Advantage Oil & Gas* (AAV : TSX : $7.07), Net Change: 0.48, % Change: 7.28%, Volume: 1,813,808
Taking advantage of royalty. Advantage Oil & Gas popped up after announcing that it plans to double production at Glacier,
Alberta to 100 mmcf/d, or 16,667 boe/d, by the Q2/11. With the ramped up production, the company expects to grow average
production to 30,000 boe/d by Q2/11. Advantage also released total production guidance for H2/10 of 23,000-23,800 boe/d and
H1/11 guidance of 26,600-27,200 boe/d. This will be on the back of $219 million of capex spending ($200 million net of
drilling credits), which will be primarily focused (about 80%) on its Glacier development. Advantage aims to expand capacity at
the Glacier gas plant from 50 mmcf/d to 100 mmcf/d to accommodate the drilling of 28 net Montney horizontal wells. This
decision stems from the recent Alberta Government royalty announcement. Changes to the now permanent Natural Gas Deep
Drilling Program (NGDDP) enhance the economics of drilling at Glacier by reducing the vertical depth requirement. All of its
Montney horizontal wells at Glacier drilled after May 1, 2010 will qualify for the NGDDP which the company estimates will
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. Advantage currently estimates a Montney
drilling inventory in excess of 500 wells. Management also estimates that he Glacier gas plant should reduce operating costs
from a range of $9.75-10.25 in H2/10 down to $8.50-9.00 in H1/11.