Advantage Oil and Gas’ Resilience Makes It a Good Pick


Advantage Oil and Gas [stock_market_widget type="inline" template="generic" color="default" assets="AAV.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] delivered record production last year, and appeared to be heading into 2019 on a high thanks to an efficient capital spending program that would have ensured production growth at a lower cost.

But Advantage’s prospects have been hurt by the recent downturn in Canadian oil prices. The stock has lost all the momentum that it had gained in the early part of the year and is now trading in the red. But is this weakness in Advantage stock a buying opportunity? Let’s find out.

Delivering Production Growth Efficiently

Advantage managed to increase its production by 13% year over year to 44,900 barrels of oil equivalent per day during the first quarter of 2019. However, the higher production was mitigated by lower oil and gas prices.

Advantage’s average realized price of natural gas fell slightly to $3.11 per Mcf during the quarter as compared to $3.19 per Mcf a year ago. But the decline in oil prices was much more severe. Advantage Oil’s average realized price of liquids fell to $51.93 per barrel from $66.11 a year ago.

But because of the company’s reliance on natural gas for the majority of its revenue, its revenue increased nearly 11% year over year. What’s more, as Advantage managed to increase its production and lower capital expenses to $57 million from $77 million a year ago, its funds flow improved slightly.

Advantage delivered adjusted funds flow of $0.27 per share as compared to $0.26 per share last year. So, the company did manage to hold its ground despite a shaky pricing environment. But recent developments have forced Advantage on the back foot, which is likely why investors have started panicking.

Advantage Gives its Capex a Haircut

Investors can expect Advantage Oil and Gas to hold its ground and deliver efficient production growth.

Advantage’s capital expenditure forecast for the year was already a conservative one. The company had outlined a capital spending plan between $185 million and $215 million for the year, but it has now been reduced to a range of $180 to $200 million.

At this revised level of capital expenses, Advantage expects its annual production to range between 43,500 and 46,500 barrels of oil equivalent per day. The good news is that’s equal to the company’s original production forecast.

Now, the fact that Advantage will keep its production intact despite lowering the capex is not surprising. As I had pointed out in an earlier article:

Advantage has kept its capital spending plan flexible for the year. It plans to spend C$65 million in the first quarter, and then review the investment plan for the remainder of the year in the second quarter. More specifically, Advantage can defer projects worth C$100 million and still preserve its 2019 production profile to a large extent.

This is because Advantage is focused on increasing its productivity per well. Its productivity in the liquids-rich Montney area was up by 30% last year thanks to an improvement in the company’s frac design.

As such, investors can expect Advantage Oil and Gas to hold its ground and deliver efficient production growth, making it a sensible move to hold the stock.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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