Advantage to sell 12.5 percent interest in Glacier gas plant
Advantage Oil & Gas Ltd. has reached a definitive agreement to sell a 12.5 percent interest in the Glacier Gas Plant to a strategic partner for $100 million cash proceeds.
This transaction will fortify Advantage's robust balance sheet during a time of unprecedented volatility and augment the Corporation's ability to pursue strategic opportunities and execute value-generating capital projects. National Bank Financial Inc. acted as financial advisor to Advantage on the transaction.
Minor Plant Interest Sale Enhances Significant Flexibility
The Glacier Gas Plant is one of the largest producer-owned gas processing facilities in Canada. It was commissioned by Advantage in 2010 and expanded in six phases to reach 400 mmcf/d raw gas and 6,800 bbl/d liquids capacity by 2018. The Plant features innovative design, high operating run-times, zero venting, and state-of-the-art automation technology. Complemented by the Glacier Acid Gas Sequestration project, it continues to be a key element of Advantage's leading operating cost structure and extremely low carbon emissions intensity.
Advantage will continue to be operator of the Plant and will retain all surplus capacity during the term of a volume commitment. Advantage and the purchaser may pursue further strategic opportunities together.
The Glacier Gas Plant processes all production from Advantage's Montney assets at Glacier, Valhalla and Progress through a network of owned pipelines, compressor stations and liquids hubs. As commodity prices vary, Advantage maintains the optionality to redeploy capital to the assets with superior economics depending on the mix of gas, condensate and light oil, with no major infrastructure projects required.
- Advantage will sell a 12.5% interest in the 400 mmcf/d Glacier Gas Plant for $100 million, and retain the remaining 87.5% interest
- In conjunction with the transaction, Advantage will enter into a 15-year volume commitment agreement with the purchaser for 50 mmcf/d at a fee of $0.66/mcf
- No growth capital is required to fulfill the volume commitment
- Advantage's low-cost structure will be preserved, with an annualized impact to adjusted funds flow of approximately $5 million or less than $0.03/share (1)
- The transaction is planned to close in July 2020, subject to customary closing conditions
(1) The volume commitment agreement is expected to be treated as a lease under accounting standards. As such, payments would be allocated between principal repayments on the lease liability and finance expense. The estimated annual net impact of a $5 million reduction in adjusted funds flow represents interest savings from reducing bank indebtedness by $100 million and incremental finance expense on the lease.
Second Half of 2020 Outlook
Advantage accomplished several significant milestones in the first quarter of 2020, including a 30-day initial rate of over 2,150 boe/d (>50% oil and liquids) at Progress 16-36. However, discretionary spending on oil projects at Progress and Wembley has been deferred considering the current economic environment. Advantage plans to revise the capital program for second half of 2020; key goals for the program will be to optimize returns, invest opportunistically, and target a net debt to adjusted funds flow ratio of approximately 2x through 2021.
Advantage continues to monitor fundamental supply/demand balances of oil and natural gas. While gas price fundamentals appear to be strengthening, Advantage is prepared to mitigate the impact of low oil prices and may adjust production levels to protect value and revenue should this exceptional environment persist.