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Athabasca Oil: The Need For Scale

Hervé Blandin profile picture
Hervé Blandin


  • The per unit costs decreased during Q3 thanks to the growing production. And with higher oil prices, the funds flow increased QoQ and YoY.
  • Management communicated a flexible capital program for 2019. But the decision to reduce the oil production in Alberta impact the strategy.
  • The low flowing barrel valuation reflects the lack of scale to reduce the costs.

Athabasca Oil (OTC:ATHOF) Q3 results show the increase of the production lowered the per unit costs. Also, with high oil prices, the company generated positive total netbacks.

Management communicated the 2019 capital program would depend on the oil prices. But with Notley's decision to reduce the oil production in Alberta, the company will not have much flexibility.

In any case, the flowing barrel valuation is low. The market takes into account the lack of scale. The company needs to grow the production to lower the per unit costs and to enhance the free cash flow potential.

Oil rigImage source: jplenio via Pixabay

Note: All the numbers in the article are in Canadian dollars unless otherwise noted.

Q3 earnings

Production grew by 12% YoY to reach 40,612 boe/d.

Athabasca Oil Q3 2018 production

Source: Q3 2018 MD&A

As the production is growing, the per unit costs dropped compared to last quarter.

Athabasca Oil Q3 2018 costs and netbacks compared with MEG Energy

Source: Q3 2018 MD&A

We can see Athabasca realized lower netbacks compared to MEG Energy (OTCPK:MEGEF). The comparison is not perfect as the companies don't produce the same parts of heavy oil, light oil, and gas. But this table shows Athabasca needs higher oil prices than MEG Energy to operate at a profit.

The realized prices improved QoQ and YoY thanks to improved liquids prices during Q3.

Athabasca Oil Q3 2018 benchmark prices

Source: Q3 2018 MD&A

As a result of a higher production, improved prices, and lower per unit costs, adjusted funds flow reached a record C$62.2 million.

The net debt amounts to C$372 million. Considering the record quarter, the net debt to annualized adjusted funds flow ratio amounts to a reasonable 1.5. But if we consider TTM adjusted funds flow ratio, the ratio rises to 3.

Adapting to WCS prices

As bitumen represents 75% of the production, the company depends on the WCS prices. And considering the drop in WCS prices since the

This article was written by

Hervé Blandin profile picture
I leverage my 15-year career as an IT engineer to write mostly about tech stocks with a long-term perspective.Disclaimer: Anything I write isn't investment advice and will for sure contain errors and inaccuracies. Any investment decision you make should be based solely on your own research and judgment.

Analyst’s Disclosure: I am/we are long PEYUF, BTE, CPG, BNEFF, YGRAF, SVRGF. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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