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Advantage Announces Third Quarter 2012 Results

November 8, 2012

Non-core Disposition Process, Middle Montney Drilling & Well Completion
Activities Underway

(TSX: AAV, NYSE: AAV)

CALGARY, Nov. 8, 2012 /PRNewswire/ – Advantage Oil & Gas Ltd. (“Advantage” or
the “Corporation”) is pleased to announce our financial and operating
results for the three and nine months ended September 30, 2012. The
following press release summarizes and discusses the unconsolidated
financial and operating highlights for Advantage (excludes Longview Oil
Corp).


                         Three months ended      Three months ended       Nine months ended       Nine months ended

                         September 30, 2012      September 30, 2011      September 30, 2012      September 30, 2011

    Financial
    ($000, except
    as
    otherwise                           per                     per                     per                     per
    indicated)              $000        boe         $000        boe         $000        boe         $000        boe

    Petroleum and
    natural gas
    sales              $   29,219   $  15.26   $   52,090   $  25.09   $   89,956   $  14.93   $  193,127   $  29.88

    Royalties             (1,352)     (0.71)      (5,917)     (2.85)      (6,023)     (1.00)     (25,180)     (3.90)

    Realized gain
    on derivatives              -          -        6,598       3.18          237       0.04       19,654       3.04

    Operating
    expense              (10,375)     (5.42)     (12,239)     (5.89)     (32,812)     (5.44)     (49,282)     (7.62)

    Operating              17,492       9.13       40,532      19.53       51,358       8.53      138,319      21.40

    General and
    administrative
    (2)                   (3,899)     (2.04)      (4,164)     (2.00)     (12,853)     (2.13)     (15,097)     (2.34)

    Finance
    expense(3)            (3,260)     (1.70)      (3,926)     (1.89)      (8,902)     (1.48)     (14,060)     (2.17)

    Miscellaneous
    income                     10       0.01          411       0.20          553       0.09          546       0.08

    Funds from
    operations             10,343   $   5.40       32,853   $  15.84       30,156   $   5.01      109,708   $  16.97

    Dividends from
    Longview                3,173                   4,418                  11,178                   7,363           

    Total              $   13,516              $   37,271              $   41,334              $  117,071           

      per share(4)     $     0.08              $     0.23              $     0.25              $     0.71           

    Expenditures
    on property,
    plant
    and equipment      $   23,537              $   40,627              $   94,721              $  123,645           

    Working
    capital
    deficit(5)         $   30,813              $   43,166              $   30,813              $   43,166           

    Bank
    indebtedness       $  154,033              $   67,695              $  154,033              $   67,695           

    Convertible
    debentures
    (face value)       $   86,250              $  148,544              $   86,250              $  148,544           

    Shares
    outstanding at
    end of
    period (000)          168,383                 165,934                 168,383                 165,934           

    Basic weighted
    average shares
    (000)                 168,011                 165,647                 167,216                 165,075           

    Operating                                                                                                       

    Daily
    Production                                                                                                      

      Natural gas
      (mcf/d)             117,462                 125,250                 123,795                 121,891           

      Crude oil
      and NGLs
      (bbls/d)              1,235                   1,693                   1,363                   3,363           

      Total boe/d
      @ 6:1                20,812                  22,568                  21,995                  23,678           

    Average prices
    (including
    hedging)                                                                                                        

      Natural gas
      ($/mcf)          $     2.04              $     4.17              $     1.90              $     4.33           

      Crude oil
      and NGLs
      ($/bbl)          $    63.34              $    68.10              $    69.33              $    74.70           

    (1)   Non-consolidated financial and operating highlights for Advantage
          excluding Longview.

    (2)   General and administrative expense excludes non-cash G&A.

    (3)   Finance expense excludes non-cash accretion expense.

    (4)   Based on basic weighted average shares outstanding.

    (5)   Working capital deficit includes trade and other receivables,
          prepaid expenses and deposits, trade and other accrued
          liabilities,
          and the other liability

Funds from Operations Increase from Higher Natural Gas Prices

        --  Funds from operations, excluding dividends received from
            Longview Oil Corp ("Longview"), for the third quarter of 2012
            increased 40% to $10.3 million or $0.06 per share as compared
            to the second quarter of 2012.  The tax-free dividend income
            received from Longview amounted to $3.2 million ($0.02 per
            share) during the third quarter of 2012 as a result of
            Advantage's current 45.2% ownership in the shares of Longview.
            Funds from operations improved due to a 20% increase in the
            average AECO Canadian natural gas price to $2.28/mcf for the
            current quarter. Advantage's realized natural gas price of
            $2.04/mcf includes among other factors, deductions for
            unutilized TransCanada pipeline firm service commitments at
            Glacier.
        --  Production during Q3 2012 averaged 20,812 boe/d (94% natural
            gas) compared to 22,068 boe/d during Q2 2012. Wet weather
            conditions at Glacier extended into Q3 2012 causing lease
            access restrictions and delaying completions on existing
            Montney wells that were drilled prior to spring break-up in our
            Phase IV drilling program. As a result of these completion
            delays, average daily production at Glacier was approximately
            90 mmcf/d during Q3 2012. Advantage production was also
            impacted during the quarter due to an extended production
            curtailment at our Lookout Butte property (1,000 boe/d) in
            southern Alberta. The curtailment began in June 2012 due to
            maintenance activities at a third party gas plant and was
            prolonged due to a fire that occurred at the same location.
            Lookout Butte is now expected to be brought back on production
            by December 2012.
        --  Operating expense for the current quarter was $5.42/boe as
            compared to the immediate prior quarter of $5.16/boe.  The
            second quarter of 2012 benefited from the receipt of several
            equalization payments in respect of prior years which reduced
            operating expenses.
        --  Advantage's average royalty rate during the third quarter of
            2012 was 4.6% as compared to 7.4% in the prior quarter.
            Advantage's royalty rates have decreased due to lower natural
            gas prices and lower average royalties as production from
            Glacier becomes a larger proportion of total production.
        --  Capital expenditures for the three months ended September 30,
            2012 were $23.5 million, primarily related to completion of 4
            Upper Montney wells from our inventory of 14 Phase IV wells
            that were drilled and not completed prior to spring break-up.
            Capital during Q3 2012 was also directed to the commencement of
            additional delineation drilling in the Middle Montney
            formation.
        --  As of September 30, 2012, bank indebtedness was $154.0 million,
            leaving an undrawn credit facility of $146.0 million.  In
            addition, Advantage's 45.2% ownership in the shares of Longview
            had an asset value of approximately $150 million as at
            September 30, 2012.  Our undrawn credit facility, ownership of
            Longview shares and cash flow provide financial flexibility to
            support our Montney drilling and completion plans.

Non-Core Asset Sale and Strategic Review

        --  On August 22, 2012, Advantage announced that it would market
            for sale all of the Corporation's remaining non-core assets,
            defined as all corporate assets excluding Advantage's core
            Glacier Montney natural gas asset and its 21.15 million share
            ownership position in Longview Oil Corp. The non-core assets
            produced a total of approximately 6,425 boe/d (79% gas and 21%
            oil and NGL) during the nine months ended September 30, 2012. A
            financial advisor was retained and the non-core asset
            disposition process commenced in September 2012.
        --  The Board of Directors (the "Board") believes that its core
            Glacier asset is materially undervalued in the context of the
            Corporation's current market valuation and that disposing of
            non-core assets will simplify the Corporation leading to a
            greater appreciation of its core Glacier asset as well as
            generate proceeds that may be used for debt repayment, special
            dividends or otherwise deployed to enhance shareholder value as
            the Board may determine appropriate. Advantage's Board believes
            that undertaking the non-core asset disposition process at this
            time is in the best interests of the Corporation's
            shareholders.
        --  The Corporation further expects to be in a position to engage a
            financial advisor and initiate a strategic alternatives process
            by the end of 2012 to consider, among other transactions, the
            sale of Glacier subject to completion of the ongoing middle
            Montney delineation program.
        --  It is the Corporation's current intention not to disclose
            developments with respect to this process until the Board has
            approved a specific transaction or otherwise determines that
            disclosure is necessary or appropriate. The Corporation
            cautions that there are no assurances or guarantees that this
            process will result in any transactions or, if any transactions
            are undertaken, the terms or timing of any such transactions.

Glacier – Middle Montney Delineation Drilling & Well Completion
Activities Underway

        --  Capital activities at Glacier resumed in September 2012 after
            longer than anticipated wet weather delays.  We completed 4
            Upper Montney wells which will be utilized to offset declines
            and maintain production. Test rates in the Upper Montney
            continue to be strong with a recent well demonstrating a test
            rate of 11 mmcf/d (after 78 hour flow test at 4,600 kpa) and
            another new well commencing production in October 2012 at 11
            mmcf/d at 5,570 kpa.
        --  An additional 10 Montney wells remain in inventory from our
            Phase IV Program which we anticipate will provide a sufficient
            inventory to maintain production at Glacier between 90 to 100
            mmcf/d to Q4 2013 compared to our earlier estimate of mid-year
            2013.
        --  One of our three scheduled liquids rich Middle Montney
            delineation wells was spud in September and rig released in
            October 2012. Initial completion results on our Middle Montney
            wells are anticipated to be available in early 2013.
        --  We continue to be encouraged with production results from two
            of our Middle Montney wells that were brought on-stream in
            early Q2 2012. Production from these wells have continued to
            demonstrate shallow declines with consistent liquids rich gas
            analysis indicating the potential to prove up a large resource
            and the opportunity to improve productivity.  Our upcoming
            completions on the new Middle Montney wells are targeted to
            evaluate modified completion and fracture stimulation
            techniques.
        --  Two Lower Montney wells are also scheduled to be completed in
            Q4 2012 with modified completion techniques to evaluate future
            optimization potential.
        --  Our 100% Working Interest Glacier gas plant currently has spare
            processing capacity and we have secured a temporary arrangement
            with a third party producer to process their gas volumes.
            Additional optimization projects at our gas plant have been
            identified and will be pursued to drive further operating cost
            efficiencies.

Looking Forward

        --  Production during the second half of 2012 is expected to be
            approximately 21,000 boe/d with capital expenditures of
            approximately $60 million.  Further information will be
            provided after the completion of our non-core disposition
            process.
        --  Our go forward capital program includes delineation drilling in
            the Middle Montney and the completion and tie-in of our
            remaining inventory of 10 wells from our Phase IV Program to
            maintain production at Glacier between 90 mmcf/d and 100
            mmcf/d. We have also determined that obtaining more geological
            and engineering evaluation data from the Middle Montney
            formation would be beneficial to further assess this large
            resource potential.  Additional capital expenditures will be
            directed towards more Middle Montney coring and analysis and
            modified drilling and completion practices.

Board of Directors Acknowledgement

        --  The Board of Directors, Management and staff expresses their
            gratitude and appreciation to Carol D. Pennycook and John A.
            Howard who have stepped down from the Board.  We wish to thank
            them for their dedication and long term service to Advantage.
            Ms. Pennycook and Mr. Howard's guidance and input have always
            been held in high regard and we wish them well in future
            endeavours.
        --  The Advantage Board of Directors now consists of 5 independent
            members and 2 members of Management.

Interim Consolidated Financial Statements and MD&A

        --  Advantage's unaudited interim consolidated financial statements
            for the three and nine months ended September 30, 2012 together
            with the notes thereto, and Management's Discussion and
            Analysis for the three and nine months ended September 30, 2012
            have been prepared in accordance with International Financial
            Reporting Standards ("IFRS") and posted on our website at
            www.advantageog.com
            and filed under our profile on SEDAR at
            www.sedar.com

Advisory
The information in this press release 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 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”, “demonstrate”, “expect”, “may”, “will”,
“project”, “predict”, “potential”, “targeting”, “intend”, “could”,
“might”, “should”, “believe”, “would” and similar expressions and
include statements relating to, among the anticipated closing date of
the offering by Advantage of common shares of Longview and the
anticipated use of proceeds of such offering; effect of commodity
prices on the Corporation’s financial condition and performance and
future plans; expected production from the Glacier area and for the
Corporation as a whole; projected royalty rates; projected operating
expense and capital expenditures; our future operating and financial
results; supply and demand for crude oil and natural gas; projections
of market prices and costs; the Corporation’s drilling and completion
plans; plans for development of the Middle Montney; the Corporation’s
business strategy and it plans for its assets; and the Corporation’s
expectations regarding its ability to protect Advantage’s business in
the current industry and economic environment.

In addition, statements relating to “reserves” or “resources” are deemed
to be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the
resources and reserves described can be profitably produced in the
future.

Advantage’s actual decisions, activities, 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.

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; the failure to
receive all regulatory approvals or any other conditions for the
offering by Advantage of common shares of Longview; the intended use of
the net proceeds of the offering of common shares of Longview might
change if the board of directors of Advantage determines that it would
be in the best interests of Advantage to deploy the proceeds for some
other purpose; industry conditions; actions by governmental or
regulatory authorities including increasing taxes, changes in
investment or other regulations; changes in tax laws, royalty regimes
and incentive programs relating to the oil and gas industry;
Advantage’s success at acquisition, exploitation and development of
reserves; unexpected drilling results, changes in commodity prices,
currency exchange rates, capital expenditures, reserves or reserves
estimates and debt service requirements; the occurrence of unexpected
events involved in the exploration for, and the operation and
development of, oil and gas properties; hazards such as fire,
explosion, blowouts, cratering, and spills, each of which could result
in substantial damage to wells, production facilities, other property
and the environment or in personal injury; changes or fluctuations in
production levels; competition from other producers; credit risk;
individual well productivity; 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; 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; geological,
technical, drilling and processing problems and other difficulties in
producing petroleum reserves; obtaining required approvals of
regulatory authorities and ability to access sufficient capital from
internal and external sources. Many of these risks and uncertainties
and additional risk factors are described in the Corporation’s Annual
Information Form which is available at www.sedar.com and
www.advantageog.com. Readers are also referred to risk factors
described in other documents Advantage files with Canadian securities
authorities.

With respect to forward-looking statements contained in this press
release, Advantage has made assumptions regarding: conditions in
general economic and financial markets; effects of regulation by
governmental agencies; current commodity prices and royalty regimes;
future exchange rates; royalty rates; future operating costs;
availability of skilled labor; availability of drilling and related
equipment; timing and amount of capital expenditures; and the impact of
increasing competition.

These forward-looking statements are made as of the date of this press
release and Advantage disclaims any intent or obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or results or otherwise, other than as
required by applicable securities laws.

References in this press release to initial production test rates,
initial “productivity”, initial “flow” rates, “flush” production rates
and “behind pipe production” 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 Advantage. 

Barrels of oil equivalent (boe) 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
of oil. A boe conversion ratio of 6 mcf:1 bbls is based on an energy
equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
Given that the value ratio based on the current price of crude oil as
compared to natural gas is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.

The Corporation discloses several financial measures that do not have
any standardized meaning prescribed under IFRS. These financial
measures include funds from operations and cash netbacks. Management
believes that these financial measures are useful supplemental
information to analyze operating performance and provide an indication
of the results generated by the Corporation’s principal business
activities. Investors should be cautioned that these measures should
not be construed as an alternative to net income, cash provided by
operating activities or other measures of financial performance as
determined in accordance with IFRS. Advantage’s method of calculating
these measures may differ from other companies, and accordingly, they
may not be comparable to similar measures used by other companies.

SOURCE Advantage Oil & Gas Ltd.


Source: PR Newswire