Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Advantage Energy Ltd (AAVVF, Financial) reported record production of 34,400 BOEs per day, marking a 12% increase over the previous quarter and a 16% increase over the same quarter in 2023.
- Liquids production reached a record 12,800 barrels per day, an 80% increase over the prior quarter, contributing to 71% of sales revenue.
- The company successfully reduced its 2024 capital spending guidance by $35 million, demonstrating disciplined capital allocation.
- Operating costs were significantly lower than expected at $5.55 per BOE, below the anticipated $6 per BOE, with potential for further reductions.
- Advantage Energy Ltd (AAVVF) is on track to complete a 75 million cubic foot per day gas plant by the second quarter of 2025, which will enhance synergies and reduce operating costs.
Negative Points
- The company had to curtail approximately 5,000 BOEs per day of dry gas production due to low AECO prices.
- Advantage Energy Ltd (AAVVF) faced volatile gas prices, with AECO and Empress prices dropping to as low as $0.05 per GJ during September and early October.
- Despite positive production results, net debt remained flat at $122 million, indicating limited progress in debt reduction.
- The company anticipates continued volatility in gas prices into early winter, which could impact future production and revenue.
- Advantage Energy Ltd (AAVVF) is evaluating noncore asset sales to accelerate deleveraging, indicating potential challenges in meeting debt reduction targets through operational cash flow alone.
Q & A Highlights
Q: Can you provide insight into the breakeven gas prices for shutting in volumes and for completing DUCs or investing in new wells?
A: Michael Belenkie, President and CEO, explained that the decision to shut in volumes is based on variable operating costs at each well. Reductions typically start when prices fall below $0.80, becoming significant at $0.50, and very material at $0.05 to $0.20. For completing DUCs, the decision is driven by maximizing cumulative free cash flow, which varies based on well economics and market conditions.
Q: Regarding potential stock buybacks, would these be funded from cash flow or asset sales, and how does this align with your net debt target?
A: Michael Belenkie stated that while the primary goal is deleveraging, there may be opportunities to buy back shares if the stock price is volatile. The funding for buybacks would come from the overall balance sheet, influenced by cash flow, asset sales, and market conditions. However, buybacks are not the primary focus.
Q: Can you elaborate on the noncore asset sales mentioned in your press release? What assets are considered noncore, and do you have a target disposition value?
A: Michael Belenkie identified noncore assets as those outside the main Alberta map sheet, including Attachie and Conroy Montney rights, which are nonproducing. Within Alberta, noncore items include assets not expected to be drilled or those better suited for partners. The target value for these sales is broad, and while they may partially reduce debt, they are not expected to fully meet the debt reduction target.
Q: What is the strategy for managing production in response to volatile gas prices?
A: Michael Belenkie highlighted the company's ability to quickly adjust production levels based on price volatility as a competitive advantage. Advantage Energy curtailed production during low price periods to maximize free cash flow and reduce depletion, with the ability to restore production quickly as prices recover.
Q: How does Advantage Energy plan to achieve its long-term growth and financial targets?
A: Michael Belenkie emphasized the focus on maximizing AFF per share growth while maintaining a strong balance sheet. The strategy includes achieving a net debt target of $450 million, evaluating options for deleveraging, and potentially conducting share buybacks if the stock price is misaligned with fundamentals. An Investor Day is planned to discuss the 2025 budget and a refreshed three-year plan.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
