Advantage Energy Ltd T.AAV

RBC

[retiredcf]

February 8, 2023

Advantage Energy Ltd.
Entropy Inc: Operational & Corporate Update

TSX: AAV | CAD 8.08 | Sector Perform | Price Target CAD 13.00

Sentiment: Positive

On February 8, 2023, Entropy provided an operational update relating to its first post-combustion carbon capture and storage project (CCS) at Glacier, Alberta plus a short corporate update. Overall, we view the event as a modest positive with the update highlighting the progression of its Glacier CCS project, a memorandum of understanding ("MOU") with California Resources Corporation, a Leismer project update and the introduction of its EntropyIQ software.

• Update on Phase 1 Glacier CCS Operations. The company’s Glacier CCS project has been operational since July 2022, with capture rates generally fluctuating between 90-95%. On average, its CCS equipment has been running at 98%, not including outages related to host plant maintenance and a series of planned reconfigurations for R&D. The company anticipates that future projects are positioned to achieve a capital cost of $475/tonne/annum (capture only, including inflation) for mid-sized projects, and signaled lower capital costs for larger projects. Entropy expects full-cycle operating costs (including capture, compression, transportation and storage) for its Glacier Phase 1 project to trend downwards toward $27/tonne (from $30/tonne) after its R&D phase is complete, anticipating Phase 2 full-cycle operating costs to potentially drop below $22/tonne.

• Athabasca Leismer Project Update. Entropy announced that its Athabasca Leismer CCS project has reached “shovel-ready” status. The company anticipates to drill and test the local reservoir for injectivity, but its disposal permit has been delayed by three months while the province establishes regulations for the CO2 sequestration ‘hub’ model.

• Corporate Update. Memorandum with California Resources Corporation. Entropy announced its first MOU in California with California Resources Corporation ("CRC"), where the parties will evaluate the potential to execute a project positioned to capture and sequester approximately 400,000 tpa. While very early days, we think the involvement of a highly credible party such as CRC puts further weight behind the Entropy technology.

• Digital carbon management software. The company announced its EntropyIQ software as a subscription-based solution for CCS measurement, monitoring and verification (MMV) data. The technology creates a digital twin of emitting facilities to gather emissions and operating data directly from multiple control systems. The software provides data management, emissions tracking, reporting and carbon credit generation and is expected to complement Entropy’s core business.

• Management Updates. Entropy announced Trevor MacFarlane has joined its board, where he has over 25 years of energy infrastructure experience. Also, Entropy announced that Jason Chadwick has been promoted to Chief Commercial Officer; Mr Chadwick joined the company in 2021 as Vice President, Business Development.

2