The management at Athabasca Oil (ATHOF, Financial) is focused on maintaining a robust balance sheet, optimizing its cost structure and employing greater capital towards its core assets in addition to fitting its capital schedule in the present economic scenario.
Focusing in the right direction
The sharp focus of Athabasca on growing its superior assets coupled with significant cost-cutting initiatives are believed to solidify the company’s financial position, allowing it to plan for future growth investments.
The cash flow expansion for the company is expected to be primarily driven by the growth of Hangingstone for the coming 18 months and holding a calculated pace in the Duvernay to capitalize on the affect of improved production rates for the first year. Athabasca is implementing solid technical expertise and control to optimize its performance learnings and well cost in the Duvernay, building on a robust foundation for prospective growth in the play.
Athabasca delivered fourth quarter production of nearly 6000 boe/d, and the production for second half averaged about 6200 boe/d, in line with the guidance in 6000 to 6500 boe/d range.
The solid synergies received from the Duvernay play and excellent fourth quarter and half yearly performance signifies the strong growth strategy of the company, targeted on improving the shareholder returns.
The way ahead
At present, Athabasca is believed to have the most robust balance sheets among its competitors in the energy segment, and it is investing into the key plays of over $1.2 billion that include nearly $760 million of cash, cash equivalents and temporary investments for March.
The impressive health of the company’s balance sheet is significantly complemented by the accelerated drilling programs being executed by Athabasca in the fiscal year 2014.
Athabasca expects to meet the earlier declared exit outlook of approximately 7,000 to 8,000 boe/d for the Light Oil segment by the end of this year. GLJ, the independent reserve evaluator of Athabasca, has enhanced its Light Oil reserve bookings to about 50 million barrels, BOEs, an increase of 52% on a year-over-year basis and representing a reserve replacement ratio of 7.6 times.
The significant year-over-year increase in the production from the key oil wells of Athabasca is believed to provide major growth synergies for the company and thus, benefit the shareholders.
At Simonette, Athabasca drilled a well at 16-36-63-25W5 and started the production quickly after the slowdown period. It aims to develop an early production rate in line with its production guidance.
The early growth pace of Athabasca has remained highly calculated with the superior Alberta Crown tenure system as compared to those viewed in different North American shale plays. Therefore, operators have implemented lessons from those key shale plays and leveraged the industry data by utilizing public sources, which has resulted in an improved productivity.
The planned drilling of the wells at the targeted shale area is believed to add significant production value to the already robust project portfolio of the company and deliver improved investor returns.
At Placid, Athabasca drilled, concluded and tested two key Montney wells balancing latest industry win. The initial well, 8-20-60-23 was flow tested for about ten days and reported a final, post ten-day flow duration, liquid yield of 358 bbl/mmcf and restricted 24-hour flow rate of 1540 boe/d.
Further, Hangingstone is forecasted to achieve a design capacity of approximately 12,000 boe/d by November 2016.
The successful conclusion, testing and deployment of the major wells by Athabasca signify the robust growth strategy of the company and induce confidence in the management and the key stakeholders regarding the future growth prospects of the company.
Conclusion
Overall, the investors are advised to avoid investments into the Athabasca Oil Corporation looking at the poor company valuations and declining growth prospects owing to the difficult global operating environment. The profit margin of -198.47% indicate no profit but loss. Moreover, Athabasca is burdened with debt with significant total debt of $627.29 million against smaller total cash of $460.26 million only, restricting the company to plan for future growth investments.
