Advantage Energy Ltd.
(AAV-T, AAV-N) C$10.48
Strong CFPS Beat on Higher Liquids Production
Event
Reports Q2 results
Impact: POSITIVE
CFPS Well Above TD and Consensus. Production Volumes Pre-Released:
CFPS of $0.95 came in well above TD ($0.83) and Consensus ($0.80) while Production of 60.4 mBOE/d was largely consistent with the estimate the company provided in an ops update on July 6 (~60.0 mBOE/d). That said, liquids contribution (12%) came in above preliminary estimates set by AAV and our forecast (11%). Stronger-than-expected overall realized pricing contributed to the majority of incremental CF.
Capex and Production Guidance Increased (Along with Liquids Contribution).
2022E capex guidance has moved up by 10% to account for continued inflation, 1.5 net new drills and higher frac intensity across the company's asset base. Production guidance was also moved up by 3% at the midpoint (now 53.5-56.5 mBOE/d). Liquids production has surged by 50% since Q1 with strong results across the asset base, particularly at Valhalla where the recent 14-22 pad had an IP30 of 2,837 BOE (27% condensate; 35% total liquids).
Our View: The additional capital bump comes as no surprise to us with many E&Ps layering in costs to account for continued inflation with Q2 results. While the increase in total liquids contribution may seem small (+1%) this drives a meaningful improvement to bottom line netbacks and diversifies the company's product stream. We forecast Advantage will deliver 10-15% y/y production growth in 2023 on a modestly higher capital program.
Return of Capital Through Share Buybacks to Accelerate in Q3. While the company had signaled it would start to return 100% of FCF to shareholders at the end of April, the majority of FCF went to further debt reduction in the quarter resulting in net debt far below the company's $200mm target. Advantage now plans to focus on increasing NCIB execution. We forecast $315mm of FCF through 2023 which could be used to buyback ~16% of shares outstanding.
TD Investment Conclusion
With financial leverage quickly approaching nil, the company will now return all FCF to shareholders while also providing volume growth among the highest in our coverage. We also highlight the continued growth of its subsidiary, Entropy, which continues to move toward commercialization of its modular CCS technology.