CALGARY, Alberta, Nov. 02, 2022 (GLOBE NEWSWIRE) — Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or the “Company”) is pleased to report its 2022 third quarter results with record Adjusted Funds Flow, strong 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.
Q3 Corporate Highlights
- Production: 37,240 boe/d (93% Liquids) consisting of 31,023 bbl/d in Thermal Oil and 6,217 boe/d (57% Liquids) in Light Oil. The Company is on track to exceed its increased annual production guidance of 34,000 – 35,000 boe/d, based on strong underlying asset performance.
- Record Cash Flow: Record Adjusted Funds Flow1 of $102 million and Free Cash Flow of $50 million.
- Netbacks: $39.25/bbl in Thermal Oil ($41.73/bbl at Leismer and $33.70/bbl at Hangingstone) and $38.76/boe in Light Oil ($48.11/boe at Kaybob and $29.82/boe at Placid).
- Capital Expenditures: $52 million primarily focused on sustaining operations at the Leismer asset in Thermal Oil.
- Significant Deleveraging: Redeemed $223 million (US$172 million) in Term Debt year to date, including $65 million (US$48 million) in and subsequent to the third quarter. The Company has been steadfast on its balance sheet commitments and has achieved 98% of its US$175MM debt reduction target, demonstrating the significant Free Cash Flow generation of Athabasca’s business. The Company has low Net Debt of ~$65 million and forecasts a Net Cash position in 2023 onwards.
- Strong Liquidity: $278 million of Liquidity, inclusive of $200 million of Cash at the end of Q3.
Operational Highlights
- Leismer: Q3 production averaged 22,309 bbl/d with a 2.8x SOR supported by strong rates from the new Pad 8 (5 well pairs). The Company recently placed two additional infill wells on production at Pad L6 and rig released an additional five well pairs at Pad L8 that are expected to be on production in H1 2023. Athabasca has estimated Profit-to-Investment Ratios (NPV/Investment) of ~10x on recent sustaining pads (long term $85 WTI and $12.50 Western Canadian Select “WCS” heavy differentials).
- Hangingstone: Q3 production averaged 8,714 bbl/d and non-condensable gas co-injection has resulted in reduced energy intensity with the steam oil ratio of 3.8x year to date.
- Light Oil Duvernay and Montney: Three Duvernay wells at Two Creeks completed in Q1 continue to outperform expectations with IP180s averaging ~500 boe/d per well (94% Liquids). The Company has a flexible development portfolio of ~850 gross de-risked Montney and Duvernay wells along with strategic ownership and operatorship of liquids and gas infrastructure.
Footnote: Refer to the “Reader Advisory” section within this news release for additional information on Non‐GAAP Financial Measures (e.g. Operating Income/Netbacks, Adjusted Funds Flow, Free Cash Flow, Net Debt/Cash) and production disclosure.
1 Cash Flow from Operating Activities of $118 million.
2 Pricing Assumptions: realized prices year to date through September and flat pricing of US$85 WTI, US$25 Western Canadian Select “WCS” heavy differential, C$5 AECO, and $0.73 C$/US$ FX for the balance of 2022.
Strategic Update and Corporate Outlook
- Low Decline, Long Life Asset Base: Athabasca has a deep asset inventory with 1,230 mmbbl 2P Reserves in Thermal Oil and ~850 gross wells of short cycle-time, high returning Light Oil future locations. The asset portfolio is demonstrating its ability to generate significant Free Cash Flow and will provide tremendous optionality into the future. Production guidance of 34,000 – 35,000 boe/d (92% Liquids) in 2022 is expected to be attained through its modest capital program that is also indicative of long term sustaining capital requirements.
- Managing for Free Cash Flow: For 2022, Athabasca is updating its financial forecasts based on strong operational performance and current commodity price assumptions. Adjusted Funds Flow1 is forecasted at ~$330 million including Free Cash Flow1 of ~$180 million. The Company further expects to generate ~$900 million in Free Cash Flow during the 3-year timeframe of 2022-24 (inclusive of 2022 guidance and flat pricing of US$85 WTI and US$12.50 WCS differentials thereafter). Every $5/bbl WTI change impacts Free Cash Flow by ~$45 million annually (unhedged). Strong margins and Free Cash Flow is supported by ~$3 billion in tax pools and a Thermal Oil pre-payout Crown royalty structure.
- Significant Deleveraging with Clear Targets: The Company has utilized 100% of near term Free Cash Flow to reduce its Term Debt, with a clear target of US$175 million Term Debt (50% reduction). The Company has achieved 98% of this target with $223 million (US$172 million) redeemed in 2022 through open market purchases, equity redemptions through warrant proceeds and the Free Cash Flow payment feature within the indenture. This is significantly ahead of schedule while also maintaining a strong liquidity position of $278 million (inclusive of $200 million cash).
- Excellent Exposure to Commodity Price Upside: Athabasca has excellent exposure to upside in commodity prices with minimal hedges in 2023. The Company has a constructive outlook on oil prices given years of industry underinvestment in energy. The Company believes the recent wider WCS differentials is transitory as the US administration tapers Strategic Petroleum Reserve releases and refinery maintenance season concludes.
- 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 differentials). 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 ~$450 million in Operating Income1 in 2022. At current commodity prices, these assets compete exceptionally well on all cash flow metrics against top plays in North America.
- Planning for the Future: A ~$150 million capital program in 2022 now incorporates strategic readiness capital to maintain business momentum in its core assets in 2023 and beyond. The 2022 capital program has largely been insulated from inflation through prior advanced planning.
- Unlocking Shareholder Value: Deleveraging in 2022 has transitioned a significant portion of enterprise value to shareholders. Athabasca is committed to further enhancing shareholder returns by utilizing Free Cash Flow and cash balances for share buy-backs once its debt target is achieved. The Company sees tremendous intrinsic value not reflected in the current share price. Guidance on shareholder returns and the corporate capital allocation framework will be provided in early December in conjunction with the 2023 budget.
1 Pricing Assumptions: realized prices year to date through September and flat pricing of US$85 WTI, US$25 Western Canadian Select “WCS” heavy differential, C$5 AECO, and $0.73 C$/US$ FX for the balance of 2022.
Financial and Operational Highlights
Three months ended September 30, |
Nine months ended September 30, |
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($ Thousands, unless otherwise noted) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
CONSOLIDATED | ||||||||||||||||
Petroleum and natural gas production (boe/d)(1) | 37,240 | 34,255 | 35,064 | 34,439 | ||||||||||||
Petroleum, natural gas and midstream sales | $ | 397,059 | $ | 280,151 | $ | 1,222,161 | $ | 723,918 | ||||||||
Operating Income (Loss)(1) | $ | 140,081 | $ | 120,581 | $ | 459,976 | $ | 279,705 | ||||||||
Operating Income (Loss) Net of Realized Hedging(1)(2) | $ | 110,021 | $ | 92,742 | $ | 316,564 | $ | 212,929 | ||||||||
Operating Netback ($/boe)(1) | $ | 39.17 | $ | 36.02 | $ | 47.43 | $ | 29.54 | ||||||||
Operating Netback Net of Realized Hedging ($/boe)(1)(2) | $ | 30.76 | $ | 27.70 | $ | 32.64 | $ | 22.49 | ||||||||
Capital expenditures | $ | 52,300 | $ | 15,608 | $ | 134,420 | $ | 73,790 | ||||||||
Free Cash Flow(1) | $ | 50,070 | $ | 56,625 | $ | 127,510 | $ | 67,632 | ||||||||
THERMAL OIL DIVISION | ||||||||||||||||
Bitumen production (bbl/d)(1) | 31,023 | 26,729 | 28,578 | 26,374 | ||||||||||||
Petroleum, natural gas and midstream sales | $ | 366,804 | $ | 254,769 | $ | 1,126,878 | $ | 648,982 | ||||||||
Operating Income (Loss)(1) | $ | 117,916 | $ | 94,796 | $ | 369,820 | $ | 204,532 | ||||||||
Operating Netback ($/bbl)(1) | $ | 39.25 | $ | 35.71 | $ | 46.66 | $ | 28.16 | ||||||||
Capital expenditures | $ | 35,412 | $ | 15,228 | $ | 99,687 | $ | 69,630 | ||||||||
LIGHT OIL DIVISION | ||||||||||||||||
Petroleum and natural gas production (boe/d)(1) | 6,217 | 7,526 | 6,486 | 8,065 | ||||||||||||
Percentage Liquids (%)(1) | 57 | % | 55 | % | 57 | % | 56 | % | ||||||||
Petroleum, natural gas and midstream sales | $ | 39,990 | $ | 36,531 | $ | 138,923 | $ | 107,468 | ||||||||
Operating Income (Loss)(1) | $ | 22,165 | $ | 25,785 | $ | 90,156 | $ | 75,173 | ||||||||
Operating Netback ($/boe)(1) | $ | 38.76 | $ | 37.25 | $ | 50.92 | $ | 34.15 | ||||||||
Capital expenditures | $ | 860 | $ | 128 | $ | 10,068 | $ | 1,640 | ||||||||
CASH FLOW AND FUNDS FLOW | ||||||||||||||||
Cash flow from operating activities | $ | 117,853 | $ | 75,743 | $ | 246,250 | $ | 113,064 | ||||||||
per share – basic | $ | 0.20 | $ | 0.14 | $ | 0.44 | $ | 0.21 | ||||||||
Adjusted Funds Flow(1) | $ | 102,370 | $ | 72,233 | $ | 261,930 | $ | 141,422 | ||||||||
per share – basic | $ | 0.17 | $ | 0.14 | $ | 0.47 | $ | 0.27 | ||||||||
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
Net income (loss) and comprehensive income (loss) | $ | 155,097 | $ | 104,951 | $ | 82,617 | $ | 73,535 | ||||||||
per share – basic | $ | 0.27 | $ | 0.20 | $ | 0.15 | $ | 0.14 | ||||||||
per share – diluted | $ | 0.22 | $ | 0.19 | $ | 0.14 | $ | 0.14 | ||||||||
COMMON SHARES OUTSTANDING | ||||||||||||||||
Weighted average shares outstanding – basic | 585,058,807 | 530,675,391 | 561,823,801 | 530,675,391 | ||||||||||||
Weighted average shares outstanding – diluted | 620,563,273 | 547,618,860 | 580,580,442 | 544,597,372 |
September 30, | December 31, | |||||
As at ($ Thousands) | 2022 | 2021 | ||||
LIQUIDITY AND BALANCE SHEET | ||||||
Cash and cash equivalents | $ | 200,100 | $ | 223,056 | ||
Available credit facilities(3) | $ | 77,838 | $ | 77,844 | ||
Face value of term debt(4) | $ | 280,377 | $ | 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 $30.1 million and $143.4 million for the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 – loss of $27.8 million and $66.8 million).
(3) Includes available credit under Athabasca’s Credit Facility and Unsecured Letter of Credit Facility.
(4) The face value of the term debt at September 30, 2022 was US$205 million (December 31, 2021 – US$350 million) translated into Canadian dollars at the September 30, 2022 exchange rate of US$1.00 =C$1.3707 (December 31, 2021 – C$1.2678).
Operations Update
Thermal Oil
Bitumen production for Q3 2022 averaged 31,023 bbl/d. The Thermal Oil division generated Operating Income of $117.9 million. Q3 2022 Operating Netbacks for Leismer and Hangingstone were $41.73/bbl and $33.70/bbl, respectively. Capital expenditures were $35.4 million.
For 2022, Athabasca 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. The Company has also commenced hedging its gas input costs for 2023 locking in 21 mmcf/d at ~C$5/mcf.
Leismer
Bitumen production at Leismer for the third quarter averaged 22,309 bbl/d.
In June, the Company drilled two infill wells at Pad L6 and the wells were placed on production in September. At Pad L8, drilling and completion operations were completed in October for five additional well pairs. Steaming is expected to commence before year-end with first production in H1 2023. The pad encountered excellent reservoir and is expected to ramp-up to a plateau rate of ~6,000 bbl/d, similar to the first Pad 8 well pairs that came on production earlier this year.
Leismer’s current production is ~22,000 bbl/d (October) with ~50% of volumes attributed to newer vintage production (Pad L7 and L8). Strong new well performance, combined with effective use of non-condensable gas co-injection on mature pads, is resulting in a current steam oil ratio of 2.9x (October). Athabasca has the ability to grow Leismer’s production up to the facility’s oil handling capacity of ~25,000 bbl/d by maintaining its current capital cadence of approximately one sustaining pad per year. Leismer has regulatory approval for expansion to 40,000 bbl/d which could provide capital efficient growth through debottlenecking of the facility and the drilling of incremental well pairs.
Leismer has a significant Unrecovered Capital Balance of $1.6 billion which ensures a low Crown royalty framework (between 5-9% royalty depending on commodity prices). The asset is forecasted to remain pre-payout until 2028 (US$85 WTI & US$12.50 WCS differential) and this is a unique competitive advantage compared to most peer oil sands projects.
Hangingstone
Bitumen production at Hangingstone for the third quarter averaged 8,714 bbl/d, inclusive of planned maintenance activity. Non-condensable gas co-injection has aided in pressure support and reduced energy usage. Hangingstone’s steam oil ratio averaged 3.8x year to date. In 2022, Hangingstone will have no capital allocation other than routine pump replacements. The asset is expected to generate ~$125 million of Operating Income1 in 2022.
1 Pricing Assumptions: realized prices year to date through September and flat pricing of US$85 WTI, US$25 Western Canadian Select “WCS” heavy differential, C$5 AECO, and $0.73 C$/US$ FX for the balance of 2022.
Light Oil
Production averaged 6,217 boe/d (57% Liquids) for Q3 2022. The Light Oil division generated Operating Income of $22.2 million with an Operating Netback of $38.76/boe. Capital expenditures were $0.9 million.
Placid Montney
At Greater Placid, production averaged 3,181 boe/d (43% Liquids) during the third quarter with an Operating Netback of $29.82/boe. Placid is positioned for flexible future development with an inventory of ~150 gross drilling locations and minimal near-term land retention requirements.
Kaybob Duvernay
At Greater Kaybob, production averaged 3,036 boe/d (72% Liquids) during the third quarter with an Operating Netback of $48.11/boe.
Three Duvernay wells in the oil window at Two Creeks were completed early in the year with IP180’s averaging 500 boe/d, 94% Liquids. The Company now has extended production data for 27 wells at Kaybob East and Two Creeks in the oil window, with the latest 12 wells at Two Creeks IP365’s averaging ~550 boe/d per well, ~85% Liquids. The wells have consistently supported the Company’s type curve expectations, demonstrating the significant potential of the asset.
Industry activity continues to accelerate in the play with significant Crown land sales, increased competitor drilling and new entrants. Minimal capital activity is planned for the remainder of 2022 with operations focused on facility maintenance and readiness for future optionality. Athabasca is positioned with an enviable position of ~700 gross de-risked drilling locations, along with ownership and control of strategic regional infrastructure. Athabasca’s Duvernay position is supported by a strong Joint Development Agreement.
Executive Update
Athabasca is pleased to announce the appointment of Mr. Cam Danyluk as General Counsel and Vice President, Business Development. Mr. Danyluk has over twenty years of legal, business development, and investment banking experience in the Canadian energy sector.
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.