ADVANTAGE OIL & GAS LTD. (TSX:AAV) company history: the story so far

History

Advantage Oil & Gas sold assets and shares to cut debt, became a pure play on its Glacier Montney gas field, and by late 2016 planned a major plant expansion.

2009-2010: Selling assets to cut debt

In mid-2009 Advantage sold two asset packages. Package Two closed on July 17 for $76.6 million and Package One on July 28 for $176 million, together $252.6 million. The money paid down bank debt, and lenders cut the credit facility from $710 million to $525 million, with debt at about $300 million.

The company then raised new money. In December 2009 it announced a bought deal of 5.0% convertible debentures (loans that can be swapped for shares), which closed in January 2010 at $86.25 million. They convert at $8.60 a share and mature in January 2015, so they could dilute shareholders if converted. In March 2010 Advantage reported that its proven and probable reserves had risen from 173.4 to 232.3 million barrels of oil equivalent, mainly from Montney drilling at Glacier, Alberta, a field it first acquired in 2007. Net asset value per share rose 7.4% to $15.07, and a new 50 mmcfd gas plant was nearly complete. In June 2010 it sold southeastern Alberta gas assets for $67 million, again to reduce bank debt.

2011-2014: Longview, Questfire and a pure play on Glacier

The record is quiet for 2011 beyond the reserves report. In March 2012 Advantage said its 2011 program replaced 220% of production and Glacier reserves rose 10% to 183.7 million boe. Net asset value was $9.35 per share, down from $15.07. Early Middle Montney wells gave less gas than expected but more natural gas liquids, and the company said more work was needed to judge their economics.

In May 2012 it sold 8.3 million shares of Longview Oil Corp. at $9.00 for $74.7 million, keeping about 21.15 million shares, or roughly 45.2%. The money was meant first to cut debt and then to fund Middle Montney drilling. The same month lenders raised the borrowing base from $275 million to $300 million and extended the term conversion date to June 2013.

In February 2013 Advantage agreed to sell its remaining non-core assets to Questfire Energy Corp., closing in May for $40.2 million cash, a $32.6 million Questfire debenture and 1.5 million Questfire Class B shares. Credit facilities were cut to $230 million, with pro-forma bank debt of about $125 million. The company called itself a pure play on Glacier Montney. In February 2014 it sold all 21,150,010 Longview shares at $4.45 for $94.1 million.

2014-2016: Growth and a new equity raise

In May 2014 lenders lifted the borrowing base from $300 million to $400 million. Bank debt was about $84.7 million at March 31, 2014, leaving $315 million available. Production was about 135 mmcfe/d (million cubic feet of gas equivalent a day), and the Phase VII Glacier program targeted 183 mmcfe/d by June 2015, with 7 of 33 planned wells drilled. The record is then quiet until 2016. What happened to the January 2015 debentures is not shown.

In March 2016 Advantage closed a bought-deal share offering of 13,427,075 common shares at $7.45, raising $100,031,709, including 1,677,075 over-allotment shares. The money first reduced bank debt and was then to be redrawn for Glacier development, the next gas plant expansion and possible acquisitions. It was the first equity raise in this history and diluted existing shareholders.

2016-2017: Planning the Glacier expansion

In November 2016 the board approved a 2017 capital budget of $205 million, targeting 17% production growth to 236 mmcfe/d. It enlarged the planned Glacier gas plant expansion from 350 to 400 mmcf/d, with construction in the second half of 2017 and completion expected by the second quarter of 2018. Management estimates, not board-approved budgets, pointed to 316 mmcfe/d in 2019 and $625 million of capex over 2017-2019, funded from cash flow. Total debt was about $165 million at year-end 2016, and management aimed to reduce it to $55 million by the end of 2019. As of March 2017, the Questfire debenture and shares were still held, and the expansion and 2017 program were yet to be carried out.

Written from the 16 story beats below (2009 to 29 Nov 2016), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2016

29 Nov
Advantage's board approved a 2017 capital budget of $205 million targeting 17% production growth to 236 mmcfe/d, and upsized the planned Glacier gas plant expansion from 350 to 400 mmcf/d, with construction planned for the second half of 2017 and completion expected by Q2 2018. Management's 2018-2019 estimates (not board-approved budgets) target 316 mmcfe/d in 2019, $625 million total capex fully funded by cash flow, and total debt falling from about $165 million at year-end 2016 to $55 million by year-end 2019 (at $2.95/mcf AECO). This continues the Glacier expansion thread funded partly by the March 2016 equity raise.
capital raising announcement
8 Mar
Advantage closed a bought-deal share offering of 13,427,075 common shares at $7.45 each for gross proceeds of $100,031,709, including 1,677,075 shares from a partial over-allotment exercise. Proceeds will first reduce bank debt, then be redrawn to fund Glacier Montney development, the next Glacier gas plant expansion, possible acquisitions and general purposes. For existing shareholders this adds new shares (dilution), and it is the first equity raise in this history since the 2014 Longview sale proceeds.
capital raising announcement

2014

30 May
Advantage's lenders raised its borrowing base from $300 million to $400 million after the annual review (the review flagged for June 2014). Bank debt was about $84.7 million at March 31, 2014, leaving $315 million available. The company cites growth in Glacier proven developed producing reserves and production of about 135 mmcfe/d. Its Phase VII Glacier program targets 183 mmcfe/d in June 2015, with 7 of 33 planned wells rig released. This reverses the 2013 cut of the facilities to $230M.
debt financing
28 Feb
Advantage closed the sale of all 21,150,010 of its Longview shares at $4.45 each for gross proceeds of $94,117,544.50 and no longer owns any Longview shares. This ends the Longview stake (about 45% after the May 2012 sale); the filing does not state how the proceeds will be used.
capital raising announcement

2013

1 May
Advantage closed the sale of substantially all its remaining non-core assets to Questfire for $40.2M cash, a $32.6M convertible senior secured Questfire debenture and 1.5M Questfire Class B shares; cash goes to reduce bank debt. Credit facilities were revised to $230M with the next review in June 2014, pro-forma bank debt is about $125M (undrawn $105M), and hedging is allowed up to 65% of production for three years and 50% in the fourth. The company calls itself a pure play on Glacier Montney, with other major assets being its ~45% of Longview and the Questfire debenture and shares. This completes the Feb 2013 Questfire agreement and cuts the facility from the $300M borrowing base set in 2012.
debt financing
15 Feb
Advantage filed the Asset Purchase and Sale Agreement dated Feb 5, 2013 to sell assets to Questfire Energy Corp. (TSXV-listed, Calgary). Closing is set for the later of April 1, 2013 and three business days after Competition Act and TSXV approvals. The visible text is mostly the table of contents and definitions; the price is redacted or not in the text, though the schedules reference a debenture form, a governance agreement and a deposit. The assets are not identified in the text provided.
asset acquisition disposition

2012

8 June
Advantage and its lenders signed a May 17, 2012 second amendment to the syndicated credit agreement. It extends the Term Conversion Date by 364 days to June 14, 2013, raises the Borrowing Base Limit from Cdn. $275M to $300M and the Authorized Revolving Amount from $255M to $280M, and changes pricing (figures redacted). The lenders consent to the Longview share sale (8.3M shares, closed May 22, 2012), and HSBC is to assign its commitment to the other lenders and leave the syndicate. This resolves the June 2012 Term Conversion Date renewal thread. An operating facility amendment is also filed, but its terms are not in the visible text.
debt financing
22 May
Advantage closed the sale of 8.3 million Longview Oil Corp. shares at $9.00 each for gross proceeds of $74.7 million, through underwriters led by RBC Capital Markets and FirstEnergy Capital. It still owns about 21.15 million Longview shares, roughly 45.2%. Proceeds first reduce bank debt and are then intended to fund delineation drilling and development of the liquids rich Middle Montney at Glacier, which continues the Phase IV work reported in March.
capital raising announcement
16 Mar
Advantage reported year-end 2011 reserves (unaudited estimates): the 2011 capital program replaced 220% of production, adding 18.6 mmboe of proven and probable reserves at $8.85/boe. Net asset value is $9.35 per share, down from $15.07 a year earlier, and the release states it includes Longview shares at market value. Glacier reserves rose 10% to 183.7 mmboe, and an updated Sproule assessment raised total petroleum initially in place there to 10.07 Tcf gross. The Phase IV program had drilled 29 wells, and early Middle Montney wells had lower gas rates than expected but more natural gas liquids, which the company says needs more work to assess economics.
drilling progress report

2010

8 June
Advantage closed the sale of non-core, natural gas weighted assets in South Eastern Alberta (first referenced in a May 10, 2010 release) for gross cash proceeds of $67 million, subject to customary adjustments. The proceeds reduced bank debt under the credit facility, which may be redrawn for future capital spending and general corporate purposes. This follows the 2009 Package One and Two sales.
capital raising announcement
9 Mar
Advantage reported year-end 2009 reserves (unaudited estimates) from Sproule: proven and probable reserves rose from 173.4 to 232.3 million boe, replacing 698% of 2009 production, mainly from Montney drilling at Glacier, Alberta. Net asset value per share rose 7.4% to $15.07; Glacier reserves rose to 137.4 million boe, and a new 50 mmcfd gas plant is nearing completion with production targeted at 50 mmcfd in the second quarter of 2010. Glacier was first acquired in 2007 with the Sound Energy Trust acquisition.
drilling result
4 Jan
The debenture offering announced December 10 closed at $86,250,000, including the full $11.25 million over-allotment. The 5.0% debentures convert at $8.60 per share, mature January 30, 2015 (per the closing release), and are listed on the TSX as AAV.DB.H; proceeds go to repay bank debt and general corporate purposes. The filing also attaches the underwriting agreement and the indenture with Computershare Trust Company of Canada.
debt financing

2009

11 Dec
Advantage announced a bought-deal offering of $75.0 million of 5.0% unsecured subordinated convertible debentures through underwriters led by RBC Capital Markets, with an option for $11.25 million more. They mature January 31, 2015 and convert to shares at $8.60 each; proceeds are to repay bank debt and for general corporate purposes. Conversion could dilute shareholders if holders convert (inference).
debt financing
14 Aug
After the two asset sales (gross proceeds $252.6 million combined), lenders cut Advantage's credit facility from $710 million to $525 million. Debt is about $300 million, leaving roughly $225 million unused. The facility has a $20 million operating loan and a $505 million extendible revolver, secured by a $1 billion floating charge debenture, with a minimum cash flow to interest ratio of 3.5:1 and the next review expected in June 2010.
debt financing
28 July
Advantage closed the sale of its 'Package One' assets for gross proceeds of $176 million (effective April 1, 2009, subject to customary adjustments), the companion to the Package Two sale closed on July 16. Proceeds reduced bank debt, which may be redrawn for future capital spending and general corporate purposes.
capital raising announcement
17 July
Advantage closed the sale of its 'Package Two' assets for gross proceeds of $76.6 million (effective April 1, 2009, subject to customary adjustments). The proceeds reduced bank debt under its credit facility, which may be redrawn later for capital spending and general corporate purposes.
capital raising announcement