Advantage Energy Ltd.
(AAV-T, AAV-N) C$11.72
2023 Budget and Strategic Growth Plan Through 2025 Event
Announces 2023 Budget and Capex/Volume Growth Outlook Through the Next Three Years
Impact: NEUTRAL
Formal 2023 Guidance Largely In-line With Our Expectations. Advantage plans to spend $250-$280mm which is expected to drive average production volumes to between 59-62.5 mBOE/d (~11% y/y growth). Within this, liquids volumes are anticipated to grow by >20% y/y. This is largely in line with our prior 2023 forecast (capex of $270mm and volumes of 62.1 mBOE/d). The company also provided opex ($3.25/BOE) and transportation ($4.75/BOE) cost guidance, which were as expected.
Long-Term Plan Includes >10% y/y Volume Growth Through 2025. The company had previously articulated its plan to target organic production growth of 10%-15% per annum going forward. This is consistent with the new formal three-year outlook which includes annual volume growth of at least 10% with volumes reaching 75 mBOE/d by 2025. Annual spending is expected to be $250mm-$300mm including ~$40mm per year directed to processing expansions and includes provisions for inflation (15%-20% in 2023).
Return of Capital Plan Unchanged. Once the current SIB is completed later this month, the company plans to resume its NCIB with all FCF continuing to flow to shareholders. Advantage continues to target long-term net debt of $200mm (from $80mm currently), which is likely to result in shareholder returns exceeding FCF in the near-term.
Our View: The company has significant inventory of quality future locations with the three-year plan consuming only ~5% of Tier 1 locations per year. We forecast $395mm of FCF through 2024; however, we anticipate $490mm of total return of capital over this period given debt targets. We estimate this could be used to repurchase 23% of Q3/22 shares outstanding through a combination of the NCIB and potentially additional SIBs while keeping D/CF consistently at ~0.5x.
TD Investment Conclusion
Advantage offers relatively strong annual production growth while returning outsized capital to shareholders via buybacks. It also offers a unique CCS angle through its subsidiary Entropy.