TSX Commentary

Advantage Oil & Gas (AAV) – $7.15 – No Surprises in H1/10 Guidance
Outperform, Above Average Risk, Price Target: $9.00 (prev. $8.00)
Advantage announced an update to its H1/10 guidance that included a slight increase to capital spending and lower operating costs. Capital spending is budgeted at $110 million for the first half, with roughly 80% dedicated to Glacier. Production is expected to increase to 25,500 by Q2/10 when AAV’s 50 mmcf/d gas plant is completed. Three new Montney horizontals at Glacier have been brought on since Dec/09, and one new hz well on the Southeast portion of the block was recently tested at 7 mmcf/d at 897 psi. RBC CM’s revised target is $9.00/sh, up by $1.00, as it has lowered the risk factor for its un-booked upside case at Glacier due to ongoing drilling success on the eastern portion of the block and made several other minor changes. RBC CM reiterates its Outperform rating as AAV trades at 1.0x NAV and a 2010 EV/DACF multiple of 6.6x, a discount to its junior/mid-cap E&P coverage group averages of 1.4x and 7.9x, respectively. Upcoming news flow for AAV should include year-end ‘09 results and reserves (Q1/10), the first Nikanassin hz well at Glacier (H1/10) and details on the Phase III development plan (toward the end of H1/10).