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EQUITY RESEARCH
December 2, 2022 Flash Research
ADVANTAGE ENERGY LTD
2023 Budget And Three-year Plan
Our Conclusion
Advantage’s 2023 budget sees capital spending and production slightly lower than consensus. The three-year outlook sees production growing at 10% peryear, which is above the Street at 7% in 2024, with increasing liquids weighting along with spending on annual expansions in processing capacity at the Glacier gas plant. Advantage expects to resume NCIB repurchases after it completes its $100MM SIB, but expects that additional SIBs could be required in 2023 in order to remain above its $200MM net debt target, which we expect occurs by Q2/23 on strip. We take this as a positive update but we could see consensus cash flow move slightly lower on lighter production in 2023. The stock is trading at 4.0x 2023E EV/DACF versus peers at 3.4x.
Key Points
2023 budget slightly lower than expected on lighter production. Capital
spending is expected to be $250MM-$280MM. The midpoint of $265MM is below our estimate of $275MM and the Street at $276MM. Production was guided to a midpoint of 60.8 MBoe/d, which is lower than our estimate of 61.3 MBoe/d and Street at 61.5 MBoe/d. The budget includes a 15%-20% inflation provision. NCIB to be reinstated once the current SIB is completed, but Advantage indicates that additional SIBs may be required in 2023. On recent strip, we estimate Advantage’s net debt at ~$278MM in Q4/22 inclusive of its current $100MM SIB and ~$100MM in leases. We estimate the company will be back to its net debt target by Q2/23, leaving room to pursue additional large buybacks.
Three-year plan sees 10% annual production growth, increasing liquids
weighting, and investments in gas processing capacity. This exceeds
Street expectations which see production growing by 7% in 2024 on $285MM of spending. Advantage plans to grow production by 10% annually, which computes to 66.9 MBoe/d in 2024 versus Street at 66.0 MBoe/d. Capital spending is expected to range from $250MM to $300MM in 2024 and 2025, which is lighter than consensus at $291MM. The company indicated that it will allocate $40MM per year over the next three years to add incremental capacity to its Glacier plant, eventually reaching 500 MMcf/d in 2025.