17:08:35 EDT Tue 17 Sep 2019
Enter Symbol
or Name
USA
CA



Athabasca Oil Corp
Symbol C : ATH
Shares Issued 523,184,609
Close 2019-07-31 C$ 0.71
Recent Sedar Documents

Athabasca Oil earns $57.09-million in Q2

2019-07-31 18:08 ET - News Release

Mr. Matthew Taylor reports

ATHABASCA OIL CORPORATION ANNOUNCES 2019 SECOND QUARTER RESULTS

Athabasca Oil Corp. had continued strong financial performance with its second quarter results. With its resilient business model, the company is well positioned to generate free cash flow in 2019 and beyond.

Second quarter 2019 highlights

Consolidated quarterly results:

  • Production of about 34,000 barrels of oil equivalent per day (85 per cent liquids);
  • Operating income of about $82-million (excluding hedging);
  • Adjusted funds flow of about $48-million (nine cents per share);
  • Free cash flow of about $21-million with positive contributions from both light oil and thermal oil.

Light oil and high-margin liquids-rich returns:

  • Production of about 10,200 boe per day (51 per cent liquids);
  • Operating income of about $26-million with a top-decile netback of about $27.50 per boe;
  • Strong initial Two Creeks Duvernay results unlock significant inventory within a shallower window of the Kaybob play; IP60 of about 725 barrels per day per well 16-29 pad and IP30 of about 725 bbl per day 5-19 pad;
  • Simonette Duvernay pad on stream with initial rates greater than 2,000 boe per day per well (about 90 per cent liquids).

Thermal oil and low-decline production:

  • Production of about 23,800 bbl per day, including downtime for maintenance at both assets;
  • Operating income of about $56-million; record division netback of about $27 per bbl (about $31 per bbl at Leismer);
  • Leismer L7 sustaining pad commenced circulation with first production expected in fourth quarter 2019.

Financial resiliency:

  • Liquidity of about $425-million (cash and available credit facilities); net debt of about $240-million.

2019 outlook

Uniquely positioned for current market fundamentals:

  • Annual capital guidance of about $135-million focused on sustaining production for 2020;
  • Low annual sustaining capital advantage of about $9.50 per boe; balanced second half 2019 activity includes drilling a four-well Montney pad at Placid, drilling 13 Duvernay wells, a steam debottleneck project and NCG co-injection expansion at Leismer;
  • Annual adjusted funds flow forecast of $155-million ($60 (U.S.) WTI (West Texas Intermediate) and $17.50 (U.S.) WCS (Western Canadian Select) differentials).

Athabasca is a liquids-weighted intermediate producer with exposure to Canada's most active resource plays (Montney, Duvernay and oil sands). The company's high-quality, long-life assets provide investors with unique exposure to free cash flow, which, combined with focus on strong margin opportunities, drives shareholder returns. The company has flexibility to direct sustainable free cash flow to debt reduction, share buybacks or capital projects.

                                     FINANCIAL AND OPERATIONAL HIGHLIGHTS 
                                     ($ thousands, unless otherwise noted)  

                                                                   Three months ended           Six months ended
                                                                         June 30,                  June 30, 
                                                                     2019        2018          2019         2018 
Consolidated                                                                                                     
Petroleum and natural gas production (boe/d)                       33,958      37,658        36,568       39,107 
Operating income (1, 2)                                           $67,122     $46,719      $125,724      $63,595 
Operating netback (1, 2) ($/boe)                                    22.19       13.01         19.29         8.80 
Capital expenditures                                               33,717      54,159        86,681      136,420 
Capital expenditures net of capital carry (1)                      26,888      38,888        58,644       95,549 
                                                                 --------    --------      --------     --------     
Light oil division                                                                                               
Petroleum and natural gas production (boe/d)                       10,210      11,872        10,957       11,187 
Liquids (%)                                                            51%         48%           52%          49% 
Operating income (1)                                               25,637      30,936        56,917       55,228 
Operating netback (1) ($/boe)                                       27.59       28.64         28.70        27.27 
Capital expenditures                                               11,858      25,557        41,713       92,187 
Capital expenditures net of capital carry (1)                       5,029      10,286        13,676       51,316 
                                                                 --------    --------      --------     --------     
Thermal oil division                                                                                             
Bitumen production (bbl/d)                                         23,748      25,786        25,611       27,920 
Operating income (1)                                               56,522      39,635       101,650       32,891 
Operating netback (1) ($/bbl)                                       26.97       15.79         22.42         6.33 
Capital expenditures                                               21,859      28,595        44,968       44,226 
                                                                 --------    --------      --------     --------     
Cash flow and funds flow                                                                                         
Cash flow from operating activities                                61,488      27,605        42,916       24,364 
Per share -- basic                                                   0.12        0.05          0.08         0.05 
Adjusted funds flow (1)                                            47,757      25,680        89,376       19,320 
Per share -- basic                                                   0.09        0.05          0.17         0.04 
                                                                 --------    --------      --------     --------     
Net income (loss) and comprehensive income (loss)                                                                
Net income (loss) and comprehensive income (loss)                  57,091     (19,267)      263,887     (112,597)
Per share -- basic                                                   0.11       (0.04)         0.51        (0.22)
Per share -- diluted                                                 0.11       (0.04)         0.50        (0.22)
                                                                 --------    --------      --------     --------     

(1) Refer to the "Advisories and Other Guidance" section in management's discussion
and analysis for additional information on Non-generally accepted accounting principle
financial measures.
(2) Includes realized commodity risk management loss of $15.0-million and $32.8-million
for the three and six months ended June 30, 2019, respectively (June 30, 2018:
$23.9-million and $24.5-million).

Business environment

In December, the Alberta government announced mandatory industry production curtailments starting in January, 2019, to alleviate the high differential situation until additional egress is added. Following the announcement, the Western Canadian Select heavy oil pricing outlook has significantly improved. WCS prices have averaged $61.18 in first half 2019, an approximately 140-per-cent increase from $25.36 in fourth quarter 2018. Athabasca remains supportive of these actions and views them as a necessary step to normalize pricing and provide a bridge to permanent market access initiatives.

Industry crude by rail remains an important factor in managing differentials and Alberta inventories. Rail capacity continues to increase, and baseline utilization is expected to build through 2019 as long-term contracts are operationalized.

The global heavy oil market continues to tighten with supply declines in Venezuela and Mexico, OPEC cuts, and growing petrochemical demand. These changing dynamics are supporting heavy oil pricing benchmarks with U.S. refineries in the PADD II and III regions, requiring a heavier feedstock. The majority of onshore North American liquids production growth is light or condensate spec and slated for export to the international market. Athabasca is well positioned for this changing global supply dynamic with its thermal-oil-weighted production and long-life reserve base.

Operations update

Light oil

Second quarter 2019 production averaged 10,210 barrels of oil equivalent per day (51 per cent liquids). The division generated operating income of $25.6-million and maintained a top-decile netback of $27.59 per boe. Capital expenditures for the quarter were $5.0-million (net of capital carry).

The liquids-rich Montney at Greater Placid (70-per-cent operated working interest) is positioned for flexible and efficient development. Robust project economics are supported by strong initial liquids yields (200 to 300 barrels per million cubic feet), low lifting costs and an approximately 200-well high-graded inventory. Drilling will recommence this fall on a four-well pad at 2-5-61-23W5 (2-5). The company retains flexibility for completion timing and tie-in of two pads (11 wells).

The Greater Kaybob Duvernay program (30-per-cent non-operated working interest) remains robust, and the partnership is executing a jointly approved 2019 budget of $256-million gross (about $20-million net of capital carry). Activity is focused on delineation at Two Creeks, Kaybob East and Kaybob West. Athabasca remains encouraged by continued strong production results across the volatile oil window.

At Two Creeks, two multiwell pads were recently brought on stream with strong initial rates and high-quality liquids (about 41-degree API). 16-29-64-16-W5 (two-well pad) had an IP30 of about 750 bbl per day and an IP60 of about 725 bbl per day per well. 5-19-64-16W5 (two-well pad) had an IP30 of about 725 bbl per day per well. The company sees significant long-term potential at Two Creeks with exposure to approximately 45,000 acres in a shallower window of the play (about 2,700-metre vertical depth), which is expected to drive lower well costs. The partnership recently completed a strategic land swap with an industry major, capturing 31 sections of consolidated acreage between Kaybob East and Two Creeks in exchange for nine non-core sections.

At Kaybob West, a significant northern stepout 16-25-65-20W5 had a facility restricted IP30 of about 800 bbl per day with an IP120 of about 700 bbl per day.

At Simonette, a three-well pad 8-3-64-24W5 was recently tied into third party infrastructure. The first two wells had an average IP14 of about 2,050 boe per day (91 per cent liquids) per well, and the third well is expected to be placed on production during third quarter 2019.

By the end of this year, Athabasca believes the majority of the Duvernay acreage (six areas across about 210,000 gross acres) will be derisked from a resource appraisal perspective, and the partnership will be in a position to high-grade development opportunities thereafter. Athabasca remains protected into 2020 with a current capital carry balance of $53.6-million ($238-million gross expenditures).

Thermal oil

Second quarter 2019 production averaged 23,748 bbl per day. Production was impacted by facility maintenance activities and recovery from curtailed production in fourth quarter 2018 and first quarter 2019 as a response to the unprecedented WCS differential environment (about 1,000-barrel-per-day impact to annual average). As such, the company anticipates thermal oil production to trend on the lower end of its annual guidance.

The division generated operating income of $56.5-million with a record operating netback of $26.97 per bbl ($31.07 per bbl at Leismer and $18.04 per bbl at Hangingstone). The company's realized bitumen price averaged $55.58 per bbl, supported by a $10.67 (U.S.) WCS differential during the quarter and lower seasonal blending requirements. Capital expenditures for the quarter were $21.9-million.

At Leismer, Athabasca rig released the L7 sustaining pad earlier in the year. L7 is the first sustaining pad drilled since acquiring the asset in early 2017 and includes five well pairs with about 1,250-metre laterals (50 per cent longer than prior wells). The company commenced well pair circulation in June with first production expected in fourth quarter 2019. The coming winter program will include completion of a steam debottleneck project, expansion of non-condensable gas co-injection across the field and long-lead initiatives aimed at maintaining base production.

Risk management and balance sheet

Athabasca has protected a base level of capital activity through its risk management program while maintaining cash flow upside to the current pricing environment. For second half 2019, the company has hedged 14,000 bbl per day of apportionment protected volumes with a WCS floor price of about $52.50 and an additional 2,000 bbl per day of WCS differentials at about $20 (U.S.). The company has also secured 8,000 bbl per day of direct refinery sales for 2020. The hedging program targets up to 50 per cent of near-term corporate production, and Athabasca will layer on additional protection to support its 2020 capital plans through the fall.

The company has access to 130,000 bbl of storage at Edmonton to manage and optimize product sales. Athabasca has secured long-term egress to multiple end markets with 25,000 bbl per day of capacity on TC Energy Keystone XL and 20,000 bbl per day of capacity on the Trans Mountain Expansion project.

Athabasca maintains a strong financial position with liquidity of $424-million (cash and available credit facilities) and a Duvernay capital carry balance of $53.6-million. The company's term debt is in place until 2022 with no maintenance covenant, and the $120-million undrawn reserve-based credit facility was recently reaffirmed by the banking syndicate.

Outlook and drive to free cash flow

Athabasca's 2019 capital guidance of about $135-million is focused on sustaining production for 2020. The company maintains a low annual sustaining capital advantage of about $9.50 per boe. Balanced second half 2019 activity includes drilling a four-well Montney pad at Placid, drilling 13 Duvernay wells, a steam debottleneck project and NCG co-injection expansion at Leismer. Annual adjusted funds flow is forecast at $155-million ($60 (U.S.) WTI and $17.50 (U.S.) WCS differential for the balance of 2019). The company has flexibility to direct sustainable free cash flow to debt reduction, share buybacks or capital projects.

2019 guidance

Corporate (net)

Production:  37,500 to 40,000 boe per day

Capital expenditures:  $135-million

Light oil (net)

Production:  10,000 to 11,000 boe per day

Capital expenditures:  $35-million

Thermal oil (net)

Production:  27,500 to 29,000 boe per day

Capital expenditures:  $100-million

Adjusted funds flow sensitivity (1)

$60 (U.S.) WTI per $17.50 (U.S.) WCS differential:  $155-million

$65 (U.S.) WTI per $17.50 (U.S.) WCS differential:  $175-million

(1) Funds flow sensitivity includes first half 2019 actuals, current hedging and flat pricing assumptions for the rest of 2019 ($10 (U.S.) MSW differential, $5 (U.S.) C5 differential and $1.50 (Canadian) AECO (Alberta Energy Company) and 75 Canadian cents per $1 (U.S.) foreign exchange).

About Athabasca Oil Corp.

Athabasca Oil 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.

We seek Safe Harbor.

© 2019 Canjex Publishing Ltd. All rights reserved.