Earnings call transcript: Advantage Oil & Gas Q4 2024 misses EPS forecast

Advantage Oil & Gas Ltd. reported its Q4 2024 earnings on March 4, 2025, revealing a significant miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.10, falling short of the $0.235 forecast. Revenue also underperformed, reaching $163.48 million compared to the expected $188.95 million. Following the announcement, the company’s stock price dropped by 2.91%, closing at $9.63, reflecting investor disappointment.

Key Takeaways

• Advantage Oil & Gas missed EPS and revenue forecasts for Q4 2024.
• Stock price declined by 2.91% in after-hours trading.
• The company acquired new assets and reported strong production growth.
• Operational cost savings were achieved, enhancing financial resilience.
• Guidance for 2025 anticipates production growth and strategic investments.

Company Performance

Advantage Oil & Gas demonstrated robust operational performance despite missing financial forecasts. The company increased its annual production by 17% year-over-year, averaging 70,918 barrels of oil equivalent (BOEs) per day. Notably, liquids production surged by 39% to 9,590 barrels per day. The acquisition of the Charlie Lake Montney asset, coupled with outperforming well production, positioned the company for potential future growth.

Financial Highlights

• Revenue: $163.48 million, below the forecast of $188.95 million.
• EPS: $0.10, missing the forecast of $0.235.
• Annual Adjusted Funds Flow (AFF): $250 million or $1.52 per share.
• Net Debt: $626 million, with a target of $450 million by year-end.
• Capital Spending: $255 million, below the midpoint of guidance.

Earnings vs. Forecast

Advantage Oil & Gas reported an EPS of $0.10, significantly below the forecasted $0.235, marking a notable miss. This represents a shortfall of approximately 57%. Revenue also fell short, coming in at $163.48 million against an expected $188.95 million, a miss of about 13.5%. This underperformance contrasts with the company’s previous quarters where it had generally met or exceeded expectations.

Market Reaction

The immediate market reaction to the earnings miss was negative, with the stock price falling by 2.91% in after-hours trading. The current price of $9.63 is within the company’s 52-week range, which spans from $8.27 to $11.73. This decline reflects investor concerns over the company’s ability to meet financial expectations amidst volatile natural gas prices.

Outlook & Guidance

Looking ahead, Advantage Oil & Gas remains optimistic about 2025, projecting production guidance between 80,000 and 83,000 BOEs per day. The company plans to invest $270-300 million in capital programs, representing 60% of its Adjusted Funds Flow at strip pricing. Management anticipates generating over $500 million in free cash flow over the next three years, with plans for opportunistic share buybacks.

Executive Commentary

Mike Belenke, President and CEO, described 2024 as a "transformational year" for the company. He expressed confidence in the natural gas market fundamentals, stating, "We believe natural gas market fundamentals look excellent." Belenke also emphasized the importance of maintaining a disciplined capital program, remarking, "We’re keeping our capital program tight."

Risks and Challenges

• Volatile natural gas prices could impact revenue and profitability.
• High net debt levels may limit financial flexibility.
• Potential tariffs and AECO price impacts create uncertainty.
• The integration of new assets poses operational challenges.
• Market competition and regulatory changes could affect strategic initiatives.

Q&A

During the earnings call, analysts inquired about the variability of production from the Charlie Lake wells, with management indicating expectations for reduced variability in development wells. Questions also focused on the impact of tariffs and AECO price fluctuations, with the company acknowledging potential uncertainties. Additionally, analysts probed the minimal effect of CSB Albright on 2025 guidance and the limited impact of new wells on year-end reserves.

Full transcript - Advantage Oil & Gas Ltd. (AAV) Q4 2024:

Conference Operator: Good morning. Ladies and gentlemen, welcome to the ADDvantage Energy Limited Q4 twenty twenty four Results Conference Call. At this time, all lines are in listen only mode. This call is being recorded on Wednesday, 03/05/2025. I would now like to turn the conference over to Brian Bagnell, Director, Commodities and Capital Markets.

Please go ahead, sir.

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: Thank you, operator, and welcome everybody to Advantages conference call to discuss our fourth quarter and 2024 annual results, including reserves. I’ll note that we will not be discussing last week’s press release referring to the formation of our Special Committee. Before we get started, I’d like to refer you to advisories on forward looking statements contained in the news release as well as advisories in ADDvantage’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 today with Mike Belenke, President and CEO of ADDvantage and Craig Blackwood, our CFO as well as other members of our executive team.

We’ll start by speaking to some of our financial, operational and reserve highlights. Once Mike’s finished speaking, we’ll pass it back to the operator for questions. However, I will note that we will only be accepting questions today through the webcast portal and will not be answering questions with respect to the formation of our Special Committee. As usual, we’d ask that if you have any detailed modeling questions, that you follow-up with us individually after the call. And with that, I’ll turn it

Mike Belenke, President and CEO, ADDvantage Energy Limited: over to Mike Belenke. Mike, please go ahead. Thank you, Brian. Twenty twenty four was a transformational year for ADDvantage. We executed on our strategy with discipline and delivered record production.

We successfully integrated a highly accretive acquisition, drove meaningful cost reductions and positioned the company for significant long term value creation, all while we were navigating some of the most challenging natural gas prices we’ve seen in recent history. A few key highlights, and I’ll mention all of the numbers I’ll be referring to are for Advantage only. While we do report consolidated financials for Entropy as a separate corporate entity with no capital or costs being borne by Advantage. Annual production averaged 70,918 boes per day, up 17% year over year, driven by the asset acquisition and as a result of having exited 2023 at elevated pressure rates. Liquids production increased 39% hitting 9,590 barrels per day, transforming our revenue mix and propping up our cash flow at times of low gas prices.

Adjusted funds flow or AFF for Advantage came in at $250,000,000 or $1.52 per share. Capital spending was $255,000,000 below the midpoint of our guidance range despite not yet receiving an ITC credit related to our early CCS investments. As we entered 2024, we were able to predict gas market volatility and we dealt with it proactively by cutting development spending early. In all, dollars 75,000,000 was cut from the gas program and an additional $35,000,000 was pulled out of the first few months of 2025. This resulted in our dry gas production staying roughly flat, actually declining slightly throughout the year.

We also curtailed approximately eighteen fifty BOEs per day of dry gas production annualized during extremely low pricing periods to reduce depletion and maximize free cash flow. Our net debt stands at $626,000,000 and we’re on track to reach our $450,000,000 target by the end of the year. Q4 results were particularly strong. Production averaged 76,774 BOEs per day, up 12% year over year. Liquids production hit 11,885 barrels per day, up 51% year over year.

And operating costs dropped to $5.19 per boe. We’ve now achieved our internal twelve month off cost reduction targets for the acquired assets in only six months. Twenty twenty four was an active year for corporate development for Advantage on a relative basis. We acquired a Charlie Lake Montney asset for $445,000,000 Disposed of two non core assets for $11,000,000 acquired a $100,000,000 per day sour gas plant near our Conroy Montney asset in Northeast BC and repurchased 2,500,000.0 shares returning $21,700,000 to shareholders. Since initiating our buyback program in April 2022, Advantages repurchased 38,100,000.0 common shares for a total of $383,000,000 To update you on our asset acquisition, the Trailer Lakes assets are exceeding expectations.

Our first four wells are outperforming historical liquids type curves by more than 65%. IPs for those wells averaged seven sixty six barrels per day. We achieved $20,000,000 in annualized operating cost savings representing a 25% reduction since acquiring the assets. By integrating these assets efficiently into the Advantage network, the assets increased our total corporate AFF per share by 34% during the second half of twenty twenty four after the acquisition, compared to Advantage’s legacy assets on a standalone basis. Thanks to the infrastructure that came with the assets, we’ve been able to pull over $100,000,000 out of our three year capital program.

So we’ve already proven that this acquisition wasn’t just about growing accretively or adding liquids. It was about adding high margin barrels with outstanding free cash flow and the ability to reduce costs and increase profitability. There’s lots more to do still as we only have the assets for eight months. Now on to reserves growth and long term value. We continue to strengthen our asset base with exceptional reserves growth.

PDP reserves increased 14%, replacing 183% of production at $8.48 per boe. 1P and 2P reserves grew 1013% respectively. Liquids reserves increased by 55% to 64% across all categories. Our 1P net present value now stands at $3,000,000,000 and 2P stands at $4,400,000,000 reinforcing the long term strength of our assets. And on to our 2025 outlook, looking ahead, our 2025 plan is all about growing per share value, maintaining capital discipline and ensuring financial strength.

Our production guidance remains at 80,000 to 83,000 views per day. We’re keeping our capital program tight $270,000,000 to $300,000,000 representing just over 60% of AFF at strip pricing. Our debt reduction process is right where we want it. So we’ll be buying back shares opportunistically while there’s a disconnect between share price and balance. And some closing thoughts.

The Vantage is in a strong position heading into 2025. We believe natural gas market fundamentals look excellent and our combination of low cost, high quality production and growing liquids exposure makes us well positioned to capitalize on that recovery, including all phases of the market. At strip pricing, we expect to generate more than $500,000,000 of free cash flow during the next three years. Combined with combined with our commanding infrastructure ownership, which has a replacement value of over $1,000,000,000 and our majority ownership of entropy, the advantage stops itself as unique engine of value generation. Recognizing there is now a scarcity of high quality Montney assets, a special committee was formed to monitor the markets and identify opportunities that are in the best interest of Vantage and our shareholders.

So with that, I’d like to thank all of our shareholders, our Board and in particular the Vantage team for another excellent year of execution and excellence. With that, I’ll turn it back to Brian for questions.

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: Thank you, Mike. As a reminder to everybody on the lines, we will only be taking questions by webcast today. And on that note, we do have a couple of questions in the queue. The first one we’ll take is, how should we think about the variability in the Charley Lake with respect to well results? What do you expect going forward versus these four wells or results of the prior operator?

Mike Belenke, President and CEO, ADDvantage Energy Limited: Yes. Thanks, Brian. The Charleic well results, I think we’ve spoke about this many times before. The Charleic acid is not like the Montney in that it’s more of a conventional play. And so applying conventional exploration and development techniques is really important.

Any company in the past that might have entered this play thinking they could treat it like a resource play would be surprised to see a wide range of results. Of course, coming this while eyes wide open, knowing the quality assets and knowing that the previous owner had done a lot of delineation and exploration, we now benefit from having a fully or mostly delineated asset and therefore we would expect the variability of the Trail Lake results to be significantly reduced as we plan to be drilling only development wells with only well established high technology applications.

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: Okay. Thanks, Mike. Question from Aaron Filipposki here as well. To what extent does your 2025 guidance depend on the timing of CSV outbreak? Is it required or does it simply take pressure off of your existing facilities?

Mike Belenke, President and CEO, ADDvantage Energy Limited: Got you. Yes. Thank you. So the short answer on the impact of CSB Albright, which for those that aren’t aware, there was some problems completing that on schedule after an accident on-site. For us, it doesn’t really impact our guidance for 2025 at all.

It makes things a little tighter, but we know having looked at this now for better part of a month since the adjustment to our expectations on stream date that we can still achieve our guidance as per expected. Part of the reason we can do that is because via the acquisition, we brought in a lot of unutilized processing capacity in multiple gas plants around the area. So with some of the excellent work done by our operations team, in particular, Neil Bochenfort and his team to think about rerated pipelines and re application of existing capacity, we’re able to take the production we are planning to grow and find a home for it in other places. There may be some impact we may decide to adjust the timing of bringing our progress gas plant, which is under construction and planned to come on in May of twenty twenty six. We may adjust the timing of that depending on some of these reconfigurations that we have planned.

But there will be no change right now to our capital program

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: with that. Okay. Thanks, Mike. That is all the questions that we have on the webcast at the moment. Okay.

One additional question in from Jamie Kubik at CIBC. Can you talk about any of your marketing contracts that could be subject to U. S. Tariffs? And are you able to quantify any impacts at the current time or is it too early?

Jamie, I think from our perspective, there’s a lot of volatility, a lot of uncertainty out there right now happening in real time with respect to tariffs. We’ve done a pretty detailed analysis to the degree that we can. And it’s difficult to know exactly what the impacts are going to be and certainly way too early to quantify any of those impacts. But at this time, I think that’s probably all I would say. Mike, do you have any additional comments?

Mike Belenke, President and CEO, ADDvantage Energy Limited: Yes. I might just add really quickly that there are a lot of moving parts, so it’s difficult to tease out the impact of tariffs to date. But when the tariffs were first announced and there was uncertainty around whether 25% would be the level applied to oil and gas, The AECO price dropped by about $0.5 which was at the time about 25% reduction in price. Since then there’s been a lot of noise, very difficult again to know how to attribute some of the movements up and down, but it’s pretty clear that the uncertainty around tariffs has simply made a weaker ECO basis stickier. So we do believe that any major change, any firm any firming up of the Trump tariffs in the near future is unlikely to make prices weaker so much as to take away some of that sticky discount that started a few months ago when these talks when the original threats were talked about.

So we actually welcome any sort of certainty around the tariffs and have a lot less concern around the negative impacts that might have on pricing.

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: Another question in, was the performance of the recent Charlie Lake wells taken into consideration for the reserve bookings at year end 2024?

Mike Belenke, President and CEO, ADDvantage Energy Limited: I think the short answer on that is that the wells only came on right around the end of the year. There’s very little production data at the time and therefore we didn’t see any changes to the bookings from the acquired assets. I think that what we’re likely to see here over the coming year is a refinement and increase of the confidence level in the number of bookings and the booking levels. But again, because of the numbers that are so new right around the end of the year, minimal to zero impact.

Brian Bagnell, Director, Commodities and Capital Markets, ADDvantage Energy Limited: Okay. With that, that looks like the end of the questions. I’d like to thank everybody for joining our conference call today. And I look forward to speaking with you individually later. Have a good day, everybody.

Thank

Conference Operator: you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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