Good morning, ladies and gentlemen, and welcome to the Advantage Energy Ltd. Second Quarter 2024 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, July 26, 2024. I would now like to turn the conference over to Brian Bagnell, Vice President of Commodities and Capital Markets. Please go ahead.
Thank you, Constantine, and welcome everybody to Advantage's conference call to discuss our second quarter 2024 results. Before we get started, I'd like to refer you to the advisories on forward-looking statements contained in the news release, as well as the advisories contained in Advantage's MD&A and Annual Information Form, which are available on SEDAR+ and on our website. I'm here with Mike Belenkie, President and CEO of Advantage, Craig Blackwood, our CFO, as well as other members of our executive team. We'll start by speaking to some of the financial and operational highlights. Once Mike and Craig have finished speaking, we'll pass it back to the operator for questions. As usual, we'd ask if you have any detailed modeling questions that you follow up with us individually after the call. Mike, please go ahead.
Thanks, Brian, and thanks everyone for joining us for this conference call on our second quarter 2024 results. This is the first quarter since our asset acquisition, which we closed on June 24th this year. This report includes a seven-day stub period from the new assets. We'll start with the financial and operating results. Production for the quarter was 66,401 BOEs per day, slightly higher than the first quarter of 2024, but 28% higher than the second quarter of 2023, during which time the Glacier Gas Plant had a planned turnaround. Production from liquids was 7,141 barrels per day, an 11% increase versus the first quarter, and a 12% increase versus the second quarter of 2023. Although liquids represent just 11% of our production this quarter, they contributed 53% of our quarterly revenue.
As we've seen, gas prices have been quite weak across North America during the quarter, which has impacted our revenue. However, this has been significantly offset by higher production and stronger liquids pricing. Adjusted funds flow for Advantage, not including our Entropy subsidiary, but including transaction costs, was CAD 44 million, or CAD 0.27 per share. Without transaction costs, though, adjusted funds flow was CAD 47.2 million, or CAD 0.29 per share. Capital spending for the quarter, excluding the acquisition of Entropy, was low for the quarter at just CAD 39.7 million, with three wells drilled and completed at Wembley. On the balance sheet, Advantage ended the quarter with net debt of CAD 619 million after funding the acquisition. We sit with over CAD 150 million available on our credit facility.
Our debt level translates to approximately 1.7x debt-to-trailing cash flow when consolidating cash flows from the acquired assets during the last 12 months, with 2024 production expected to average between 70,000 and 73,000 BOEs per day and 16% liquids for the remainder of 2024. We are significantly exceeding our annual per-share growth targets. Therefore, our strategy has temporarily shifted towards maximizing free cash flow and maximizing the pace of delivery. A few weeks ago, we also reduced 2024 capital spending guidance by CAD 20 million to between CAD 260 million and CAD 290 million by cutting gas-weighted wells from the program that were expected to drive gas production even higher while gas markets remain oversupplied and prices are suppressed. As a reminder, our original budget for Advantage, which we issued in December of 2023, was for the same range, CAD 260 million- CAD 290 million.
Thanks mostly to continued Glacier well outperformance, we've been able to deliver roughly the same level of production growth on our base assets. Plus, we've added 8 net Charlie Lake wells on the acquired assets for the same total capital as our original budget. Since the acquisition, we've increased our hedging position to reduce exposure to price volatility. Approximately 28% of our natural gas production is hedged through the end of 2024, as well as 26% for calendar 2025 and 10% for calendar 2026. Approximately 65% of our oil and condensate production in the second half of 2024 is now hedged, as well as 45% in the first half of 2025 and 15% in the second half of 2025. I'll talk a little bit about the acquisition. It's only been a month since we closed the Charlie Lake acquisition.
However, we are already encouraged by the results these assets are bringing to the Advantage portfolio. Production from the acquired assets is exceeding expectations with current production of about 15,000 BOEs per day due to some excellent well results, including a 4 of 18 Valhalla well that delivered over 1,100 barrels per day of oil in the first 30 days of production. Our team has identified our initial drilling program on the acquired assets, with drilling expected to begin in September. We plan to drill eight net Charlie Lake development wells this year, selected based on max internal rate of return. We're executing on synergies to reduce costs and improve efficiencies on the assets. The largest synergy relates to the furlough of the second phase of the Progress Gas Plant, which was originally planned to begin construction in 2026.
However, thanks to the acquisition, that expansion has been deferred definitely, which frees up approximately $100 million for the 2026 and 2027 programs. That expansion no longer required thanks to the new processing capacity that we acquired through the transaction. On the other end of the synergy spectrum, we're also already seeing operating costs on the assets trending lower by more than $1 per BOE versus our forecasts already, with further reductions expected by the second quarter of 2025 once phase I of the Progress Gas Plant is online. For more information on the synergies, we have lots of details in our investor slide deck. Feel free to refer to that. As some of you have likely noticed from our latest investor presentation, we are evaluating various options for accelerating towards our net debt target, and that includes consideration of non-core, non-producing asset dispositions.
We are in the very early stages of this process and will provide more information later this year. On Entropy, during the quarter, we were pleased to see the Canadian CCS investment tax credit finally receive Royal Assent after about three years, which is great news for us as we are eligible to be one of the first recipients. We're currently preparing applications for our operating carbon capture projects at Glacier to realize the ITC for expenses we incurred on CCS back to January 1st, 2022. Any ITCs we receive will lower our net capital for Advantage, at least in this round of ITCs, hopefully prior to the end of the year.
At Glacier Phase II, at the beginning of the quarter, we are pleased to announce FID for Glacier Phase II, our second and largest post-combustion CCS project to date, with an on-stream date expected in the second quarter of 2026. Total CO2 capture capacity will be approximately 160,000 tons per annum from nine gas-fired engines plus one gas-fired power generation turbine. This is in addition to the existing Phase I capacity of 32,000 tons per annum. Total cost of Glacier Phase II CCS, including capture equipment, compression, transportation, and storage wells, is $127 million, resulting in a capital efficiency of $800 per ton per annum or $600 per ton per annum for capture only, excluding compression, transportation, and storage. All capital costs are incurred and financed directly by Entropy at no cost to Advantage.
All capital expenditures are also expected to be eligible for the federal investment tax credits of up to 50%, plus the Alberta Carbon Capture Incentive Program of 12%. Revenue from the project is contractually underpinned: 75% by a 15-year carbon credit offtake agreement with Canada Growth Fund and 25% by a 15-year power purchase agreement with Advantage. In conjunction with the Glacier Phase II CCS project, Entropy will repower Advantage's Glacier Gas Plant by installing the 15-MW gas-fired turbine and selling power to Advantage via a competitively priced power purchase agreement, PPA, while also capturing approximately 90% of the CO2 emissions from the turbine. This modular power plant is estimated to cost $47 million, providing power and heat for the plant and for Entropy CCS equipment. With the more efficient turbine power source, Advantage's existing power generators will be shut in, eliminating prior CO2 emissions and methane emissions.
This project is expected to be the world's first CCS project on gas-fired baseload power. We expect this to be an important aspect of Entropy's business in the future. A few weeks ago, we also announced a partnership with Methanex, where Entropy entered into an agreement to invest in a pre-FEED study for CCS deployment at Methanex's Medicine Hat, Alberta facility. We're tremendously excited about this collaboration that will leverage Entropy's proprietary modular post-combustion CCS technology and Methanex's manufacturing expertise to utilize a portion of the captured CO2 to produce additional methanol. Entropy plans to construct and own the capture equipment adjacent to Methanex's facility, and Methanex will supply the utilities, build the tie-ins to its facility, and operate the capture equipment once commissioned.
Total emissions captured targets approximately 400 tons of CO2 per day and involves an investment of approximately CAD 100 million, the largest portion of which will come from Entropy. Methanex plans to use the captured CO2 as feedstock to produce approximately 50,000 tons per annum of additional methanol, with the remaining CO2 permanently sequestered safely underground, possibly by Entropy. The Methanex partnership highlights for us the versatility of our CCS technology and the strong growing market for CCS in Alberta. More to come on Entropy. So the outlook for Advantage. Advantage's long-term focus on cash flow per share growth remains unchanged. Our short-term focus on delivering will be executed with conviction via disciplined capital allocation and potential asset sales.
Most importantly, we're very pleased to have been able to acquire a high-quality asset base with deep strategic synergies, resulting in cash flow per share growth that is above and beyond what we could possibly deliver within our organic development framework. We're able to do this all at an attractive price. With that, I'd like to thank our board of directors and our long-term shareholders for the continued support. Brian, I'll throw it back to you.
Constantine will take any questions if there are any. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two.
If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Amir Arif from ATB Capital Markets. Your line is now open.
Hey, thanks. Good morning, guys. I appreciate the color on the acquired assets in terms of operating costs already down $1/BOE. Could you possibly just lay out qualitatively, at least in terms of activities you're doing to help further reduce the operating costs, or at least even on the capital efficiency side in terms of what you're doing differently than the previous operator to help bring those down further?
Yeah. I'll take this question myself. It's Mike here. First, the first thing that we were able to do is capitalize on manpower synergies, which is essentially we have a great presence for highly skilled operators in the area.
We brought on all the people that we believed we needed to continue to operate the assets. But in aggregate, less people were required to operate because this is all one footprint, so less hours in trucks, less driving time, and so on. That cuts out a significant aspect of the operator hours, which is a significant cost in these operations. That's the first and most immediate thing that happens. There's a lot of other stuff that's also quick to happen coming down the pipe. We don't have to wait until the Progress Gas Plant comes on before we see all of our synergies.
But that's the biggest thing of all, which comes in the second quarter of 2025, where we can take natural gas that's currently being processed in third-party facilities for as much as, in some cases, close to $2 per MCF and turn that into owned, operated, very low variable operating cost plants that we own. So that'll be the single biggest step and the easiest one in coming, I guess, 12 months. And in the interim, there's a lot of processes and procedures that Advantage uses, including safety, including efficient operations, chemical uses, power management, that through the in the area, we're able to apply and just simply improve day-to-day. Prior company, of course, was a growth resource development and exploration company. We're an operating cash flow generation company. So those processes flow through quite quickly. Okay?
Appreciate that. And then just in terms of well capital efficiency, any differences on that front?
Yeah, I'll throw that to Geoff.
We've been actively operating this area. We expect, having looked at the designs these guys have used historically, we've identified a number of kind of inconsistencies through the drilling program that we will rationalize going forward. This is a new program for us, though, so our expectation is we will proceed at a measured pace on these locations, focusing on execution first and foremost on the highest quality locations. And we would anticipate our drilling costs would come in line with the industry standard in the area quickly.
Okay. Could you quantify that in terms of average well cost, what it is, and where you think you can get it to? Because I believe you're also going to be drilling more pad wells versus the way the previous operator was more delineating the acreage.
We're definitely going to be targeting a minimum of two well pads. There won't be any single wells, so we'll reduce that kind of inefficiency throughout our operations. We will be targeting a DCET in the order of about CAD 6 million on each of these, which is also in line with the industry standard in the area. Expect to see that come down in future years with more activity.
And what would that number have been with the prior operators? Is that DCET number?
We see the numbers to be about CAD 500,000 cheaper right now. But until we've actually drilled some and achieved these numbers, we don't want to be too attached to them yet.
Got it. No, it makes sense, Mike. Just a second question in terms of your net debt target number there, Mike. I mean, commodities have been volatile. You've hedged more, so I get you there. But just curious, does that net debt target change as the commodity outlook changes from the current position? Or is that more of a hard fixed number of CAD 450?
Yeah, CAD 450 is probably an interim net debt target. As historically, we've chosen our net debt targets based on long-term steady operations where we knew we could fully fund. Well, I guess a better way to put it is we'd be less than one time's debt to cash flow at the bottom of the price cycle. Now, CAD 450 million as a debt target is higher than that traditional index for us.
So when we hit 450, the bigger question is, what's the allocation of our free cash flow back to our share buyback program, which, as everyone knows, has been an important part of our strategy in the past? So we do intend to shift into a share buyback program at that point at some level. The only question is what % of total free cash flow that would be. But if you've been a part of our story for long, you'll know that we tend to be very convicted behind share buybacks.
Yeah. Okay. Appreciate the color. Thank you.
There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.