Advantage Energy Ltd. (AAV) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Advantage Energy Limited Q2 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference over to Brian Bagnell, Director of Commodities and Capital Markets. Please go ahead.

Thanks, Andrew, and welcome, everybody, to Advantage's conference call to discuss our second quarter 2025 results. Before we get started, I'd like to refer you again to our advisories on forward-looking statements contained in the news release as well as advisories contained in Advantage's MD&A and annual information form, both of which are available on SEDAR and on our website. We've also posted an updated corporate presentation. I'm here today with Mike Belenkie, President and CEO of Advantage; and Craig Blackwood, our CFO; as well as other members of our executive team. We'll start to speaking to some of our financial and operational highlights. Once Mike has finished speaking, we'll pass it back to the operator for questions. And as usual, we'd ask that if you have any detailed modeling questions that you follow up with us individually after the call. With that, I'll turn it over to Mike Belenkie. Mike, please go ahead.

Thanks, Brian, and thanks, everyone, for joining us today. Q2 was another solid quarter for Advantage. Despite challenging market conditions, we delivered strong results across the board. Adjusted funds flow came in at $88.9 million or $0.53 per share, and we reduced net debt by $33 million to about $570 million. Production in the second quarter averaged 78,108 BOEs per day, up 18% year-over-year, while liquids production rose 66% despite significant impacts from third-party facility delays outages. We're on track to achieve our annual production guidance of 80,000 to 83,000 BOEs per day. And we also continued our strategy of shutting in dry gas wells at times of low AECO prices, as we prioritize value over volumes. Operating costs were $4.90 per BOE, continuing to beat our expectations, thanks to successful integration of our June 2024 acquisition and a lot of hard work from our team. These successes have allowed us to reduce full year operating cost guidance to between $4.95 and $5.30 per BOE. Our new guidance midpoint represents a reduction of 8% from original guidance. Our Charlie Lake program continues to outperform our expectations. We now have a full 12 months of actual results since the June 2024 asset acquisition and the results have validated the potential we saw a year ago. We've significantly improved well productivity versus historical and cost structure. These helped deliver an AFF per share, a cash flow per share that was 38% higher corporately than it would have been standalone without the assets, huge increase in value for the company. Average crude production from our first 7 operated wells in Charlie Lake has averaged 38% above our budget-type curve over their first 30 days. Operating costs on the acquired assets have been reduced by over 25% over last year, which has helped drive the 50% increase in our operating netback and there's lots more to do and optimized by the team that will benefit Advantage for many years to come. Turning to natural gas markets. It's no secret that NGTL reliability has been exceptionally poor since June although the word exceptional is probably becoming obsolete now, and that looks likely to continue through August. Of course, this has led to some terrible AECO cash pricing. By shutting in dry gas production, we eliminate variable operating costs, conserve our premium resource, reduce our depletion expense and defer capital that would otherwise be required to replace that depletion. To be clear, we still collect our hedging gains regardless of shut-ins. And from time to time, we've actually bought gas back from the market when prices were negative at profit. We'll plan to shut in up to 1/3 of our corporate gas production at times when it makes financial sense to do so. And we use the sophisticated algorithm to figure out how much to shut in on a day-to-day basis and that will change rapidly as prices change rapidly. And we remain baffled to see so many of our peers dumping their resources in AECO and Station 2 at a loss on a regular basis. Despite perennial NGTL issues, we do see near-term fundamentals as encouraging, with oversupply conditions easing as LNG Canada export capacity ramps up. This rebalancing increases the likelihood that AECO basis will tighten and result in better prices than what we currently see in the forward market, even though the forward market is healthy. But we're not just sitting around and hoping that the AECO market improves, we have a balanced program. And even on the current strip, we expect to generate more than $500 million of free cash flow over our 3-year program. Staying on the marketing front, we've hedged 44% of our natural gas and 41% of our oil and condensate for the remainder of this year. And we also added another 25 million a day of physical transportation to Dawn, starting April 2027, further diversifying our market exposure. Looking ahead, our strategy remains focused on maximizing cash flow per share while maintaining balance sheet strength. As we approach our $450 million net debt target around the end of this year, we intend to establish a new conservative range and resume aggressive share buybacks. So with that, I'd like to thank our employees, our Board and our shareholders for your continued support, and I'll pass it back to Brian for questions.

Thanks, Mike. And Andrew, I think we'll pass it to you to see if there are any questions in the queue.

[Operator Instructions] There are no questions at this time. Please proceed with closing remarks.

Sure. We do have questions on the webcast. So we'll get started here. The first one is we see that operating costs have continued to be lower than expected. Can you provide some more color on the sustainability of those operating costs?

Sure. Thanks, Brian. Yes. So operating costs, as we saw with the reduction to our guidance, operating costs have continued to go in the right direction. We're very pleased with the work that's been done. And I want to just offer a quick shout out to the entire operations team, both in Calgary and in the field for having achieved these outcomes. What's been most refreshing about the accomplishments from -- on reducing operating costs is that these operating cost reductions have been sustainable. So at first, we were concerned that we'd be able to get quick wins that will be temporary after the asset acquisition. We're finding now though is these are structural changes, allowing us to keep a lower -- less vehicle travel time, fewer unnecessary facilities, reduced rentals and so on. And we've also had some success in reducing exposure to third-party fees of contracts that we inherited with the company. So the outlook is strong. That's what allowed us to move our entire range downwards. So I appreciate the question and our sort of ability to think on a flat level going forward is gaining. Things will change over time, especially as we see different service come on and expire, but stability of that $4.95 to $5.30 range is looking pretty positive.

Okay. Thanks, Mike. Another question on the webcast this time from Jamie Kubik. Can you discuss the potential for dispositions in the current environment?