Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments on the most intriguing questions of the past week go out to all Inner Circle members. Each week, we offer you a highlight from these Q&A sessions. This week, Pat assesses the prospects of a Canadian oil stock that has promising properties in the oil sands, but a long way to go to achieve significant production at a time of low oil prices.
Q: Pat: Can I please have your recommendation on Athabasca Oil Corp.? Thanks.
A: Athabasca Oil Corp. (symbol ATH on Toronto; www.atha.com) aims to develop oil sands and conventional oil and gas resources in northeastern Alberta’s Athabasca region. Its average daily production is 49% gas and 51% oil.
Athabasca first sold shares to the public at $18 and began trading on Toronto in April 2010.
As of December 31, 2014, Athabasca held over 1.18 million net acres of oil sands leases in the Athabasca region of northeastern Alberta. Athabasca’s primary focus is Hangingstone Project 1.
Other project areas include the Hangingstone Expansion, Birch and Grosmont. Development targets include oil sands in the McMurray and Wabiskaw formations as well as carbonates in the Leduc and Grosmont formations.
The company’s major projects are still in the early stages of development, but it does have some production. In the three months ended March 31, 2015, its output fell 6.7%, to 5,877 barrels of oil equivalent a day from 6,299 a year earlier. Cash flow slipped to $0.01 a share from $0.02 on the lower production and a decline in oil and gas prices.
Last year, Athabasca completed the sale of its Dover oil sands project to PetroChina. As a result, PetroChina paid Athabasca $600 million in August 2014 and will pay a further $584 million in instalments over 2015 and 2016.
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Canadian oil stocks: Athabasca expects total production from Hangingstone to reach 80,000 barrels a day
The company is currently focused on bringing its Hangingstone project, southwest of Fort McMurray, into production. Athabasca has a 100% working interest in this 136,000-acre property, a large portion of which is yet unexplored.
The initial operation, Hangingstone Project 1, is designed to produce 12,000 barrels of oil a day, but Athabasca doesn’t expect it to reach that level until the end of 2016. The company estimates that its Hangingstone assets have overall production potential of approximately 80,000 barrels of oil a day, once fully developed.
Athabasca is also conducting an extensive conventional oil and gas drilling program in northern Alberta.
The company needs to bring Hangingstone into production and achieve drilling success elsewhere—all in a climate of low oil and gas prices. It has the funds to keep moving toward that goal, but that’s no guarantee of success.
Inner Circle recommendation: HOLD for aggressive investors only.
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