Source: Advantage Oil & Gas
The Board of Directors of Advantage Oil & Gas has approved a capital budget and guidance for the 12 month period ending June 30, 2011. The capital budget is focused on increasing production at Glacier from 50 mmcfd to a target of 100 mmcfd (16,667 boe/d) by Q2 2011.
Advantage recently converted from a royalty trust to a growth oriented corporation with a specific focus on developing the Company's significant Montney natural gas resource play at Glacier, Alberta.
In conjunction with the anticipated production increase at Glacier, corporate production is forecast to grow to approximately 30,000 boe per day in Q2 2011 of which Glacier will represent 55% of total production.
Advantage's corporate capital budget for the 12 month period ending June 2011 is set at $219 million ($200 million net of drilling credits). Approximately 80% of the capital budget is allocated to Glacier to further develop and delineate our extensive land base and expand processing capacity to 100 mmcfd.
The recent Alberta Government royalty announcement on May 27, 2010 enhances the economics of drilling at Glacier due primarily to changes in the Natural Gas Deep Drilling Program ("NGDDP") which reduces the vertical depth requirement and makes the program permanent.
As a result, all of our Montney horizontal wells at Glacier drilled after May 1, 2010 will qualify for the NGDDP which is estimated to provide a royalty incentive of $2.7 to $3.4 million for a typical horizontal well (a typical Advantage horizontal well at Glacier is 4,200 to 4,500 meters in total length). This lowers the natural gas price threshold required to drill economic wells and substantially improves the value of future reserves and upside potential at Glacier.
Glacier Expansion to 100 mmcfd (16,667 boe per day) by Q2 2011
Further to our successful drilling program in 2009 and production growth to 50 mmcfd in April 2010, the next phase of development at Glacier is targeted to increase production to 100 mmcfd. This will require i) additional horizontal Montney wells to further delineate our extensive land block and increase production capability to 100 mmcfd, and ii) expansion of our Glacier gas plant, gas gathering system and sales pipeline to TCPL.
For the 12 months ending June 2011, capital expenditures at Glacier are estimated to be $166 million (net of drilling credits) which includes $127 million for the drilling and completion of 28 net (28 gross) horizontal Montney wells. The majority of these new wells will be drilled during the second half of 2010 with on-stream dates scheduled in conjunction with the commissioning of the expanded facilities and pipelines.
Four drilling rigs have been secured and drilling is scheduled to commence in the latter part of June 2010. A large number of these wells will qualify for the current drilling credit incentive (expires March 31, 2011) of $200/meter which is estimated to offset drilling costs by approximately $11 million at Glacier. All of these wells will also qualify for the NGDDP (see below).
Also, $20 million will be used to expand the processing capacity at our Glacier gas plant (100% Advantage working interest) from 50 to 100 mmcfd. The expansion will include an additional processing train consisting of additional compression and amine treating capacity and is scheduled to begin commissioning on or about the start of the second quarter of 2011.
$19 million will be used for gas gathering system expansions and well tie-ins. Expansion plans to increase the TCPL sales pipeline to 100 mmcfd capacity has already been initiated and is scheduled to be completed concurrent with the commissioning of the expanded gas plant facilities.