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Athabasca Oil: All Eyes Are On The Debt Refinancing - And The Current Oil Price Should Help

Mar. 06, 2021 11:35 AM ETAthabasca Oil Corporation (ATHOF), ATH:CA29 Comments


  • Athabasca Oil needs $45 WTI to break even.
  • The current oil price will give the company a massive break and the cash flow will be pouring in.
  • Despite this, I'd rather be a creditor than a shareholder.
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2020 was a difficult year for most oil producers, but oil companies operating in capital intensive oil sands with a high net debt load like Athabasca Oil (OTCPK:ATHOF) were suffering more than others. Fortunately the current high oil price will be a tremendous help to the company to increase its free cash flow while it should also make refinancing the debt easier.

Athabasca Oil has its main listing on the Toronto Stock Exchange with ATH as its ticker symbol. The average daily volume in Canada exceeds 4M shares, so the liquidity is clearly better in Canada. As the company also reports its financial results in Canadian Dollars, I will use the CAD as base currency throughout this article, and I will refer to the Canadian share price. There are currently 530.7M shares outstanding and at the current share price of C$0.54, the market capitalization of Athabasca Oil is just over C$285M.

The 2020 results were disastrous, and that hardly was a surprise

During 2020, Athabasca Oil produced an average of 32,500 barrels of oil-equivalent per day of which about 9,740 barrels were considered light oil and the remaining 22,750 barrels were bitumen (heavy oil recovered from oil sands). The average production was about 10% lower than in 2019 but that’s mainly due to lower output in the first portion of the year as the production picked up again in the final quarter as oil prices recovered. In Q4, Athabasca produced an average of 34,200 boe/day, consisting of 9,400 boe/day of light oil and about 24,800 boe/day of bitumen.

Source: full-year update

Due to the low average oil price, the total revenue in 2020 collapsed to just over C$460M. Fortunately the company benefited from the hedges it had in place which provided a very welcome boost to the top

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This article was written by

The Investment Doctor profile picture
As I'm a long-term investor, I'll highlight some stockpicks which will have a 5-7 year investment horizon. As I strongly believe a portfolio should consist of a mixture of dividend-paying stocks and growth stocks, my articles will reflect my thoughts on this mixture.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

I have no position in Athabasca Oil, but will give the 2022 bonds a closer look.

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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Comments (29)

Allen Baltzer profile picture
Well, here we are in August and tons of money rolling in. Expect something to happen in the next 4 months. Creditors will get their piece of the pie, the greenies got to be kept happy and Im hoping enough left over for a small one time dividend. My math says its possible, so why not?
Is it fair to say the bonds are signaling ATH will be able to roll the debt? I think so, wondering how others see it.
The Investment Doctor profile picture
@twfry A yield to maturity of 30% is sky-high, but at least the bonds have been appreciating in value over the past few months.

Also keep in mind there is NO OTHER DEBT (like bank debt) on the balance sheet. That should make things considerably easier. Even if Athabasca Oil would declare bankruptcy, all proceeds from asset sales would go towards repaying the bonds as there is virtually no debt senior to the bonds.

With C$165M in unrestricted cash, cash flow pouring in thanks to the high oil price and just C$560M in debt to refinance, all Athabasca needs is a C$400M credit line from a bank (perhaps with a C$100M accordeon in the first 1-2 years to provide some flexibility).

If Athabasca would have bank debt senior to the bonds, I probably wouldn't want to touch the bonds. But given that it's the only debt, i'm feeling pretty confident I won't be wiped out.
kamendc profile picture
Interesting idea, thanks Doc! I can trade them on Interactive Brokers, but so far can't get filled at 80...
The Investment Doctor profile picture
@kamendc Are you the person on the bid for $4k?
kamendc profile picture
@The Investment Doctor I guess I am... want to flip me yours? :-)
The Investment Doctor profile picture
@kamendc Haha! I really only got the $2k. I'm still waiting for my full-service broker to figure out how to buy the bonds. Embarrassing!

'You guys charge me $150 for a trade and then you can't find a bond I was able to buy on a $5 commission through an online broker?'
The Investment Doctor profile picture
As an update: my full-service Canadian broker 'couldn't find' the bonds. I bought $2k of bonds at 78.55 cents on the dollar today through my discount broker (I didnt have more cash available). I will be looking to buy more in the next few weeks to get to a more meaningful position.
Joseph investing profile picture
Thinking about initiating a position on this one. Already long BTE, CJ, CVE, AR, SWN, and VET.
Allen Baltzer profile picture
@Joseph investing Well, here we are at the end of August. You still thinking? LOL... I jumped in back in June I believe. Planning on staying for awhile. Cant see this one failing with oil where it is now and has been all summer.
Joseph investing profile picture
@Allen Baltzer I am always thinking my friend. I didnt jump on this one, and havent yet. Was holding CJ and BTE, got out with good profits, not because I dont think they will go up more, but due to leverage. I was up to 3x, now down to 2x to sleep well and rethinking. Im at the middle of getting my financial freedom with this energy reinassance so no joke. Long CVE(biggest holding), ARX, CPG, VET, YGR, and AR(best performer), and always looking to get into others. Also watching Gold and Lithium miners, already in some and looking to increase but careful cause leverage is a b!*?#
Could some one answer this who has knowledge. I thought Eric Nuthall indicted they have more midstream assets to sell. Maybe I misunderstood. Does anyone have an answer to this.
River18 profile picture
swallowing the letter A, can totally change the meaning of a word.
River18 profile picture
Great article, and long ATHOF. Up over +129% and +95% in two different accounts. Let's wait and see where the share price is when we get to $75 WTI.
Allen Baltzer profile picture
@River18 Price of oil is only one thing you have to watch. The Greenies are screaming "carbon footprint, carbon footprint," and they have tons of money. ATH gotta keep them happy too. Also, with all this extra cash the investors are screaming. They want money (dividends) and so do the creditors. It will all sort itself out by the end of the year, but I cannot see a big price change until they get refinanced and the big boys smell money, and at $65/75 a barrell its got to happen.
River18 profile picture
@Allen Baltzer
All excellent points.
They should look a lot better in a couple of years, if we don't see WW 3 first.
Why would they only sell calls? That’s the dumbest hedging strategy I’ve ever heard. Cap the upside with zero downside protection to a few dollars?
The Investment Doctor profile picture
@vxmike Agreed. So I hope that since announcing they sold calls, they have used proceeds to buy some puts as well.
@The Investment Doctor Maybe they took the cash to buy debt 50 percent discounted? I really can't think of another reason, it makes no sense
The Investment Doctor profile picture
@twfry I don't think that would make a lot of sense. 15k boe/d for 270 days = 4 million barrels with sold calls. Let's say they received on average $2-3/ call = $8-12M in cash proceeds. THat would allow them to buy back $15M of debt, that's true, but in this case they would lose more if the oil price moves down and they aren't protected than they stand to gain by buying back more debt.

If oil drops down to $45, the debt may have decreased by $30M, but they still would risk bankruptcy.
In reviewing their most recent presentation, I note that pads 1-4 at Leismer show a production decline of 50% over 8 years. They are holding production steady by adding pads but seem to be running out of room.
THE CHIEF TRADER profile picture
Time to buy into Alberta Oil and the "real" NA Energy Industry! $0.50 shares to double in the very neat future at Athabasca Oil on the TSX ticker ATH
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