CALGARY, Alberta — Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or the “Company”) is pleased to report its 2022 first quarter results with record Free Cash Flow and material deleveraging. Athabasca is uniquely positioned as a low leveraged company generating significant Free Cash Flow through its low-decline, oil weighted asset base.
Q1 Corporate Highlights
- Production above Guidance: 34,679 boe/d (92% Liquids) consisting of 27,909 bbl/d in Thermal Oil and 6,770 boe/d (57% Liquids) in Light Oil, ahead year-to-date of annual guidance of 33-34,000 boe/d.
- Capital Expenditures: $31 million focused on sustaining operations in Thermal Oil and three Duvernay well completions.
- Record Cash Flow: Record Adjusted Funds Flow ~$75 million and record Free Cash Flow ~$44 million. Continued cash flow expansion expected through 2023 as described below.
- Record Operating Netbacks: $48.79/bbl at Leismer, $43.48/bbl at Hangingstone and $48.92/boe in Light Oil.
- Significant Deleveraging: Redeemed $110 million in Term Debt year-to-date (inclusive of outstanding redemption notices), achieving ~50% of US$175 million debt reduction target which is anticipated to be reached in H1 2023. Low current Net Debt of ~$127 million.
- Unlocking Shareholder Value: Committed to further enhance shareholder returns by utilizing Free Cash Flow and cash balances for share buy-backs or dividends once debt target is achieved.
- Focus on Leismer: The Leismer Pad L8 (5 well pairs) ramp-up is exceeding the Company’s expectations and is currently producing in excess of 2,500 bbl/d. The pad is expected to reach ~5,400 bbl/d in H2 2022 and will support a ~21,000 bbl/d exit rate this year. Beginning in June, the Company anticipates spudding an additional two infill wells at Pad L6, followed by five additional well pairs at Pad L8, with new production expected in 2023. The Leismer asset is forecasted to grow to ~24,000 bbl/d over the next three years within corporate capital guidance.
- High Margin Duvernay: During the quarter three Duvernay wells at Two Creeks were completed with IP30’s between 650 – 1,000 boe/d (averaging 840 boe/d per well, 94% Liquids), exceeding internal type curve expectations and screening as top oil wells in Alberta. The Company has a flexible development portfolio of ~850 de-risked Montney and Duvernay locations along with strategic ownership and operatorship of liquids and gas infrastructure in Greater Kaybob. These assets provide a natural hedge for the Thermal Oil division through their production of diluent and natural gas.
- Record Netbacks: Athabasca’s oil weighted portfolio is benefiting from strong commodity prices and low cost structures. This rate of change is reflected in the Company’s March netbacks: Kaybob Duvernay ~$72.25/boe, Placid Montney ~$44.25/boe, Leismer ~$61.50/bbl and Hangingstone ~$58.50/bbl.
Strategic Update and Corporate Outlook
- Maintaining 2022 Guidance. The Company reiterates its 33,000 – 34,000 boe/d (92% Liquids) annual production guidance along with Capital Expenditure guidance of $128 million. The Company’s modest 2022 capital program is indicative of long term sustaining capital that benefits from a low decline, large resource asset base.
- Managing for Free Cash Flow. For 2022, Athabasca forecasts Adjusted EBITDA of ~$350 million, Adjusted Funds Flow of ~$300 million and Free Cash Flow of ~$180 million (US$85 WTI, US$13.50 Western Canadian Select “WCS” heavy differential). The Company further expects to generate ~$900 million in Free Cash Flow during the three year timeframe of 2022-24 (US$85 WTI, US$12.50 WCS differential flat pricing). Every $5 WTI impacts Free Cash Flow by ~$45 million annually (unhedged). The Company’s strong margins and Free Cash Flow profile is supported by $3.1 billion in tax pools and a pre-payout Crown royalty structure for its Thermal Oil assets.
- Executing Significant Deleveraging with Clear Targets: The Company is planning to utilize 100% of near‐term Free Cash Flow to reduce its Term Debt and is anticipating being in a net cash position by year end 2022 at current commodity prices. Year-to-date the Company has redeemed a total of C$57 million (US$45 million) through open market purchases. The Company has also provided redemption notices to noteholders for an additional C$53 million (US$41 million) from warrant proceeds and the Free Cash Flow payment feature within the indenture. These redemptions are expected to be completed by mid-May. Pro forma, the Company will have redeemed and retired a total of C$110 million (US$86 million) in its Term Debt. This achieves approximately ~50% of its US$175 million debt reduction target which is anticipated to be reached in H1 2023.
- Excellent Exposure to Commodity Price Upside: Athabasca has retained excellent exposure to upside in commodity prices with 50% of its 2022 sales volumes unhedged, 20% of its sales hedged through collars with upside to US$115 WTI, and 30% of its sales hedged through fixed swaps at an implied US$67.50 WTI. The Company has minimal hedging in 2023 and expects lower future hedge levels to protect its base capital program as debt targets are achieved.
- Thermal Oil Differentiation: Athabasca’s Thermal assets operate in a pre-payout Crown royalty structure, with royalty rates between 5 – 9%, and is anticipated to last beyond 2028 (US$85 WTI, US$12.50 WCS differential flat pricing). This results in maximum cash flow at current commodity prices and creates a significant advantage over the majority of Industry oil sands projects. The Company’s low decline, long reserve life Thermal Oil assets are forecasted to generate ~$400 million in Operating Income in 2022 (US$85 WTI, US$13.50 WCS differential flat pricing). At current commodity prices, these assets compete exceptionally well on all cash flow metrics against top plays in North America with capital investments generating double-digit Recycle and Profit-to-Investment Ratios.
- Unlocking Shareholder Value: The transition of enterprise value to equity holders is materializing and is expected to unlock significant shareholder value. Athabasca is committed to further enhancing shareholder returns by utilizing Free Cash Flow and cash balances for share buy-backs or dividends once its debt target is achieved. The Company sees tremendous intrinsic value not reflected in the current share price. Additional guidance on the Company’s return of capital strategy will be provided in H2 2022.
Environmental, Social and Governance (“ESG”) Update
- Annual Report. Athabasca is proud to publish its second ESG report, aligning to leading ESG standards and frameworks including Global Reporting Initiative (“GRI”), Sustainability Accounting Standards Board (“SASB”) and Task Force for Climate Disclosure (“TCFD”) guidelines. The report is available on the Company’s website (https://www.atha.com/
responsibility.html) and SEDAR (https://www.sedar.com).
- Carbon Capture and Storage (CCS). Athabasca has advanced its partnership with Entropy Inc. to develop and implement a carbon capture and storage project at Leismer using Entropy’s proprietary CCS technology. The partnership is progressing detailed engineering plans and has developed a commercial model for investment that aligns with reducing carbon emissions and supports the Company’s future aspiration of producing a net-zero oil sands barrel.
- Environment. The Company has a strong track record of utilizing new technology to improve environmental performance, having invested over $60 million in technology designed to mitigate GHG emissions since 2015. By 2025, Athabasca has a goal to reduce Scope 1 emissions intensity by 30% from its 2015 baseline.
- Social. Athabasca’s safety culture is deeply embedded and the Company’s total recordable injury frequency has averaged 0.2 per 200,000 man-hours over the last three years, well below industry average. The Company has also had zero reportable hydrocarbon spills for three consecutive years.
- Governance. Independent Board with established and robust corporate policies. The Company’s ESG strategy and performance is reviewed, considered, and fully integrated at the Board level.
Annual General Meeting
Athabasca is pleased to announce that Mr. Marty Proctor and Ms. Angela Avery will stand for election as directors to the Company’s Board of Directors at the upcoming virtual Annual General Meeting (“Meeting”) on Wednesday, May 4, 2022 at 9:00 am (MT).
Mr. Proctor has held several senior executive positions, including most recently as President and Chief Executive Officer of Seven Generations Energy, and currently serves in various board capacities across the energy sector. He has significant expertise in operations, engineering and business strategy, and was on the management team of North American Oilsands, an original owner of lands in Athabasca’s Leismer and Corner areas.
Ms. Avery is currently the Executive Vice President, External Affairs and General Counsel at WestJet and has more than 25 years’ legal and business experience, and an extensive regulatory and compliance background. She served as General Counsel and VP Business Development at Athabasca from 2017 to 2020 and prior to that held senior executive roles at ConocoPhillips.
The Board would like to extend its sincere thanks to Mr. Carlos Fierro and Ms. Anne Downey who are retiring from the Board on May 4, 2022, for their years of dedicated service to Athabasca and our shareholders. Mr. Fierro and Ms. Downey have made significant contributions to the Board and its committees, including chairing the Audit Committee and Reserves Committee, respectively.
Shareholders and guests can listen to the Meeting via live webcast at:
An archived recording of the webcast will be available on the Company’s website for those unable to listen live.
Financial and Operational Highlights
|Three months ended
|($ Thousands, unless otherwise noted)||2022||2021|
|Petroleum and natural gas production (boe/d)(1)||34,679||34,401|
|Petroleum, natural gas and midstream sales||$||389,424||$||211,656|
|Operating Income (Loss)(1)||$||150,640||$||65,928|
|Operating Income (Loss) Net of Realized Hedging(1)(2)||$||102,994||$||44,815|
|Operating Netback ($/boe)(1)||$||47.40||$||21.12|
|Operating Netback Net of Realized Hedging ($/boe)(1)(2)||$||32.41||$||14.36|
|Free Cash Flow(1)||$||43,832||$||(16,593||)|
|THERMAL OIL DIVISION|
|Bitumen production (bbl/d)||27,909||25,949|
|Petroleum, natural gas and midstream sales||$||360,281||$||186,710|
|Operating Income (Loss)(1)||$||120,837||$||42,168|
|Operating Netback ($/bbl)(1)||$||47.04||$||17.85|
|LIGHT OIL DIVISION|
|Petroleum and natural gas production (boe/d)(1)||6,770||8,452|
|Percentage Liquids (%)(1)||57||%||57||%|
|Petroleum, natural gas and midstream sales||$||45,108||$||34,572|
|Operating Income (Loss)(1)||$||29,803||$||23,760|
|Operating Netback ($/boe)(1)||$||48.92||$||31.24|
|CASH FLOW AND FUNDS FLOW|
|Cash flow from operating activities||$||59,862||$||1,138|
|per share – basic||$||0.11||$||—|
|Adjusted Funds Flow(1)||$||74,761||$||18,961|
|per share – basic||$||0.14||$||0.04|
|NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)|
|Net income (loss) and comprehensive income (loss)||$||(119,601||)||$||(17,472||)|
|per share – basic||$||(0.23||)||$||(0.03||)|
|per share – diluted||$||(0.23||)||$||(0.03||)|
|COMMON SHARES OUTSTANDING|
|Weighted average shares outstanding – basic||531,091,102||530,675,391|
|Weighted average shares outstanding – diluted||531,091,102||530,675,391|
|March 31,||December 31,|
|As at ($ Thousands)||2022||2021|
|LIQUIDITY AND BALANCE SHEET|
|Cash and cash equivalents||$||213,534||$||223,056|
|Available credit facilities(3)||$||77,838||$||77,844|
|Face value of term debt(4)||$||396,123||$||443,730|
(1) Refer to the “Reader Advisory” section within this news release for additional information on Non-GAAP Financial Measures and production disclosure.
(2) Includes realized commodity risk management loss of $47.6 million for the three months ended March 31, 2022 (three months ended March 31, 2021 – $21.1 million loss).
(3) Includes available credit under Athabasca’s Credit Facility and Unsecured Letter of Credit Facility.
(4) The face value of the term debt at March 31, 2022 was US$317 million (December 31, 2021 – US$350 million) translated into Canadian dollars at the March 31, 2022 exchange rate of US$1.00 =C$1.2496 (December 31, 2021 – C$1.2678).
Bitumen production for Q1 2022 averaged 27,909 bbl/d. The Thermal Oil division generated record Operating Income of $121 million. Q1 2022 Operating Netbacks for Leismer and Hangingstone were a record $48.79/bbl and $43.48/bbl, respectively. Capital expenditures were $21 million.
For 2022 the Company has fully hedged its Thermal Oil gas input costs through its Light Oil gas production with the balance financially hedged at C$4/mcf AECO.
Bitumen production for Q1 2022 averaged 18,966 bbl/d and ~20,000 bbl/d in April. Leismer has a scheduled two week plant turnaround in May which is completed every four years.
At Pad L8, three wells were converted to production in January, with the remaining wells to be placed on production in early Q2. Volumes are forecasted to grow through the year as Pad L8 ramps-up to its expected plateau rate of ~5,400 bbl/d (five well pairs). Leismer is expected to exit 2022 at ~21,000 bbl/d and grow to ~24,000 bbl/d over the next three years within corporate capital guidance.
The existing L8 gathering pipeline and infrastructure will support future development for a total of 14 well pairs on Pad L8. In June the Company will spud two additional infill wells at Pad L6 followed by five additional well pairs at Pad L8. These wells will support production in 2023 and have unparalleled Profit-to-Investment Ratios (NPV/Investment) of ~10x and double-digit Recycle Ratios at current commodity prices.
The Company has expanded non-condensable gas (“NCG”) co-injection across the field on mature pads supporting lower energy intensity with a current project steam oil ratio (“SOR”) of ~3.2x (March 2022).
Leismer has a significant Unrecovered Capital Balance of $1.6 billion which ensures a low Crown royalty framework as the asset is forecasted to remain pre-payout until 2028 (US$85 WTI, US$12.50 WCS differential).
Bitumen production for Q1 2022 averaged 8,943 bbl/d. Production during the quarter was impacted by a delay in getting service rigs for routine pump repairs. Full production has since been re-established above 9,000 bbl/d in April. NCG co-injection is aiding in pressure support and reduced energy usage and the project achieved a record low SOR of ~3.7x in February 2022.
In 2022, Hangingstone will have no capital allocation other than routine pump replacements. Strong operational performance, cost enhancements and improved commodity prices are driving competitive margins. The Hangingstone asset is expected to generate ~$130 million Operating Income in 2022 (April 4th strip pricing: US$94 WTI, US$13 WCS differential).
Production averaged 6,770 boe/d (57% Liquids) in Q1 2022. The business division generated Operating Income of $30 million with a record Operating Netback of$48.92/boe. Athabasca’s Light Oil Netbacks continue to be top quartile when compared to Alberta’s other liquids-rich Montney and Duvernay resource producers and are supported by a high liquids weighting. Capital expenditures were $8 million during the quarter.
At Greater Placid, production averaged 3,565 boe/d (43% Liquids) in Q1 2022 with an Operating Netback of $38.86/boe. Placid is positioned for flexible future development with an inventory of ~150 gross drilling locations and minimal near-term land retention requirements.
At Greater Kaybob, production averaged 3,205 boe/d (72% Liquids) in Q1 2022 with an Operating Netback of $60.11/boe.
Three Duvernay wells in the oil window at Two Creeks were recently completed. IP30’s for the wells were between 650 – 1,000 boe/d (averaging 840 boe/d, 94% Liquids). Athabasca’s prior 12 wells at Kaybob East and Two Creeks have averaged IP180s of ~725 boe/d (85% Liquids) and IP365s of ~550 boe/d (83% Liquids). Strong well results coupled with a large well inventory (~700 gross drilling locations) and flexible development timing indicate significant value to Athabasca.
The Kaybob area is supported by a strong Joint Development Agreement, established operated infrastructure and minimal near-term land retention requirements. The Company remains encouraged by competitor activity and recent new entrants into the play.