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Taking stock of future Athabasca Oil Corp. off list of takeover targets, but continues negotiating possible oil sands JV, while prowling for partnership Gary Park For Petroleum News
Athabasca Oil Corp., AOC, is having to chart a fresh course after absorbing unknown collateral damage from newly imposed government limits on how much foreign ownership is acceptable in Canada’s oil sector.
With PetroChina holding majority stakes in two oil sands projects, representing potential combined output of 400,000 barrels per day, AOC has long been viewed as one of the likeliest targets to be snapped by a foreign state-owned enterprise, SOE, at a fat share price premium.
But that prospect has been shelved, while the company figures out how to achieve its objectives in both the oil sands and through joint-venture arrangements in the shale gas regions of Western Canada.
In addition to its C$1.9 billion deals with PetroChina for 60 percent of the Dover and 100 percent of the MacKay River projects, AOC recently signed a memorandum of understanding with an unnamed third party — widely believed to be state-owned Kuwait Petroleum Corp., with Spain’s Repsol also identified as a candidate — to develop its Hangingstone and Birch oil sands properties.
But any or all of those deals could be placed in doubt because of the Canadian government’s new restrictions on foreign investment in Canadian energy firms, said Mark Friesen, an analyst with RBC Dominion Securities.
“While investors may view (the government statements on the outlook for joint-ventures) as positive for AOC’s chances of announcing a new joint-venture partnership, we do see increased risk in completion of the joint ventures with an SOE and a possible extension of closing timelines, as the government has the authority to review these investments on a case-by-case basis,” he said in a research note.
AOC optimistic AOC Chief Executive Officer Sveinung Svarte said he is optimistic the joint venture for Hangingstone and Birch will be secured.
But he conceded AOC is “giving some time for a deal to close and it’s difficult to predict a timeline.”
Rick Koshman, AOC’s vice president of projects and thermal operations, said the potential investor is waiting to get the go-ahead from its own authorities, strengthening speculation that Kuwait Petroleum is the frontrunner.
“There are external parties they need to deal with, government agencies, and we’re waiting for them to go through their process,” he said. “We still feel them to be a potentially very good partner.”
However, Koshman said the new government rules are unlikely to derail the negotiations, since SOEs are still permitted to buy minority stakes.
“We’re not looking for a change of control,” he said. “We are looking for joint ventures to be 50 percent or less.”
Hangingstone is AOC’s most advanced oil sands holdings, with first production expected by the end of 2014, starting at 12,000 bpd within two years, while Birch could eventually support 155,000 bpd.
Regulatory process at Dover Meanwhile, the regulatory process is under way for the 250,000 bpd Dover project, with construction due to begin in 2014 and first oil scheduled for 2016.
AOC has already sanctioned the initial phase of Hangingstone, pegging the cost at C$536 million, and allocating 60 percent of its 2013 capital budget of C$798 million, to the project.
The company also plans to spend C$236 million in 2013 to explore and produce light oil, with 60 percent of that amount earmarked for the liquids-rich Montney formation in northwest Alberta, where developing 680,000 contiguous acres with Slave Point oil potential would cost “just too much” for the company to tackle alone, Svarte said.
AOC’s Duvernay land base is comprised of more than 350,000 high-graded net acres, of which about 200,000 acres are located in the Kaybob, in the heart of the fairway.
Company President Bryan Gould said AOC has “moved swiftly up the learning curve in terms of understanding the fracture characteristics of the liquids-rich Duvernay reservoir (while) innovative completion techniques have yielded strong production test results,” with three wells expected to be on production by the end of 2012.
He said AOC facilities are now capable of handling up to 36,000 barrels of oil equivalent per day of oil and condensates and 48 million cubic feet per day of gas. The light oil division is expected to exit the first half of 2013 with 11,000-13,000 boe per day of production.
“We have done most of the heavy lifting with respect to constructing our 100 percent-owned production facilities and infrastructure,” Svarte said.
He said recent industry deals in the Duvernay — notably Encana’s C$2.18 billion joint venture with Phoenix Duvernay Gas, a wholly owned subsidiary of PetroChina and ExxonMobil’s C$2.6 billion takeover offer for Celtic Exploration in the neighboring Montney — have been “rather encouraging.”
However, despite its need for a partner, AOC will wait another six months to see “how the type curves play out,” before seeking a joint-venture partner, he said.
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