Advantage Energy Ltd.

Good morning, ladies and gentlemen, and welcome to Advantage Energy First Quarter 2024 Results Conference Call. At this time, all lines are in a lesson-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Brian Bagnell. Director of Commodities and Capital Markets. Please go ahead.

Thank you, Jenny, and welcome everyone to Advantage's conference call to discuss our first quarter 2024 results. Before we get started, I'd like to refer you to the advisories on forward-looking statements contained in the news release, as well as the advisories contained in Advantage's annual information form and the MD&A, which are available on CDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories. I'm here today with Mike Bilenki, President and CEO of Advantage, 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, and once Mike and Craig have finished speaking, we'll pass it back to the operator for questions. And I'd just like to note, while we're happy to answer your questions, we'd ask that if you have any detailed modeling questions that you follow up with us individually after the call.

Mike, please go ahead. Thank you, Brian. I'm pleased to present the results from the first quarter of 2024. I'll start with some of the high points and walk through what to expect from the company next. The first quarter of 2024 was mostly about continued strong operational performance, in particular from our new wells at Glacier. Our production remained around record levels. And we were also able to expand our Tier 1 drilling inventory by drilling wells in areas that had not been developed using our updated technology. As a result of exiting 2023 with net debt that was below the bottom of our target range, we were able to enhance our shareholder returns by continuing to buy back shares counter-cyclically. Highlights from the quarter included adjusted funds flow of $67 million for advantage, while capital expenditures were $76 million. Net debt fell into the middle of our debt range at $233 million. We repurchased 2.4 million shares during the quarter, which is 1.5% of our outstanding share accounts, at an average purchase price of $886, returning $21 million to shareholders. Operationally, our performance was very positive, with first quarter production over 66,000 beauties per day. This is an increase of 18% per share over the same quarter last year. Liquids production increased to 6,452 barrels per day, which was an increase of 17% per share over the first quarter of 23. And we've officially filled the Glacier gas plant with 425 million cubic feet per day for sustained periods during the quarter. It's particularly important to note that our owned and operated infrastructure performed very reliably during periods of extreme cold this winter with only modest throughput reductions on the coldest days below minus 40. We weren't quite as fortunate with our third-party gas plants at Wembley, where there were modest impacts to production at our oiliest asset due to unplanned outages. Highlighting some drilling results. At Glacier, our two most recent wells averaged P30s of 15 million cubic feet per day per well, which is well above type curve, perhaps 40% above type curve. This is particularly important since these wells help extend our Tier 1 inventory bookings further south into the asset, which was acquired only a few years ago. As a result of the continued outperformance of the entire drilling program, we now have three wells fully drilled and completed, but shut in because production remains above plant capacity. With gas prices in North America currently suppressed, Advantage is also excited to be in the process of drilling a three-well pad at Wembley, targeting two D4 wells and one D3 well, which typically have initial liquids ratios of about 65%. These wells are expected to come on stream by early in the third quarter. And although there have been reports of water shortages in northwest Alberta, Advantage has stockpiled enough water to execute the remaining portion of our program through the third quarter, and we don't anticipate any impacts to our ability to execute a full-year program. Looking forward, with elevated North American gas supplies in an unusually warm winter, North American gas prices remain suppressed, and this is expected to continue through the summer. Part of the reason for this over-supply is the necessary ramp-up in production in advance of structural demand growth in North America, which includes demand growth from LNG Canada and LNG projects on the Gulf Coast. As usual, ACO is most sensitive to oversupply dynamics, so Advantage is pleased to have minimal exposure to ACO this summer at only 8%. As LNG projects start to enter commissioning and structural demand increases later in the year, balances are expected to improve substantially, which is reflected in the forward strip currently showing strong contango. We're currently navigating and optimizing our program to manage near-term volatility, but focused on long-term value. Advantage continuously reviews our capital program, evaluating each discrete investment at the most current strip pricing possible in advance of those investments. Each investment is judged using a simple comparison. Will shareholder returns be highest by growing cash flow or by allocating that same capital to our share buyback program instead? Since these decisions can be made on a well-by-well basis, significant discretion remains in our 2024 capital program. In addition to that agility, and perhaps more importantly, we continue to benefit from the outperformance of our drilling program. And as a result, there's an increasing likelihood that advantage may need fewer wells this year to achieve our production targets. This may lead to our 2024 capital being reduced further below our current midpoint of $235 million without having to reduce our production expectations for the year at all. And this is on top of the capital reductions that we announced only a month or two ago, when our midpoint of capital was reduced from $2.75 to $2.35. So there's a possibility of that falling further still. Development of our progress gas plant remains on track, with commissioning anticipated by mid-year 2025. To maximize shareholder value, we remain focused on growing cash flow per share, while maintaining a net debt target of between $200 and $250 million dollars. Our three-year plan remains to deliver compounding cash flow per share growth via disciplined capital allocation with annual spending in each of those years ranging between $220 and $300 million, noting that our range for this year is $220 to $250 currently. Our production growth target remains capped at 10% per year. Contrary to the near-term order supply, we believe 2025 may be undersupplied. and rebalancing of the markets will likely take between one and two years after that. Based on current futures pricing, the Vantage estimates capital spending will average approximately 75% of AFF for 24 and 25, and all free cash flow will continue to be used for share repurchases. With our modern low emissions intensity assets, decades and decades of top tier inventory, and our majority ownership of entropy, which By the way, it continues to advance quite nicely. Hopefully, we'll have more to talk about in the coming months. Advantage continues to proudly deliver clean, reliable, affordable energy and helping to contribute to a reduction of global emissions by displacing higher carbon fuels. We'd like to thank our employees, our board, and our shareholders for their ongoing support. We'll turn it back over to Brian for questions now. Thanks, Mike. And Jenny, we can go to the phone lines.