Advantage Energy Ltd.

Good morning, ladies and gentlemen. Welcome to the Advantage Energy Limited Q4 2024 results conference call. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, March 5, 2025. I would now like to turn the conference over to Brian Bagnall, Director, Commodities and Capital Markets. Please go ahead, sir.

Thank you, operator, and welcome everybody to Advantage's 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 state and ADVANTAGE's MD&A and annual information form, both of which are available on CDAR and on our website. We've also posted an updated corporate presentation. I'm here today with Mike Bilenki, 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, 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 over to Mike Malenke. Mike, please go ahead.

Thank you, Brian. 2024 was a transformational year for Advantage. 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 BUEs per day, up 17% year-over-year, driven by the asset acquisition and as a result of having exited 2023 at elevated production 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 million, or $1.52 per share. Capital spending was $255 million, 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, $75 million was cut from the gas program, and an additional $35 million 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 1,850 BUEs 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 million, and we're on track to reach our $450 million target by the end of the year. Q4 results were particularly strong. Production averaged 76,774 BUEs per day, up 12% year-over-year. Liquids production hit 11,885 barrels per day, up 51% year-over-year. dropped to $5.19 per BUE. We've now achieved our internal 12-month off-cost reduction targets for the acquired assets in only six months. 2024 was an active year for corporate development for Advantage on a relative basis. We acquired a Charlie Lake Mountaineer asset for $445 million, disposed of two non-core assets for $11 million, acquired a 100 million cubic foot per day sour gas plant near our Conroy Montney asset in northeast BC, and repurchased 2.5 million shares, returning $21.7 million to shareholders. Since initiating our buyback program in April 2022, Advantage has repurchased 38.1 million common shares for a total of $383 million. To update you on our asset acquisition, the Charlie Lake assets are exceeding expectations. Our first four wells are outperforming historical liquids type curves by more than 65%. IPs for those wells average 766 barrels per day. We achieved $20 million 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%, 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 million 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 10% and 13% respectively. Liquids reserves increased by 55 to 64% across all categories. Our 1P net present value now stands at $3 billion, and 2P stands at $4.4 billion, 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 to $300 million, 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. Advantage 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 million of free cash flow during the next three years. Combined with our commanding infrastructure ownership, which has a replacement value of over $1 billion, and our majority ownership of entropy, Advantage has established itself as a unique engine of value generation. Recognizing there is now a scarcity of high-quality money assets, a special committee was formed to monitor the markets and identify opportunities that are in the best interest of Advantage and our shareholders. So with that, I'd like to thank all of our shareholders, our board, and particularly the Advantage team for another excellent year of execution and excellence. With that, I'll turn it back to Brian for questions.

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 Charlie Lake with respect to well results? What do you expect going forward versus these four wells or results of the prior operator? Yeah, thanks, Brian.

Charlie well results. I think we spoke about this many times before. The Charlie gas that is not like the money and that is more of a conventional play. And so applying conventional exploration 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 in this 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. Okay. Thanks, Mike. Question from Aaron Filkoski here as well.

To what extent does your 2025 guidance depend on the timing of CSB outbreak? Is it required, or does it simply take pressure off of your existing facilities? Gotcha.

Yeah, thank you. So... The short answer on the impact of CSP Albright, which for those that aren't aware, there was 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 the 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, you know, Bocanford and his team, to think about re-rooting the pipelines and reapplication 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 to adjust the timing of bringing our progress gas plant, which is under construction, and plan to come on in May of 2026. 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 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? You know, 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, you know, at this time, I think that's probably all I would say. Mike, do you have any additional comments?

Yeah, 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 ACO price dropped by about 50 cents, 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 ACO basis stickier. So we do believe that any major change, any 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 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 it might have on prices.

Another question in, was the performance of the recent Charlie Lake wells taken into consideration for the reserve bookings at year end 2024?

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.

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