Athabasca to update 2014 budget, says close to finding Duvernay partner

CALGARY – Athabasca Oil Corp. says it expects to table an updated 2014 capital budget in July, once there’s a resolution to most of the uncertainty that’s been dogging the oilsands developer and light oil producer.

Calgary-based Athabasca (TSX:ATH) aims to announce a joint-venture deal for its holdings in Alberta’s Duvernay shale around that time, after prospective partners have had a chance to look over new test results on four wells in the region.

And with most hurdles cleared in Athabasca’s plan to sell its 40 per cent interest in the Dover oilsands project to Chinese partner PetroChina, a long awaited and much needed lump sum of $1.23 billion is expected to appear in its bank account during the second quarter.

“Upon receipt of the Dover sale’s proceeds, affirmation of the productivity of our new Duvernay wells and determination of the outcome of our outgoing Duvernay joint venture process, we expect to be in a position to revise the 2014 capital program and anticipate issuing an updated 2014 budget in July,” said chief financial officer Kim Anderson on a call with analysts.

For now, Athabasca’s board of directors has approved $480 million in spending for 2014.

In 2013, Athabasca spent nearly $761.6 million, with most capital going to its $565-million Hangingstone oilsands project, which is expected to start up about a year from now.

For Dover, an Alberta cabinet approval last week was one of the last hurdles that Athabasca must clear before its Chinese partner can take full control of the development. The company is still awaiting a final sign-off from Alberta Environment.

Once all approvals are in hand for Dover, PetroChina, currently with a 60 per cent stake in the project, has 30 days to buy out Athabasca’s 40 per cent interest for about $1.32 billion.

Taking into account $85 million in closing costs, Anderson said Athabasca would net about $1.23 billion. She did not say whether that amount includes payments to the nearby Fort McKay First Nation, whose legal challenge delayed the Dover sale.

A similar process took place in 2012 for the McKay River oilsands project, with PetroChina opting to buy Athabasca’s stake for $680 million, making it the first oilsands project to be fully controlled by a Chinese company.

For Dover, however, the process has not gone as smoothly.

The Fort McKay First Nation wanted a 20-kilometre buffer zone around the Dover project, but the Alberta Energy Regulator denied the request and approved the Dover project last August.

In October, the band won the right to challenge the AER approval on constitutional grounds. But it dropped its lawsuit last month after it came to an agreement with Athabasca and PetroChina.

Alvaro Pinto, the band’s director of sustainability, said the Dover partners have agreed to environmental protections for an area the band was most concerned about.

Pinto said the agreement included a financial component as well as promises of business opportunities.

The proposed five-phase Dover project aims to eventually produce 250,000 barrels of crude a day using steam-assisted gravity drainage technology.

“The delay of the Dover approval contributed to making 2013 a challenging year for Athabasca,” CEO Sveinung Svarte told the call. “However, we also achieved many significant milestones as we continued our transition from a largely exploration stage company to becoming a producer.”

Also Wednesday, Athabasca posted a $40.1-million loss in the fourth quarter of 2013, or 10 cents per share.

That compared with a profit of $306.1 million, or 77 cents per share, in the fourth quarter of 2012 when Athabasca was required to record an unrealized gain of $374.6 million on the value of its Dover put option, which enables Athabasca to sell its interest to PetroChina.

The option’s value increases (or falls) with the probability that Athabasca will be able to exercise the option. As of Dec. 31, the probability was estimated at 95 per cent.

In the meantime, Athabasca Oil gets most of its revenue from investment income and production from its light oil division in the Fox Creek area. Revenue during the fourth quarter was $28.3 million, up from $18.5 million in the fourth quarter of 2012.

Production in 2013 grew 280 per cent to nearly 6,400 barrels of oil equivalent per day.

Athabasca shares dropped 2.3 per cent to $8.20 in mid-day trading on the Toronto Stock Exchange.