CALGARY, Alberta, Jan. 08, 2020 (GLOBE NEWSWIRE) — Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or “the Company”) demonstrated strong operational results at the end of 2019 and has approved a 2020 capital budget focused on sustaining annual production within forecasted funds flow.
Year-end 2019 Operations Update
- Production – Annual average of ~36,200 boe/d, in line with prior guidance of 36,000 boe/d. Q4 2019 production averaged ~36,400 boe/d.
- Leismer Update – December production increased to ~20,100 bbl/d supported by the five-well sustaining pad at L7 that was brought on production in Q4 2019.
- Light Oil Update – At Placid, completions operations commenced on two Montney multi-well pads that will be placed on stream in H1 2020. At Greater Kaybob, three drilling rigs and two frac spreads are currently in operation and are expected to remain active through H1 2020.
- Capital – Annual expenditures are in line with prior guidance of $135 million (excl. cap G&A).
2020 Budget Guidance
- Low Sustaining Capital – Expenditures of $125 million focused on resiliency by executing a program aimed at sustaining production within projected funds flow.
- Resilient Production – Production to average between 36,000 – 37,500 boe/d (88% liquids).
- Thermal Oil Activity – Expenditures of $65 million focused on Leismer including long-lead initiatives for Pad L8, a water disposal well which is expected to reduce annual non-energy operating costs by $3 million and routine pump changes at both assets. At Hangingstone, the Company will complete its first facility turnaround during the second quarter. Thermal production is expected to average between 26,000 – 27,000 bbl/d.
- Light Oil Activity – Expenditures of $60 million with activity weighted towards H1 2020. In the Montney, the Company will finish the completion and tie-in of 2 multi-well pads (10 wells). In the Duvernay, activity will include 7 drills, 13 completions and 16 tie-ins. Light Oil production is expected to average between 10,000 – 10,500 boe/d (55% liquids).
- Funds Flow – Forecasted funds flow of $125 million (US$57.50 WTI and US$17.50 Western Canadian Select “WCS” heavy differential) with upside at current spot prices.
Athabasca remains focused on increasing free cash flow by improving break-evens, strengthening its balance sheet and mitigating external risks. The Company has preserved long term optionality across a deep inventory of high-quality Thermal Oil projects and flexible Light Oil development opportunities. This balanced portfolio provides shareholders with differentiated exposure to liquids weighted production and significant long reserve life assets.
|2020 Guidance||Full Year|
|Production (boe/d)||36,000 – 37,500|
|Capital Expenditures ($MM)||$125|
|Production (boe/d)||10,000 – 10,500|
|Capital Expenditures ($MM)||$60|
|Production (bbl/d)||26,000 – 27,000|
|Capital Expenditures ($MM)||$65|
|ADJUSTED FUNDS FLOW SENSITIVITY1 ($MM)|
|US$57.50 WTI / US$17.50 WCS differential||$125|
|US$62.50 WTI / US$17.50 WCS differential||$180|
1) Funds flow sensitivity includes current hedging and flat pricing assumptions (US$5 MSW differential, US$5 C5 differential, C$1.75 AECO, 0.75 C$/US$ FX).
Risk Management and Market Access
Athabasca protects a base level of capital activity through its risk management program while maintaining cash flow upside to the current pricing environment. A hedging program targets up to 50% of corporate production.
For 2020, the Company has hedged 13,500 bbl/d of WTI through a combination of fixed swaps (~50%) and collars (~50%). Approximately 50% of forecasted volumes are currently hedged in H1 2020 and 25% hedged in H2 2020. The average floor price is ~US$56.50 WTI with upside exposure to US$60 and US$65 on the WTI collars. In addition, the Company has hedged ~9,400 bbl/d of WCS differentials at ~US$19.50 with 8,000 bbl/d protected from apportionment through direct sales to refineries.
The Company has secured ~7,200 bbl/d of Keystone pipeline service commencing in 2020 for a term of 20 years. This capacity diversifies Thermal Oil dilbit sales to the US Gulf Coast at pipeline economics which will allow the Company to further enhance its netback.
Longer term, Athabasca has secured egress with capacity on both the TC Energy Keystone XL pipeline and the Trans Mountain Expansion Project.
Special Meeting of Shareholders
Athabasca held a Special Meeting of Shareholders on January 8, 2020 whereby shareholders voted in favor of the resolution to reduce stated capital (58% shareholder turnout with 99.8% approval).
The Company now has flexibility under the Business Corporations Act (Alberta) to pursue potential share buy backs. Athabasca believes that, from time to time, the market price of its Common Shares may not fully reflect the underlying value of its business, future prospects and financial position. In such circumstances, Athabasca may purchase for cancellation outstanding Common Shares, thereby benefitting all shareholders by increasing the underlying value of the remaining Common Shares. The Company may look to execute future share buy backs with sustainable free cash flow in the future.
Balance Sheet Strength and Capital Allocation Philosophy
Athabasca continues to be resilient in the current macro environment and is uniquely positioned to improving oil fundamentals. Financial liquidity is a priority with $336 million of cash and available credit facilities (Q3 2019). The Company has demonstrated consistent strong netbacks in Thermal Oil and industry-leading netbacks in Light Oil, resulting in a ~US$45 WTI funds flow break-even (US$17.50 WCS differential). Athabasca believes it provides shareholders a compelling value proposition with future free cash flow and an unhedged funds flow sensitivity of ~C$70 million for a US$5/bbl move in WTI.
The Company’s capital allocation philosophy is guided by the following priorities:
- Disciplined Operations
• Sustain production while spending within cash flow
• Low sustaining capital advantage on low decline long life assets
- Strong Balance Sheet
• Further improve resiliency with capital structure optimization
• Significant flexibility with strong current liquidity of $336 million
- Future Growth Projects
• High quality Thermal leases at Leismer/Corner with regulatory approval and egress
• Flexible high margin Light Oil development (Montney/Duvernay)
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.