CALGARY, Alberta – Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or the “Company”) has executed two strategic market egress transactions that increase corporate liquidity by approximately $100 million through cash consideration and the release of restricted cash that was securing letters of credit. These transactions further bolster the Company’s strong liquidity position with a 60% increase in pro forma unrestricted cash balances to approximately $265 million.
Athabasca believes the market for Canadian heavy crude is improving in a lasting way. Expanded basin egress capacity (including Enbridge Line 3 Replacement, the TransMountain Expansion Project “TMX” and DRU implemented crude-by-rail) should provide Canadian producers improved access to the global heavy oil market in the future. At the same time, modest growth forecasts for Canadian oil production are expected to drive excess egress capacity. As a result, Athabasca believes conditions will emerge for lower volatility compared to what has been experienced in recent years and Western Canadian Select (“WCS”) heavy oil in Edmonton may be among the most valuable global crude benchmarks. By undertaking a monetization of its TMX and Keystone capacity, the Company will increase its current unrestricted cash balances, reduce future financial commitments and still benefit from an improved outlook for WCS differentials.
Commercial Transactions Overview
Athabasca has assigned its Keystone Base service of approximately 7,200 bbl/d of blended bitumen capacity and the Development Cost Agreement (“DCA”) in relation to the Keystone XL pipeline to an industry player. The Company has also entered into a seven-year marketing agreement with the counterparty for 15,000 bbl/d of heavy oil that will diversify the Company’s sales to the US Gulf Coast once the incremental Keystone Base service becomes available to industry. The marketing agreement has customary and additional fees including a flow through pipeline tariff when the Gulf Coast service becomes available. This transaction increases corporate liquidity by approximately $80 million through the recovery of a deposit and the release of restricted cash that was securing existing letters of credit.
Additionally, the Company has executed a sale and assignment agreement of its 20,000 bbl/d TMX pipeline service to a downstream player for $20 million cash consideration. Athabasca believes that the timing for monetizing the service is optimal as the Company receives cash consideration today while still being able to participate in the benefits of the construction of the pipeline through an improved local basin differential outlook. The transaction reduces $1.1 billion of transportation commitments over the 20-year term and removes a $50 million future financial assurance requirement once the pipeline is operational.