CALGARY, Alberta, Dec. 07, 2022 (GLOBE NEWSWIRE) — Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or “the Company”) is pleased to announce its 2023 budget and return of capital strategy, focused on Free Cash Flow generation and shareholder returns.
2023 Budget and Guidance Highlights
Capital Program. Athabasca is planning expenditures of ~$145 million ($120 million Thermal Oil & $25 million Light Oil) with activity primarily focused on sustaining and growth projects at Leismer, a Montney pad in Placid and routine maintenance across the portfolio.
Resilient Production. The portfolio of long reserve life assets underpins a low corporate decline rate of ~5% annually. In 2023, the Company plans to maintain year-over-year corporate production with guidance of 34,500 – 36,000 boe/d (~93% Liquids) and growth to materialize into 2024 as longer cycle projects come on-stream.
Debt Target Achieved. The Company has proactively achieved its debt target of US$175 million through the retirement of ~50% outstanding term debt principal, ahead of initial expectations. Athabasca expects to be in a net cash position in Q1 2023.
Managing for Strong Free Cash Flow. Athabasca anticipates generating ~$415 million of Adjusted Funds Flow and ~$270 million of Free Cash Flow (US$85 WTI & US$17.50 WCS differential)1. A $5/bbl change in WTI impacts Free Cash Flow by ~$50 million annually. Athabasca forecasts ~$1.1 Billion in Free Cash Flow1 during the three year timeframe of 2023-25, representing ~70% of current equity market capitalization.
Return of Capital Strategy. In 2023, Athabasca plans to allocate a minimum of 75% of Excess Cash Flow (Adjusted Funds Flow less Sustaining Capital) to shareholders. Athabasca plans to commence a share buyback program in April, the earliest date permitted under the Company’s term debt agreement.
Capital Efficient Growth at Leismer. Leismer is expected to exit 2023 with production of ~24,000 bbl/d. A facility debottleneck project will support sustainable growth to ~28,000 bbl/d in 2024. The expansion program has a competitive capital efficiency of ~$14,000/bbl/d and provides tremendous long term value creation for shareholders. This expansion program will not impact the return of capital strategy and bolsters future Free Cash Flow generation through enhanced margins.
Carbon Capture. The Company has partnered with Entropy Inc. to implement a carbon capture and storage (“CCS”) project at Leismer, funded by Entropy using their proprietary CCS technology. The project is expected to be sanctioned in 2023 and will be built in conjunction with Leismer’s expansion plans. The Company is on track to achieve its stated target of a 30% reduction in emissions intensity by 2025.
Thermal Oil Differentiation. Strong margins and Free Cash Flow is supported by ~$3 billion in corporate tax pools and a Thermal Oil pre-payout Crown royalty structure, with royalty rates between 5 – 9% anticipated to last into 20271.
Risk Management. Athabasca has a minimal 2023 hedge program in place. Strong Liquidity and low sustaining capital advantage provides protection against price volatility.
Footnote: Refer to the “Reader Advisory” section within this news release for additional information on Non‐GAAP Financial Measures (e.g. Adjusted Funds Flow, Free Cash Flow, Excess Free Cash Flow, Sustaining Capital, Net Debt/Cash, Liquidity) and production disclosure.
1 Pricing Assumptions: 2023 US$85 WTI, US$17.50 Western Canadian Select “WCS” heavy differential, C$5 AECO, and $0.75 C$/US$ FX. 2024-25 US$85 WTI, US$12.50 WCS heavy differential, C$5 AECO, and $0.75 C$/US$ FX.
Athabasca has a unique liquids-weighted asset portfolio. The production base is underpinned by low decline, long reserve life assets in the oil sands and complemented by a deep inventory of short-cycle time, high returning assets in Light Oil. The asset base has exposure to Canada’s most active resource plays (Montney, Duvernay, Oil Sands) with decades of development potential.
Leismer has over 700 million barrels of Proved plus Probable Reserves and is the Company’s cornerstone thermal oil asset. Current production is ~21,600 bbl/d with a steam oil ratio (“SOR”) of ~2.9x (November 2022). Production from five additional Pad L8 wells drilled in 2022 will commence in Q2 2023 and ramp up to a plateau rate of ~6,000 bbl/d. Leismer is expected to exit 2023 with production of ~24,000 bbl/d. A facility debottleneck project has been sanctioned and will support sustainable growth up to ~28,000 bbl/d in 2024. This production level can be held with modest sustaining capital (~$6/bbl) for many years into the future. Capital scope in 2023 includes an oil processing facility upgrade, along with drilling four additional sustaining well pairs at Pad L8 and four infill wells at Pad L7. The Company is able to leverage existing excess steam capacity and has been proactive in acquiring long lead equipment to ensure successful delivery of the program at a competitive capital efficiency of ~$14,000/bbl/d for the debottleneck project. This project is expected to enhance margins through increased operating scale. The Company has also partnered with Entropy Inc. with plans to sanction the first phase of the CCS project in 2023, utilizing capital and proprietary technology provided by Entropy.
At Hangingstone, the Company is preparing for future sustaining well pairs in 2024 and beyond.
At Placid in the Light Oil division, Athabasca will commence drilling a multi-well Montney pad in Q1 2023 with completions and tie-in to follow in the summer. The Montney program is designed to offset natural production declines and maintain strong operating margins. The Company believes its Kaybob Duvernay assets have also demonstrated sustained top-tier results. The Light Oil land position has no near-term expiries and is ready for future development with over 850 Montney and Duvernay locations.
Return of Capital Strategy
Athabasca has transitioned a significant portion of its enterprise value to shareholders through its debt reduction priority in 2022. The Company has retired ~C$227 million (US$174.8 million) of its term debt representing a ~50% reduction in outstanding principal. The Company has now achieved its debt target and has also retained the strategic option to further reduce debt at an attractive price in May 2023 by utilizing the Free Cash Flow sweep feature within its indenture. The Company expects to be in a net cash position in Q1 2023.
Athabasca’s capital allocation framework balances material near-term return of capital initiatives for shareholders, with a strong multi-year growth trajectory of cash flow per share. The Company sees tremendous intrinsic value not reflected in the current share price and is planning to allocate a minimum of 75% of Excess Cash Flow (Adjusted Funds Flow less Sustaining Capital) to shareholders. Athabasca intends to apply to the TSX for a Normal Course Issuer Bid program that provides the ability to purchase up to 10% of the Company’s float per annum, starting in April. Additional Excess Cash Flow allocation will be commodity price dependent and could include additional share buybacks dependent on valuation, further debt reduction or high return growth projects.
Balance Sheet and Risk Management Update
The Company has a constructive outlook on oil prices given years of industry underinvestment. The Company believes the recent wider WCS differentials is transitory as the US administration tapers Strategic Petroleum Reserve releases and refinery maintenance season concludes.
Athabasca maintains an exceptionally strong balance sheet that affords it protection against commodity price volatility while maintaining significant exposure to higher prices. The Company recently increased its Unsecured Letter of Credit Facility with ATB Financial markets to $60 million (up from $50 million) and the facility is supported by a performance security guaranteed from Export Development Canada. The Company has current Liquidity of ~$288 million inclusive of ~$200 million cash and ~$88 million of credit facility availability.
Athabasca has a minimal 2023 hedge program in place with 13,750 bbl/d of WTI collars for Q1 2023 at a floor of ~US$52 and a ceiling of ~US$115 and 21 mmcf/d of its Thermal Oil gas input costs hedged at ~C$5 AECO for the full year. Going forward, the Company expects to maintain hedges on ~25% of its production base, in accordance with current debt agreements. These hedges, combined with our strong Liquidity, will be executed to provide downside protection for a minimal capital program while providing maximum exposure to a strong oil price 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.