CALGARY, ALBERTA–(Marketwired – Feb. 9, 2017) – Athabasca Oil Corporation (TSX:ATH) (“Athabasca” or the “Company”) is pleased to announce a balance sheet refinancing transaction which marks the conclusion of a series of strategic steps undertaken over the past year to transform the Company. The comprehensive refinancing plan provides Athabasca multi-year funding certainty and a strong liquidity outlook that will allow the Company to continue to advance its strategic objectives and maintain business flexibility.
Athabasca has established itself as an intermediate oil weighted producer with a funded five-year growth outlook and exposure to several of the largest resource plays in Western Canada including the Montney, Duvernay and oil sands. A complementary asset base of high rate of return light oil opportunities and low decline thermal production positions the Company for strong financial sustainability and free cash flow generation in the current environment while maintaining significant exposure to improving oil prices.
Highlights of the refinancing plan include:
- New term debt instrument – entered into agreements to issue senior secured second lien notes due 2022 (“the “New Notes”) in the amount of US$450 million. Proceeds will be directed towards the retirement of Athabasca’s existing C$550 million second lien notes due November 2017 (the “Existing Notes”) for which the Company has announced the commencement of a cash tender offer.
- New reserve-based credit facility – concurrently with the issuance of the New Notes, the establishment of a new $120 million credit facility supported by seven major financial institutions.
- Contingent Bitumen Royalty (“Royalty”) – additional Royalty grant to Burgess Energy Holdings L.L.C. (“Burgess Energy”) on the Leismer and Corner Leases for $90 million cash consideration under the same terms as its prior deals. Athabasca has now raised approximately $400 million cash proceeds in exchange for a sliding scale royalty on its thermal assets which is not triggered until oil prices are at least US$75/bbl WTI.
- Hedging implementation – hedged 12,000 bbl/d at an average price of approximately C$52.75/bbl Western Canadian Select (“WCS”) for the remainder of 2017. The Company intends to hedge up to 50% of its corporate production this year to protect near term cash flow.
- Strong reserve growth – the refinancing transaction was supported by pro forma year-end 2016 proved plus probable reserves of 1,120 mmboe, representing approximately 210% per share year over year growth.
Athabasca maintains a strong financial position with pro forma net debt on closing of the refinancing transactions estimated at $290 million and $400 million of available liquidity. The Company anticipates sustainable free cash flow generation in 2018 under current strip pricing with net debt to cash flow of less than 2.5x at year-end 2018 and trending lower in subsequent years.
The balance sheet refinancing supports the Company’s go-forward strategy:
- Light Oil: Defined and Material Growth – A scalable operated Montney position and funded Duvernay development through the joint venture with Murphy Oil Company Ltd.
- Thermal Oil: Leverage to Oil Prices – A large low decline asset base accelerates free cash flow generation with future low risk expansion options.
- Financial Sustainability – Maturing cash flow profile with strong sustainability metrics. A diverse asset base provides flexibility in future capital allocation decisions.
The Company is also pleased to provide its 2017 production and capital budget guidance which is adjusted for the Leismer acquisition effective February 1, 2017. Highlights include:
- Corporate production of 36,000 – 40,000 boe/d (>90% liquids). Comprised of 29,000 – 32,500 bbl/d in Thermal Oil and 6,500 – 7,500 boe/d in Light Oil. The Company has an overall base decline of approximately 7.5%.
- Capital program of $240 million. Comprised of $105 million in Thermal Oil and $135 million in Light Oil.
Athabasca has a fully funded five-year development outlook capable of delivering a 30% per share production CAGR. The Company retains significant flexibility in future capital allocation decisions to react to operational results and market conditions.
Additional details on the refinancing transactions, 2017 guidance and an operational update are provided within this release.
Balance Sheet Refinancing
Athabasca has entered into agreements to issue the New Notes in the amount of US$450 million. The New Notes, due in 2022 will pay interest at a rate of 9.875% per year and are not subject to maintenance or financial covenants. The New Notes are secured by a second priority lien on substantially all of the assets of Athabasca.
The New Notes offering is expected to close on or about February 24, 2017, subject to customary closing conditions. Athabasca intends to use the net proceeds from the offering to repurchase for cash any and all of the Existing Notes pursuant to a cash tender offer. Details of the tender offer are outlined in a separate press release issued today.
In conjunction with the New Notes, the Company will establish a $120 million reserve-based credit facility supported by growth in its proved developed producing reserves. The new credit facility is syndicated with seven major financial institutions, with closing anticipated to occur concurrently with the New Notes.
RBC Capital Markets, LLC, Goldman, Sachs & Co., Credit Suisse and TD Securities acted as placement agents for Athabasca.
Athabasca maintains a strong financial position with current pro forma net debt of approximately $300 million and total liquidity of approximately $400 million. The Company anticipates sustainable free cash flow generation in 2018 with net debt to cash flow of less than 2.5x under current strip pricing and less than 1.5x under GLJ pricing at year-end 2018.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the New Notes in any state in which such offer, solicitation or sale would be unlawful. The New Notes have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereof.
The Company has commenced a risk management program designed to protect a base level of cash flow and support its capital plans. The Company intends to hedge a minimum of 20,000 bbl/d for the balance of 2017 with 12,000 bbl/d of WCS hedges already in place at an average price of approximately C$52.75/bbl. Going forward, a multi-year hedging program is expected to form a part of the Company’s risk management strategy.
Contingent Bitumen Royalty
Athabasca has granted a Royalty to Burgess Energy on the recently acquired Leismer and Corner leases for $90 million of cash consideration. The Royalty follows the same structure as the existing thermal oil contingent bitumen royalties and ensures the assets are not encumbered at low commodity prices. The Royalty is based on a linear scale (0 – 12%) with a WCS benchmark. The minimum 2% trigger is US$60/bbl WCS at Leismer and Corner (US$75/bbl WTI assuming a US$15/bbl WCS differential). The Royalty is not expected to materially impact economics of future expansion phases or development projects and there are no associated commitments for development.
Over the past year Athabasca has raised approximately $400 million through the series of Royalty transactions with Burgess Energy. These transactions unlocked long dated resource value and facilitated the recent acquisition of top tier producing Leismer thermal assets.
Preliminary 2016 Results
Athabasca achieved its 2016 corporate guidance with annual production averaging approximately 12,000 boe/d (field estimates) compared to guidance of 11,800 boe/d. Capital spending for the full year was approximately $122 million, also in-line with prior guidance. Annual corporate volumes reflect the Murphy Oil Joint Venture which was completed in May 2016. Q4 2016 production averaged approximately 11,600 boe/d comprised of Light Oil at 3,300 boe/d (54% liquids) and Thermal Oil at 8,300 bbl/d.
Operations Update and 2017 Guidance
Leismer averaged approximately 23,800 bbl/d (field estimates) for Q4 2016 with a 2.6x SOR. Athabasca intends to maintain a stable production base between 22,000 – 24,000 bbl/d for the foreseeable future. Operations will be focused on production optimization and drilling additional sustaining and infill wells. The Company has a well-defined development plan for the mid-term which includes the start-up of four predrilled infills on Pad L5, infill opportunities on Pads L3 and L4 and regulatory approval and operational readiness to expand Pad L2.
Hangingstone averaged approximately 8,300 bbl/d (field estimates) for Q4 2016 with a 4.9x SOR. Volumes in recent months have been impacted by facility maintenance and ongoing pump conversions which have largely been completed by the end of January. The project is expected to reach name plate capacity of 12,000 bbl/d in 2018 with minimal maintenance capital expected within the first five years of operations.
Thermal Oil Guidance
Athabasca’s 2017 Thermal Oil budget is approximately $105 million with production guidance of 29,000 – 32,500 bbl/d, adjusted for the Leismer acquisition effective February 1, 2017. The capital program consists of $84 million at Leismer, $15 million at Hangingstone and an additional $6 million for maintaining Athabasca’s long dated thermal leases.
Greater Placid Montney (Athabasca operated, 70% working interest)
At Placid, Athabasca currently has two rigs active in the field. 12 wells have been drilled to date and another eight wells are planned before breakup. Facilities construction is underway for a battery which will tie into Athabasca’s owned and operated regional infrastructure network. The battery is expected to be in service at the beginning of the second quarter with capacity for growth up to 10,000 bbl/d and 36 mmcf/d.
The 7 – 30 – 60 – 23W5 (“7-30”) pad was rig released in late September. The four wells were drilled with an average lateral length of approximately 2,350 meters and an average drilling cost of $3.1 million. Completion operations concluded in November and the pad was designed to test ball-drop versus plug and perf design. Of the three wells completed on the 7-30 pad, two were cased hole and one open hole for an average cost of $4.2 million per well. Completions operations on the fourth well have been delayed and the Company anticipates completing the well in conjunction with future drilling operations on this pad site.
The 7-30 pad came on production in December. Initial rates are meeting expectations with restricted IP30s of approximately 800 boe/d (278 bbl/mmcf free condensate). Regional volumes will remain restricted by facility capacity until the new Placid battery comes into service this spring.
Eight wells have been drilled on the 12-19-60-23 and 16 – 30 – 60 – 23 pads with an average lateral length of approximately 2,500 meters and an average cost of $3.2 million. These wells have been designed for plug and perf completions. Completion operations are underway and both pads are expected to be placed on production before breakup.
The Company is drilling its final two pads for the winter program at surface locations 3-4-61-23W5 (4 wells) and 7-33-60-23W5 (4 wells). The pads are expected to be rig released near the end of the first quarter with completions operations to commence in the summer.
Decisions regarding second half activity levels will be finalized in the summer and the Company retains flexibility to adapt the program to results and external market conditions.
Greater Kaybob Duvernay (Murphy operated, 30% working interest)
Murphy and Athabasca have finalized 2017 capital plans which are consistent with the development plan contained in the joint development agreement. Core objectives of the program include near-term production and cash flow growth, delineation across all phase windows, optimizing well design and maximizing land retention.
The 2017 program will include the spudding of 16 gross wells. The wells include a mix of pad development locations and delineation wells throughout the volatile oil window. Murphy intends to optimize well design with average lateral lengths increasing to approximately 2,800 meters and frac intensity up to approximately 2,000 lbs/ft (~3T/m). The program will target total lateral meters drilled of approximately 45,000 meters and this compares to Athabasca’s initial 20 well appraisal campaign of approximately 27,000 meters since 2012.
The Company’s partner, Murphy, currently has two rigs active in the field. The first two-well pad spud in November of 2016 at Kaybob West (surface location 1-18-64-20W5). The pad was rig released in January with average drill times of 22 days (spud to rig release) and an average lateral length of ~1,400 meters. Completion operations are underway with on-stream timing expected before breakup. Murphy intends to complete the well with proppant intensity of approximately 2,000 lbs/ft.
Drilling operations are underway on a two well pad at surface location 4-32-65-20W5 (2,650 meter average lateral length) and a three well pad at 11-18-64-20W5 (2,700 meter average lateral length). Both pads are expected to be rig released before breakup.
Light Oil Guidance
Athabasca’s 2017 Light Oil capital budget is $135 million ($120 million for Placid Montney and $15 million net for Duvernay) with production guidance of 6,500 – 7,500 boe/d and an exit target in excess of 10,000 boe/d. H2 2017 Montney capital will be assessed mid-year.
|2017 Budget & Guidance Details|
|Production1 (boe/d)||36,000 – 40,000|
|Liquids Weighting (%)||~90%|
|Funds Flow from Operations2 ($MM)||~$93|
|Bitumen Production1 (bbl/d)||29,000 – 32,500|
|Operating Income2 ($MM)||~$104|
|Capital Expenditures ($MM)||$105|
|Production (boe/d)||6,500 – 7,500|
|Operating Income2 ($MM)||~$79|
|Capital Expenditures ($MM)||$135|
|COMMODITY ASSUMPTIONS (strip pricing as at February 6)|
|Edmonton Par (C$/bbl)||$67.41|
|Western Canadian Select (C$/bbl)||$51.97|
|AECO Gas (C$/mcf)||$2.66|
|1)||Production guidance reflects a January 31, 2017 closing date for the Statoil acquisition with Leismer volumes to be reported from February – December.|
|2)||Corporate funds flow and operating income based on mid-points of guidance.|
2016 Reserves Update (Pro Forma Statoil Acquisition)
Athabasca’s independent qualified reserves evaluators, GLJ Petroleum Consultants (“GLJ”) and DeGolyer and MacNaughton Canada Limited (“D&M”), prepared year-end reserve evaluations effective December 31, 2016 for the Company’s existing properties and the recently acquired Leismer and Corner properties.
Corporately, Athabasca has increased its Proved plus Probable reserves by approximately 210% per share year over year to 1,120 mmboe through the acquisition the Leismer and Corner properties, and a successful light oil drilling program at Greater Kaybob and Greater Placid.
Additional details on reserves will be provided in conjunction with Athabasca’s year-end disclosure in March.
|Light Oil2||Thermal Oil||Corporate|
|per basic share||0.72||2.21|
|NPV10 BT ($MM)3|
|1)||2016 year-end pro forma reserves reported on a gross basis. Proved Developed Producing “PDP”, Total Proved “Proved”, Proved Plus Probable “2P”.|
|2)||2016 Light Oil reserves reflect the disposition of a 70% and 30% working interest in the Greater Kaybob and Greater Placid areas respectively in conjunction with the Murphy Oil Joint Venture which closed in May 2016.|
|3)||Net present value of future net revenue before tax and at a 10% discount rate (NPV 10 BT) for 2016 is based on GLJ pricing as at January 1, 2017 (which is available on its website at http://www.gljpc.com/). NPV 10BT for 2015 is based on GLJ pricing at January 1, 2016.|
About Athabasca Oil Corporation
Athabasca Oil Corporation is a Canadian energy company with a focused strategy on the development of thermal and light oil assets. Situated in Alberta’s Western Canadian Sedimentary Basin, the Company has amassed a significant land base of extensive, high quality resources. Athabasca’s common shares trade on the TSX under the symbol “ATH”. For more information, visit www.atha.com.