TD update, dated Aug 2 Event
Reports Q2 Results (Pre-Released)
Impact: NEUTRAL
In Line Quarter: Q2 production of 43 mBOE/d and CFPS of $0.18 were pre-released
on July 8th with an operational update. See our initial thoughts here Clear Line of
Sight to Robust NGLs Growth & Value Creation.
Guidance Reiterated: Both production and capex guidance was reiterated for the
year. However, the company noted that it has the ability to moderate spending by
$30 million during H2/19 without impacting the liquids production guidance. In light of
the weak AECO gas pricing environment, we positively view the company's ability to
spend less than the guided capex especially without having to decrease production
guidance. We have incorporated less than the guided capex into our model for 2019
(Exhibit 2).
Robust NGLs Growth: The company reiterated its previous projection of bringing 11
new condensate-rich wells (five at Valhalla & six at Glacier) online during H2/19, as
well as beginning production from its 12-25 Pipestone/Wembley well in September
when Tidewater's Pipestone gas plant is scheduled to be commissioned. Five wells
at Valhalla and six at Glacier are awaiting completion and/or tie-in with no incremental
wells required to meet the liquids production target for 2019.
Preservation of Balance Sheet Remains A Key Priority: We note that Advantage
is one of the few producers in the basin, which are likely to successfully delever its
balance sheet, pursue a growth oriented strategy (liquids growth), and also materially
change its commodity mix. Advantage stated that it has the ability to shut in AECOexposed
volumes in Q3/19 if there are periods of very low AECO benchmark prices
without materially impacting guidance.
TD Investment Conclusion
We remain optimistic on the ability of AAV to successfully execute its pivot towards
an increased NGLs weighting in its commodity mix without outspending CF and
increasing debt. We reiterate our AL BUY rating.