Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or the “Company”)
is pleased to announce that it has entered into a definitive
agreement to sell non-core Light Oil assets for total cash proceeds
of $160 million (the “Transaction”). The Transaction high-grades
the Company’s deep resource portfolio, crystallizes value from a
non-core asset at an attractive price and bolsters the Company’s
strong financial position.
Transaction Overview
Athabasca has agreed to sell its 70% operated
working interest in Placid targeting the Montney, its 30%
non-operated working interest in Saxon and Simonette targeting the
Duvernay and other associated non-core Placid Montney assets to a
private company for $160 million in cash, prior to adjustments.
During the first half of 2023, these assets collectively averaged
~3,000 boe/d (~45% Liquids).
The assets being sold generated significant Free
Cash Flow following COVID, supporting Athabasca’s deleveraging
goals. The Transaction is being completed at attractive and
accretive metrics, and crystallizes the value of the assets that
have become non-core due to the smaller scale, lower liquids
content and lower relative returns versus core assets within the
Company’s portfolio. The 2023 forecasted Transaction metrics
are:
• |
Transaction Value / Net Operating Income1: |
7.9x Net Operating Income |
• |
Transaction Value / Production2: |
$54,700/boe/d |
• |
Transaction Value / Proved Reserves3: |
$6.93/boe |
The effective date of the Transaction will be
March 1, 2023 and closing is expected late in the third quarter of
2023. The Transaction is subject to the satisfaction of customary
conditions, including receipt of regulatory approvals under the
Competition Act (Canada).
The Transaction further strengthens the
Company’s balance sheet with an enviable pro forma Net Cash
position of ~$90 million5. The Transaction is not anticipated to
materially impact the Company’s growth ambitions and ~$1 billion4
forecasted Free Cash Flow outlook during the three-year time frame
of 2023-25. The strong cash flow outlook is supported by ~$3.1
billion of corporate tax pools available, and the Company does not
forecast paying taxes for approximately seven years5. Athabasca is
committed to its return of capital plans to shareholders and also
has a deep inventory of development options. The Company will
provide updated corporate guidance on closing of the
Transaction.
Strategic Outlook
Athabasca is a liquids-weighted intermediate
producer with exposure to Canada’s active resource plays (Oil Sands
and Duvernay). The Company is focused on maximizing shareholder
value through cash flow per share growth. Current capital
initiatives are expected to drive production growth of 5 – 7%
annually. The portfolio of long‐life assets underpin a low
corporate decline of ~5%. Athabasca is positioned with a deep
inventory of high-quality resource projects across its
portfolio.
The Thermal Oil Division has 1.2 billion barrels
of Proved plus Probable reserves. The Company is executing an
expansion project at its cornerstone Leismer asset that will drive
growth to 28,000 bbl/d in mid-2024, and 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
(5 – 9% Crown royalty) as the asset is estimated to remain
pre‐payout until 20274.
The Light Oil Division will now consist
exclusively of the Duvernay in the Greater Kaybob area with
~155,000 gross acres across Kaybob West, Kaybob North, Kaybob East
and Two Creeks. The Company’s joint venture has seen in excess of
$1 billion in capital invested since 2016. Athabasca is uniquely
positioned in the liquids-rich and shallower oil window of the play
with a de-risked inventory of ~500 gross wells. The Company
anticipates additional development in this top-tier play in the
upcoming drilling season and beyond. The Duvernay also provides a
synergistic natural hedge for condensate and gas utilization in its
Thermal Oil operations.
The Company is committed to executing on its
return of capital commitment that will see a minimum of 75% of
Excess Cash Flow (Adjusted Funds Flow less Sustaining Capital) in
2023 returned to shareholders through share buybacks. Since April
the Company has completed $61 million in share buybacks (~20
million shares at an average price of $3.04 per share).
Footnote: Refer to the “Reader Advisory” section within this news release for additional information on
Non‐GAAP Financial Measures (e.g. Free Cash Flow &
Net Debt/(Cash)).
(1) Forecasted 2023 Net Operating Income is
calculated as Revenue less Royalties less Operating Costs using
January to June actuals and Athabasca management estimates for July
to December using July 25, 2023 strip commodity prices.(2)
Forecasted 2023 production is based on January to June actuals and
Athabasca management estimates for July to December.(3) Year-end
2022 Total Proved Reserves of 23.1 mmboe.(4) 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+ flat pricing of US$85 WTI, US$12.50
WCS heavy differential, C$5 AECO, and $0.75 C$/US$ FX. (5) Net
Debt/(Cash) is defined as the face value of term debt, plus
accounts payable and accrued liabilities, plus current portion of
provisions and other liabilities less current assets, and excluding
risk management contracts. The pro forma estimates reflect Q2 2023
Net Debt adjusted for net estimated Transaction proceeds.
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 |
mtaylor@atha.com |
rbroen@atha.com |
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 cash
position; the allocation of future capital; the expected closing of
the Transaction and expected timing thereof; the expected update of
the Company’s guidance; anticipated additional development in the
Duvernay play and timing thereof; timing and quantum for
shareholder returns including share buybacks; 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; forecasted daily production and the
composition of production; our outlook in respect of the
Corporation’s business environment; 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 with an
understanding of the Company’s outlook. Management does not have
firm commitments for all of the costs, expenditures, prices or
other financial assumptions used to prepare the financial outlook
or assurance that such operating results will be achieved and,
accordingly, the complete financial effects of all of those costs,
expenditures, prices and operating results are not objectively
determinable. The actual results of operations of the Company and
the resulting financial results may vary from the amounts set forth
herein, and such variations may be material. The outlook and
forward-looking information contained in this New Release was made
as of the date of this News release and the Company disclaims any
intention or obligations to update or revise such outlook and/or
forward-looking information, whether as a result of new
information, future events or otherwise, unless required pursuant
to applicable law.
Oil and Gas Information
“BOEs" may be misleading, particularly if used
in isolation. A BOE conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based
on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the
wellhead. As the value ratio between natural gas and crude oil
based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
Reserves Information
The McDaniel Report was prepared using the
assumptions and methodology guidelines outlined in the COGE
Handbook and in accordance with National Instrument 51-101
Standards of Disclosure for Oil and Gas Activities, effective
December 31, 2022. There are numerous uncertainties inherent in
estimating quantities of bitumen, light crude oil and medium crude
oil, tight oil, conventional natural gas, shale gas and natural gas
liquids reserves and the future cash flows attributed to such
reserves. The reserve and associated cash flow information set
forth above are estimates only. In general, estimates of
economically recoverable reserves and the future net cash flows
therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties,
production rates, ultimate reserve recovery, timing and amount of
capital expenditures, marketability of oil and natural gas, royalty
rates, the assumed effects of regulation by governmental agencies
and future operating costs, all of which may vary materially. For
those reasons, estimates of the economically recoverable reserves
attributable to any particular group of properties, classification
of such reserves based on risk of recovery and estimates of future
net revenues associated with reserves prepared by different
engineers, or by the same engineers at different times, may vary.
The Company's actual production, revenues, taxes and development
and operating expenditures with respect to its reserves will vary
from estimates thereof and such variations could be material.
Reserves figures described herein have been rounded to the nearest
MMbbl or MMboe. For additional information regarding the
consolidated reserves and information concerning the resources of
the Company as evaluated by McDaniel in the McDaniel Report, please
refer to the Company’s Revised Annual Information Form.
The 500 gross total Duvernay drilling locations
referenced include: 5 proved undeveloped locations and 77 probable
undeveloped locations for a total of 82 booked locations with the
balance being unbooked locations. Proved undeveloped locations and
probable undeveloped locations are booked and derived from the
Company's most recent independent reserves evaluation as prepared
by McDaniel as of December 31, 2022 and account for drilling
locations that have associated proved and/or probable reserves, as
applicable. Unbooked locations are internal management estimates.
Unbooked locations do not have attributed reserves or resources
(including contingent or prospective). Unbooked locations have been
identified by management as an estimation of Athabasca’s multi-year
drilling activities expected to occur over the next two decades
based on evaluation of applicable geologic, seismic, engineering,
production and reserves information. There is no certainty that the
Company will drill all unbooked drilling locations and if drilled
there is no certainty that such locations will result in additional
oil and gas reserves, resources or production. The drilling
locations on which the Company will actually drill wells, including
the number and timing thereof is ultimately dependent upon the
availability of funding, commodity prices, provincial fiscal and
royalty policies, costs, actual drilling results, additional
reservoir information that is obtained and other factors.
Non-GAAP and Other Financial Measures
Disclosure
The “Free Cash Flow”, “Excess Cash Flow” and
“Sustaining Capital” financial measures contained in this News
Release do not have standardized meanings which are prescribed by
IFRS and they are considered to be non-GAAP financial measures or
ratios. These measures may not be comparable to similar measures
presented by other issuers and should not be considered in
isolation with measures that are prepared in accordance with IFRS.
Net Debt and Liquidity are
a supplementary financial measure.
Free Cash Flow is defined as Adjusted Funds Flow
less Capital Expenditures.
The Excess Cash Flow and Sustaining Capital
measures allow management and others to evaluate the Company’s
ability to return capital to Shareholders. Sustaining Capital is
managements assumption of the required capital to maintain the
Company’s production base. The Excess Cash Flow measure is
calculated by Adjusted Funds Flow less Sustaining Capital.
Net Debt/(Cash) is defined as the face value of
term debt, plus accounts payable and accrued liabilities, plus
current portion of provisions and other liabilities less current
assets, and excluding risk management contracts.
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