Athabasca is a liquids-weighted intermediate producer with exposure to Canada’s most active resource plays (Montney, Duvernay, Oil Sands). The Company’s high quality, long life assets provide investors with unique exposure to free cash flow which, combined with focus on strong margin opportunities, drives shareholder returns. Despite unprecedented pricing volatility in 2018, Athabasca delivered strong operational results and bolstered its financial resiliency. With the improved differential environment, the Company is well positioned for 2019 and beyond.
2018 Corporate Highlights
Consolidated Annual Results
- Production of 39,203 boe/d (86% liquids), representing 11% growth year over year
- Capex of $194 million with a balanced investment profile between Light and Thermal Oil
- Operating income of $118 million (excl. hedging) and funds flow of $6 million; financial results impacted by extreme differentials in Q4 2018
Reserves – Significant Long Term Value
- 2P reserves of 1.3 Billion boe including 1 Billion bbl of top tier reserves at Leismer/Corner
- Net asset value of $1.28/share PDP, $4.50/share Proved and $8.94/share 2P
- $265 million Leismer infrastructure transaction closed on January 15, 2019; funding capacity of $550 million and liquidity of $468 million (cash & available credit facilities) on closing
- Pro forma net debt of $292 million or 1.8x debt to 2019 funds flow (US$60 WTI & US$17.50 diff)
- 25% reduction in forecasted 2019 G&A to ~$22 million ($1.50/boe)
2018 Asset Highlights
Light Oil – High Margin Liquids Rich Growth
- Production of 11,280 boe/d (51% liquids), representing 50% growth year over year
- Operating income of $107 million; netbacks of $26/boe supported by low lifting costs ($8.22/boe)
- Active development with 11 Montney and 26 Duvernay wells placed on-stream
Thermal Oil – Low Decline Production
- Production of 27,923 bbl/d includes ~2,000 bbl/d impact of turnaround and strategic curtailments
- ~$40 million in run-rate annual savings from 2017 levels (non-energy costs optimization and Norlite diluent sourcing)
- Installed a fifth steam generator at Leismer and spud a sustaining pad to be on-stream in H2 2019
The Company offers investors excellent exposure to improving oil prices with low total financial leverage and funds flow sensitivity of approximately $80 million for each incremental US$5/bbl increase in WTI.
|Financial and Operational Highlights|
|3 months ended Dec 31||Year ended Dec 31|
|($ Thousands, unless otherwise noted)||2018||2017||2018||2017|
|Petroleum and Natural Gas Production (boe/d)||37,984||42,064||39,203||35,421|
|Operating Income (Loss)1,2||$||(53,180||)||$||65,002||$||94,118||$||180,348|
|Operating Netback1,2 ($/boe)||$||(14.80||)||$||17.25||$||6.52||$||14.06|
|Capital Expenditures Net of Capital-Carry1,3||$||46,042||$||33,236||$||193,980||$||212,601|
|LIGHT OIL DIVISION|
|Oil, Condensate and NGLs Production (bbl/d)||6,891||5,856||5,763||4,054|
|Natural Gas Production (mcf/d)||34,309||33,905||33,104||20,890|
|Petroleum and Natural Gas Production (boe/d)||12,609||11,507||11,280||7,535|
|Operating Netback1 ($/boe)||$||19.07||$||25.22||$||26.02||$||23.16|
|Capital Expenditures Net of Capital-Carry1||$||20,212||$||21,806||$||110,147||$||153,654|
|THERMAL OIL DIVISION|
|Bitumen Production (bbl/d)||25,375||30,557||27,923||27,886|
|Operating Income (Loss)1||$||(84,544||)||$||45,385||$||10,669||$||117,039|
|Operating Netback1 ($/bbl)||$||(34.72||)||$||16.75||$||1.03||$||11.62|
|CASH FLOW AND FUNDS FLOW|
|Cash Flow from Operating Activities||$||(2,253||)||$||37,060||$||83,844||$||61,697|
|per share (basic)||$||–||$||0.07||$||0.16||$||0.12|
|Adjusted Funds Flow1||$||(75,296||)||$||41,808||$||6,175||$||102,123|
|per share (basic)||$||(0.15||)||$||0.08||$||0.01||$||0.20|
|NET LOSS AND COMPREHENSIVE LOSS|
|Net Loss and Comprehensive Loss||$||(488,479||)||$||(209,588||)||$||(569,657||)||$||(209,407||)|
|per share (basic and diluted)||$||(0.95||)||$||(0.41||)||$||(1.11||)||$||(0.42||)|
|COMMON SHARES OUTSTANDING|
|Weighted Average Shares Outstanding (basic & diluted)||515,862,850||509,901,413||514,151,731||500,136,092|
|As at ($ Thousands)||Dec. 31
|LIQUIDITY AND BALANCE SHEET|
|Cash and Cash Equivalents||$||73,898||$||163,321|
|Available Credit Facilities4||$||126,491||$||61,899|
|Capital-Carry Receivable (current & LT portion – undiscounted)||$||81,675||$||164,023|
|Face Value of Long-term Debt5||$||614,070||$||563,310|
1) Refer to the “Advisories and Other Guidance” section in the MD&A for additional information on Non-GAAP Financial Measures.
2) Includes realized gain (loss) on commodity risk management contracts of $9.2 million and $(23.7) million for the three months and year ended December 31, 2018, respectively; and $(7.1) million and $(0.4) million for the three months and year ended December 31, 2017, respectively.
3) 2017 capital expenditures excludes the cost of the Leismer Corner Acquisition.
4) Includes available credit under its Credit Facility and Unsecured Letter of Credit Facility.
5) The face value of the 2022 Notes is US$450 million. The 2022 Notes were translated into Canadian dollars at the December 31, 2018 exchange rate of US$1.00 = C$1.3646.
The Canadian energy industry was negatively impacted by unprecedented macro conditions in Q4 2018. Producers experienced extreme differential and basis spread volatility across both heavy and light product streams due to pipeline capacity constraints. This culminated in Western Canadian Select (“WCS”) heavy and Edmonton Light differentials trading to record levels of ~US$55 and ~US$35 respectively in Q4 2018.
In December, the Alberta Government announced mandatory industry production curtailments (“the Industry Curtailments”) starting in January 2019 to alleviate the high differential situation until additional egress is added. Athabasca is supportive of these actions and views them as a necessary step to rebalance inventories in the near term and provide a bridge to permanent market access initiatives.
Following the Alberta Government’s announcement, the WCS outlook has markedly improved and differentials are expected to be supported by the ramp-up in crude by rail and tightness in the global heavy market.
Athabasca continues to optimize netbacks through financial hedges matched with direct refinery sales. The Company has ~40% of its blended Thermal Oil production hedged with apportionment protection for the balance of 2019 at an average differential of ~US$20.50. The Company has access to 130,000 bbl of storage at Edmonton to manage and optimize product sales. Athabasca has secured long term egress to multiple end markets with 25,000 bbl/d of capacity on TransCanada Keystone XL and 20,000 bbl/d of capacity on the Trans Mountain Expansion Project.
Athabasca has taken a number of steps to enhance liquidity to ensure financial resiliency including the closing of the $265 million Leismer infrastructure transaction on January 15, 2019. On closing the Company had funding capacity of $550 million (cash and cash equivalents, available credit facilities and Duvernay capital carry) and liquidity of $468 million (cash & available credit facilities). Athabasca’s existing term debt is in place until 2022 with no maintenance covenants.
Reiterating a Disciplined 2019 Outlook
Athabasca is reiterating its minimal 2019 capital program with expenditures aligned to forecasted funds flow and aimed at maintaining base production. Future capital decisions will be evaluated in the context of financial resiliency, corporate funds flow and external market conditions. The Company has flexibility to direct free cash flow to high returning projects across its portfolio, debt reduction and share buy backs.
|2019 Guidance||Full Year|
|Production (boe/d)||37,500 – 40,000|
|Capital Expenditures ($MM)||$95 – $110|
|LIGHT OIL (net)|
|Production (boe/d)||10,000 – 11,000|
|Capital Expenditures ($MM)||$15 – $30|
|THERMAL OIL (net)|
|Production1 (bbl/d)||27,500 – 29,000|
|Capital Expenditures ($MM)||$80|
|FUNDS FLOW SENSITIVITY2 ($MM)|
|US$55 WTI / US$17.50 WCS diff||$110|
|US$60 WTI / US$17.50 WCS diff||$165|
|US$65 WTI / US$17.50 WCS diff||$220|
- The Government mandated curtailments are estimated to have up to a 2,000 bbl/d impact on productive capacity through Q1 2019 which equates to ~500 bbl/d on an annualized basis. The Company’s annual production guidance only incorporates the mandated cuts through Q1 2019.
- Sensitivity incorporates current hedges, Q1 2019 strip prices and flat pricing assumptions thereafter (US$10 MSW diffs, US$5 C5 diffs, C$1.50 AECO, 0.75 C$/US$ FX).
2018 production averaged 11,280 boe/d (51% liquids), representing 50% growth year over year. Q4 2018 production averaged 12,609 boe/d (55% liquids), representing 10% growth year over year. The business division generated operating income of $107.1 million and $22.1 million for 2018 and Q4 2018 respectively, with netbacks of $26.02/boe and $19.07/boe during these time periods. Athabasca’s Light Oil netbacks are top tier when compared to Alberta’s other liquids-rich Montney and Duvernay resource producers and are supported by a high liquids weighting and low operating expenses ($8.22/boe and $7.18/boe for 2018 and Q4 2018 respectively). Capital expenditures were $110.1 million and $20.2 million (net of capital carry) for 2018 and Q4 2018 respectively.
Over the past two years Athabasca has transitioned Greater Placid (70% operated working interest) from early stage resource capture to efficient multi-well pad development. The Company has organically grown production to ~7,500 boe/d net (~12,000 boe/d gross) and maintains a regional competitive advantage with ownership and operatorship of significant infrastructure. The Company has high graded ~200 liquids rich Montney locations and is positioned for scalable and flexible development. The completion of a previously drilled multi-well pad (7 wells) has been deferred beyond H1 2019.
Activity in the Greater Kaybob Duvernay (30% non-operated working interest) remains robust with the joint venture partnership planning to execute a 2019 budget of ~C$280 million gross (~C$20 million net of capital carry). Activity is focused on continued resource delineation in the volatile oil window with an initial emphasis on the Two Creeks area. The Duvernay has contributed to strong production and cash flow growth. Q4 2018 Duvernay production was 5,060 boe/d net (59% liquids), up 160% year over year. IP30/90s on the latest four well pad at Kaybob West averaged 980 boe/d (80% liquids) and 825 boe/d (78% liquids) per well respectively. Results from the first appraisal well at Two Creeks are encouraging with liquids IP30/60s averaging 475 bbl/d and 400 bbl/d respectively. Athabasca drilled this shorter horizontal well in 2015 for land retention and a future resource appraisal test.
2018 production averaged 27,923 bbl/d. Q4 2018 production averaged 25,375 bbl/d. The Company strategically curtailed production during November and December in response to extreme pricing differentials with an estimated impact of ~1,000 bbl/d on the annual average. The business division generated operating income (loss) of $10.7 million and $(84.5) million in 2018 and Q4 2018, respectively. Financial results were impacted by extreme differentials in Q4 2018 and the Company is well positioned for an improved 2019 outlook. Capital expenditures were $83.7 million and $25.7 million for 2018 and Q4 2018 respectively.
At Leismer, the Company recently completed drilling the L7 sustaining pad which included five SAGD well pairs with four observation wells. The average producer lateral length was 1,250 meters or 50% longer than existing horizontals at Leismer with all well pairs drilled into high quality reservoir. The Company expects initial steaming to commence this summer with production in early Q4 2019. Sustaining operations are expected to support productive capacity of approximately 20,000 bbl/d over the next several years.
With the mandated Industry Curtailments the Company expects Q1 2019 Thermal Oil production to average approximately 27,500 bbl/d. The Company anticipates that the financial impact of its curtailed volumes will be more than offset by an expected improvement in realized WCS prices, resulting in a positive impact on its funds flow for 2019.
2018 Year-End Reserves
Athabasca’s independent reserves evaluator, McDaniel & Associates Consultants Ltd. (“McDaniel”), prepared the year-end reserves evaluation effective December 31, 2018.
Proved Plus Probable reserves increased to 1,279 mmboe, representing 3% growth year-over-year. Proved Developed Producing reserves increased to 78 mmboe, representing 7% growth, with a reserve value of $951 million (McDaniel 2018 year-end NPV10 before tax).
The Company estimates its 2018 year end net asset value of $1.28/share Proved Developed Producing, $4.50/share Proved and $8.94/share Proved Plus Probable (McDaniel 2018 year-end NPV10 before tax less pro forma year-end net debt of $292 million).
|Light Oil||Thermal Oil||Corporate|
|Proved Developed Producing||9||15||64||63||73||78|
|Proved Plus Probable||77||74||1,169||1,205||1,246||1,279|
|NPV10 BT ($MM)1|
|Proved Developed Producing||$115||$205||$742||$746||$857||$951|
|Proved Plus Probable||$739||$628||$3,003||$4,279||$3,742||$4,907|
- Net present value of future net revenue before tax and at a 10% discount rate (NPV 10 before tax) for 2018 is based on an average of McDaniel, Sproule and GLJ pricing as at January 1, 2019. NPV 10BT for 2017 is based on McDaniel pricing at January 1, 2018.
- For additional information regarding Athabasca’s reserves and resources estimates, please see “Independent Reserve and Resource Evaluations” in the Company’s 2018 Annual Information Form which is available on Company’s website or on SEDAR www.sedar.com.
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.
For more information, please contact:
Vice President, Capital Markets and Communications