Advantage Oil and Gas Is Still a Worthy Bet

Advantage Oil and Gas has tried to maintain a resilient operating profile this year on the back of controlled capital spending with an aim to increase production at those assets where it enjoys a low cost base. However, the company’s focus on operating efficiency has not translated into stock market gains as the gloomy oil and gas pricing environment has prevailed.

Shares of Advantage are down 25% this year, and a recovery doesn’t seem to be in sight despite the company’s positive results.

Advantage Is Making the Right Moves

Advantage’s second-quarter production increased 22% year over year to nearly 43,000 barrels of oil equivalent per day. What’s impressive is that this production growth was achieved despite the fact that the company’s adjusted funds flow was higher than its net capital expenditure by $6 million in the first half of the year.

Thanks to the higher production, Advantage’s revenue increased to $60 million during the quarter as compared to the year-ago period’s figure of $45.3 million. Also, the company swung to a profit of $3.4 million as compared to a loss of over $15 million in the year-ago quarter.

Its adjusted funds flow also increased year over year to $0.18 per share as compared to $0.12 per share in the year-ago quarter. Net capital expenditures, meanwhile, fell to $19.6 million as compared to $25.3 million a year ago.

So there was a lot to like about Advantage’s latest quarterly report even though it witnessed a massive plunge as far as prices were concerned. The company’s average realized price of liquids fell to $51.76 per BOE during the quarter as compared to 72.32 per BOE during the year-ago period.

But because Advantage relies on natural gas for the majority of its production (liquids supplied 2,900 barrels per day), it benefited from a slight increase in the price of the commodity to $2.17/Mcf from $2.05 per Mcf a year ago.

Investors Need to Remain Patient

It is clear that the market is punishing Advantage for no fault of its own. The company is making the right moves from an operational point of view and is getting rewarded accordingly. Looking ahead, there might be a turnaround in the fortunes of Advantage stock as the possibility of better market access in Canada is shaping up.

As reported by the Financial Post:

In the same week that Ottawa announced construction would soon begin on the Trans Mountain oil pipeline expansion project, TC Energy said Friday that the Nebraska Supreme Court upheld the Keystone XL pipeline’s route approval by the state’s public utilities commission. The Alberta-to-U.S. Gulf Coast conduit is expected to move 830,000 barrels of oil per day once completed.

So there is a good chance that natural gas prices in Canada might stabilize in the future. If that happens, Advantage Oil and Gas stock will be capable of delivering an upside because the company is taking the right steps to keep growing from an operational perspective.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
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.

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