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December 2, 2022
Advantage Energy Ltd. 2023 Budget: Return of capital and modest growth
TSX: AAV | CAD 11.72 | Sector Perform | Price Target CAD 13.00
Sentiment: Neutral AAV formal 2023 budget was as expected, with a focus on high rate-of-return production growth, liquids-rich drilling at Wembley and Valhalla, and continued commitment to return of capital via share buyback (NCIB/SIB). The company's three-year plan contemplates ~10%+ annual production growth, pushing corporate volumes to < 75mboe/d and processing capacity to 500 mmcf/ d by YE2025. With robust FCF generation (~$220 mm in 2023) and net debt below target, AVV remains well positioned to deliver production growth (<10%) and material return of capital via share repurchases, including its recently announced SIB.
2023 formal budget. AAV 2023 formal budget of $250-280 mm (RBCe: $275 mm) is expected to drive an average annual production bracket of 59.0-62.5 mboe/d (RBCe: 60.5 mboe/d), representing roughly +10% growth YoY. The capital program reflects a roughly 15-20% inflation provision, and includes about 25 wells (55% at Glacier, 45% at Wembley and Valhalla) and Glacier Gas Plant expansion to 425 mmcf/d (to be completed early in Q2/23). Production guidance is adjusted for a major 14-day plant turnaround at Glacier in May and likely NGTL restrictions during the summer.
Drilling Program - liquids capture. The 2023 drilling program will include about 25 wells - 55% focused on lean gas at Glacier with the remainder targeting oil and liquids at Wembley and Valhalla. As a result, top-line production is expected to grow by roughly 10% YoY, and liquids production by ~20% YoY.
Strategic 3-year plan unveiled. AAV expects to grow annual production by at least 10% in each of the next three years, to < 75 mboe/d by 2025, with capital expenditures in the range of $250-300 mm (including inflation provisions). The team estimates that this pace of growth would require about 26 net wells per year, with tier 1 inventory pegged at 531 wells. The plan also includes infrastructure investments of $40 mm per annum, to grow gas and liquids processing capacity to 500 mmcf/d by YE2025. Increased production will be managed in conjunction with transportation service and hedging, with a focus on non-AECO markets prior to the commissioning of LNG Canada.
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