Athabasca Oil Buckles Down on Capex as it Weathers Low Prices, Pins Hopes on Murphy JV

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Researched by Industrial Info Resources (Sugar Land, Texas)--Like every other player in the Oil and Gas Production Industry, Canada's Athabasca Oil Corporation (Calgary, Alberta) has had to do some serious belt tightening as it strives to survive the harsh pricing environment. The producer of light and thermal oils originally targeted a capital budget of C$266 million ($351 million) for 2015. For this year, the targeted spend is C$91 million ($120 million).

Last year's capital expenditures included C$63 million ($83 million) to commission and ramp up production at the first phase of the Hangingstone bitumen steam assisted gravity drainage (SAGD) project. In all, phase I of the bitumen production field and processing plant project had a total investment value of $360 million, according to Industrial Info's project database. Industrial Info is tracking seven active Athabasca Oil projects worth nearly $5.2 billion.

Bitumen production at Hangingstone, located near Fort McMurray, is currently about 8,000 barrels per day, and is on track to achieve 12,000 BBL/d design capacity in fourth-quarter 2016, said Blair Hockley, vice president in charge of Athabasca's thermal oil division.

While Hangingstone is currently losing money due to low oil prices, the thermal oil segment development will eventually pay off to the tune of C$35 million ($46 million) per year in operational income when WTI (West Texas Intermediate) equivalent prices bounce back $50 per barrel. Operational income would rise to C$60 million ($79 million) when WTI reaches $60 per barrel, Hockley said during the company's fourth-quarter 2015 earnings conference call.

For fourth-quarter 2015, the company reported a loss of C$604.4 million ($798.7 million), compared with a loss of C$129.5 million ($171.1 million) in fourth-quarter 2014. For 2016, the Thermal Oil segment is expected to incur an operating loss of C$50 million ($66 million) to C$55 million ($73 million), while its Light Oil segment will achieve an operating income of C$20 million ($26 million) to C$25 million ($33 million), said Chief Financial Officer Kim Anderson.

Athabasca is pinning much of its financial hopes on the recently-announced light oil joint venture with Murphy Oil Corporation (NYSE:MUR) (Eldorado, Arkansas). Athabasca will sell 70% of its interest within the Greater Kaybob production area, and 30% of its interest in Greater Placid assets, to Murphy. In return, Murphy will pay C$250 million ($330 million) in cash at the closing of the deal. Also, Murphy will fund 75% of Athabasca's share of development capital in the Duvernay production region for up to five years. In all, the deal is valued at C$475 million ($628 million).

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