Earnings call transcript: Advantage Oil & Gas Q1 2025 results miss

Advantage Oil & Gas Ltd. (AAV) reported disappointing earnings for the first quarter of 2025, with actual earnings per share (EPS) at -0.17 USD, significantly below the forecast of 0.2527 USD. Despite this miss, the company’s revenue of 221.79 million USD surpassed expectations of 204.41 million USD. Following the earnings release, the stock rose by 6.05%, closing at 9.92 USD, as investors reacted to the company’s strong revenue performance and future cash flow projections.

Key Takeaways

• EPS fell short of expectations, marking a notable miss.
• Revenue exceeded forecasts, indicating strong sales performance.
• Stock price increased by 6.05% in after-hours trading.
• The company plans to generate over 500 million USD in free cash flow over three years.
• Production reached a record 83,773 BOEs per day.

Company Performance

Advantage Oil & Gas demonstrated robust operational performance in Q1 2025, setting a production record with a 27% year-over-year increase to 83,773 barrels of oil equivalent (BOEs) per day. The company also reported a significant rise in liquids production, up 106% to 13,273 barrels per day. Despite the earnings miss, these operational achievements underscore the company’s strong position in the energy sector.

Financial Highlights

• Revenue: 221.79 million USD, above the forecast of 204.41 million USD
• Earnings per share: -0.17 USD, below the forecast of 0.2527 USD
• Adjusted funds flow: 121 million USD (0.73 USD/share)
• Net debt reduced by 22 million USD to 363 million USD

Earnings vs. Forecast

Advantage Oil & Gas reported an EPS of -0.17 USD, missing the forecasted 0.2527 USD by a significant margin. This represents a substantial deviation from expectations, highlighting challenges in meeting profitability targets. However, the revenue beat by 8.5% indicates strong sales performance.

Market Reaction

Despite the earnings miss, Advantage Oil & Gas shares rose 6.05% in after-hours trading, closing at 9.92 USD. This positive market reaction suggests investor confidence in the company’s revenue growth and future cash flow potential. The stock’s performance remains within its 52-week range of 7.81 USD to 11.73 USD.

Outlook & Guidance

The company maintained its annual guidance, focusing on growing cash flow per share and targeting a 5-10% production growth per year. Advantage Oil & Gas plans to accelerate debt repayment and share buybacks, with a new conservative debt target range expected in the second half of 2025.

Executive Commentary

Mike Belenke, President and CEO, emphasized the company’s strategic focus: "It’s about doing the right thing with every dollar at the right time." He also noted the scarcity of premium Montney assets, reinforcing Advantage Oil & Gas’s competitive advantage in the energy sector.

Risks and Challenges

• Volatile gas market conditions, particularly in Q3
• Uncertainty regarding LNG Canada’s June stream date
• Potential impact of NGTL pipeline maintenance in summer
• Scarcity of premium Montney assets

Q&A

During the earnings call, analysts inquired about the company’s debt target. Management expressed comfort with the 450 million USD target and indicated a potential focus on share buybacks once this target is achieved. Additionally, strategic opportunities remain under evaluation, although no formal processes are currently underway.

Full transcript - Advantage Oil & Gas Ltd. (AAV) Q1 2025:

Conference Operator: Good morning and afternoon, ladies and gentlemen, and welcome to the Advantage Energy Limited Q1 twenty twenty five Results Conference Call. At this time, all lines are in listen only mode. And following the presentation, we will conduct a question and answer session. If at any time during this call you require media assistance, please press 0 for the operator. This call is being recorded on Friday, 05/02/2025.

I would now like to turn the conference call over to Mr. Brian Bagnall, Vice President. Please go ahead.

Brian Bagnall, Vice President, Advantage Energy: Thank you, Kelsey, and welcome everybody to Advantage’s conference call to discuss first quarter twenty twenty five results. Before we get started, I’d like to refer you to our advisories on forward looking statements that are contained in the news release as well as advisories contained in Advantage’s MD and 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 with Mike Belenke, President and CEO of Advantage and Craig Blackwood, our CFO as well as other members of our executive team. We’ll start by 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 go to the webcast. As usual, we’d like to ask that if you have any detailed modeling questions that you follow-up with us individually after the call. So with that, I’ll turn it over

Unidentified Speaker, Advantage Energy: to Mike Belenke. Mike, please go ahead.

Mike Belenke, President and CEO, Advantage Energy: Thank you, Brian, and thanks to everyone for joining us today. As you can see from our financial and operating results, we had a really strong quarter at Advantage. Here’s the rundown of how it went. Financially and operationally, we did better than planned. Our adjusted funds flow hit $121,000,000 that’s $0.73 a share, thanks to the strong performance of our newest assets and the relentless pursuit of cost reductions.

We spent $94,000,000 during the quarter, which is expected to be our busiest quarter this year, and we still managed to reduce net debt by $22,000,000 putting us to that $6.00 $3,000,000 net debt. This is ahead of schedule to achieve our $450,000,000 debt target by year end. Operationally, we continued to execute really well. We achieved a production record of 83,773 BOEs per day, which is up 27% from Q1 last year. Liquids production was up 106% to 13,273 barrels per day.

Both our Ammonia assets and our Charlie Lake assets continue to deliver better results than budget. We drilled 10 net wells this quarter in Wembley, Valhalla, Progress and Gordondale, with nine of them brought on production pretty recently. Our latest tranche of four operated Charlotte Lake wells hasn’t quite surpassed thirty days of production history after cleanup, but performance remains well ahead of expectations. Operating costs dropped to $4.76 a barrel, down 8% from Q4 twenty twenty four, because our team has done a great job of integrating our new assets smoothly into our dominant infrastructure network. Q1 was strong, both on production and off costs compared to our guidance range, but we’re keeping our annual guidance steady.

There’s a few reasons for that NGTL pipeline maintenance is expected to intensify this summer, and we don’t plan any more production growth for

Unidentified Speaker, Advantage Energy: the remainder of the year. And our

Mike Belenke, President and CEO, Advantage Energy: op costs will be impacted later this year by some new midstream gas processing deals that we inherited, pushing us back into our guidance range, though we do expect op costs to settle out in the lower half of that range. On the marketing front, we’ve hedged 43% of our natural gas and 43% of our oil for the rest of 2025. That helps keep our cash flow steadier no matter what the market throws at us, and provides increased confidence in hitting our debt target. We’re not sitting around counting on LNG Canada to come on stream in June. Gas prices in Q3 are very difficult to predict, with the date of that important event not yet locked down.

Looking ahead, our focus is straightforward: grow cash flow per share without risking our balance sheet. Not surprisingly, we’ve calibrated our drilling program to maximize cumulative cash flow. Given the amount of volatility in the markets right now, we will make adjustments to our program regularly to ensure that each discretionary investment is the best use of that capital based on real time data. With the heaviest capital spend now behind us for the year, we’re expecting to see free cash flow ramp up through the year, accelerating debt repayment and systematically stepping up share buybacks. As we approach our debt target during the second half, we will set a new conservative debt target range and lean harder into the buybacks.

It’s about doing the right thing with every dollar at the right time. At today’s prices, we’re expecting over $500,000,000 in free cash flow during our three year plan, while growing production at the same time by 5% to 10% per year. That’s only possible because of our high quality Montney assets and a team that executes at the highest level. Premium Montney assets are getting scarce, so our previously announced Special Committee of Independent Directors will be watching carefully for opportunities that make sense for Advantage and our shareholders. We’re in a good spot to benefit from Canada’s constantly changing energy landscape, with our low carbon natural gas and a 62% stake in Entropy Inc.

Strategy is simple allocate capital smartly, invest in projects with strong returns, grow cash flow, and shrink our share count. That’s how we build compounding value for you. To our employees, our Board, and our shareholders, thank you for your continuing support and trust. We remain committed to delivering strong performance and optimizing value for all of our shareholders. With that, I’ll pass it back to Brian to start taking questions.

Brian Bagnall, Vice President, Advantage Energy: Thank you, Kelsey. I think we’ll start with questions from the webcast here and then pass it back to you for any questions on the phone lines. Our first question here is, will we get updates from the special committee during 2025? And will a formalized process be entered into this year?

Mike Belenke, President and CEO, Advantage Energy: Okay. Yep. Thank you, Brian. Yes, we’ve been receiving lots of questions on this lately. As most of you are aware, high quality money assets like ours are becoming increasingly scarce.

And it’s our most important responsibility to shareholders to try and maximize corporate value. But in the big picture, as a publicly traded company, we’re always considering strategic options and we do hold board strategy sessions at least once a year. In fact, rarely does a year go by without some important opportunity to evaluate. If our special committee were to become aware of an opportunity to do more for shareholders, via formalised process or otherwise, it will be decided at that point whether it should be publicly announced. Since nothing is currently underway, it’s pretty difficult for me to predict what that might look like.

So in the meantime, this is the way it looks with a high quality publicly traded company.

Brian Bagnall, Vice President, Advantage Energy: Thanks, Mike. Second question here on the webcast. Are you still working on other dispositions? And if so, can you elaborate on the magnitude and the timing?

Mike Belenke, President and CEO, Advantage Energy: Sure. Yes, this is probably a less important question, but we still hear it frequently. Just like any strategic discussion, we’re always looking at optimizing our portfolio of assets, but it’s better to not really set expectations for any of these types of deals, since most of these types of deals are modest in size and have to be timed to match other priorities. And maybe more importantly, doing deals like these smaller asset rationalization deals, these are market driven. So we won’t set any expectations, we’re always going to keep watching for opportunities to bring in better value, whether that’s through a small sell down of infra or other asset rationalization.

Okay.

Brian Bagnall, Vice President, Advantage Energy: Great. Kelsey,

Mike Belenke, President and CEO, Advantage Energy: I think that’s it on the webcast at

Brian Bagnall, Vice President, Advantage Energy: the moment. We’ll pass it back to you for any phone Q and A.

Conference Operator: Thank you. And ladies and gentlemen, we’ll now begin the question and answer session. You’ll then hear a three tone prompt. You’ll then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two.

And again, if you are using a speakerphone, please lift the handset before pressing any keys. And your first question comes from Amir Ehreb from ATB Capital. Please go ahead.

Amir Ehreb, Analyst, ATB Capital: Thanks. Good morning, guys. Congrats on a great quarter. One quick question for you, just two different parts. On your $450,000,000 net debt target, just given the move in the commodities, the leverage ratio obviously looks different at $450,000,000 than it did six months ago.

Just curious how comfortable you are with the $450,000,000 as your near term target? And when you do reach that level, what percentage of your free cash flow are you thinking of putting towards a structural bottom line program?

Unidentified Speaker, Advantage Energy: Hey, Meredith, it’s Craig Blackwood here. Yes, we’re very comfortable on the four fifty With regards to the commodity, that’s a little bit of a perception thing. Our numbers are actually better than when we put out our budget originally. And we keep updating our forecast like every couple of weeks, given the amount of hedging and everything else, we’ve been really just bounced around that $450,000,000 even through all the noise of tariffs and the movement of commodities and coming off of oil prices. We’ve been extremely consistent.

We are actually getting more comfortable all the time in our debt target. So we feel that we’re completely on track to attain that by year end.

Amir Ehreb, Analyst, ATB Capital: Okay. Sounds good. And when you do get there, Craig, is there a certain percentage of free cash flow you are thinking of how it could include buybacks?

Unidentified Speaker, Advantage Energy: Yes. We’re not going to be kind of mathematical on that. Clearly, very significant amount of our free cash flow will go to buybacks, but you have to look at multiples and valuation and other things at that point in time. But I think

Mike Belenke, President and CEO, Advantage Energy: it would be fair for people to see us execute exactly the

Unidentified Speaker, Advantage Energy: same that way that we’ve done over the last three years and really focusing our free cash flow and buybacks. But we aren’t going to be methodical at Nestle in terms of saying this is what the percentage will be. We do plan to lay out when we start getting near the end of the year, we will lay out what our debt target and what our ranges will be going forward. So you’ll see that near the end of the year. Would you like to elaborate on that a bit, Mike?

Yes.

Mike Belenke, President and CEO, Advantage Energy: I think if you look to our past behavior as a predictor of the future, when we are within our debt target range, of course, did mention we’ll be setting a new debt target range as we approach our $450,000,000 we’re in that range, in the past typically we’ve been using about 100% of our cash flow for the share buyback. So getting within that range is number one. And then at that point, the conviction level gets quite high. Okay?

Amir Ehreb, Analyst, ATB Capital: Okay. Appreciate the color. Thanks.

Conference Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for participating and ask that you please disconnect. Have a great day.

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