Advantage Oil & Gas Ltd (USA) AAV reported Q3 production and cash flows ahead of expectations. The company achieved impressive cost reductions, Credit Suisse’s David Phung said in a report. He upgraded the rating on Advantage Oil & Gas from Neutral to Outperform, while raising the price target from C$9 to C$11.
The company reported its Q3 production at 215 mmcfe/d [millions of cubic feet equivalent per day], higher than Credit Suisse’s estimate of 210 mmcfe/d. Cash flow came in at C$45 million, beating Credit Suisse’s estimate of C$42 million, driven by lower operating costs.
Costs Down, Efficiencies Up
Advantage Oil & Gas’ latest pad, comprising of eight wells, produced at a combined 120 mmcf/d. Analyst Phung mentioned that the average well cost of the six Lower Montney wells was C$4.3 million, as compared to the estimate of C$5.1 million.
“Despite a drilling program with relatively few wells, we are impressed with the cost reduction and we wonder if AAV is only near the beginning of its learning curve for cost and productivity optimization,” Phung commented.
The EPS estimates for 2016, 2017 and 2018 have been raised from $0.02 to $0.03, from $0.33 to $0.36 and from $0.53 to $0.55, respectively.
“Factoring in improving capital efficiencies, we wonder if Advantage may become the gold standard among dry gas operators in Western Canada should costs be further reduced with further demonstrated execution,” the analyst added.
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