Athabasca Oil Corporation (OTCPK:ATHOF) is an Alberta-based company. It is focused on the development of oil sands in the Athabasca region. Also, it has a light oil division in northwestern Alberta, Canada.
Firstly, Athabasca Oil is attractive because of its world class assets. Actually, the corporation has a significant land base of approximately 4.0 million acres. Consequently, it has reserves of 12 billion barrels of oil equivalent.
With reserves of 1 billion barrels of oil equivalent, the Hangingstone property is one of the main projects of the company. In the future, the company expects to produce 50,000 barrels of oil equivalent per day only at this property. Furthermore, the Hangingstone project will produce its first steam in Q1 2015 and the production in 2016 is expected to be of 12,000 boepd.
The Duvernay project is also a very large venture. With this project, the firm expects to produce more than 60,000 boepd before 2020. For 2016, the production should be approximately 15,000 boepd. Consequently, Athabasca oil expects to generate a free cash flow of roughly $75 million from the Duvernay project as soon as 2016.
If I consider these two projects together, it is possible to estimate that the company will produce a total of 27,000 boepd in 2016. Moreover, the company has sufficient cash on hand to fund these projects.
Actually, the corporation has $1,093 million in current assets including $646 million in cash. With $126 million in current liabilities, it has a working capital (C.Assets - C.Liabilities) of $967 million. Furthermore, the firm will receive two payments in 2015 for the closing of the Dover transaction. A payment of $300 million will occur in March 2015. The second one, of $150 million, will occur in August 2015. Moreover, the board of directors approved, at the beginning of December, a capital budget of $266 million for 2015. Not surprisingly, it is fully funded with cash, undrawn credit facilities and promissory notes.
Finally, Athabasca Oil suffered a lot from the recent turmoil in the energy sector. The company is now selling well below its book value despite its cash on hand and its world class properties. With a market capitalization of $1 billion, it is possible to conclude that the market does not recognize the entire value of a 4.0 million acres land base containing 12 billion barrels of oil equivalent.
On the other hand, junior oil companies are pretty risky at the moment due to the volatility in the oil price. In fact, Athabasca Oil may decide to cut its capital budget at any time due to the difficult environment in the energy sector. It is important to say that the economics of the Duvernay and the Hangingstone projects are largely dependent on the oil price. Consequently, the value of these projects may vary.
In conclusion, Athabasca Oil is a growth company with impressive reserves. Based on the company's projections, the corporation has the potential to become one of the largest producers of oil in Canada. Moreover, with its strong balance sheet, it has enough financial resources to fund the Duvernay and the Hangingstone projects. In my mind, along with Transglobe (NASDAQ:TGA), it is one of the best opportunities in the energy sector at the moment.
Disclaimer: The company's common shares are mainly listed on the Toronto Exchange, but also on the OTC in the U.S. It does not trade on a major exchange in the United States. Please be aware of the risks associated with this factor.
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