CALGARY, ALBERTA–(Marketwired – May 6, 2016) – Athabasca Oil Corporation (TSX:ATH) (“Athabasca” or “the Company”) is pleased to provide its 2016 first quarter results and an operations update. The Company continues to advance significant strategic and operational milestones in both its Light Oil and Thermal Oil divisions despite exceptionally challenging external market conditions.
- Q1 2016 operating and financial highlights – Corporate production averaged 13,348 boe/d (76% liquids), an increase of 15% over Q4 2015 and 127% year over year. Athabasca realized negative funds flow from operations of $40 million and capital expenditures totaled $32 million.
- Greater Placid Montney – Placid is now pipeline connected to Athabasca’s extensive greater Kaybob infrastructure with a new a multi-well pad tied-in through its infrastructure. Rates on the new wells are meeting expectations and the Company remains encouraged by the initial production with restricted IP30s averaging 771 boe/d (59% liquids, 182 bbl/mmcf free liquids).
- Greater Kaybob Duvernay – During the first quarter, Athabasca successfully demonstrated the impact of a two well proppant loading test in the volatile oil window realizing a 40% uplift in IP30 productivity. The Company remains encouraged by the initial production and continues to monitor extended rates and evaluate the potential for higher proppant loading across the play.
- Hangingstone – Bitumen production averaged 7,029 bbl/d in the first quarter of 2016, representing 23% growth over Q4 2015. Hangingstone was shut down yesterday due the regional Fort McMurray wildfires. At this time there is no damage to the facility, field pipelines or well sites. Timing for a restart of operations will be contingent on containment of the regional fires and ensuring safe operating conditions. Prior to the shut-in, production reached approximately 9,000 bbl/d.
- Light Oil Joint Venture Update – In January, Athabasca entered into a $475 million light oil joint venture with Murphy Oil Company Ltd. (“Murphy”) in the Kaybob Area (“Murphy Transaction”). Murphy will pay approximately $250 million in cash to Athabasca at closing with an additional $225 million capital carry of 75% of the Company’s share of expenditures in the Duvernay. The Company is progressing towards closing in Q2 2016.
- Balance Sheet Strength – Pro forma the transaction Athabasca is estimated to have approximately $880 million of liquidity and a net cash position of approximately $60 million competitively positioning the Company in a lower for longer price environment. Liquidity will be further bolstered by the $225 million Duvernay capital carry commitment.
FINANCIAL AND OPERATING HIGHLIGHTS | |||||||
Three months ended March 31, | |||||||
($ Thousands, except per share and boe amounts) | 2016 | 2015 | |||||
CONSOLIDATED PRODUCTION | |||||||
Petroleum and natural gas volumes (boe/d) | 13,348 | 5,877 | |||||
LIGHT OIL DIVISION | |||||||
Petroleum and natural gas sales volumes (boe/d) | 6,319 | 5,877 | |||||
Light Oil operating income1 | $ | 4,908 | $ | 6,578 | |||
Light Oil operating netback1 ($/boe) | $ | 8.53 | $ | 12.46 | |||
Capital expenditures2 | $ | 30,658 | $ | 79,241 | |||
THERMAL OIL DIVISION | |||||||
Bitumen production (bbl/d) | 7,029 | – | |||||
Bitumen sales volumes (bbl/d) | 7,176 | – | |||||
Thermal Oil operating income (loss)1, 3 | $ | (23,074 | ) | $ | – | ||
Thermal Oil operating netback1, 3 | $ | (35.34 | ) | $ | – | ||
Capital expenditures | $ | 916 | $ | 68,504 | |||
CASH FLOWS AND FUNDS FLOW | |||||||
Cash flow from operating activities | $ | (38,017 | ) | $ | (2,610 | ) | |
Cash flow from operating activities per share (basic & diluted) | $ | (0.09 | ) | $ | (0.01 | ) | |
Funds flow from operations1 | $ | (39,982 | ) | $ | 3,162 | ||
Funds flow from operations per share (basic & diluted) | $ | (0.10 | ) | $ | 0.01 | ||
NET LOSS AND COMPREHENSIVE LOSS | |||||||
Net loss and comprehensive loss | $ | (65,129 | ) | $ | (25,112 | ) | |
Net loss and comprehensive loss per share (basic & diluted) | $ | (0.16 | ) | $ | (0.06 | ) | |
SHARES OUTSTANDING | |||||||
Weighted average shares outstanding (basic & diluted) | 404,511,104 | 402,393,806 | |||||
FINANCING AND DIVESTITURES | |||||||
Receipt of proceeds from promissory note | $ | – | $ | 300,000 | |||
As at ($ Thousands) | March 31, 2016 | December 31, 2015 | |||||
BALANCE SHEET ITEMS | |||||||
Cash and cash equivalents | $ | 493,510 | $ | 559,487 | |||
Promissory note | $ | 133,892 | $ | 133,892 | |||
Assets held for sale | $ | 466,159 | $ | – | |||
Total assets | $ | 3,394,367 | $ | 3,462,442 | |||
Long-term debt | $ | 820,478 | $ | 838,205 | |||
Net Debt1 | $ | 209,809 | $ | 154,711 | |||
Shareholders’ equity | $ | 2,419,651 | $ | 2,482,140 | |||
1) | For additional information on Non-GAAP Financial Measures, refer to “Advisories and Other Guidance” beginning on page 16 of the Athabasca’s Management Discussion & Analysis dated May 6, 2016 which is available on SEDAR at http://www.sedar.com/. |
2) | During the three months ended March 31, 2016, $8.7 million of Light Oil PP&E expenditures were classified as assets held for sale. |
3) | Negative Operating Netbacks are customary during ramp-up of a SAGD project as revenues from lower initial production is more than offset by operating and transportation costs which are largely fixed in nature regardless of production volumes. Athabasca anticipates that operating and transportation costs per barrel from Project 1 will continue to materially improve as production increases. |
Operations Update
Light Oil
Production averaged 6,319 boe/d (50% liquids) in the first quarter of 2016. Field capital expenditures totaled $31 million and included the completion and tie-in of a three well Montney pad, completing drilling operations on a four well Duvernay pad at Kaybob West and the construction of the Placid inter-connect to the Company’s owned and operated infrastructure at Saxon.
Greater Placid – April ~3,500 boe/d gross
In the Montney play at Placid, the Company has established a scalable and operated position which it believes has top quartile returns potential relative to other North American plays.
In the first quarter of 2016, Athabasca completed three new Montney wells off a pad at Placid to follow up on two successful wells drilled in the winter of 2014/15. Drilling and completion (“D&C”) costs averaged $6.9 million per well. Drilling costs averaged approximately $4 million per well with spud to rig release times averaging 23 days for extended reach laterals (~2,500 meters). Completions operations concluded in March with frac costs averaging $2.9 million per well (~785 lbs/ft proppant loading).
Placid is now pipeline connected to Athabasca’s extensive greater Kaybob infrastructure allowing flexibility to market liquid and gas products at various regional processing plants and mainlines. The pipeline inter-connect to Saxon was commissioned on-time and under budget. Athabasca recently tied in a four well pad and the 8-20-60-23W5 well through this new infrastructure. Three of the wells have produced for 30 days and the average IP30 on these wells is 771 boe/d (59% liquids). Rates remain restricted as the wells clean-up post completion. Initial well performance is meeting expectations and the Company remains encouraged by liquids yields which are supportive of the 8-20 well which had a restricted IP30 of 900 boe/d (65% liquids, 270 bbl/mmcf free liquids), cumulative production to date of 200 mboe (52% liquids) and current production of ~600 boe/d (43% liquids).
Placid Montney Well Results | |||
UWI | IP301 (boe/d) |
Liquids % |
Free Liquids bbl/mmcf |
9-26-60-24W5 – C interval | 967 | 57 | 166 |
6-17-60-23W5 – D interval | 686 | 56 | 158 |
11-17-60-23W – C interval | 660 | 65 | 242 |
3-17-60-23W5 – C interval | rates to be disclosed following 30 days | ||
1) | IP30s reflect sales volumes with estimated plant recovered NGLs. |
With no near-term land expiries and operated egress, the asset is set up with significant flexibility to control the pace of development going forward. Athabasca has exposure to approximately 25,000 gross acres of prospective Montney land with two separately defined Montney intervals.
Greater Kaybob – April ~4,800 boe/d gross
Athabasca and industry continue to de-risk the Duvernay play at Kaybob with select areas progressing to pad drilling operations. The Company’s core objectives for the winter Duvernay program included demonstrating pad drilling cost efficiencies and ongoing appraisal and delineation of the volatile oil window.
At Kaybob East, the Company completed a two well proppant loading test in the volatile oil window. Industry has seen a positive trend in productivity and ultimate recoveries by increasing proppant loading in both the Duvernay and other leading North American shale plays. The higher proppant completion resulted in a 40% improvement in its IP30 rate (758 boe/d vs. 541 boe/d). The Company remains encouraged by the initial production from these wells and continues to monitor extended rates and evaluate the potential for higher proppant loading across the play.
At Kaybob West, in the condensate rich gas window, the Company completed drilling operations on a four well cost demonstration pad. Average drilling costs for the pad were $4 million per well with spud to rig release times averaging less than 18 days. The Company intends to complete the four wells after break-up, with a planned on-stream date in Q3 2016. D&C costs are expected to be within $8 – $10 million per well depending on completion intensity.
Light Oil Joint Venture Update
In January 2016, Athabasca entered into an agreement to form a strategic joint venture with Murphy to develop the Duvernay and Montney Formations in the Greater Kaybob and Greater Placid areas. As part of the transaction, Athabasca is selling 70% of its interest in its Greater Kaybob area assets and 30% of its interest in Greater Placid area assets for gross proceeds of $475 million. Murphy will assume operatorship of the Greater Kaybob area assets and Athabasca will retain operatorship of the Greater Placid area assets under separate joint development agreements. Athabasca will also retain operatorship of the regional midstream infrastructure in the near term.
Murphy will pay approximately $250 million in cash to Athabasca on closing. Additional consideration of $225 million will be in the form of a capital carry whereby Murphy will fund 75% of Athabasca’s share of Duvernay development capital up to a maximum five year period. The carry supports up to approximately $1 billion of investment of which Athabasca’s financial exposure is limited to $75 million to retain a 30% working interest in 200,000 gross acres. The effective date of the transaction is January 1, 2016. The Company is progressing towards closing in Q2 2016.
The joint venture with Murphy will leverage both partners’ extensive shale play expertise and ensure capital is directed towards de-risking the volatile oil window in the Duvernay. Athabasca is now positioned with a capital risk profile appropriate to its size while maintaining significant upside in the Duvernay shale play and a funded growth profile. Athabasca’s operated Montney position at Placid provides a material platform for future economic growth with over 100 high quality locations.
Thermal Oil – Hangingstone
In the Thermal Division, Hangingstone Project 1 is now 10 months into its production ramp-up with 23 well pairs converted to SAGD production. Bitumen production averaged 7,029 bbl/d in the first quarter of 2016, representing 23% growth over Q4 2015. Volumes for the quarter were partially impacted by operations maintenance. Cash flow for the quarter was impacted by lower than expected realized bitumen pricing with ongoing volatility in the oil price benchmarks. Western Canadian Select heavy crude averaged US$26.30/bbl in the first quarter.
Hangingstone was shut down yesterday due the regional Fort McMurray wildfires. At this time, there is no damage to the facility, field pipelines or well sites. Timing for a restart of operations will be contingent on containment of the regional fires and ensuring safe operating conditions. Prior to the shut-in production reached approximately 9,000 bbl/d.
2016 Budget and Outlook
In December, Athabasca released its 2016 capital budget. Pro forma guidance incorporates the pending Murphy transaction, current operations and strip commodity prices is outlined in the tables below.
2016 Capital Budget1($ million) | Full Year | ||
LIGHT OIL | Gross | Net | |
Greater Kaybob (Duvernay) | $39 | $13 | |
Greater Placid (Montney) | 33 | 30 | |
Total Light Oil | $71 | $42 | |
THERMAL OIL | |||
Hangingstone Maintenance | $7 | ||
Other Thermal | 4 | ||
Total Thermal | $11 | ||
Capitalized G&A | $8 | ||
TOTAL CAPITAL SPENDING | $61 | ||
1) | Figures may not add up due to rounding. |
2) | Greater Kaybob net capital reflects Athabasca’s interest following the application of the capital carry (Murphy funds 75% of Athabasca’s 30% working interest). |
3) | Greater Placid net capital reflects Athabasca’s 70% working interest. |
2016 Operational & Financial Guidance | Full Year | |
LIGHT OIL (net) | ||
Production (boe/d) | 4,500 – 5,000 | |
Liquids Weighting (%) | 55% | |
Operating Income1 ($MM) | ~$26 | |
Operating Netback ($/boe) | ~$14.75 | |
THERMAL OIL | ||
Bitumen Production (bbl/d) | 9,000 – 10,000 | |
Operating Income1 ($MM) | ~($41) | |
CORPORATE | ||
Production (boe/d) | 13,500 – 15,000 (~85% liquids) | |
Funds Flow from Operations1 ($MM) | ~($97) | |
Net Debt2 ($MM) | ~$20 | |
Cash & Equivalents2 ($MM) | ~$765 | |
COMMODITY ASSUMPTIONS (strip pricing as at April 25) | ||
WTI (US$/bbl) | $41.49 | |
Edmonton Par (C$/bbl) | $49.10 | |
Western Canadian Select (C$/bbl) | $34.90 | |
AECO Gas (C$/mcf) | $1.70 | |
FX (US$/C$) | 0.773 | |
1) | Operating Income and Funds Flow from Operations estimates reflect the mid-point of production guidance. Thermal Operating Income reflects the production ramp-up to design capacity by the end of 2016. |
2) | Net debt and cash equivalents forecasts assume the current capital structure and exclude debt repayment target of $300 – $400 million. |
At this time no additional Light Oil capital has been approved for the second half of 2016. Athabasca has operational readiness to increase development in both the Montney and Duvernay.
Pro forma Murphy Transaction, Athabasca will have approximately $880 million of liquidity and a net cash position of approximately $60 million. Liquidity will be further bolstered by the $225 million Duvernay capital carry commitment. The Company continues to evaluate alternatives to enhance its capital structure and remains committed to reducing total leverage by $300 to $400 million during 2016.
Board Renewal Update
Athabasca is pleased to announce further steps in its ongoing commitment to Board renewal and strong governance. The Board has appointed Mr. Bob Rooney as an independent director. Mr. Rooney was previously Executive Vice President and General Counsel at Talisman Energy Inc. prior to its acquisition by Repsol S.A. Prior thereto, Mr. Rooney was a partner at Bennett Jones LLP in Calgary with over 20 years of experience in corporate M&A and international oil and gas law. He is currently active in the oil and gas sector and is a Managing Director of RimRock Oil and Gas, a private Calgary based company. Mr. Rooney’s diverse background will be an asset to the Board’s composition and skill set.
In conjunction with this appointment, Mr. Paul Haggis and Mr. Peter Sametz will not be seeking re-election for Board positions at the next annual meeting. Athabasca would like to thank both directors for their valuable contributions to the Company and wishes them well on future endeavors.
Since announcing the Board renewal process in September 2014, the Company has made significant changes that will better position the Company for the future. Changes made include the appointment of a new independent Chair, four new independent directors and the rotation of four legacy directors.
Annual General Meeting
Athabasca’s annual general meeting is scheduled for June 21, 2016 at 9:00AM MST at the Metropolitan Center in Calgary.
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.