The third quarter demonstrated the significance of Athabasca’s swift response to the COVID-19 pandemic. The Company has focused on maximizing corporate funds flow and maintaining corporate liquidity. Its Leismer asset underpinned a low corporate decline rate with significant cash flow generation. The recent improvement in commodity prices allowed the Company to successfully restart its Hangingstone asset and also implement price protection through hedges over the winter season. The Light Oil division generated strong margins and has helped insulate the Company during these periods of pricing volatility.
Q3 Operating & Financial Highlights
- Q3 Production: 32,061 boe/d (86% liquids), including 20,231 bbl/d from Thermal Oil and 11,830 boe/d (62% liquids) from Light Oil.
- Free Cash Flow: Adjusted funds flow of $14.6 million and capital expenditures of $12.4 million resulting in free cash flow of $2.2 million.
- Balance Sheet: Maintained strong liquidity with $152 million of unrestricted cash.
- Leismer: Production of 18,434 bbl/d, following voluntary price-driven curtailments in Q2. The asset generated $29 million of operating income with an operating netback of $16.46/bbl.
- Hangingstone: Operations resumed in September, after a successful planned turnaround during curtailment, with current production of ~7,000 bbl/d. The asset will ramp up into 2021.
- Light Oil: Industry leading operating netback of $21.43/boe. Ten new wells resumed production in July in Placid Montney. Kaybob Duvernay recent well results continue to screen as top producers with IP90s of 1,125 boe/d (84% liquids) at Kaybob East and 900 bbl/d at Two Creeks.
- Production Guidance. Q4 2020 guidance is maintained at 32,000 – 34,000 boe/d.
- Capital: No changes to previous capital guidance of $85 million for 2020. The Company is preparing for the option of a winter drilling season at its Leismer asset, aimed at sustaining production and profitability. Minimal activity in Light Oil is planned for the balance of the winter.
- Hedging: The Company has realized hedging gains of $39 million year-to-date. ~55% of Thermal Oil dilbit volumes are hedged through Q4 2020 and the Company has commenced its 2021 risk management program aimed at protecting cashflow for a minimal maintenance capital program.
Athabasca’s strong liquidity position, coupled with its low decline, long reserve life assets, positions it well to withstand the current economic environment. The Company has differentiated exposure to expanded market egress on the horizon and an ultimate recovery in commodity prices.
Business Environment and the Impact of COVID–19
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Global commodity prices declined significantly as countries around the world enacted emergency measures to combat the spread of the virus. The decrease in oil demand has been unprecedented however since April, global demand has improved while OPEC and North American producers have cut production. Global inventories have begun to moderate with economies reopening and leading towards a partial recovery and stabilization in oil prices. Despite this, the path towards a full recovery is expected to be volatile.
In Alberta, physical markets and regional benchmark prices (e.g. Western Canadian Select “WCS” heavy oil) have strengthened with WTI prices and tighter differentials as a result of curtailed volumes and falling inventories. Alberta inventories are currently at multi-year lows and have retreated to ~20 mmbbl, down from a peak of 35 – 40 mmbbl during prior constrained periods (Genscape). Athabasca expects current WCS differentials to remain supported by muted industry growth projects, strong demand for heavy oil from US Gulf Coast refineries as they face structural declines in global heavy supply (Venezuela and Mexico) and improving basin egress (including Enbridge Line 3 replacement H2 2021).
Corporate Response to COVID–19
The Company has implemented business procedures that comply with Alberta Health Guidelines. Athabasca is committed to ensuring the health and safety of all its personnel and has successfully transitioned its office staff back to the office on a full-time basis and the field sites continue to take site specific pre-cautionary measures related to COVID-19. The Company has not experienced any COVID-19 cases in the Calgary office or at its field sites.
The Company took swift action in response to the pandemic and economic crisis. Major initiatives include a reduction to the 2020 capital program, significant temporary production curtailments, partnering with service companies to reduce operating costs and reducing future financial commitments on the Keystone XL pipeline. Finally, the Company bolstered its liquidity by $70 million through an upsized Contingent Bitumen Royalty.
Athabasca is well positioned to navigate the current challenging environment with $152 million in unrestricted cash. The Company remains focused on safe and reliable operations while maximizing corporate funds flow and strong liquidity. Approximately 55% of Thermal Oil dilbit volumes are hedged through Q4 2020 and the Company has commenced its 2021 risk management program aimed at protecting cashflow for a minimal maintenance capital program.
|Q4 2020||Q1 2021||Q2 2021||Q3 2021||Q4 2021|
|1. Details of hedging contracts provided in the Q3 2020 MD&A.|
|2. WTI hedges include a combination of fixed price swaps, collars, and 3-way contracts.|
|3. Average pricing reflects strip commodity pricing as at Nov. 2, 2020 and does include upside pricing potential on collar instruments.|
Financial and Operational Highlights
|Three months ended
|Nine months ended
|($ Thousands, unless otherwise noted)||2020
|Petroleum and natural gas production (boe/d)||32,061||35,257||31,896||36,126|
|Operating Income (Loss)(1)(2)||$||42,812||$||64,614||$||50,076||$||190,338|
|Operating Netback(1)(2) ($/boe)||$||14.67||$||19.10||$||5.61||$||19.24|
|Capital Expenditures Net of Capital-Carry(1)||$||12,381||$||35,304||$||71,698||$||93,948|
|LIGHT OIL DIVISION|
|Petroleum and natural gas production (boe/d)||11,830||10,023||9,853||10,642|
|Percentage liquids (%)||62||%||55||%||61||%||54||%|
|Operating Income (Loss)(1)||$||23,327||$||21,800||$||42,460||$||78,717|
|Operating Netback(1) ($/boe)||$||21.43||$||23.64||$||15.73||$||27.09|
|Capital Expenditures Net of Capital-Carry(1)||$||1,917||$||14,141||$||38,794||$||27,817|
|THERMAL OIL DIVISION|
|Bitumen production (bbl/d)||20,231||25,234||22,043||25,484|
|Operating Income (Loss)(1)||$||26,844||$||51,888||$||(30,886||)||$||153,538|
|Operating Netback(1) ($/bbl)||$||14.66||$||21.09||$||(4.98||)||$||21.95|
|CASH FLOW AND FUNDS FLOW|
|Cash flow from operating activities||$||(4,782||)||$||16,741||$||(38,989||)||$||59,657|
|per share – basic||$||(0.01||)||$||0.03||$||(0.07||)||$||0.11|
|Adjusted Funds Flow(1)||$||14,617||$||43,906||$||(29,480||)||$||133,282|
|per share – basic||$||0.03||$||0.08||$||(0.06||)||$||0.26|
|NET INCOME & COMPREHENSIVE INCOME (LOSS)|
|Net income (loss) & comprehensive income (loss)||(18,818||)||(8,265||)||(600,634||)||255,622|
|per share – basic||$||(0.04||)||$||(0.02||)||$||(1.14||)||$||0.49|
|per share – diluted||$||(0.04||)||$||(0.02||)||$||(1.14||)||$||0.49|
|COMMON SHARES OUTSTANDING|
|Weighted average shares outstanding – basic||530,675,391||523,263,183||528,220,593||520,604,599|
|Weighted average shares outstanding – diluted||530,675,391||523,263,183||528,220,593||525,461,794|
|Sept. 30,||Dec. 31,|
|As at ($ Thousands)||2020||2019|
|Cash and cash equivalents||$||151,730||$||254,389|
|Restricted cash (current and long-term)||$||150,887||$||110,609|
|Face value of long-term debt(3)||$||600,255||$||583,425|
|(1) Refer to the “Advisories and Other Guidance” section within the Company’s Q3 2020 MD&A for additional information on Non-GAAP Financial Measures.|
|(2) Includes realized commodity risk management loss of $7.4 million and gain of $38.5 million for the three and nine months ended September 30, 2020, respectively (three and nine months ended September 30, 2019 – $9.1 million loss and $41.9 million loss).|
|(3) The face value of the 2022 Notes is US$450 million. The 2022 Notes were translated into Canadian dollars at the September 30, 2020 exchange rate of US$1.00 = C$1.3339.|
In Q3 2020, consolidated thermal production averaged 20,231 bbl/d with $27 million of operating income. Capital expenditures of $10 million were limited to routine maintenance activity.
At Leismer, production averaged 18,434 bbl/d during the quarter. Production returned to operational capacity following voluntary curtailments in the second quarter in response to extreme low pricing. The asset’s steam oil ratio averaged 3.3x and has trended lower as a result of continued success of the non-condensable gas (NCG) co-injection across the field. A low operating expense of $10.73/bbl underpinned Leismer’s netback of $16.46/bbl. The asset has demonstrated significant cost improvements over the last year, ensuring it contributes significant cash flow to the Company. Leismer has an estimated operating breakeven of US$23/bbl WCS (assuming US$12.50/bbl differential).
At Hangingstone, operations were suspended in April 2020 due to low commodity prices. During the second and third quarter, the organization successfully completed Hangingstone’s first major scheduled plant turnaround. The Company strategically extended the duration of the turnaround to manage costs and to enhance the safety of the personnel on site in response to COVID-19. Operations resumed on September 1 with October production of approximately 7,000 bbl/d. The asset is expected to ramp-up to previous rates of 9,000 – 9,500 bbl/d over the next 12 months. In the third quarter, the Company received approval from the Alberta Energy Regulator to implement NCG co-injection at the project which is expected to provide pressure maintenance and reduce the asset’s energy intensity. To protect against future commodity price volatility the Company has hedged the Hangingstone production profile through the winter utilizing a collar hedge structure with a minimum WCS floor price of ~US$25/bbl with upside potential to ~US$31/bbl WCS (Q4 2020 – Q1 2021).
In Q3 2020, production averaged 11,830 boe/d (62% liquids) with $23 million of operating income ($21.43/boe netback). Capital expenditures were $2 million with minimal field activity planned in the Montney and the Duvernay for the balance of the winter season.
At Greater Placid, production resumed from 10 new Montney development wells supporting a top tier netback of $19.33/boe. Placid is positioned for flexible future development with no near-term land retention requirements.
In the Greater Kaybob Duvernay, 16 new wells have been brought on-stream year-to-date. In the oil window, production results have been consistently strong with wells screening as top liquids producers in the basin. Recent results include a two well pad at Kaybob East (15-19-64-17W5) which had an IP30 of 1,400 boe/d per well (87% liquids) and an IP90 of 1,125 boe/d per well (84% liquids), and a single well at Two Creeks (13-31-64-15W5) which had an IP30 of 1,300 bbl/d (100% liquids) and an IP90 of 900 bbl/d (100% liquids). Greater Kaybob is positioned for flexible future development with an inventory of approximately 700 locations, established infrastructure and no near-term land retention requirements. The joint development agreement (“JDA”) protects the Company’s interests and minimal activity is currently planned for the balance of 2020 and 2021. Future changes to the JDA requires approval from both parties and preserves optionality to increase spending in a more robust macro environment.
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:
Chief Financial Officer