CALGARY, Alberta, July 26, 2023 (GLOBE NEWSWIRE) -- Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or the “Company”) is pleased to report its second quarter results highlighted by continued operational momentum at Leismer, strong Free Cash Flow and execution on its return of capital commitment through share repurchases. Athabasca is uniquely positioned as a low leveraged company generating significant Free Cash Flow through its low-decline, oil weighted asset base.
Q2 2023 and Recent Corporate Highlights
- Production: ~34,000 boe/d (93% Liquids) consisting of ~29,000 bbl/d in Thermal Oil and ~5,000 boe/d in Light Oil. The Light Oil facilities were temporarily shut-in during May in response to the Alberta wildfires. No damage was sustained and production was fully restored in June. The Company is maintaining annual guidance of 34,500 – 36,000 boe/d, underpinned by production ramp up at Leismer throughout the remainder of 2023.
- Cash Flow: Consolidated Operating Income of $95 million and Adjusted Funds Flow1 of $82 million. Cash Flow was supported by structurally stronger Western Canadian Select heavy differentials averaging US$15/bbl in Q2 (US$25/bbl Q1 2023).
- Capital Program: $41 million focused on advancing the Leismer expansion project in Thermal Oil. Capital guidance for the year remains at $145 million.
- Free Cash Flow: $40 million of Free Cash Flow supporting return of capital commitments.
- Executing Return of Capital Commitment: $61 million in share buybacks (20 million shares at an average price of $3.04 per share) completed since April representing 34% of the Company’s annual Normal Course Issuer Bid limit.
- Balance Sheet Strength: Net Debt of $62 million with Liquidity of $220 million, including Cash of $132 million. The Company maintains a low level of outstanding debt.
- Leismer Update: Pad L8M commenced steaming in Q1 with four of the five well pairs placed on production in early June and the fifth expected to be on production in August. The asset is currently producing ~24,000 bbl/d, significantly ahead of prior production guidance. Drilling operations have recently been completed on four infill wells on Pad L7 and four well pairs on Pad L8S. These additional wells will support the expansion project that will drive growth to ~28,000 bbl/d by mid-2024. With the increased operating scale, the Company forecasts ~$5/bbl margin improvement at Leismer in 2024.
Strategic Update and Corporate Guidance
- Production Guidance. Overall production is expected to grow annually by 5 – 7% through the Company’s current capital initiatives. 2023 guidance remains unchanged at 34,500 – 36,000 boe/d (93% Liquids). Athabasca’s portfolio of long-life assets underpin a low corporate decline of ~5% annually.
- Capital Guidance Intact: The Company remains committed to executing a ~$145 million capital program this year ($120 million Thermal and $25 million Light Oil) with activity focused on advancing the expansion project at Leismer and operational readiness in Light Oil.
- Return of Capital Commitment: Athabasca is committed to allocating a minimum of 75% of Excess Cash Flow (Adjusted Funds Flow less Sustaining Capital) in 2023 to shareholders through share buybacks. Additional Excess Cash Flow allocation will be commodity price dependent and could include additional share repurchases dependent on valuation, further debt reduction or high return growth projects.
- Capital Efficient Growth at Leismer: Leismer production is currently ~24,000 bbl/d and the Company has successfully accelerated the on production dates for well pairs on Pad L8M. A facility expansion and additional drilling will support sustainable growth to ~28,000 bbl/d by mid-2024 at a competitive capital efficiency of ~$14,000/bbl/d. This project is on-track with previous guidance, will not impact the return of capital strategy and is expected to bolster future Free Cash Flow generation through enhanced margins.
- Managing for Free Cash Flow: Athabasca is positioned for continued margin growth in 2024 with the Leismer expansion and expected narrower WCS heavy differentials following the expected start-up of the Trans Mountain Pipeline Expansion. The Company expects to generate ~$1 Billion in Free Cash Flow2 during the three-year timeframe of 2023-25.
- Thermal Oil Differentiation: Strong margins and Free Cash Flow are supported by a Thermal Oil pre-payout Crown royalty structure, with royalty rates between 5 – 9%. Leismer is estimated to remain pre-payout until 2027 and Hangingstone well into the 2030s (US$85 WTI, US$12.50 WCS differential). This results in maximum cash flow at current commodity prices and creates a significant advantage over the majority of industry oil sands projects.
- Excellent Exposure to Commodity Upside: Athabasca has excellent exposure to upside in commodity prices with 25% of forecasted 2023 production volumes hedged through collars, providing upside to ~US$98.50 WTI. Every $5/bbl WTI change impacts annual cash flow by ~$50 million (unhedged) and every US$5/bbl WCS differential change impacts annual cash flow by ~$80 million (unhedged).
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 Cash Flow, Sustaining Capital, Net Debt, Liquidity) and production disclosure.
1Cash flow from operating activities in Q2 2023 was $47 million.
2 Pricing Assumptions: 2023 realized prices in H1 and flat pricing of US$80 WTI, US$15 Western Canadian Select “WCS” heavy differential, C$3 AECO, and $0.75 C$/US$ FX for H2. 2024-25 flat pricing of US$85 WTI, US$12.50 WCS heavy differential, C$5 AECO, and $0.75 C$/US$ FX.
Financial and Operational Highlights
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| ($ Thousands, unless otherwise noted) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| CONSOLIDATED | |||||||||||||||
| Petroleum and natural gas production (boe/d)(1) | 33,971 | 33,247 | 34,325 | 33,958 | |||||||||||
| Petroleum, natural gas and midstream sales | $ | 282,614 | $ | 435,678 | $ | 573,355 | $ | 825,102 | |||||||
| Operating Income (Loss)(1) | $ | 95,118 | $ | 169,255 | $ | 151,653 | $ | 319,895 | |||||||
| Operating Income (Loss) Net of Realized Hedging(1)(2) | $ | 90,522 | $ | 103,549 | $ | 125,002 | $ | 206,543 | |||||||
| Operating Netback ($/boe)(1) | $ | 32.23 | $ | 57.51 | $ | 24.05 | $ | 52.26 | |||||||
| Operating Netback Net of Realized Hedging ($/boe)(1)(2) | $ | 30.67 | $ | 35.18 | $ | 19.82 | $ | 33.74 | |||||||
| Capital expenditures | $ | 41,432 | $ | 51,191 | $ | 67,794 | $ | 82,120 | |||||||
| THERMAL OIL DIVISION | |||||||||||||||
| Bitumen production (bbl/d) (1) | 29,016 | 26,768 | 29,097 | 27,335 | |||||||||||
| Petroleum, natural gas and midstream sales | $ | 265,304 | $ | 399,793 | $ | 534,406 | $ | 760,074 | |||||||
| Operating Income (Loss)(1) | $ | 81,621 | $ | 131,067 | $ | 123,118 | $ | 251,904 | |||||||
| Operating Netback ($/bbl)(1) | $ | 32.64 | $ | 55.68 | $ | 22.97 | $ | 51.17 | |||||||
| Capital expenditures | $ | 29,912 | $ | 43,093 | $ | 52,748 | $ | 64,275 | |||||||
| LIGHT OIL DIVISION | |||||||||||||||
| Petroleum and natural gas production (boe/d)(1) | 4,955 | 6,479 | 5,228 | 6,623 | |||||||||||
| Percentage Liquids (%)(1) | 55 | % | 58 | % | 56 | % | 57 | % | |||||||
| Petroleum, natural gas and midstream sales | $ | 24,006 | $ | 53,825 | $ | 53,895 | $ | 98,933 | |||||||
| Operating Income (Loss)(1) | $ | 13,497 | $ | 38,188 | $ | 28,535 | $ | 67,991 | |||||||
| Operating Netback ($/boe)(1) | $ | 29.92 | $ | 64.77 | $ | 30.16 | $ | 56.72 | |||||||
| Capital expenditures | $ | 10,753 | $ | 1,221 | $ | 12,629 | $ | 9,208 | |||||||
| CASH FLOW AND FUNDS FLOW | |||||||||||||||
| Cash flow from operating activities | $ | 46,914 | $ | 68,535 | $ | 67,451 | $ | 128,397 | |||||||
| per share - basic | $ | 0.08 | $ | 0.12 | $ | 0.11 | $ | 0.23 | |||||||
| Adjusted Funds Flow(1) | $ | 81,664 | $ | 84,799 | $ | 72,268 | $ | 159,560 | |||||||
| per share - basic | $ | 0.14 | $ | 0.15 | $ | 0.12 | $ | 0.29 | |||||||
| Free Cash Flow (1) | $ | 40,232 | $ | 33,608 | $ | 4,474 | $ | 77,440 | |||||||
| NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | |||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | 57,121 | $ | 47,121 | $ | 486 | $ | (72,480 | ) | ||||||
| per share - basic | $ | 0.10 | $ | 0.08 | $ | 0.00 | $ | (0.13 | ) | ||||||
| per share - diluted(3) | $ | 0.07 | $ | 0.08 | $ | 0.00 | $ | (0.13 | ) | ||||||
| COMMON SHARES OUTSTANDING | |||||||||||||||
| Weighted average shares outstanding - basic | 592,223,832 | 568,728,441 | 589,442,937 | 550,013,742 | |||||||||||
| Weighted average shares outstanding - diluted | 616,789,101 | 585,934,027 | 600,470,217 | 550,013,742 | |||||||||||
| June 30, | December 31, | |||||
| As at ($ Thousands) | 2023 | 2022 | ||||
| LIQUIDITY AND BALANCE SHEET | ||||||
| Cash and cash equivalents | $ | 132,491 | $ | 197,525 | ||
| Available credit facilities(4) | $ | 87,838 | $ | 87,838 | ||
| Face value of term debt(5) | $ | 214,267 | $ | 237,231 | ||
| (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 $4.6 million and $26.7 million for the three and six months ended June 30, 2023 (three and six months ended June 30, 2022 – loss of $65.7 million and $113.4 million). |
| (3) | In the calculation of dilutive earnings per share for the three months ended June 30, 2023, earnings were reduced by $16.4 million to account for the impact to net income had the outstanding warrants and PSUs been converted to equity. |
| (4) | Includes available credit under Athabasca's Credit Facility and Unsecured Letter of Credit Facility. |
| (5) | The face value of the term debt at June 30, 2023 was US$162 million (December 31, 2022 – US$175 million) translated into Canadian dollars at the June 30, 2023 exchange rate of US$1.00 = C$1.3240 (December 31, 2022 – C$1.3544). |
Operations Update
Thermal Oil
Bitumen production for the second quarter of 2023 averaged 29,016 bbl/d. The Thermal Oil division generated Operating Income of $82 million ($33.79/bbl at Leismer and $29.20/bbl at Hangingstone) during the period with capital expenditures of $30 million, primarily related to drilling operations and progressing the facility expansion at Leismer.
Leismer
At Leismer, four new well pairs at Pad L8M were placed on production in early June supporting production of ~24,000 bbl/d with a current steam oil ratio (“SOR”) of less than 3x. The fifth new well pair on Pad L8M is scheduled to be placed on production in early August. The five well pairs are expected to ramp-up to ~6,000 bbl/d over six months and maintain a stable production profile for approximately five years. During the quarter, drilling commenced on the final four well pairs at Pad L8S and four infill wells on Pad L7. These wells have been rig released ahead of schedule and surface facilities are expected be completed this fall. Preliminary drilling results confirm consistent high quality sands. These additional new wells are expected to support production in 2024 and beyond.
The facility expansion project continues to progress and will support sustainable growth up to ~28,000 bbl/d by mid-2024. This production level can be held with modest sustaining capital (~$6/bbl) for many years into the future. The Company is able to leverage existing excess steam capacity and has been proactive in acquiring long lead equipment. The project is budgeted at a competitive capital efficiency of ~$14,000/bbl/d and is expected to enhance margins by ~$5/bbl from current levels through increased operating scale. The Company maintains future optionality for additional expansion projects that could support Leismer growth to its regulatory approved capacity of 40,000 bbl/d.
Leismer has a significant unrecovered capital balance of ~$1.4 billion (2022 year-end) which ensures a low Crown royalty framework as the asset is estimated to remain pre-payout until 2027 (US$85 WTI, US$12.50 WCS differential).
Hangingstone
At Hangingstone, initial work on the Pad AA extension has begun in anticipation of drilling two future sustaining well pairs in 2024 to maintain base production. Non-condensable gas co-injection continues to aid in pressure support and reduced energy usage. Hangingstone’s SOR averaged 3.6x in the first half of 2023. Cost initiatives completed since 2020 and the lower SOR supported a $29.20/bbl Operating Netback during the quarter.
Light Oil
Production for the second quarter of 2023 averaged 4,955 boe/d (55% Liquids). The Light Oil division generated Operating Income of $14 million ($29.92/boe) during the period with capital expenditures of $11 million. Activity was focused on operational readiness in advance of the upcoming drilling season.
In the Duvernay oil window at Kaybob East and Two Creeks the Company has extended production history from 27 wells de-risking an inventory of 290 gross future locations. The wells have consistently supported the Company’s type curve expectations with IP365’s averaging ~550 boe/d per well, ~85% Liquids (latest 12 wells since 2020), demonstrating the significant potential of the asset.
The Light Oil land position has no near‐term expiries and is ready for future development with ~850 gross Montney and Duvernay locations.
Light Oil operations were temporarily affected by the Alberta wildfires in the second quarter of 2023. As a precautionary measure Athabasca shut-in its facilities temporarily for a portion of May. No damage was sustained to well sites or infrastructure and production was fully restored in June.
Business Environment & Outlook
Global oil benchmarks have weakened year over year as global recession concerns weighed on commodities. However, the war in Ukraine has amplified the emphasis on energy security and sanctions continue to alter energy flows across the globe. Athabasca maintains a constructive outlook on oil prices supported by years of industry underinvestment, OPEC+ cuts and demand trends moving higher.
Canadian WCS heavy differentials narrowed significantly in the second quarter with differentials improving to US$15.08/bbl, compared to US$24.77/bbl in the first quarter of 2023. The supply-demand outlook for heavy barrels is expected to be supported by the continued OPEC+ production cuts, the start-up of the Trans Mountain Expansion pipeline (590,000 bbl/d) and the start-up of new global heavy oil refining capacity, specifically Pemex’s Dos Bocas 340,000 bbl/d refinery. These factors are expected to improve the strength of WCS prices into the second half of 2023 and 2024.
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.
For more information, please contact:
| Matthew Taylor | Robert Broen |
| Chief Financial Officer | President and CEO |
| 1-403-817-9104 | 1-403-817-9190 |
| [email protected] | [email protected] |
Reader Advisory:
This News Release contains forward-looking information that involves various risks, uncertainties and other factors. All information other than statements of historical fact is forward-looking information. The use of any of the words “anticipate”, “plan”, “project”, “continue”, “maintain”, “estimate”, “expect”, “will”, “target”, “forecast”, “could”, “intend”, “potential”, “guidance”, “outlook” and similar expressions suggesting future outcome are intended to identify forward-looking information. The forward-looking information is not historical fact, but rather is based on the Company’s current plans, objectives, goals, strategies, estimates, assumptions and projections about the Company’s industry, business and future operating and financial results. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. No assurance can be given that these expectations will prove to be correct and such forward-looking information included in this News Release should not be unduly relied upon. This information speaks only as of the date of this News Release. In particular, this News Release contains forward-looking information pertaining to, but not limited to, the following: our strategic plans; future debt levels and repayment plans; the allocation of future capital; timing and quantum for shareholder returns including share buybacks; the terms of our NCIB program; our drilling plans in Leismer; Leismer ramp-up to expected production rates; timing of Leismer’s pre-payout royalty status; Adjusted Funds Flow and Free Cash Flow in 2023 to 2025; type well economic metrics; forecasted daily production and the composition of production; our outlook in respect of the Corporation’s business environment, including in respect of the Trans Mountain pipeline expansion and new global heavy oil refining capacity; and other matters.
In addition, information and statements in this News Release relating to "Reserves" and “Resources” are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and that the reserves and resources described can be profitably produced in the future. With respect to forward-looking information contained in this News Release, assumptions have been made regarding, among other things: commodity prices; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which the Company conducts and will conduct business and the effects that such regulatory framework will have on the Company, including on the Company’s financial condition and results of operations; the Company’s financial and operational flexibility; the Company’s financial sustainability; Athabasca's cash flow break-even commodity price; the Company’s ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the applicability of technologies for the recovery and production of the Company’s reserves and resources; future capital expenditures to be made by the Company; future sources of funding for the Company’s capital programs; the Company’s future debt levels; future production levels; the Company’s ability to obtain financing and/or enter into joint venture arrangements, on acceptable terms; operating costs; compliance of counterparties with the terms of contractual arrangements; impact of increasing competition globally; collection risk of outstanding accounts receivable from third parties; geological and engineering estimates in respect of the Company’s reserves and resources; recoverability of reserves and resources; the geography of the areas in which the Company is conducting exploration and development activities and the quality of its assets. Certain other assumptions related to the Company’s Reserves and Resources are contained in the report of McDaniel & Associates Consultants Ltd. (“McDaniel”) evaluating Athabasca’s Proved Reserves, Probable Reserves and Contingent Resources as at December 31, 2022 (which is respectively referred to herein as the "McDaniel Report”).
Actual results could differ materially from those anticipated in this forward-looking information as a result of the risk factors set forth in the Company’s Revised Annual Information Form (“AIF”) dated May 11, 2023 available on SEDAR at www.sedar.com, including, but not limited to: weakness in the oil and gas industry; exploration, development and production risks; prices, markets and marketing; market conditions; climate change and carbon pricing risk; statutes and regulations regarding the environment; regulatory environment and changes in applicable law; gathering and processing facilities, pipeline systems and rail; reputation and public perception of the oil and gas sector; environment, social and governance goals; political uncertainty; state of capital markets; ability to finance capital requirements; access to capital and insurance; abandonment and reclamation costs; continued impact of the COVID-19 pandemic; changing demand for oil and natural gas products; anticipated benefits of acquisitions and dispositions; royalty regimes; foreign exchange rates and interest rates; reserves; hedging; operational dependence; operating costs; project risks; supply chain disruption; labour supply, financial assurances; diluent supply; third party credit risk; Indigenous claims; reliance on key personnel and operators; income tax; cybersecurity; advanced technologies; hydraulic fracturing; liability management; seasonality and weather conditions; unexpected events; internal controls; limitations of insurance; litigation; natural gas overlying bitumen resources; competition; chain of title and expiration of licenses and leases; breaches of confidentiality; new industry related activities or new geographical areas; and risks related to our debt and securities, including level of indebtedness, restrictions in our debt instruments, additional indebtedness and issuance of additional securities. Readers are cautioned that the foregoing list of factors is not exhaustive. Unpredictable or unknown factors not discussed in this News Release could also have adverse effects on forward-looking statements. Although the Company believes that the expectations conveyed by the forward-looking information are reasonable based on information available to it on the date such forward-looking information are made, no assurances can be given as to future results, levels of activity and achievements. All subsequent forward-looking information, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.
Also included in this News Release are estimates of Athabasca's 2023 and 2023-25 outlook which are based on the various assumptions as to production levels, commodity prices, currency exchange rates and other assumptions disclosed in this News Release. To the extent any such estimate constitutes a financial outlook, it was approved by management and the Board of Directors of Athabasca and is included to provide readers wit
