Advantage Energy Income Fund (AAV) – Part 1 - Introduction

The business plan for Advantage Energy Income Fund, an oil and gas (O&G) royalty trust based out of Calgary (Alberta, Canada) calls for acquiring and developing O&G reserves in Western Canada. The fund sports a monthly dividend policy as like most Canadian Royalty trusts. For US investors these distributions are:
  • Qualified dividend income.
  • Subjected to a non-resident withholding tax of 15%.
To be eligible for the withholding tax credit the fund needs to be purchased for a taxable account. The credit cannot be claimed for a tax-deferred account such as an IRA essentially making investments in foreign royalties not suitable for such accounts. Unlike American counterparts, CanRoys are exempt from paying taxes on the distributions till 2011. Also, their operations and asset base are NOT depleting as they are allowed to expand by investing or acquiring other assets.

The fund has 154 Million Barrels Of Oil Equivalents (boe) in Proved and Probable reserves with a reserve life span of 11.8 years. The natural gas weighting of the fund based on reserves is at 58% and by production that number is 65%. The higher weighting in gas classifies the fund as gassy as the prospects are tied more to natural gas prices than to oil prices. As of the 3rd quarter of 2007, daily production stands at 29,236 boe/day. 2008 production is expected to reach between 32000 and 34000 boe/day as volumes from the July 2007 Sound Trust Acquisition get factored in.

Advantage's production and reserves are concentrated within three areas located in Alberta, northeast British Columbia, and southeast Saskatchewan. Advantage operates approximately 85% of its production base. Below is their properties map and details of their key drilling activity:

Name Production Resource Ownership Reserve P+P Efficiency Comments
Martin Creek 2755 boe per day Liquid Rich Natural Gas W.I. 75%, 100% operated 10.2 years less than $15000 per boe per day 4-year drilling inventory
Sunset 743 boe per day Light Oil W.I. 75% 100% operated 17.6 years $14000 per boe per day 3-4 year inventory possible
Westerose 681 boe per day Oil W.I. 52%, 100% operated 17.5 years $19000 per boe per day 23 future drilling locations
Nevis 2450 boe per day Light Oil W.I. 93% 100% operated 11.8 years $21000 per boe per day 3-4 year drilling inventory

Related Articles:

1. Advantage Energy Income Fund (AAV) Analysis - Part 1 - Introduction.
2. Advantage Energy Income Fund (AAV) Analysis - Part 2- Business Issues.
3. Advantage Energy Income Fund (AAV) Analysis - Part 3 - Outlook.

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