Advantage Announces Significant Increase in Reserves & Contingent Resources and Updates Guidance & Strategic Alternatives Process

(TSX: AAV, NYSE: AAV)

(All reserve and resource volumes are "working interest" and "sales" except where otherwise indicated)

CALGARY, May 21, 2013 /PRNewswire/ -

Highlights:

• Total Petroleum Initially in Place ("TPIIP") at Glacier increased to 16.0 Tcf
  
  
• 2P Reserves plus 2C Contingent Resources increased to 5.9 Tcfe
  
  • 2C Contingent Resources increased to 4.20 Tcfe; 72% of which is contained in the liquids rich Middle Montney intervals that are approximately 150 meters thick
    
    
  • 2P Reserves grew to 1.61 Tcfe which includes 11 million barrels of NGLs
  
  
• Our Special Committee's financial advisors will immediately commence a broad marketing effort to solicit interest in a sale of the Corporation or other strategic transaction to maximize value for all shareholders. The updated independent Reserve Report reflecting wells drilled and completed since December 31, 2012 and the updated independent Glacier Resource Assessment Report will be available to interested parties in the virtual data room.
  
  
• The management of Advantage Oil & Gas Ltd. has prepared the following production model which shows that our Glacier property can support a production plateau of 580 mmcf/d for a period of approximately 18 years based on the total 2P Reserves and 2C Contingent Resources.

http://files.newswire.ca/1241/AAV-Chart.pdf

Contingent Resource Assessment

(Summary tables and resources definitions are included in Appendix A & C)

Advantage Oil & Gas Ltd. ("Advantage" or the "Corporation") is pleased to announce its updated Reserve Report and updated Glacier Contingent Resource Assessment which were prepared by Sproule Associates Ltd. ("Sproule") with an effective date of March 31, 2013 (see page 5 "Independent Reserve Evaluator").  Changes in Contingent Resources are compared against our previous Glacier Contingent Resource Assessment dated February 29, 2012 which includes reserves from December 31, 2011. The terms 'interval' and 'layer' in this release and in Sproule's reports have the same meaning.

• Gross TPIIP at Glacier increased by 69% to 17.06 Tcf. On a working interest basis, TPIIP is 16.03 Tcf which contains 337.1 million barrels of NGLs.
  
  
• 2P Reserves plus 2C Contingent Resources increased by 123% to 5.89 Tcfe. The natural gas component increased by 107% to 5.17 Tcf with NGLs growing by 336% to 121.3 million barrels.
  
  
• 2C Contingent Resources increased by 138% to 4.2 Tcfe.  The largest component of this increase occurred in the liquids rich Middle Montney intervals which grew by 204% to 2.9 Tcfe.
  
  
• Sproule assumed a Montney development plan based on 20 horizontal wells per section (4 horizontal wells in each of the five 50 meter Montney intervals) for their evaluation at Glacier. Based on this plan, the total number of gross horizontal well locations remaining on the Glacier land block is 1,550.
  
  
• Advantage conducted an extensive Core Study and a Completion Study during 2012 on the Montney formation in the Glacier area.  The results of these studies were pivotal in advancing our understanding of the geological and petrophysical properties of the various intervals that comprise the Montney formation at Glacier.
  
  
• As a result of our Completion study, we employed revised completion and fracture stimulation techniques on 4 horizontal wells distributed across our land block. The results demonstrated commercial production rates between 3 to 5 mmcf/d of liquids rich natural gas in the Middle Montney intervals. The results of our Core Study determined that traditional well log analysis has limited effectiveness in measuring porosity in the Montney formation.  Sproule utilized the Core study results to recalibrate 70 open hole well logs at Glacier resulting in a significant increase in the net pay calculation included in determining TPIIP.
• The combined results of the Completion and Core studies resulted in a 69% increase in TPIIP as illustrated in the table below:

Note: ⁽¹⁾  UM - Upper Montney, MM - Middle Montney, LM - Lower Montney

• The changes in 2P Reserves plus 2C Contingent Resource by Montney interval are illustrated in the table below:

⁽¹⁾ 2P reserves are 'technical reserves' which include cumulative production of approximately 100 bcf. No 2P Reserves or 2C Contingent Resources were assigned to the 6^th Lower Montney interval.

⁽²⁾ Sproule assigned an average C3+ NGLs yield of 43 bbls/mmcf sales gas for the Middle Montney intervals based on a shallow cut extraction process.  The Lower Montney was assigned an average C3+ NGLs yield of 7 bbls/mmcf sales gas.

• The changes in 2C Contingent Resource by Montney interval are illustrated in the table below:

⁽¹⁾ No 2C Contingent Resources were assigned to the 6^th Lower Montney interval.

⁽²⁾ Sproule assigned an average C3+ NGLs yield of 43 bbls/mmcf sales gas for the Middle Montney intervals based on a shallow cut extraction process.  The Lower Montney was assigned an average C3+ NGLs yield of 7 bbls/mmcf sales gas.

Updated Advantage Reserves Report (as of March 31, 2013)
(Summary tables and definitions are included in Appendix B & C)
The updated reserves report includes only Advantage's 'stand-alone' reserves and excludes the assets of Longview Oil Corp. and also excludes the non-core assets that were sold to Questfire Energy Corp. on April 30, 2013. The reserves at Glacier constitute 99.7% of Advantage's total reserves. Changes in reserves are compared against our December 31, 2012 year end Sproule Reserve Report

• Glacier's 2P Reserves increased by 13.8% to 1.61 Tcfe. 2P natural gas reserves increased by 10.4% to 1.54 Tcf and 2P NGLs increased by 318% to 11.03 million bbls.
  
  
• The increase in 2P Reserves resulted primarily from the addition of future undeveloped locations in intervals 2 and 3 of the Middle Montney. These future locations were assigned to sections immediately adjacent to the Middle Montney wells that were completed and tested in the first quarter of 2013.
  
  
• As of March 31, 2013, Sproule has assigned reserves to only 25% of the total Montney drilling locations at Glacier.
  
  
• Reserves were assigned to only 8% of the total drilling locations in the Middle Montney formation.  The Middle Montney includes C3+ NGLs of approximately 43 bbls/mmcf of sales gas which significantly enhances the value of this horizon.  Further drilling is required to delineate the Middle Montney both laterally and vertically with the potential for approximately 1,000 wells across the entire land block.
  
  
• The Lower Montney is present over our entire land block and is confirmed by vertical well control at Glacier and vertical and horizontal wells that offset our land block.  Reserves have been assigned to only 27% of the total Lower Montney drilling locations which leaves significant potential for future reserves growth with additional delineation and development drilling.
  
  
• The Net Present Value of the Sproule 2P Glacier reserves increased by 22% to $1.72 billion as at March 31, 2013 (at a 10% pre-tax discount).
  
  
• Advantage's Net Asset Value increased by 24% to $9.82 per share as at March 31, 2013 (at a 10% pre-tax discount) based on 2P Reserves with no value included for Contingent Resources.

Glacier Phase VI Development Plan - Capital Budget and Updated Guidance

• The Board of Directors of Advantage has approved a capital and operating budget for our Phase VI Glacier development program for the 12 months ending March 31, 2014.  The Budget will be funded through cash flow, available credit facilities and cash generated from Advantage's investments which includes dividends from the 21.1 million shares in Longview Oil Corp, interest and principal payments on the $33 million Questfire Debentures and 1.5 million Questfire B shares.
  
  
• Advantage has an active hedging program designed to stabilize cash flow and fund capital expenditures.  We have hedged 35 mmcf/d at $3.48/mcf from April 2013 to March 2014.
  
  
• Our Phase VI Glacier development program is designed to increase production to 135 mmcf/d by the end of   Q1 2014.  The following table outlines the key budget parameters:

• The capital program will include a total of 22 wells which consist of 7 Upper Montney wells, 3 Middle Montney wells and 12 Lower Montney wells.  The majority of the wells in this program will be drilled with longer lateral lengths and include an average of 17 fracs per well compared to our historic average of 13 fracs per well. This will reduce the total number of wells required to achieve our 135 mmcf/d production rate as we estimate the average 30 day initial production rate per well will increase from our historic type curve of 5 mmcf/d to 7.2 mmcf/d.  The average per well cost is estimated to be $7.5 million which is higher than our historic average due to the additional number of fracs, longer length wells, utilization of open hole packer systems and higher strength casing to facilitate higher frac pump rates. The 22 wells will be drilled on 8 pads of which 6 pads will be newly constructed.
  
  
• We have secured three drilling rigs and are planning to commence drilling operations in July 2013 with initial completion operations planned to commence in September 2013.  A fourth drilling rig may be employed subject to weather conditions.
  
  
• Strategic Alternatives Process Update
  
  
• The updated independent Reserve Report and Glacier Resource Assessment Report will be included in the virtual data room.  As envisaged by the Corporation's February 26, 2013 press release, the Special Committee's financial advisors, FirstEnergy Capital Corp. and RBC Capital Markets will immediately commence a broad marketing effort to solicit interest in a sale of the Corporation or other strategic transaction to maximize value for all shareholders.
  
  
• To that end, the financial advisors have posted their initial marketing materials on their respective websites and have begun to contact prospective parties.
  
  
• The Corporation cautions that there can be no assurance that this process will result in an acceptable transaction.

Independent Reserve Evaluator

• Sproule Associates Ltd. ("Sproule") was engaged as an independent qualified reserve evaluator to evaluate the Corporation's reserves and resources as of March 31, 2013 in accordance with National Instrument 51-101 ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook").

Appendix A - Glacier Contingent & Prospective Resource Assessment
Advantage engaged our independent qualified reserves evaluator Sproule to update the resource analysis at Glacier as of March 31, 2013 in accordance to the COGEH resource definitions that are consistent with the standards of NI 51-101.  The estimates of reserves and resources for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

The following three tables summarize the results of Sproule's updated resource assessment:

1. Development maturity including the number of sustained well tests and the amount of production information.  Sproule indicates that very few sections in Layers 2 and 3 (Middle Montney) have reserves assigned; however, there are sufficient tests spread geographically across the lands to classify the bulk of the sections as Contingent Resources.  No reserves have been assigned to Layer 4 (Middle Montney); however, there have been sufficient testing of a few wells located very low in Layer 3 and spread geographically across the lands to classify many sections as contingent in Layer 4.
2. The lack of infrastructure to facilitate full development in the short term including the required processing facilities to extract NGLs in certain Montney layers.
3. Economic contingencies dictating a slower pace of development with current low gas prices in sections that are farther from existing gas gathering infrastructure and farther from existing tests.

Prospective resources account for only 9.6% of the estimated ultimate recoverable resources in the 2C best estimate case and demonstrates that the vast majority of the Montney formation at Glacier has been shown to be productive.

Appendix B - Advantage Corporate Reserve Summary
Advantage engaged our independent qualified reserves evaluator ("Sproule") to update the reserves analysis for the Company (the "Sproule Report") as at March 31, 2013 in accordance with NI 51-101 ("NI 51-101") and the COGE Handbook.

The Sproule Report includes only Advantage's "stand-alone" reserves and excludes the assets in Longview Oil Corp and the non-core assets that were sold to Questfire Energy Corp. on April 30, 2013.  Reserves and production information included herein is stated on a Gross Working Interest Reserves basis unless noted otherwise. This summary contains several cautionary statements that are specifically required by NI 51-101.

Gross Working Interest Reserves (Working Interest only)

Summary as at March 31, 2013

Present Value of Future Net Revenue using Sproule price and cost forecasts ^(1)(2)(3)
($000)

Net Asset Value using Sproule price and cost forecasts (Before Income Taxes)

The following net asset value ("NAV") table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time.

Sproule Price Forecasts

The present value of future net revenue at March 31, 2013 was based upon crude oil and natural gas pricing assumptions prepared by Sproule effective March 31, 2013. These forecasts are adjusted for reserve quality, transportation charges and the provision of any applicable sales contracts. The price assumptions used over the next seven years are summarized in the table below:

Appendix C — Reserve and Resource Definitions

Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable.  Reserves are classified according to the degree of certainty associated with the estimates as follows:

Resources encompasses all petroleum quantities that originally existed on or within the earth's crust in naturally occurring accumulations, including Discovered and Undiscovered (recoverable and unrecoverable) plus quantities already produced. "Total resources" is equivalent to "Total Petroleum Initially-In-Place". Resources are classified in the following categories:

Uncertainty Ranges are described by the Canadian Oil and Gas Evaluation Handbook as low, best, and high estimates for reserves and resources as follows:

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 other things that Advantage's Special Committee's financial advisors will commence a broad marketing effort to solicit a sale of the Corporation or other strategic transaction to maximize value for all shareholders, management's expectation of increasing production and reserves at Glacier, future development capital associated with the reserves on the Glacier property, certain future expected production levels and the expected percentage of such production that will be hedged, expected future capital expenditures, the expected number of wells to be drilled in the Upper Montney, Middle Montney and Lower Montney, the lateral lengths and number of fracs per well, the expected average costs of drilling such wells and the expected productivity of such wells, the expectation that less wells will be required to achieve a 135 mmcf/d production rate and timing for commencement of drilling.  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; industry conditions; 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; volatility in market prices for oil and natural gas; 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; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry and income trusts; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The production model presented herein for our Glacier property has been presented to demonstrate the potential for the Glacier property. It is not intended to represent an estimate of future production as future productions levels will depend on a number of factors and does not reflect Advantage's current plans for development of the Glacier property.  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. Except as required by law, Advantage undertakes no obligation to publicly update or revise any forward-looking statements.  For additional risk factors in respect of Advantage and its business, please refer to its Annual Information Form dated March 23, 2012 which is available on SEDAR at www.sedar.com and www.advantageog.com.

References in this press release to initial test production rates 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. Such rates are not necessarily indicative of long term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for Advantage.

Throughout this press release the terms boe (barrels of oil equivalent), bcfe (billions of cubic feet of gas equivalent) and Tcfe (trillion of cubic feet of gas equivalent) are used. Such terms may be misleading, particularly if used in isolation. The conversion ratio used herein of six thousand cubic feet per barrel (6 mcf: 1 bbl) of natural gas to barrels of oil equivalent and the conversion ratio used herein of 1 barrel per six thousand cubic feet (1 bbl: 6 mcf) of barrels of oil to natural gas equivalent 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 following abbreviations used in this press release, including in the appendices hereto, have the meanings set forth below:

Where any disclosure of reserves data and resources is made in this press release that does not reflect all reserves of Advantage, the reader should note that the estimates of reserves, future net revenue and resources for individual properties or groups of properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

SOURCE Advantage Oil & Gas Ltd.

PDF available at: http://stream1.newswire.ca/media/2013/05/21/20130521_C8478_DOC_EN_26922.pdf