Post by
Al42 on Feb 05, 2014 6:57am
From RBC on Advantage
Advantage Oil & Gas Ltd.
Strategic Review Process Concludes with No Deal
Our view: Advantage announced the completion of its strategic process,
which concluded with the company receiving no acceptable bids. While
a negative development, we note the recent operational improvements
AAV has successfully implemented and would expect to see value
investors step in on any significant weakness. Maintain Sector Perform.
Key points:
• No Acceptable Bids Emerge. Advantage's financial advisors ran a
full global strategic process with no proposals deemed to be in the
best interest of shareholders. In conjunction with the announcement,
Advantage also announced the sale of its 21.1 million share stake of
Longview Oil by way of bought deal for proceeds of roughly $94 million.
• Squarely Focused on Organic Growth in a Low-Cost Vehicle.
Subsequent to the conclusion of the process Advantage will continue to
focus on the Glacier Montney asset, which is now producing roughly 124
mmcf/d in early 2014. It's also worth noting that as a result of recent cost
reduction initiatives we now forecast AAV to be the lowest cash-cost
producer in the group, with 2014 all-in cash costs (operating, royalties,
transportation, G&A, interest) expected to average less than $7.00/boe.
• Valuation – Expect Buyers on a Dip. While we do expect the stock to
be initially weak on the news we expect 'value minded' buyers to take a
closer look if it experiences any significant weakness, particularly in the
context of a continued strong natural gas tape. We remind investors that
AAV is expected to deliver strong production growth rates in 2014 (18%/
share, debt-adj), yet trades at one of the lowest multiple (5.5x 2015 EV/
DACF) in the group. While a corporate sale appears off the table for now,
we expect that strong execution could lead to a higher trading multiple.
• Phase VI Development – Finishing Strong. The company has entered
their final quarter of Phase VI (Q2'13 to Q1'14) at 124 mmcfe/d which
has set AAV up to reach their Q1 exit target of 135 mmcfe/d. Advantage's
Phase VII program (Q2'14 to Q1'15) incorporates the company spending
$265 million (33 Montney wells) which should drive average production
of 135 mmcfe/d (exit of 183 mmcfe/d). Longer term production detail
has been provided with Advantage anticipating exiting Q1'17 at 245
mmcfe/d, with NGL production increasing to 1,500 bbl/d (from ~900
bbl/d at the end of 2014).
• Balance Sheet Improved. After taking into account the Longview sale
($94 million) we forecast Advantage to be ~70% drawn on their $300
million at YE 2014. Including the company's $81 million of Convertible
Debentures this equates to 2.3x trailing 2014 cash (or 1.6x 2015E) flow
compared to the peers at 2.6x.
• Sector Perform Recommendation. We maintain our Sector Perform
recommendation and $5 target price. At current levels AAV changes
hands at 5.5x 2014 EV/DACF (peers 5.9x) and 1.0x P/NAV (peers 1.4x).
Advantage is set to report year end 2013 results on March 27th.