- Published: 06 March 2009
- Written by Editor
Advantage Replaces 290% of Annual Production in 2008 at a FD&A cost of $7.67 per Boe, Increases Reserves per Unit by 11% and Extends RLI to 15.2 years
Advantage Energy Income Fund ("Advantage" or the "Fund") is pleased to announce the Fund's corporate year end reserves as of December 31, 2008. Year end financial and operating information will be released on or about March 18, 2009.
Overall, the Fund replaced 290% of annual production with the vast majority of reserve additions realized through our successful 2008 drilling program at Glacier, Alberta where the Fund commenced a significant development drilling program on our Montney natural gas resource play. Based on results to date, Advantage estimates that a total capital investment in excess of $2.5 billion will be required to fully develop our extensive Montney land holdings at Glacier.
In 2008, all-in Finding, Development and Acquisition ("FD&A") costs were $7.67 per proven plus probable boe before changes in future development capital ("FDC") and $16.70 per boe including changes in FDC.
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Highly Successful 2008 Drilling Program at Glacier & Key Properties leads
to Efficient Reserve Additions
- Our 2008 drilling program resulted in the replacement of 285% of
annual production at a Finding and Development ("F&D") cost of $7.61
per proven and probable boe before consideration of changes in FDC
and $16.95 per boe including the change in FDC.
- At our Glacier Montney natural gas resource play the 2008 F&D cost
was $3.48 per proven and probable boe before changes in FDC and
$13.14 per boe including changes in FDC. Advantage invested $101
million at Glacier in 2008 and increased proven and probable reserves
by 29 mmboe and confirmed horizontal well rates of 2.5 to 7.5 mmcfd
(417 to 1,250 boe per day). Montney reserves are assigned to only 32
of our 88 sections. The reserve assignment is based on an average
well density of 2.4 wells per section of land although we currently
have regulatory approval to drill up to 8 wells per section
consisting of 4 wells in the Upper and 4 wells in the Lower Montney
zones. Adjacent operators are currently evaluating 16 wells per
section which may lead to significant future reserve additions.
Further delineation drilling is required to evaluate the undeveloped
land potential in the remaining 56 sections. Our independent reserve
evaluator, Sproule Associates Limited ("Sproule") included the
following comment in their December 31, 2008 Glacier reserves report:
"The Proved and Probable reserves assigned by Sproule to the
Montney zone at Glacier, as of December 31, 2008 represent a
significant increase in reserve assignment compared to the
December 31, 2007 reserves assigned. However, the reserves
assigned still represent a relatively small percentage of the
total resource potential for the Upper and Lower Montney zone on
the Glacier land holdings."
- The balance of our 2008 capital development program of $155 million
was directed to key properties such as Nevis, Martin Creek, Willesden
Green, Northville, Brazeau and Youngstown where better than expected
results were obtained.
- At Nevis, continued light oil drilling in the Wabamun formation
extended the field and resulted in numerous wells with initial
production exceeding 200 boe per day. A 35 gross (27 net) well
Horseshoe Canyon coal bed methane drilling program in 2008 also
confirmed several more phases of future drilling. A total of 47
gross (38.8 net) wells were drilled at a 100% success rate for
a total expenditure of $50 million and added 2,980 boe per day
of initial production.
- At Martin Creek, approximately $17 million was invested in a
successful 10 well gross (8 net) drilling program in early 2008
which added 1,490 boe per day of initial production.
- At Willesden Green, a new light oil pool was discovered with
the drilling of 2 gross (2 net) wells with initial combined
production of 800 boe per day. In addition, 3 gross (3 net)
wells were successfully drilled for liquids rich natural gas
production from the Rock Creek formation.
- At Northville, Brazeau and Youngstown, 6 gross (4.3 net) wells
were successfully drilled adding additional reserves and
defined additional drilling locations.
- The 2008 capital program totaled $263.5 million of which $255.9
million was invested in development activities and $7.6 million was
expended on a complimentary acquisition at our Nevis property. The
Nevis acquisition resulted in increasing our working interest in 9
gross sections of land and provided future drilling locations on an
additional 4 gross sections for Horseshoe Canyon coal bed methane.
Included in our 2008 capital expenditures were $20 million of
strategic undeveloped land acquisitions, the majority of which was
located at Glacier. A total of 124 gross (86.8 net) wells were
drilled in 2008 at a 99% success rate.
- Advantage's total drilling inventory has grown to over 1,000 drilling
locations of which 560 is in our conventional assets and over 440 has
been confirmed in our Glacier Montney natural gas resource play. The
drilling inventory at Glacier could exceed 800 locations depending on
the density of horizontal wells that will ultimately be drilled per
section of land.
Company Interest Reserves increase 15% (11% on a per Unit basis)
primarily from Organic Drilling Results
- Proven and probable reserves increased 15% to 174.8 mmboe from 152.2
mmboe at year end 2007. Proven reserves increased 7% to 102.3 mmboe
from 95.6 mmboe at year end 2007. The Fund's proven plus probable
reserve life index increased 26% to 15.2 years compared to 12.1 years
at the end of 2007. Natural gas reserves calculate to a reserve life
index of 15.9 years, and crude oil and natural gas liquids calculate
to a reserve life index of 13.9 years indicative of a very stable
producing platform with significant upside potential.
- Ninety eight percent (33.8 mmboe) of total P+P reserve additions
(34.4 mmboe) were a result of the Fund's successful drilling program.
- Proven and probable reserves per trust unit increased 11% and proven
reserves increased 4% per trust unit compared to year end 2007.
- Advantage's total proven and probable reserves consist of 67% natural
gas and 33% crude oil and natural gas liquids.
Net Asset Value & Recycle Ratio
- The net asset value ("NAV") calculated using Sproule's December 31,
2008 reserves report and price forecasts results in a before tax
value of $14.03 per trust unit at a 10% discount rate.
- Based on a 2008 operating netback of $36.54 per boe, the one year
recycle ratio is 4.8 times using the FD&A cost of $7.67 per boe
before changes to FDC and 2.2 times using the FD&A cost of $16.70 per
boe including the changes to FDC.
Well Positioned for Future Organic Growth
- Advantage is well positioned to grow by developing our significant
natural gas resource at Glacier and continued exploitation and
optimization of our long life conventional assets.
- The reserve potential at Glacier which is measured in "TCF's" of
natural gas is economic at less than $5 Cdn per mcf. Advantage
will utilize a disciplined financial approach to development in order
to yield significant long term value growth for Unitholders. As at
December 31, 2008 Sproule has assigned 223 BCF (0.223 TCF) of proven
and probable natural gas reserves to Glacier which will require
future development capital of approximately $0.4 million. Advantage
estimates that fully developing the Montney resource potential at
Glacier will require additional capital expenditures in excess of
$2.5 billion over the life of the project which, if properly
deployed, could result in significant reserve and production growth.
RESERVES
Advantage engaged our independent qualified reserves evaluator Sproule
Associates Ltd. ("Sproule") to update the reserves analysis for the Fund
in accordance with National Instrument 51-101 and the COGE Handbook.
Highlights - Company Interest Reserves (Working Interests plus Royalty
Interests Receivable)
December 31, December 31,
2008 2007
-------------------------------------------------------------------------
Proved plus probable reserves (mboe) 174,767 152,203
Present Value of reserves discounted at 10%,
before tax P+P ($000) $ 2,663,437 $ 2,462,610
Net Asset Value per Unit discounted at 10%,
before tax $ 14.03 $ 12.96
Reserve Life Index
(proved plus probable - years)(1) 15.2 12.1
Reserves per Unit (proved plus probable)(2) 1.22 1.10
Bank debt per boe of reserves(3) $ 3.36 $ 3.60
Convertible debentures per boe of reserves(3) $ 1.25 $ 1.48
(1) Based on Q4 average production and company interest reserves.
(2) Based on 142.8 million Units outstanding at December 31, 2008, and
138.3 million Units outstanding as December 31, 2007.
(3) BOE's may be misleading, particularly if used in isolation. In
accordance with NI 51-101, a BOE conversion ratio for natural gas of
6 Mcf: 1 bbl has been used which is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
Company Interest Reserves (Working Interests plus Royalty Interests
Receivable)
Summary as at December 31, 2008
Natural
Light & Gas Oil
Medium Oil Heavy Oil Liquids Natural Gas Equivalent
(mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Proved
Developed
Producing 19,853 2,359 5,469 266,762 72,141
Developed
Non-producing 279 208 248 28,904 5,553
Undeveloped 3,744 312 1,147 116,574 24,631
Total Proved 23,876 2,879 6,864 412,240 102,325
-------------------------------------------------------------------------
Probable 16,064 3,712 3,991 292,046 72,442
Total Proved
+ Probable 39,940 6,591 10,855 704,286 174,767
-------------------------------------------------------------------------
Gross Working Interest Reserves (Working Interest only)
Summary as at December 31, 2008
Natural
Light & Gas Oil
Medium Oil Heavy Oil Liquids Natural Gas Equivalent
(mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Proved
Developed
Producing 19,560 2,329 5,407 264,099 71,313
Developed
Non-producing 254 204 245 28,484 5,451
Undeveloped 3,730 312 1,143 116,503 24,602
Total Proved 23,544 2,845 6,795 409,086 101,366
-------------------------------------------------------------------------
Probable 15,928 3,697 3,970 290,738 72,052
Total Proved
+ Probable 39,473 6,542 10,765 699,824 173,418
-------------------------------------------------------------------------
Present Value of Future Net Revenue using Sproule price and cost
forecasts(1)
($000)
Before
Income Taxes
Discounted at
0% 5% 10%
-------------------------------------------------------------------------
Proved
Developed Producing $ 2,586,932 $ 1,781,161 $ 1,394,029
Developed Non-producing 164,372 122,933 97,495
Undeveloped 627,257 361,683 223,136
Total Proved 3,378,561 2,265,777 1,714,660
-------------------------------------------------------------------------
Probable 3,026,305 1,534,620 948,777
Total Proved + Probable $ 6,404,866 $ 3,800,397 $ 2,663,437
-------------------------------------------------------------------------
(1) Advantage's crude oil, natural gas and natural gas liquid reserves
were evaluated using Sproule's product price forecast effective
December 31, 2008 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 revenue estimated by
Sproule represents the fair market value of the reserves.
Sproule Price Forecasts
The present value of future net revenue at December 31, 2008 was based
upon crude oil and natural gas pricing assumptions prepared by Sproule
effective December 31, 2008. These forecasts are adjusted for reserve 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:
Edmonton Alberta
WTI Light AECO-C Henry Hub Exchange
Crude Oil Crude Oil Natural Gas Natural Gas Rate
Year ($US/bbl) ($Cdn/bbl) ($Cdn/mmbtu) ($US/mmbtu) ($US/$Cdn)
-------------------------------------------------------------------------
2009 53.73 65.35 6.82 6.30 0.80
2010 63.41 72.78 7.56 7.32 0.85
2011 69.53 79.95 7.84 7.56 0.85
2012 79.59 86.57 8.38 8.49 0.90
2013 92.01 94.97 9.20 9.74 0.95
2014 93.85 96.89 9.41 9.94 0.95
2015 95.72 98.85 9.62 10.14 0.95
The Sproule price forecast does not include the impact of Advantage's
commodity price hedging program. We currently have 56% of our net natural gas
production hedged at an average price of $8.09 Cdn/mmbtu for 2009 and 48%
hedged for 2010 at an average price of $7.46 Cdn/mmbtu. Crude oil hedges
include 46% of our net crude oil production hedged at an average floor price
of $69.38 Cdn/bbl for 2009 and 26 % hedged for 2010 at an average price of
$67.83 Cdn/bbl.
Net Asset Value using Sproule price and cost forecasts
(Before Income Taxes)
The following net asset value ("NAV") table shows what is normally
referred to as a "produce-out" NAV calculation under which the current value
of the Fund'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
Unit amounts) 0% 5% 10%
-------------------------------------------------------------------------
Net asset value per Unit(1)
- December 31, 2007 $ 32.05 $ 18.95 $ 12.96
-------------------------------------------------------------------------
Present value proved and
probable reserves $ 6,404,866 $ 3,800,397 $ 2,663,437
Undeveloped acreage
and seismic(2) 159,412 159,412 159,412
Working capital (deficit)
and other (12,257) (12,257) (12,257)
Convertible debentures (219,195) (219,195) (219,195)
Bank debt (587,404) (587,404) (587,404)
Net asset value
- December 31, 2008 $ 5,745,422 $ 3,140,953 $ 2,003,993
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net asset value per Unit(1)
- December 31, 2008 $ 40.23 $ 21.99 $ 14.03
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Based on 142.8 million Units outstanding at December 31, 2008, and
138.3 million Units outstanding at December 31, 2007.
(2) Internal estimate
Gross Working Interest Reserves Reconciliation
Natural
Light & Gas Oil
Medium Oil Heavy Oil Liquids Natural Gas Equivalent
Proved (mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Opening balance
Dec. 31, 2007 26,154 2,237 7,840 350,933 94,720
Extensions 496 0 254 19,565 4,011
Improved
recovery 318 0 324 41,909 7,627
Discoveries 240 0 56 1,120 483
Economic factors (49) 446 314 14,250 3,086
Technical
revisions (492) 532 (1,170) 23,761 2,831
Acquisitions 0 0 1 2,522 420
Dispositions 0 0 0 0 0
Production (3,123) (370) (824) (44,973) (11,812)
-------------------------------------------------------------------------
Closing
balance at
Dec. 31, 2008 23,544 2,845 6,795 409,087 101,366
-------------------------------------------------------------------------
Natural
Light & Gas Oil
Proved + Medium Oil Heavy Oil Liquids Natural Gas Equivalent
Probable (mbbl) (mbbl) (mbbl) (mmcf) (mboe)
-------------------------------------------------------------------------
Opening balance
Dec. 31, 2007 43,630 5,508 11,613 541,546 151,009
Extensions 741 0 442 40,241 7,890
Improved recovery 567 0 835 120,454 21,478
Discoveries 336 0 67 1,423 641
Economic factors (138) 1,098 418 21,044 4,885
Technical
revisions (2,540) 306 (1,788) 16,677 (1,243)
Acquisitions 0 0 2 3,412 570
Dispositions 0 0 0 0 0
Production (3,123) (370) (824) (44,973) (11,812)
-------------------------------------------------------------------------
Closing
balance at
Dec. 31, 2008 39,473 6,542 10,765 699,824 173,418
-------------------------------------------------------------------------
Finding, Development & Acquisitions Costs ("FD&A")(1)
FD&A Costs - Gross Working Interest Reserves excluding
Future Development Capital
Proved +
Proved Probable
-------------------------------------------------------------------------
Capital expenditures ($000) $ 255,937 $ 255,937
Acquisitions net of dispositions ($000) 6,680 6,680
-------------------------------------------------------------------------
Total capital ($000) $ 262,617 $ 262,617
-------------------------------------------------------------------------
Total mboe, end of period 101,366 173,418
Total mboe, beginning of period 94,720 151,009
Production, mboe 11,812 11,812
-------------------------------------------------------------------------
Reserve additions, mboe 18,458 34,221
-------------------------------------------------------------------------
FD&A costs ($/boe) $ 14.23 $ 7.67
Three year average FD&A Costs ($/boe) $ 25.09 $ 16.35
F&D costs ($/boe) $ 14.56 $ 7.61
Three year average F&D costs ($/boe) $ 20.82 $ 12.10
NI 51-101
FD&A Costs - Gross Working Interest Reserves including
Future Development Capital
Proved +
Proved Probable
-------------------------------------------------------------------------
Capital expenditures ($000) $ 255,937 $ 255,937
Acquisitions net of dispositions ($000) 6,680 6,680
Net change in Future Development
Capital ($000) 188,096 308,734
-------------------------------------------------------------------------
Total capital ($000) $ 450,713 $ 571,351
-------------------------------------------------------------------------
Reserve additions, mboe 18,458 34,221
-------------------------------------------------------------------------
FD&A costs ($/boe) $ 24.42 $ 16.70
Three year average FD&A Costs ($/boe) $ 27.55 $ 19.42
F&D costs ($/boe) $ 31.62 $ 16.95
Three year average F&D costs ($/boe) $ 27.34 $ 19.34
(1) Under NI 51-101, the methodology to be used to calculate FD&A costs
includes incorporating changes in future development capital ("FDC")
required to bring the proved undeveloped and probable reserves to
production. For continuity, Advantage has presented herein FD&A costs
calculated both excluding and including FDC.
The aggregate of the exploration and development costs incurred in
the most recent financial year and the change during that year in
estimated future development costs 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.
In all cases, the FD&A number is calculated by dividing the
identified capital expenditures by the applicable reserve additions.
Boes may be misleading, particularly if used in isolation. A boe
conversion ratio of 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.
>>
Advisory
The information in this press release contains certain forward-looking statements. These 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 expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Advantage's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry and income trusts; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. Advantage's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that Advantage will derive from them. Except as required by law, Advantage undertakes no obligation to publicly update or revise any forward-looking statements. For additional risk factors in respect of Advantage and its business, please refer to it Annual Information Form dated March 28, 2008 which is available on SEDAR at www.sedar.com.
References in this press release to initial test production rates, initial "flow" rates and "flush" production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Fund.
Barrels of oil equivalent (boe) or billion of cubic feet of gas equivalent (BcfGE) may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and a BcfGE conversion ratio has been calculated using a conversion rate of 1 million barrels of oil to six billion cubic feet of gas. Such conversion rates are based on an energy equivalency conversion method application at the burner tip and do not represent an economic value equivalency at the wellhead.
%CIK: 0001259995
SOURCE: Advantage Energy Income Fund
Investor Relations, Toll free: 1-866-393-0393; Advantage Energy Income Fund, 700, 400 - 3rd Avenue SW, Calgary, Alberta, T2P 4H2, Phone: (403) 718-8000, Fax: (403) 718-8300, Web Site: www.advantageincome.com, E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
