Athabasca Oil Corporation (ATH.TO) (“Athabasca” or “the Company”) announces that it has entered into an agreement with Murphy Oil Company Ltd. (Canadian subsidiary to Murphy Oil Corporation, “Murphy”) to form a strategic joint venture (the “transaction”) to develop the Duvernay and Montney in the Kaybob area.
- Greater Kaybob Assets. Athabasca is selling a 70% working interest in production, acreage and infrastructure within the Greater Kaybob area (map in appendix). Murphy will assume operatorship under a Joint Development Agreement (“JDA”) of these assets which includes approximately 200,000 acres of prospective Duvernay land across the condensate rich and volatile oil windows. December gross production within this area averaged approximately 6,900 boe/d (58% liquids).
- Greater Placid Assets. Athabasca is selling a 30% working interest in production, acreage and infrastructure within the Greater Placid area (map in appendix). Athabasca will be operator of the Montney within this area under a JDA which includes approximately 60,000 acres of prospective Montney land. Specifically, Athabasca is establishing a core area at Placid where it has high graded 25,000 acres in the Montney in two separate intervals. December gross production within this area averaged approximately 900 boe/d (44% liquids).
- C$475 million Net (C$800 million gross) Consideration. Murphy will pay approximately C$250 million in cash to Athabasca at closing. Additional consideration of C$225 million will be in the form of a capital carry in the Duvernay whereby Murphy will fund 75% of Athabasca’s share of development capital up to a maximum five year period. Expected gross capital investment over this time period will be approximately C$1 billion in the Duvernay with flexibility on spending as commodity prices recover.
- Midstream Infrastructure. Athabasca will retain operatorship of the regional midstream infrastructure in the near term.
- Key Dates. The effective date of the transaction is January 1, 2016. Closing is expected in late Q1 2016 and is subject to meeting certain conditions and regulatory approvals.
- Balance Sheet Strength. At closing, Athabasca forecasts approximately $900 million of liquidity (cash & equivalents and the last promissory note from Brion Energy) with a net cash position of approximately $80 million adjusted for debt. The balance sheet will be further bolstered by the $225 million capital carry in the Duvernay over the mid-term.
“The transaction materially progresses Athabasca’s strategic goal of transitioning the Duvernay play to commercial development over the mid-term,” said Rob Broen, Athabasca’s President and CEO. “We are excited to partner with a leading North American shale operator who has significant experience in the Eagle Ford oil window. Athabasca has now positioned itself with a capital risk profile appropriate to its size while retaining tremendous upside in the Duvernay shale play. The Company is also establishing the Placid Montney as a material and core operated area following a successful appraisal campaign. Athabasca is in a strong financial position to advance its strategic priorities in a lower for longer pricing environment and is very well positioned to accelerate development when prices recover.”
“The Kaybob Duvernay and liquids rich Montney complement our existing North America Onshore unconventional business in the Eagle Ford Shale and Montney,” said Roger W. Jenkins, Murphy’s President and CEO. “This strategic transaction exposes Murphy to a leading position in the Kaybob Duvernay with significant running room in the emerging light oil window.”
Balance Sheet Strength and Outlook
The transaction significantly bolsters Athabasca’s financial position and will enable the Company to achieve its goal of reducing total leverage. The Company intends to proactively enhance its capital structure by retiring a portion of term debt in 2016. Balance sheet strength and flexibility will remain a key priority for Athabasca particularly in the current operating environment. More details around Athabasca’s refinancing plans will be announced after closing.
Athabasca’s December field volumes averaged approximately 15,200 boe/d (~7,800 boe/d Light Oil and ~7,400 bbl/d Thermal Oil), exceeding upwardly revised 2015 exit guidance of 12,000 – 15,000 boe/d. An updated 2016 budget and guidance will be provided on closing of the transaction.
Athabasca Light Oil Development History
At Placid, the Company recently drilled a three well Montney pad in Section 19-60-23W5 to follow up on two successful wells drilled in the winter of 2014/15. In Q1 2016 Athabasca plans to complete these wells with estimated all-in well costs (drill & complete) averaging less than $8 million. The Company is currently completing the construction of a Placid inter-connect to Athabasca’s extensive Kaybob infrastructure network with an anticipated completion date in Q2 2016. This limited Montney development is expected to be economic in the current commodity environment and provides future growth potential on approximately 25,000 acres of prospective Montney land in two separate intervals, with no near-term expiries.
Athabasca’s Placid well at 8-20-60-23W5 was placed on production through a third party facility in March 2015 and had a restricted IP30 of approximately 900 boe/d and a restricted IP180 of approximately 635 boe/d. Initial free liquids yields were approximately 300 bbl/mmcf and have stabilized at approximately 100 bbl/mmcf after six months of production. The 8-20 well ranks as a top decile producer on cumulative liquids recovery in the Greater Placid area.
Over the past four drilling seasons Athabasca has drilled 26 wells (21 horizontals, five verticals) in the Duvernay focused on retaining its core acreage, defining the thermal maturity windows, establishing confidence in reservoir performance and delivering a commercial capital cost structure. Approximately 95% of Athabasca’s core 200,000 acre land position at Kaybob is held into intermediate term, allowing considerable flexibility in the pace of development going forward.
Duvernay Volatile Oil Window
Athabasca continues to be encouraged by its results in the volatile oil window and the Company has drilled a total of nine horizontal and three verticals wells. Drilling has extended across the fairway with wells at Simonette, Kaybob West North, Kaybob East and Two Creeks. Although the volatile oil window is still in appraisal stage, it represents tremendous potential.
The Company recently drilled and completed a two well pad at Section 5-65-18W5. Well costs were $8.8 million (implementing a ~1,100 lbs/ft frac design) and $9.4 million (implementing a ~2,000 lbs/ft frac design). These wells are expected to be brought on stream in Q1 2016 following a planned soak period.
Duvernay Condensate Rich Gas Window
At Kaybob West, the Company finished drilling a four well pad in the condensate rich window at Section 36-63-20W5 in early January. The average drilling cost for these wells was approximately $3.8 million including mob/demob costs. These wells are expected to be completed after break-up, with a planned on-stream date in Q3 2016. D&C costs are expected to be below $10 million per well.
In December, the Company brought on three wells in the condensate rich gas window. At Saxon, 12-28-62-23W5, had a restricted IP30 of 1,380 boe/d (62% liquids, 1,686 meter lateral). At Kaybob West 1-36-63-20W5 had a restricted IP30 of 781 boe/d (73% liquids, 1,970 meter lateral) and 8-36-63-20W5 had a restricted IP30 of 581 boe/d (74% liquids, 1,564 meter lateral).
TD Securities Inc. is acting as exclusive financial advisor to Athabasca in connection with the transaction and has provided an opinion to the Board that the consideration to be received by Athabasca pursuant to the terms of the transaction is fair from a financial point of view.
Board Renewal Update
As part of Athabasca’s commitment to Board Renewal, Mr. Tom Buchanan, current Chair, and Mr. Gary Dundas will not be seeking re-election for Board positions at the Corporation’s next annual meeting of shareholders. Mr. Buchanan will step down as Chair upon closing of the Murphy transaction. Mr. Ron Eckhardt, current Lead Director, will assume the Chair position. Both Mr. Buchanan and Mr. Dundas have been with the Board of Athabasca since inception and this transition is part of a natural evolution for the Company as it continues its transition from early stage resource capture towards development of large scale assets. Athabasca would like to thank both directors for their valuable contributions to the Company and wishes them well on future endeavors.
To provide additional context for the joint venture transaction, Athabasca has posted an updated corporate presentation at www.atha.com and will be hosting a conference call for the investor community.
Conference Call Details:
Date: January 28, 2016
Time: 7:00 am MT (9:00 am ET)
Dial In: 877-648-7976 (toll-free in North America) or 617-826-1698
Replay: 855-859-2056 (toll-free in North America) or 404-537-3406
Conference ID / Replay code: 40523806
To view the Appendix – Joint Venture Map accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1041005.pdf
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, visitwww.atha.com.