2019 Corporate Highlights
- Production: Annual production of ~36,200 boe/d (87% liquids) which included ~10,100 boe/d (54% liquids) in Light Oil and ~26,100 bbl/d in Thermal Oil.
- Funds Flow, Capital Expenditures & Free Cash Flow: Annual Adjusted Funds Flow of ~$155 million ($0.30/share) and ~$140 million of capital expenditures resulting in approximately $15 million of Free Cash Flow.
- Netbacks: Maintained top decile annual Light Oil Operating Netback of $25.68/boe; annual Thermal Oil Operating Netback of $19.59/bbl ($23.35/bbl Leismer & $11.50/bbl Hangingstone).
- Balance Sheet & Sustainability: Year-end Net Debt of $308 million representing 2.0x Net Debt to Adjusted Funds Flow and 1.4x Adjusted EBITDA
- Reserves: 1.3 billion boe Proved plus Probable (2P) Reserves, including 1 billion barrels at Leismer/Corner. Proved Developed Producing (PDP) Reserves increased 3 mmboe to 81 mmboe.
- Value Optimization: 19% increase in PDP value to $1.1 billion through drilling additions and cost optimization, offsetting lower commodity prices.
- Net Asset Value: $1.58/share PDP, $4.92/share Proved and $8.90/share 2P.
2020 Resiliency and Disciplined Operations
- Balance Sheet: Strong liquidity of $340 million (cash equivalents & available credit facilities) provides business flexibility during commodity price volatility and market egress constraints.
- Low Sustaining Capital: $125 million 2020 capital budget aimed at sustaining production between 36,000 – 37,500 boe/d (88% liquids).
- Risk Management. Protection in place to mitigate near term pricing volatility including 18,000 bbl/d of Western Canadian Select hedged for H1 2020 at ~C$49.25 vs. strip at ~C$42.75 (Mar. 2).
- Strong Business Momentum: A recent 5-well pad at Leismer is supporting project volumes at ~20,000 bbl/d and the majority of 26 Light Oil wells (11.8 net) are planned to be on stream in H1.
In 2020, Athabasca remains focused on its drive for free cash flow while maintaining its production base with prudent capital expenditures. The Company plans to optimize its capital structure, including reducing debt levels over the next year. Athabasca maintains 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.
In 2019 and 2020 the Alberta government has continued mandated industry production curtailments at modest levels to manage unprecedented differentials due to a lack of egress. Athabasca is supportive of this government tool to manage extreme pricing dislocations and to provide a bridge to pipeline projects. WCS heavy differentials averaged US$12.76 for 2019 and US$15.83 for Q4 2019. In the first quarter of 2020, differentials increased modestly to settle at US$20.53. The outlook for the balance of 2020 has improved to ~US$15.75 (March 2 strip) driven by seasonality impacts over the summer, pipeline optimization and industry crude by rail ramp-up.
The global heavy oil market continues to see structural supply declines in Venezuela and Mexico, extended OPEC production cuts and growing petrochemical demand. These shifting dynamics are expected to support heavy oil pricing benchmarks with US refineries in PADD II and III requiring a heavier feedstock. Athabasca is well positioned for this changing dynamic with its Thermal Oil assets.
With continued market access constraints, Athabasca has been prudent in securing long term transportation agreements and protecting realized pricing through its hedging program. For the balance of 2020 Athabasca has hedged ~12,500 bbl/d of WTI at ~US$55 and ~14,500 bbl/d of WCS differential at US$18.25 (March – December). 8,000 bbl/d is protected from apportionment through direct sales to refineries. The Company has secured long term capacity on the TC Energy Keystone XL pipeline and the Trans Mountain Expansion Project.
Recent concerns surrounding COVID19 has resulted in markets reacting to potential demand disruptions. Athabasca has protection against low commodity prices through its hedging strategy. The Company is also fortunate to have a minimal capital program that can maintain production at current levels. For 2020, the Company will have completed the majority of its capital program in H1 2020 with no requirement to increase capital for the remainder of the year. Despite strong well results, capital spending is flexible in the Placid Montney and protected through a strong Joint Development Agreement in the Duvernay that ensures minimal spending for the foreseeable future. In Thermal Oil, our production base at Leismer has been sustained through its most recent 5-well pad that is now on production. Hangingstone does not require sustaining capital this year. In addition to these measures, the Company has maintained strong liquidity of $340 million to protect against significant market volatility. Although the Company intends to optimize its capital structure, including reducing debt levels, the end of term on its existing high yield instrument is February 2022. Athabasca has been acutely aware of market volatility and intends on protecting the Company in the short term while ensuring its long term assets retain their upside potential.
The Company has been disappointed with the lack of Regulatory and Fiscal certainty resulting from poor Federal policy in Canada. Although there have been recent positive developments on market egress, this uncertainty has delayed returns that our investors expect. Canada is fortunate to have an abundance of resources and the technical strength for responsible development. With strong political leadership, we can balance Environmental, Social and Governance factors while also maintaining a thriving economy. Our Company is firm in its belief that we develop Energy responsibly to make lives better. The world needs more Canadian Energy, not less.
Financial and Operational Highlights
|Three months ended
|($ Thousands, unless otherwise noted)||2019||2018||2019||2018|
|Petroleum and natural gas production (boe/d)||36,403||37,984||36,196||39,203|
|Operating Income (Loss)(1)(2)||$||42,881||$||(53,180||)||$||233,219||$||94,118|
|Operating Netback(1)(2) ($/boe)||$||13.84||$||(14.80||)||$||17.95||$||6.52|
|Capital Expenditures Net of Capital-Carry(1)||$||46,259||$||46,042||$||140,207||$||193,980|
|LIGHT OIL DIVISION|
|Petroleum and natural gas production (boe/d)||8,642||12,609||10,138||11,280|
|Percentage liquids (%)||54%||55%||54%||51%|
|Operating Income (Loss)(1)||$||16,287||$||22,121||$||95,004||$||107,144|
|Operating Netback(1) ($/boe)||$||20.49||$||19.07||$||25.68||$||26.02|
|Capital Expenditures Net of Capital-Carry(1)||$||22,936||$||20,212||$||50,753||$||110,147|
|THERMAL OIL DIVISION|
|Bitumen production (bbl/d)||27,761||25,375||26,058||27,923|
|Operating Income (Loss)(1)||$||28,658||$||(84,544||)||$||182,196||$||10,669|
|Operating Netback(1) ($/bbl)||$||12.44||$||(34.72||)||$||19.59||$||1.03|
|CASH FLOW AND FUNDS FLOW|
|Cash flow from operating activities||$||32,975||$||(2,253||)||$||92,632||$||83,844|
|per share – basic||$||0.06||$||—||$||0.18||$||0.16|
|Adjusted Funds Flow(1)||$||21,478||$||(75,296||)||$||154,760||$||6,175|
|per share – basic||$||0.04||$||(0.15||)||$||0.30||$||0.01|
|NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)|
|Net income (loss) and comprehensive income (loss)||$||(8,757||)||$||(488,479||)||$||246,865||$||(569,657||)|
|per share – basic||$||(0.02||)||$||(0.95||)||$||0.47||$||(1.11||)|
|per share – diluted||$||(0.02||)||$||(0.95||)||$||0.47||$||(1.11||)|
|COMMON SHARES OUTSTANDING|
|Weighted average shares outstanding – basic||523,428,276||515,862,850||521,316,320||514,151,731|
|Weighted average shares outstanding – diluted||523,428,276||515,862,850||526,290,689||514,151,731|
|Dec. 31,||Dec. 31,|
|As at ($ Thousands)||2019||2018|
|LIQUIDITY AND BALANCE SHEET|
|Cash and cash equivalents||$||254,389||$||73,898|
|Available credit facilities(3)||$||85,815||$||126,491|
|Capital-carry receivable (current and long-term portion – undiscounted)||$||22,740||$||81,675|
|Face value of long-term debt(4)||$||583,425||$||614,070|
(1) Refer to “Reader Advisory” in this News Release and the “Advisories and Other Guidance” section in the MD&A for additional information on Non-GAAP Financial Measures.
(2) Includes realized commodity risk management losses of $2.1 million and $44.0 million for the three months and year ended December 31, 2019, respectively (December 31, 2018 – $9.2 million gain and $(23.7) million loss).
(3) Includes available credit under Athabasca’s Credit Facility and Unsecured Letter of Credit Facility.
(4) The face value of the 2022 Notes is US$450 million. The 2022 Notes were translated into Canadian dollars at the December 31, 2019 exchange rate of US$1.00 = C$1.2965.
Production for 2019 and Q4 2019 averaged 26,058 bbl/d and 27,761 bbl/d, respectively. 2019 production was impacted by government curtailments early in the year and facility maintenance during Q2 2019. The Thermal Oil division generated Operating Income of $182.2 million and $28.7 million in 2019 and Q4 2019, respectively, with Operating Netbacks of $19.59/bbl ($23.35/bbl at Leismer and $11.50/bbl at Hangingstone) and $12.44/bbl ($16.34/bbl at Leismer and $1.46/bbl at Hangingstone) for those respective periods. Capital expenditures for 2019 and Q4 2019 were $89.3 million and $23.2 million, respectively.
Production at Leismer averaged ~20,100 bbl/d in December supported by the five-well pair sustaining pad (Pad L7) that was brought on production in Q4 2019. The pad utilized technology to increase well lengths by 50% to ~1,250 meters per well. L7 project capital totaled $34 million (drilling, completions and facilities) and benefited from Emission Reduction Grants from the Government of Alberta and long-lead pre-investment by the previous operator. The project boasts strong capital efficiencies of ~$7,000/bbl/d with an expected stable production profile for multiple years.
Athabasca has commenced long lead initiatives for Pad L8 and has the flexibility to drill these wells when market conditions improve and the Leismer plant currently has steam capacity available for these wells. A water disposal project will be commissioned in Q2 2020 and is expected to reduce non-energy operating costs by $10 million on an annual basis. Through the addition of Pad L7 and cost structure improvements, Athabasca increased the PDP value of the reserves at Leismer in 2019 by 35% despite a lower price deck and increased transportation costs as a result of the non-core infrastructure sale (based on McDaniel 2019 NPV10 before tax).
At Hangingstone, the Company will complete its first facility turnaround during the second quarter. The facility is expected to be offline for approximately two weeks with production recovery expected over the following few months. Athabasca has accounted for the planned downtime and recovery within its 2020 guidance.
Production averaged 10,138 boe/d (54% liquids) and 8,642 boe/d (54% liquids) for 2019 and Q4 2019, respectively. The business division generated Operating Income of $95.0 million ($25.68/boe) and $16.3 million ($20.49/boe) during these periods. The Company’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. Capital expenditures were $50.8 million and $22.9 million (net of capital carry) for 2019 and Q4 2019 respectively.
The liquids rich Montney at Greater Placid is positioned for flexible and efficient development. The Company recently completed 2 multi-well pads (10 wells) which are expected to be on stream in Q2 2020. Drilling and completion costs (“D&C”) averaged $5.9 million per well on the recent pads. The liquids rich Montney play at Greater Placid has a track record of consistently strong liquids yields, low lifting costs with a ~200 well inventory.
In the Greater Kaybob Duvernay, an active winter campaign includes the drilling of 7 wells, 13 completions and 16 tie-ins weighted to H1 2020. Athabasca’s financial exposure remains protected by the capital-carry through the winter program ($22.7 million remaining balance). In the volatile oil window, production results have been consistently strong. D&C costs per well have been reduced to ~C$7.5 million on recent wells (2-well pad) with line of sight to further improvements with multi-well pad development. These results compare favorably to the East Shale Basin Duvernay due to lower capital costs and higher sustained liquids rates.
|Recent Kaybob Duvernay Production Rates|
|Area||Pad / UWI||Estimated Rate (IP30)1|
|Kaybob East||100/06-06-065-17W5/00 (2 wells)||900||90%|
|Kaybob East||100/09-03-065-18W5/00 (2 wells)||750||86%|
|Kaybob North||100/14-23-065-20W5/00 (single well)2||550||89%|
|Kaybob North||100/09-12-066-20W5/00 (single well) 2||525||89%|
1. IPs rounded to the nearest 25 boe/d with volumes adjusted for shrinkage.
2. Tied into temporary facilities and production is currently constrained
In Q1 2020, a $C1 billion investment at Kaybob (over four winter drilling seasons) will be completed that has seen the vast land position retained and the play commercially de-risked. The Duvernay play is now positioned for compelling future development. Athabasca has entered into an updated five-year plan under the Joint Development Agreement (“JDA”) with its joint venture partner. The plan has C$50 – 60 million gross ($15 – 18 million net) annual capital spend levels between 2021-2024. The updated development plan will protect the Company’s interests and was designed to be self-funding in the current environment. Future changes to the JDA requires approval from both parties and preserves optionality to increase spending in a more robust macro environment.
Reiterating 2020 Budget and Outlook
Athabasca is reiterating its front-end weighted 2020 capital program with expenditures aimed at sustaining base production.
|2020 Guidance||Full Year|
|Production (boe/d)||36,000 – 37,500|
|Capital Expenditures ($MM)||$125|
|Production (boe/d)||10,000 – 10,500|
|Capital Expenditures (net of capital-carry) ($MM)||$60|
|Production (bbl/d)||26,000 – 27,000|
|Capital Expenditures ($MM)||$65|
2019 Year-End Reserves
Athabasca’s independent reserves evaluator, McDaniel & Associates Consultants Ltd. (“McDaniel”), prepared the year-end reserves evaluation effective December 31, 2019.
Proved Plus Probable reserves increased to 1,297 mmboe. This highlights Athabasca’s low relative sustaining capital advantage to maintain a significant liquids weighted reserve base.
Proved Developed Producing reserves increased to 81 mmboe, representing 4% growth year-over-year. The Company was able to increase the value of its Proved Developed Producing reserves by 19% to $1.1 billion with cost structure optimization at all assets, high liquids well conversions at Kaybob Duvernay and Leismer Pad L7 reclassification to PDP from Proved Undeveloped, offsetting a lower price deck and the inclusion of Leismer infrastructure tolls (based on McDaniel 2019 NPV10 before tax).
The Company estimates its 2019 Net Asset Value of $1.58/share Proved Developed Producing, $4.92/share Proved and $8.90/share Proved Plus Probable (McDaniel 2019 NPV10 before tax less year-end net debt of $308 million).
|Light Oil||Thermal Oil||Corporate|
|Proved Developed Producing||15||13||63||68||78||81|
|Proved Plus Probable||74||72||1,205||1,225||1,279||1,297|
|NPV10 BT ($MM)1|
|Proved Developed Producing||$205||$170||$746||$963||$951||$1,133|
|Proved Plus Probable||$628||$604||$4,279||$4,364||$4,907||$4,968|
1) Net present value of future net revenue before tax and at a 10% discount rate (NPV 10 before tax) for 2019 is based on an average of McDaniel, Sproule and GLJ pricing as at January 1, 2020. NPV 10BT for 2018 is based on an average of McDaniel, Sproule and GLJ pricing as at January 1, 2019.
2) For additional information regarding Athabasca’s reserves and resources estimates, please see “Independent Reserve and Resource Evaluations” in the Company’s 2019 Annual Information Form which is available on Company’s website or on SEDAR www.sedar.com.
3) Numbers in the table may not add precisely due to rounding.
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.