Athabasca Oil Corporation (TSX: ATH) (“Athabasca” or “the Company”)
is pleased to announce it has closed its previously announced
transaction agreements (“Transaction”) to create Duvernay Energy
Corporation (“Duvernay Energy”) with Cenovus Energy Inc.
(“Cenovus”).
Transaction Overview
Duvernay Energy is a privately held subsidiary
of Athabasca. Athabasca and Cenovus have contributed assets into
Duvernay Energy combining Athabasca's existing Duvernay assets,
Athabasca’s new 100% working interest Duvernay assets and Cenovus'
100% working interest Kaybob Duvernay assets. Athabasca owns a 70%
equity interest in Duvernay Energy with Cenovus owning the
remaining 30% equity interest. The Transaction closed on February
6, 2024 with an effective date of January 1, 2024.
The creation of Duvernay Energy is designed to
enhance value for Athabasca's shareholders by providing a clear
path for self-funded production and cash flow growth in the Kaybob
Duvernay resource play. This will be achieved without compromising
Athabasca’s capacity to fund capital in its Thermal Oil division or
its return of capital strategy. Athabasca and Duvernay Energy have
independent strategies and capital allocation frameworks.
Duvernay Energy will be managed by Athabasca
through a management and operating services agreement.
Duvernay Energy Corporation – 2024
Guidance
Production. Current production
is ~2,000 boe/d (75% Liquids) and 2024 production guidance is
~3,000 boe/d (75% Liquids). Development plans are underway and are
expected to drive strong production momentum into 2025 with
estimated production of ~6,000 boe/d.
Capital. The 2024 capital
program is ~$82 million and includes the drilling of 12 gross (7.1
net) Duvernay wells. The program includes 5 net 100% working
interest (“WI”) wells and 2.1 net 30% WI wells on the JV lands.
Capital will be funded through the initial seed capital and cash
flow from existing operations.
Balance Sheet. Duvernay
Energy’s capitalization includes ~$40 million of seed capital (~$21
million contribution from Athabasca after closing adjustments) and
a $50 million undrawn credit facility.
Growth Plans. The plan is to
allocate 100% of Adjusted Funds Flow from Duvernay Energy to drive
near-term production growth. Assuming a constructive commodity
price outlook, Duvernay Energy has self-funded growth potential to
~25,000 boe/d (75% Liquids) by the late 2020s.
Operations Update. Duvernay
Energy recently rig released a two well pad (100% working interest)
at 03-18-64-17W5 with an average horizontal length of ~4,150 meters
per well. Completion operations are planned for Q1 2024 with
on-stream timing at the end of Q2 2024. A three well pad (30%
working interest) is expected to spud in February with completions
and tie-in to follow in the spring. Activity through the fall is
anticipated to drive strong momentum into 2025.
Athabasca Oil Corporation – 2024 Thermal Oil
Guidance
Athabasca’s Thermal Oil division underpins the
Company’s strong free cash flow outlook, with an unchanged $135
million capital budget and production guidance of 32,000 – 33,000
bbl/d. At Leismer, the Company is currently steaming well pairs at
Pad L8 South and infills on Pad 7. The facility expansion is on
track to be commissioned in the spring and following the tie-in of
behind pipe wells production is expected to reach ~28,000 bbl/d
mid-year. At Hangingstone, two 1,400 meter well pairs will spud in
Q3 2024. These well pairs will support base production in 2025 and
beyond with the objective of ensuring Hangingstone continues to
deliver meaningful cash flow contributions to the Company.
2024 Guidance |
Athabasca OilOriginal Budget |
Athabasca Oil100% Thermal Oil |
Duvernay Energy Corporation2,3 |
|
Dec 6, 2023 |
Maintained |
|
|
|
|
|
Production (boe/d) |
35,000 – 36,000 |
32,000 – 33,000 |
~3,000 |
Capital Expenditures ($MM) |
$175 |
$135 |
$82 |
Adjusted Funds Flow ($MM) |
$500 |
$460 |
$50 |
Free
Cash Flow ($MM) |
$325 |
$325 |
- |
2 Duvernay Energy reflects gross production and financial
metrics before taking into consideration Athabasca’s 70% equity
interest3 Duvernay Energy capital program funded by seed capital
and Adjusted Funds Flow forecast
Capital Allocation
Framework
In 2023, Athabasca completed $158 million in
share buybacks (44 million shares at an average price of $3.58 per
share) exceeding its commitment of returning a minimum of 75% of
Excess Cash Flow to shareholders.
Athabasca is committed to executing on its 2024
return of capital commitment with 100% of Free Cash Flow returned
to shareholders through share buybacks. The Company intends to
renew its Normal Course Issuer Bid with the Toronto Stock Exchange
mid-March for another 12 month period.
Excluding its 70% equity interest in Duvernay
Energy, Athabasca forecasts Adjusted Funds Flow of ~$460 million in
2024 (US$80/bbl WTI & US$15/bbl WCS heavy differential)1. The
Duvernay Energy transaction does not reduce Athabasca’s 2024 Free
Cash Flow forecast that is maintained at ~$325 million. The
Company’s low Sustaining Capital requirements are fully funded
within cash flow to US$55/bbl WTI. During the timeframe of 2024 –
2026, Athabasca forecasts >$1 billion in Free Cash Flow1.
Athabasca anticipates releasing its 2023
year-end results and reserves on February 29th after market
close.
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) and production disclosure.
1 Pricing Assumptions: 2024 US$80 WTI, US$15
Western Canadian Select “WCS” heavy differential, C$3 AECO, and
$0.75 C$/US$ FX. 2025-26 US$85 WTI, US$12.50 WCS heavy
differential, C$3 AECO, and $0.75 C$/US$ FX.
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 light oil assets
are held in a private subsidiary (Duvernay Energy Corporation) in
which Athabasca owns a 70% equity interest. 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. Within this Reader Advisory, references to the “Company”
means Athabasca Oil and Duvernay Energy, as and where applicable.
All information other than statements of historical fact is
forward-looking information. The use of any of the words
“anticipate”, “plan”, “forecast”, “continue”, “estimate”, “expect”,
“may”, “will”, “project”, “target”, “should”, “believe”, “predict”,
“pursue”, “potential”, “view” and “contemplate” and similar
expressions 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 and, except as required by applicable securities laws,
the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of
unanticipated events. In particular, this News Release contains
forward-looking information pertaining to, but not limited to, the
following: the Company’s 2024 capital expenditures, production and
financial guidance, Free Cash Flow outlook, financial metrics,
timing for development projects in Thermal Oil and Duvernay Energy,
return of capital strategy and other matters.
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; the Company’s
funds flow, and free cash flow outlook; 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 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 and Management’s
Discussion and Analysis dated October 31, 2023, available on SEDAR
at www.sedarplus.ca, including, but not limited to: weakness in the
oil and gas industry; exploration, development and production
risks; prices, markets and marketing; market conditions; continued
impact of the COVID-19 pandemic; ability to finance capital
requirements; climate change and carbon pricing risk; regulatory
environment and changes in applicable law; gathering and processing
facilities, pipeline systems and rail; statutes and regulations
regarding the environment; political uncertainty; state of capital
markets; anticipated benefits of acquisitions and dispositions;
abandonment and reclamation costs; changing demand for oil and
natural gas products; royalty regimes; foreign exchange rates and
interest rates; reserves; hedging; operational dependence;
operating costs; project risks; 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; 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.
Also included in this News Release are estimates
of the Company’s 2024 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 financial outlook
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 financial outlook, 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 InformationThe
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 AIF.
Non-GAAP and Other Financial Measures,
and Production DisclosureThe “Adjusted Funds Flow”, “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. 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.
Adjusted Funds Flow and Free Cash Flow are
non-GAAP financial measures and are not intended to represent cash
flow from operating activities, net earnings or other measures of
financial performance calculated in accordance with IFRS. The
Adjusted Funds Flow and Free Cash Flow measures allow management
and others to evaluate the Company’s ability to fund its capital
programs and meet its ongoing financial obligations using cash flow
internally generated from ongoing operating related activities.
Adjusted Funds Flow is calculated by adjusting for changes in
non‐cash working capital and settlement of provisions from cash
flow from operating activities. The Free Cash Flow measure is
calculated by subtracting Capital Expenditures from Adjusted Funds
Flow.
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.
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