Advantage Announces Fourth Quarter and Year Ended December 31, 2009 Financial
Results

(TSX: AAV, NYSE: AAV)

CALGARY, March 16 /CNW/ - Advantage Oil & Gas Ltd. ("Advantage" or the "Corporation") is pleased to announce the financial and operating results for the year ended December 31, 2009.

    
    Reduced Debt, Strong Hedging Gains, Lower Operating Costs and Royalties
    Contribute to a Solid 2009

    -   Total debt obligations at year end 2009 were reduced by 57% as
        compared to December 31, 2008. At December 31, 2009, Advantage's bank
        debt is $250.3 million on a credit facility of $525 million resulting
        in an unutilized capacity of approximately $274.7 million. A total of
        $218 million of convertible debentures remain outstanding of which
        $69 million will mature in June 2010, $63 million in December 2011
        and the balance of $86 million in January 2015.

    -   Hedging gains of $86.5 million during 2009 contributed significantly
        to funds from operations of $199.0 million or $1.30 per share despite
        a 49% reduction in the AECO monthly natural gas price and a 38%
        reduction in WTI crude oil prices in 2009 as compared to 2008. Annual
        funds from operations were 45% lower compared to 2008 due to the
        significantly lower commodity prices and also due to the sale of
        8,100 boe per day of assets which closed in July 2009. In the fourth
        quarter of 2009, funds from operations were $49.8 million or $0.30
        per share compared to $69.4 million or $0.49 per share in the same
        period of 2008. Hedging gains during the fourth quarter of 2009
        amounted to $16.3 million.

    -   Total operating costs decreased 46% and 27% for the three months and
        year ended December 31, 2009 as compared to the same periods in 2008.
        Operating costs per unit decreased 25% to $11.01 per boe for the
        fourth quarter of 2009 and decreased 13% to $12.11 per boe for the
        full year of 2009 when compared to the same periods in 2008.
        Advantage's per unit operating costs have decreased continually since
        early 2008 due to a successful and ongoing optimization program. In
        addition, the sale of 8,100 boe per day of higher cost production in
        July 2009 and increasing production at Glacier are anticipated to
        further reduce future corporate operating costs.

    -   Total royalties during the fourth quarter of 2009 decreased 51% and
        for the full year 2009 decreased 67% when compared to the similar
        periods of 2008. The royalty rate as a percentage of revenue
        decreased 3.4% to 13.8% in the fourth quarter of 2009 and for the
        full year 2009 decreased 4.7% to 14.3% when compared to the similar
        periods of 2008. The significant decrease in royalties resulted from
        lower commodity prices and the impact of the Alberta Royalty
        Incentive Programs. Advantage's increased financial flexibility and
        cash flow in 2009 allowed us to capitalize on the royalty incentives
        due to our highly active drilling program.

    -   Average daily production during the fourth quarter of 2009 was
        22,566 boe per day and for the full year 2009 was 26,929 boe per day
        which is 28% and 17% lower than the same periods in 2008. The lower
        production is due primarily to the sale of 8,100 boe per day of
        assets in July 2009 and the extended shut-in of our Lookout Butte
        property (1,100 boe per day) in Southern Alberta which resulted from
        a third party processing plant modification. Lookout Butte was
        brought back on production during the latter part of November 2009.

    Successful Drilling Program Leads to Record Reserve Additions in 2009
    (please refer to our March 8, 2010 press release for additional details)

    -   Advantage's 2009 capital development program of $171 million (of
        which $132.5 million was invested at our Montney resource play at
        Glacier, Alberta) resulted in significant low cost reserve additions
        and replaced 698% of 2009 annual production at an all-in Finding,
        Development and Acquisition ("FD&A") cost of $10.14 per boe including
        the change in Future Development Capital ("FDC").

    -   Advantage's P+P reserves increased 34% to 232.3 million boe at
        December 31, 2009 due to the strong low cost drill-bit reserve
        additions of 95.9 million boe at a Finding and Development ("F&D")
        cost of $9.82 per boe. The significant reserve additions helped
        offset asset sales which reduced reserves by 27.2 million boe with
        net proceeds of $245.2 million or $9.01 per boe.

    -   Reserves per share increased 18% at December 31, 2009 as compared to
        December 31, 2008. The debt adjusted reserves per share increase is
        70% for the same period.

    -   Advantage's December 31, 2009 Net Asset Value per share ("NAV") is
        $15.07 per share at a 10% discount rate before tax calculated using
        the Sproule and Associates Ltd. 2009 reserve report and price
        forecasts. Our NAV increased by 7.4% from 2008 as the increase in
        reserves more than offset the significant decline in Sproule's
        natural gas price forecast.

    -   The one year recycle ratio is 2.6 times using the FD&A cost of $10.14
        per boe including the change in FDC and our 2009 operating netback of
        $26.60 per boe.

    -   The proven and probable reserves life index ("RLI") increased by 86%
        from 2008 to 28.2 years using our estimated fourth quarter 2009
        average production rate. The RLI is anticipated to decline as
        production increases associated with our Phase II Glacier development
        program come on-stream during the second quarter of 2010.

    Glacier Success Results in Low Cost Reserve Additions and Current Montney
    Production Capability In Excess of 90 mmcfd net

    -   Advantage's extensive drilling and development program in 2009 has
        resulted in a 284% increase in P+P reserves assigned by Sproule in
        the Upper and Lower Montney at Glacier from 35.8 mmboe (0.21 Tcf) to
        137.4 mmboe (0.82 Tcf) at December 31, 2009. Undeveloped P+P reserves
        were added at a F&D cost of $9.12 per boe including the change in
        FDC.

    -   The value assigned to Glacier by Sproule increased by 290% from
        $0.3 billion as at December 31, 2008 to $1.17 billion as at
        December 31, 2009 at a 10% discount factor before tax.

    -   The Alberta Government announced on March 11, 2010 that the 5%
        royalty rate for new natural gas wells up to the first 500 mmcf of
        production or one year, whichever comes first will become permanent.
        This will significantly benefit the 214 future drilling locations
        that were included in the Sproule December 31, 2009 reserve report as
        the 5% royalty incentive expiration date of March 31, 2011 will no
        longer apply.

    -   Capital expenditures at Glacier amounted to $132.5 million in 2009
        which included the completion of Phase I of our development program
        in May 2009 resulting in the achievement of 25 mmcfd of production.
        Additional expenditures through the balance of 2009 included the
        commencement of our Phase II development program which included
        drilling 27 gross (19.4 net) horizontal wells and the expansion of
        gathering systems and facilities to increase production capacity to
        50 mmcfd by the second quarter of 2010.

    -   Since December 2009, the tie in of four new Upper Montney horizontals
        have effectively pushed our existing facility capacity to the maximum
        inlet design rate of 25 mmcfd and have caused us to shut-in several
        Montney wells due to facility constraints. Combined with our joint
        interest wells, production has reached peak rates of approximately
        30 mmcfd.

    -   Construction of our new 50 mmcfd gas plant (100% Advantage W.I.),
        expanded gas gathering system, and tie-in to the TCPL mainline is
        nearing completion and commissioning of these facilities and new
        wells are on track for the second quarter of 2010. Advantage's new
        gas plant is anticipated to reduce Glacier's total operating costs
        from $8.25/boe to approximately $2.75/boe due to the elimination of
        third party processing fees.

    -   Our current production capability including new wells tested to date
        in both the Upper and Lower Montney zones exceeds 90 mmcfd. An
        additional 5 gross (5 net) wells have been drilled and are waiting on
        completion and testing.

    -   Advantage has also signed an agreement with TCPL to initiate work on
        expanding the sales pipeline lateral to 100 mmcfd.

    -   Advantage has completed the drilling of our first Nikanassin
        horizontal well at Glacier with completion and testing of the well
        expected to occur in the first half of 2010. We anticipate several
        horizontal wells will be required to delineate the potential of the
        Nikanassin which will require optimization of horizontal drilling and
        completion techniques. We are encouraged with the future upside
        potential of this resource play due to the combination of existing
        Nikanassin production from several of our vertical wells on our land
        block and geological mapping that indicates the targeted pay interval
        reaches thicknesses of up to 50 meters.

    Hedging Update

    -   Advantage's hedging program includes 55% of our net natural gas
        production for 2010 hedged at an average price of $7.46 Cdn AECO per
        mcf.

    -   For 2011, Advantage has hedged approximately 27% of our net
        production at an average price of $6.30 Cdn AECO per mcf.

    -   Additional details on our hedging program are available at our
        website at www.advantageog.com
    

Looking Forward

During the fourth quarter of 2009, we continued with our Phase II Montney development program at Glacier which involved drilling horizontal wells to build production inventory and delineate our land block. In addition, construction commenced on our new gas plant and gathering system expansion targeting production capacity of 50 mmcf per day which is anticipated to come on-stream during the second quarter of 2010. Delineation drilling in all four quadrants of our land block has proven up a significant portion of our undrilled acreage with well test results exceeding our expectations. Our net production capability including new well tests is currently estimated to exceed 90 mmcfd due to the better than expected results and we look forward to the second quarter of 2010 when commissioning of our Glacier gas plant is targeted to increase production at Glacier to approximately 50 mmcfd. The overall Glacier development program results in 2009 has increased our level of confidence in the commerciality and remaining upside potential of our Montney resource play that could ultimately require in excess of $2.5 billion of capital expenditures over the life of the project.

Our H1 2010 Budget was announced on January 19, 2010 and includes the following guidance:

    
    Production             24,200 to 25,200 boe/d (68% natural gas weighting)

    Operating Costs        $10.85/boe to $11.50/boe

    Royalty Rate           13% to 16%

    Capital Expenditures   $110 million (approximately 80% Glacier)
    

We anticipate that our capital expenditures will be funded out of cash flow during the first half of 2010 and a continued focus on completing our Phase II capital program at Glacier will be the key objective. Advantage's strong hedging program significantly enhances our cash flow which provides an opportunity to leverage capital spending during this low supply cost environment and to capitalize on the Alberta Royalty Incentive Programs.

Looking forward, Advantage is well positioned to pursue organic growth with our improved financial flexibility, solid hedging program and conversion to a growth oriented corporation. With a stable production base and an inventory of over 500 drilling locations at Glacier, Management will continue to employ a disciplined approach designed to create long term growth in shareholder value.

    
    Financial and Operating Highlights

    Year ended
     December 31,         2009       2008       2007       2006       2005
    Financial ($000,
     except as
     otherwise
     indicated)
    Revenue before
     royalties(1)        429,492    741,962    557,358    419,727    376,572
      per share(2)          2.80       5.32       4.66       5.18       6.65
      per boe              43.70      62.82      50.97      48.41      51.27
    Funds from
     operations          199,042    361,087    271,143    214,758    211,541
      per share(2)          1.30       2.59       2.22       2.65       3.72
      per boe              20.25      30.58      24.79      24.78      28.80
    Net income (loss)    (86,426)   (20,577)    (7,535)    49,814     75,072
      per share(2)         (0.56)     (0.15)     (0.06)      0.62       1.33
    Expenditures on
     fixed assets        170,868    255,591    148,725    159,487    103,229
    Working capital
     deficit(3)          118,362    146,397     28,087     42,655     31,612
    Bank indebtedness    250,262    587,404    547,426    410,574    252,476
    Convertible
     debentures
     (face value)        218,471    219,195    224,612    180,730    135,111
    Shares outstanding
     at end of year
     (000)               162,746    142,825    138,269    105,390     57,846
    Basic weighted
     average shares
     (000)               153,140    139,483    119,604     80,958     56,593
    Operating
    Daily Production
      Natural gas
       (mcf/d)           104,527    122,878    116,998     94,074     78,561
      Crude oil and
       NGLs (bbls/d)       9,508     11,793     10,462      8,075      7,029
      Total boe/d
       @ 6:1           26,929     32,273     29,962     23,754     20,123
    Average pricing
     (including hedging)
      Natural gas
       ($/mcf)              6.24       8.14       7.21       6.86       7.98
      Crude oil and
       NGLs ($/bbl)        55.16      87.08      65.38      62.44      57.58
    Proved plus
     probable reserves
      Natural gas (bcf)  1,140.2      704.3      546.4      442.7      286.9
      Crude oil & NGLs
       (mbbls)            43,266     57,386     61,131     47,524     36,267
      Total mboe         233,292    174,767    152,203    121,317     84,082
      Reserve life
       index (years)(4)     28.2       15.2       12.1       11.4       12.0

    (1) includes realized derivative gains and losses
    (2) based on basic weighted average shares outstanding
    (3) working capital deficit includes accounts receivable, prepaid
        expenses and deposits, accounts payable and accrued liabilities,
        distributions payable, and the current portion of capital lease
        obligations and convertible debentures
    (4) based on fourth quarter average production rates
    

MANAGEMENT'S DISCUSSION & ANALYSIS

The following Management's Discussion and Analysis ("MD&A"), dated as of March 16, 2010, provides a detailed explanation of the financial and operating results of Advantage Oil & Gas Ltd. ("Advantage", the "Corporation", "us", "we" or "our") for the three months and year ended December 31, 2009 and should be read in conjunction with the audited consolidated financial statements. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and all references are to Canadian dollars unless otherwise indicated. All per barrel of oil equivalent ("boe") amounts are stated at a conversion rate of six thousand cubic feet of natural gas being equal to one barrel of oil or liquids.

Forward-Looking Information

This MD&A contains certain forward-looking statements, which are based on our current internal expectations, estimates, projections, assumptions and beliefs. These statements relate to future events or our future 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", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar or related expressions. These statements are not guarantees of future performance.

In particular, forward-looking statements included in this MD&A include, but are not limited to, statements with respect to average production and projected exit rates; areas of operations; spending and capital budgets; availability of funds for our capital program; the size of, and future net revenues from, reserves; the focus of capital expenditures; expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; projections of market prices and costs; the performance characteristics of our properties; our future operating and financial results; capital expenditure programs; supply and demand for oil and natural gas; average royalty rates; and amount of general and administrative expenses. In addition, statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future.

These forward-looking statements involve substantial known and unknown risks and uncertainties, many of which are beyond our control, including the effect of acquisitions; changes in general economic, market and business conditions; changes or fluctuations in production levels; unexpected drilling results, changes in commodity prices, currency exchange rates, capital expenditures, reserves or reserves estimates and debt service requirements; changes to legislation and regulations and how they are interpreted and enforced, changes to investment eligibility or investment criteria; our ability to comply with current and future environmental or other laws; our success at acquisition, exploitation and development of reserves; actions by governmental or regulatory authorities including increasing taxes, changes in investment or other regulations; the occurrence of unexpected events involved in the exploration for, and the operation and development of, oil and gas properties; competition from other producers; the lack of availability of qualified personnel or management; changes in tax laws, royalty regimes and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; stock market volatility; and ability to access sufficient capital from internal and external sources. Many of these risks and uncertainties are described in the Corporation's Annual Information Form which is available at www.sedar.com and www.advantageog.com. Readers are also referred to risk factors described in other documents Advantage files with Canadian securities authorities.

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

Management has included the above summary of assumptions and risks related to forward-looking information provided in this MD&A in order to provide shareholders with a more complete perspective on Advantage's future operations and such information may not be appropriate for other purposes. Advantage's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Advantage will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of this MD&A and Advantage disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Corporate Conversion and Asset Dispositions

On March 18, 2009, we announced that our Board of Directors had approved conversion to a growth oriented corporation and a strategic asset disposition program to increase financial flexibility.

On July 9, 2009, Unitholders of Advantage Energy Income Fund (the "Fund") voted 91.64% in favour of the corporate conversion at the annual general and special meeting of the Fund, with subsequent approval by the courts. The conversion has enabled Advantage to pursue a business plan that is focused on the development and growth of the Montney natural gas resource play at Glacier, Alberta.

During 2009 the Corporation also retained a financial advisor to assist with the disposition of light oil and natural gas producing properties located in Northeast British Columbia, West Central Alberta and Northern Alberta. Proposals were received and evaluated by Advantage with two purchase and sale agreements signed for net proceeds of $243.2 million, subject to further adjustments, and representing production of approximately 8,100 boe/d. Both of these sales closed in July 2009 with the net proceeds used to reduce outstanding debt. Advantage may utilize its credit facilities in the future to redeem certain of the Corporation's convertible debentures as they mature and to help finance its future capital program.

Given these business developments, historical operating and financial performance may not be indicative of future performance.

Non-GAAP Measures

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

Funds from operations, as presented, is based on cash provided by operating activities before expenditures on asset retirement and changes in non-cash working capital. Cash netbacks are dependent on the determination of funds from operations and include the primary cash revenues and expenses on a per boe basis that comprise funds from operations. Funds from operations reconciled to cash provided by operating activities is as follows:

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Cash provided
     by operating
     activities   $ 41,185  $ 83,754      (51)% $172,691  $374,750      (54)%
    Expenditures
     on asset
     retirement        947     2,968      (68)%    5,437     9,259      (41)%
    Changes in
     non-cash
     working
     capital         7,625   (17,352)    (144)%   20,914   (22,922)    (191)%
    -------------------------------------------------------------------------
    Funds from
     operations   $ 49,757  $ 69,370      (28)% $199,042  $361,087      (45)%
    -------------------------------------------------------------------------
    

Overview

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Cash provided
     by operating
     activities
     ($000)       $ 41,185  $ 83,754      (51)% $172,691  $374,750      (54)%
    Funds from
     operations
     ($000)       $ 49,757  $ 69,370      (28)% $199,042  $361,087      (45)%
      per
      share(1)    $   0.30  $   0.49      (39)% $   1.30  $   2.59      (50)%
      per boe     $  23.95  $  23.90        - % $  20.25  $  30.58      (34)%

    (1) Based on basic weighted average shares outstanding.
    

Cash provided by operating activities and funds from operations have decreased significantly for the year ended December 31, 2009 as compared to 2008 due to considerably lower revenue. Lower revenue is the result of lower production due to the asset dispositions that closed in July 2009 and significantly depressed commodity prices, partially offset by substantial gains we realized on strong derivative contracts. The current global economy has resulted in drastic reductions in commodity prices from lower demand and excess supply. This challenging environment has continued throughout 2009 and we expect to see weak commodity prices for the near-term. However, it is also important to recognize that although commodity prices were weak during the fourth quarter of 2009, our funds from operations per boe actually increased 24% to $23.95 per boe from $19.38 per boe in the third quarter of 2009. This improvement occurred as commodity prices increased and we continued to reduce costs as compared to the third quarter of 2009. We continue to experience lower operating costs per boe as an aggressive optimization program through 2008 and 2009 is continuing to demonstrate positive benefits and we will seek further opportunities to improve our operating cost structure.

The primary factor that causes significant variability of the Corporation's cash provided by operating activities, funds from operations, and net income is commodity prices. Refer to the section "Commodity Prices and Marketing" for a more detailed discussion of commodity prices and our price risk management.

Revenue

    
                  Three months ended                  Year ended
                       December 31                   December 31
    ($000)           2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Natural gas
     excluding
     hedging      $ 33,281  $ 79,402      (58)% $154,889  $382,701      (60)%
    Realized
     hedging
     gains
     (losses)       20,325     5,051      302 %   83,162   (16,580)    (602)%
    -------------------------------------------------------------------------
    Natural gas
     including
     hedging      $ 53,606  $ 84,453      (37)% $238,051  $366,121      (35)%
    -------------------------------------------------------------------------
    Crude oil
     and NGLs
     excluding
     hedging      $ 49,229  $ 56,330      (13)% $188,116  $386,700      (51)%
    Realized
     hedging
     gains
     (losses)       (4,053)    8,422     (148)%    3,325   (10,859)    (131)%
    -------------------------------------------------------------------------
    Crude oil
     and NGLs
     including
     hedging      $ 45,176  $ 64,752      (30)% $191,441  $375,841      (49)%
    -------------------------------------------------------------------------
    Total
     revenue(1)   $ 98,782  $149,205      (34)% $429,492  $741,962      (42)%
    -------------------------------------------------------------------------

    (1) Total revenue excludes unrealized derivative gains and losses.
    

Natural gas, crude oil and NGLs revenues, excluding hedging, decreased significantly for the year ended December 31, 2009, as compared to 2008, due to lower production and commodity prices. Reduced production is primarily due to our asset dispositions that closed in July 2009 for net proceeds of $243.2 million, subject to further adjustments, representing production of approximately 8,100 boe/d. The net proceeds from the dispositions were used to reduce outstanding debt.

Lower commodity prices, particularly natural gas, have persisted throughout 2009 due to many factors including the global recession that has generally reduced demand, higher domestic natural gas production, and mild weather conditions that have increased natural gas supply. For the year ended December 31, 2009, average realized natural gas prices, excluding hedging, decreased 52% while realized crude oil and NGL prices, excluding hedging, decreased 40%. However, we have seen improvement during the fourth quarter of 2009 as compared to the immediate prior quarter whereby average realized natural gas prices, excluding hedging, increased 48% and realized crude oil and NGL prices, excluding hedging, increased 11%. Given the relatively lower price environment, our commodity price risk management program has delivered realized natural gas and crude oil hedging net gains for the three months and year ended December 31, 2009 of $16.3 million and $86.5 million, respectively. The Corporation enters derivative contracts whereby realized hedging gains and losses partially offset commodity price fluctuations, which can positively or negatively impact revenues. These realized hedging gains have been significant to help us stabilize cash flows and ensure that our capital expenditure program is substantially funded by such cash flows.

Production

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Natural gas
     (mcf/d)        84,466   120,694      (30)%  104,527   122,878      (15)%
    Crude oil
     (bbls/d)        5,985     9,443      (37)%    7,225     9,543      (24)%
    NGLs (bbls/d)    2,503     1,970       27 %    2,283     2,250        1 %
    -------------------------------------------------------------------------
    Total (boe/d)   22,566    31,529      (28)%   26,929    32,273      (17)%
    -------------------------------------------------------------------------
    Natural gas (%)     62%       64%                 65%       63%
    Crude oil (%)       27%       30%                 27%       30%
    NGLs (%)            11%        6%                  8%        7%
    

Production was 28% lower for the current quarter and 17% lower for this year as compared to the same periods of the prior year due to the completed asset dispositions that closed in July 2009 for net proceeds of $243.2 million, subject to further adjustments. We used the net proceeds to reduce outstanding bank indebtedness. The disposed properties represented approximately 8,100 boe/d of production. Additionally, production of 1,100 boe/d at our Lookout Butte property in Southern Alberta was shut-in since August 2008 due to an extended third party outage at the Waterton gas plant where a significant modification project was underway. The modification project is complete and our production was brought back on in November 2009.

Average daily production of 22,566 boe/d for the fourth quarter of 2009 was 5% lower than the third quarter of 2009 primarily due to the asset dispositions. Excluding production in the third quarter of 2009 of 1,725 boe/d from properties disposed, our production for the fourth quarter of 2009 actually increased 3% over the prior quarter due to a few new wells and return of production from our Lookout Butte property, partially offset by some natural declines and cold weather conditions that typically cause production interruptions. Although we have been very active in drilling, testing and completing wells at our Glacier, Alberta area during the last half of 2009, only two new wells were brought on-stream at restricted rates in November and December 2009 as facilities and infrastructure expansion work was underway but not targeted for completion until the second quarter of 2010. The new Advantage gas plant is currently on schedule to be operational during the second quarter of 2010 which will allow us to begin producing from our new Glacier wells. We estimate that approximately 90 mmcf/d of net production capability is currently available at Glacier, including new wells that have been tested.

Commodity Prices and Marketing

Natural Gas

    
                  Three months ended                  Year ended
                       December 31                   December 31
    ($/mcf)          2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Realized
     natural gas
     prices
      Excluding
       hedging    $   4.28  $   7.15      (40)% $   4.06  $   8.51      (52)%
      Including
       hedging    $   6.90  $   7.61       (9)% $   6.24  $   8.14      (23)%
    AECO monthly
     index        $   4.18  $   6.79      (38)% $   4.12  $   8.13      (49)%
    

Realized natural gas prices, excluding hedging, were significantly lower for the three months and year ended December 31, 2009 than the same periods of 2008 resulting in some of the lowest prices that Advantage has experienced. However, realized natural gas prices, excluding hedging, for this quarter increased 48% from the third quarter of 2009 as we entered the winter months. Fortunately, our commodity hedging strategy has continued to result in realized natural gas prices, including hedging, that exceed current market prices. This has significantly mitigated the negative impact from lower natural gas prices and has protected our cash flows and resulting capital expenditure program during the year.

The 2007/2008 winter season in North America caused inventory levels to decline to approximately the five-year average resulting in stronger prices during early 2008. However, since the second half of 2008 there has been significant softening of natural gas prices from continued high US domestic natural gas production, mild weather conditions, and the ongoing global recession that has negatively impacted demand. These factors had resulted in higher inventory levels during much of 2009 that placed considerable downward pressure on natural gas prices. Heading into the 2009/2010 winter season, we saw strong inventory withdraws which helped to strengthen prices relative to the prior lows experienced during the majority of this year. As we exit the winter, natural gas prices have since weakened and AECO gas is still presently trading at approximately $4.00/GJ. Although we continue to believe in the longer-term pricing fundamentals for natural gas, we are concerned about the current pricing and economic environment that has the potential to extend for a considerable period of time. The global economy could delay the recovery of natural gas pricing longer than anticipated. As well, there continues to be significant questions regarding future natural gas supply given the ongoing development of significant resource style plays throughout North America which have high initial declines and are becoming a larger proportion of the total natural gas supply base in Canada and the US. We watch these market developments closely and will be proactive in implementing an appropriate hedging strategy to continue to mitigate risk associated with volatile natural gas prices due to such factors.

Crude Oil and NGLs

    
                  Three months ended                  Year ended
                       December 31                   December 31
    ($/bbl)          2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Realized crude
     oil prices
      Excluding
       hedging    $  70.86  $  57.46       23 % $  59.29  $  92.81      (36)%
      Including
       hedging    $  63.50  $  67.16       (5)% $  60.55  $  89.71      (33)%
    Realized NGLs
     prices
      Excluding
       hedging    $  44.34  $  35.38       25 % $  38.10  $  75.93      (50)%
    Realized
     crude oil
     and NGL
     prices
      Excluding
       hedging    $  63.04  $  53.65       18 % $  54.20  $  89.59      (40)%
      Including
       hedging    $  57.85  $  61.67       (6)% $  55.16  $  87.08      (37)%
    WTI ($US/bbl) $  76.17  $  58.75       30 % $  61.93  $  99.65      (38)%
    $US/$Canadian
     exchange
     rate         $   0.95  $   0.83       14 % $   0.88  $   0.94       (6)%
    

Realized crude oil and NGLs prices, excluding hedging, increased 18% for the three months ended December 31, 2009, as compared to 2008 and increased 11% from the third quarter of 2009. However, average realized crude oil and NGLs prices, excluding hedging, decreased considerably for 2009 as compared to 2008. Advantage's realized crude oil price may not change to the same extent as West Texas Intermediate ("WTI"), due to changes in the $US/$Canadian exchange rate, and changes in Canadian crude oil differentials relative to WTI.

The price of WTI fluctuates based on worldwide supply and demand fundamentals. There has been significant price volatility experienced over the last several years whereby WTI reached historic high levels in the first half of 2008, followed by a record decline in the latter half of the year and into early 2009, the result of demand destruction brought on by the global recession. There has been improvement during the last half of 2009, and WTI is currently trading at approximately US$82/bbl. However, during 2009 we have also seen a constant strengthening of the $US/$Canadian exchange rate such that our increase in realized price has been less than the improvement in WTI. We continue to believe that the long-term pricing fundamentals for crude oil will remain strong with supply management by the OPEC cartel and strong relative demand from many developing countries, such as China and India.

Commodity Price Risk

The Corporation's operational results and financial condition will be dependent on the prices received for oil and natural gas production. Oil and natural gas prices have fluctuated widely and are determined by economic and political factors. Supply and demand factors, including weather and general economic conditions as well as conditions in other oil and natural gas regions, impact prices. Any movement in oil and natural gas prices could have an effect on the Corporation's financial condition and performance. Advantage has an established financial hedging strategy and may manage the risk associated with changes in commodity prices by entering into derivative contracts. Although these commodity price risk management activities could expose Advantage to losses or gains, entering derivative contracts helps us to stabilize cash flows and ensures that our capital expenditure program is substantially funded by such cash flows. To the extent that Advantage engages in risk management activities related to commodity prices, it will 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 that are members of our credit facility syndicate and international energy firms to further mitigate associated credit risk.

We have been active in entering financial contracts to protect future cash flows and currently the Corporation has the following derivatives in place:

    
    Description of
     Derivative           Term               Volume            Average Price
    -------------------------------------------------------------------------
    Natural gas -
     AECO

      Fixed price     April 2009          14,217 mcf/d         Cdn $7.59/mcf
                       to March 2010
      Fixed price     April 2009          14,217 mcf/d         Cdn $7.56/mcf
                       to March 2010
      Fixed price     January 2010        14,217 mcf/d         Cdn $8.23/mcf
                       to June 2010
      Fixed price     January 2010        18,956 mcf/d          Cdn$7.29/mcf
                       to December 2010
      Fixed price     April 2010          18,956 mcf/d          Cdn$7.25/mcf
                       to January 2011
      Fixed price(1)  January 2011         9,478 mcf/d         Cdn $6.24/mcf
                       to December 2011
      Fixed price(1)  January 2011         9,478 mcf/d         Cdn $6.24/mcf
                       to December 2011
      Fixed price(1)  January 2011         9,478 mcf/d         Cdn $6.26/mcf
                       to December 2011

    Crude oil - WTI

      Fixed price     April 2009          2,000 bbls/d         Cdn$62.80/bbl
                       to March 2010
      Fixed price     April 2010          2,000 bbls/d         Cdn$69.50/bbl
                       to January 2011

    (1) These financial contracts were entered into after December 31, 2009.
    

The derivative contracts have allowed us to fix the commodity price on anticipated production, net of royalties, as follows:

    
                                      Approximate
                                   Production Hedged,           Average
    Commodity                      Net of Royalties(1)           Price
    -------------------------------------------------------------------------
    Natural gas - AECO
      January to March 2010               81 %               Cdn$7.64/mcf
      April to June 2010                  56 %               Cdn$7.53/mcf
      July to September 2010              41 %               Cdn$7.27/mcf
      October to December 2010            42 %               Cdn$7.27/mcf
    -------------------------------------------------------------------------
    Total 2010                            55 %               Cdn$7.46/mcf
    -------------------------------------------------------------------------

      January to March 2011               40 %               Cdn$6.43/mcf
      April to June 2011                  23 %               Cdn$6.24/mcf
      July to September 2011              23 %               Cdn$6.24/mcf
      October to December 2011            24 %               Cdn$6.24/mcf
    -------------------------------------------------------------------------
    Total 2011                            27 %               Cdn$6.30/mcf
    -------------------------------------------------------------------------
    Crude Oil - WTI
      January to March 2010               29 %               Cdn$62.80/bbl
      April to June 2010                  33 %               Cdn$69.50/bbl
      July to September 2010              34 %               Cdn$69.50/bbl
      October to December 2010            34 %               Cdn$69.50/bbl
    -------------------------------------------------------------------------
    Total 2010                            33 %               Cdn$67.83/bbl
    -------------------------------------------------------------------------

      January 2011                        35 %               Cdn$69.50/bbl
    -------------------------------------------------------------------------

    (1) Approximate production hedged is based on our estimated average
        production by quarter, net of royalty payments.
    

For the year ended December 31, 2009, we recognized in income a net realized derivative gain of $86.5 million (December 31, 2008 - $27.4 million net realized derivative loss) on settled derivative contracts as a result of average market prices decreasing below our established average hedge prices. As at December 31, 2009, the fair value of the derivative contracts outstanding and to be settled was a net asset of approximately $17.2 million, a decrease of $23.7 million from the $40.9 million net asset recognized as at December 31, 2008. For the year ended December 31, 2009, this $23.7 million decrease was recognized in income as an unrealized derivative loss (December 31, 2008 - $38.8 million unrealized derivative gain). The valuation of the derivatives is the estimated fair value to settle the contracts as at December 31, 2009 and is based on pricing models, estimates, assumptions and market data available at that time. As such, the recognized amounts are not cash and the actual gains or 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. The Corporation does not apply hedge accounting and current accounting standards require changes in the fair value to be included in the consolidated statement of loss and comprehensive loss as an unrealized derivative gain or loss with a corresponding derivative asset and liability recorded on the balance sheet. These derivative contracts will settle in 2010 and 2011 corresponding to when the Corporation will receive revenues from production.

Royalties

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Royalties
     ($000)       $ 11,390  $ 23,338      (51)% $ 49,010  $146,349      (67)%
      per boe     $   5.49  $   8.05      (32)% $   4.99  $  12.39      (60)%
    As a percentage
     of revenue,
     excluding
     hedging         13.8 %    17.2 %    (3.4)%    14.3 %    19.0 %    (4.7)%
    

Advantage pays royalties to the owners of mineral rights from which we have leases. The Corporation currently has mineral leases with provincial governments, individuals and other companies. Royalties have decreased in total for the three months and year ended December 31, 2009 compared to the same periods of 2008 due to the decrease in revenue from significantly lower commodity prices and reduced production attributable to our asset dispositions completed in July 2009. Royalties as a percentage of revenue, excluding hedging, have also decreased as compared to 2008 due to the lower price environment and the nature of our capital development activities. For the fourth quarter of 2009, royalties in total and as a percentage of revenue have increased as compared to the third quarter of 2009 due to higher revenues and the improvement in commodity prices, particularly natural gas.

Our average corporate royalty rates are significantly impacted by the Alberta Provincial Government's new royalty framework that was effective January 1, 2009 for conventional oil, natural gas and oil sands whereby Alberta royalties are now affected by depths, productivity of wells, and commodity prices. Additionally, the Alberta Provincial Government implemented a number of drilling incentive programs with reduced royalty rates over a period of time for qualifying wells. The majority of our wells brought on production since April 1, 2009 qualify under these incentive programs and benefit from a reduced 5% royalty rate on the first 500 mmcf produced or one-year, whichever comes first, and a drilling credit of $200 per metre drilled that reduces capital spending and is limited to 40% of corporate crown royalties paid during the program term. The drilling credit incentives are effective for qualifying wells drilled and brought on production from April 1, 2009 to March 31, 2011 while the reduced 5% royalty rate program has recently been made permanent which will significantly benefit our Glacier development program. As well, the Alberta Province also implemented a natural gas deep drilling program whereby many of our deeper wells may also be eligible for a 5% royalty rate for a period of time dependent on the depth of the well and not to exceed five years. As a result of this additional incentive, we have determined that it could potentially result in an effective 5% royalty rate for the life of some of our deeper wells. This natural gas deep drilling royalty incentive is effective for qualifying wells spud on or before December 31, 2013.

Given the number of complicating factors and variables impacting royalties, we anticipate that our royalty rates will continue to fluctuate based on commodity prices, individual well productivity, and our ongoing capital development plans. We expect our corporate royalty rate to be in the range of 13% to 16% for 2010.

Operating Costs

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Operating
     costs ($000) $ 22,847  $ 42,673      (46)% $119,022  $164,091      (27)%
      per boe     $  11.01  $  14.71      (25)% $  12.11  $  13.89      (13)%
    

Total operating costs decreased 46% and 27% for the three months and year ended December 31, 2009 as compared to the 2008 respective periods, which resulted in a corresponding reduction in operating costs per boe by 25% and 13%. When compared to the third quarter of 2009, total operating costs decreased 9% and operating costs per boe decreased by 5%. The lower total operating costs has been primarily due to reduced production from our asset dispositions completed in July 2009. We have realized significant reductions in operating costs per boe as an aggressive optimization program through 2008 and 2009 continued to demonstrate positive benefits. Additionally, corporate operating costs are anticipated to further improve as a result of lower cost production from reduced processing fees at our new Glacier gas plant that will be completed in the first half of 2010. We will seek further opportunities to improve our operating cost structure and expect 2010 operating costs to be between $10.85 to 11.50 per boe.

General and Administrative

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    General and
     administrative
      Cash
       expense
       ($000)     $  7,074  $  3,198      121 % $ 27,710  $ 23,422       18 %
        per boe   $   3.41  $   1.10      210 % $   2.82  $   1.98       42 %

      Non-cash
       expense
       ($000)     $  3,809  $      -        - % $ 11,625  $   (929)  (1,351)%
        per boe   $   1.83  $      -        - % $   1.18  $  (0.08)  (1,604)%

    Employees at
     December 31                                     129       176      (27)%
    

General and administrative ("G&A") expense for the three months and year ended December 31, 2009 has increased compared to the same periods of 2008 partially due to costs associated with our corporate conversion and reorganization. Approximately $2.5 million was incurred directly for the corporate conversion that was completed in July 2009 and $1.8 million for severance costs. As a result of reducing staff levels, we were also able to consolidate office space that will operationally and administratively benefit Advantage. However, certain office space was completely vacated and we were required to recognize $3.4 million as non-cash G&A expense with a corresponding liability representing the full amount of all future related lease payments. The office lease ends November 2012 and we are looking for opportunities to sublease the space to mitigate associated costs.

Upon conversion to a corporation on July 9, 2009, Advantage implemented a new Restricted Share Performance Incentive Plan ("RSPIP" or the "Plan") as approved by the shareholders with the purpose to retain and attract employees, to reward and encourage performance, and to focus employees on operating and financial performance that results in lasting shareholder return. 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. The Corporation has not previously settled restricted shares with cash and has no intention to settle restricted shares with cash. Compensation cost related to the Plan is recognized as compensation expense within G&A expense over the service period and incorporates the share grant price, the estimated number of restricted shares to vest, and certain management estimates. The maximum amount of restricted shares granted in any one quarter is limited to 50% of the base salaries of those individuals participating in the Plan for such period. For the year ended December 31, 2009, we recognized $10.3 million of equity-based compensation expense, including a non-cash amount of $8.2 million, related to restricted shares granted to service providers and granted 3,298,101 restricted shares at a weighted average grant price of $6.33 per share. As at December 31, 2009, 2,226,904 restricted shares remain unvested and will vest to service providers over the next three years with a total of $10.2 million in compensation cost to be recognized over the future service periods.

Management Internalization

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Management in-
     ternalization
     ($000)       $      -  $    916     (100)% $  1,724  $  6,964      (75)%
      per boe     $      -  $   0.32     (100)% $   0.18  $   0.59      (69)%
    

In 2006, the Fund and Advantage Investment Management Ltd. (the "Manager") reached an agreement to internalize the pre-existing management contract arrangement. As part of the agreement, the Fund agreed to purchase all of the outstanding shares of the Manager pursuant to the terms of the arrangement, thereby eliminating the management fee and performance incentive effective April 1, 2006. The Trust Unit consideration issued in exchange for the outstanding shares of the Manager was placed in escrow for a three-year period and was deferred and amortized into income as management internalization expense over the specific vesting periods during which employee services were provided. Management internalization has decreased during 2009 when compared to 2008 as the Trust Units held in escrow continued to vest during the service periods. As of June 23, 2009, the final Trust Units held in escrow vested and there will be no subsequent management internalization expense recognized.

Interest on Bank Indebtedness

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Interest
     expense
     ($000)       $  5,066  $  6,430      (21)% $ 19,752  $ 27,893      (29)%
      per boe     $   2.44  $   2.22       10 % $   2.01  $   2.36      (15)%
    Average
     effective
     interest
     rate              4.5%      4.5%       - %      4.9%      5.0%    (0.1)%
    Bank
     indebtedness
     at December
     31 ($000)                                  $250,262  $587,404      (57)%
    

Total interest expense decreased 21% and 29% for the three months and year ended December 31, 2009 as compared to 2008, respectively. During the first half of 2009, Advantage experienced lower average interest rates as bank lending rates declined significantly in response to rate reductions enacted by central banks to stimulate the economy. This reduced interest expense was partially offset by additional interest on a higher average debt balance during that period. In June 2009 our credit facility was renewed and is subject to higher basis point and stamping fee adjustments ranging from 1.5% to 4.0%, depending on the Corporation's debt to cash flow ratio. Therefore, our average effective interest rate was higher during the second half of 2009; however, this was significantly offset by lower interest expense on the reduced debt level that resulted from the July 2009 asset dispositions and equity financing. The Corporation's interest rates are primarily based on short term bankers acceptance rates plus a stamping fee. We monitor the debt level to ensure an optimal mix of financing and cost of capital that will provide a maximum return to our shareholders. Our current credit facilities have been a favorable financing alternative with an effective interest rate of only 4.9% for the year ended December 31, 2009.

Interest and Accretion on Convertible Debentures

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Interest on
     convertible
     debentures
     ($000)       $  2,344  $  4,080      (43)% $ 13,676  $ 16,627      (18)%
      per boe     $   1.13  $   1.41      (20)% $   1.39  $   1.41       (1)%
    Accretion on
     convertible
     debentures
     ($000)       $    379  $    703      (46)% $  2,354  $  2,855      (18)%
      per boe     $   0.18  $   0.24      (25)% $   0.24  $   0.24        - %
    Convertible
     debentures
     maturity
     value at
     December 31
     ($000)                                     $218,471  $219,195        - %

    

Interest and accretion on convertible debentures for the three months and year ended December 31, 2009 has decreased compared to 2008 due to the maturity of the 9.00% debentures on August 1, 2008, the 8.25% debentures on February 1, 2009, the 8.75% debentures on June 30, 2009, and the 7.50% debentures on October 1, 2009. On December 31, 2009, we issued new 5.00% convertible debentures for net proceeds of $82.5 million that will 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.

Depletion, Depreciation and Accretion

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Depletion,
     depreciation
     and accretion
     ($000)       $ 52,284  $ 72,100     (27)%  $256,882  $302,104      (15)%
      per boe     $  25.18  $  24.86       1 %  $  26.13  $  25.58        2 %
    

Depletion and depreciation of petroleum and natural gas properties is provided on the "unit-of-production" method based on total proved reserves. Accretion represents the increase in the asset retirement obligation liability each reporting period due to the passage of time. The depletion, depreciation and accretion ("DD&A") provision has decreased for the three months and year ended December 31, 2009 compared to 2008 due to lower production resulting from the asset dispositions that closed in July 2009. However our DD&A per boe has increased due to the asset dispositions whereby the net proceeds received per boe of proved reserves were generally less than the net book value accumulated by Advantage from all past capital activities. This increase was partially offset as we experienced a significant growth in proved reserves from development activities during the year.

Goodwill

During 2009, Advantage has had no goodwill recorded on the consolidated financial statements. However, there was goodwill shown on the balance sheet during 2008. In accordance with accounting standards, Advantage frequently assesses goodwill impairment which is effectively a comparison of the fair value of the reporting unit to the values assigned to the identifiable assets and liabilities. The fair value of the reporting is typically determined by reference to the market capitalization adjusted for a number of potential valuation factors. The values of the identifiable assets and liabilities include the current assessed value of our reserves and other assets and liabilities. Near the end of 2008, Advantage and the entire oil and gas industry, experienced a substantial decline in market capitalization as a result of the worldwide recession, resulting in soft commodity prices, and general negative market reaction. As a result, the entire $120.3 million balance of goodwill was determined to be impaired at December 31, 2008 and expensed.

Taxes

Current taxes paid or payable for the year ended December 31, 2009 amounted to $1.3 million, compared to $2.5 million expensed for the same period of 2008. Current taxes primarily represent Saskatchewan resource surcharge, which is based on the petroleum and natural gas revenues within the province of Saskatchewan. The reduction from 2008 is substantially due to the corresponding decrease in commodity prices during 2009.

Future income taxes arise from differences between the accounting and tax bases of the assets and liabilities. On July 9, 2009, the Fund was converted into the Corporation. For the year ended December 31, 2009, the Corporation recognized a total future income tax reduction of $10.9 million compared to $10.8 million for the same period of 2008. Included in the future income tax reduction for 2009 was a future income tax expense impact of $23.0 million related to the corporate conversion. As at December 31, 2009, the Corporation had a total future income tax liability balance of $43.5 million, compared to $55.9 million at December 31, 2008. Canadian generally accepted accounting principles require that a future income tax liability be recorded when the book value of assets exceeds the balance of tax pools.

The Corporation has approximately $1.6 billion in tax pools and deductions at December 31, 2009, which can be used to reduce the amount of taxes payable by Advantage. The estimated tax pools in place at December 31, 2009 are as follows:

    
                                                          December 31, 2009
                                                         Estimated Tax Pools
                                                            ($ millions)
                                                            ------------
    Undepreciated Capital Cost                               $      479
    Canadian Oil and Gas Property Expenses                          205
    Canadian Development Expenses                                   351
    Canadian Exploration Expenses                                    24
    Non-capital losses                                              508
    Other                                                            16
                                                            ------------
                                                             $    1,583
                                                            ------------
    

The distributions paid in 2009 by the Fund were 100% taxable. All former Unitholders of the Fund are encouraged to consult with their tax advisors as to the proper treatment of distributions for income tax purposes and the tax consequences of the corporate conversion.

Net Loss

    
                  Three months ended                  Year ended
                       December 31                   December 31
                     2009      2008   % change     2009      2008   % change
    -------------------------------------------------------------------------
    Net loss
     ($000)       $(14,213) $(95,477)     (85)% $(86,426) $(20,577)     320 %
      per share -
       basic and
       diluted    $  (0.09) $  (0.67)     (87)% $  (0.56) $  (0.15)     273 %
    

Net loss for the three months ended December 31, 2009 was $14.2 million, as compared to $95.5 million for the same period of 2008. For the year ended December 31, 2009, we experienced a net loss of $86.4 million, as opposed to the $20.6 million for 2008. A significant impact on our net loss for this year has been the corporate conversion that resulted in the recognition of several one-time costs in G&A expense totaling approximately $7.7 million and a future income tax expense of $23.0 million. As a result of the asset dispositions that closed in July 2009, total revenues and expenses are generally reduced as compared to the prior year. Although 2009 has been a very successful year, our major challenge has continued to be the commodity price environment that has adversely impacted revenues per boe, excluding hedging, with reductions of 15% and 46% for the three months and year ended December 31, 2009, respectively. These lower revenues were partially mitigated by our commodity hedging program that resulted in realized derivative gains of $16.3 million and $86.5 million for the three months and year ended December 31, 2009. Unfortunately we were also required to recognize a non-cash unrealized derivative loss relating to the valuation of commodity hedging contracts outstanding as at December 31, 2009 that will not settle until 2010 and 2011. The lower revenues were also partially offset from a significant reduction in Alberta Provincial royalty rates due to the weak commodity price environment. Additionally, we continue to experience lower operating costs as an aggressive optimization program through 2008 and 2009 is continuing to demonstrate positive benefits and we will seek further opportunities to improve our operating cost structure. During the year, we granted restricted shares to employees under our new corporate compensation plan that resulted in the recognition of equity-based compensation expense of $10.3 million.

Cash Netbacks

    
                                            Three months ended
                                                December 31
                                      2009                      2008
                                 $000      per boe         $000      per boe
    -------------------------------------------------------------------------
    Revenue               $    82,510  $     39.74  $   135,732  $     46.79
    Realized gain (loss)
     on derivatives            16,272         7.84       13,473         4.64
    Royalties                 (11,390)       (5.49)     (23,338)       (8.05)
    Operating costs           (22,847)      (11.01)     (42,673)      (14.71)
    -------------------------------------------------------------------------
    Operating             $    64,545  $     31.08  $    83,194  $     28.67
    General and
     administrative(1)         (7,074)       (3.41)      (3,198)       (1.10)
    Interest                   (5,066)       (2.44)      (6,430)       (2.22)
    Interest on
     convertible
     debentures(2)             (2,344)       (1.13)      (4,080)       (1.41)
    Income and
     capital taxes               (304)       (0.15)        (116)       (0.04)
    -------------------------------------------------------------------------
    Funds from operations
     and cash netbacks    $    49,757  $     23.95  $    69,370  $     23.90
    -------------------------------------------------------------------------


                                                 Year ended
                                                December 31
                                      2009                      2008
                                 $000      per boe         $000      per boe
    -------------------------------------------------------------------------
    Revenue               $   343,005  $     34.90  $   769,401  $     65.14
    Realized gain (loss)
     on derivatives            86,487         8.80      (27,439)       (2.32)
    Royalties                 (49,010)       (4.99)    (146,349)      (12.39)
    Operating costs          (119,022)      (12.11)    (164,091)      (13.89)
    -------------------------------------------------------------------------
    Operating             $   261,460  $     26.60  $   431,522  $     36.54
    General and
     administrative(1)        (27,710)       (2.82)     (23,422)       (1.98)
    Interest                  (19,752)       (2.01)     (27,893)       (2.36)
    Interest on
     convertible
     debentures(2)            (13,676)       (1.39)     (16,627)       (1.41)
    Income and
     capital taxes             (1,280)       (0.13)      (2,493)       (0.21)
    -------------------------------------------------------------------------
    Funds from operations
     and cash netbacks    $   199,042  $     20.25  $   361,087  $     30.58
    -------------------------------------------------------------------------

    (1) General and administrative expense excludes non-cash G&A and equity-
        based compensation expense.
    (2) Interest on convertible debentures excludes non-cash accretion
        expense.
    

Funds from operations decreased in total for the three months and year ended December 31, 2009 compared to the same periods of 2008 primarily due to our dispositions completed in July 2009 and the weaker commodity price environment. Funds from operations per boe was down for the entire 2009 year when compared to 2008 due to much weaker commodity prices, particularly natural gas, which adversely impacted our revenues. However, as a result of our successful commodity price risk management program, we were able to realize significant offsetting gains on derivatives. Royalties also decreased as would be expected since they are significantly influenced by commodity prices. Operating costs, which had increased steadily over the 2008 year, have started to decrease as we begin to realize benefits from our ongoing optimization efforts.

Our funds from operations per boe was higher for the three months ended December 31, 2009 as compared to the same quarter of 2008. Although commodity pricing remained weak for the fourth quarter of 2009, we realized significant gains on derivatives and reduced costs that helped to strengthen our funds from operations. When compared to the third quarter of 2009, our funds from operations per boe increased 24% to $23.95 per boe from $19.38 per boe. Once again, this improvement occurred primarily as commodity prices began to increase in comparison to the prior quarter.

Contractual Obligations and Commitments

The Corporation has contractual obligations in the normal course of operations including purchases of assets and services, operating agreements, transportation commitments, sales contracts and convertible debentures. These obligations are of a recurring and consistent nature and impact cash flow in an ongoing manner. The following table is a summary of the Corporation's remaining contractual obligations and commitments. Advantage has no guarantees or off-balance sheet arrangements other than as disclosed.

    
                                       Payments due by period
    ($ millions)        Total    2010    2011    2012    2013    2014    2015
    -------------------------------------------------------------------------
    Building leases   $   6.4  $  3.9  $  1.5  $  1.0  $    -  $    -  $    -
    Capital leases        2.1     1.4     0.7       -       -       -       -
    Pipeline/
     transportation      25.9     4.4     6.6     6.6     6.6     1.7       -
    Convertible
     debentures(1)      218.5    69.9    62.3       -       -       -    86.3
    -------------------------------------------------------------------------
    Total contractual
     obligations      $ 252.9  $ 79.6  $ 71.1  $  7.6  $  6.6  $  1.7  $ 86.3
    -------------------------------------------------------------------------

    (1) As at December 31, 2009, Advantage had $218.5 million convertible
        debentures outstanding (excluding interest payable during the various
        debenture terms). Each series of convertible debentures are
        convertible to shares based on an established conversion price. All
        remaining obligations related to convertible debentures can be
        settled through the payment of cash or issuance of shares at
        Advantage's option.
    (2) Bank indebtedness of $250.3 million has been excluded from the
        contractual obligations table as the credit facilities constitute 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 repayment due one year
        after commencement of the term.
    

Liquidity and Capital Resources

The following table is a summary of the Corporation's capitalization structure.

    
                                                                 December 31,
    ($000, except as otherwise indicated)                            2009
    -------------------------------------------------------------------------
    Bank indebtedness (long-term)                                $   250,262
    Working capital deficit(1)                                       118,362
    -------------------------------------------------------------------------
    Net debt                                                     $   368,624
    -------------------------------------------------------------------------
    Shares outstanding (000)                                         162,746
    Shares closing market price ($/share)                        $      6.90
    -------------------------------------------------------------------------
    Shares outstanding market value                              $ 1,122,944
    -------------------------------------------------------------------------
    Convertible debentures maturity value (long-term)            $   148,544
    Capital lease obligations (long term)                        $       759
    -------------------------------------------------------------------------
    Total capitalization                                         $ 1,640,871
    -------------------------------------------------------------------------

    (1) Working capital deficit includes accounts receivable, prepaid
        expenses and deposits, accounts payable and accrued liabilities,
        and the current portion of capital lease obligations and convertible
        debentures.
    

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.

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. This continual financial assessment process further enables the Corporation to mitigate risks. The Corporation continues to satisfy all liabilities and commitments as they come due. We have an established $525 million credit facility agreement with a syndicate of financial institutions; the balance of which at December 31, 2009 was $250.3 million. This facility was renewed in June 2009 and is comprised of a $20 million revolving operating loan facility and a $505 million extendible revolving credit facility. The Corporation additionally has convertible debentures that will mature between 2010 and 2015, whereby we have the option to settle such obligations by cash or though the issuance of shares. The current economic situation has placed additional pressure on commodity prices. Natural gas prices that had been improving early in 2008, have now declined due to the ailing economy as well as increased inventory levels from strong injections and mild weather. Natural gas has dropped with AECO gas presently trading at approximately $4.00/GJ. Crude oil has dropped from a historic high in 2008 to approximately US$82/bbl. The outlook for the Corporation from prolonged weak commodity prices would be reductions in operating netbacks and funds from operations. Management has partially mitigated this risk through our commodity hedging program but the lower commodity price environment has still had a significant negative impact. In order to strengthen our financial position and balance our cash flows, we completed an equity financing, two asset dispositions, and issued 5.00% convertible debentures that repaid debt and enabled us to focus capital spending on our Montney natural gas resource play.

In summary, we have implemented a strategy to balance funds from operations and capital program expenditure requirements. A successful hedging program was also executed to help reduce the volatility of our funds from operations. As a result, we feel that Advantage has implemented adequate strategies to protect our business as much as possible in this environment. However, as with all companies, we are still exposed to risks as a result of the current economic situation. We continue to closely monitor the possible impact on our business and strategy, and will make adjustments as necessary with prudent management.

Shareholders' Equity and Convertible Debentures

Advantage has utilized a combination of equity, convertible debentures and bank debt to finance acquisitions and development activities.

As at December 31, 2009, the Corporation had 162.7 million shares outstanding. Prior to converting to a corporation, the Fund had issued 1,263,158 Trust Units as a result of the Premium Distribution(TM), Distribution Reinvestment and Optional Trust Unit Purchase Plan, generating $5.2 million reinvested in the Fund (December 31, 2008 - 4,414,830 Trust Units were issued, generating $39.9 million reinvested in the Fund). On July 7, 2009, prior to the corporate conversion, the Fund issued 17 million Trust Units through a bought deal financing that raised net proceeds of $96.8 million. The proceeds were utilized to reduce bank indebtedness.

On July 9, 2009, the Fund was dissolved and converted into the Corporation, with each Trust Unit converted into one Common Share. Since conversion to a corporation, 547,738 shares have been issued to employees pursuant to the RSPIP. As at March 16, 2010, shares outstanding have increased to 163.0 million.

At December 31, 2009, the Corporation had $218.5 million convertible debentures outstanding that were immediately convertible to 15.8 million shares based on the applicable conversion prices (December 31, 2008 - $219.2 million outstanding and convertible to 9.5 million shares). During the year ended December 31, 2009, there were no conversions of debentures (December 31, 2008 - $25,000 converted resulting in the issuance of 1,001 Trust Units). The principal amount of 8.25% convertible debentures matured on February 1, 2009 and was 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. On December 31, 2009, we issued new 5.00% convertible debentures for net proceeds of $82.5 million that will 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. As at March 16, 2010, the convertible debentures outstanding have not changed from December 31, 2009. We have $69.9 million of debentures that mature in June 2010, $62.3 million of debentures that mature in December 2011 and $86.3 million of debentures that mature in January 2015. These obligations can be settled through the payment of cash or issuance of shares at Advantage's option.

Bank Indebtedness, Credit Facility and Other Obligations

At December 31, 2009, Advantage had bank indebtedness outstanding of $250.3 million. Bank indebtedness decreased $337.1 million since December 31, 2008, primarily as a result of the asset dispositions, equity financing, and the convertible debenture issuance. The Corporation finalized a new credit facility of $525 million, comprised of a $20 million revolving operating loan facility and a $505 million extendible revolving credit facility. The credit facilities are secured by a $1 billion floating charge demand debenture, a general security agreement and a subordination agreement from the Corporation covering all assets and cash flows. As well, the borrowing base for the Corporation's credit facilities is determined through utilizing our 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. The next annual review is scheduled to occur in June 2010. There can be no assurances that the $525 million credit facility will be renewed at the current borrowing base level at that time.

Advantage had a working capital deficiency of $118.4 million as at December 31, 2009. Our working capital includes items expected for normal operations such as trade receivables, prepaids, deposits, trade payables and accruals as well as the current portion of capital lease obligations and convertible debentures. Working capital varies primarily due to the timing of such items, the current level of business activity including our capital program, commodity price volatility, and seasonal fluctuations. We do not anticipate any problems in meeting future obligations as they become due given the level of our funds from operations. It is also important to note that working capital is effectively integrated with Advantage's operating credit facility, which assists with the timing of cash flows as required. Our working capital deficiency is high due to the inclusion in current liabilities of $69.6 million of convertible debentures representing the $69.9 million 6.50% debentures that mature in June 2010. Advantage has capital lease obligations on various equipment used in its operations. The total amount of principal obligations outstanding at December 31, 2009 is $2.1 million, bearing interest at effective rates ranging from 5.5% to 6.7%, and is collateralized by the related equipment. The leases expire in 2010 and 2011.

Capital Expenditures

    
                               Three months ended            Year ended
                                  December 31               December 31
    ($000)                     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Land and seismic      $      (186) $    13,039  $     2,080  $    22,532
    Drilling, completions
     and workovers             35,008       49,833      107,060      140,019
    Well equipping and
     facilities                24,975       36,242       61,515       92,016
    Other                          51          198          213        1,024
    -------------------------------------------------------------------------
                          $    59,848  $    99,312  $   170,868  $   255,591
    Property acquisitions           -            -            -        7,621
    Property dispositions          34         (850)    (245,150)        (941)
    -------------------------------------------------------------------------
    Total capital
     expenditures         $    59,882  $    98,462  $   (74,282) $   262,271
    -------------------------------------------------------------------------
    

Advantage's exploitation and development program is focused primarily at Glacier, Alberta where we are developing a significant natural gas resource play. Our preference is to operate a high percentage of our properties such that we can maintain control of capital expenditures, operations and cash flows. Advantage's acquisition strategy has been to acquire long-life properties with strong drilling opportunities while retaining a balance of year round access and risk.

For the year ended December 31, 2009, the Corporation spent a net $170.9 million and drilled a total of 34.2 net (55 gross) wells at a 97% success rate. Total capital spending included $132.5 million at Glacier, $9.0 million at Nevis, and the remaining balance at other areas. Glacier capital spending included 19.4 net (27 gross) horizontal wells and 2 net (2 gross) vertical wells. Facilities work involving the expansion of compression facilities and our pipeline gathering system was completed at the end of the second quarter 2009 and has taken our overall facility capacity to 25 mmcf/d after commissioning the expansion. Construction of the Glacier gas plant is now nearing completion to increase production capacity to 50 mmcf/d by mid 2010. At Nevis, activity has been focused on drilling horizontal light oil wells that qualify for the recently extended Alberta royalty incentive program.

On January 19, 2010, the Board of Directors approved a new capital budget for the six month period ending June 2010. Management will review the capital program on a regular basis in the context of prevailing economic conditions and make adjustments as deemed necessary to the program, subject to review by the Board of Directors.

Advantage's corporate capital budget for the six month period ending June 2010 has been set at $110 million and will be funded out of funds from operations, with approximately 80% directed to Glacier and the balance allocated to drilling and enhanced oil recovery projects in our properties at Nevis, Sunset and Saskatchewan. However, the budget will focus on development of our Montney natural gas resource play at Glacier, Alberta where Advantage will continue to employ a phased development approach.

Sources and Uses of Funds

The following table summarizes the various funding requirements during the years ended December 31, 2009 and 2008 and the sources of funding to meet those requirements:

    
                                                             Year ended
                                                            December 31
    ($000)                                              2009          2008
    -------------------------------------------------------------------------
    Sources of funds
      Property dispositions                        $   245,150   $       941
      Funds from operations                            199,042       361,087
      Units issued, less costs                          96,770         1,248
      Convertible debentures issued,
       less costs                                       82,515             -
      Increase in bank indebtedness                          -        39,978
      Decrease in working capital                            -        38,070
    -------------------------------------------------------------------------
                                                   $   623,477   $   441,324
    -------------------------------------------------------------------------
    Uses of funds
      Decrease in bank indebtedness                $   336,933   $         -
      Expenditures on fixed assets                     170,868       255,591
      Convertible debenture maturities                  82,107         5,392
      Distributions to Unitholders                      23,481       161,924
      Expenditures on asset retirement                   5,437         9,259
      Increase in working capital                        2,352             -
      Reduction of capital lease obligations             2,299         1,537
      Property acquisitions                                  -         7,621
    -------------------------------------------------------------------------
                                                   $   623,477   $   441,324
    -------------------------------------------------------------------------
    

The Corporation generated lower funds from operations during the year ended December 31, 2009 compared to 2008, due to a sharp decrease in commodity prices and lower production from the asset dispositions that closed in July 2009. During 2009 we completed two assets dispositions, an equity financing and issuance of convertible debentures that enabled us to repay a significant portion of our outstanding bank indebtedness. Other major uses of funds during this year included expenditures on fixed assets and convertible debenture maturities. We had three convertible debenture maturities this year, two of which were settled for total cash of $82.1 million. As a result of our efforts to maintain a significant capital program, repay bank indebtedness and convert to a growth oriented corporation, distributions were suspended indefinitely in the first quarter of 2009 and the Corporation does not currently pay a dividend.

Annual Financial Information

The following is a summary of selected financial information of the Corporation and the Fund for the years indicated.

    
                                      Year ended    Year ended    Year ended
                                        Dec. 31,      Dec. 31,      Dec. 31,
                                          2009          2008          2007
    -------------------------------------------------------------------------
    Total revenue
     (before royalties) ($000)       $   429,492   $   741,962   $   557,358
    Net loss ($000)                  $   (86,426)  $   (20,577)  $    (7,535)
      per share - basic
      and diluted                    $     (0.56)  $     (0.15)  $     (0.06)
    Total assets ($000)              $ 1,927,241   $ 2,302,746   $ 2,422,280
    Long term financial
     liabilities ($000)(1)           $   383,797   $   718,511   $   768,060
    Distributions declared
     per Trust Unit(2)               $      0.08   $      1.40   $      1.77

    (1) Long term financial liabilities exclude asset retirement obligations
        and future income taxes.
    (2) On March 18, 2009 Advantage annouced the discontinuance of
        distributions.
    

Total revenue (before royalties) increased significantly in 2008 as compared to 2007 due to much stronger commodity prices and incremental production from the acquisition of Sound Energy Trust ("Sound") that was completed in September 2007. However, a net loss was still experienced in 2008 as we recognized a $120.3 million impairment of goodwill. For 2009, total revenue (before royalties) decreased as a result of considerably reduced commodity prices and lower production resulting from two asset dispositions completed in July 2009. The lower commodity prices also primarily contributed to the net loss recognized in 2009. Total assets have continually decreased from 2007 through 2009 as depletion, depreciation and accretion expense has exceeded capital spending activity that has been reduced due to the lower commodity price environment. Additionally, total assets decreased in 2008 partially due to the goodwill impairment. From 2007 to 2009 we have also experienced significant decreases in long term financial liabilities due to our concerted efforts to reduce debt. In 2009 we completed two significant asset dispositions, an equity financing, and a convertible debenture issuance with net proceeds utilized to repay outstanding debt. We also suspended all distributions in March 2009 and completed our conversion to a corporation in July 2009.

Quarterly Performance

    
                                                   2009
    ($000, except as
     otherwise indicated)        Q4           Q3           Q2           Q1
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)      84,466       91,200      124,990      117,968
      Crude oil and
       NGLs (bbls/d)            8,488        8,431       10,212       10,942
      Total (boe/d)            22,566       23,631       31,044       30,603
    Average prices
      Natural gas ($/mcf)
        Excluding
         hedging          $      4.28  $      2.89  $      3.56  $      5.36
        Including
         hedging          $      6.90  $      6.10  $      5.63  $      6.52
        AECO monthly
         index            $      4.18  $      3.03  $      3.66  $      5.64
      Crude oil and NGLs
      ($/bbl)
        Excluding
         hedging          $     63.04  $     56.99  $     55.89  $     43.41
        Including
         hedging          $     57.85  $     54.02  $     54.51  $     54.54
        WTI ($US/bbl)     $     76.17  $     68.29  $     59.62  $     43.21
    Total revenues
     (before royalties)   $    98,782  $    93,101  $   114,659  $   122,950
    Net income (loss)     $   (14,213) $   (53,293) $   (37,810) $    18,890
      per share
       - basic            $     (0.09) $     (0.33) $     (0.26) $      0.13
       - diluted          $     (0.09) $     (0.33) $     (0.26) $      0.13
    Funds from
     operations           $    49,757  $    42,104  $    51,590  $    55,591
    Distributions
     declared             $         -  $         -  $         -  $    17,266


                                                   2008
    ($000, except as
     otherwise indicated)        Q4           Q3           Q2           Q1
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)     120,694      122,627      123,104      125,113
      Crude oil and
       NGLs (bbls/d)           11,413       11,980       11,498       12,281
      Total (boe/d)            31,529       32,418       32,015       33,133
    Average prices
      Natural gas ($/mcf)
        Excluding
         hedging          $      7.15  $      8.65  $     10.33  $      7.90
        Including
         hedging          $      7.61  $      7.55  $      9.18  $      8.23
        AECO monthly
         index            $      6.79  $      9.27  $      9.35  $      7.13
      Crude oil and NGLs
      ($/bbl)
        Excluding
         hedging          $     53.65  $    107.96  $    110.15  $     85.99
        Including
         hedging          $     61.67  $    100.02  $    101.34  $     84.83
        WTI ($US/bbl)     $     58.75  $    118.13  $    124.00  $     97.96
    Total revenues
     (before royalties)   $   149,205  $   195,384  $   208,868  $   188,505
    Net income (loss)     $   (95,477) $   113,391  $   (14,369) $   (24,122)
      per share
       - basic            $     (0.67) $      0.81  $     (0.10) $     (0.18)
       - diluted          $     (0.67) $      0.79  $     (0.10) $     (0.18)
    Funds from
     operations           $    69,370  $    93,345  $   103,754  $    94,618
    Distributions
     declared             $    45,514  $    50,743  $    50,364  $    50,021
    

The table above highlights the Corporation's and Fund's performance for the fourth quarter of 2009 and also for the preceding seven quarters. Production has gradually decreased during the first half of 2008 due to natural declines, wet and cold weather delays, and facility turnarounds. Production increased modestly in the third quarter of 2008 as new wells were brought on production and most facility turnarounds were completed. During the fourth quarter of 2008 and the first quarter of 2009, production decreased as we experienced freezing conditions from early cold weather in December and a slow recovery from such cold weather conditions. An extended third party facility outage also began in August 2008 and has continued through 2009 but is now completed and our production came back on in November 2009. Production increased in the second quarter of 2009 due to recovery from cold weather conditions that caused brief production outages and additional production from a number of wells drilled during the first quarter of 2009 but delayed until after March 31, 2009 such that we could benefit from the new 5% Alberta Provincial royalty rate available on such wells. We experienced a significant decrease in production during the third quarter of 2009 as we completed asset dispositions that closed in July 2009 for net proceeds of $243.2 million, subject to further adjustments. The disposed properties represented approximately 8,100 boe/d of production. As the third quarter of 2009 still included 1,725 boe/d from the disposed properties, this means that production in the fourth quarter of 2009 actually increased 3% due to a few new wells and return of production from our Lookout Butte property, partially offset by some natural declines and cold weather conditions that typically cause production interruptions. Our financial results, particularly revenues and funds from operations, increased through to the second quarter of 2008, as both commodity prices and production steadily increased over that timeframe. However, revenues and funds from operations slightly declined in the third quarter of 2008, as commodity prices began to decline in response to the financial crisis that materialized in the fall of 2008. This trend worsened in the fourth quarter, as a full global recession set in, and commodity prices continued on a downward trend through to the third quarter of 2009. We have seem improvements in commodity prices during the fourth quarter of 2009 that has increased our revenues and funds from operations; however, commodity prices still remain weak. Net losses were realized in the first and second quarters of 2008, primarily as a result of significant unrealized losses on commodity derivative contracts for future periods. Commodity price declines in the third quarter of 2008 gave rise to significant unrealized gains on these same derivative contracts, and in turn the Corporation reported record high net income. We recognized a considerable net loss in the fourth quarter of 2008, a combined result of falling commodity prices and a $120.3 million impairment of our entire balance of goodwill. In the first quarter of 2009, the global economy showed no clear sign of recovery and commodity prices, particularly natural gas, were weak in comparison to prior quarters. However, Advantage was still able to report net income as we recognized both realized and unrealized gains on our derivative contracts and moderately lower expenses, including operating costs. Natural gas prices continued to worsen during the second and third quarters of 2009 resulting in the recognition of net losses for the periods. The third quarter net loss was also impacted by additional costs incurred related to the corporate conversion, including a $23.0 million future income tax expense, and increased depletion and depreciation expense from a higher DD&A rate per boe that resulted from the asset dispositions. The net loss decreased during the fourth quarter of 2009 as commodity prices began to improve, but still remain low. Partially offsetting the net losses experienced during 2009 is the continuing reduction in costs including royalties and operating costs.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires Management to make certain judgments and estimates. Changes in these judgments and estimates could have a material impact on the Corporation's financial results and financial condition.

Management relies on the estimate of reserves as prepared by the Corporation's independent qualified reserves evaluator. The process of estimating reserves is critical to several accounting estimates. The process of estimating reserves is complex and requires significant judgments and decisions based on available geological, geophysical, engineering and economic data. These estimates may change substantially as additional data from ongoing development and production activities becomes available and as economic conditions impact crude oil and natural gas prices, operating costs, royalty burden changes, and future development costs. Reserve estimates impact net income through depletion and depreciation and impairment of petroleum and natural gas properties. The reserve estimates are also used to assess the borrowing base for the Corporation's credit facilities. Revision or changes in the reserve estimates can have either a positive or a negative impact on net income and the borrowing base of the Corporation.

Management's process of determining the provision for future income taxes, the provision for asset retirement obligation costs and related accretion expense, the fair values initially assigned to the convertible debentures liability and equity components, and the fair values assigned to any acquired company's assets and liabilities in a business combination is based on estimates. These estimates are significant and can include proved and probable reserves, future production rates, future petroleum and natural gas prices, future costs, future interest rates, future tax rates and other relevant assumptions. Revisions or changes in any of these estimates can have either a positive or a negative impact on asset and liability values and net income.

In accordance with GAAP, derivative assets and liabilities are recorded at their fair values at the reporting date, with unrealized gains and losses recognized directly into net income and comprehensive income in the same period. The fair value of derivatives outstanding is an estimate based on pricing models, estimates, assumptions and market data available at that time. As such, the recognized amounts are non-cash items and the actual gains or 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.

Accounting Pronouncements Implemented

During 2009, we implemented the following accounting pronouncements:

a) Goodwill and intangible assets

Effective January 1, 2009, the Corporation adopted CICA Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. The new Section has not had any impact on the financial statements.

b) Enhancement to Financial Instrument disclosures

Effective December 31, 2009, the Corporation adopted disclosure requirements that the CICA added to Handbook Section 3862 "Financial Instruments - Disclosures." The added requirements augmented disclosure requirements with respect to fair values and liquidity risk associated with financial instruments. Fair values are now required to be determined following a three (3) level hierarchy.

International Financial Reporting Standards

In February 2008, the Canadian Institute of Chartered Accountants ("CICA") confirmed that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards ("IFRS") for the fiscal years beginning on or after January 1, 2011. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Corporation's reporting for the first quarter 2011, for which the current and comparative information will be prepared under IFRS. We expect the transition to IFRS will impact accounting, financial reporting, internal controls over financial reporting, taxes, information systems and processes. Management has engaged its key personnel responsible and developed an overall plan to address IFRS implementation.

The most significant change identified will be accounting for fixed assets. The Corporation, like many Canadian oil and gas reporting issuers, applies the "full cost" concept in accounting for its oil and gas assets. Under full cost, capital expenditures are maintained in a single cost centre for each country, and the cost centre is subject to a single depletion calculation and impairment test. IFRS will require the Corporation to make a much more detailed assessment of its oil and gas assets. For depletion and depreciation, the Corporation must identify asset components, and determine an appropriate depreciation or depletion method for each component. With regard to impairment test calculations, we must identify "Cash Generating Units", which are defined as the smallest group of assets that produce independent cash flows. An impairment test must be performed individually for all cash generating units when indicators suggest there may be an impairment. The recognition of impairments in a prior year can be reversed subsequently depending on such calculations. It is also important to note that the International Accounting Standards Board ("IASB") is currently undertaking an extractive activities project, to develop accounting standards specifically for businesses like that of the Corporation. However, we anticipate that the project will not be complete prior to IFRS adoption in Canada. We have also identified a number of other areas whereby differences between Canadian GAAP and IFRS are likely to exist for Advantage. However, currently we are concentrating on the accounting for fixed assets and will evaluate these other areas in due course and develop more detailed plans to address the identified issues. Advantage's IFRS conversion project has been developed in three main phases:

Phase One: Scope and Plan

    
        This phase consists of high level assessment to identify key areas of
        Canadian GAAP versus IFRS differences that would most likely impact
        the company. This assessment was completed in early 2009.
    

Phase Two: Design and Build

    
        This phase, commenced in the third quarter of 2009 and involved the
        detail assessment, from an accounting, reporting and business
        perspective, of the changes that would be caused by the conversion to
        IFRS. Specific accounting processes and policy review include:
        exploration and evaluation costs, property, plant and equipment,
        depreciation and depletion, asset impairment, provisions and
        decommissioning liabilities, income tax, systems and financial
        statement preparation and disclosure. The deliverables for this phase
        include specific accounting policies for the above mentioned topics
        and also includes IFRS transitional choices. This phase is expected
        to be completed by the end of the second quarter 2010.
    

Phase Three: Implement and Review

    
        This phase involves the execution of the work completed in phase two,
        by making changes to business and accounting processes and supporting
        information systems, as well as the formal documentation of the final
        approved accounting policies and procedures compliant with IFRS.
        Details surrounding the collection of comparative financial and other
        data in 2010 are also being finalized in this phase. This phase is
        currently underway and is expected to be completed by the end of
        2010.

        Education, training and communication of key financial employees,
        other staff and management, the Audit Committee and the Board will
        continue throughout the conversion project.
    

Accounting Policy Impacts and Decisions:

    
        The Corporation is progressing through its assessment of impacts of
        adopting IFRS based on the standards as they currently exist, and
        have identified the following as having the greatest potential to
        impact the accounting policies, financial reporting and information
        systems requirements upon conversion to IFRS. Differences between
        IFRS and Canadian GAAP in addition to those referred to below, may
        still be identified based on further detailed analysis and other
        changes in IFRS prior to conversion in 2011. Advantage has not yet
        finalized its accounting policies or transitional choices and as such
        is unable to quantify the impact on the financial statements of
        adopting IFRS.

        a) Depreciation

        IFRS and Canadian GAAP contain the same basic principles of
        accounting for property, plant and equipment; however, differences in
        application do exist. IAS 16 requires an allocation of the amount
        initially recognized as PP&E to each significant part and the
        depreciation of each part separately. This method of componentizing
        PP&E will result in an increased number of calculations of
        depreciation expense and may impact the amount of depreciation
        expense. IFRS allows the option of using either proved or proved and
        probable reserves in the depreciation calculation. Advantage has not
        concluded at this time which method it will use.

        b) Impairment of Assets

        Impairment of Assets IAS 36, uses a one-step approach for testing and
        measuring asset impairment, with asset carrying values being compared
        to the higher of value in use and fair value less cost to sell. The
        use of discounted cash flows under IFRS to test and measure asset
        impairment differs from Canadian GAAP where step one, of a two-step
        approach, uses undiscounted cash flows. Under IFRS, impairment
        testing is carried out at an individual asset group level (Cash
        Generating Unit) versus under Canadian GAAP which is generally at a
        country level. This will result in the possibility of more frequent
        write downs in the carrying value under IFRS. However, under IAS 36
        previous impairment losses (except for goodwill) must be reversed
        where circumstances change such that the impairment has been reduced.

        c) First Time Adoption of International Financial Reporting Standards
           IFRS 1

        IFRS 1 provides the framework for the first time adoption of IFRS and
        specifies that, in general, an entity shall apply the principles
        under IFRS retrospectively. IFRS 1 also specifies that the
        adjustments that arise on retrospective conversion to IFRS from other
        GAAP should be directly recognized in retained earnings. Certain
        optional exemptions and mandatory exceptions to retrospective
        application are provided under IFRS 1. In July 2009, an amendment to
        IFRS 1 was issued that applies to oil and gas assets. The amendment
        allows an entity that used full cost accounting, at adoption of IFRS,
        to measure exploration and evaluation assets at the amount measured
        under its previous GAAP for those assets. The entity may also measure
        its oil and gas assets in the development and production phases, by
        allocating the amount determined under the entities previous GAAP to
        the underlying assets pro rata using reserve volumes or reserve
        values as of that date.

        d) Information Systems

        It is anticipated that the adoption of IFRS may have an impact on
        information systems requirements. We are currently assessing the need
        for system upgrades or modifications to ensure an efficient
        conversion to IFRS.

        e) Financial Reporting

        The adoption of IFRS will result in additional disclosure
        requirements in the financial statements. Draft IFRS financial
        statements are currently being prepared for review. The statements
        will be reviewed by our external auditors and approved by management.

        f) Internal Controls

        In accordance with the Corporations approach to certification of
        internal controls required under Canadian Securities Administrators'
        National instrument 52-109 and SOX 302 and 404, all entity level,
        information technology, disclosures and business process controls
        will require updating and testing to reflect changes arising from our
        conversion to IFRS.
    

Controls and Procedures

The Corporation has established procedures and internal control systems to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Management of the Corporation is committed to providing timely, accurate and balanced disclosure of all material information about the Corporation. Disclosure controls and procedures are in place to ensure all ongoing reporting requirements are met and material information is disclosed on a timely basis. The Chief Executive Officer and President and Chief Financial Officer, individually, sign certifications that the financial statements, together with the other financial information included in the regular filings, fairly present in all material respects the financial condition, results of operations, and cash flows as of the dates and for the periods presented in the filings. The certifications further acknowledge that the filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the filings.

Evaluation of Disclosure Controls and Procedures

The Corporation has established a Disclosure Committee consisting of the executive members with the responsibility of overseeing the Corporation's disclosure practices and designing disclosure controls and procedures ("DCP"), as specified under Canadian and US securities law, to provide reasonable assurance that information required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under applicable securities legislation is recorded, processed, summarized and reported within the time periods specified in applicable securities legislation and that all material information relating to the Corporation is made known to them by others, particularly during the period in which the Corporation's annual and interim filings are being prepared. All written public disclosures are reviewed and approved by at least one member of the Disclosure Committee prior to issuance. Additionally, the Disclosure Committee assists the Chief Executive Officer and President and Chief Financial Officer of the Corporation in making certifications with respect to the disclosure controls of the Corporation required under applicable regulations and ensures that the Board of Directors is promptly and fully informed regarding potential disclosure issues facing the Corporation.

The Corporation's Management is responsible for establishing and maintaining effective internal control over financial reporting ("ICFR"), as such term is defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings. Management of Advantage, including our Chief Executive Officer and President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, 2009. Based on that evaluation, our Chief Executive Officer and President and Chief Financial Officer have concluded that the disclosure controls and procedures are effective as of the end of the period, in all material respects. It should be noted that while the Chief Executive Officer and President and Chief Financial Officer believe that the Corporation's design of disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system does not provide absolute, but rather is designed to provide reasonable, assurance that the objective of the control system is met.

Management's Report on Internal Controls over Financial Reporting

The Corporation's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in the rules of the United States Securities and Exchange Commission and the Canadian Securities Administrators. The Corporation's internal control over financial reporting is a process designed, under the supervision and with the participation of executive and financial officers of the Corporation, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation's financial statements for external reporting purposes in accordance with GAAP.

The Corporation's internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation's assets that could have a material effect on the financial statements.

The Corporation's internal control over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, 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 deterioration in the degree of compliance with the Corporation's policies and procedures.

The Corporation's management assessed the design and effectiveness of the internal control over financial reporting as of December 31, 2009, based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Chief Executive Officer and President and Chief Financial Officer concluded that the Corporation maintained effective internal control over financial reporting as of December 31, 2009.

During the year ended December 31, 2009, there has been no change in the Corporation's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

Corporate Governance

The Board of Directors' mandate is to supervise the management of the business and affairs of the Corporation. In particular, all decisions relating to: (i) the acquisition and disposition of properties for a purchase price or proceeds in excess of $5 million; (ii) the approval of annual operating and capital expenditure budgets; and (iii) the establishment of credit facilities and the issuance of additional shares, will be made by the Board.

The Board of Directors meets regularly to review the business and affairs of the Corporation to make any required decisions. The Board of Directors consists of nine members, seven of whom are unrelated to the Corporation. The Independent Reserve Evaluation Committee has four members, the Audit Committee has four members, and the Human Resources, Compensation and Corporate Governance Committee has three members. All members of the various committees are independent. One member of the Audit Committee has been designated a "Financial Expert" as defined in applicable regulatory guidance. In addition, the Chairman of the Board is not related and is not an executive officer of the Corporation.

The Board of Directors approved and Management implemented a Code of Business Conduct and Ethics. The purpose of the code is to lay out the expectation for the highest standards of professional and ethical conduct from our directors, officers and employees. The code reflects our commitment to a culture of honesty, integrity and accountability and outlines the basic principles and policies with which all employees are expected to comply. Our Code of Business Conduct and Ethics is available on our website at www.advantageog.com.

As a foreign private issuer listed on the New York Stock Exchange (the "NYSE"), Advantage is not required to comply with most of the NYSE rules and listing standards and instead may comply with domestic Canadian requirements. Advantage is, however, required to comply with the following NYSE Rules: (i) Advantage must have an audit committee that satisfies the requirements of Rule 10A-3 under the United States Securities Exchange Act of 1934, as amended; (ii) the Chief Executive Officer must promptly notify the NYSE in writing after an executive officer becomes aware of any material non-compliance with the applicable NYSE Rules; (iii) submit an executed annual written affirmation to the NYSE, as well as an interim affirmation each time certain changes occurs to the audit committee; and (iv) provide a brief description of any significant differences between its corporate governance practices and those followed by U.S. domestic issuers listed under the NYSE. Advantage has reviewed the NYSE listing standards and confirms that its corporate governance practices do not differ significantly from such standards.

A further discussion of the Corporation's corporate governance practices can be found in the Management Proxy Circular.

Outlook

During the fourth quarter of 2009, we continued with our Phase II Montney development program at Glacier which involved drilling horizontal wells to build production inventory and delineate our land block. In addition, construction continued on our new gas plant and gathering system expansion targeting production capacity of 50 mmcf/d and anticipated to come on-stream during the second quarter of 2010. Well test results have exceeded our expectations and drilling in all four quadrants of our land block has proven up a significant portion our undrilled acreage. Optimization of our completion and frac techniques have resulted in a significant improvement in horizontal well rates due to a 70% increase in the rate per frac compared to our earlier wells. We estimate current net production capability including new well tests exceed 90 mmcf/d. We look forward to the second quarter of 2010 when commissioning of our Glacier gas plant is targeted to increase production at Glacier to approximately 50 mmcf/d and reduce operating costs in that property from $8.25/boe to an estimated $2.75/boe primarily due to the elimination of third party processing fees. The results in 2009 helped prove up a significant portion of undrilled acreage at Glacier which provides a much higher level of confidence in the commerciality and remaining upside potential of our Montney resource play that could ultimately involve over $2.5 billion of capital expenditures over the life of the project.

Our H1 2010 Budget was announced on January 19, 2010 and includes the following guidance:

    
    Production             24,200 to 25,200 boe/d (68% natural gas weighting)

    Operating Costs        $10.85/boe to $11.50/boe

    Royalty Rate           13% to 16%

    Capital Expenditures   $110 million (approximately 80% Glacier)
    

We anticipate that our capital expenditures will be funded out of cash flow during the first half of 2010 and a continued focus on completing our Phase II capital program at Glacier will be the key objective. Advantage's strong hedging program significantly enhances our cash flow which provides an opportunity to leverage capital spending during this low supply cost environment and to capitalize on the Alberta Royalty Incentive Programs.

Looking forward, Advantage is well positioned to pursue future development plans at Glacier with our strong balance sheet, solid hedging position and conversion to a growth oriented corporation. With a stable production base and an inventory of over 500 drilling locations at Glacier, Management will continue to employ a disciplined approach designed to create long term growth in shareholder value.

Sensitivities

The following table displays the current estimated sensitivity on funds from operations and funds from operations per share to changes in production, commodity prices, exchange rates and interest rates for 2010 including our hedging activities.

    
                                                      Impact on Annual Funds
                                                          from Operations

                                                          $000     per share
    -------------------------------------------------------------------------
    Natural gas
      AECO monthly price change of $1.00/Mcf           $16,500         $0.10
      Production change of 6.0 mmcf/d                  $11,800         $0.07
    Crude oil and NGLs
      WTI price change of US$10.00/bbl                 $12,900         $0.08
      Production change of 1,000 bbls/d                $24,000         $0.14
    $US/$Canadian exchange rate change of $0.01         $2,100         $0.02
    Interest rate change of 1%                          $3,300         $0.02
    

Additional Information

Additional information relating to Advantage can be found on SEDAR at www.sedar.com and the Corporation's website at www.advantageog.com. Such other information includes the annual information form, the annual information circular - proxy statement, press releases, material contracts and agreements, and other financial reports. The annual information form will be of particular interest for current and potential shareholders as it discusses a variety of subject matter including the nature of the business, description of our operations, general and recent business developments, risk factors, reserves data and other oil and gas information.

March 16, 2010

    
                      CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Balance Sheets

                                                   December 31,  December 31,
    (thousands of dollars)                             2009          2008
    -------------------------------------------------------------------------

    Assets
    Current assets
      Accounts receivable                          $    54,531   $    84,689
      Prepaid expenses and deposits                      9,936        11,571
      Derivative asset (note 12)                        30,829        41,472
    -------------------------------------------------------------------------
                                                        95,296       137,732
    Derivative asset (note 12)                             323         1,148
    Fixed assets (note 3)                            1,831,622     2,163,866
    -------------------------------------------------------------------------
                                                   $ 1,927,241   $ 2,302,746
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities     $   111,901   $   146,046
      Distributions payable to Unitholders                   -        11,426
      Current portion of capital lease
        obligations (note 5)                             1,375         1,747
      Current portion of convertible debentures
       (note 6)                                         69,553        86,125
      Derivative liability (note 12)                    12,755           611
      Future income taxes (note 9)                       4,704        11,939
    -------------------------------------------------------------------------
                                                       200,288       257,894
    Derivative liability (note 12)                       1,165         1,039
    Capital lease obligations (note 5)                     759         3,906
    Bank indebtedness (note 7)                         247,784       584,717
    Convertible debentures (note 6)                    130,658       128,849
    Asset retirement obligations (note 8)               68,555        73,852
    Future income taxes (note 9)                        38,796        43,976
    Other liability (note 10)                            3,431             -
    -------------------------------------------------------------------------
                                                       691,436     1,094,233
    -------------------------------------------------------------------------

    Shareholders' Equity
    Share capital (note 11)                          2,190,409             -
    Unit capital (note 11)                                   -     2,075,877
    Convertible debentures equity component
     (note 6)                                           18,867         9,403
    Contributed surplus (note 11)                        7,275           287
    Deficit                                           (980,746)     (877,054)
    -------------------------------------------------------------------------
                                                     1,235,805     1,208,513
    -------------------------------------------------------------------------
                                                   $ 1,927,241   $ 2,302,746
    -------------------------------------------------------------------------

    Commitments (note 14)

    see accompanying Notes to Consolidated Financial Statements

    On behalf of the Board of Directors of Advantage Oil & Gas Ltd:

    (signed)                    (signed)
    ----------------------      ----------------------
    Paul G. Haggis, Director    Andy J. Mah, Director



    Consolidated Statements of Loss,
    Comprehensive Loss and Deficit

                                                    Year ended    Year ended
    (thousands of dollars, except                  December 31,  December 31,
     for per share amounts)                            2009          2008
    -------------------------------------------------------------------------
    Revenue
      Petroleum and natural gas                    $   343,005   $   769,401
      Realized gain (loss) on derivatives
       (note 12)                                        86,487       (27,439)
      Unrealized gain (loss) on derivatives
       (note 12)                                       (23,738)       38,789
      Royalties                                        (49,010)     (146,349)
    -------------------------------------------------------------------------
                                                       356,744       634,402
    -------------------------------------------------------------------------

    Expenses
      Operating                                        119,022       164,091
      General and administrative                        39,335        22,493
      Management internalization (note 11)               1,724         6,964
      Interest                                          19,752        27,893
      Interest and accretion on convertible
       debentures                                       16,030        19,482
      Depletion, depreciation and accretion            256,882       302,104
      Impairment of goodwill (note 4)                        -       120,271
    -------------------------------------------------------------------------
                                                       452,745       663,298
    -------------------------------------------------------------------------
    Loss before taxes                                  (96,001)      (28,896)
    Future income tax reduction (note 9)               (10,855)      (10,812)
    Income and capital taxes (note 9)                    1,280         2,493
    -------------------------------------------------------------------------
                                                        (9,575)       (8,319)
    -------------------------------------------------------------------------
    Net loss and comprehensive loss                    (86,426)      (20,577)
    Deficit, beginning of year                        (877,054)     (659,835)
    Distributions declared                             (17,266)     (196,642)
    -------------------------------------------------------------------------
    Deficit, end of year                           $  (980,746)  $  (877,054)
    -------------------------------------------------------------------------
    Net loss per share (note 11)
      Basic and diluted                            $     (0.56)  $     (0.15)
    -------------------------------------------------------------------------

    see accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Cash Flows

                                                    Year ended    Year ended
                                                   December 31,  December 31,
    (thousands of dollars)                             2009          2008
    -------------------------------------------------------------------------
    Operating Activities
    Net loss                                       $   (86,426)  $   (20,577)
    Add (deduct) items not requiring cash:
      Unrealized loss (gain) on derivatives             23,738       (38,789)
      Equity-based compensation (note 11)                8,194          (929)
      Non-cash general and administrative (note 10)      3,431             -
      Management internalization                         1,724         6,964
      Accretion on convertible debentures                2,354         2,855
      Depletion, depreciation and accretion            256,882       302,104
      Impairment of goodwill                                 -       120,271
      Future income tax reduction                      (10,855)      (10,812)
    Expenditures on asset retirement                    (5,437)       (9,259)
    Changes in non-cash working capital                (20,914)       22,922
    -------------------------------------------------------------------------
    Cash provided by operating activities              172,691       374,750
    -------------------------------------------------------------------------

    Financing Activities
    Units issued, less costs (note 11)                  96,770         1,248
    Convertible debentures issued, less costs (note 6)  82,515             -
    Convertible debenture maturities (note 6)          (82,107)       (5,392)
    Increase (decrease) in bank indebtedness          (336,933)       39,978
    Reduction of capital lease obligations              (2,299)       (1,537)
    Distributions to Unitholders                       (23,481)     (161,924)
    Changes in non-cash working capital                    500             -
    -------------------------------------------------------------------------
    Cash used in financing activities                 (265,035)     (127,627)
    -------------------------------------------------------------------------
    Investing Activities
    Expenditures on fixed assets                      (170,868)     (255,591)
    Property acquisitions                                    -        (7,621)
    Property dispositions (note 3)                     245,150           941
    Changes in non-cash working capital                 18,062        15,148
    -------------------------------------------------------------------------
    Cash provided by (used in) investing activities     92,344      (247,123)
    -------------------------------------------------------------------------
    Net change in cash                                       -             -
    Cash, beginning of year                                  -             -
    -------------------------------------------------------------------------
    Cash, end of year                              $         -   $         -
    -------------------------------------------------------------------------

    Supplementary Cash Flow Information
      Interest paid                                $    31,335   $    40,215
      Taxes paid                                   $     1,410   $     1,957

    see accompanying Notes to Consolidated Financial Statements



                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    December 31, 2009 and 2008

    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. The figures for the year ended
        December 31, 2008 are those of the Fund. Advantage does not currently
        pay a dividend.

    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 net 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
            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) Goodwill

        Goodwill is the excess purchase price of a business over the fair
        value of identifiable assets and liabilities acquired. Goodwill is
        stated at cost less impairment and is not amortized. Goodwill
        impairment is assessed at year-end, or as economic events dictate, by
        comparing the fair value of the reporting unit (the Corporation) to
        its carrying value, including goodwill. If the fair value of the
        Corporation is less than its carrying value, a goodwill impairment
        loss is recognized by allocating the fair value of the Corporation to
        the identifiable assets and liabilities as if the Corporation had
        been acquired in a business acquisition for a purchase price equal to
        the fair value. The excess of the fair value of the Corporation over
        the values assigned to the identifiable assets and liabilities is the
        implied fair value of the goodwill. Any excess of the carrying value
        of the goodwill over the implied fair value is the impairment amount
        and is charged to income in the period incurred.

        (d) Distributions

        Distributions previously declared by the Fund were reported on an
        accrual basis.

        (e) 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.

        Effective December 31, 2009, the Corporation adopted disclosure
        requirements that the CICA added to Handbook Section 3862 "Financial
        Instruments - Disclosures." The additional requirements augmented
        disclosure requirements with respect to fair values and liquidity
        risk associated with financial instruments. Fair values are now
        required to be determined following a three (3) level hierarchy.

        (f) 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.

        (g) 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.

        (h) 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.

        (i) 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.

        (j) 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 11), a Trust Unit Rights
        Incentive Plan for external directors, and a Restricted Trust Unit
        Plan. Subsequent to converting to a corporation, Advantage has a
        Restricted Share Performance Incentive Plan (note 11).

        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.

        Awards under the external directors' Trust Unit Rights Incentive Plan
        vested immediately with associated compensation expense recognized in
        the current period earnings and estimated forfeiture rates were not
        incorporated in the determination of fair value. The compensation
        expense resulted in the creation of contributed surplus until the
        rights were exercised. Consideration paid upon the exercise of the
        rights together with the amount previously recognized in contributed
        surplus were recorded as an increase in Unitholders' capital.

        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.

        (k) 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.

        (l) 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.

        (m) 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 and
        goodwill, 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.

        (n) Recent accounting pronouncements issued but not implemented

            (i) International Financial Reporting Standards ("IFRS")

            In February 2008, the CICA confirmed that IFRS will replace
            Canadian GAAP effective January 1, 2011 for publicly accountable
            enterprises. Management is currently evaluating the effects of
            all current and pending pronouncements of the International
            Accounting Standards Board on the financial statements of the
            Corporation, and has developed a plan for implementation.

        (o) Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year presentation.

    3.  Fixed Assets

                                                   Accumulated
                                                 Depletion and     Net Book
        December 31, 2009               Cost      Depreciation       Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,218,785   $ 1,390,784   $ 1,828,001
        Furniture and equipment           11,785         8,164         3,621
        ---------------------------------------------------------------------
                                     $ 3,230,570   $ 1,398,948   $ 1,831,622
        ---------------------------------------------------------------------


                                                   Accumulated
                                                 Depletion and     Net Book
        December 31, 2008               Cost      Depreciation       Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,299,657   $ 1,140,710   $ 2,158,947
        Furniture and equipment           11,572         6,653         4,919
        ---------------------------------------------------------------------
                                     $ 3,311,229   $ 1,147,363   $ 2,163,866
        ---------------------------------------------------------------------

        In July 2009, Advantage closed two major asset dispositions for net
        cash proceeds of $243.2 million, and other minor dispositions of
        $2.0 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, 2009, Advantage capitalized
        general and administrative expenditures directly related to
        exploration and development activities of $10.2 million (December 31,
        2008 - $11.1 million).

        Costs of $38.2 million (December 31, 2008 - $68.3 million) for
        unproved properties have been excluded from the calculation of
        depletion expense, and future development costs of $845.3 million
        (December 31, 2008 - $378.2 million) have been included in costs
        subject to depletion.

        The Corporation performed a ceiling test calculation at December 31,
        2009 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      Exchange      AECO Gas
                                           Oil           Rate         ($Cdn/
        Year                            ($US/bbl)     ($US/$Cdn)       mmbtu)
        ---------------------------------------------------------------------
        2010                             $ 79.17        $ 0.92        $ 5.36
        2011                             $ 84.46        $ 0.92        $ 6.21
        2012                             $ 86.89        $ 0.92        $ 6.44
        2013                             $ 90.20        $ 0.92        $ 7.23
        2014                             $ 92.01        $ 0.92        $ 7.98
        2015                             $ 93.85        $ 0.92        $ 8.16
        ---------------------------------------------------------------------
        Approximate escalation rate
         after 2015                         2.0%             -          2.0%
        ---------------------------------------------------------------------

        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.

    4.  Goodwill

        As at December 31, 2008, the Fund assessed goodwill impairment, which
        was effectively a comparison of the fair value of the Fund to the
        values assigned to the identifiable assets and liabilities. The fair
        value of the Fund was determined by reference to the market
        capitalization adjusted for a number of potential valuation factors.
        The values of the identifiable assets and liabilities included the
        current assessed value of the Fund's reserves and other assets and
        liabilities. Near the end of 2008, Advantage and the entire industry
        experienced a substantial decline in market capitalization as a
        result of the worldwide recession, resulting in soft commodity
        prices, and general negative market reaction. As a result, the entire
        balance of goodwill was determined to be impaired at December 31,
        2008.

                                                    Year ended    Year ended
                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Balance, beginning of year                 $         -   $   120,271
        Impairment                                           -      (120,271)
        ---------------------------------------------------------------------
        Balance, end of year                       $         -   $         -
        ---------------------------------------------------------------------

    5.  Capital Lease Obligations

        The Corporation has capital leases on a variety of fixed assets.
        Future minimum lease payments at December 31, 2009 consist of the
        following:

        2010                      $      1,459
        2011                               779
        ---------------------------------------
                                         2,238
        Less amounts representing
         interest                         (104)
        ---------------------------------------
                                         2,134
        Current portion                 (1,375)
        ---------------------------------------
                                  $        759
        ---------------------------------------
        ---------------------------------------

        In July 2009, Advantage derecognized $1.8 million of capital lease
        obligations in connection with leased equipment assigned to
        purchasers in the asset dispositions.

        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.

    6.  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:

                             9.00%        8.25%        8.75%        7.50%
        ---------------------------------------------------------------------
        Trading symbol      AVN.DBA      AVN.DBB      AVN.DBF      AAV.DBC
        Issue date           July 8,      Dec. 2,      June 10,    Sep. 15,
                              2003         2003         2004         2004
        Maturity date        Aug. 1,      Feb. 1,      June 30,     Oct. 1,
                              2008         2009         2009         2009
        Conversion price     $17.00       $16.50       $34.67       $20.25

        Liability
         component        $    28,662  $    56,802  $    48,700  $    71,631
        Equity component        1,338        3,198       11,408        3,369
        ---------------------------------------------------------------------
        Gross proceeds         30,000       60,000       60,108       75,000
        Issuance costs         (1,444)      (2,588)           -       (3,190)
        ---------------------------------------------------------------------
        Net proceeds      $    28,556  $    57,412  $    60,108  $    71,810
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                             6.50%        7.75%        8.00%        5.00%
        ---------------------------------------------------------------------
        Trading symbol      AAV.DBE      AAV.DBD      AAV.DBG      AAV.DBH
        Issue date           May 18,      Sep. 15,     Nov. 13,    Dec. 31,
                              2005         2004         2006         2009
        Maturity date       June 30,      Dec. 1,      Dec. 31,    Jan. 30,
                              2010         2011         2011         2015
        Conversion price     $24.96       $21.00       $20.33        $8.60

        Liability
         component        $    66,981  $    47,444  $    14,884  $    73,019
        Equity component        2,971        2,556       26,561       13,231

        ---------------------------------------------------------------------
        Gross proceeds         69,952       50,000       41,445       86,250
        Issuance costs              -       (2,190)           -       (3,735)
        ---------------------------------------------------------------------
        Net proceeds      $    69,952  $    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                                               Redemption
         Debenture    Redemption Periods                             Price
        ---------------------------------------------------------------------
          6.50%       After June 30, 2009 and before
                       June 30, 2010                             $     1,025
        ---------------------------------------------------------------------
          7.75%       After December 1, 2009 and before
                       December 1, 2011                          $     1,000
        ---------------------------------------------------------------------
          8.00%       After December 31, 2009 and on or before
                       December 31, 2010                         $     1,050
                      After December 31, 2010 and before
                       December 31, 2011                         $     1,025
        ---------------------------------------------------------------------
          5.00%       After January 31, 2013 and on or before
                       January 30, 2015                          $     1,000
                      Provided that Current Market Price exceeds
                       125% of Conversion Price
        ---------------------------------------------------------------------

        The balance of debentures outstanding at December 31, 2009 and
        changes in the liability and equity components during the years ended
        December 31, 2009 and 2008 are as follows:

                          9.00%      8.25%      8.75%      7.50%      6.50%
        ---------------------------------------------------------------------
        Trading symbol   AVN.DBA    AVN.DBB    AVN.DBF    AAV.DBC    AAV.DBE
        Debentures
         outstanding   $       -  $       -  $       -  $       -  $  69,927
        ---------------------------------------------------------------------
        Liability
         component:
          Balance at
           December 31,
           2007        $   5,333  $   4,767  $  29,382  $  50,671  $  68,092
          Accretion of
           discount           59         92        305        908        740
          Converted to
           Trust Units         -          -          -          -        (25)
          Matured         (5,392)         -          -          -          -
        ---------------------------------------------------------------------
          Balance at
           December 31,
           2008        $       -  $   4,859  $  29,687  $  51,579  $  68,807
        ---------------------------------------------------------------------
          Issued               -          -          -          -          -
          Accretion of
           discount            -          8        152        689        746
          Matured              -     (4,867)   (29,839)   (52,268)         -
        ---------------------------------------------------------------------
          Balance at
           December 31,
           2009        $       -  $       -  $       -  $       -  $  69,553
        ---------------------------------------------------------------------

        Equity component:
          Balance at
           December 31,
           2007        $     229  $     248  $     852  $   2,248  $   2,971
          Expired           (229)         -          -          -          -
        ---------------------------------------------------------------------
          Balance at
           December 31,
           2008        $       -  $     248  $     852  $   2,248  $   2,971
        ---------------------------------------------------------------------
          Issued               -          -          -          -          -
          Expired              -       (248)      (852)    (2,248)         -
        ---------------------------------------------------------------------
          Balance at
           December 31,
           2009        $       -  $       -  $       -  $       -  $   2,971
        ---------------------------------------------------------------------


                                     7.75%      8.00%      5.00%      Total
        ---------------------------------------------------------------------
        Trading symbol              AAV.DBD    AAV.DBG    AAV.DBH
        Debentures outstanding    $  46,766  $  15,528  $  86,250  $ 218,471
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           December 31, 2007      $  44,360  $  14,931  $       -  $ 217,536
          Accretion of discount         604        147          -      2,855
          Converted to Trust Units        -          -          -        (25)
          Matured                         -          -          -     (5,392)
        ---------------------------------------------------------------------
          Balance at
           December 31, 2008      $  44,964  $  15,078  $       -  $ 214,974
        ---------------------------------------------------------------------
          Issued                          -          -     69,857     69,857
          Accretion of discount         610        149          -      2,354
          Matured                         -          -          -    (86,974)
        ---------------------------------------------------------------------
          Balance at
           December 31, 2009      $  45,574  $  15,227  $  69,857  $ 200,211
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           December 31, 2007      $   2,286  $     798  $       -  $   9,632
          Expired                         -          -          -       (229)
        ---------------------------------------------------------------------
          Balance at
           December 31, 2008      $   2,286  $     798  $       -  $   9,403
        ---------------------------------------------------------------------
          Issued                          -          -     12,812     12,812
          Expired                         -          -          -     (3,348)
        ---------------------------------------------------------------------
          Balance at
           December 31, 2009      $   2,286  $     798  $  12,812  $  18,867
        ---------------------------------------------------------------------

        The principal amount of 9.00% convertible debentures matured on
        August 1, 2008 and were settled with $5.4 million in cash.

        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.

        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 year ended December 31, 2009, there were no convertible
        debenture conversions (December 31, 2008 - $25,000 converted
        resulting in the issuance of 1,001 Trust Units).

    7.  Bank Indebtedness

                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Revolving credit facility                  $   250,262   $   587,404
        Discount on Bankers Acceptances and other
         fees                                           (2,478)       (2,687)
        ---------------------------------------------------------------------
        Balance, end of year                       $   247,784   $   584,717
        ---------------------------------------------------------------------

        Advantage has a $525 million credit facility agreement with a
        syndicate of financial institutions which consists of a $505 million
        extendible revolving loan facility and a $20 million revolving
        operating loan facility. The loan's interest rate is based on either
        prime, US base rate, LIBOR or bankers' acceptance rates, at the
        Corporation's option, subject to certain basis point or stamping fee
        adjustments ranging from 1.5% to 4.0% depending on the Corporation's
        debt to cash flow ratio. The credit facilities are collateralized by
        a $1 billion floating charge demand debenture, a general security
        agreement and a subordination agreement from the Corporation covering
        all assets and cash flows. The amounts available to Advantage from
        time to time under the credit facilities are based upon the borrowing
        base determined by the lenders and which is re-determined on a semi-
        annual basis by those lenders. The credit facilities are subject to
        review on an annual basis with the next renewal due in June 2010,
        concurrent with the next review of the borrowing base. Various
        borrowing options are available under the credit facilities,
        including prime rate-based advances, US base rate advances, US dollar
        LIBOR advances and bankers' acceptances loans. The credit facilities
        constitute 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. The credit facilities
        contain 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, 2009. The credit facilities also 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. 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. At December 31, 2008, the borrowing base under the facility was
        $710 million. Concurrent with the asset dispositions (note 3), the
        borrowing base was reduced to $525 million. For the year ended
        December 31, 2009, the average effective interest rate on the
        outstanding amounts under the facility was approximately 4.9%
        (December 31, 2008 - 5.0%). Advantage also has issued letters of
        credit totaling $1.3 million at December 31, 2009.

    8.  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 and inflated amount of
        cash flows required to settle its asset retirement obligations is
        approximately $380.8 million which will be incurred between 2010 and
        2069. 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 ended
                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Balance, beginning of year                 $    73,852   $    60,835
        Accretion expense                                5,297         4,186
        Liabilities incurred                               699         1,526
        Change in estimates                             16,419        16,564
        Property dispositions                          (22,275)            -
        Liabilities settled                             (5,437)       (9,259)
        ---------------------------------------------------------------------
        Balance, end of year                       $    68,555   $    73,852
        ---------------------------------------------------------------------

    9.  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 ended
                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Loss before taxes                          $   (96,001)  $   (28,896)
        ---------------------------------------------------------------------
        Canadian combined federal and provincial
         income tax rates                               29.20%        29.79%
        Expected income tax recovery at statutory
         rates                                         (28,032)       (8,608)
        Increase (decrease) in income taxes
         resulting from:
          Amounts included in trust income              (5,042)      (58,587)
          Conversion to a corporation                   22,637             -
          Management internalization                       503         1,798
          Change in estimated pool balances             (4,682)            -
          Impairment of goodwill                             -        35,833
          Difference between current and expected
           rates                                             -        18,376
          Other                                          3,761           376
        ---------------------------------------------------------------------
        Future income tax reduction                    (10,855)      (10,812)
        Income and capital taxes                         1,280         2,493
        ---------------------------------------------------------------------
                                                   $    (9,575)  $    (8,319)
        ---------------------------------------------------------------------

        The components of the future income tax liability are as follows:

                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Fixed assets in excess of tax basis        $   193,821   $     9,463
        Asset retirement obligations                   (17,418)      (21,475)
        Non-capital tax loss carry forward            (127,941)      (21,541)
        Trust assets in excess of tax basis                  -        84,017
        Net derivative assets                            4,867        11,970
        Other                                           (9,829)       (6,519)
        ---------------------------------------------------------------------
        Future income tax liability                $    43,500   $    55,915
        ---------------------------------------------------------------------

        Current future income tax liability        $     4,704   $    11,939
        Long-term future income tax liability           38,796        43,976
        ---------------------------------------------------------------------
                                                   $    43,500   $    55,915
        ---------------------------------------------------------------------

        Advantage has a non-capital loss carry forward of approximately $508
        million (December 31, 2008 - $75 million). These losses expire
        between 2013 and 2029.

    10. Other Liability

        In August 2009, Advantage vacated an office location as the space was
        no longer required.  Advantage has not currently subleased the office
        space and 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 has
        been recognized as general and administrative expense with a
        corresponding liability. Fair value was determined on a present value
        basis, using a credit-adjusted risk free rate of 7%.

        A reconciliation of the other liability is as follows:

                                                                  Year ended
                                                                 December 31,
                                                                     2009
        ---------------------------------------------------------------------
        Office lease liability incurred                          $     3,781
        Accretion expense                                                 85
        Liability settled                                               (435)
        ---------------------------------------------------------------------
        Balance, end of year                                     $     3,431
        ---------------------------------------------------------------------

    11. 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       Amount
        ---------------------------------------------------------------------
        Issued on conversion to a corporation      162,197,790   $ 2,186,802
        Issued pursuant to Restricted Share
         Performance Incentive Plan                    547,738         3,607
        ---------------------------------------------------------------------
        Balance at December 31, 2009               162,745,528   $ 2,190,409
        ---------------------------------------------------------------------

        On July 9, 2009, the Fund successfully completed the plan of
        arrangement pursuant to an information circular dated June 5, 2009.
        Advantage Energy Income Fund was dissolved and converted into the
        corporation, Advantage Oil and Gas Ltd., with each Trust Unit
        converted into one Common Share.

        (b) Unit capital
                                                      Number
                                                     of Units       Amount
        ---------------------------------------------------------------------
        Balance at December 31, 2007               138,269,374   $ 2,036,121
        Distribution reinvestment plan               4,414,830        39,884
        Issued for cash, less costs                          -           (42)
        Issued on conversion of debentures               1,001            25
        Issued on exercise of Trust Unit
         Rights Incentive Plan                         150,000         1,981
        Management internalization forfeitures         (10,351)         (209)
        ---------------------------------------------------------------------
        Balance at December 31, 2008               142,824,854   $ 2,077,760
        Distribution reinvestment plan               1,263,158         5,211
        Issued on maturity of debentures               946,887         4,867
        Issued pursuant to Restricted
         Trust Unit Plan                               171,093           939
        Management internalization forfeitures          (7,862)         (159)
        Issued, less costs net of future taxes      17,000,000        98,185
        Purchased 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. The Fund reached an
        agreement with Advantage Investment Management Ltd. ("AIM" or the
        "Manager") to purchase all of the outstanding shares of AIM pursuant
        to the terms of the Plan of Arrangement for total original
        consideration of 1,933,208 Trust Units. The Trust Units were
        initially valued at $39.1 million using the weighted average trading
        value for the Fund's Trust Units on the Unitholder approval date of
        June 22, 2006 and 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, including an
        estimate of future Trust Unit forfeitures. For the year ended
        December 31, 2009, a total of 7,862 Trust Units issued for the
        management internalization were forfeited (December 31, 2008 - 10,351
        Trust Units) and $1.7 million has been recognized as management
        internalization expense (December 31, 2008 - $7.0 million). At
        December 31, 2009, all Trust Units in respect of management
        internalization were issued and none remained held in escrow
        (December 31, 2008 - 564,612 Trust Units remained in escrow).

        Prior to converting to a corporation on July 9, 2009, 1,263,158 Trust
        Units (December 31, 2008 - 4,414,830 Trust Units) were issued under
        the Premium Distribution(TM), Distribution Reinvestment and Optional
        Trust Unit Purchase Plan, generating $5.2 million (December 31, 2008
        - $39.9 million) reinvested in the Fund. 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.

        (c) Contributed surplus

        The changes in contributed surplus during the years ended December
        31, 2009 and 2008 are as follows:

                                                    Year ended    Year ended
                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Balance, beginning of year                 $       287   $     2,005
        Equity-based compensation                        3,640        (1,256)
        Exercise of Trust Unit Rights                        -          (691)
        Expiration of convertible debentures
         equity component                                3,348           229
        ---------------------------------------------------------------------
        Balance, end of year                       $     7,275   $       287
        ---------------------------------------------------------------------

        The components of contributed surplus are as follows:

                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Expired convertible debentures equity
         component                                 $     3,635   $       287
        Equity-based compensation                        3,640             -
        ---------------------------------------------------------------------
        Balance, end of year                       $     7,275   $       287
        ---------------------------------------------------------------------

        (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, 2009 was
        $10.3 million, including a non-cash amount of $8.2 million.
        Subsequent to the corporate conversion, 547,738 shares were issued in
        satisfaction of grants vesting under the RSPIP. Prior to the
        corporate conversion 171,093 Trust Units were issued in satisfaction
        of grants vesting under the previous RTU plan.

        The details of restricted shares granted and outstanding at December
        31, 2009 are as follows:

                                                                    Weighted
                                                                     average
                  Restricted  Restricted  Restricted   Restricted     fair
        Date         Shares      Shares     Shares       Shares     value at
         Granted    Granted      Vested    Forfeited  Outstanding  grant date
        ---------------------------------------------------------------------
        January
         15, 2009    691,178     294,242      20,062     376,874       $5.49
        September
         2, 2009   1,453,609     368,694           -   1,084,915       $5.80
        October
         15, 2009  1,153,314     388,199           -     765,115       $7.51
        ---------------------------------------------------------------------
        Total      3,298,101   1,051,135      20,062   2,226,904       $6.33
        ---------------------------------------------------------------------
        The restricted shares presented above are the full amount granted;
        the actual number of shares issued at vesting is subject to
        withholding taxes.

        In January 2010, an RSPIP grant was made to service providers valued
        at $7.27 per share or $5.6 million and to be issued in shares. No
        compensation expense was included in general and administrative
        expense as this grant occurred after December 31, 2009.

        (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 ended
                                                   December 31,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------
        Net loss
          Basic and diluted                        $   (86,426)  $   (20,577)
        ---------------------------------------------------------------------
        Weighted average shares outstanding
          Basic and diluted                        153,139,829   139,483,151
        ---------------------------------------------------------------------

        The calculation of diluted net loss per share excludes all series of
        convertible debentures for the years 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, 2009 was 8,165,575
        shares (December 31, 2008 - 9,713,840 shares). As at December 31,
        2009, the total convertible debentures outstanding were immediately
        convertible to 15,821,382 shares (December 31, 2008 - 9,529,075
        shares).

        Restricted shares granted have been excluded from the calculation of
        diluted net loss per share for the year ended December 31, 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, 2009 was 331,281.

        Management internalization escrowed Trust Units have been excluded
        from the calculations of diluted net loss per share for the years
        ended December 31, 2009 and 2008 as the impacts 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 (Decenber 31, 2008 - 576,827 Trust
        Units).

    12. 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, 2009, 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 6)
        resulting in fair values that will vary over time as market
        conditions change. As at December 31, 2009, the estimated fair value
        of the total outstanding convertible debenture obligation was $207.9
        million (December 31, 2008 - $191.2 million). The fair value of the
        liability component of convertible debentures was determined based on
        a discounted cash flow model 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 4% and
        9% 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 $95.6 million
        reflect 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 are
        subject to normal industry credit risks. As at December 31, 2009,
        $6.9 million or 12.6% of accounts receivable are outstanding for 90
        days or more (December 31, 2008 - $14.2 million or 16.8% of accounts
        receivable). The Corporation believes that the entire balance is
        collectible, and in some instances we have 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 $0.5 million at December 31, 2009 (December 31, 2008 -
        Nil).

        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. 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
        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. 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 from 2010 to 2015 (note 6). 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 are as
        follows:

                                    One to     Four to
                       Less than     three      five
                        one year     years      years   Thereafter    Total
        ---------------------------------------------------------------------
        Accounts
         payable and
         accrued
         liabilities   $ 111,901  $       -  $       -  $       -  $ 111,901
        Derivative
         liabilities      12,755      1,165          -          -     13,920
        Capital lease
         obligations       1,375        759          -          -      2,134
        Bank
         indebtedness
          - principal          -    250,262          -          -    250,262
          - interest      12,008      6,004          -          -     18,012
        Convertible
         debentures
          - principal     69,927     62,294          -     86,250    218,471
          - interest       9,679     13,492      8,625      2,156     33,952
        ---------------------------------------------------------------------
                       $ 217,645  $ 333,976  $   8,625  $  88,406  $ 648,652
        ---------------------------------------------------------------------
        Interest on bank indebtedness was calculated assuming one and one-
        half years to maturity.

        The Corporation's bank indebtedness does not have specific maturity
        dates. It is governed by a credit facility agreement with a syndicate
        of financial institutions (note 7). Under the terms of the agreement,
        the facility is reviewed annually, with the next review scheduled in
        June 2010. The facility is revolving, and is extendible at each
        annual review for a further 364 day period at the option of the
        syndicate. If not extended, the credit facility is converted at that
        time into 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.

        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, 2009 could have
        increased net loss by approximately $3.4 million for the year.

        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, 2009 could
        increase net loss by approximately $7.1 million for the year ended
        December 31, 2009. 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, 2009 could increase net loss by $4.7
        million for the year ended December 31, 2009. A similar magnitude
        increase in the forward power prices or the currency rate assumption
        underlying the derivatives fair value does not materially increase
        net loss.

        As at December 31, 2009 the Corporation had the following derivatives
        in place:

        Description of
         Derivative             Term             Volume        Average Price
        ---------------------------------------------------------------------
        Natural gas - AECO

          Fixed price       April 2009        14,217 mcf/d     Cdn $7.59/mcf
                             to March 2010
          Fixed price       April 2009        14,217 mcf/d     Cdn $7.56/mcf
                             to March 2010
          Fixed price       January 2010      14,217 mcf/d     Cdn $8.23/mcf
                             to June 2010
          Fixed price       January 2010      18,956 mcf/d      Cdn$7.29/mcf
                             to December 2010
          Fixed price       April 2010        18,956 mcf/d      Cdn$7.25/mcf
                             to January 2011

        Crude oil - WTI

          Fixed price       April 2009        2,000 bbls/d     Cdn$62.80/bbl
                             to March 2010
          Fixed price       April 2010        2,000 bbls/d     Cdn$69.50/bbl
                             to January 2011

        Electricity -
         Alberta Pool Price

          Fixed price       January 2010            2.0 MW    Cdn $54.46/MWh
                             to December 2010

        As at December 31, 2009, the fair value of the derivatives
        outstanding resulted in an asset of approximately $31.1 million
        (December 31, 2008 - $42.6 million) and a liability of approximately
        $13.9 million (December 31, 2008 - $1.7 million). For the year ended
        December 31, 2009, $23.7 million was recognized in net loss as an
        unrealized derivative loss (December 31, 2008 - $38.8 million
        unrealized derivative gain) and $86.5 million was recognized in net
        loss as a realized derivative gain (December 31, 2008 - $27.4 million
        realized derivative loss).

    13. 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 as at December 31, 2009 is as follows:

                                                                 December 31,
                                                                     2009
        ---------------------------------------------------------------------
        Bank indebtedness (long-term)                            $   250,262
        Working capital deficit(1)                                   118,362
        ---------------------------------------------------------------------
        Net debt                                                     368,624
        Shares outstanding market value                            1,122,944
        Convertible debentures maturity value (long-term)            148,544
        Capital lease obligations (long-term)                            759
        ---------------------------------------------------------------------
        Total capitalization                                     $ 1,640,871
        ---------------------------------------------------------------------
        (1) Working capital deficit includes accounts receivable, prepaid
            expenses and deposits, accounts payable and accrued liabilities,
            and the current portion of capital lease obligations and
            convertible debentures.

        The Corporation's bank indebtedness is governed by a $525 million
        credit facility agreement (note 7) 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, 2009. The Corporation is
        in compliance with all other credit facility covenants. 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,
        2009.

    14. 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 $3.4 million is recognized in
        other liabilities related to vacated office space (note 10):

        2010                         $   8,289
        2011                             8,117
        2012                             7,702
        2013                             6,611
        2014                             1,653
        ---------------------------------------
                                     $  32,372
        ---------------------------------------

    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").
        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 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.

        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 (note 15(j)).
        As a result, for all convertible debentures that existed prior to the
        corporate conversion, it is required to separate the instrument into
        a liability and an equity component, similar to Canadian GAAP
        treatment.

        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 net 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 net proved petroleum and natural gas reserves are net of
        royalties and based on constant annual first-day-of-month average
        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 annual first-day-of-
        month average 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. 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
        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, 2009 and 2008. The
        differences between Canadian GAAP and US GAAP relate to future income
        tax impact on other GAAP differences.

        Under Canadian GAAP as at December 31, 2009, 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.

        (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 (note 4). 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 year ended December 31, 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
        for the year ended December 31, 2009.

        (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 (December 31, 2008 - $476.2 million). 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:

                                                    Year ended    Year ended
        Shareholders' Equity                       December 31,  December 31,
        (thousands of Canadian dollars)                2009          2008
        ---------------------------------------------------------------------

        Balance, beginning of year
         (previously reported)                     $  (451,946)  $  (176,393)
        Effect on opening shareholders'
         equity of implementation of ASC 470
         - note 15(j)                                    3,494         5,545
        ---------------------------------------------------------------------
        Balance, beginning of year (restated)      $  (448,452)  $  (170,848)
        ---------------------------------------------------------------------
        Net loss and comprehensive loss               (216,595)     (557,199)
        Distributions declared                         (17,266)     (196,642)
        Change in redemption value of
         temporary equity                              130,751       476,237
        Temporary equity transferred to
         share capital                                 660,145             -
        Shares issued pursuant to Restricted
         Share Performance Incentive Plan                3,607             -
        Equity-based compensation                        3,279             -
        ---------------------------------------------------------------------
        Balance, end of year                       $   115,469   $  (448,452)
        ---------------------------------------------------------------------

        (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:

                                                   December 31,  December 31,
        (thousands of Canadian dollars)                2009          2008
        ---------------------------------------------------------------------
        Accounts receivable
          Trade receivables                        $    54,531   $    84,592
          Other receivables                                  -            97
        ---------------------------------------------------------------------
        Total accounts receivable                  $    54,531   $    84,689
        ---------------------------------------------------------------------


                                                   December 31,  December 31,
        (thousands of Canadian dollars)                2009          2008
        ---------------------------------------------------------------------
        Accounts payable and accrued
         liabilities
          Accounts payable                         $    17,202   $    80,016
          Accrued liabilities                           94,699        66,030
          Other payables                                     -             -
        ---------------------------------------------------------------------
        Total accounts payable and accrued
         liabilities                               $   111,901   $   146,046
        ---------------------------------------------------------------------

        (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.

        (j) US Accounting Pronouncements Implemented

        The FASB amended ASC 470 - Debt with respect to convertible debt. If
        an entity issues convertible debt where the conversion option can be
        settled fully or partially in cash, it is required to separate the
        instrument into a liability and an equity component. The
        implementation date for this amendment was for the beginning of the
        first interim or annual reporting period that begins after December
        15, 2008. This affected the accounting treatment of all convertible
        debentures outstanding immediately prior to the corporate conversion
        since these debentures were issued by the Fund and the Trust Units
        were redeemable in cash. The Corporation's retrospective
        implementation of this standard has been presented in the
        reconciliation of shareholders' equity (note 15(g)).

        The U.S. Securities and Exchange Commission changed definitions of
        reserve quantities and future cash flow projections, upon completion
        of its project , "Modernization of Oil and Gas Reporting." (SEC Rule
        33-8995) As a result, the FASB issued Accounting Standards Update
        2010-03 "Oil and Gas Reserve Estimation and Disclosures" which
        incorporated these new definitions into calculations of depletion and
        impairment calculations under US GAAP full cost accounting. Proved
        reserves and future cash flow projections are now calculated with
        reference to prices determined as the annual average of first-day-of-
        month values for the reporting year. Previously, proved reserves and
        future cash flow projections were calculated with reference to prices
        at the year-end date. The Corporation prospectively adopted these
        changes as of December 31, 2009.

        The application of US GAAP would have the following effect on net
        loss as reported:

                                                                  Year ended
        Consolidated Statements of Loss             Year ended   December 31,
         and Comprehensive Loss                    December 31,      2008
        (thousands of Canadian dollars)                2009       (restated)
        ---------------------------------------------------------------------
        Net loss - Canadian GAAP, as reported      $   (86,426)  $   (20,577)

        US GAAP Adjustments:
          General and administrative
           - note 15 (a)                                   358          (904)
          Management internalization
           - note 15 (a)                                 1,026         2,946
          Depletion, depreciation and accretion
           - notes 15 (c) and (d)                     (153,711)     (983,222)
          Impairment of goodwill - note 15 (f)               -       120,271
          Future income tax reduction
           - note 15 (e)                                22,158       324,287
        ---------------------------------------------------------------------
          Net loss and comprehensive loss
           - US GAAP                               $  (216,595)  $  (557,199)
        ---------------------------------------------------------------------

        The application of US GAAP would have the following effect on the
        balance sheets as reported:

                             December 31, 2009         December 31, 2008
        Consolidated         -----------------         -----------------
         Balance Sheets                                               US
        (thousands of       Canadian        US        Canadian       GAAP
         Canadian dollars)    GAAP         GAAP         GAAP      (restated)
        ---------------------------------------------------------------------
        Assets
          Deferred charge
           - note 15 (b)  $         -  $     5,310  $         -  $     1,290
          Fixed assets,
           net - notes 15
          (c) and (d)       1,831,622      190,656    2,163,866      676,611
          Future income
           taxes
           - note 15 (e)            -      374,221            -      347,038
          Goodwill
           - note 15 (f)            -      120,271            -      120,271

        Liabilities and
         Shareholders'
         Equity
          Current portion
           of convertible
           debentures
            - note 15 (b)      69,553       69,553       86,125       86,576
          Trust Unit
           liability - note
           15 (a)                   -            -            -        2,414
          Bank indebtedness
           - note 15 (b)      247,784      248,808      584,717      584,717
          Convertible
           debentures -
           note 15 (b)        130,658      147,602      128,849      129,688
          Future income
           taxes - note
           15 (e)              38,796            -       43,976            -
          Temporary equity
           - note 15 (g)            -            -            -      678,581
          Shareholders'
           equity - notes
           15 (a), (b)
           and (g)          1,235,805      115,469    1,208,513     (448,452)
    

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, individual wells, regions, properties or projects. 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. 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 19, 2009 which is available on SEDAR at www.sedar.com and www.advantageog.com.

References in this press release to initial test production rates, initial "productivity", initial "flow" rates, "flush" production rates and "behind pipe production" are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for Advantage.

Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel. "TCF" stands for trillion cubic feet of natural gas. Such conversion rates are based on an energy equivalency conversion method application at the burner tip and do not represent an economic value equivalency at the wellhead.

Finding and development costs have been calculated in accordance with section 5.15 of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities which requires changes in FDC to be included in the calculation of finding and development costs. Advantage has also provided the calculation of finding and development costs excluding changes in FDC as indicated above. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC generally will not reflect total finding and development costs related to reserve additions for that year.

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

%CIK: 0001468079

SOURCE Advantage Oil & Gas Ltd.

For further information: For further information: Investor Relations: Toll free: 1-866-393-0393, Advantage Oil & Gas Ltd., 700, 400 - 3rd Avenue SW, Calgary, Alberta, T2P 4H2, Phone: (403) 718-8000, Fax: (403) 718-8300, Web Site: www.advantageog.com, E-mail: ir@advantageog.com


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890