Advantage Energy Q1 Earnings Call Highlights

Key Points

• Advantage generated strong first-quarter cash flow with CAD 121 million of adjusted funds flow while spending CAD 136 million in capex (nearly half the full-year budget); production averaged 81,375 BOE/d and the new 75 million cubic feet per day Progress gas plant reached mechanical completion, supporting a targeted ramp to ~90,000 BOE/d by Q3 2026 and higher capital efficiency thereafter.
• The company is pivoting toward liquids as prices diverge, with liquids making 44% of sales revenue (realized ~CAD 84/bbl); Advantage is shifting about CAD 25 million from Glacier gas to higher-return Wembley and Charlie Lake oil wells—Charlie Lake is forecast to produce over CAD 120 million of free cash flow this year with short (~six‑ to eight‑month) payouts.
• Balance-sheet and risk management priorities include maintaining debt near CAD 556 million now while targeting net debt of CAD 400–500 million in H2 2026 (with opportunistic buybacks), plus substantial hedging (e.g., ~41% of 2026 gas and 42% of 2026 liquids) that cuts AECO exposure to ~18%—and the Glacier CCS phase 2 project is nearly complete to further improve emissions and economics.

Advantage Energy TSE: AAV reported a highly active first quarter for fiscal 2026, highlighted by strong adjusted funds flow, a heavy front-end capital program, and progress toward a near-term step change in capital efficiency as new infrastructure comes online.

First-quarter results and activity levels

President and CEO Mike Belenkie said the year “is off to a great start,” as Advantage generated adjusted funds flow of CAD 121 million, or CAD 0.73 per share. The company spent CAD 136 million in capital during the quarter, which Belenkie noted was “almost 50% of our full-year capital budget just in the one quarter.”

To partially offset spending, Advantage sold “an unutilized infrastructure asset” for CAD 12 million and received “assets in kind worth an additional CAD 7 million,” helping keep debt “relatively flat” at CAD 556 million, according to Belenkie.

Production averaged 81,375 BOEs per day, up 2% from the fourth quarter of 2025. Belenkie said the company drilled 12 gross wells in Glacier and Valhalla, and that 13 gross wells were recently brought on production.

Liquids contribution increases amid weak gas prices

Belenkie said liquids continued to play a growing role, generating 44% of total sales revenue in the quarter at an average realized price of CAD 84 per barrel. He added that “even in a quarter with weak gas prices and an intensive spending profile, the business continued to generate strong cash flows.”

The company’s oil-weighted Charlie Lake asset “continues to exceed expectations,” with five wells brought on in the quarter. Belenkie said Advantage is forecasting the Charlie Lake asset will deliver over CAD 120 million of free cash flow this year, which he described as reinforcing the benefits of diversification.

In Valhalla Montney, Belenkie pointed to “strong initial rates,” and said wellhead condensate ratios exceeded 185 barrels per million cubic feet, in line with the broader Wembley play. He cautioned the data is early and said the company will be watching decline profiles.

Progress gas plant reaches mechanical completion

A major operational milestone in the quarter was the new 75 million cubic feet per day Progress gas plant reaching mechanical completion, with commissioning underway. Belenkie said the plant is located at the intersection of three liquids-rich plays—Valhalla Montney, Progress Montney, and Charlie Lake—and is expected to “drive the next phase of growth for Advantage and help reduce operating costs.”

He characterized the build as part of a long-term regional development approach and said the company now has Glacier, Valhalla, Progress, and overlapping Charlie Lake assets extending to Gordondale forming “one massive contiguous resource block with a network of owned and operated strategic infrastructure.” Belenkie thanked the team for completing the project “on time and on budget.”

With Progress spending “behind us,” he said the company expects a period of “highly efficient capital development with escalating free cash flow,” adding that Advantage does not plan to spend capital on capacity expansions “for at least two years.” He also said the company has “less than CAD 100 million of capital planned in the second half of 2026,” with most spending directed toward high-return wells tied into existing infrastructure.

Outlook: production, capital shifts, and balance sheet priorities

Belenkie said Advantage expects production to average approximately 90,000 BOEs per day beginning in the third quarter of 2026, and to “stay there through to the end of 2027 and beyond.” He said that implies 2027 production growth of about 7% over 2026.

Strategically, Belenkie said the company remains focused on maximizing cash flow per share “without compromising our balance sheet,” emphasizing a focus on the highest-return drilling opportunities. He pointed to what he called a “historical disconnect” between weak AECO gas prices—“hovering around CAD 1 per GJ”—and strong oil prices, citing WTI at CAD 100.

In response, Advantage is reallocating capital within its 2026 program. Belenkie said the company is shifting approximately CAD 25 million from Glacier gas targets—where payouts “at strip” would be about a year and a half—to Wembley oil targets, where payouts are expected to be about eight months. He added that Charlie Lake wells currently have payouts of about six months. While oily wells can have lower BOE volumes than gassy wells, Belenkie said the impact on the company’s overall 2026 production forecast would be minor and that there is “no need to adjust our 2026 production guides.” He said additional capital could be shifted to liquids later in the year if oil prices remain strong.

Debt reduction remains “a top priority,” Belenkie said, with the company expecting to reach a net debt target range of CAD 400 million to CAD 500 million in the second half of 2026. He added that, given its proximity to the target, Advantage is “opportunistically allocating a portion of free cash flow to share buybacks through the second quarter and into the summer.”

Hedging, market diversification, and Entropy update

Belenkie said Advantage has used hedging and downstream market diversification to reduce cash-flow volatility and lower exposure to local pricing weakness. He said the company has hedged approximately:

• 41% of forecast natural gas production in 2026, 29% in 2027, and 18% in 2028
• 42% of crude and NGL production in 2026 and 26% in 2027

As a result, he said AECO exposure has fallen to approximately 18% for the remainder of 2026.

Looking further out, Belenkie said Advantage expects to continue 5% to 10% annual production growth, tuned to commodity prices. He said the company has owned and operated gas capacity exceeding 500 million cubic feet per day, which he described as sufficient to reach 100,000 BOEs per day without major infrastructure expansions, potentially as early as year-end 2028 depending on pricing. He also noted an additional 100 million cubic feet per day of capacity could be reactivated at Conroy in British Columbia when market conditions support entry into the province.

On Entropy, Belenkie said construction of the Glacier CCS phase 2 project is “almost complete,” with commissioning expected to begin in the coming months. He said the project is intended to “substantially decarbonize the Glacier facility” and improve operating income through “contracted power sales and contractually guaranteed carbon pricing.” He added that funding is being provided by Brookfield and the Canada Growth Fund.

No analyst questions were taken during the call, with the operator stating there were no questions registered from the phone lines.

About Advantage Energy TSE: AAV

Advantage Energy Ltd supplies clean, affordable, reliable, and sustainable Canadian energy to power the needs of Canada and the world. It is focused on the development and delineation of its Montney natural gas and liquids resource at Glacier, Wembley/Pipestone, Valhalla, and Progress, Alberta.

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