Advantage Oil & Gas Ltd. has lowered its annual production guidance for the year.

Guidance was lowered to 240-255 mmcf equivalent/d (40,000-42,500 boe/d) from 255-265 mmcfe/d (42,500-44,170 boe/d).

A production outage was scheduled at its 100 per cent owned Glacier gas plant in April 2018 associated with expanding the plant capacity to 400 mmcf/d and 6,800 bbls/d of liquids. This outage was scheduled to coincide with planned third party pipeline maintenance when AECO natural gas prices were anticipated to be negatively impacted. 

During plant start-up operations, Advantage experienced an upset in our gas dehydration process that has been fully resolved but required a longer outage than originally scheduled. Additional work is still required to complete the Glacier gas plant expansion project and the company expects to have the expanded plant fully commissioned during the second quarter as originally planned.

With its increased focus on liquids rich development and in response to periods of low natural gas prices and netbacks in 2018, Advantage prudently decided to moderate the ramp up of gas production subsequent to the outage and may restrict natural gas production levels from time to time.

Advantage will also defer dry gas well completions and re-allocate budgeted capital in support of drilling additional liquids rich wells at Valhalla and in the liquids rich Middle Montney formation at east Glacier during the second half of 2018. This will help preserve gas well productivity for the latter part of 2018 and beyond as lower storage levels and western Canadian basin supply declines could result in strengthening gas prices at which time, Advantage retains significant operational flexibility to immediately increase gas production.

This investment and production strategy is supported by Advantage’s recent liquids rich drilling successes at Glacier and at the nearby land blocks at Valhalla and Wembley which extended and increased the company’s significant inventory of liquids rich and dry gas drilling locations.

Annual average liquids production is expected to grow by approximately 50 per cent year on year to 1,800 bbls/d with a 2018 exit rate of approximately 2,400 bbls/d. Increased drilling on its liquids rich lands will support doubling Advantage's liquids production eight per cent or more of total production during the latter part of 2019 and could potentially reach 13 per cent or more in 2020. This program will significantly enhance its cash flow and netbacks.

Guidance updated

Advantage's second quarter 2018 production is estimated to be within the range of 205 to 215 mmcfe/d, lower than earlier estimates. Total per unit corporate cash costs will be higher during the second quarter at $1.35/mcfe to $1.45/mcfe due to lower production and are expected to decrease to approximately $1.15/mcfe as production is increased during the second half of 2018.