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Advantage Energy leveraged more than usual to acquire premium acreage. The capital budget strategy change, justified by early results, indicates a contrarian increase in operational activity. Lower reinvestment ratios and strategic production management, like choking back early production, are expected to enhance oil output.
The Lake Charlie acquisition has increased the debt load and hence financial risk. Lake Charlie immediately increases the liquids percentage of production. The acreage competes for capital dollars "from the start". The acquisition has led to elevated risk even though the "bolt-on" nature and management experience decrease the risk.
Advantage Energy recently acquired the Conroy acquisition, which provides more exposure to liquids. The Conroy acquisition cost about C$10 million for a significant amount of acreage, which is relatively cheap compared to the United States. Management intends to grow production by 10% a year, but low natural gas prices may affect this goal for the current fiscal year.
Advantage Energy Ltd. is a highly efficient Canadian operator with a focus on growth and shareholder repurchases. The company is transitioning to more liquids, which is improving margins, and has a carbon capture synergy that could benefit shareholders if it goes public. Advantage Energy has been successful in keeping operating costs low and may benefit from the increasing ability to export natural gas in the future.
A strong balance sheet is a priority. Growing production is a priority.
Advantage has distinguished itself as a top decile operator in terms of drilling results and operating netbacks relative to peers in the area. Advantage is on track to grow its production to over 60,000 boe/d this year while maintaining incredibly attractive field netbacks (>C$30/boe).
The growth history is likely to persist into the future. Dividends are really not a consideration here other than a nominal one at some point.
Advantage Energy is a Canadian natural gas producer with exposure to US prices. The Q2 and H1 results were absolutely excellent, thanks to the very high natural gas price.