Advantage Energy Ltd · TSX:AAV
Advantage Energy — Advantage Oil and Gas — CAPP Conference 2010
38 slides from Advantage Energy's conference presentation, June 2010
Slide 1: CAPP Conference
CAPP Conference Calgary, Alberta June14 -16, 2010 TSX: AAV NYSE: AAV June 2010 Page 1
Slide 2: Advisory
Advisory The information in this presentation contains certain forward-looking statements, including within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future intentions or performance. All statements other than s
Slide 3: Advantage Oil and Gas Ltd.
Advantage Oil and Gas Ltd. • Listed on TSX & NYSE AAV • Market Capitalization at June 7, 2010 $1.1 billion • Shares Outstanding (Basic) 163 million • Estimated Production • Current (net of 1,700 boe/d non-core asset sales Q2 2010) ~24,000 boed • Q2 2011 Forecast ~30,000 boed • Credit Facility $525 m
Slide 4: Advantage – Corporate Strategy
Advantage – Corporate Strategy Growth Oriented & Focused ‘Low Cost’ Producer with Financial Flexibility: • Focus on Montney Natural Gas Resource Play Development at Glacier, Alberta • Grow Glacier production to a target of 100 mmcfd (16,667 boed) by Q2 2011 (currently at 50 mmcfd) • Continue delinea
Slide 5: Focus on Our Extensive Montney Land Block at Glacier
Focus on Our Extensive Montney Land Block at Glacier Trends: • Increased drilling activity around Glacier land block by Major players Shell • Improving Montney well Arc productivities & frac CNRL technology • Well density per section is still very low Birchcliff • Some operators are evaluating up to
Slide 6: Glacier - Expand to 100 mmcfd (16,667 boe/d) by Q2 2011
Glacier - Expand to 100 mmcfd (16,667 boe/d) by Q2 2011 Highlights: Targeted Production Growth * Gross plant inlet volume • Project commences immediately and is scheduled for completion Q2 2011 Approved and In-progress • Glacier at 100 mmcfd will comprise approximately 55% of corporate production Co
Slide 7: Glacier - Infrastructure Expansion
Glacier - Infrastructure Expansion AAV Glacier Gas Plant AAV Glacier gas plant to be expanded to 100 TCPL mmcfd Sales lateral to be expanded to 100 mmcfd TCPL Mainline Existing TCPL Lateral • Glacier gas plant expansion to 100 Current mmcfd will further reduce cost structure Gathering System Wembley
Slide 8: Glacier – Results Exceeding Expectations
Glacier – Results Exceededing Expectations Test Rates Exceeding Expectations Across Land Block 1 Upper Montney Hz 12 mmcf/d @ 1300 psi 2 Upper Montney Hz 8 Upper Montney Hz Avg. 8.1 mmcf/d @ 812 psi Avg 5.1 mmcf/d @ 1404 psi 2 Lower Montney Hz 4.6 mmcf/d @ 917 psi 4.2 mmcfd @ 495 psi 1 Upper Montney
Slide 9: Glacier Upper Montney – Well Test Rates Improved
Glacier Upper Montney – Well Test Rates Improved 12,000 Average Hz well rate increased from 3.6 mmcf/d to 6.5 mmcf/d 10,000 8,000 Test Rate (mcf/d) 6,000 4,000 2,000 0 0 500 1,000 1,500 2,000 2,500 Flowing Pressure (psi) First 12 Last 16 First 12 Wells Last 16 Wells June 2010 Page 9 9
Slide 10: Glacier Upper Montney Rate per Frac Improved 1.7x
Glacier Upper Montney Rate per Frac* Improved 1.7x 1,400 Rate per Frac increased from 1,200 465 mcf/d to 802 mcf/d 1,000 800 mcf/d 600 400 200 0 * Due to testing equipment constraints on high rate/high pressure wells, the rate per frac has been adjusted to a common flowing pressure of 435 psi for co
Slide 11: Completion Costs per Frac Declining
Completion Costs per Frac Declining $1,000,000 $900,000 Completion costs per frac $800,000 decreased over 50% $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 June 2010 Page 11
Slide 12: Drilling and Completion Well Costs Reduced 24%
Drilling and Completion Well Costs Reduced 24% D+C costs decreased despite increased # fracs per well $8,000,000 Completion Drilling $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 June 2010 Page 12
Slide 13: Glacier – Low Well Density Provides Significant Upside Potential
Glacier – Low Well Density Provides Significant Upside Potential Vast Majority of Land at Glacier Contains No Hz Montney Wells Glacier and Swan Production Chart EnCana Swan Swan Glacier Advantage Glacier 5 + wells 3 - 4 wells 1 - 2 wells Glacier Production Growth to 50 mmcfd in 20 months: BC AB No w
Slide 14: New Alberta Royalty Incentives Enhance Glacier Economics
New Alberta Royalty Incentives Enhance Glacier Economics • Significant enhancement for Glacier Montney horizontal wells due to changes in the Natural Gas Deep Drilling Program (“NGDDP”): • Reduced qualifying depth from 2,500 meters to 2,000 meters • Program is now a permanent feature (no expiry date
Slide 15: Glacier – Illustrative Netback & Cash Flow at $5.00/mcf Natural Gas Price
Glacier – Illustrative Netback & Cash Flow at $5.00/mcf Natural Gas Price ($/mcf except royalty rate) Glacier Production @ 50 mmcfd @ 100 mmcfd Revenue $5.00 $5.00 Royalties $(0.38) $(0.35) Royalty Rate 7.7% 7.0% Operating Costs $(0.46) $(0.29) Operating Netback ($/mcf) $4.16 $4.36 Annual Cash Flow,
Slide 16: Glacier - Rock Type Supports Higher Reserve Recoveries
Glacier - Rock Type Supports Higher Reserve Recoveries Unconventional Unconventional Marcellus Shale Horn River Barnett Glacier Shale “Shaley” silts Edmonton Calgary Haynesville Silt Glacier Montney Shell Arc Dawson “Tight” sand Conventional Groundbirch Birchcliff Encana Swan Murphy Tupper AAV Glaci
Slide 17: Montney – Reserves/Well Could Exceed Expectations due to Silt/Sand Reservoir
Montney – Reserves/Well Could Exceed Expectations due to Silt/Sand Reservoir Montney type well @ Swan (based on 50 wells that have the longest production history) Barnett Shale type wells by operator Source: Facts are Stubborn Things, Oct. 25, 2009, Arthur E. Berman June 2010 Page 17
Slide 18: Glacier – Reserves and Resource Potential
Glacier – Reserves and Resource Potential Advantage working interest reserves and contingent sales gas resource in million boe (TCF) Significant Upside Potential Remains 285.0 (1.7 TCF) 2009 Reserves assignment: • 56 of 84 sections @ 3.8 wells/sec Upper Montney 218.3 • 27 of 84 sections @ 2.5 wells/
Slide 19: Glacier - Nikanassin and Other Resource Plays
Glacier - Nikanassin and Other Resource Plays Nikanassin at Glacier is located in: • Thick part of the fairway (up to 50 meters) of net coarse grained sand developed in the key Middle section of the Nikanassin • Clean sandstone with high porosity (low permeability) – multi stage frac – should improv
Slide 20: Guidance – 12 Months ending June 2011
Guidance – 12 Months ending June 2011 Guidance H2 2010 H1 2011 12 Months Production Average (boe/d) 23,000 - 23,800 26,600 - 27,200 24,800 - 25,500 Royalty Rate (%) 13% - 15% 13% - 15% 13% - 15% Operating Costs ($/boe) $9.75 - $10.25 $8.50 - $9.00 $9.10 - $9.65 Capital Expenditures ($Millions) $120
Slide 21: Solid Hedging Program to Support Future Cash Flow
Solid Hedging Program to Support Future Cash Flow % of net Aeco Cdn $ Nymex US $ NATURAL GAS Production Hedged (per mcf) (per mmbtu) * 2010 Q1 81% $7.64 $8.04 Q2 57% $7.53 $7.93 Q3 44% $7.27 $7.67 Q4 45% $7.27 $7.67 2010 Full Year 57% $7.46 $7.86 2011 Q1 41% $6.43 $6.83 Q2 23% $6.24 $6.64 Q3 24% $6.
Slide 22: Advantage - Well Positioned for Growth
Advantage - Well Positioned for Growth • Montney natural gas resource play at Glacier • Increase production to 100 mmcfd (16,667 boe/d) by Q2 2011 • Cost structure reduced • Growth at Glacier will lower operating cost & capitalize on efficiencies due to AAV’s Glacier gas plant expansion • Dispositio
Slide 23: Contact Information
Contact Information Investor Relations 1.866.393.0393 ir@advantageog.com Andy Mah, P.Eng. Chief Executive Officer Craig Blackwood, C.A. Vice-President, Finance www.advantageog.com TSX:AAV NYSE:AAV Advantage Oil & Gas Ltd. Suite 700, 400 – 3rd Avenue SW Calgary, Alberta T2P 4H2 Main: 403.718.8000 Fac
Slide 24: Appendix
Appendix Montney and Other Properties June 2010 Page 24
Slide 25: Montney Horizontal Drilling Density – wells/section
Montney Horizontal Drilling Density – wells/section BC AB BC AB UPPER MONTNEY LOWER MONTNEY 5 + wells 3 - 4 wells 1 - 2 wells No wells AAV lands •Drilling to June 2010 June 2010 Page 25
Slide 26: Montney Deposition and Paleo - Geography
Montney Deposition and Paleo - Geography Meters of water 10’s of meters of water “Conventional”Montney 100’s of meters of water Doig Upper Montney) Montney (Lower) Modern US Atlantic Long Island shelf for scale Cape Hatteras June 2010 Page 26
Slide 27: Lithological Comparison of Major Unconventional Gas Plays
Lithological Comparison of Major Unconventional Gas Plays 0% • The Montney and Doig Formations have a 100% predominantly siltstone and sandstone matrix as opposed to the mainly shale matrix common in other major resource plays • Most of the gas in place at Glacier is situated Shales within the silt
Slide 28: Montney Formation Geology
Montney Formation Geology West East Swan Tupper Sunset Groundbirch Glacier Dawson Sturgeon Ante Ck Upper Doig Phosphate W-E Cross schematic section of Note truck for scale Montney and Doig Formations Thin bedded turbidites and mudstones in Sacramento Valley, California, a modern analog for the Lower
Slide 29: Montney – A Balance of Factors
Montney – A Balance of Factors Shale Silty shale Silt Silty sand Sand 1,250 1,750 2,250 2,750 3,250 3,750 Depth (meters) 40 60 80 100 120 140 160 180 200 220 Thickness (meters) Utica Woodford MONTNEY Marcellus Horn River Haynesville Fayetteville Barnett 2 3 4 5 6 7 8 9 10 11 12 Porosity (%) June 201
Slide 30: Doig/Montney Completion Techniques
Doig/Montney Completion Techniques • Swell Packer Packers Plus Completion • Delta Stim/Packers Plus or Weatherford ARES • Hydra jet (sand plug) Hydra Jet Sand Plugs Delta Stim tool “Frac Door systems” run as integral part of casing Perforate or cut slots to frac through production casing Swell Packe
Slide 31: Increased Drilling Activity & Successful Well Results Surrounding Glacier Land Block
Increased Drilling Activity & Successful Well Results Surrounding Glacier Land Block New Birchcliff Lower Montney HZs Birchcliff Upper Montney/Doig Murphy – 4 L. Montney Hz’s Tested average of 8.4 MMcf/d Cequence 3.5 Mmcf/d U Montney Devon New Upper Montney HZ Drilling Cequence 5.5 Mmcf/d U Montney
Slide 32: Enviable Asset Base
Enviable Asset Base Enviable Asset Base • Glacier (8,000 boe/d)* • Significant Montney natural gas resource play Alberta Saskatchewan • Central Alberta (11,000 boe/d)* Montney natural gas resource play • Conventional & emerging oil & natural Glacier gas resource plays Sunset • Foothills Gas (1,100 b
Slide 33: Nevis - Light Oil and Coal Bed Methane Resource Plays
Nevis - Light Oil and Coal Bed Methane Resource Plays Horseshoe Canyon CBM Gas Pool W West Wabamun W Light Oil Pool East Wabamun Light Oil Pool • W.I. Production: 4,800 boe/d • W.I. 90%; 100% operated 40% Light Oil, 60% Natural Gas • Reserve Life Index: 9 years Hz Wabamun Oil Wells • Significant lig
Slide 34: Nevis – Wabamun Light Oil Resource Play
Nevis – Wabamun Light Oil Resource Play Horizontal Type Well vs Vertical Type Well • Lower permeability light oil carbonate reservoir • High porosity 30% -> Large OOIP • Hz wells enhanced play economics Hz well EUR = 220 mboe • 70 Hz wells drilled to date (estimated ultimate recovery) • Primary rese
Slide 35: Nevis – Horseshoe Canyon Coal Bed Methane
Nevis – Horseshoe Canyon Coal Bed Methane Nevis CBM Normalized Well Production • Horseshoe Canyon CBM Based on Advantage’s CBM wells development • Current WI production 11 mmcfd • Property acquired in mcfd/well Less than 5% decline (Sproule’s forecast uses Sept 2007 declines of 14% - 20%) • 105 well
Slide 36: Sunset A Pool – Montney Light Oil, Drilling & Waterflood Upside
Sunset A Pool – Montney Light Oil, Drilling & Waterflood Upside Sunset Montney A oil pool has significant upside potential • W.I. Production: 618 boe/d • Montney light oil, 32 degree API • W.I. 70%, 100% operated • Reserve Life Index P+P: 17 years • OOIP: 46 million bbls • Recovered to date 12% OOIP
Slide 37: Lookout Butte – Foothills Gas with Multi-zone Drilling Upside
Lookout Butte – Foothills Gas with Multi-zone Drilling Upside Mississipian Rundle – main producing gas zone Mannville – uphole light oil Cardium – uphole gas R28W4 T2 Less than 10% decline Waterton National Park • W.I. Production: 1,100 boe/d (20% ngl’s) Rundle – main producing • W.I. 100%; 100% ope
Slide 38: Lookout Butte – Example of Rundle Drilling Potential
Lookout Butte – Example of Rundle Drilling Potential U L E F • Section 16 has produced 79 BCF to 36 31 U 32 33 34 date from 3 wells: C U L U • 14-16 49 Bcf L • 7-16 26 Bcf U 25 30 29 28 27 • 2-16 4 Bcf (drilled 2004) K A U U F • Reservoir pressure at 2-16 is still at 24 A 79% of original reservoir p