
1.14
2022
7,402
(2,013)
5,389
1.05
%
Change
17
(26)
34
9
Year ended
December 31
2023
2022
29,962
(5,325)
24,637
1.11
61
29,091
(6,808)
22,283
1.09
52
%
Change
3
(22)
11
2
17
General and administrative ("G&A") expense for the three months and year ended December 31, 2023, increased by
$1.8 million and $2.4 million, respectively, increases of 34% and 11% compared to the same periods of the prior year.
For the three months and year ended December 31, 2023, 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. Total G&A expense incurred by Entropy for the three months and year ended December
31, 2023 was $2.1 million (three months ended December 31, 2022 ‐ $0.9 million) and $6.0 million (year ended
December 31, 2022 ‐ $3.3 million), respectively.
Share‐based Compensation
Share‐based compensation ($000)
Capitalized ($000)
Share‐based compensation expense ($000)
per boe
Three months ended
December 31
2023
2,281
(573)
1,708
0.27
2022
1,843
(560)
1,283
0.25
%
Change
24
2
33
8
Year ended
December 31
2023
2022
8,788
(2,242)
6,546
0.30
7,766
(2,242)
5,524
0.27
%
Change
13
‐
19
11
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 $1.7 million and $6.5 million of share‐based compensation expense during the three
months and year ended December 31, 2023, respectively, and capitalized $0.6 million and $2.2 million. For the three
months and year ended December 31, 2023, total share‐based compensation increased by 33% and 19%,
respectively, compared to the same periods of the prior year, 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.
Advantage Energy Ltd. - 26
Finance Expense
Cash finance expense ($000)
per boe
Paid‐in‐kind interest ($000)
Accretion expense ($000)
Total finance expense ($000)
per boe
Three months ended
December 31
2023
2022
7,001
1.11
504
525
8,030
1.28
5,161
1.01
‐
470
5,631
1.10
%
Change
36
10
nm
12
43
16
Year ended
December 31
2023
2022
27,569
1.24
504
2,017
30,090
1.36
18,690
0.92
‐
1,737
20,427
1.00
%
Change
48
35
nm
16
47
36
Advantage realized higher cash finance expense during the three months and year ended December 31, 2023, as a
result of increased average outstanding bank indebtedness and higher interest rates when compared to the same
periods in 2022 (see "Bank Indebtedness, Credit Facilities and Working Capital"). 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.
During 2023, the Corporation’s subsidiary Entropy issued $15 million of unsecured debentures (December 31, 2022
‐ $25 million). As at December 31, 2023, Entropy’s unsecured debentures have an outstanding aggregate principal
amount of $40.8 million (including paid‐in‐kind interest). The unsecured debentures bear 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. The unsecured debentures issued by Entropy are non‐recourse to Advantage. For the
three months and year ended December 31, 2023, Entropy incurred interest of $0.8 million and $2.5 million,
respectively, of which $0.8 million was paid‐in‐kind and added to the aggregate principal amount and $1.7 million
that was paid in cash (see "Unsecured Debentures").
Depreciation and Amortization Expense
Depreciation and amortization
expense ($000)
per boe
Three months ended
December 31
2023
2022
%
Change
Year ended
December 31
2023
2022
%
Change
43,741
6.95
32,349
6.33
35
10
148,897
6.72
133,917
6.58
11
2
The increase in depreciation and amortization expense during the three months and year ended December 31, 2023,
was attributable to an increased net book value associated with the Corporation’s property, plant and equipment
accompanied with increased 2023 production (see "Production"). Depreciation and amortization expense per boe
for the three months ended December 31, 2023, increased compared to prior year due to an increase in the
Corporation’s natural gas and liquids depletable base and additional depreciation expense associated with Entropy’s
CCUS equipment without an associated increase in production.
Advantage Energy Ltd. - 27
Income Taxes
Income tax expense ($000)
Effective tax rate (%)
Three months ended
December 31
2023
2022
16,124
28.3
35,621
23.9
%
Change
(55)
4.4
Year ended
December 31
2023
35,635
26.2
2022
105,138
23.7
%
Change
(66)
2.5
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, 2023, the Corporation recognized a deferred income tax expense of
$16.1 million and $35.6 million, respectively. As at December 31, 2023, the Corporation had a deferred income tax
liability of $237.1 million. Advantage expects it will not be subject to cash taxes until calendar 2027 due to over $1
billion in tax pools.
The estimated tax pools available at December 31, 2023 are as follows:
($ 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
246,411
68,509
18,735
347,724
264,480
135,369
32,506
6,421
1,120,155
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
2023
2022
%
Change
Year ended
December 31
2023
2022
%
Change
41,026
0.25
0.24
113,962
0.63
0.61
(64)
(60)
(60)
101,597
0.61
0.59
338,667
1.81
1.75
(70)
(66)
(66)
Advantage recognized net income attributable to Advantage shareholders of $41.0 million and $101.6 million for the
three months and year ended December 31, 2023, respectively. For the year ended December 31, 2023, net income
and comprehensive income attributable to Advantage shareholders was lower when compared to 2022 due to the
lower natural gas and crude oil benchmark prices (see "Commodity Prices and Marketing"). This was partially offset
by higher production, realized gains on derivatives, and decreased royalty expense (see "Production", "Financial Risk
Management" and "Royalty Expense").
Advantage Energy Ltd. - 28
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
2023
89,048
2,124
(8,678)
82,494
13.11
0.50
2022
112,558
1,144
10,503
124,205
24.29
0.69
2023
323,345
4,043
(13,818)
313,570
14.16
1.88
2022
502,378
2,215
12,197
516,790
25.39
2.76
(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, 2023)
Increase
Decrease
$83.7
)
s
n
o
i
l
l
i
m
$
(
$516.8
$179.4
$1.5
$0.5
$20.2
$14.9
$313.6
$63.8
$493.0
(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 paid‐in‐kind interest) 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, 2023, Advantage realized cash provided by operating activities
of $89.0 million and $323.3 million, respectively, decreases of $23.5 million and $179.0 million when compared to
the same periods of 2022. After adjusting for non‐cash changes in working capital and expenditures on
decommissioning liability, the Corporation realized adjusted funds flow of $82.5 million and $313.6 million, decreases
of $41.7 million and $203.2 million when compared to the same periods of 2022. Adjusted funds flow of $313.6
million for the year ended December 31, 2023 includes $320.2 million attributable to Advantage and $6.6 million of
net expenses attributable to Entropy. The decrease in cash provided by operating activities and adjusted funds flow
for the three months and year ended December 31, 2023 was largely due to the decrease in natural gas and liquids
sales as a result of lower natural gas and crude oil benchmark prices (see "Commodity Prices and Marketing"). This
decrease was partially offset by higher production, realized gains on derivatives, and decreased royalty expense (see
"Production", "Financial Risk Management" and "Royalty Expense").
Advantage Energy Ltd. - 29
Cash Used in Investing Activities and Net Capital Expenditures
($000)
Drilling, completions, equipping, and tie‐ins
Facilities and infrastructure
Corporate(2)
Acquisitions
Net capital expenditures – Advantage(1)
Carbon capture and storage facilities
Intangible assets
Net capital expenditures ‐ Entropy(1)
Net capital expenditures(1)
Changes in non‐cash working capital
Project funding received
Cash used in investing activities
Three months ended
December 31
2023
2022
26,931
3,882
2,138
124
33,075
6,397
466
6,863
39,938
18,908
‐
58,846
34,097
11,534
2,032
‐
47,663
1,554
470
2,024
49,687
19,373
‐
69,060
Year ended
December 31
2023
182,157
48,175
25,696
10,159
266,187
15,144
1,465
16,609
282,796
(35)
‐
282,761
2022
148,190
76,206
13,525
‐
237,921
2,849
1,020
3,869
241,790
27,800
(5)
269,585
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
(2) Corporate includes workovers, turnaround cost, seismic, capitalized G&A, and office furniture and equipment.
Net Capital Expenditures
$116.7
3%
4%
$86.0
6%
47%
47%
1%
$58.5
$47.6
2%
8%
33%
57%
15%
80%
4%
4%
$49.7
4%
23%
69%
Q1 22
Q2 22
Q3 22
Q4 22
Drilling, completions, equipping, and tie‐ins (% of total)
Corporate & Acquisitions (% of total)
Net capital expenditures ($000)
22%
71%
$64.9
5%
$61.2
5%
18%
19%
58%
28%
10%
57%
Q1 23
Q2 23
Q3 23
Facilities and infrastructure (% of total)
Net capital expenditures ‐ Entropy (% of total)
$39.9
17%
10%
6%
67%
Q4 24
Q4 23
(1) Specified financial measure which may not be comparable to similar specified financial measures used by other entities. Please see
"Specified Financial Measures".
Advantage Energy Ltd. - 30
Cash Used in Investing Activities and Net Capital Expenditures (continued)
Advantage
Advantage invested $33.1 million and $266.2 million on net capital expenditures during the three months and year
ended December 31, 2023, respectively. Advantage’s net capital expenditures of $266.2 million were within our
guidance range of $250 million and $280 million, which includes the $10 million unbudgeted Conroy acquisition and
excludes net capital expenditures incurred by Entropy (see "Cash Used in Investing Activities and Net Capital
Expenditures – Advantage – Conroy").
The following table summarizes wells drilled, completed and on production for the year ended December 31, 2023:
Three months ended
December 31, 2023
Completed
Gross (Net)
5 (5.0)
‐
‐
‐
5 (5.0)
On production
Gross (Net)
8 (8.0)
‐
‐
‐
8 (8.0)
Drilled
Gross (Net)
5 (5.0)
‐
‐
‐
5 (5.0)
Drilled
Gross (Net)
18 (16.0)
2 (2.0)
7 (7.0)
‐
27 (25.0)
(# of wells)
Glacier
Valhalla
Wembley
Progress
Glacier
Year ended
December 31, 2023
Completed
Gross (Net)
13 (11.0)
2 (2.0)
7 (7.0)
2 (2.0)
24 (22.0)
On production
Gross (Net)
15 (13.0)
2 (2.0)
7 (7.0)
2 (2.0)
26 (24.0)
2023 was an active year at our Glacier property with 18 gross (16.0 net) wells drilled, 13 gross (11.0 net) completed,
and 15 gross (13.0 net) placed on production. Raw gas handling capacity at the Glacier Gas Plant was expanded to a
maximum of 425 MMcf/d with the installation of additional inlet compression, which drove production growth from
Glacier as new wells were brought on production.
The last 18 wells drilled and placed on production have yielded exceptional performance driving average well IP30
rates to 14.0 MMcf/d raw natural gas, despite the wells being choked back to minimize erosional risks and impacts
on existing nearby wells.
Operation of the Glacier Gas Plant Phase 1a CCS and waste heat recovery project designed to reduce emissions by
47,000 tonnes per annum of CO2e, continued through 2023. Under the Government of Canada’s proposed refundable
investment tax credit ("ITC") for CCUS projects, Advantage expects it is entitled to recover up to $15 million of its
2022 net capital expenditures related to the Phase 1a project. The ITC which is included in Bill C‐59 has yet to receive
royal assent in the House of Commons as at December 31, 2023, thus the Corporation is unable to recognize this
potential benefit.
Valhalla
In 2023, Advantage drilled and completed 2 gross (2.0 net) wells at Valhalla. The new wells were placed on production
in the third quarter, achieving significant average well IP30 production rates of 1,936 boe/d (7.5 MMcf/d natural gas,
499 bbls/d condensate and 180 bbls/d NGLs). The last six wells placed on production in Valhalla have averaged IP30
production rates of 1,431 boe/d (5.7 MMcf/d natural gas, 354 bbls/d condensate and 121 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. - 31
Cash Used in Investing Activities and Net Capital Expenditures (continued)
Wembley
At Wembley, development of this oil‐weighted property focused on drilling 7 gross (7.0 net) wells in 2023, including
wells with 2‐mile‐long laterals. Completion activity on all seven wells was finished in the second quarter and the wells
were placed on production throughout the last two quarters achieving record production from the property. Average
IP30 production rates from the seven wells was 1,549 boe/d (3.7 MMcf/d natural gas, 605 bbls/d crude oil and 328
bbls/d NGLs). The Wembley asset is connected to two major third‐party gas processing facilities and utilizes existing
capacity in our 100% owned Wembley compressor site and liquids handling hub.
One of the wells drilled, targeted a new development layer that has been evaluated by Advantage for the first time
at Wembley to further evaluate this multi‐layer oil‐weighted property. Advantage has now successfully drilled in
three different layers within the Wembley asset.
Progress
Construction of Phase 2 of the existing Progress compressor and liquids handling hub which added emulsion handling
and water disposal was completed in April 2023. Two wells previously drilled in the fourth quarter of 2022 were
completed in the first quarter of 2023 and placed on production following commissioning of Phase 2 and the
conclusion of the Glacier Gas Plant turnaround in May 2023.
Conroy
During the third quarter of 2023, Advantage acquired equivalent to 53 net sections of contiguous 100% working
interest land in the Northeast British Columbia liquids‐rich Montney trend for $10 million. The acquired lands have a
long tenure with no incremental drilling required until 2029, providing a possible development horizon post the
commencement of LNG operations in Canada.
Entropy
Net capital expenditures incurred by Entropy are funded through the issuance of unsecured debentures to investors
that have provided Entropy access to $500 million in committed capital, of which $40 million has been drawn as at
December 31, 2023.
Entropy invested $6.9 million and $16.6 million in net capital expenditures during the three months and year ended
December 31, 2023. Expenditures in Entropy were mainly incurred on Entropy’s Glacier Phase 1b project, whereby
Entropy has installed its patent‐pending integrated carbon capture and storage equipment ("iCCSTM") which was
commissioned in the fourth quarter of 2023 in‐line with its budget. For the three months and year ended December
31, 2023, Entropy also incurred expenditures on intangible assets associated with ongoing research and development
projects and EntropyIQTM, a proprietary emissions tracking, processing and reporting software platform that is a
complete solution for all carbon capture and storage measurement, monitoring and verification data.
Entropy expects it is entitled to recover up to $6 million of its 2023 net capital expenditures related to the Phase 1b
project once Bill C‐59 receives royal assent in the House of Commons.
Advantage Energy Ltd. - 32
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, $232 million is required
for delivery of natural gas and liquids production to Alberta markets, while Advantage has proactively committed to
$266 million in additional transportation to diversify natural gas production to the Dawn, Empress and Emerson
markets, with the objective of reducing price volatility and achieving higher operating netbacks (see “Transportation
Expense”). Contractual obligations comprise those liabilities to third‐parties incurred for the purpose of financing
Advantage’s business and development, including our bank indebtedness.
The following table is a summary of the Corporation’s remaining commitments and contractual obligations.
Advantage has no guarantees or off‐balance sheet arrangements other than as disclosed.
($ 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
1.5
45.7
498.0
545.2
9.6
2.5
150.2
215.0
27.0
40.8
445.1
990.3
2024
0.4
10.0
83.6
94.0
5.9
0.6
13.1
‐
18.0
‐
37.6
131.6
Payments due by period
2027
2026
0.3
0.4
7.0
7.0
54.4
66.2
61.7
73.6
2025
0.4
9.5
79.8
89.7
1.7
0.6
13.1
215.0
9.0
‐
239.4
329.1
2.0
0.5
13.1
‐
‐
‐
15.6
89.2
‐
0.4
13.1
‐
‐
‐
13.5
75.2
2028
0.0
7.0
29.9
36.9
Beyond
0.0
5.2
184.1
189.3
‐
0.2
13.1
‐
‐
‐
13.3
50.2
‐
0.2
84.7
‐
‐
40.8
125.7
315.0
(1) Excludes fixed lease payments which are included in the Corporation’s lease liability.
(2) As at December 31, 2023 the Corporation’s bank indebtedness was governed by the Credit Facilities, which have a two‐year term with a
syndicate of financial institutions. The Credit Facilities are revolving and extendible for a further 364‐day period upon an annual review
and at the option of the syndicate. If not extended, the Credit Facilities will mature with any outstanding principal payable at the end of
the two‐year term (see "Bank Indebtedness, Credit Facilities and Working Capital").
(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 be paid‐in‐kind, or cash, at the discretion of Entropy (see "Unsecured Debentures").
Advantage Energy Ltd. - 33
Liquidity and Capital Resources
The following table is a summary of the Corporation’s capitalization structure:
($000, except as otherwise indicated)
Bank indebtedness
Unsecured debentures
Working capital surplus(1)
Net debt (1)
Shares outstanding
Shares closing market price ($/share)
Market capitalization
Total capitalization
Net debt to adjusted funds flow ratio (1)
Year ended
December 31, 2023
Year ended
December 31, 2022
212,854
27,819
(18,651)
222,022
162,225,180
8.53
1,383,781
1,605,803
0.7
177,200
15,700
(71,564)
121,336
171,652,768
9.47
1,625,552
1,746,888
0.2
(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, 2023, Advantage had a $350 million Credit Facility of which $122.1 million or 35% was available
after deducting letters of credit of $12.9 million outstanding (see "Bank Indebtedness, Credit Facilities and Working
Capital"). The Credit Facilities and adjusted funds flow was utilized to fund Advantage’s capital expenditure program
of $266.2 million and repurchase and cancel 13.1 million common shares for $117.3 million (see "Shareholders’
Equity"). The Corporation had net debt of $222.0 million, consisting of $195.9 million with Advantage and $26.1
million with Entropy. Advantage’s net debt of $195.9 million was below our net debt target of $200 million to $250
million. 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 2024 towards the Corporation’s share buyback program, while maintaining
our net debt target.
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, unsecured debentures, 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. - 34
Bank Indebtedness, Credit Facilities and Working Capital
As at December 31, 2023, Advantage had bank indebtedness outstanding of $212.9 million, an increase of $35.7
million since December 31, 2022. Advantage’s credit facilities are governed by a credit facility agreement with a
syndicate of financial institutions which provides for 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. In May 2023, the Credit Facilities were
renewed with no changes to the borrowing base. The Credit Facilities have a tenor of two years with a maturity date
in June 2025 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 2025 in the event of
a reduction, or the Credit Facilities not being renewed. The Corporation had letters of credit of $12.9 million
outstanding at December 31, 2023 (December 31, 2022 ‐ $12.2 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, 2023 and December 31, 2022.
Advantage had a working capital surplus of $18.7 million as at December 31, 2023, a decrease in the surplus of $52.9
million compared to December 31, 2022 due to decreased receivables from lower 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
The Corporation’s subsidiary Entropy has entered into two Investment Agreements with investors who provided
capital commitments of $300 million and $200 million. In connection with the Investment Agreements, 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 agreements, Entropy and the investors
have options that provide for the unsecured debentures to be exchanged for common shares at an exchange price
of $10.00 per share and $12.75 per share, respectively, subject to adjustment in certain circumstances. The investors
have 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. 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. As at December 31, 2023, Entropy’s unsecured debentures have
an outstanding aggregate principal balance of $40.8 million (including paid‐in‐kind interest) (December 31, 2022 ‐
$25.0 million).
Advantage Energy Ltd. - 35
Unsecured Debentures (continued)
During 2023, Entropy issued unsecured debentures for gross proceeds of $15.0 million (December 31, 2022 ‐ $25.0
million) and incurred $1.2 million of issuance costs (December 31, 2022 ‐ $3.8 million). For the year ended December
31, 2023, Entropy incurred interest of $2.5 million (December 31, 2022 ‐ $1.5 million), of which $1.7 million was paid
in cash (December 31, 2022 ‐ $1.5 million), and $0.8 million was paid‐in‐kind (December 31, 2022 ‐ $nil).
Other Liabilities
The Corporation has a 15‐year take‐or‐pay volume commitment with a 12.5% working interest partner due to expire
in 2035 for 53,125 Mcf/d capacity at a fee of $0.673/Mcf. During the fourth quarter of 2023, as part of the 2023
planned capital expansion of the Glacier Gas Plant, the working interest partner chose to participate pursuant to the
agreement and provided $2.5 million in additional financing. The volume commitment agreement is treated as a
financing transaction with an effective interest rate associated with the financing transaction of 9.1%. As at December
31, 2023, the financing liability was $92.9 million (December 31, 2022‐ $94.7 million) and for the year ended
December 31, 2023, the Corporation made cash payments of $12.8 million (December 31, 2022 ‐ $12.3 million) under
the agreement.
As at December 31, 2023, Advantage had a decommissioning liability of $62.2 million (December 31, 2022 – $41.9
million) for the future abandonment and reclamation of the Corporation’s natural gas and liquids properties. The
decommissioning liability includes assumptions in respect of actual costs to abandon and reclaim wells and facilities,
the time frame in which such costs will be incurred, annual inflation factors and discount rates. The total estimated
undiscounted, uninflated cash flows required to settle the Corporation’s decommissioning liability was $82.6 million
(December 31, 2022 – $62.8 million), with 62% of these costs to be incurred beyond 2050. Actual spending on
decommissioning for the year ended December 31, 2023, was $4.0 million (year ended December 31, 2022 – $2.2
million). Advantage continues to maintain an industry leading LMR of 27.7, demonstrating that the Corporation has
no issues addressing its abandonment, remediation, and reclamation obligations.
Non‐controlling interest ("NCI")
On July 1, 2023, Advantage transferred certain CCS equipment to Entropy in exchange for 6,002,516 common shares
of Entropy, resulting in Advantage increasing its common share ownership in Entropy from 90% to 92%. Advantage
consolidates 100% of Entropy and has recognized a non‐controlling interest in shareholders’ equity, representing the
carrying value of the 8% common shares of Entropy held by outside interests.
For the year ended December 31, 2023, the net loss and comprehensive loss attributed to non‐controlling interest
was $1.3 million (December 31, 2022 ‐ $0.9 million).
Advantage Energy Ltd. - 36
Shareholders’ Equity
On April 6, 2023, the TSX approved the Corporation renewing its normal course issuer bid ("NCIB"). Pursuant to the
NCIB, Advantage will purchase for cancellation, from time to time, as it considers advisable, up to a maximum of
16,201,997 common shares of the Corporation. The NCIB commenced on April 13, 2023 and will terminate on April
12, 2024 or such earlier time as the NCIB is completed or terminated at the option of Advantage. Purchases pursuant
to the NCIB will be made on the open market through the facilities of the TSX and/or Canadian alternative trading
systems. The price that Advantage will pay for any common shares under the NCIB will be the prevailing market price
on the TSX at the time of such purchase. Common shares acquired under the NCIB will be cancelled.
For the year ended December 31, 2023, the Corporation purchased 13.1 million common shares for cancellation at
an average price of $8.96 per common share for a total of $117.3 million. Since initiating our buyback in April 2022,
Advantage has repurchased 19.5% of its outstanding common shares.
As at December 31, 2023, a total of 2.8 million Performance Share Units were outstanding under the Corporation’s
Restricted and Performance Award Incentive Plan, which represents 1.7% of Advantage’s total outstanding common
shares. During 2023, 2,012,178 Performance Share Units matured and were settled with the issuance of 3,675,083
common shares.
As at March 4, 2024, Advantage had 159.8 million common shares outstanding.
Annual Financial Information
The following is a summary of select financial information of the Corporation for the years indicated.
Total revenues ($000)
Net income attributable to Advantage
shareholders ($000)
Per share ‐ basic
Per share ‐ diluted
Total assets ($000)
Total non‐current liabilities ($000)
Year ended
December 31, 2023
535,187
Year ended
December 31, 2022
781,262
Year ended
December 31, 2021
458,927
101,597
0.61
0.59
2,299,028
646,195
338,667
1.81
1.75
2,216,958
539,891
411,523
2.17
2.07
1,994,990
444,258
Advantage Energy Ltd. - 37
Quarterly Performance
($000, except as otherwise indicated)
Financial Statement Highlights
Natural gas and liquids sales
Net income and comprehensive income (3)
per basic share (2)
Basic weighted average shares (000)
Cash provided by operating activities
Cash provided by (used in) financing activities
Cash used in investing activities
Other Financial Highlights
Adjusted funds flow (1)
per boe (1)
per basic share (1)(2)
Net capital expenditures (1)
Free cash flow (1)
Working capital surplus (deficit) (1)
Bank indebtedness
Net debt (1)
Operating Highlights
Production
Crude oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Total liquids production (bbls/d)
Natural gas (mcf/d)
Total production (boe/d)
Average prices (including realized derivatives)
Natural gas ($/mcf)
Liquids ($/bbl)
Operating Netback ($/boe)
Natural gas and liquids sales
Realized gains (losses) on derivatives
Processing and other income
Net sales of purchased natural gas
Royalty expense
Operating expense
Transportation expense
Operating netback (1)
2023
2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
147,137
41,026
0.25
163,939
89,048
(52,120)
(58,846)
82,494
13.11
0.50
39,938
42,556
18,651
212,854
222,022
3,254
1,264
3,345
7,863
363,124
68,384
2.84
81.55
23.39
0.98
0.39
‐
(1.64)
(3.61)
(4.08)
15.43
140,724
28,314
0.17
167,702
90,376
(3,562)
(49,886)
81,862
13.86
0.49
61,234
20,628
29,816
226,127
217,064
3,035
1,368
3,174
7,577
339,709
64,195
2.95
77.91
23.83
1.02
0.39
‐
(1.55)
(3.85)
(3.70)
16.14
107,240
2,538
0.02
167,268
37,966
43,778
(88,439)
52,381
11.10
0.31
64,924
(12,543)
12,949
226,442
229,426
2,801
871
2,683
6,355
272,919
51,842
2.81
75.36
22.73
1.07
0.22
(0.05)
(1.33)
(4.44)
(4.34)
13.86
145,999
29,719
0.18
167,311
105,955
(58,359)
(85,590)
96,833
18.50
0.58
116,700
(19,867)
(12,449)
167,260
195,523
1,731
1,157
2,877
5,765
314,273
58,144
4.42
77.77
27.90
3.44
0.35
‐
(3.19)
(3.44)
(4.33)
20.73
223,200
113,962
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
235,392
40,792
0.22
186,717
123,224
(71,048)
(42,822)
96,651
19.39
0.52
58,519
38,132
46,960
113,804
82,432
2,168
1,049
3,230
6,447
286,328
54,168
314,297
164,334
0.86
190,415
157,439
(37,556)
(80,720)
187,056
34.05
0.98
47,570
139,486
77,858
106,776
44,301
2,858
1,128
3,392
7,378
317,976
60,374
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
177,569
19,579
0.10
190,829
109,157
(50,769)
(76,983)
108,878
22.85
0.57
86,014
22,864
(19,115)
117,558
136,673
997
1,057
2,854
4,908
288,226
52,946
5.04
82.48
37.26
(2.19)
0.30
0.01
(3.42)
(2.79)
(4.36)
24.81
(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.
(3) Net income and comprehensive income attributable to Advantage Shareholders.
The table above highlights the Corporation’s performance for the fourth quarter of 2023 and for the preceding seven
quarters. In 2022 the Corporation saw a large increase in both natural gas and liquids sales and adjusted funds flow
due to higher natural gas and liquids benchmark prices and higher production due to the Corporation’s drilling
program. Adjusted funds flow was the highest in the second quarter of 2022 coinciding with high natural gas and
liquids benchmark prices. Adjusted funds flow declined in the third and fourth quarter of 2022 due to lower natural
gas and liquids benchmark prices. Natural gas and liquids sales and adjusted funds flow decreased again in the first
and second quarter of 2023 due to lower natural gas and liquids benchmark prices as well as the planned turnaround
at the Glacier Gas Plant in the second quarter.
Advantage Energy Ltd. - 38
Quarterly Performance (continued)
Natural gas and liquids sales and adjusted funds flow increased in the third and fourth quarter of 2023 due to higher
production due to the Corporation’s drilling program. 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. Overall, the Corporation
achieved strong net income, cash flow, and operating netbacks throughout 2023 despite difficult operating
conditions and weaker commodity prices.
Climate change‐related risk and opportunities
Advantage is committed to positive action on emissions reduction. Advantage’s Scope 1 and 2 emissions are expected
to be reduced by approximately 20% with the full implementation of Phase 1a and 1b Entropy CCS equipment at the
Glacier Gas Plant. Advantage’s subsidiary Entropy Inc. is actively engaged in a carbon capture and storage business
that helps emitters reduce their emissions. 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
Since 2021, Advantage through its subsidiary Entropy has completed construction on Glacier Phase 1a and Phase 1b
which will allow the Corporation to reduce its greenhouse gas emissions ("GHG"). Commissioning of Phase 1a was
completed in the third quarter of 2022 with "first carbon" injected into permanent geological storage. During the
fourth quarter of 2023, Entropy commissioned
Integrated Carbon Capture and
StorageTM ("iCCSTM") equipment for Glacier Phase 1b, with "first carbon" injected into permanent geological storage.
its patent‐pending
Glacier Phase 2 is expected to begin construction in 2024 pending final investment decision. 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".
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 for nearly a decade.
Advantage Energy Ltd. - 39
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 property, plant and equipment. 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.
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, share price volatility, timing and probability of an IPO, credit spread, 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.
Advantage Energy Ltd. - 40
Changes in Accounting Policies
The Corporation has adopted the following accounting policies during the year ended December 31, 2023.
Amendments to IAS 12 Income Taxes
On January 1, 2023, the Corporation adopted the amendments to IAS 12 Income Taxes requiring entities to recognize
deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible
temporary differences. There was not a material impact to the Corporation’s consolidated financial statements.
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, 2023, if applicable.
Environmental Reporting
Environmental regulations impacting climate‐related matters continue to evolve and may have additional disclosure
requirements in the future. The International Sustainability Standards Board published the new IFRS sustainability
disclosure standards, IFRS S1 General Requirements for Disclosure of Sustainability‐related Financial Information and
IFRS S2 Climate‐related Disclosures, with the aim to develop an environment sustainability disclosure framework that
is accepted globally. In addition, the Canadian Securities Administrators have proposed National Instrument 51‐107
– Disclosure of Climate‐related Matters, with additional climate‐related disclosure requirements for certain reporting
issuers in Canada. If the Corporation is unable to meet future sustainability reporting requirements of regulators or
current and future expectations of stakeholders, its business and ability to attract and retain skilled employees, obtain
regulatory permits, licenses, registrations, approvals and authorizations from various government authorities, and
raise capital may be adversely affected. The cost to comply with these standards, and others that may be developed
or evolved over time, has not yet been quantified.
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, 2023. 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. - 41
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, 2023. 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, 2023 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. - 42
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
2023
89,048
2,124
(8,678)
82,494
2022
112,558
1,144
10,503
124,205
2023
323,345
4,043
(13,818)
313,570
2022
502,378
2,215
12,197
516,790
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
2023
2022
58,846
(18,908)
‐
39,938
69,060
(19,373)
‐
49,687
Year ended
December 31
2023
282,761
35
‐
282,796
2022
269,585
(27,800)
5
241,790
Advantage Energy Ltd. - 43
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
2023
89,048
(58,846)
10,230
2,124
‐
42,556
2022
112,558
(69,060)
29,876
1,144
‐
74,518
2023
323,345
(282,761)
(13,853)
4,043
‐
30,774
2022
502,378
(269,585)
39,997
2,215
(5)
275,000
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 gains (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
2023
147,137
6,140
2,484
‐
(10,302)
(22,724)
(25,664)
97,071
2022
223,200
(24,344)
3,091
‐
(27,154)
(17,344)
(22,637)
134,812
2023
541,100
35,243
7,627
(247)
(42,432)
(84,453)
(90,603)
366,235
2022
950,458
(144,134)
9,082
70
(106,257)
(64,269)
(90,093)
554,857
Advantage Energy Ltd. - 44
Specified Financial Measures (continued)
Non‐GAAP Ratios
Adjusted Funds Flow per Share
Adjusted funds flow per share is derived by dividing adjusted funds flow by the basic weighted average shares
outstanding of the Corporation. Management believes that adjusted funds flow per share provides investors an
indicator of funds generated from the business that could be allocated to each shareholder's equity position.
($000, except as otherwise indicated)
Adjusted funds flow
Weighted average shares outstanding (000)
Adjusted funds flow per share ($/share)
Adjusted Funds Flow per BOE
Three months ended
December 31
2023
82,494
163,939
0.50
2022
124,205
180,248
0.69
Year ended
December 31
2023
313,570
166,553
1.88
2022
516,790
187,022
2.76
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
2023
82,494
68,384
92
6,291,328
13.11
2022
124,205
55,573
92
5,112,716
24.29
2023
313,570
60,678
365
22,147,470
14.16
2022
516,790
55,769
365
20,355,685
25.39
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
2023
97,071
68,384
92
6,291,328
15.43
2022
134,812
55,573
92
5,112,716
26.37
2023
366,235
60,678
365
22,147,470
16.53
2022
554,857
55,769
365
20,355,685
27.25
Advantage Energy Ltd. - 45
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
2023
39,938
82,494
0.5
2022
49,687
124,205
0.4
Year ended
December 31
2023
282,796
313,570
0.9
2022
241,790
516,790
0.5
Net debt to adjusted funds flow is calculated by dividing net debt by adjusted fund flow for the previous four quarters.
Net debt to adjusted funds flow is a coverage ratio that provides Management and users the ability to determine
how long it would take the Corporation to repay its bank indebtedness if it devoted all its adjusted funds flow to debt
repayment.
($000, except as otherwise indicated)
Net Debt
Adjusted funds flow (prior four quarters)
Net debt to adjusted funds flow ratio
Capital Management Measures
Working capital
Year ended
December 31
2023
222,022
313,570
0.7
2022
121,336
516,790
0.2
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, 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, 2023 and December 31, 2022 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
2023
December 31
2022
19,261
53,378
16,618
(70,606)
18,651
48,940
92,816
14,613
(84,805)
71,564
Advantage Energy Ltd. - 46
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, 2023 and December 31, 2022 is as follows:
Bank indebtedness
Unsecured debentures
Working capital surplus
Net debt
Supplementary Financial Measures
Average Realized Prices
December 31
2023
December 31
2022
212,854
27,819
(18,651)
222,022
177,200
15,700
(71,564)
121,336
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. - 47
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 and amortization 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 gains (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 acquisitions and dispositions, and net capital expenditures
incurred by Entropy as these expenditures are not related to production additions. Capital efficiency is considered by
Management to be a useful performance measure as a common metric used to evaluate the efficiency with which
capital activity is allocated to achieve production additions.
Finding and Development Costs ("F&D")
FD&A cost is calculated based on adding net capital expenditures excluding acquisitions and dispositions, and the net
change in future development capital ("FDC"), divided by reserve additions for the year from the Sproule 2023 and
2022 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.
Recycle Ratio
Recycle ratio is calculated by dividing Advantage’s fourth quarter operating netback by the calculated F&D cost or
FD&A cost of the applicable year and expressed as a ratio. Management uses recycle ratio to relate the cost of adding
reserves to a recent operating netback.
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. - 48
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.
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 2024 Advantage considered historical drilling, completion and
production results for prior years and took into account the estimated impact on production of the Corporation’s
2024 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. - 49
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
CCUS
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
‐ carbon capture utilization and storage
‐ modular carbon capture and storage
‐ tonnes per annum
‐ not meaningful information
Advantage Energy Ltd. - 50
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 2024
capital program; the Corporation's anticipated top‐line production growth and its expectations that all free cash flow
will be allocated to its share buyback program; Advantage's focus on growing adjusted funds flow per share; the
Corporation's 2024 capital guidance including its anticipated cash used in investing activities, total average
production, liquids production (% of total average production), royalty rate, operating expense per boe,
transportation expense per boe, G&A/finance expense per boe and net debt; Advantage's expectations that it will be
able to deliver its 2024 capital program with reduced capital; the anticipated benefits to be derived from CGF's
investment structure in Entropy; 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 anticipated benefits to be
derived from Entropy's strategic investment agreement with CGF, including the CCO; that Advantage will continue to
invest in additional transportation commitments and the anticipated benefits to be derived therefrom; the
Corporation's forecasted 2024 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; the Corporation's
estimated tax pools and its expectations that it will not be subject to cash taxes until calendar 2027; the anticipated
capture rate of the Glacier Gas Plant Phase 1a CCS and waste heat recovery project; that Entropy's modular
technology will lower corporate emissions; the Corporation's anticipated reductions in Scope 1 and 2 emissions and
its expectations that it will achieve "net zero" Scope 1 and 2 emissions by 2026; the anticipated timing of when
construction will begin on Glacier Phase 2 and the anticipated benefits to be derived therefrom; the Corporation's
expectations that its Valhalla asset will continue to play a pivotal role in the Corporation's liquids‐rich gas
development plan; 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 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
anticipated timing that such costs will be incurred; Entropy's business plan and the anticipated benefits to be derived
therefrom; the statements under "critical accounting estimates" in this MD&A; and other matters.
These forward‐looking statements involve substantial known and unknown risks and uncertainties, many of which
are beyond our control, including, but not limited to, risks related to changes in general economic conditions
(including as a result of demand and supply effects resulting from 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
Advantage Energy Ltd. - 51
Forward‐Looking Information and Other Advisories (continued)
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 the Credit Facilities may not be renewed at each annual review; competition from other
producers; the risk that the Corporation's actual 2024 results may not be consistent with its 2024 guidance; the risk
that the Corporation's 2024 annual average production may be less than anticipated; the risk that the Corporation
may not deliver its 2024 capital program with reduced capital; 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 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 agreements with
Brookfield Renewables and CGF may not lead to the results anticipated; 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 may be subject to cash taxes prior to calendar 2027; 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 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 2024 towards the Corporation’s
share buyback program; 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.sedarplus.ca and www.advantageog.com. Readers are also referred to
risk factors described in other documents Advantage files with Canadian securities authorities.
With respect to forward‐looking statements contained in this MD&A, in addition to other assumptions identified
herein, Advantage has made assumptions regarding, but not limited to: current and future prices of oil and natural
gas; that the current commodity price and foreign exchange environment will continue or improve; conditions in
general economic and financial markets; effects of regulation by governmental agencies; receipt of required
stakeholder and regulatory approvals; royalty regimes; future exchange rates; royalty rates; future operating costs;
availability of skilled labour; availability of 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
Advantage Energy Ltd. - 52
Forward‐Looking Information and Other Advisories (continued)
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), 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.
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 expectations that all
free cash flow will be allocated to its share buyback program; the Corporation's 2024 capital guidance including its
anticipated cash used in investing activities, royalty rate, operating expense per boe, transportation expense per boe,
G&A/finance expense per boe and net debt; 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 estimated tax pools and its expectations that it will
not be subject to cash taxes until calendar 2027; the Corporation's commitments and contractual obligations and the
anticipated payments in connection therewith and the anticipated timing thereof; the anticipated undiscounted,
uninflated cash flows required to settle the Corporation's decommissioning liability and the anticipated timing that
such costs will be incurred; 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
Advantage Energy Ltd. - 53
Forward‐Looking Information and Other Advisories (continued)
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.sedarplus.ca 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 4, 2024
Advantage Energy Ltd. - 54
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
Advantage Energy Ltd. - 55
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, 2023 and 2022, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS Accounting Standards).
What we have audited
The Corporation’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2023 and 2022;
the consolidated statements of comprehensive income 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, comprising material accounting policy information
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.
PricewaterhouseCoopers LLP
111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825, ca_calgary_main_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
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, 2023. 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.
Key audit matter
How our audit addressed the key audit matter
The impact of proved and probable reserves
on property, plant and equipment within
natural gas and liquids properties
Refer to note 3 – Material accounting policies,
note 4 – Significant accounting judgments,
estimates and assumptions and note 9 – Natural
gas and liquids properties to the consolidated
financial statements.
The Corporation has $2,072 million of net
property, plant and equipment within natural gas
and liquids properties as at December 31, 2023.
The related depreciation expense was
$148 million for the year then ended. Property,
plant and equipment is 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 considered this a key audit matter due to
(i) the judgments by management, including the
use of management’s expert, when estimating the
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
Key audit matter
How our audit addressed the key audit matter
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.
whether these assumptions were
consistent with evidence obtained in
other areas of the audit, as applicable;
and
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
and will 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 on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS Accounting Standards, 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
March 4, 2024
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
Inventory
Intangible assets
Natural gas and liquids properties
Total non‐current assets
Total assets
LIABILITIES
Current liabilities
Trade and other accrued liabilities
Derivative liability
Financing liability
Provisions and other liabilities
Total current liabilities
Non‐current liabilities
Bank indebtedness
Financing liability
Unsecured debentures
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
2023
December 31
2022
5
7
10
10
6
8
9
10
12
14
11
12
13
14
15
16
17
19,261
53,378
16,618
31,200
120,457
80,048
3,958
5,363
2,089,202
2,178,571
2,299,028
70,606
964
4,813
20,054
96,437
212,854
88,084
46,263
61,937
237,057
646,195
742,632
48,940
92,816
14,613
22,357
178,726
93,993
‐
4,011
1,940,228
2,038,232
2,216,958
84,805
2,197
4,269
21,118
112,389
177,200
90,436
25,444
45,389
201,422
539,891
652,280
1,952,241
187,034
(582,980)
1,556,295
101
1,556,396
2,299,028
2,105,013
142,817
(684,577)
1,563,253
1,425
1,564,678
2,216,958
Commitments (note 25)
See accompanying Notes to the Consolidated Financial Statements
On behalf of the Board of Directors of Advantage Energy Ltd.:
Deirdre M. Choate, Director: (signed) "Deirdre M. Choate" Michael Belenkie, Director: (signed) "Michael Belenkie"
Advantage Energy Ltd. - 61
Advantage Energy Ltd.
Consolidated Statements of Comprehensive Income
(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
Gains (losses) on derivatives
Total revenues
Expenses
Operating expense
Transportation expense
Natural gas purchases
General and administrative expense
Share‐based compensation expense
Depreciation and amortization expense
Finance expense
Foreign exchange loss (gain)
Other expenses
Total expenses
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
Year ended
December 31
Notes
2023
2022
20
20
20
10
20
21
18
8,9
22
6,9,14
15
17
541,100
3,124
7,627
(42,432)
509,419
25,768
535,187
84,453
90,603
3,371
24,637
6,546
148,897
30,090
459
10,223
399,279
135,908
(35,635)
100,273
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
442,899
(105,138)
337,761
101,597
(1,324)
100,273
338,667
(906)
337,761
Net income per share attributable to Advantage shareholders
Basic
Diluted
See accompanying Notes to the Consolidated Financial Statements
19
19
0.61
0.59
1.81
1.75
Advantage Energy Ltd. - 62
Advantage Energy Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Balance, December 31, 2022
Net income and comprehensive income
Share‐based compensation (note 18(b))
Settlement of Performance Share Units
Common shares repurchased (note 16)
Balance, December 31, 2023
Balance, December 31, 2021
Net income and comprehensive income
Share‐based compensation (note 18(b))
Settlement of Performance Share Units
Common shares repurchased (note 16)
Balance, December 31, 2022
Share
capital
2,105,013
‐
‐
6,509
(159,281)
1,952,241
Contributed
surplus
142,817
‐
8,788
(6,509)
41,938
187,034
Deficit
(684,577)
101,597
‐
‐
‐
(582,980)
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)
Non‐
controlling
interest
1,425
(1,324)
‐
‐
‐
101
Non‐
controlling
interest
2,331
(906)
‐
‐
‐
1,425
Total
shareholders’
equity
1,564,678
100,273
8,788
‐
(117,343)
1,556,396
Total
shareholders’
equity
1,460,118
337,761
7,766
‐
(240,967)
1,564,678
See accompanying Notes to the Consolidated Financial Statements
Advantage Energy Ltd. - 63
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 losses (gains) on derivatives
Share‐based compensation expense
Depreciation and amortization expense
Accretion of decommissioning liability
Accretion of unsecured debentures
Interest paid‐in‐kind
Other expenses
Expenditures on decommissioning liability
Changes in non‐cash working capital
Cash provided by operating activities
Financing Activities
Common shares repurchased
Increase 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
Property, plant and equipment additions
Exploration and evaluation assets additions
Intangible assets additions
Project funding received
Changes in non‐cash working capital
Cash used in investing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash interest paid
Cash income taxes paid
See accompanying Notes to the Consolidated Financial Statements
Advantage Energy Ltd. - 64
Year ended
December 31
Notes
2023
2022
135,908
442,899
10
18(b)
8,9
14(c)
13
13
6,9,14
14(c)
24
16
11
13
12
14(b)
12
9
9
8
24
9,475
6,546
148,897
1,444
573
504
10,223
(4,043)
13,818
323,345
(117,343)
35,654
13,833
2,500
(599)
(4,308)
(70,263)
(272,150)
(9,181)
(1,465)
‐
35
(282,761)
(29,679)
48,940
19,261
(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)
(240,770)
‐
(1,020)
5
(27,800)
(269,585)
23,702
25,238
48,940
27,766
‐
18,690
‐
Advantage Energy Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
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 as issued by the International Accounting Standards Board ("IFRS Accounting Standards"
or "IFRS"). Certain information provided for the prior year has been reclassified to conform to the
presentation adopted for the year ended December 31, 2023.
The accounting policies applied in these consolidated financial statements are based on IFRS issued and
outstanding as of March 4, 2024, the date the Board of Directors approved the statements.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except as detailed in
the Corporation’s accounting policies in note 3.
The methods used to measure fair values of derivative instruments are discussed in note 10.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s
functional currency.
Advantage Energy Ltd. - 65
3. Material accounting policies
The accounting policies set out below have been applied consistently to all years presented in these financial
statements and notes.
(a) Cash and cash equivalents
Cash consists of balances held with banks, and other short‐term highly liquid investments with original
maturities of three months or less from inception.
(b) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Corporation. Control exists when the Corporation has power
to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In
assessing control, potential voting rights that currently are exercisable are taken into account. The
financial statements of subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that control ceases.
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 92% of
the outstanding common shares (note 17). 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 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
Inventory
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
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. - 66
3. Material 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 assets and
liabilities measured at fair value. Gains and losses on derivative instruments are recorded as gains and losses
on derivatives in the Consolidated Statement of Comprehensive Income 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.
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. 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. 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 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. - 67
3. Material 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 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 as incurred.
(iii) Depreciation
A portion of the Corporation’s net carrying value of property, plant, and equipment 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 and carbon capture equipment included in property, plant, 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
Carbon capture equipment
50 years
50 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date by
Management.
Advantage Energy Ltd. - 68
3. Material 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.
(v) Impairment
The carrying amounts of the Corporation’s property, plant and equipment are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated. For the purpose of impairment testing of property, plant and
equipment, assets are grouped together into the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other assets or groups of assets
(the "cash‐generating unit" or "CGU").
Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine
technical feasibility and commercial viability, or facts and circumstances suggest that the carrying
amount exceeds the recoverable amount. Exploration and evaluation assets are allocated to CGUs or
groups of CGUs for the purposes of assessing such assets for impairment.
The recoverable amount of an asset or a CGU is the greater of its "value‐in‐use" and its "fair value less
costs of disposition". In assessing value‐in‐use, the estimated future cash flows are discounted to their
present value using a pre‐tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. Value‐in‐use is generally computed by reference to the present
value of the future cash flows expected to be derived from production of proved and probable reserves.
Fair value less costs of disposition is assessed utilizing market valuation based on an arm’s length
transaction between active participants. In the absence of any such transactions, fair value less costs of
disposition is estimated by discounting the expected after‐tax cash flows of the CGUs at an after‐tax
discount rate that reflects the risk of the properties in the CGUs. The discounted cash flow calculation is
then increased by a tax‐shield calculation, which is an estimate of the amount that a prospective buyer
of the CGU would be entitled. The carrying value of the CGUs is reduced by the deferred tax liability
associated with its property, plant and equipment.
Impairment losses on property, plant and equipment are recognized in the Consolidated Statement of
Comprehensive Income as an impairment expense 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.
Advantage Energy Ltd. - 69
3. Material accounting policies (continued)
(e) Decommissioning liability
A decommissioning liability is recognized if, as a result of a past event, the Corporation has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Decommissioning liabilities are determined by discounting the
expected future cash flows at a risk‐free rate.
(f) 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. - 70
3. Material accounting policies (continued)
(g) 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 production 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.
(h) 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. - 71
3. Material accounting policies (continued)
(i) Net income per share attributable to Advantage shareholders
Basic net income per share is calculated by dividing the net income attributable to common shareholders of
the Corporation by the weighted average number of common shares outstanding during the period. Diluted
net income per share is determined by adjusting the net income attributable to common shareholders and
the weighted average number of common shares outstanding for the effects of dilutive instruments such as
Performance Share Units.
(j) 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.
(k) Government grants and investment tax credits
The Corporation may receive government grants which provide financial assistance 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 or the Consolidated
Statement of Financial Position 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.
(l) New accounting policies
Amendments to IAS 12 Income Taxes
On January 1, 2023, the Corporation adopted the amendments to IAS 12 Income Taxes requiring entities to
recognize deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and
deductible temporary differences. There was not a material impact to the Corporation’s consolidated
financial statements.
Advantage Energy Ltd. - 72
3. Material accounting policies (continued)
(m) Future accounting pronouncements
Amendments to IAS 1, Presentation of Financial Statements
In October 2022, the IASB amended IAS 1 Presentation of Financial Statements to address the classification
of liabilities with covenants as current or non‐current in the Statements of Financial Position. The amendment
is applicable to periods beginning on or after January 1, 2024. The Corporation is currently in the process of
assessing the impact of the amendment to the Corporation’s consolidated financial statements upon
adoption.
4. Material 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. Material estimates and judgments made in the preparation of the consolidated financial statements
are outlined below.
(a) Reserves base
A portion of the Corporation’s property, plant, and equipment is 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.
Advantage Energy Ltd. - 73
4. Material accounting judgments, estimates and assumptions (continued)
(c) Indicators of impairment and calculation of impairment
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.
When Management judges that circumstances indicate potential impairment, property, plant, and
equipment are tested for impairment by comparing the carrying values to their recoverable amounts. The
recoverable amounts of CGUs are determined based on the higher of value‐in‐use calculations and fair values
less costs of disposition. These calculations require the use of estimates and assumptions, that are subject to
change as new information becomes available including information on future commodity prices, expected
production volumes, quantities of reserves, discount rates, future development costs and operating costs.
(d) Derivative assets and liabilities
Derivative assets and liabilities are recorded at their fair values at the reporting date, with gains and losses
recognized directly into comprehensive income 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, timing and probability of an IPO, credit spread, 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.
Advantage Energy Ltd. - 74
4. Material accounting judgments, estimates and assumptions (continued)
(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.
5. Cash and cash equivalents
Cash at financial institutions
December 31
2023
19,261
December 31
2022
48,940
Cash at financial institutions earn interest at floating rates based on daily deposit rates. As at December 31, 2023
cash at financial institutions included US$5.2 million (December 31, 2022 ‐ US$9.7 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, 2023 is $5.3 million held by Entropy (December 31, 2022 ‐ $13.1 million).
6. Inventory
Balance at December 31, 2022
Additions
Revaluation
Balance at December 31, 2023
‐
4,842
(884)
3,958
Inventory consists of linefill, the Corporation’s share of purchased condensate and NGL barrels used to fill a
pipeline. Inventory is recorded at historical cost and is subsequently valued at the lower of weighted average
cost or net realizable value.
Advantage Energy Ltd. - 75
7. Trade and other receivables
Trade receivables
Receivables from joint venture partners
8. Intangible assets
Cost
Balance at December 31, 2021
Additions
Balance at December 31, 2022
Additions
Balance at December 31, 2023
Accumulated amortization
Balance at December 31, 2022 and 2021
Amortization
Balance at December 31, 2023
Net book value
At December 31, 2022
At December 31, 2023
December 31
2023
December 31
2022
49,604
3,774
53,378
87,047
5,769
92,816
2,991
1,020
4,011
1,465
5,476
‐
113
113
4,011
5,363
Advantage Energy Ltd. - 76
9. Natural gas and liquids properties
Cost
Balance at December 31, 2021
Additions
Capitalized share‐based compensation (note 18(b))
Changes in decommissioning liability (note 14(c))
Transfers
Balance at December 31, 2022
Additions
Capitalized share‐based compensation (note 18(b))
Capitalized interest paid‐in‐kind
Changes in decommissioning liability (note 14(c))
Transfers
Lease expiries
Expired right‐of‐use assets
Balance at December 31, 2023
Accumulated depreciation
Balance at December 31, 2021
Depreciation
Balance at December 31, 2022
Depreciation
Expired right‐of‐use assets
Balance at December 31, 2023
Net book value
At December 31, 2022
At December 31, 2023
Exploration
and
evaluation
assets
Property,
plant and
equipment
20,713
‐
‐
‐
(4,922)
15,791
9,181
‐
‐
‐
(8,570)
(441)
‐
15,961
‐
‐
‐
‐
‐
‐
2,970,259
240,770
2,242
(19,734)
4,922
3,198,459
272,150
2,242
303
13,911
8,570
‐
‐
3,495,635
1,142,323
133,543
1,275,866
148,258
‐
1,424,125
Right‐of‐
use assets
2,638
339
‐
‐
‐
2,977
412
‐
‐
‐
‐
‐
(136)
3,253
759
374
1,133
526
(136)
1,523
Total
2,993,610
241,109
2,242
(19,734)
‐
3,217,227
281,743
2,242
303
13,911
‐
(441)
(136)
3,514,849
1,143,082
133,917
1,276,999
148,784
(136)
1,425,647
1,844
1,730
15,791
15,961
1,922,593
2,071,511
1,940,228
2,089,202
During the year ended December 31, 2023, Advantage capitalized general and administrative expenditures
directly related to development activities of $5.3 million, included in additions (year ended December 31, 2022 ‐
$6.8 million).
During the year ended December 31, 2023, Entropy capitalized borrowing cost directly related to funding CCS
development activities of $0.2 million included in property, plant and equipment additions (year ended December
31, 2022 – nil) and capitalized $0.3 million of borrowing cost that was paid‐in‐kind (year ended December 31,
2022 – nil).
Included in additions to property, plant and equipment is $15.1 million in additions incurred by Entropy (year
ended December 31, 2022 ‐ $2.8 million).
Advantage included future development costs of $2.1 billion (December 31, 2022 ‐ $2.1 billion) in natural gas and
liquids properties costs subject to depreciation.
For the year ended December 31, 2023, the Corporation evaluated its property, plant and equipment for
indicators of any potential impairment. As a result of this assessment, no indicators were identified, and no
impairment test was performed.
Advantage Energy Ltd. - 77
10. 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 electricity 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.
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. - 78
10. 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
Natural gas embedded derivative
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
2023
2022
38,184
‐
(2,033)
‐
(908)
35,243
6,233
‐
3,090
‐
(13,192)
(5,606)
(9,475)
44,417
‐
1,057
‐
(14,100)
(5,606)
25,768
(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)
Advantage Energy Ltd. - 79
10. 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
Foreign exchange derivative asset (liability)
Natural gas embedded derivative asset
Unsecured debentures derivative liability (note 13)
Net derivative asset
Consolidated statement of financial position classification
Current derivative asset
Non‐current derivative asset
Current derivative liability
Unsecured debentures derivative liability (note 13)
Net derivative asset
(a) Credit risk
December 31
2023
December 31
2022
22,708
893
86,683
(18,444)
91,840
31,200
80,048
(964)
(18,444)
91,840
16,475
(2,197)
99,875
(9,744)
104,409
22,357
93,993
(2,197)
(9,744)
104,409
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
2023
53,378
12,600
111,248
177,226
December 31
2022
92,816
3,720
116,350
212,886
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 majority of 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 contracts with only stable, creditworthy parties and through frequent reviews of exposures to
individual entities. The Corporation only enters 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 with a remaining term of 9 years (note 10(c)).
Advantage Energy Ltd. - 80
10. 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, 2023, $0.5 million of trade and other receivables are outstanding for 90 days
or more (December 31, 2022 – $0.2 million). The Corporation believes the entire balance is collectible, and
in some instances can mitigate risk through withholding production or offsetting payables with the same
parties. At December 31, 2023, the average expected credit loss for trade and other receivables was 0.55%
(December 31, 2022 – 0.63%).
(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 six and
twelve 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.
Changes in market interest rates impact the Corporation’s credit facility and have resulted in higher interest
rates paid on outstanding bank indebtedness throughout 2023. The Corporation does not anticipate any
liquidity issues with regards to higher rates on the Corporation’s facility.
The unsecured debentures held by Entropy are non‐recourse to Advantage and are to be repaid by Entropy
at the end of the 10‐year term, if not exchanged for common shares. 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. - 81
10. 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, 2023 and 2022 are as follows:
December 31, 2023
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, 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)
Undiscounted
cash flows(3)
70,606
4,579
964
9,676
2,409
150,164
215,000
26,961
40,807
521,166
Undiscounted
cash flows(3)
84,805
6,528
2,197
13,776
2,377
158,827
180,000
19,926
25,000
493,436
Less than
one year
70,606
4,579
964
5,917
585
13,086
‐
17,974
‐
113,711
Less than
one year
84,805
6,528
2,197
6,105
475
12,702
‐
13,284
‐
121,509
One to
three years
‐
‐
‐
3,759
1,466
39,150
215,000
8,987
‐
268,362
One to
three years
‐
‐
‐
7,671
960
25,439
180,000
6,642
‐
220,712
Beyond
‐
‐
‐
‐
358
97,928
‐
‐
40,807
139,093
Beyond
‐
‐
‐
‐
942
120,686
‐
‐
25,000
151,215
(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 11). The Credit Facility has a tenor of two years with a maturity date in June 2025 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
2025 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. - 82
10. 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, 2023 resulting from a 10% change to significant price assumptions is
as follows:
Price Assumptions
Forward AECO natural gas price
Forward Chicago natural gas price
Forward Dawn 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%
(2.4)
(0.5)
(0.3)
(2.2)
1.6
14.0
(10)%
2.4
0.6
0.3
2.7
(1.6)
(17.7)
As at December 31, 2023 and March 4, 2024, the Corporation had the following commodity derivative
contracts in place:
Description of
Derivative
Term
Volume
Price
Natural gas ‐ Henry Hub NYMEX
Fixed price swap
January 2024 to December 2024
20,000 Mcf/d
US $3.41/Mcf
Natural gas ‐ AECO/Henry Hub Basis Differential
Basis swap
January 2024 to December 2024
40,000 Mcf/d
Henry Hub less US $1.19/Mcf
Natural gas ‐ AECO
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Fixed price swap
Natural gas ‐ Chicago
Fixed price swap
Natural gas ‐ Dawn
Fixed price swap
23,695 Mcf/d
January 2024 to March 2024
April 2024 to October 2024
56,869 Mcf/d
November 2024 to December 2024 37,913 Mcf/d
33,174 Mcf/d
January 2025 to March 2025
23,695 Mcf/d
April 2025 to October 2025
28,435 Mcf/d
November 2025 to March 2026
$3.34/Mcf
$2.60/Mcf(1)
$3.42/Mcf(1)
$3.46/Mcf(1)
$2.97/Mcf(1)
$4.05/Mcf(1)
January 2024 to March 2024
15,000 Mcf/d
US $3.88/Mcf
January 2024 to March 2024
10,000 Mcf/d US $3.07/Mcf
(1) Contains contracts entered into subsequent to December 31, 2023
Advantage Energy Ltd. - 83
10. Financial risk management (continued)
(c) Commodity price risk (continued)
Natural Gas ‐ Embedded Derivative
Commencing in 2023, Advantage began delivering natural gas under a long‐term natural gas supply
agreement, delivering 25,000 MMbtu/d of natural gas for a 10‐year period, that commenced 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, 2023 the fair value of the natural gas embedded
derivative resulted in an asset of $86.7 million (December 31, 2022 – $99.9 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, 2023, the implied inflation rate
in the 5‐year PJM power forecast averaged 0% 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
$0.5 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 may enter into fixed interest rate swaps to
mitigate interest rate risk. As at December 31, 2023, 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, 2023, net income and comprehensive income would have changed by $1.5 million (December 31, 2022 –
$0.8 million) based on the average debt balance outstanding during the year.
(e) Foreign exchange risk
Foreign exchange risk is the risk that future cash flows will fluctuate as a result of changes in the 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, 2023, net income and comprehensive income
would have changed by $9.2 million (December 31, 2022 – $7.2 million).
Advantage Energy Ltd. - 84
10. Financial risk management (continued)
(e) Foreign exchange risk (continued)
As at December 31, 2023, 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
Term
Notional Amount
Rate
US $ 2,000,000/month
January 2024 to August 2024
January 2024 to September 2024 US $ 1,000,000/month
1.3558
1.3650
As at December 31, 2023 the fair value of the foreign exchange derivatives outstanding resulted in an asset
of $0.9 million (December 31, 2022 – $2.2 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. - 85
10. 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
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, 2023 and December 31, 2022 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
2023
December 31
2022
19,261
53,378
16,618
(70,606)
18,651
48,940
92,816
14,613
(84,805)
71,564
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, 2023 and December 31, 2022 is as follows:
Bank indebtedness (note 11)
Unsecured debentures (note 13)
Working capital surplus
Net debt
December 31
2023
212,854
27,819
(18,651)
222,022
December 31
2022
177,200
15,700
(71,564)
121,336
Advantage’s capital structure as at December 31, 2023 and December 31, 2022 is as follows:
Net debt
Shares outstanding (note 16)
Share closing market price ($/share)
Market Capitalization
Total Capitalization
December 31
2023
222,022
162,225,180
8.53
1,383,781
1,605,803
December 31
2022
121,336
171,652,768
9.47
1,625,552
1,746,888
Advantage Energy Ltd. - 86
11. Bank indebtedness
Revolving credit facility
Discount on bankers’ acceptance and other fees
Balance, end of year
December 31
2023
December 31
2022
215,000
(2,146)
212,854
180,000
(2,800)
177,200
As at December 31, 2023, 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 May 2023, 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 2025 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 2025 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 lender’s 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. - 87
11. 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, 2023 and 2022, 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, 2023 the
Corporation had a 27.7 LMR (December 31, 2022 – 28.4 LMR). All other applicable non‐financial covenants were
met at December 31, 2023 and 2022. 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, 2023, the average effective interest rate on the outstanding amounts under the
facilities was approximately 8.4% (December 31, 2022 – 6.2%). The Corporation had letters of credit of $12.9
million outstanding at December 31, 2023 (December 31, 2022 – $12.2 million).
12. Financing liability
The Corporation has a 15‐year take‐or‐pay volume commitment with a 12.5% working interest partner in the
Corporation’s Glacier Gas Plant, with a term due to expire in 2035. During the fourth quarter of 2023, as part of
the 2023 planned capital expansion of the Glacier Gas Plant, the working interest partner chose to participate
pursuant to the agreement and provided $2.5 million in additional financing. 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
Year ended
December 31, 2023
94,705
2,500
8,452
(12,760)
92,897
4,813
88,084
Year ended
December 31, 2022
93,488
5,000
8,537
(12,320)
94,705
4,269
90,436
Advantage Energy Ltd. - 88
13. Unsecured debentures
The Corporation’s subsidiary, Entropy, has entered into two Investment Agreements with investors who provided
capital commitments of $300 million and $200 million. In connection with the Investment Agreements, 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 agreements, Entropy and the
investors have options that provide for the unsecured debentures to be exchanged for common shares at an
exchange price of $10.00 per share and $12.75 per share, respectively, subject to adjustment in certain
circumstances. The investors have 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 is 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.
During 2023, Entropy issued unsecured debentures for gross proceeds of $15.0 million (December 31, 2022 ‐ $25.0
million) and incurred $1.2 million of issuance costs (December 31, 2022 ‐ $3.8 million). For the year ended
December 31, 2023, Entropy incurred interest of $2.5 million (December 31, 2022 ‐ $1.5 million), of which $1.7
million was paid in cash (December 31, 2022 ‐ $1.5 million), and $0.8 million was paid‐in‐kind (December 31, 2022
‐ $nil).
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 in
certain situations, 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
Interest paid‐in‐kind
Aggregate principal balance, end of year
December 31
2023
25,000
15,000
807
40,807
December 31
2022
‐
25,000
‐
25,000
Advantage Energy Ltd. - 89
13. Unsecured debentures (continued)
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
Issuances
Issuance costs
Accretion expense
Balance, end of year
December 31
2023
15,700
12,713
(1,167)
573
27,819
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:
December 31
2022
‐
5,779
3,965
9,744
Balance, beginning of the year
Issuances
Revaluation
Balance, end of year
December 31
2023
9,744
3,094
5,606
18,444
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, 2023 includes estimated share
price, estimated timing and probability 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
1% change in credit spread
1 year change in estimated timing of an IPO
(Decrease)
(3.9)
(0.8)
(2.5)
Increase
3.9
0.8
2.2
Advantage Energy Ltd. - 90
14. Provisions and other liabilities
Performance Awards (note 18(c))
Deferred Share Units (note 18(d))
Deferred revenue (a)
Lease liability (b)
Decommissioning liability (c)
Balance, end of year
Current provisions and other liabilities
Non‐current provisions and other liabilities
(a) Deferred revenue
Year ended
December 31, 2023
6,687
4,579
6,603
1,967
62,155
81,991
20,054
61,937
Year ended
December 31, 2022
9,277
6,528
6,603
2,154
41,945
66,507
21,118
45,389
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 2024.
(b) 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.
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, 2023
2,154
412
92
(691)
1,967
522
1,445
Year ended
December 31, 2022
2,173
339
93
(451)
2,154
434
1,720
Advantage Energy Ltd. - 91
14. Provisions and other liabilities (continued)
(c) 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 2024
and 2075. A risk‐free rate of 3.02% (December 31, 2022 – 3.28%) and an inflation factor of 2.0% (December
31, 2022 – 2.0%) were used to calculate the fair value of the decommissioning liability at December 31, 2023.
As at December 31, 2023, the total estimated undiscounted, uninflated cash flows required to settle the
Corporation’s decommissioning liability was $82.6 million (December 31, 2022 – $62.8 million).
A reconciliation of the decommissioning liability is provided below:
Balance, beginning of the year
Accretion expense
Liabilities incurred
Change in estimates
Change in estimates expensed(1)
Effect of change in risk‐free rate
Liabilities settled
Balance, end of year
Current decommissioning liability
Non‐current decommissioning liability
Year ended
December 31, 2023
41,945
1,444
4,472
2,263
8,898
7,176
(4,043)
62,155
3,000
59,155
Year ended
December 31, 2022
62,474
1,420
2,003
(1,189)
‐
(20,548)
(2,215)
41,945
2,000
39,945
(1) Increased cost estimates which were expensed as the cost estimate relates to a legacy non‐core area whereby the
Corporation has no future plans to pursue any development activities.
Advantage Energy Ltd. - 92
15. 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, 2023
Year ended
December 31, 2022
‐
35,635
35,635
‐
105,138
105,138
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 in income taxes resulting from:
Non‐deductible expenses
Valuation allowance
Other
Income tax expense
Effective tax rate
Year ended
December 31, 2023
135,908
23.0%
31,259
Year ended
December 31, 2022
442,899
23.0 %
101,867
1,520
3,266
(409)
35,635
26.2 %
1,280
910
1,081
105,138
23.7 %
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, 2022
Credited (charged)
to income
At December 31, 2023
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
10,161
93,805
20,632
22,239
146,837
(321,427)
(26,255)
(577)
(348,259)
(201,422)
4,132
(19,166)
159
(1,064)
(15,939)
(20,749)
890
163
(19,696)
(35,635)
14,293
74,639
20,791
21,175
130,898
(342,176)
(25,365)
(414)
(367,955)
(237,057)
Advantage Energy Ltd. - 93
At December 31, 2021
Credited (charged)
to income
At December 31, 2022
15. Income taxes (continued)
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)
The estimated tax pools available at December 31, 2023 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
10,161
93,805
20,632
22,239
146,837
(321,427)
(26,255)
(577)
(348,259)
(201,422)
246,411
68,509
18,735
347,724
264,480
135,369
32,506
6,421
1,120,155
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, 2022 – $135 million).
Recognition is dependent on the realization of future taxable capital gains.
Advantage Energy Ltd. - 94
16. 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, 2021
Shares issued on Performance Share Unit settlements (note 18 (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
Shares issued on Performance Share Unit settlements (note 18 (a))
Contributed surplus transferred on Performance Share Unit settlements
Shares purchased and cancelled under NCIB
Balance at December 31, 2023
190,828,976
3,056,992
‐
(13,304,629)
(8,928,571)
171,652,768
3,675,083
‐
(13,102,671)
162,225,180
Share capital
($000)
2,370,716
‐
6,948
(163,157)
(109,494)
2,105,013
‐
6,509
(159,281)
1,952,241
For the year ended December 31, 2023, the Corporation purchased 13.1 million common shares for
cancellation at an average weighted price of $8.96 for a total cost of $117.3 million. Share capital was reduced
by $159.3 million while contributed surplus was increased by $41.9 million, representing the excess average
carrying value of the common shares over the purchase price.
(c) Normal Course Issuer Bid ("NCIB")
On April 6, 2023, the Toronto Stock Exchange (the "TSX") approved the renewal of the NCIB. Pursuant to the
NCIB, Advantage was approved to purchase for cancellation, from time to time, as it considered advisable,
up to a maximum of 16,201,997 common shares of the Corporation. The NCIB commenced on April 13, 2023
and will terminate on April 12, 2024 or such earlier time as the NCIB is completed or terminated at the option
of Advantage.
On April 7, 2022, the TSX approved the Corporation commencing a NCIB. Pursuant to the NCIB, Advantage
was approved 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 terminated
on April 12, 2023.
Purchases pursuant to the NCIB are 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, including commissions. All common shares acquired
under the NCIB were cancelled.
(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. - 95
17. Non‐controlling interest ("NCI")
On May 5, 2021, Entropy issued common shares, resulting in Advantage owning 90% of Entropy.
On June 30, 2023, Advantage exercised an option pursuant to a contribution agreement, whereby on July 1, 2023,
Entropy issued 6,002,516 additional Common Shares to Advantage in exchange for the Glacier Phase 1A CCS
equipment, resulting in Advantage ownership increasing to 92% of Entropy.
Advantage has recognized a non‐controlling interest in shareholders’ equity, representing the carrying value of
the 8% shareholding of Entropy held by outside interests.
A reconciliation of the non‐controlling interest is provided below:
Balance, beginning of the year
Net loss and comprehensive loss attributable to NCI
Balance, end of year
18. Long‐term compensation plans
Year ended
December 31
2023
2022
1,425
(1,324)
101
2,331
(906)
1,425
(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, 2023, 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, 2021
Granted
Settled
Forfeited
Balance at December 31, 2022
Granted
Settled
Forfeited
Balance at December 31, 2023
Performance Share Units
4,880,684
720,641
(1,585,888)
(32,491)
3,982,946
956,920
(2,012,178)
(108,274)
2,819,414
During May 2023, 2,012,178 Performance Share Units matured and were settled with the issuance of
3,675,083 common shares.
Advantage Energy Ltd. - 96
18. Long‐term compensation plans (continued)
(b) Share‐based compensation expense
Share‐based compensation expense after capitalization for the years ended December 31, 2023 and 2022
are as follows:
Total share‐based compensation
Capitalized (note 9)
Share‐based compensation expense
(c) Performance Award Incentive Plan ‐ Performance Awards
Year ended
December 31
2023
2022
8,788
(2,242)
6,546
7,766
(2,242)
5,524
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 14) 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 ("DSU")
Year ended
December 31, 2023
Year ended
December 31, 2022
9,277
3,822
43
(6,455)
6,687
5,350
1,337
9,970
5,902
46
(6,641)
9,277
5,553
3,724
Deferred Share Units are issued to Directors of the Corporation. Each DSU entitles participants to receive
cash equal to the Corporation’s common shares, multiplied by the number of DSUs held. All DSU’s 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, 2021
Granted
Settled
Balance at December 31, 2022
Granted
Settled
Balance at December 31, 2023
Deferred Share Units
644,093
45,217
‐
689,310
52,218
(204,848)
536,680
Advantage Energy Ltd. - 97
18. 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
Year ended
December 31, 2023
Year ended
December 31, 2022
6,528
449
(663)
(1,735)
4,579
4,773
425
1,330
‐
6,528
19. 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
2023
2022
101,597
338,667
166,552,941
5,279,869
171,832,810
187,022,242
6,847,114
193,869,356
0.61
0.59
1.81
1.75
Advantage Energy Ltd. - 98
20. 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, 2023 and 2022, natural gas and liquids sales were as follows:
Crude oil
Condensate
NGLs
Liquids
Natural Gas
Natural gas and liquids sales
Year ended
December 31
2023
93,330
42,047
61,856
197,233
2022
81,938
47,129
79,042
208,109
343,867
742,349
541,100
950,458
At December 31, 2023, receivables from contracts with customers, which are included in trade and other
receivables, were $42.4 million (December 31, 2022 ‐ $84.6 million).
(b) Sales of purchased natural gas
During the year ended December 31, 2023, the Corporation purchased natural gas volumes to satisfy physical
sales commitments. Purchases and sales of natural gas from third‐parties were 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
2023
2022
3,124
(3,371)
(247)
4,826
(4,756)
70
During the year ended December 31, 2023, the Corporation earned income from the processing of third‐
party natural gas at the Corporation’s gas plant. Processing and other income were as follows:
Processing income
Other
Total processing and other income
Year ended
December 31
2023
2022
7,612
15
7,627
8,783
299
9,082
Advantage Energy Ltd. - 99
21. General and administrative expense
Personnel
Revaluation of outstanding Deferred Share Units (note 18(d))
Professional fees
Information technology cost
Office rent and administration cost
Total general and administrative
Capitalized (note 9)
General and administrative expense
22. Finance expense
Interest on bank indebtedness (note 11)
Interest income
Interest on financing liability (note 12)
Interest on provisions and other liabilities (note 14(b), 18(c))
Interest on unsecured debentures (note 13)
Interest paid‐in‐kind on unsecured debentures (note 13)
Accretion on decommissioning liability (note 14(c))
Accretion on unsecured debentures (note 13)
Capitalized borrowing cost (note 9)
Total finance expense
23. 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
2023
24,066
(663)
1,739
2,253
2,567
29,962
(5,325)
24,637
2022
21,920
1,330
1,601
2,043
2,197
29,091
(6,808)
22,283
Year ended
December 31
2022
2023
9,364
18,932
(829)
(1,446)
8,537
8,452
139
135
1,479
1,693
807 ‐
1,444
1,420
573 317
(500) ‐
20,427
30,090
Year ended
December 31
2023
2022
5,594
4,600
10,194
4,972
4,753
9,725
(1) Represents the grant date fair value of Performance Share Units and Performance Awards granted.
As at December 31, 2023, there is a commitment of $5.3 million (December 31, 2022 – $4.8 million) related
to change of control or termination of employment of officers.
Advantage Energy Ltd. - 100
24. 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
Inventory
Performance Awards
Deferred Share Units
Project funding
Related to operating activities
Related to investing activities
Year ended
December 31
2023
2022
39,438
(2,005)
(14,199)
(4,842)
(2,590)
(1,949)
‐
13,853
13,818
35
13,853
(38,047)
(11,130)
8,180
‐
(693)
1,755
(62)
(39,997)
(12,197)
(27,800)
(39,997)
The following table provides a detailed breakdown of the cash and non‐cash changes in financing liabilities arising
from financing activities:
Cash flows
Common shares repurchased
Draws on credit facility
Repayment of credit facility
Bankers’ acceptance and other fees
Proceeds from unsecured debentures
Transaction costs on unsecured debentures
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
Year ended
December 31
2023
2022
(117,343)
140,000
(105,000)
(17,448)
15,000
(1,167)
2,500
(691)
(12,760)
(96,909)
18,102
92
8,452
26,646
(240,967)
310,000
(298,000)
(10,019)
25,000
(3,838)
5,000
(451)
(12,320)
(225,595)
7,874
93
8,537
16,504
Cash used in financing activities
(70,263)
(209,091)
Advantage Energy Ltd. - 101
25. Commitments
At December 31, 2023 Advantage had commitments relating to building operating costs of $1.5 million,
processing commitments of $45.7 million and transportation commitments of $481.3 million. The estimated
remaining payments are as follows:
($ millions)
Building operating cost (1)
Processing
Transportation
Total commitments
Total
1.5
45.7
498.0
545.2
2024
0.4
10.0
83.6
94.0
Payments due by period
2027
2026
0.3
0.4
7.0
7.0
54.4
66.2
61.7
73.6
2025
0.4
9.5
79.8
89.7
2028
‐
7.0
29.9
36.9
Beyond
‐
5.2
184.1
189.3
(4) Excludes fixed lease payments which are included in the Corporation’s lease liability.
Advantage Energy Ltd. - 102
Forward‐Looking Information and Other Advisories
ADVISORY
This document contains certain forward‐looking statements and forward‐looking information (collectively, "forward‐
looking statements"), which are based on our current internal expectations, estimates, projections, assumptions and
beliefs. These forward‐looking statements relate to future events or our future performance. All statements other
than statements of historical fact may be forward‐looking statements. Forward‐looking statements are often, but
not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect",
"may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would"
and similar or related expressions. These statements are not guarantees of future performance.
In particular, forward‐looking statements in this document include, but are not limited to, statements about our
strategy, plans, objectives, priorities and focus and the benefits to be derived therefrom; the focus of the
Corporation's 2024 capital program; Advantage's expectations that it will be able to deliver its reduced capital level
without changing its production guidance or compromising its long‐term AFF per share focus; Advantage's focus on
growing adjusted funds flow per share while maintaining its net debt target; the Corporation's 2024 capital guidance
including its anticipated cash used in investing activities, total average production, liquids production (% of total
average production), royalty rate, operating expense per boe, transportation expense per boe, G&A/finance expense
per boe and net debt; Advantage's expectations that it will be able to deliver its 2024 capital program with reduced
capital; expectations that Advantage will continuously review its capital program to adjust to rapidly changing
supply/demand dynamics in North America; the anticipated timing of when the first phase of the Progress gas plant
project will be commissioned; Advantage's ability to defer its 2024 discretionary investments and the anticipated
benefits to be derived therefrom; Advantage's anticipated capital spending in 2024 and 2025 as a percentage of
forecasted total AFF and the anticipated benefits to be derived therefrom; Advantage's three‐year plan of delivering
compounding AFF per share growth via careful capital allocation with anticipated annual spending between $220
million and $300 million and production growth capped at 10%; Advantage's expectations that all excess cash will be
returned to its shareholders via share buybacks; the anticipated benefits to be derived from CGF's investment
structure in Entropy; 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 anticipated benefits to be derived from
Entropy's strategic investment agreement with CGF, including the CCO; that Advantage will continue to invest in
additional transportation commitments and the anticipated benefits to be derived therefrom; the Corporation's
forecasted 2024 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; the Corporation's estimated tax
pools and its expectations that it will not be subject to cash taxes until calendar 2027; the anticipated capture rate
of the Glacier Gas Plant Phase 1a CCS and waste heat recovery project; that Entropy's modular technology will lower
corporate emissions; the Corporation's anticipated reductions in Scope 1 and 2 emissions; the anticipated timing of
when construction will begin on Glacier Phase 2 and the anticipated benefits to be derived therefrom; the
Corporation's expectations that its Valhalla asset will continue to play a pivotal role in the Corporation's liquids‐rich
gas development plan; 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 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
Advantage Energy Ltd. - 103
Forward‐Looking Information and Other Advisories (continued)
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
anticipated timing that such costs will be incurred; Entropy's business plan and the anticipated benefits 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 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 the Credit Facilities may not be renewed at each annual review; competition from other
producers; the risk that the Corporation's actual 2024 results may not be consistent with its 2024 guidance; the risk
that Advantage may not grow its adjusted funds flow per share while maintaining its net debt target; the risk that
Advantage may not continuously review its capital program to adjust to rapidly changing supply/demand dynamics
in North America; the risk that the first phase of the Progress gas plant project may not be commissioned when
anticipated, or at all; the risk that Advantage may not defer its 2024 discretionary investments in the event of
downward pressure on futures pricing; the risk that Advantage's capital spending in 2024 and 2025 as a percentage
of forecasted total AFF may not be consistent with its expectations; the risk that Advantage may not deliver
compounding AFF per share growth via careful capital allocation with anticipated annual spending between $220
million and $300 million and production growth capped at 10%; the risk that all of Advantage's excess cash may not
be returned to its shareholders via share buybacks; the risk that the Corporation's 2024 annual average production
may be less than anticipated; the risk that the Corporation may not deliver its 2024 capital program with reduced
capital; 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 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 agreements with Brookfield Renewables and CGF may not lead to the
results anticipated; 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 may be subject to cash
Advantage Energy Ltd. - 104
Forward‐Looking Information and Other Advisories (continued)
taxes prior to calendar 2027; the risk that Entropy's modular technology may not lower corporate emissions; 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 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 2024 towards the Corporation’s share buyback program; 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.sedarplus.ca and www.advantageog.com. Readers are also referred to risk factors described in
other documents Advantage files with Canadian securities authorities.
With respect to forward‐looking statements contained in this document, in addition to other assumptions identified
herein, Advantage has made assumptions regarding, but not limited to: current and future prices of oil and natural
gas; that the current commodity price and foreign exchange environment will continue or improve; conditions in
general economic and financial markets; effects of regulation by governmental agencies; receipt of required
stakeholder and regulatory approvals; royalty regimes; future exchange rates; royalty rates; future operating costs;
availability of skilled labour; availability of drilling and related equipment; timing and amount of capital expenditures;
the 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 document in order to provide shareholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other purposes. Advantage’s actual results, performance
or achievement could differ materially from those expressed in, or implied by, these forward‐looking statements and,
accordingly, no assurance can be given that any of the events anticipated by the forward‐looking statements will
transpire or occur, or if any of them do so, what benefits that Advantage will derive there from. Readers are cautioned
that the foregoing lists of factors are not exhaustive. These forward‐looking statements are made as of the date of
this document and Advantage disclaims any intent or obligation to update publicly any forward‐looking statements,
whether as a result of new information, future events or results or otherwise, other than as required by applicable
securities laws.
The future acquisition by the Corporation of the Corporation's common shares pursuant to its share buyback program
(including through an NCIB), 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
Advantage Energy Ltd. - 105
Forward‐Looking Information and Other Advisories (continued)
of common shares of the Corporation that the Corporation will acquire pursuant to its share buyback program, if any,
in the future.
This document contains information that may be considered a financial outlook under applicable securities laws
about the Corporation's potential financial position, including, but not limited to: the Corporation's expectations that
all free cash flow will be allocated to its share buyback program; the Corporation's 2024 capital guidance including
its anticipated cash used in investing activities, royalty rate, operating expense per boe, transportation expense per
boe, G&A/finance expense per boe and net debt; Advantage's expectations that it will be able to deliver its 2024
capital program with reduced capital; Advantage's anticipated capital spending in 2024 and 2025 as a percentage of
forecasted total AFF and the anticipated benefits to be derived therefrom; Advantage's three‐year plan of delivering
compounding AFF per share growth via careful capital allocation with anticipated annual spending between $220
million and $300 million and production growth capped at 10%; 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 estimated tax pools and its
expectations that it will not be subject to cash taxes until calendar 2027; the Corporation's commitments and
contractual obligations and the anticipated payments in connection therewith and the anticipated timing thereof;
the anticipated undiscounted, uninflated cash flows required to settle the Corporation's decommissioning liability
and the anticipated timing that such costs will be incurred; 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 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. - 106
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", "net asset value per share", "reserve additions",
"reserves 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 this document, 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 2024 Advantage considered historical drilling, completion and
production results for prior years and took into account the estimated impact on production of the Corporation’s
2024 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, 2023 (“Sproule 2023 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 reserve
information as required under NI 51‐101 are included in our Annual Information Form which is available at
www.sedarplus.ca and www.advantageog.com. Advantage’s year‐end reserves as of December 31, 2022 and
December 31, 2021 disclosed in this document were evaluated by Sproule in accordance with NI 51‐101 and the
COGE Handbook and using the IQRE average product price forecast effective December 31, 2022 and December 31,
2021, respectively. 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. It should not be assumed that the discounted future net
revenue estimated by Sproule and disclosed herein represents the fair market value of the reserves.
References to natural gas, crude oil and condensate and NGLs production in this 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 – Standards of Disclosure for Oil and Gas Activities ("NI 51‐101").
Advantage Energy Ltd. - 107
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, 2023, which is available at www.sedarplus.ca 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 and Development ("F&D") Cost per BOE
F&D cost per boe is a supplementary financial measure calculated based on adding net capital expenditures excluding
acquisitions and dispositions, and the net change in future development capital, divided by reserve additions for the
year from the Sproule 2023 and 2022 Reserves Report. Additionally, the Corporation discloses Three‐year average
F&D cost, which is calculated based on adding net capital expenditures excluding acquisitions and dispositions from
2023, 2022 and 2021, and the net change in FDC from 2023, 2022 and 2021, divided by reserve additions from 2023,
2022 and 2021 from the respective Sproule Reserve Reports.
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. Additionally, the Corporation discloses net asset value per
share, which is determined by dividing net asset value by the basic weighted average shares outstanding of the
Corporation. Management believes that net asset value and net asset value per share assist 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.sedarplus.ca and the Corporation’s
website at www.advantageog.com. Such other information includes the annual information form, the management
information circular, press releases, material change reports, material contracts and agreements, and other financial
reports. The annual information form will be of particular interest for current and potential shareholders as it
discusses a variety of subject matter including the nature of the business, description of our operations, general and
recent business developments, risk factors, reserves data and other oil and gas information.
March 18, 2024
Advantage Energy Ltd. - 108
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. - 109
Directors
Jill T. Angevine (1)(3)(4)
Stephen E. Balog(2)(4)
Michael Belenkie
Deirdre M. Choate(1)(2)(3)(4)
Donald M. Clague (1)(2)(3)(4)
Norman W. MacDonald(1)(2)(3)
Andy J. Mah(2)
Janine J. McArdle(1)(4)
Transfer Agent
Computershare Trust Company of Canada
Corporate Office
2200, 440 – 2nd Avenue SW
Calgary, Alberta T2P 5E9
(403) 718‐8000
Contact Us
(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
Toll free: 1‐866‐393‐0393
Email: ir@advantageog.com
Visit our website at www.advantageog.com
Toronto Stock Exchange Trading Symbol
Officers
AAV
Michael Belenkie, President and CEO
Craig Blackwood, CFO
Neil Bokenfohr, Senior Vice President
David Sterna, Vice President, Marketing and Commercial
John Quaife, Vice President, Finance
Darren Tisdale, Vice President, Geosciences
Geoff Keyser, Vice President, Corporate Development
Corporate Secretary
Jay P. Reid, Partner
Burnet, Duckworth and Palmer LLP
Auditors
PricewaterhouseCoopers LLP
Bankers
The Bank of Nova Scotia
National Bank of Canada
Royal Bank of Canada
Canadian Imperial Bank of Commerce
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. - 110
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. - 111