- The world oil market will be over supplied by over 1.2 million barrels a day in 2015.
- The world demand growth for oil in non-OECD countries will be strong in 2015.
- The US oil production is still expected to grow in 2015.
- Oil market fundamentals such as US production and demand will need to change before calling the bottom.
- PEGFF’s realized prices are lower than the WTI spot price.
- PEGFF will sell for about $937MM of oil during the fourth quarter of 2014.
- PEGFF will need at least an average price of 60$/bbl to break even in terms of cash this year.
There are benefits to the oil crash. Here is a glimpse of the latest financial statements of Athabasca Oil:
Athabasca Oil - Balance Sheet (C$M)
So we have short-term notes which were given as a result of the closing of the Dover oil sands project. When Dover was sold, the company was given C$600M in cash plus C$584M of interest bearing notes (guaranteed by HSBC Canada). The first note will mature on March 2, 2015, the second note will mature on August 28, 2015 and the third and final note will mature on August 29, 2016. By August 28, 2015, the company will have C$450M more in cash and C$450M less in short-term note.
The company has two types of debt: senior secured second lien notes (SSLN), that can be paid back by Athabasca for a small premium of 103.75% of the principal and senior secure term loans (SSTL) that can be paid out for 102% of the principal plus present value of interest from the date of redemption to May 7, 2015.
So let’s say the company pays back its SSLN now, which will amount to C$571M. Furthermore, add 102% of the SSTL, which amounts to C$257M, plus annual interests of 8.25%, which amounts to C$4M from now to May 7, 2015. In summary, Athabasca will pay back its debt for C$831M.
In addition, paying back all accounts payable plus long-term debt, losing all of its provisions and paying its deferred income tax will cost the company C$1,176M in total.
On the other hand, the company has C$1,363M in assets. So basically, you get C$187M in net assets, C$1,962M in property, plant and equipment and C$1,088M in exploration and evaluation assets.
This amounts to C$3,237M, or C$8.05 per share with 402 million shares issued. Yes, the notes aren’t available all at once, and yes their acreage might be uneconomic in this environment, but it will surely be worth something in the future.
Let’s try another hellish scenario : in a huge fire sale, the PP&E are sold for a third of their value and exploration and evaluation assets aren’t worth a penny. This still amounts to C$2.09 per share. Almost on par with today’s price.
Disclosure: I am long ATH.