Excerpt from Stockwatch Energy-yesterday Here in Canada, Mike Belenkie's Alberta Montney-focused Advantage Energy Inc. (AAV) tumbled 71 cents to $10.85 on 8.02 million shares, surprising investors with a sizable acquisition. The company will pay $450-million for a package of Alberta and B.C. assets producing 14,100 barrels of oil equivalent a day from the Charlie Lake and Montney plays. (The seller was not identified in the press release, but various clues point to Byron Nodwell's private Longshore Resources.) To pay for the assets, Advantage has arranged a $65-million equity financing and a $125-million debenture financing, while also securing a boost to its credit facility to $650-million from $350-million.
Management pitched the deal as a "rare opportunity to consolidate a high-quality, liquids-weighted asset [in and around] our core areas." Ninety per cent of Advantage's current 66,000-barrel-a-day production is low-margin dry gas. Given the sorry state of gas prices -- for context, Advantage's most recent financials showed a 13-per-cent increase in year-over-year production, yet a 30-per-cent decrease in cash flow per share -- the company is understandably keen to ladle in more liquids that can fetch better prices. Management marvelled that the new assets should lead to an immediate 12-per-cent increase in production yet a 24-per-cent increase in cash flow per share.
Investors remained leery. Despite the emphasis on liquids, the new assets come with plenty of gas in tow; the split is actually about 50-50. This partly explains the "attractive" price tag -- Advantage's spin -- of just $32,000 per barrel of production. (When Bonterra Energy Corp. (BNE: $5.20) bought some truly liquids-rich assets in the Charlie Lake play earlier this year, it paid over $73,000 per barrel.) Advantage is also taking on significant debt. Only six weeks ago, it was touting its proximity to a net debt target of $250-million (with actual net debt being $280-million as of March 31) and its big plans to increase share buybacks. Now buybacks are instead being paused until Advantage wrestles the debt down to $450-million, which it reckons will be some time in late 2025.