AAV: The Glacier Money Train

MENAL PATEL, National Bank Financial (11/12/2010)
"Q3 results nudge production guidance up Q3 CFPS (FD) of $0.23 was mostly in line with our $0.25 estimate and consensus of $0.25. Production of 24,290 boe/d was in line with our 23,900 boe/d forecast and was the reason for the modest 500 boe/d lift in H210 production guidance to 23,500–24,300 boe/d.

Glacier growth on track. . .21 of 28 wells of its Phase III drilling program have been drilled ahead of schedule. Seven (7 net) of these wells have been completed and 30-day IP rates on the most recent eight wells have averaged 5.3 mmcf/d (high of 8.9 mmcf/d)—well above the 3.3 mmcf/d that we are currently using in our type curve. Advantage already has 75 mmcf/d of behind-pipe productivity with another 14 wells still awaiting completion. This positions it to keep the current 50–55 mmcf/d of design capacity at its Glacier plant full until the 50 mmcf/d Phase III plant comes on stream in Q211. Construction remains on track and budget.

We maintain our $9. target and Outperform rating. We continue to like AAV's: 1) growth profile; 2) solid economics at Glacier even under a $3–$4/mcf gas price; 3) defensive gas hedges; 4) strong balance sheet; and 5) a discounted valuation. The strong efficiencies at Glacier also bode well for reserve bookings and a material reduction in the $1 billion FDC booking at year-end 2009."

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