Mr. Matthew Taylor reports

ATHABASCA OIL PROVIDES OPERATIONS UPDATE, 2020 BUDGET GUIDANCE AND RESULTS OF SPECIAL SHAREHOLDERS MEETING

Athabasca Oil Corp. has demonstrated strong operational results at the end of 2019 and has approved a 2020 capital budget focused on sustaining annual production within forecasted funds flow.

Year-end 2019 operations update:

• Production: annual average of approximately 36,200 barrels of oil equivalent per day, in line with prior guidance of 36,000 boe per day; fourth quarter 2019 production averaged approximately 36,400 boe per day;
• Leismer update: December production increased to approximately 20,100 barrels per day supported by the five-well sustaining pad at L7 that was brought on production in fourth quarter 2019;
• Light oil update: At Placid, completion operations commenced on two Montney multiwell pads that will be placed on stream in first half 2020; at Greater Kaybob, three drilling rigs and two frack spreads are currently in operation, and are expected to remain active through first half 2020;
• Capital: Annual expenditures are in line with prior guidance of $135-million (excluding cap general and administrative).

2020 budget guidance:

• Low sustaining capital: expenditures of $125-million focused on resiliency by executing a program aimed at sustaining production within projected funds flow;
• Resilient production: production to average between 36,000 and 37,500 boe per day (88 per cent liquids);
• Thermal oil activity: expenditures of $65-million focused on Leismer, including long-lead initiatives for Pad L8, a water disposal well, which is expected to reduce annual non-energy operating costs by $3-million, and routine pump changes at both assets; at Hangingstone, the company will complete its first facility turnaround during the second quarter; thermal production is expected to average between 26,000 and 27,000 bbl per day;
• Light oil activity: expenditures of $60-million with activity weighted toward first half 2020; in the Montney, the company will finish the completion and tie-in of two multiwell pads (10 wells); in the Duvernay, activity will include seven drills, 13 completions and 16 tie-ins; light oil production is expected to average between 10,000 and 10,500 boe per day (55 per cent liquids);
• Funds flow: forecasted funds flow of $125-million ($57.50 (U.S.) West Texas Intermediate (WTI) and $17.50 (U.S.) Western Canadian Select (WCS) heavy differential with upside at current spot prices.

Athabasca remains focused on increasing free cash flow by improving break-evens, strengthening its balance sheet and mitigating external risks. The company has preserved long-term optionality across a deep inventory of high-quality thermal oil projects and flexible light oil development opportunities. This balanced portfolio provides shareholders with differentiated exposure to liquid-weighted production and significant long reserve life assets.

2020 guidance for the full year

Corporate

Production:  36,000 to 37,500 boe per day

Per cent liquids:  approximately 88 per cent

Capital expenditures:  $125-million

Light oil

Production:  10,000 to 10,500 boe per day

Capital expenditures:  $60-million

Thermal oil

Production:  26,000 to 27,000 bbl per day

Capital expenditures:  $65-million

Adjusted funds flow sensitivity (1)

$57.50 (U.S.) WTI/$17.50 (U.S.) WCS differential:  $125-million

$62.50 (U.S.) WTI/$17.50 (U.S.) WCS differential:  $180-million

(1) Funds flow sensitivity includes current hedging and flat pricing assumptions ($5 (U.S.): Mixed Sweet Blend (MSW) differential, $5 (U.S.): C5 differential, $1.75 (Canadian): Alberta Energy Company (AECO) and 75 Canadian cents to $1 (U.S.) foreign exchange).

Risk management and market access

Athabasca protects a base level of capital activity through its risk management program while maintaining cash flow upside to the current pricing environment. A hedging program targets up to 50 per cent of corporate production.

For 2020, the company has hedged 13,500 bbl per day of WTI through a combination of fixed swaps (approximately 50 per cent) and collars (approximately 50 per cent). Approximately 50 per cent of forecasted volumes are currently hedged in first half 2020 and 25 per cent hedged in second half 2020. The average floor price is approximately $56.50 (U.S.) WTI with upside exposure to $60 (U.S.) and $65 (U.S.) on the WTI collars. In addition, the company has hedged approximately 9,400 bbl per day of WCS differentials at approximately $19.50 (U.S.) with 8,000 bbl per day protected from apportionment through direct sales to refineries.

The company has secured approximately 7,200 bbl per day of Keystone pipeline service commencing in 2020 for a term of 20 years. This capacity diversifies thermal oil dilbit sales to the U.S. Gulf coast at pipeline economics which will allow the company to further enhance its netback.

Longer term, Athabasca has secured egress with capacity on both the TC Energy Keystone XL pipeline and the Trans Mountain expansion project.

Special meeting of shareholders

Athabasca held a special meeting of shareholders on Jan. 8, 2020, whereby shareholders voted in favour of the resolution to reduce stated capital (58-per-cent shareholder turnout with 99.8-per-cent approval).

The company now has flexibility under the Business Corporations Act (Alberta) to pursue potential share buybacks. Athabasca believes that, from time to time, the market price of its common shares may not fully reflect the underlying value of its business, future prospects and financial position. In such circumstances, Athabasca may purchase for cancellation outstanding common shares, thereby benefiting all shareholders by increasing the underlying value of the remaining common shares. The company may look to execute future share buybacks with sustainable free cash flow in the future.

Balance sheet strength and capital allocation philosophy

Athabasca continues to be resilient in the current macroenvironment and is uniquely positioned to improving oil fundamentals. Financial liquidity is a priority with $336-million of cash and available credit facilities (third quarter 2019). The company has demonstrated consistent strong netbacks in thermal oil and industry-leading netbacks in light oil, resulting in an approximately $45 (U.S.) WTI funds flow break-even ($17.50 (U.S.) WCS differential). Athabasca believes it provides shareholders a compelling value proposition with future free cash flow and an unhedged funds flow sensitivity of approximately $70-million (Canadian) for a $5-(U.S.)-per-barrel move in WTI.

The company's capital allocation philosophy is guided by the following priorities:

• Disciplined operations:
  • Sustain production while spending within cash flow;
  • Low sustaining capital advantage on low-decline long-life assets;
• Strong balance sheet:
  • Further improve resiliency with capital structure optimization;
  • Significant flexibility with strong current liquidity of $336-million;
• Future growth projects:
  • High-quality thermal leases at Leismer/Corner with regulatory approval and egress;
  • Flexible high-margin light oil development (Montney/Duvernay).

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.