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Athabasca Oil: Best Way To Play The Oil Sands Recovery

Cornerstone Investments profile picture
Cornerstone Investments


  • Athabasca has one of the highest torques to higher oil prices and Western Canadian Select ("WCS") discount improvement.
  • Upcoming catalysts include normalization of WCS differential and potential monetization transaction of thermal oil infrastructure assets.
  • Now is the ideal time to accumulate shares as we believe Q2 earnings release could be the inflection point that results in sentiment change.

(All values are expressed in Canadian Dollars unless otherwise stated)

We believe Athabasca Oil (OTC:ATHOF) (TSX:ATH) is the best way to benefit from the upcoming recovery in the Canadian oil sands industry, driven by a return to normalized levels for Western Canadian Select ("WCS") differential and supportive global oil prices. Athabasca has removed most of its leverage concerns through a transaction with Murphy Oil (MUR) in 2016 and its cash flows possess one of the highest torque to oil prices and WCS differential among the peers.

We see an upside of 42% in Athabasca share price under our base case which assumes US$68 WTI and US$20 WCS discount. We also see an upside of 74% in Athabasca shares should an asset sale of its thermal oil assets materializes in the near term. Additionally, Athabasca will also benefit from a potential improvement in sentiment for the Canadian oil sands stocks given now that Enbridge (ENB) Line 3 has been approved and the Canadian Government is backing the Trans Mountain expansion project.

Athabasca is one of the few remaining independent oil sand producers that combines a solid balance sheet with massive torque in cash flows to oil prices. In the near term, we believe Athabasca is poised to benefit from two upcoming catalysts: the improvement in WCS discount and the monetization of thermal oil infrastructure assets. Additionally, if oil prices rise above US$70 we see at least 68% upside in Athabasca due to its immense cash flow leverage.

Situation Overview

Athabasca completed its IPO on the TSX in 2010 and made a big splash in the energy market by almost doubling its offering due to strong interest from Asian buyers including PetroChina, a backer for the company. The IPO was priced at $18.00 per share and shares have since struggled ever since due to underperformance

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Analyst’s Disclosure: I am/we are long ATHOF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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