Athabasca Oil Corporation (ATH.TO) (“Athabasca” or “the Company”) is pleased to announce that its Board of Directors has approved a 2016 capital budget of $91 million. This budget is closely aligned with Athabasca’s key strategic priorities which include preserving a strong balance sheet to manage through economic cycles, demonstrating execution excellence in both core Light Oil and Hangingstone assets and positioning the Company to capitalize on future economic growth. Despite lower planned expenditures relative to 2015, Athabasca anticipates annual per share production growth in excess of 125% in 2016.
2016 Capital Budget and Production Guidance
Athabasca’s 2016 capital budget of $91 million is centered on capital management which will allow the Company to strategically advance its core assets. Based on this level of capital spending, Athabasca is targeting average corporate production of 16,000 – 18,000 boe/d in 2016. This includes Hangingstone ramping up to design capacity towards the end of the year and maintaining 2015 exit volumes within Light Oil following the completion of the 2015/16 winter program.
Light Oil Division
In the Light Oil Division, Athabasca commenced drilling operations for the winter 2015/16 program in September and has allocated $71 million in 2016 to complete planned activities. Average Light Oil production in 2016 is anticipated to be 7,000 – 8,000 boe/d, in-line with the Company’s 2015 exit rate guidance. Additional capital activities for the balance of the year will be assessed post break-up and will be contingent on projects meeting internal hurdle rates and stability in commodity markets.
Duvernay
During 2016, Athabasca will invest $36 million in the Duvernay to complete planned winter activities. The Company’s core objectives in the Duvernay are to establish the strong economic potential and significant running room in the play. This will be achieved through demonstrating pad drilling cost efficiencies, and ongoing appraisal and delineation of the volatile oil window.
Over the past three drilling seasons, Athabasca has drilled 22 wells (17 horizontals, five verticals) in the Duvernay focused on retaining core acreage, defining the thermal maturity windows and establishing confidence in reservoir performance. Approximately 95% of Athabasca’s core 200,000 acre land position at Kaybob is held into the intermediate term, allowing considerable flexibility in the pace of development going forward.
Duvernay Volatile Oil Window
At Kaybob East, the Company spud a two well pad at Section 5-65-18W5 in early September and is realizing significant operational efficiencies. The 00/16-6-65-18W5 well was rig released in approximately 16 days and completed with a ~1,100 lbs/ft frac design for an estimated drill and complete (“D&C”) cost of $8.8 million. The 02/16-6-65-18W5 well was rig released in less than 14 days and completed with a ~2,000 lbs/ft frac design for an estimated D&C cost of $9.4 million. Both wells are undergoing a planned soak period with expected on-stream timing in Q1 2016.
Duvernay Condensate Rich Gas Window
At Kaybob West, the Company spud a four well pad in the condensate rich window at Section 36-63-20W5 in mid-October. Drilling operations are proceeding as planned with the first well rig released in approximately 20 days at an estimated drilling cost of $3.5 million. Drilling on the remaining three wells is expected to be completed by early 2016. The Company intends to complete the four wells after break-up, with a planned on-stream date in Q3 2016. D&C costs are expected to be below $10 million per well.
Montney
At Placid, the Company spud a three well Montney pad in September at Section 19-60-23W5 to follow up on two successful wells drilled in the winter of 2014/15. Drilling operations on the pad have been completed with an average 23 day spud to rig release and estimated drill costs of $4.0 million per well. In Q1 2016 Athabasca will spend $18 million to complete and tie-in the pad. Additionally the Company will complete the construction of the Placid inter-connect to Athabasca’s extensive Kaybob infrastructure network with an anticipated completion date in late April.
Thermal Oil Division
At Hangingstone, the Company continues to progress with its production ramp-up. The Company now has 21 well pairs converted to SAGD production and current volumes exceed 6,000 bbl/d. The start-up of the dilbit pipeline to the Cheecham terminal commences next week and is expected to be completed before year-end.
In 2016, Athabasca will spend $5 million of capital on facility and well pair optimization at Hangingstone. The ramp-up to the project’s design capacity of 12,000 bbl/d in Q4 2016 remains on track with no additional development capital required and only minimal maintenance capital needed in the initial years. Average Hangingstone production in 2016 is anticipated to be 9,000 – 10,000 bbl/d, reflecting the continued strong ramp-up of the Company’s inaugural SAGD project.
Through management of the existing SAGD producers and the additional available well pairs, Athabasca forecasts that the facility will have a relatively flat production profile for the first five to seven years once it reaches nameplate production.
Balance Sheet and Liquidity
Balance sheet preservation is a key priority for Athabasca. At current commodity prices, the Company’s focus will be on capital discipline and liquidity preservation, and based on 2016 capital and production guidance, Athabasca anticipates ending 2016 with cash and cash equivalents of approximately $550 million under the current capital structure. With continued operational success throughout 2016, and a stabilization of commodity prices, Athabasca will transition towards achieving its longer term goal of aligning its capital structure with its production and cash flow expectations. The Company is currently targeting a reduction in total debt outstanding of up to $300 million by the end of 2016.
The success and timing of Athabasca’s balance sheet transition will be closely tied to planned operational and strategic milestones expected to be achieved in 2016, as well as the commodity environment and market conditions throughout the upcoming year. Given its considerable asset base, strong liquidity position and no debt maturities that occur until 2017, the Company has flexibility to evaluate the various funding alternatives available to it and select those options which best achieve its capital structure objectives and strategic plans going forward.
General & Administrative (“G&A”) Expenses
Athabasca anticipates 2016 expensed G&A of approximately $30 – $35 million. This is a substantial reduction from previous levels and demonstrates the Company’s strong commitment to capital efficiencies and ensuring the long term competiveness of its cost structure.
| 2016 Capital Budget*($ million) | Full Year | |
| LIGHT OIL | ||
| Duvernay | $36 | |
| Montney | 31 | |
| Operations & Other | 5 | |
| Total Light Oil | $71 | |
| THERMAL OIL | ||
| Hangingstone Maintenance | $5 | |
| Other Thermal | 6 | |
| Total Thermal | $11 | |
| Capitalized G&A | $8 | |
| TOTAL CAPITAL SPENDING | $91 | |
| * Figures may not add up due to rounding. |
| 2016 Guidance | Full Year | |
| LIGHT OIL | ||
| Production (boe/d) | 7,000 – 8,000 | |
| Liquids Weighting (%) | 54% | |
| Operating Income* ($MM) | ~$65 | |
| Operating Netback ($/boe) | ~$24 | |
| THERMAL OIL | ||
| Bitumen Production (bbl/d) | 9,000 – 10,000 | |
| Operating Income* ($MM) | ~$2 | |
| CORPORATE | ||
| Production (boe/d) | 16,000 – 18,000 | |
| Liquids Weighting (%) | ~80% | |
| Funds Flow from Operations* ($MM) | ~($17) | |
| Net Debt ($MM) | ~$250 | |
| Cash & Equivalents ($MM) | ~$550 | |
| COMMODITY ASSUMPTIONS | ||
| WTI (US$/bbl) | $50.00 | |
| Edmonton Par (C$/bbl) | $61.25 | |
| Western Canadian Select (C$/bbl) | $48.50 | |
| AECO Gas (C$/mcf) | $3.50 | |
| FX (US$/C$) | 0.750 | |
| * Operating Income and Funds Flow from Operations estimates reflect the mid-point of production guidance. Thermal Operating Income reflects the production ramp-up to design capacity by the end of 2016. |
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.
