What Advantage Energy (AAV) Said on Its Q3 Earnings Call

Key Points

• Q3 production and financial performance improved: Production rose 23% sequentially to approximately 87,000 BOE per day, while adjusted funds flow reached C$96.8 million and free cash flow totaled C$35.9 million. Net debt fell 58% to C$233 million following the Wembley asset sale, and per-unit operating, transportation, and corporate costs declined.
• Advantage is prioritizing shareholder returns and liquids-rich development: The company directed third-quarter free cash flow to buybacks, expects to repurchase up to 5% of shares in late 2026 and up to 10% more in 2027, and reiterated its C$300 million two-year buyback commitment. Management also plans to focus 2027 investment on liquids opportunities at Progress, Valhalla, and Charlie Lake.
• Operational momentum and financial flexibility remain key themes: Strong well results at Glacier and Valhalla support further Progress drilling, while Charlie Lake’s first open-hole multilateral well is planned for Q4. Hedging reduces AECO price exposure, and proposed tax measures could defer cash taxes from 2028 to 2031.

Advantage Energy TSE: AAV said third-quarter production rose 23% from the prior quarter as its Progress Gas Plant ramped up and the Glacier Gas Plant returned to full operations following a planned second-quarter turnaround. The company also highlighted lower costs, a sharp reduction in net debt following its Wembley asset disposition, and an increased focus on share repurchases and liquids-rich development opportunities.

Interim Chief Executive Officer John Festival said the Wembley transaction sharpened the company’s asset base, reduced leverage and accelerated its shareholder-return strategy. With its 2026 capital program substantially complete, Advantage said it is directing all free cash flow toward share buybacks while retaining the flexibility to invest selectively in its Progress, Valhalla and Charlie Lake assets.

Financial Results and Cost Reductions

Chief Financial Officer Craig Blackwood said Advantage generated adjusted funds flow of C$96.8 million, or C$0.58 per share, during the third quarter. After C$60.9 million in exploration and development spending, the company generated C$35.9 million in free cash flow, which it allocated to share repurchases.

Net debt ended the quarter at C$233 million, down 58% from the second quarter. Blackwood attributed the decline primarily to proceeds from the Wembley disposition.

The company also reported lower per-barrel costs as production volumes increased and its infrastructure utilization improved. Compared with the second quarter:

• Operating expense declined 16% to C$4.86 per BOE.
• Transportation expense fell 10% to C$3.71 per BOE.
• Combined general and administrative and interest expense declined 41% to C$1.73 per BOE.

Blackwood said the improvements reflected greater use of Advantage-owned infrastructure, the more focused asset base following the Wembley sale and lower leverage.

Production Growth and Well Results

Third-quarter production averaged approximately 87,000 barrels of oil equivalent per day, including 452 million cubic feet per day of natural gas and 11,623 barrels per day of liquids. While overall output increased from the second quarter, liquids production declined 8%, primarily because of the Wembley disposition and natural declines.

At Glacier, wells brought online during 2026 achieved average IP30 rates of 16 million cubic feet per day of raw natural gas, according to the company. At Valhalla, a three-well Montney pad that began production in the prior quarter achieved an average IP90 rate of about 1,100 BOE per day per well, including 35% liquids.

Advantage also drilled two Montney wells on its Progress 5-32 pad, offsetting a successful 16-36 well drilled in 2019. The new wells were completed in October and showed higher length-normalized productivity than the earlier well during initial tests lasting 48 and 62 hours, respectively. The 16-36 well had recorded an IP30 rate of more than 1,100 barrels per day of oil and liquids and has produced about 265,000 barrels to date.

The two new Progress wells entered production during the week of the call, and Advantage expects to release IP30 results in early December. Based on the initial results, the company plans to drill two additional Progress Montney wells in the first quarter of 2027.

At Charlie Lake, Advantage is preparing to drill its first open-hole multilateral well during the fourth quarter. The company said the activity will be funded with additional Wembley disposition proceeds and that industry results using the design have indicated the potential for strong productivity at lower capital costs.

Hedging, Buybacks and 2027 Direction

For the fourth quarter, Advantage has hedged about 46% of forecast natural gas production and 54% of forecast liquids production. For 2027, it has hedged 37% of forecast natural gas output and 34% of forecast liquids output. The company has also hedged about 35% of forecast natural gas production for 2028 and 15% for 2029.

Management said its hedging and market-diversification strategy reduces direct AECO exposure to 16% in 2027 and 8% in 2028. Blackwood also said proposed federal Productivity Mega Deduction measures could defer the point at which Advantage becomes cash taxable from 2028 to 2031, based on current plans and commodity price assumptions.

Festival said the company expects to repurchase up to 5% of its common shares outstanding in the second half of 2026 and up to an additional 10% in 2027. Advantage had repurchased approximately 6 million shares during 2026, representing 3.6% of shares outstanding as of Dec. 31, 2025. The company reiterated its C$300 million share-buyback commitment over 24 months.

During the question-and-answer session, Blackwood said investors should expect Advantage to lean more heavily toward liquids development in 2027, citing its Progress, Valhalla and Charlie Lake opportunities. Management plans to release its formal 2027 budget and an updated three-year plan in early December.

Festival said the company has identified more than 1,000 drilling locations across Progress, Valhalla and Charlie Lake, including more than 300 Tier 1 locations. He also said the search for a permanent chief executive officer was in its “late innings,” with a resolution expected shortly.

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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