Can Athabasca Oil Bounce Back Once Again?

Athabasca Oil [stock_market_widget type="inline" template="generic" color="default" assets="ATH.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has taken a big hit on the stock market this year despite gaining some momentum towards the beginning of April. This is despite the company’s efforts to maintain its production levels even after giving its capital expenditure a nice haircut.

Moreover, the Alberta government’s mandated production cuts have also proven to be a tailwind for Athabasca. In such a scenario, it is surprising to see the stock trade at penny stock levels. Let’s see if investors should consider taking advantage of the weakness in Athabasca stock to buy before a potential turnaround happens.

Athabasca is Pulling the Right Strings Operationally

In the first quarter of 2019, Athabasca maintained flat production year over year. The company’s petroleum and natural gas production came in at 39,206 barrels of oil equivalent per day during the quarter, almost in line with the year-ago period’s production of 40,572 boe/day.

Athabasca’s first-quarter production was achieved at a capital expenditure level of nearly $32 million. This was down significantly from the prior-year period’s outlay of $56.6 million. So it is clear that the company is sticking to its plan of delivering production on a smaller budget.

But the notable thing during the quarter was that Athabasca’s operating netback shot up nearly four times year over year to $16.77 per boe. In the prior-year period, the company’s operating netback was a lowly $4.65 per BOE.

As a result, the company’s adjusted funds flow per share came in at $0.08 per share during the quarter as compared to a negative $0.01 per share in the prior-year period. This massive improvement was a result of the Alberta government’s mandated production cuts, which helped boost Western Canadian Select (WCS) oil prices and positively impacted Athabasca Oil.

According to Athabasca’s press release:

WCS prices averaged C$56.62 in Q1 2019, a 123% increase from C$25.36 in Q4 2018. Athabasca remains supportive of these actions and views them as a necessary step to normalize pricing and provide a bridge to permanent market access initiatives.

Will the Stock Witness a Turnaround?

For the full year, Athabasca estimates consolidated production of 37,500-40,000 BOE/day. This will be achieved at an annual capital expenditure in the range of $95 million to $110 million.

By comparison, Athabasca had clocked average production of 39,203 BOE/day in 2018 at a capital expense of $194 million. So the company is on track to deliver efficient production this year. The only thing that it needs going in its favour is higher oil prices.

WCS oil prices have started picking up once again after a slight dip that begun towards the end of April and continued until mid-June.

But the bad news for Athabasca is that Canadian oil prices are expected to remain volatile because of a lack of pipeline capacity that restricts market access for producers. As such, Athabasca Oil investors need to keep a close eye on oil prices before deciding if an investment in the company is worth it or not.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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