AVV: Making its Presence Known

LUC MAGEAU, Raymond James (11/02/2010)
"TER:. . .Among the gas plays, you've got a $9 target price on Advantage Oil and Gas Ltd. (NYSE:AAV; TSX:AAV), and it's trading just at $6.38 right now. Can you explain why you have such a high target on what's largely a gas play?

LM: If you're looking for a gas producer, certainly you'd want to pick someone that has a concentrated land position in a play with a high amount of NGLs and low operating costs. The Montney is a play that has both of these attributes. Advantage is definitely one that's making its presence known there. The company's got a large Montney land block that's just offsetting Encana Corporation (TSX:ECA; NYSE:ECA) in Alberta. It's recently completed a 50 million cubic foot per day (MMCF/d) facility, and it's going to be completing another 50 MMCF/d facility in 2011. That should bring the company's production up over 30,000 barrels of oil equivalent per day (BOE/d) range. Half of that is going to be coming from the Montney.

The key to the Montney is that not only does it have some natural gas liquids that come with gas production, but it's also got very low operating costs. For Advantage, that means operating costs from that play of less than $4 BOE. So, even in a low gas price environment, producers can make those plays economic. That's really the key for Advantage."

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