CALGARY, ALBERTA–(Marketwired – July 27, 2016) – Athabasca Oil Corporation (TSX:ATH) (“Athabasca” or “the Company”) is pleased to provide its 2016 second quarter results and an operations update. During the quarter the Company continued to progress its operational targets in both business divisions and bolstered its financial position through the closing of two strategic transactions.
Athabasca’s strategy positions the Company for strong growth and sustainability into the future:
- Defined and Material Growth in Light Oil – a scalable operated Montney position and funded Duvernay development through the joint venture with Murphy Oil Company Ltd. (“Murphy”).
- Thermal Oil Leverage to Commodity Prices – successful ramp-up of Hangingstone Project 1, a low decline asset with significant cash flow torque and minimal capital requirements in the initial years of operations.
- Financial Sustainability – Significant financial flexibility with current liquidity of $607 million and a $91 million net cash position.
Notable highlights include:
- Q2 2016 Operating Highlights – Corporate production, adjusted for the Murphy joint venture, averaged 11,101 boe/d (74% liquids), an increase of 103% year over year. Capital expenditures were approximately $6 million in the quarter.
- Contingent Bitumen Royalty – On June 17, the Company granted a Contingent Bitumen Royalty (the “Royalty”) on its Thermal Oil assets to Burgess Energy Holdings L.L.C. for cash proceeds of $129 million. The Royalty is structured with a 0 – 6% sliding scale based on a realized bitumen price (C$), which is determined net of diluent, transportation and storage costs. The Royalty is not triggered until the realized bitumen price reaches a minimum of C$50/bbl at Hangingstone ($60/bbl for each of the Company’s other thermal assets) so that the assets will not be encumbered at lower pricing levels. At Hangingstone, the Company estimates a US$75/bbl WTI price at 12,000 bbl/d would be required before the realized bitumen price reaches C$50/bbl and the first 1% Royalty is triggered. At this pricing level, Hangingstone Project 1 is estimated to have an annual operating netback of approximately $120 million (net of a $2 million Royalty). The Royalty is not expected to materially impact economics of future expansion phases or future development projects and there are no associated commitments to develop the assets.
- Corporate Debt Reduction and Balance Sheet Strength – In June 2016, Athabasca reduced its outstanding corporate debt by approximately $250 million through repaying its US$221 million Term Loan and unwinding its US dollar foreign exchange hedge. The recent Royalty grant along with the debt repayment are further steps towards aligning the Company’s capital structure with its go forward operating plans. As of the end of June 30, 2016, the Company had a net cash position of $91 million, $607 million in liquidity and maintains an undrawn $45 million revolving credit facility. Liquidity through the mid-term is further supported by the remaining $218 million Duvernay capital carry balance with Murphy.
- Capital Budget Increase for Placid Montney – In the Light Oil division, Athabasca has increased its capital budget to $102 million net (from $47 million net). All additional capital is being directed towards its Montney program at Placid, which will include the drilling of 12 development wells, the completion and tie-in of a four well pad and long lead commitments on an oil battery to accommodate mid-term growth plans. A single rig is currently operating and Athabasca retains significant flexibility to control the pace of development. The Company is positioned with a multi-year development inventory that has robust economics in the current commodity price environment.
- Light Oil Duvernay Joint Venture – In May 2016, Athabasca closed its light oil joint venture with Murphy in the Kaybob Area for consideration of $486 million ($267 million cash and a $219 million carry). Athabasca recently completed fracturing operations on a previously drilled four well pad at Kaybob West in the condensate rich gas window with expected on-stream timing in Q4 2016. The transition of operatorship of the Duvernay to Murphy will be substantially completed by the end of July. The joint development plan contemplates approximately $1 billion of Duvernay gross investment over the next four to five years with gross production potential up to 30,000 boe/d (60% liquids, 30% working interest), of which Athabasca’s net capital exposure is approximately $75 million.
- Hangingstone – Following a three week shut-down in May in response to the regional Fort McMurray wildfires, operations have resumed with bitumen production averaging 7,831 bbl/d in June and forecasted to average approximately 8,600 bbl/d in July. The project is expected to approach design capacity of 12,000 bbl/d by the end of 2016 with no additional development capital required. The wildfire impact and other unplanned downtime year to date is expected to impact annual volumes with revised 2016 production guidance between 7,500 – 8,500 bbl/d on an unchanged capital budget.
FINANCIAL AND OPERATING HIGHLIGHTS
3 months ended June 30 | 6 months ended June 30 | ||||||||||||
($ Thousands, except per share and boe amounts) | 2016 | 2015 | 2016 | 2015 | |||||||||
CONSOLIDATED PRODUCTION | |||||||||||||
Petroleum and natural gas volumes (boe/d) | 11,101 | 5,459 | 12,224 | 5,667 | |||||||||
LIGHT OIL DIVISION | |||||||||||||
Petroleum and natural gas sales volumes (boe/d) | 5,743 | 5,459 | 6,031 | 5,667 | |||||||||
Light Oil operating income(1) | $ | 7,215 | $ | 10,689 | $ | 12,123 | $ | 17,281 | |||||
Light Oil operating netback(1) ($/boe) | $ | 13.80 | $ | 21.51 | $ | 11.03 | $ | 16.84 | |||||
Capital expenditures | $ | 5,518 | $ | 14,959 | $ | 36,176 | $ | 94,200 | |||||
Recovery of capital-carry through capital expenditures | $ | (1,474 | ) | $ | – | $ | (1,474 | ) | $ | – | |||
THERMAL OIL DIVISION | |||||||||||||
Bitumen production (bbl/d) | 5,358 | – | 6,193 | – | |||||||||
Bitumen sales volumes (bbl/d) | 4,463 | – | 5,820 | – | |||||||||
Thermal Oil operating income (loss)(1), (2) | $ | (11,915 | ) | $ | – | $ | (34,990 | ) | $ | – | |||
Thermal Oil operating netback(1), (2)($/bbl) | $ | (29.33 | ) | $ | – | $ | (33.03 | ) | $ | – | |||
Capital expenditures | $ | 2,187 | $ | 33,118 | $ | 3,094 | $ | 101,685 | |||||
CASH FLOWS AND FUNDS FLOW | |||||||||||||
Cash flow from operating activities | $ | 5,759 | $ | 8,576 | $ | (32,268 | ) | $ | 5,922 | ||||
Cash flow from operating activities per share (basic & diluted) | $ | 0.01 | $ | 0.02 | $ | (0.08 | ) | $ | 0.01 | ||||
Funds flow from operations(1) | $ | (27,304 | ) | $ | 5,085 | $ | (67,420 | ) | $ | 8,201 | |||
Funds flow from operations per share (basic & diluted) | $ | (0.07 | ) | $ | 0.01 | $ | (0.17 | ) | $ | 0.02 | |||
NET LOSS AND COMPREHENSIVE LOSS | |||||||||||||
Net loss and comprehensive loss | $ | (59,169 | ) | $ | (29,044 | ) | $ | (124,298 | ) | $ | (54,156 | ) | |
Net loss and comprehensive loss per share (basic & diluted) | $ | (0.15 | ) | $ | (0.07 | ) | $ | (0.31 | ) | $ | (0.13 | ) | |
SHARES OUTSTANDING | |||||||||||||
Weighted average shares outstanding (basic & diluted) | 405,222,515 | 402,981,471 | 404,964,704 | 402,698,520 | |||||||||
FINANCING AND DIVESTITURES | |||||||||||||
Cash proceeds from sales of assets | $ | 392,175 | $ | – | $ | 392,338 | $ | – | |||||
Promissory note proceeds | $ | – | $ | – | $ | – | $ | 300,000 | |||||
Repayment of long-term debt | $ | (284,722 | ) | $ | (626 | ) | $ | (285,441 | ) | $ | (1,336 | ) | |
Derivative proceeds upon repayment of long-term debt | $ | 40,956 | $ | – | $ | 40,956 | $ | – |
As at ($ Thousands) | June 30, 2016 |
December 31, 2015 |
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BALANCE SHEET ITEMS | |||||
Cash and cash equivalents | $ | 447,282 | $ | 559,487 | |
Short-term investments | $ | 25,533 | $ | – | |
Promissory note | $ | 133,892 | $ | 133,892 | |
Restricted cash | $ | 101,652 | $ | – | |
Long-term receivables and other(3) | $ | 181,443 | $ | 3,044 | |
Total assets | $ | 3,028,938 | $ | 3,462,442 | |
Long-term debt | $ | 544,042 | $ | 838,205 | |
Net Debt(1) | $ | (90,834 | ) | $ | 154,711 |
Shareholders’ equity | $ | 2,363,396 | $ | 2,482,140 | |
(1) | For additional information on Non-GAAP Financial Measures, refer to “Advisories and Other Guidance” beginning on page 19 of the Athabasca’s Management Discussion & Analysis dated July 27, 2016 which is available on SEDAR at www.sedar.com. |
(2) | Negative Operating Netbacks are customary during ramp-up of a SAGD project as revenues from lower initial production are 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 Hangingstone Project 1 will continue to materially improve as production increases. |
(3) | Long-term receivables and other primarily consists of the long-term portion of the discounted capital-carry receivable of $181.4 million ($216.7 million undiscounted). |
Operations Update
Light Oil
Production averaged 5,743 boe/d (49% liquids) in the second quarter of 2016. Capital expenditures totaled $4 million (net of capital carry) with activity focused on operational readiness for the second half 2016 Duvernay and Montney programs.
Greater Placid Montney – (70% working interest; Q2 2,960 boe/d net)
In the Montney at Placid, the Company has established a scalable and operated position which it believes has competitive returns relative to other North American plays.
During the winter 2015/16 program the Company placed four new Montney wells on-stream in early April. Three of the wells were drilled into the Montney C interval and 6-17-60-23W5 was drilled into the Montney D interval. Production and core data confirm that both Montney intervals are independent and demonstrates a liquids rich trend in the Placid area. IP30s on the Placid program over the past two years have averaged 805 boe/d (64% liquids) with IP90s averaging 686 boe/d (56% liquids). Extended production data supports management’s type curve expectations and the wells are exhibiting modest declines as initial rates were restricted during the clean-up period.
Following a successful 2015/16 winter program, Athabasca has commenced its second half 2016 program with the recent spudding of a four well pad at surface location 7- 30-60-23W5 (“7-30”). The pad is expected to be rig-released and completed in Q4 2016 with an on-stream date near year-end. Targeted drill and completion costs (“D&C”) are $6.8 million per well with an average lateral length of approximately 2,400 meters and approximately 1,000 lb/ft completion intensity. The Company’s second half program includes drilling 12 development wells, the completion and tie-in of the 7-30 four well pad and long lead commitments on an oil battery to accommodate mid-term growth plans.
As Placid operations transition to pad development the play is expected to drive top tier competitive capital efficiencies. Athabasca will remain focused on economically growing production while delineating both Montney intervals and growing the aerial extent of the play.
With no near-term land expiries and operated egress, Placid is set up with significant flexibility to control the pace of development going forward. Athabasca has high-graded exposure to approximately 25,000 gross acres of prospective Montney land. The development inventory is estimated at over 150 gross locations which could drive organic growth in excess of five years under an accelerated two rig development scenario.
Greater Kaybob Duvernay – (30% working interest; Q2 2,783 boe/d net)
Athabasca and Murphy closed the $486 million light oil joint venture on May 13, 2016. Integration of operations continues to progress with the transition of operatorship to Murphy on track to be substantially completed by the end of July.
At Kaybob West, in the condensate rich gas window, the Company recently completed fracturing operations on a previously drilled four well pad at Section 36-63-20W5. Completion intensity design on this pad was increased to approximately 2,000 lbs/ft from the prior design of approximately 1,100 lbs/ft. Average completion costs on this pad are estimated at $5.5 million per well with all-in D&C costs estimated at less than $9.5 million per well. On-stream timing is expected near year-end 2016.
Joint venture drilling operations are expected to commence this fall. By the end of 2017, the joint development plans include drilling approximately 20 Duvernay wells. Operations will include a mix of continued resource delineation in the volatile oil window and pad operations in lower risk more defined areas of the play.
The joint development plan is designed to maximize land retention, delineate the volatile oil window and progress the entire asset to the self-funding stage post the initial carry period. The $219 million capital carry amount ($218 million currently remaining) will minimize Athabasca’s financial exposure in the mid-term, with Murphy funding 75% of the Company’s 30% working interest on the first $1 billion of investment ($75 million net exposure) in this play.
The Company believes that the recently announced Alberta Government Emerging Resource Program which overlays the Modernized Royalty Framework will support continued industry investment and activity in the emerging Duvernay play, in particular the volatile oil window.
Thermal Oil – Hangingstone
In the Thermal Oil Division, Hangingstone Project 1 is approximately one year into its production ramp-up with 23 well pairs converted to SAGD production.
Bitumen production for the second quarter averaged 5,358 bbl/d with volumes impacted by planned regulatory mandated maintenance of the steam boilers in April and the temporary shut-down of operations for approximately three weeks in May in response to the regional Fort McMurray wildfires. Operations resumed on May 22, 2016 with no damage to field equipment or long lasting effects expected on the reservoir from the shut in period. The field is currently ramping back up and bitumen production averaged 7,831 bbl/d in June and is forecasted to average approximately 8,600 bbl/d in July.
The project is expected to approach design capacity of 12,000 bbl/d by the end of 2016. No additional development capital is required to reach design capacity and only minimal maintenance capital will be needed in the initial years of operation.
2016 Budget and Outlook
Athabasca’s updated guidance incorporates the closing of the recent Murphy joint venture and Royalty transactions, current operations, the planned expansion to the Light Oil Montney program at Placid and strip pricing as of July 5th, 2016.
In the Light Oil division, Athabasca has increased its capital budget to $102 million net (from $47 million net) to reflect the accelerated Montney development program at Placid. Annual Light Oil production guidance remains unchanged between 4,500 – 5,000 boe/d and the increased Montney activity will drive production growth in early 2017.
In the Thermal Oil division, the wildfire impact and other unplanned maintenance downtime year to date has impacted annual production volumes with revised guidance now expected between 7,500 – 8,500 bbl/d on an unchanged capital budget of $11 million.
The Company remains in a strong financial positon with net cash of $91 million and $607 million in liquidity (excluding an undrawn $45 million credit facility) as of June 30, 2016. Liquidity through the mid-term is further supported by the remaining $218 million Duvernay capital carry balance with Murphy.
2016 Capital Budget(1)($ million) | Full Year | ||
LIGHT OIL | Net | ||
Greater Kaybob(2) (Duvernay) | $ | 8 | |
Greater Placid(3) (Montney) | 94 | ||
Total Light Oil | $ | 102 | |
THERMAL OIL | |||
Hangingstone Maintenance | $ | 7 | |
Other Thermal | 4 | ||
Total Thermal | $ | 11 | |
Capitalized G&A | $ | 8 | |
TOTAL CAPITAL SPENDING | $ | 121 |
(1) | Figures may not add up due to rounding. |
(2) | Greater Kaybob net capital reflects Athabasca’s 30% interest following the application of the $219 million capital carry (Murphy funds 75% of Athabasca’s 30% working interest). |
(3) | Greater Placid net capital reflects Athabasca’s 70% working interest. |
2016 Operational & Financial Guidance | Full Year | ||
LIGHT OIL (net) | |||
Production (boe/d) | 4,500 – 5,000 | ||
Liquids Weighting (%) | 50 | % | |
Operating Income(1) ($MM) | ~$25 | ||
Operating Netback ($/boe) | ~$14 | ||
THERMAL OIL | |||
Bitumen Production (bbl/d) | 7,500 – 8,500 | ||
Operating Income(1) ($MM) | ~($50 | ) | |
CORPORATE | |||
Production (boe/d) | 12,000 – 13,500 (~82% liquids | ) | |
Funds Flow from Operations(1) ($MM) | ~($99 | ) | |
Net Debt ($MM) | ~$35 | ||
Cash & Equivalents ($MM) | ~$510 | ||
COMMODITY ASSUMPTIONS (strip pricing as at July 5, 2016) | |||
WTI (US$/bbl) | $42.61 | ||
Edmonton Par (C$/bbl) | $51.14 | ||
Western Canadian Select (C$/bbl) | $36.96 | ||
AECO Gas (C$/mcf) | $1.97 | ||
FX (US$/C$) | 0.762 |
(1) | Operating Income and Funds Flow from Operations estimates reflect the mid-point of production guidance. |
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.