Exhibit 99.2
  
 Consolidated Financial Statements
  Management’s Responsibility for Financial Statements
  The Management of Advantage Oil & Gas Ltd. (the “Corporation”) is responsible for the preparation and presentation of the consolidated financial statements together with all operational and other financial information contained in the annual report. The consolidated financial statements have been prepared by Management in accordance with Canadian generally accepted accounting principles and utilize the best estimates and careful judgments of Management, where appropriate. Operational and other financial information contained throughout the annual report is consistent with that provided in the consolidated financial statements.
  Management has developed and maintains a system of internal controls designed to provide reasonable assurance that all transactions are accurately and reliably recorded, that the consolidated financial statements accurately report the Corporation’s operating and financial results within acceptable limits of materiality, that all other operational and financial information presented is accurate, and that the Corporation’s assets are properly safeguarded.
  The Audit Committee, comprised of non-management directors, acts on behalf of the Board of Directors to ensure that Management fulfills its financial reporting and internal control responsibilities. The Audit Committee is responsible for meeting regularly with Management, the external auditors, and the internal auditors to discuss internal controls over financial reporting processes, auditing matters and various aspects of financial reporting. The Audit Committee reviewed the consolidated financial statements with Management and the external auditors, and recommended approval to the Board of Directors. The Board of Directors has approved these consolidated financial statements.
  PricewaterhouseCoopers LLP, an independent firm of Chartered Accountants, appointed by the shareholders as the external auditor of the Corporation, has audited the consolidated balance sheets as at December 31, 2010 and 2009 and the consolidated statements of loss, comprehensive loss and deficit and cash flows for the years then ended.  The external auditors conducted their audits in accordance with Canadian generally accepted auditing standards and have unlimited and unrestricted access to the Audit Committee.
 
  graphic
graphicAndy J. Mah
Kelly I. DraderCEO
President and CFO
 March 22, 2011
   Advantage Oil & Gas Ltd. - 1
  Management’s Report on Internal Control over Financial Reporting
  The Management of Advantage Oil & Gas Ltd. (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, we have concluded that as of December 31, 2010, our internal control over financial reporting was effective.
  Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
  PricewaterhouseCoopers LLP, the Corporation’s independent firm of Chartered Accountants, was appointed by the shareholders to audit and provide an independent opinion on both the consolidated financial statements and the Corporation’s internal control over financial reporting as at December 31, 2010, as stated in their Auditor’s Report. PricewaterhouseCoopers LLP has provided such opinion.
  
  graphic
graphicAndy J. Mah
Kelly I. DraderCEO
President and CFO
 March 22, 2011
   Advantage Oil & Gas Ltd. - 2
  
 
 
 pwc logoMarch 22, 2011



Independent Auditor’s Report



To the Shareholders

of Advantage Oil & Gas Ltd.
PricewaterhouseCoopers LLP

Chartered Accountants

111 5 Avenue SW, Suite 3100

Calgary, Alberta

Canada T2P 5L3

Telephone +1 403 509 7500

Facsimile +1 403 781 1825

www.pwc.com/ca
 
 We have completed integrated audits of Advantage Oil & Gas Ltd.’s 2010 and 2009 consolidated financial statements and its internal control over financial reporting as at December 31, 2010. Our opinions, based on our audits, are presented below.
 
 Report on the consolidated financial statements
 
 We have audited the accompanying consolidated financial statements of Advantage Oil & Gas Ltd., which comprise the consolidated balance sheets as at December 31, 2010 and 2009 and the consolidated statements of loss, comprehensive loss and deficit and cash flows for the years then ended, and the related notes including a summary of significant accounting policies.
 
 Management’s responsibility for the consolidated financial statements
 Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
 
 Auditor’s responsibility
 Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards require that we comply with ethical requirements.
 
 An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
 
 We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.
 
 Opinion
 In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Advantage Oil & Gas Ltd. as at December 31, 2010 and 2009 and the results of its operations and cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
 
 
 
  Advantage Oil & Gas Ltd. - 3
  
 Report on internal control over financial reporting
 
 We have also audited Advantage Oil & Gas Ltd.’s internal control over financial reporting as at December 31, 2010 based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
 Management’s responsibility for internal control over financial reporting
 Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
 
 Auditor’s responsibility
 Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
 
 An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.
 
 We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.
 
 Definition of internal control over financial reporting
 A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
 Inherent limitations
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
 
 Opinion
 In our opinion, Advantage Oil & Gas Ltd. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2010 based on criteria established in Internal Control - Integrated Framework issued by COSO.
     
 
 Chartered Accountants
  Advantage Oil & Gas Ltd. - 4
  
  Consolidated Balance Sheets(thousands of dollars)

December 31,

2010


December 31,

2009AssetsCurrent assetsAccounts receivable

$
42,276


$
54,531Prepaid expenses and deposits


6,488



9,936Derivative asset (note 11)


25,157



30,82973,921



95,296Derivative asset (note 11)


-



323Fixed assets (note 3)


1,768,650



1,831,622$
1,842,571


$
1,927,241LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities

$
112,457


$
111,901Current portion of capital lease obligations (note 4)


759



1,375Current portion of convertible debentures (note 5)


61,570



69,553Derivative liability (note 11)


2,367



12,755Future income taxes (note 8)


5,876



4,704183,029



200,288Derivative liability (note 11)


177



1,165Capital lease obligations


-



759Bank indebtedness (note 6)


288,852



247,784Convertible debentures (note 5)


72,811



130,658Asset retirement obligations (note 7)


58,281



68,555Future income taxes (note 8)


29,399



38,796Other liability (note 9)


1,835



3,431634,384



691,436Shareholders' EquityShare capital (note 10)


2,199,491



2,190,409Convertible debentures equity component (note 5)


15,896



18,867Contributed surplus (note 10)


17,754



7,275Deficit


(1,024,954
)


(980,746
)1,208,187



1,235,805$
1,842,571


$
1,927,241Commitments (note 13)Subsequent events (note 14)
 
 see accompanying Notes to Consolidated Financial Statements
 
 On behalf of the Board of Directors of Advantage Oil & Gas Ltd:
 
 graphic

graphicPaul G. Haggis, Director

Andy J. Mah, Director
 
   Advantage Oil & Gas Ltd. - 5
  
  Consolidated Statements of Loss,Comprehensive Loss and DeficitYear ended


Year ended(thousands of dollars, except for per share amounts)

December 31, 2010


December 31, 2009RevenuePetroleum and natural gas

$
319,368


$
343,005Realized gain on derivatives (note 11)


45,133



86,487Unrealized gain (loss) on derivatives (note 11)


5,381



(23,738
)Royalties


(44,640
)


(49,010
)325,242



356,744ExpensesOperating


93,875



119,022General and administrative


37,578



39,335Management internalization (note 10)


-



1,724Interest


13,545



19,752Interest and accretion on convertible debentures


15,583



16,030Depletion, depreciation and accretion


215,780



256,882376,361



452,745Loss before taxes


(51,119
)


(96,001
)Future income tax reduction (note 8)


(8,225
)


(10,855
)Income and capital taxes (note 8)


1,314



1,280(6,911
)


(9,575
)Net loss and comprehensive loss


(44,208
)


(86,426
)Deficit, beginning of year


(980,746
)


(877,054
)Distributions declared


-



(17,266
)Deficit, end of year

$
(1,024,954
)

$
(980,746
)Net loss per share (note 10)Basic and diluted

$
(0.27
)

$
(0.56
)
 
 see accompanying Notes to Consolidated Financial Statements
 
 
   Advantage Oil & Gas Ltd. - 6
  
  Consolidated Statements of Cash Flows

Year ended


Year ended(thousands of dollars)

December 31, 2010


December 31, 2009Operating ActivitiesNet loss

$
(44,208
)

$
(86,426
)Add (deduct) items not requiring cash:Unrealized loss (gain) on derivatives


(5,381
)


23,738Equity-based compensation (note 10)


13,415



6,392Non-cash general and administrative (note 9)


(538
)


3,781Management internalization


-



1,724Accretion on other liability (note 9)


199



85Accretion on convertible debentures


4,097



2,354Depletion, depreciation and accretion


215,780



256,882Future income tax reduction


(8,225
)


(10,855
)Expenditures on asset retirement (note 7)


(6,275
)


(5,437
)Changes in non-cash working capital


33,630



(21,349
)Cash provided by operating activities


202,494



170,889Financing ActivitiesConvertible debenture maturities (note 5)


(69,927
)


(82,107
)Increase (decrease) in bank indebtedness


41,068



(336,933
)Reduction of capital lease obligations


(1,375
)


(2,299
)Units issued, less costs (note 10)


-



96,770Convertible debentures issued, less costs (note 5)


-



82,515Distributions to Unitholders


-



(23,481
)Changes in non-cash working capital


(310
)


500Cash used in financing activities


(30,544
)


(265,035
)Investing ActivitiesExpenditures on fixed assets


(223,308
)


(169,066
)Property dispositions (note 3)


69,676



245,150Changes in non-cash working capital


(18,318
)


18,062Cash provided by (used in) investing activities


(171,950
)


94,146Net change in cash


-



-Cash, beginning of year


-



-Cash, end of year

$
-


$
-Supplementary Cash Flow InformationInterest paid

$
21,533


$
31,335Taxes paid

$
1,200


$
1,410
 
 see accompanying Notes to Consolidated Financial Statements
  Advantage Oil & Gas Ltd. - 7
  
  Notes to Consolidated Financial Statements
  December 31, 2010 and 2009
  All tabular amounts in thousands except as otherwise indicated.
  1.
Business and Structure of Advantage Oil & Gas Ltd.
  Advantage Oil & Gas Ltd. (“Advantage” or the “Corporation”) is an intermediate oil and natural gas exploration and production corporation with properties located in Western Canada.  Advantage was created on July 9, 2009, through the completion of a plan of arrangement pursuant to an information circular dated June 5, 2009. Advantage Energy Income Fund (the “Fund”) was dissolved and converted into the corporation, Advantage Oil and Gas Ltd., with each Trust Unit converted into one Common Share.
  2.
Summary of Significant Accounting Policies
  The Management of the Corporation prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and all amounts are stated in Canadian dollars. The preparation of consolidated financial statements requires Management to make estimates and assumptions that affect the reported amount of assets, liabilities and equity and disclosures of contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods. The following significant accounting policies are presented to assist the reader in evaluating these consolidated financial statements and, together with the notes, should be considered an integral part of the consolidated financial statements.
  (a) Consolidation and joint operations
  These consolidated financial statements include the accounts of the Corporation and all subsidiaries. All intercompany balances and transactions have been eliminated.
  The Corporation conducts exploration and production activities jointly with other participants. The accounts of the Corporation reflect its proportionate interest in such joint operations.
  (b) Fixed assets
  (i) Petroleum and natural gas properties
  The Corporation follows the “full cost” method of accounting in accordance with the guideline issued by the Canadian Institute of Chartered Accountants (“CICA”) whereby all costs associated with the acquisition of and the exploration for and development of petroleum and natural gas reserves, whether productive or unproductive, are capitalized in a Canadian cost centre and charged to income as set out below. Such costs include lease acquisition, drilling and completion, production facilities, asset retirement costs, geological and geophysical costs and overhead expenses related to exploration and development activities, net of any government incentive programs.
  Gains or losses are not recognized upon disposition of petroleum and natural gas properties unless crediting the proceeds against accumulated costs would result in a change in the rate of depletion and depreciation of 20% or more.
  Depletion of petroleum and natural gas properties and depreciation of lease, well equipment and production facilities is provided on accumulated costs using the “unit-of-production” method based on estimated proved petroleum and natural gas reserves, before royalties, as determined by independent engineers. For purposes of the depletion and depreciation calculation, proved petroleum and natural gas reserves are converted to a common unit-of-measure on the basis of one barrel of oil or liquids being equal to six thousand cubic feet of natural gas.
  The depletion and depreciation cost base includes total capitalized costs, less costs of unproved properties, plus an estimate of future development costs of proved undeveloped reserves. Costs of acquiring and evaluating unproved properties are excluded from depletion calculations until it is determined whether or not proved reserves are attributable to the properties or impairment occurs.
  Petroleum and natural gas properties are evaluated in each reporting period to determine that the carrying amount in a cost centre is recoverable and does not exceed the fair value of the properties in the cost centre (the “ceiling test”). The carrying amounts are assessed to be recoverable when the sum of the undiscounted net cash flows expected from the production of
   Advantage Oil & Gas Ltd. - 8
  
 (i) Petroleum and natural gas properties (continued)
  proved reserves, the lower of cost and market of unproved properties and the cost of major development projects exceeds the carrying amount of the cost centre. When the carrying amount is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying amount of the cost centre exceeds the sum of the discounted net cash flows expected from the production of proved and probable reserves, the lower of cost and market of unproved properties and the cost of major development projects of the cost centre. The net cash flows are estimated using expected future product prices and costs and are discounted using a risk-free interest rate.
  (ii) Furniture and equipment
  The Corporation records furniture and equipment at cost and provides depreciation on the declining balance method at a rate of 20% per annum which is designed to amortize the cost of the assets over their estimated useful lives. The Corporation records leasehold improvements at cost and provides depreciation on the straight-line method over the term of the lease.
  (c) Distributions
  Distributions previously declared by the Fund were reported on an accrual basis.
  (d) Financial instruments
  The Corporation’s financial instruments consist of financial assets, financial liabilities, and non-financial derivatives.  All financial instruments are initially recognized at fair value on the balance sheet.  Measurement of financial instruments subsequent to the initial recognition, as well as resulting gains and losses, is based on how each financial instrument was initially classified.  The Corporation has classified each identified financial instrument into the following categories: held for trading, loans and receivables, held to maturity investments, available for sale financial assets, and other financial liabilities. Held for trading financial instruments are measured at fair value with gains and losses recognized in earnings immediately.  Available for sale financial assets are measured at fair value with gains and losses, other than impairment losses, recognized in other comprehensive income and transferred to earnings when the asset is derecognized. Loans and receivables, held to maturity investments and other financial liabilities are recognized at amortized cost using the effective interest method and impairment losses are recorded in earnings when incurred. With all new financial instruments, an election is available that allows entities to classify any financial instrument as held for trading.  Only those financial assets and liabilities that must be classified as held for trading are classified as such by the Corporation.
 Derivative instruments executed by the Corporation to manage market risk associated with volatile commodity prices are classified as held for trading and recorded on the balance sheet at fair value as derivative assets and liabilities. Gains and losses on these instruments are recorded as unrealized gains and losses on derivatives in the consolidated statement of loss, comprehensive loss and deficit in the period they occur and as realized gains and losses on derivatives when the contracts are settled.  Since unrealized gains and losses on derivatives are non-cash items, there is no impact on cash provided by operating activities as a result of their recognition.
 Transaction costs are frequently attributed to the acquisition or issue of a financial asset or liability. Such costs incurred on held for trading financial instruments are expensed immediately. For other financial instruments, an entity can adopt an accounting policy of either expensing transaction costs as they occur or adding such transaction costs to the fair value of the financial instrument.  The Corporation has chosen a policy of adding transaction costs to the fair value initially recognized for financial assets and liabilities that are not classified as held for trading.
 (e) Comprehensive income
 Comprehensive income consists of net income and other comprehensive income (“OCI”) with amounts included in OCI shown net of tax. Accumulated other comprehensive income is comprised of the cumulative amounts of OCI. To date, the Corporation does not have any adjustments in OCI and therefore comprehensive loss is currently equal to net loss.
  (f) Convertible debentures
  The Corporation’s convertible debentures are financial liabilities consisting of a liability with an embedded conversion feature. As such, the debentures are segregated between liabilities and equity based on the residual value method, where the liability is first measured using a discount rate without the conversion feature and the remaining amount is allocated to equity. Therefore, the debenture liabilities are presented at less than their eventual maturity values. The liability and equity components are further reduced for issuance costs initially incurred. The discount of the liability component as compared to maturity value is accreted by the “effective interest” method over the debenture term and expensed accordingly. As debentures are converted to shares, an appropriate portion of the liability and equity components are transferred to share capital.
   Advantage Oil & Gas Ltd. - 9
  
  (g) Asset retirement obligations
  The Corporation records the future cost associated with removal, site restoration and asset retirement costs. The fair value of the liability for the Corporation’s asset retirement obligations is recorded in the period in which it is incurred, discounted to its present value using the Corporation’s credit adjusted risk-free interest rate and the corresponding amount recognized by increasing the carrying amount of fixed assets. The asset recorded is depleted on a “unit-of-production” basis over the life of the reserves consistent with the Corporation’s depletion and depreciation policy for petroleum and natural gas properties. The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to income in the period. Revisions to the estimated timing of cash flows or to the original estimated undiscounted cost could also result in an increase or decrease to the obligation. Actual costs incurred upon settlement of the retirement obligations are charged against the obligation to the extent of the liability recorded.
  (h) Income taxes
  The Corporation follows the “liability” method of accounting for future income taxes. Under this method future income tax assets and liabilities are determined based on differences between the carrying value of an asset or liability and its tax basis using substantively enacted tax rates and laws expected to apply when the differences reverse. The effect a change in income tax rates has on future tax assets and liabilities is recognized in net income in the period in which the change is substantively enacted.
  (i) Equity-based compensation
  Advantage accounts for compensation expense based on the “fair value” of rights granted under its equity-based compensation plans.  Prior to converting to a corporation, the Fund had Trust Units held in escrow relating to management internalization (note 10) and a Restricted Trust Unit Plan.  Subsequent to converting to a corporation, Advantage has a Restricted Share Performance Incentive Plan (note 10).
  The escrowed Trust Units relating to the management internalization vested equally over three years, the period during which employees were required to provide service to receive the Trust Units. Therefore, the management internalization consideration was being deferred and amortized into income as management internalization expense over the specific vesting periods during which employee services were provided, including an estimate of future Trust Unit forfeitures.
  Advantage’s Restricted Share Performance Incentive Plan (“RSPIP” or the “Plan”), authorizes the Board of Directors to grant restricted shares to service providers of the Corporation, including directors, officers, employees, and consultants. The restricted share grants generally vest one-third immediately on grant date, with the remaining two-thirds vesting evenly on the following two yearly anniversary dates. Compensation cost related to the Plan is recognized as compensation expense within general and administrative expense over the service period and incorporates the share grant price, the estimated number of restricted shares to vest, and certain management estimates. As compensation expense is recognized, contributed surplus is recorded until the restricted shares vest at which time the appropriate shares are then issued to the services providers and the contributed surplus is transferred to share capital.  The Plan replaced the previous Restricted Trust Unit (“RTU”) plan that was in place prior to the conversion to a corporation and for which the accounting was the same.
 
 (j) Revenue recognition
 
 Revenue associated with the sale of petroleum, natural gas and natural gas liquids is recognized when the title and risks pass to the purchaser, normally at the pipeline delivery point for natural gas and at the wellhead for crude oil.
 
 (k) Per share amounts
 
 Net loss per share is calculated using the weighted average number of shares outstanding during the year. Diluted net loss per share is calculated using the “if-converted” method to determine the dilutive effect of convertible debentures and the “treasury stock” method for equity-based compensation.
 
 (l) Measurement uncertainty
 
 The amounts recorded for depletion and depreciation of fixed assets, the provision for asset retirement obligation costs and related accretion expense, impairment calculations for fixed assets, derivative fair value calculations, future income tax provisions, fair values initially assigned to convertible debentures liability and equity components, as well as fair values assigned to any identifiable assets and liabilities in business combinations are based on estimates. These estimates are significant and include proved and probable reserves, future production rates, future petroleum and natural gas prices, future costs, future interest rates, future tax rates, fair value assessments, and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in such estimates in future years could be material.
  Advantage Oil & Gas Ltd. - 10
  
 (m) Recent accounting pronouncements issued but not implemented
  (i)     International Financial Reporting Standards (“IFRS”)
 
 Effective January 1, 2011, Advantage will adopt IFRS.
  (n) Comparative figures
  Certain comparative figures have been reclassified to conform to the current year presentation.
  3.
Fixed Assets
  Accumulated


NetDecember 31, 2010

Cost


Depletion and Depreciation


Book

ValuePetroleum and natural gas properties

$
3,366,697


$
1,600,839


$
1,765,858Furniture and equipment


12,188



9,396



2,792$
3,378,885


$
1,610,235


$
1,768,650
 
 Accumulated


NetDecember 31, 2009

Cost


Depletion and Depreciation


Book

ValuePetroleum and natural gas properties

$
3,218,785


$
1,390,784


$
1,828,001Furniture and equipment


11,785



8,164



3,621$
3,230,570


$
1,398,948


$
1,831,622
 In May and June 2010, Advantage closed two asset dispositions for net cash proceeds of $66.5 million, and other minor dispositions of $3.2 million (December 31, 2009 - $245.2 million). As these dispositions did not result in a change of more than 20% in the rate of depletion and depreciation, no gain or loss was recognized.
 During the year ended December 31, 2010, Advantage capitalized general and administrative expenditures directly related to exploration and development activities of $9.6 million (December 31, 2009 - $10.2 million).
  Costs of $30.7 million (December 31, 2009 - $38.2 million) for unproved properties have been excluded from the calculation of depletion expense, and future development costs of $1.2 billion (December 31, 2009 - $845.3 million) have been included in costs subject to depletion.
  The Corporation performed a ceiling test calculation at December 31, 2010 to assess the recoverable value of fixed assets. Based on the calculation, there has been no impairment of the Corporation’s petroleum and natural gas properties. The carrying amounts are recoverable as compared to the sum of the undiscounted net cash flows expected from the production of proved reserves based on the following benchmark prices:
 
 WTI Crude Oil


Exchange Rate


AECO GasYear

($US/bbl)


($US/$Cdn)


($Cdn/mmbtu)2011

$
88.40


$
0.932


$
4.042012

$
89.14


$
0.932


$
4.662013

$
88.77


$
0.932


$
4.992014

$
88.88


$
0.932


$
6.582015

$
90.22


$
0.932


$
6.692016

$
91.57


$
0.932


$
6.80Approximate escalation rate after 2016


1.5
%


-



1.5
%
 
 Benchmark prices are adjusted for a variety of factors, such as quality differentials, to determine the expected price to be realized by the Corporation when performing the ceiling test calculation.
 
   Advantage Oil & Gas Ltd. - 11
  
 4.
Capital Lease Obligations
  The Corporation has capital leases on a variety of fixed assets. Future minimum lease payments at December 31, 2010 consist of the following:
  2011

$
779Less amounts representing interest


(20
)759Current portion


(759
)$
-
  Fixed assets subject to capital leases are depreciated on a “unit-of-production” basis over the life of the reserves consistent with the Corporation’s depletion and depreciation policy for petroleum and natural gas properties and is included in depletion, depreciation and accretion expense.
 
 5.
Convertible Debentures
 
 The convertible unsecured subordinated debentures pay interest semi-annually and are convertible at the option of the holder into shares of Advantage at the applicable conversion price per share plus accrued and unpaid interest. The details of the convertible debentures including fair market values initially assigned and issuance costs are as follows:
  7.75%



8.00%



5.00%Trading symbol

AAV.DBD


AAV.DBG


AAV.DBHIssue date

Sep. 15, 2004


Nov. 13, 2006


Dec. 31, 2009Maturity date

Dec. 1, 2011


Dec. 31, 2011


Jan. 30, 2015Conversion price

$
21.00


$
20.33


$
8.60Liability component

$
47,444


$
14,884


$
73,019Equity component


2,556



26,561



13,231Gross proceeds


50,000



41,445



86,250Issuance costs


(2,190
)


-



(3,735
)Net proceeds

$
47,810


$
41,445


$
82,515
  The convertible debentures are redeemable prior to their maturity dates, at the option of the Corporation, upon providing appropriate advance notification as per the debenture indentures.  The redemption prices for the various debentures, plus accrued and unpaid interest, is dependent on the redemption periods and are as follows:
  Convertible

RedemptionDebenture
Redemption Periods
Price7.75%
After December 1, 2009 and before December 1, 2011
$  1,0008.00%
After December 31, 2010 and before December 31, 2011
$  1,0255.00%
After January 31, 2013 and on or before January 30, 2015
$  1,000Provided that Current Market Price exceeds 125% of Conversion Price
 
   Advantage Oil & Gas Ltd. - 12
  
 5.
Convertible Debentures (continued)
  The balance of debentures outstanding at December 31, 2010 and changes in the liability and equity components during the years ended December 31, 2010 and 2009 are as follows:
  8.25%


8.75%


7.50%


6.50%Trading symbol

AVN.DBB


AVN.DBF


AAV.DBC


AAV.DBEDebentures outstanding

$
-


$
-


$
-


$
-Liability component:Balance at December 31, 2008

$
4,859


$
29,687


$
51,579


$
68,807Accretion of discount


8



152



689



746Matured


(4,867
)


(29,839
)


(52,268
)


-Balance at December 31, 2009

$
-


$
-


$
-


$
69,553Accretion of discount


-



-



-



374Matured


-



-



-



(69,927
)Balance at December 31, 2010

$
-


$
-


$
-


$
-Equity component:Balance at December 31, 2008

$
248


$
852


$
2,248


$
2,971Expired


(248
)


(852
)


(2,248
)


-Balance at December 31, 2009

$
-


$
-


$
-


$
2,971Expired


-



-



-



(2,971
)Balance at December 31, 2010

$
-


$
-


$
-


$
-
 
 7.75%


8.00%


5.00%


TotalTrading symbol

AAV.DBD


AAV.DBG


AAV.DBHDebentures outstanding

$
46,766


$
15,528


$
86,250


$
148,544Liability component:Balance at December 31, 2008

$
44,964


$
15,078


$
-


$
214,974Issued


-



-



69,857



69,857Accretion of discount


610



149



-



2,354Matured


-



-



-



(86,974
)Balance at December 31, 2009

$
45,574


$
15,227


$
69,857


$
200,211Accretion of discount


619



150



2,954



4,097Matured


-



-



-



(69,927
)Balance at December 31, 2010

$
46,193


$
15,377


$
72,811


$
134,381Equity component:Balance at December 31, 2008

$
2,286


$
798


$
-


$
9,403Issued


-



-



12,812



12,812Expired


-



-



-



(3,348
)Balance at December 31, 2009

$
2,286


$
798


$
12,812


$
18,867Expired


-



-



-



(2,971
)Balance at December 31, 2010

$
2,286


$
798


$
12,812


$
15,896
 
 
  Advantage Oil & Gas Ltd. - 13
  
 5.
Convertible Debentures (continued)
  The principal amount of 8.25% convertible debentures matured on February 1, 2009 and were settled by issuing 946,887 Trust Units. The 8.75% convertible debentures matured and were settled with $29.8 million in cash on June 30, 2009.  The 7.50% convertible debentures matured and were settled with $52.3 million in cash on September 30, 2009.
  The principal amount of 6.50% convertible debentures matured and were settled with $69.9 million in cash on June 30, 2010.
 
 On December 31, 2009, 5.00% convertible debentures were issued for net proceeds of $82.5 million.  The debentures have a face value of $1,000 per debenture, mature on January 30, 2015 and are convertible into shares of the Corporation at the option of the holder at a conversion price of $8.60.  The debentures pay interest semi-annually in arrears on January 31 and July 31 of each year, commencing on July 31, 2010. The debentures will not be redeemable by the Corporation prior to January 31, 2013. On and after January 31, 2013 and prior to January 30, 2015, the debentures may be redeemed by the Corporation in whole or in part from time to time at the option of the Corporation at a redemption price equal to their principal amount plus accrued and unpaid interest, provided that the Current Market Price is at least 125% of the Conversion Price. In the event that a holder of debentures exercises their conversion right following a notice of redemption by the Corporation, such holder shall be entitled to receive accrued and unpaid interest, in addition to the applicable number of shares to be received on conversion.
 
 During the years ended December 31, 2010 and 2009, there were no convertible debenture conversions.
  6.
Bank Indebtedness
  December 31,

2010


December 31,

2009Revolving credit facility

$
290,657


$
250,262Discount on Bankers Acceptances and other fees


(1,805
)


(2,478
)Balance, end of year

$
288,852


$
247,784
  Advantage’s credit facilities of $525 million is comprised of a $20 million extendible revolving operating loan facility from one financial institution and a $505 million extendible revolving loan facility from a syndicate of financial institutions (the "Credit Facilities"). Amounts borrowed under the Credit Facilities bear interest at a floating rate based on the applicable Canadian prime rate, US base rate, LIBOR rate or bankers' acceptance rate plus between 1.25% and 3.75% depending on the type of borrowing and the Corporation’s debt to cash flow ratio. The Credit Facilities are collateralized by a $1 billion floating charge demand debenture covering all assets of the Corporation. The amounts available to Advantage from time to time under the Credit Facilities are based upon the borrowing base determined semi-annually by the lenders. The revolving period for the Credit Facilities will end in June 2011 unless extended at the option of the syndicate for a further 364 day period. If the Credit Facilities are not extended, they will convert to non-revolving term facilities due 365 days after the last day of the revolving period. The credit facilities prohibit the Corporation from entering into any derivative contract where the term of such contract exceeds three years.  Further, the aggregate of such contracts cannot hedge greater than 60% of total estimated petroleum and natural gas production over two years and 50% over the third year. The Credit Facilities contain standard commercial covenants for credit facilities of this nature. The only financial covenant is a requirement for Advantage to maintain a minimum cash flow to interest expense ratio of 3.5:1, determined on a rolling four-quarter basis. This covenant was met at December 31, 2010 and 2009. Breach of any covenant will result in an event of default in which case Advantage has 20 days to remedy such default. If the default is not remedied or waived, and if required by the lenders, the administrative agent of the lenders has the option to declare all obligations under the credit facilities to be immediately due and payable without further demand, presentation, protest, days of grace, or notice of any kind. Interest payments under the debentures are subordinated to the repayment of any amounts owing under the credit facilities and are not permitted if the Corporation is in default of such credit facilities or if the amount of outstanding indebtedness under such facilities exceeds the then existing current borrowing base. For the year ended December 31, 2010, the average effective interest rate on the outstanding amounts under the facility was 5.0% (December 31, 2009 - 4.9%). Advantage also has issued letters of credit totaling $2.9 million at December 31, 2010 (December 31, 2009 - $1.3 million).
   Advantage Oil & Gas Ltd. - 14
  
 7.
Asset Retirement Obligations
  The Corporation’s asset retirement obligations result from net ownership interests in petroleum and natural gas properties including well sites, gathering systems and processing facilities. The Corporation estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $320 million which will be incurred between 2011 and 2070. A credit-adjusted risk-free rate of 7% and an inflation factor of 2% were used to calculate the fair value of the asset retirement obligations.
  A reconciliation of the asset retirement obligations is provided below:
  Year ended


Year endedDecember 31, 2010


December 31, 2009Balance, beginning of year

$
68,555


$
73,852Accretion expense


4,493



5,297Liabilities incurred


1,370



699Change in estimates


4,107



16,419Property dispositions


(13,969
)


(22,275
)Liabilities settled


(6,275
)


(5,437
)Balance, end of year

$
58,281


$
68,555
  8.
Income Taxes
  The provision for income taxes varies from the amount that would be computed by applying the combined Canadian federal and provincial income tax rates for the following reasons:
  Year ended


Year endedDecember 31, 2010


December 31, 2009Loss before taxes

$
(51,119
)

$
(96,001
)Canadian combined federal and provincial income tax rates


28.17
%


29.20
%Expected income tax recovery at statutory rates


(14,400
)


(28,032
)Increase (decrease) in income taxes resulting from:Amounts included in trust income


-



(5,042
)Conversion to a corporation


-



22,637Management internalization


-



503Change in estimated pool balances


-



(4,682
)Equity-based compensation


4,674



2,393Difference between current and expected tax rates


696



-Other


805



1,368Future income tax reduction


(8,225
)


(10,855
)Income and capital taxes


1,314



1,280$
(6,911
)

$
(9,575
)
 
   Advantage Oil & Gas Ltd. - 15
  
  8.
Income Taxes (continued)
  The components of the future income tax liability are as follows:
  December 31,

2010


December 31,

2009Fixed assets in excess of tax basis

$
211,355


$
193,821Asset retirement obligations


(14,828
)


(17,418
)Non-capital tax loss carry forward


(159,358
)


(127,941
)Net derivative assets


6,034



4,867Other


(7,928
)


(9,829
)Future income tax liability

$
35,275


$
43,500Current future income tax liability

$
5,876


$
4,704Long-term future income tax liability


29,399



38,796$
35,275


$
43,500
 
 Advantage has a federal non-capital loss carry forward balance of approximately $633 million (December 31, 2009 - $508 million). These losses expire between 2023 and 2030.
 
 The estimated tax pools in place at December 31, 2010 are as follows:
  December 31, 2010Estimated Tax Pools($ millions)Undepreciated Capital Cost

$
413Canadian Oil and Gas Property Expenses


138Canadian Development Expenses


331Canadian Exploration Expenses


44Non-capital losses


633Other


11$
1,570
  9.
Other Liability
  In August 2009, Advantage vacated an office location as the space was no longer required. Advantage is obligated to make lease payments for the remainder of the life of the lease, which terminates in November 2012. As a result, the full fair value of future scheduled lease payments was recognized as general and administrative expense in 2009 with a corresponding liability. Fair value was determined on a present value basis, using a credit-adjusted risk free rate of 7%. In November 2010, Advantage subleased a portion of the space to a subtenant, and accordingly recognized a reduction in the liability and a corresponding recovery of general and administrative expense.
  A reconciliation of the other liability is as follows:
  Year ended


Year endedDecember 31,

2010


December 31,

2009Balance, beginning of year

$
3,431


$
-Office lease liability incurred


-



3,781Accretion expense


199



85Reduction of liability by subleasing space


(538
)


-Liability settled


(1,257
)


(435
)Balance, end of year

$
1,835


$
3,431
 
   Advantage Oil & Gas Ltd. - 16
  
  10.
Shareholders’ Equity
  (a) Share capital
  (i)     Authorized
  The Corporation is authorized to issue an unlimited number of shares without nominal or par value.
  (ii) Issued
  Number of

Shares


AmountBalance at July 9, 2009


-


$
-Issued on conversion to a corporation


162,197,790



2,186,802Issued pursuant to Restricted Share Performance Incentive Plan


547,738



3,607Balance at December 31, 2009


162,745,528


$
2,190,409Issued pursuant to Restricted Share Performance Incentive Plan


1,346,481



9,082Balance at December 31, 2010


164,092,009


$
2,199,491
  On July 9, 2009, the Fund successfully completed the plan of arrangement pursuant to an information circular dated June 5, 2009.  The Fund was dissolved and converted into the Corporation, with each Trust Unit converted into one Common Share.
  (b) Unit capital
  Number of

Units


AmountBalance at December 31, 2008


142,824,854


$
2,077,760Distribution reinvestment plan


1,263,158



5,211Issued on maturity of debentures


946,887



4,867Issued pursuant to Restricted Trust Unit Plan


171,093



939Management internalization forfeitures


(7,862
)


(159
)Issued, less costs net of future taxes


17,000,000



98,185Purchased from dissenting Unitholders


(340
)


(1
)Cancelled on conversion to a corporation


(162,197,790
)


(2,186,802
)Balance at July 9, 2009


-



-
  Concurrent with the acquisition of Ketch Resources Trust on June 23, 2006, the Fund internalized the external management contract structure and eliminated all related fees for total original consideration of 1,933,208 Trust Units initially valued at $39.1 million. These Trust Units were subject to escrow provisions over a three-year period, vesting one-third each year beginning in 2007. The management internalization consideration was deferred and amortized into income as management internalization expense over the specific vesting periods during which employee services were provided. For the year ended December 31, 2009, a total of 7,862 Trust Units issued for the management internalization were forfeited and $1.7 million was recognized as management internalization expense. At December 31, 2010 and 2009, all Trust Units in respect of management internalization were issued and none remained held in escrow.
  Prior to converting to a corporation on July 9, 2009, 1,263,158 Trust Units were issued under the Premium Distribution(TM), Distribution Reinvestment and Optional Trust Unit Purchase Plan, generating $5.2 million reinvested in the Fund during the year ended December 31, 2009.  The Premium Distribution(TM), Distribution Reinvestment and Optional Trust Unit Purchase Plan was discontinued on March 18, 2009, concurrent with the discontinuation of cash distributions.
  The principal amount of 8.25% convertible debentures matured on February 1, 2009 and were settled by issuing 946,887 Trust Units.
  On July 7, 2009, the Fund closed a bought deal financing with 17 million Trust Units issued at $6.00 each, for gross proceeds of $102 million, less $3.8 million related to $5.2 million of issuance costs net $1.4 million of related future taxes.
   Advantage Oil & Gas Ltd. - 17
 
  10.
Shareholders’ Equity (continued)
  (c) Contributed surplus
  The changes in contributed surplus during the years ended December 31, 2010 and 2009 are as follows:
  
 Year ended


Year endedDecember 31,

2010


December 31,

2009Balance, beginning of year

$
7,275


$
287Equity-based compensation


7,508



3,640Expiration of convertible debentures equity component (note 5)


2,971



3,348Balance, end of year

$
17,754


$
7,275
 
 The components of contributed surplus are as follows:
 
 December 31,

2010


December 31,

2009Expired convertible debentures equity component

$
6,606


$
3,635Equity-based compensation


11,148



3,640Balance, end of year

$
17,754


$
7,275
 
 (d) Equity-based compensation
  Advantage has a Restricted Share Performance Incentive Plan (“RSPIP” or the “Plan”) as approved by the shareholders on July 9, 2009, concurrent with the conversion to a corporation. The Plan authorizes the Board of Directors to grant restricted shares to service providers of the Corporation, including directors, officers, employees, and consultants. The number of restricted shares granted is based on the Corporation’s share price return for a twelve-month period and compared to the performance of a peer group approved by the Board of Directors. The share price return is calculated at the end of each and every quarter and is primarily based on the twelve-month change in the share price. If the share price return for a twelve-month period is positive, a restricted share grant will be calculated based on the return. If the share price return for a twelve-month period is negative, but the return is still within the top two-thirds of the approved peer group performance, the Board of Directors may grant a discretionary restricted share award. The restricted share grants generally vest one-third immediately on grant date, with the remaining two-thirds vesting evenly on the following two yearly anniversary dates. The holders of restricted shares may elect to receive cash upon vesting in lieu of the number of shares to be issued, subject to consent of the Corporation.  However, it is the intent to settle unvested amounts with shares. The Plan replaced the previous Restricted Trust Unit (“RTU”) plan that was in place prior to the conversion to a corporation and outstanding grants under the RTU are now subject to the RSPIP.
 
 In conjunction with the corporate conversion, a transitional award of restricted shares to service providers was approved by shareholders valued at $5.80 per share or $8.4 million and to be issued in shares. The restricted shares were granted on September 2, 2009 with the first one-quarter of the grant vesting immediately and the remaining three-quarters of the grant that will vest over the subsequent three anniversary dates.
 
 Total equity-based compensation recorded in general and administrative expenses during the year ended December 31, 2010 was $16.1 million, including a non-cash amount of $13.4 million (December 31, 2009 - $8.1 million, including a non-cash amount of $6.4 million). During the year ended December 31, 2010, 1,346,481 shares were issued in satisfaction of grants vesting under the RSPIP.  For the year ended December 31, 2009, 547,738 shares were issued subsequent to the corporate conversion in satisfaction of grants vesting under the RSPIP, and prior to the corporate conversion, 171,093 Trust Units were issued in satisfaction of grants vesting under the previous RTU plan.
 
  Advantage Oil & Gas Ltd. - 18
  
 10.
Shareholders’ Equity (continued)
 
 The details of restricted shares granted and outstanding at December 31, 2010 are as follows:
 
 WeightedRestricted


Restricted


Restricted


Restricted


average fairShares


Shares


Shares


Shares


value atDate Granted

Granted


Vested


Forfeited


Outstanding


grant dateJanuary 15, 2009


691,178



487,427



22,268



181,483


$
5.49September 2, 2009


1,453,609



741,842



9,172



702,595


$
5.80October 15, 2009


1,153,314



775,367



6,299



371,648


$
7.51January 12, 2010


779,013



269,544



4,623



504,846


$
7.27April 12, 2010


979,915



332,973



5,975



640,967


$
6.97July 12, 2010


788,092



262,689



1,074



524,329


$
6.53Total


5,845,121



2,869,842



49,411



2,925,868


$
6.59
 
 In January 2011, an RSPIP grant was made to service providers valued at $6.95 per share or $0.5 million and is to be issued in shares.  No compensation expense was included in general and administrative expense as this grant occurred after December 31, 2010.
 
 (e)  Net loss per share
 
 The calculations of basic and diluted net loss per share are derived from both net loss and weighted average shares outstanding, calculated as follows:
 
 Year ended


Year endedDecember 31,

2010


December 31,

2009Net lossBasic and diluted

$
(44,208
)

$
(86,426
)Weighted average shares outstandingBasic and diluted


163,467,225



153,139,829
 
 The calculation of diluted net loss per share excludes all series of convertible debentures for the years ended December 31, 2010 and 2009 as the impact would be anti-dilutive. Total weighted average shares issuable in exchange for the convertible debentures and excluded from the diluted net loss per share calculation for the year ended December 31, 2010 was ­­14,401,412 shares (December 31, 2009 - 8,165,575 shares). As at December 31, 2010, the total convertible debentures outstanding were immediately convertible to 13,019,819 shares (December 31, 2009 - 15,821,382 shares).
  Restricted shares granted have been excluded from the calculation of diluted net loss per share for the years ended December 31, 2010 and 2009, as the impact would have been anti-dilutive. Total weighted average shares issuable in exchange for the restricted shares and excluded from the diluted net loss per share calculation for the year ended December 31, 2010 was 1,094,135 (December 31, 2009 - 331,281).
  Management internalization escrowed Trust Units have been excluded from the calculations of diluted net loss per share for the year ended December 31, 2009 as the impact would be anti-dilutive. Total weighted average Trust Units issuable in exchange for the management internalization escrowed Trust Units and excluded from the diluted net loss per share calculation for the year ended December 31, 2009 was 207,018.
   Advantage Oil & Gas Ltd. - 19
  
  11.
Financial Instruments
  Financial instruments of the Corporation include accounts receivable, deposits, accounts payable and accrued liabilities, bank indebtedness, convertible debentures, other liabilities and derivative assets and liabilities.
  Accounts receivable and deposits are classified as loans and receivables and measured at amortized cost. Accounts payable and accrued liabilities, bank indebtedness and other liabilities are all classified as other liabilities and similarly measured at amortized cost.  As at December 31, 2010, there were no significant differences between the carrying amounts reported on the balance sheet and the estimated fair values of these financial instruments due to the short terms to maturity and the floating interest rate on the bank indebtedness.
  The Corporation has convertible debenture obligations outstanding, of which the liability component has been classified as other liabilities and measured at amortized cost. The convertible debentures have different fixed terms and interest rates (note 5) resulting in fair values that will vary over time as market conditions change. As at December 31, 2010, the estimated fair value of the total outstanding convertible debenture obligation was $153.2 million (December 31, 2009 - $207.9 million). The fair value of the convertible debentures was determined by a Level 2 valuation model, based on discounted cash flows assuming no future conversions and continuation of current interest and principal payments as well as taking into consideration the current public trading activity of such debentures.  The Corporation applied discount rates of between 5% and 7% considering current available market information, assumed credit adjustments, and various terms to maturity.
  Advantage has an established strategy to manage the risk associated with changes in commodity prices by entering into derivatives, which are recorded at fair value as derivative assets and liabilities with gains and losses recognized through earnings. As the fair value of the contracts varies with commodity prices, they give rise to financial assets and liabilities. The fair values of the derivatives are determined by a Level 2 valuation model, where pricing inputs other than quoted prices in an active market are used.  These pricing inputs include quoted forward prices for commodities, foreign exchange rates, volatility and risk-free rate discounting, all of which can be observed or corroborated in the marketplace. The actual gains and losses realized on eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices and foreign exchange rates as compared to the valuation assumptions.
  Credit Risk
  Accounts receivable, deposits, and derivative assets are subject to credit risk exposure and the total carrying value of $70.4 million (December 31, 2009 - $92.0 million) reflects Management’s assessment of the associated maximum exposure to such credit risk. Advantage mitigates such credit risk by closely monitoring significant counterparties and dealing with a broad selection of partners that diversify risk within the sector. The Corporation’s deposits are primarily due from the Alberta Provincial government and are viewed by Management as having minimal associated credit risk. To the extent that Advantage enters derivatives to manage commodity price risk, it may be subject to credit risk associated with counterparties with which it contracts. Credit risk is mitigated by entering into contracts with only stable, creditworthy parties and through frequent reviews of exposures to individual entities. In addition, the Corporation only enters into derivative contracts with major banks and international energy firms to further mitigate associated credit risk.
  Substantially all of the Corporation’s accounts receivable are due from customers and joint operation partners concentrated in the Canadian oil and gas industry. As such, accounts receivable have been subject to normal industry credit risks.  As at December 31, 2010, $2.3 million or 5.4% of accounts receivable have been outstanding for 90 days or more (December 31, 2009 - $6.9 million or 12.6% of accounts receivable). The Corporation believes that the entire balance is collectible, and in some instances the Corporation has the ability to mitigate risk through withholding production or offsetting payables with the same parties. Management has provided for an allowance for doubtful accounts of $0.2 million at December 31, 2010 (December 31, 2009 - $0.5 million).
   Advantage Oil & Gas Ltd. - 20
  
  11.
Financial Instruments (continued)
  Liquidity Risk
  The Corporation is subject to liquidity risk attributed from accounts payable and accrued liabilities, bank indebtedness, convertible debentures, other liabilities, and derivative liabilities. Accounts payable and accrued liabilities, and derivative liabilities are primarily due within one year of the balance sheet date and Advantage does not anticipate any problems in satisfying the obligations from cash provided by operating activities and the existing credit facility. The Corporation’s bank indebtedness is subject to a $525 million credit facility agreement (note 6) and does not have specific maturity dates. Under the terms of the agreement, the facility is reviewed annually, with the next review scheduled in June 2011. The credit facility constitutes a revolving facility for a 364 day term which is extendible annually for a further 364 day revolving period at the option of the syndicate. If not extended, the revolving credit facility is converted to a one year term facility with the principal payable at the end of such one year term. Management fully expects that the facility will be extended at each annual review. Although the credit facility is a source of liquidity risk, the facility also mitigates liquidity risk by enabling Advantage to manage interim cash flow fluctuations. The terms of the credit facility are such that it provides Advantage adequate flexibility to evaluate and assess liquidity issues if and when they arise. Additionally, the Corporation regularly monitors liquidity related to obligations by evaluating forecasted cash flows, optimal debt levels, capital spending activity, working capital requirements, and other potential cash expenditures. This continual financial assessment process further enables the Corporation to mitigate liquidity risk.
  Advantage has several series of convertible debentures outstanding that mature in 2011 and 2015 (note 5). Interest payments are made semi-annually with excess cash provided by operating activities. As the debentures become due, the Corporation can satisfy the obligations in cash or issue shares at a price determined in the applicable debenture indentures. This settlement alternative allows the Corporation to adequately manage liquidity, plan available cash resources and implement an optimal capital structure.
  To the extent that Advantage enters derivatives to manage commodity price risk, it may be subject to liquidity risk as derivative liabilities become due. While the Corporation has elected not to follow hedge accounting, derivative instruments are not entered for speculative purposes and Management closely monitors existing commodity risk exposures. As such, liquidity risk is mitigated since any losses actually realized are subsidized by increased cash flows realized from the higher commodity price environment.
  The timing of cash outflows relating to financial liabilities as at December 31, 2010 are as follows:
  Less than

one year


One to

three years


Four to

five years


Thereafter


TotalAccounts payable and accrued liabilities

$
112,457


$
-


$
-


$
-


$
112,457Capital lease obligations


779



-



-



-



779Derivative liabilities



2,367



177



-



-



2,544Bank indebtedness
- principal


-



290,657



-



-



290,657- interest


13,717



6,577



-



-



20,294Convertible debentures
- principal


62,294



-



86,250



-



148,544- interest


9,179



8,625



6,469



-



24,273Other liability



-



1,966



-



-



1,966$
200,793


$
308,002


$
92,719


$
-


$
601,514Interest on bank indebtedness was calculated assuming conversion of the revolving credit facility to a one-year term facility.
 
  
  
  
   Advantage Oil & Gas Ltd. - 21
    11.
Financial Instruments (continued)
  The timing of cash outflows relating to financial liabilities as at December 31, 2009 are as follows:
  Less than

one year


One to

three years


Four to

five years


Thereafter


TotalAccounts payable and accrued liabilities

$
111,901


$
-


$
-


$
-


$
111,901Capital lease obligations


1,459



779



-



-



2,238Derivative liabilities



12,755



1,165



-



-



13,920Bank indebtedness
- principal


-



250,262



-



-



250,262- interest


12,008



6,004



-



-



18,012Convertible debentures
- principal


69,927



62,294



-



86,250



218,471- interest


9,679



13,492



8,625



2,156



33,952Other liability



-



3,803



-



-



3,803$
217,729


$
337,799


$
8,625


$
88,406


$
652,559Interest on bank indebtedness was calculated assuming conversion of the revolving credit facility to a one-year term facility.
 
 Interest Rate Risk
 
 The Corporation is exposed to interest rate risk to the extent that bank indebtedness is at a floating rate of interest and the Corporation’s maximum exposure to interest rate risk is based on the effective interest rate and the current carrying value of the bank indebtedness. The Corporation monitors the interest rate markets to ensure that appropriate steps can be taken if interest rate volatility compromises the Corporation’s cash flows. A 1% increase in interest rates for the year ended December 31, 2010 could have increased net loss for the year by approximately $1.9 million (December 31, 2009 - $3.4 million).
  Price and Currency Risk
 
 Advantage’s derivative assets and liabilities are subject to both price and currency risks as their fair values are based on assumptions including forward commodity prices and foreign exchange rates. The Corporation enters derivative financial instruments to manage commodity price risk exposure relative to actual commodity production and does not utilize derivative instruments for speculative purposes. Changes in the price assumptions can have a significant effect on the fair value of the derivative assets and liabilities and thereby impact net loss. It is estimated that a 10% increase in the forward natural gas prices used to calculate the fair value of the natural gas derivatives at December 31, 2010 could increase net loss for the year ended December 31, 2010 by approximately $2.7 million (December 31, 2009 - $7.1 million). As well, an increase of 10% in the forward crude oil prices used to calculate the fair value of the crude oil derivatives at December 31, 2010 could increase net loss for the year ended December 31, 2010 by $4.0 million (December 31, 2009 - $4.7 million). A similar magnitude increase in the forward currency rate assumption underlying the derivatives fair value does not materially increase net loss.
  As at December 31, 2010 the Corporation had the following derivatives in place:
  Description of Derivative
Term
Volume
Average PriceNatural gas - AECOFixed price
April 2010 to January 2011
18,956 mcf/d
Cdn$7.25/mcfFixed price
January 2011 to December 2011
9,478 mcf/d
Cdn$6.24/mcfFixed price
January 2011 to December 2011
9,478 mcf/d
Cdn$6.24/mcfFixed price
January 2011 to December 2011
9,478 mcf/d
Cdn$6.26/mcfCrude oil - WTIFixed price
April 2010 to January 2011
2,000 bbls/d
Cdn$69.50/bblFixed price
January 2011 to December 2011
1,500 bbls/d
Cdn $91.05/bbl
  As at December 31, 2010, the fair value of the derivatives outstanding resulted in an asset of approximately $25.2 million (December 31, 2009 - $31.1 million) and a liability of approximately $2.5 million (December 31, 2009 - $13.9 million). For the year ended December 31, 2010, $5.4 million was recognized in net loss as an unrealized derivative gain (December 31, 2009 - $23.7 million unrealized derivative loss) and $45.1 million was recognized in net loss as a realized derivative gain (December 31, 2009 - $86.5 million realized derivative gain).
   Advantage Oil & Gas Ltd. - 22
  
  12.
Capital Management
  The Corporation manages its capital with the following objectives:
  •
To ensure sufficient financial flexibility to achieve the ongoing business objectives including replacement of production, funding of future growth opportunities, and pursuit of accretive acquisitions; and
  •
To maximize shareholder return through enhancing the share value.
  Advantage monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The capital structure of the Corporation is composed of working capital (excluding derivative assets and liabilities), bank indebtedness, convertible debentures, capital lease obligations and shareholders’ equity.  Advantage may manage its capital structure by issuing new shares, repurchasing outstanding shares, obtaining additional financing either through bank indebtedness or convertible debenture issuances, refinancing current debt, issuing other financial or equity-based instruments, declaring a dividend, implementing a dividend reinvestment plan, adjusting capital spending, or disposing of assets.  The capital structure is reviewed by Management and the Board of Directors on an ongoing basis.  Advantage’s capital structure is as follows:
  December 31,

2010


December 31,

2009Bank indebtedness (long-term)

$
290,657


$
250,262Working capital deficit (1)


64,452



48,809Net debt

$
355,109


$
299,071Shares outstanding, representing shareholders' equity


164,092,009



162,745,528Shares closing market price ($/share)

$
6.76


$
6.90Market capitalization (2)

$
1,109,262


$
1,122,944Convertible debentures maturity value (current and long-term)


148,544



218,471Capital lease obligations (long-term)


-



759Total capitalization

$
1,612,915


$
1,641,245
 
 (1) Working capital deficit includes accounts receivable, prepaid expenses and deposits, accounts payable and accrued liabilities, and the current portion of capital lease obligations.
 (2) Market capitalization is a non-GAAP measure
  The Corporation’s bank indebtedness is governed by a $525 million credit facility agreement (note 6) that contains standard commercial covenants for facilities of this nature.  The only financial covenant is a requirement for Advantage to maintain a minimum cash flow to interest expense ratio of 3.5:1, determined on a rolling four quarter basis. This covenant was met at December 31, 2010 and 2009. As well, the borrowing base for the Corporation’s credit facilities is determined through utilizing Advantage’s regular reserve estimates. The banking syndicate thoroughly evaluates the reserve estimates based upon their own commodity price expectations to determine the amount of the borrowing base. Revision or changes in the reserve estimates and commodity prices can have either a positive or a negative impact on the borrowing base of the Corporation.
  Management of the Corporation’s capital structure is facilitated through its financial and operational forecasting processes.  The forecast of the Corporation’s future cash flows is based on estimates of production, commodity prices, forecast capital and operating expenditures, and other investing and financing activities. The forecast is regularly updated based on new commodity prices and other changes, which the Corporation views as critical in the current environment.  Selected forecast information is frequently provided to the Board of Directors.
  The Corporation’s capital management objectives, policies and processes have remained unchanged during the year ended December 31, 2010.
   Advantage Oil & Gas Ltd. - 23
   13.
Commitments
  Advantage has several lease commitments relating to office buildings and transportation. The estimated remaining annual minimum operating lease payments are as follows, of which $1.8 million is recognized in other liabilities:
  2011

$
11,7562012


11,7912013


10,5762014


8,7232015


2,108$
44,954
  14.
Subsequent Events
  On March 7, 2011, Advantage announced that Longview Oil Corp. (“Longview”), a wholly-owned subsidiary of the Corporation, filed a preliminary prospectus on March 4, 2011 for an initial public offering (the “Offering”), which is targeted to raise gross proceeds of $150 million prior to an over-allotment option.  The closing of the Offering is expected to occur in April, 2011.  Concurrent with closing of the Offering, Longview will purchase certain oil-weighted assets from Advantage (the “Transaction”), with consideration comprised of the net proceeds of the Offering, an equity ownership interest of approximately 68% (approximately 63% if the over-allotment option is exercised in full) of the common shares of Longview and proceeds of $100 million to be drawn from an independent Longview credit facility. Advantage plans to use the cash proceeds from the Transaction to reduce outstanding bank indebtedness. The Transaction is conditional upon customary industry conditions including the approval of the Board of Directors of Advantage.
  15.
Reconciliation of Financial Statements to United States Generally Accepted Accounting Principles
  The consolidated financial statements of Advantage have been prepared in accordance with accounting principles generally accepted in Canada. Canadian GAAP, in most respects, conforms to generally accepted accounting principles in the United States (“US GAAP”). Significant differences in accounting principles between Canadian GAAP and US GAAP, as they apply to Advantage, are as described below.
  (a)      Equity-based compensation
  Advantage accounts for compensation expense based on the fair value of the equity awards on the grant date and the initial fair value is not subsequently remeasured. Prior to converting to a corporation, the Fund’s equity-based compensation consisted of a Restricted Trust Unit Plan and Trust Units held in escrow subject to service requirement provisions.  Advantage’s current equity-based compensation consists of a Restricted Share Performance Incentive Plan. The initial fair value is expensed over the vesting period of the grants.
  Under US GAAP, the Corporation adopted ASC 718 “Stock compensation” on January 1, 2006 using the modified prospective approach and applies the fair value method of accounting for all equity-based compensation granted after January 1, 2006. Prior to converting to a corporation, a US GAAP difference existed as grants of Trust Unit compensation were considered liability awards for US GAAP and equity awards for Canadian GAAP. Under US GAAP, the fair value of a liability award is measured at the grant date and is subsequently remeasured at each reporting period. When the Trust Unit grants vested, the amount recorded as a liability was recognized as temporary equity.  Upon conversion to a corporation, all equity-based compensation are now considered equity awards under both US and Canadian GAAP.  Accordingly, there is no US GAAP difference with respect to equity-based compensation awards granted subsequent to conversion to a corporation.
  (b)      Convertible debentures and issuance costs
  The Corporation applies CICA 3863 “Financial Instruments - Presentation” in accounting for convertible debentures which results in their classification as liabilities. The convertible debentures also have an embedded conversion feature which must be segregated between liabilities and equity, based on the residual value method, where the liability is first measured using a discount rate without the conversion feature and the remaining amount is allocated to equity.  Therefore, the debenture liabilities are presented at less than their eventual maturity values. The liability and equity components are further reduced for issuance costs initially incurred. The discount of the liability component, net of issuance costs, as compared to maturity value is accreted by the effective interest method over the debenture term. As debentures are converted to shares, an appropriate portion of the liability and equity components are transferred to share capital. Interest and accretion expense on the convertible debentures are shown on the Consolidated Statements of Loss.
   Advantage Oil & Gas Ltd. - 24
  Under US GAAP, convertible debentures issued after the corporate conversion are shown as a liability. The embedded conversion feature is not accounted for separately as a component of equity. Given that the convertible debentures are carried at maturity value, it is not necessary to accrete the balance over the term of the debentures which results in an expense reduction as compared to Canadian GAAP. For the year ended December 31, 2009, the Corporation implemented retrospectively changes prescribed by ASC 470 “Debt” which became effective for years beginning after December 15, 2008. As a result, for all convertible debentures that existed prior to the corporate conversion, the instruments were divided into a liability and an equity component, similar to Canadian GAAP treatment, and opening Shareholders’ Equity was increased $3.5 million.
  Additionally, under US GAAP, issuance costs related to liabilities are generally shown as a deferred charge rather than netted from the carrying value and are amortized to interest expense over the term of the liability.
  (c)      Depletion and depreciation
  For Canadian GAAP, depletion of petroleum and natural gas properties and depreciation of lease and well equipment is provided on accumulated costs using the unit-of-production method based on estimated proved petroleum and natural gas reserves, before royalties, based on forecast prices and costs.
  US GAAP provides for a similar accounting methodology except that estimated proved petroleum and natural gas reserves are net of royalties and based on the first-day-of-month average prices for the prior twelve months (“constant prices”). Therefore, depletion and depreciation under US GAAP will be different since changes to royalty rates will impact both proved reserves and production and differences between constant prices as compared to forecast prices will impact proved reserve volumes. Additionally, differences in depletion and depreciation will result in divergence of net book value for Canadian GAAP and US GAAP from year-to-year and impact future depletion and depreciation expense as well as the net book value utilized for future impairment calculations.
  (d)      Impairment of Petroleum and Natural Gas Properties
  Under Canadian GAAP, petroleum and natural gas properties are evaluated each reporting period to determine that the carrying amount is recoverable and does not exceed the fair value of the properties in the cost centre (the “ceiling test”). The carrying amounts are assessed to be recoverable when the sum of the undiscounted net cash flows expected from the production of proved reserves, the lower of cost and market of unproved properties and the cost of major development projects exceeds the carrying amount of the cost centre. When the carrying amount is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying amount of the cost centre exceeds the sum of the discounted net cash flows expected from the production of proved and probable reserves, the lower of cost and market of unproved properties and the cost of major development projects of the cost centre. The cash flows are estimated using expected future product prices and costs and are discounted using a risk-free interest rate. For Canadian GAAP purposes, Advantage has not recognized an impairment loss since inception.
  Under US GAAP, the carrying amounts of petroleum and natural gas properties, net of deferred income taxes, shall not exceed an amount equal to the sum of the present value of estimated net future after-tax cash flows of proved reserves at constant prices and costs computed using a discount factor of ten percent plus the lower of cost or estimated fair value of unproved properties. Any excess is charged to expense as an impairment loss through depletion, depreciation and accretion expense. Under US GAAP, Advantage recognized impairment losses of $49.5 million in 2001 ($28.3 million net of tax), $535.4 million in 2006 ($477.8 million net of tax), $1,047.5 million in 2008 ($770.8 million net of tax), and $303.9 million in 2009 ($227.4 million net of tax). Impairment losses decrease net book value of petroleum and natural gas properties which reduces depletion and depreciation expense subsequently recorded as well as future potential impairment calculations.
  (e)      Income tax
  The future income tax accounting standard under Canadian GAAP is substantially similar to the deferred income tax approach as required by US GAAP. Pursuant to Canadian GAAP, substantively enacted tax rates are used to calculate future income tax, whereas US GAAP applies enacted tax rates. However, there were no tax rate differences for the years ended December 31, 2010 and 2009. The differences between Canadian GAAP and US GAAP relate to future income tax impacts on other GAAP differences.
  Under Canadian GAAP as at December 31, 2010, the Corporation’s carrying value of its net assets exceeded its tax bases and resulted in a future income tax liability.  Adjustments under US GAAP result in a large future income tax recovery and a future income tax asset, as the impairment significantly lowered the Corporation’s fixed assets carrying value under US GAAP.
  
   Advantage Oil & Gas Ltd. - 25
  
  
  (f)      Goodwill
  Under Canadian and US GAAP, the Corporation is required to test the carrying amount of goodwill at each balance sheet reporting date and the methodologies are substantially the same. However, the carrying value of the reporting unit (the Corporation) under US GAAP is much lower due to the impairments to fixed assets required under US GAAP (note 15(d)). For the year ended December 31, 2008, goodwill was determined to be fully impaired, and was therefore written down to Nil under Canadian GAAP.  However, under US GAAP, the fair value of the reporting unit (the Corporation) was in excess of its carrying values and no impairment of goodwill was recorded for the year ended December 31, 2008.  For the years ended December 31, 2010 and 2009, the fair value of the reporting unit continued to be in excess of carrying values as determined under US GAAP and no impairment of goodwill was recorded.
  (g)      Shareholders’ equity
  Since converting to a corporation on July 9, 2009, Shareholders’ Equity of Advantage consists primarily of shares.  For both Canadian and US GAAP, the shares are considered permanent equity and presented as a component of Shareholders’ equity.
  Prior to conversion to a corporation, the Trust Units of the Fund were redeemable at any time on demand by the holders, which was required for the Fund to retain its Canadian mutual fund trust status. The holders were entitled to receive a price per Trust Unit equal to the lesser of: (i) 85% of the simple average of the closing market prices of the Trust Units, on the principal market on which the Trust Units were quoted for trading, during the 10 trading-day period commencing immediately after the date on which the Trust Units were surrendered for redemption; and (ii) the closing market price on the principal market on which the Trust Units were quoted for trading on the redemption date. For Canadian GAAP purposes, the Trust Units were considered permanent equity and were presented as a component of Unitholders’ equity.
  Under US GAAP, it is required that equity with a redemption feature be presented as temporary equity between the liability and equity sections of the balance sheet. Therefore, prior to the corporate conversion temporary equity was shown at an amount equal to the redemption value based on the terms of the Trust Units and all components of Unitholders’ equity related to Trust Units was eliminated. Changes in the redemption value from year-to-year was charged to deficit. For the year ended December 31, 2009, shareholders’ equity was increased by $130.8 million corresponding to changes in the Trust Units redemption value from January 1, 2009 to July 8, 2009.  On July 9, 2009, the entire recorded value of temporary equity of $660.1 million was transferred to permanent equity concurrent with the corporate conversion.
  A continuity schedule of significant equity accounts for each reporting period is required disclosure under US GAAP. The following table is a continuity of shareholders’ equity, the Corporation’s only significant equity account:
  Shareholders' Equity

Year ended


Year ended(thousands of Canadian dollars)

December 31,

2010


December 31,

2009Balance, beginning of year (previously reported)

$
115,469


$
(451,946
)Effect on opening Shareholders' Equity of implementation of ASC 470 - note 15(b)


-



3,494Balance, beginning of year (restated)

$
115,469


$
(448,452
)Net income (loss) and comprehensive income (loss)


65,050



(216,595
)Distributions declared


-



(17,266
)Change in redemption value of temporary equity


-



130,751Temporary equity transferred to share capital


-



660,145Shares issued pursuant to Restricted Share Performance Incentive Plan


9,082



3,607Equity-based compensation


7,508



3,279Balance, end of year

$
197,109


$
115,469
 
  
   Advantage Oil & Gas Ltd. - 26
  
 
  (h)      Balance Sheet Disclosure
  US GAAP requires disclosure of certain line items for balances that would be aggregated in the Canadian GAAP financials. The following are the additional line items to be disclosed for accounts receivable and accounts payable:
  (thousands of Canadian dollars)

December 31,

2010


December 31,

2009Accounts receivableTrade receivables

$
42,276


$
54,531Other receivables


-



-Total accounts receivable

$
42,276


$
54,531Accounts payable and accrued liabilitiesAccounts payable

$
42,340


$
17,202Accrued liabilities


70,117



94,699Other payables


-



-Total accounts payable and accrued liabilities

$
112,457


$
111,901
  (i)      Statements of cash flow
  The differences between Canadian GAAP and US GAAP have not resulted in any significant variances concerning the statements of cash flows as reported.
  The application of US GAAP would have the following effect on net income (loss) as reported:
  Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Year ended


Year ended(thousands of Canadian dollars)

December 31,

2010


December 31,

2009Net loss - Canadian GAAP, as reported

$
(44,208
)

$
(86,426
)US GAAP Adjustments:General and administrative - note 15 (a)


-



358Management internalization - note 15 (a)


-



1,026Interest and accretion on convertible debentures - note 15 (b)


2,191



-Depletion, depreciation and accretion - notes 15 (c) and (d)


143,043



(153,711
)Future income tax - note 15 (e)


(35,976
)


22,158Net income (loss) and comprehensive income (loss) - US GAAP

$
65,050


$
(216,595
)
  The application of US GAAP would have the following effect on the balance sheets as reported:
  December 31, 2010


December 31, 2009Consolidated Balance Sheets

Canadian


US


Canadian


US(thousands of Canadian dollars)

GAAP


GAAP


GAAP


GAAPAssetsDeferred charge - note 15 (b)

$
-


$
3,851


$
-


$
5,310Fixed assets, net - notes 15 (c) and (d)


1,768,650



270,727



1,831,622



190,656Future income taxes - note 15 (e)


-



347,642



-



374,221Goodwill - note 15 (f)


-



120,271



-



120,271Liabilities and Shareholders' EquityCurrent portion of convertible debentures


61,570



61,847



69,553



69,553- note 15 (b)Bank indebtedness - note 15 (b)


288,852



289,454



247,784



248,808Convertible debentures - note 15 (b)


72,811



86,250



130,658



147,602Future income taxes - note 15 (e)


29,399



-



38,796



-Shareholders' equity - note 15 (g)


1,208,187



197,109



1,235,805



115,469
 
   Advantage Oil & Gas Ltd. - 27
  
  Directors



Stephen E. Balog (1)(2)

Kelly I. Drader

Paul G. Haggis(1)

John A. Howard (2)(3)

Andy J. Mah

Ronald A. McIntosh(1)(2)

Sheila H. O’Brien(2)(3)

Carol D. Pennycook(1)(3)

Steven Sharpe



(1)Member of Audit Committee

(2)Member of Reserve Evaluation Committee

(3)Member of Human Resources, Compensation & Corporate Governance Committee



Officers



Andy J. Mah, CEO

Kelly I. Drader, President and CFO

Patrick J. Cairns, Senior Vice President

Craig Blackwood, Vice President, Finance

Weldon M. Kary, Vice President, Geosciences and Land

Neil Bokenfohr, Vice President, Exploitation



Corporate Secretary



Jay P. Reid, Partner

Burnet, Duckworth and Palmer LLP



Auditors



PricewaterhouseCoopers LLP



Bankers



The Bank of Nova Scotia

National Bank of Canada

Bank of Montreal

Royal Bank of Canada

Canadian Imperial Bank of Commerce

Union Bank, Canada Branch

Alberta Treasury Branches

HSBC Bank Canada

BNP Paribas (Canada)



Independent Reserve Evaluators



Sproule Associates Limited
Legal Counsel



Burnet, Duckworth and Palmer LLP



Transfer Agent



Computershare Trust Company of Canada



Abbreviations



bbls     - barrels

bbls/d      - barrels per day

boe      - barrels of oil equivalent (6 mcf = 1 bbl)

boe/d       - barrels of oil equivalent per day

mcf       - thousand cubic feet

mcf/d   - thousand cubic feet per day

mmcf    - million cubic feet

mmcf/d     - million cubic feet per day

bcf- billion cubic feet

tcf    - trillion cubic feet

gj     - gigajoules

NGLs   - natural gas liquids

WTI     - West Texas Intermediate



Corporate Office



700, 400 - 3 Avenue SW

Calgary, Alberta T2P 4H2

(403) 718-8000



Contact Us



Toll free: 1-866-393-0393

Email: ir@advantageog.com

Visit our website at www.advantageog.com



Toronto Stock Exchange Trading Symbols



Shares: AAV

7.75% Convertible Debentures: AAV.DBD

8.00% Convertible Debentures: AAV.DBG

5.00% Convertible Debentures: AAV.DBH



New York Stock Exchange Trading Symbol



Shares: AAV
 
  
  
  
 Advantage Oil & Gas Ltd. - 28