After Athabasca Oil Sands Corp. announced the sale of its 40 per cent stake in the MacKay oil sands project, the majority of news stories focused on the China angle. For good reason. By selling the asset to PetroChina for $680-million, Athabasca gave China rights to its first wholly-owned oil sands project.
But the prospects for Athabasca’s future are also worthy of analysis, considering that this company was the blockbuster initial public offering of 2010. Since selling $1.35-billion in that deal at $18 per share, the stock took a nose dive, recovered to its IPO price, and then lost one-third of its value all over again. Today, it trades just north of $12 per share.
With such a dismal market value and with a major asset off its books, you have to wonder: what’s left for Athabasca?
For starters, keep in mind that PetroChina is on the receiving end of a put option on Athabasca’s stake in the Dover project. Most analysts expect Athabasca to exercise this option in the coming year. Should that occur, the firm will be left with an oil sands resource estimate of about 8 billion barrels.
With Dover out of the picture, RBC Dominion Securities analyst Mark Friesen sees three potential sources of value: more de-risking of the Deep Basin exploration assets; proving that the Dover West Leduc project is commercially viable; and detailing the company’s new 400,000 acre light oil play.
Yet that doesn’t mean the prospects are very promising. “In our opinion, the exercise of the option increases the risk profile of Athabasca, shifting valuation growth away from project development to exploration results and long-dated oil sands and non-commercial bitumen carbonate barrels.”
Still, no one can say that Athabasca doesn't have development cash. After shedding its stake in the 150,000 barrel per day MacKay project, the company will have about $1.3-billion of net cash on its balance sheet, and could possibly add another $1.3-billion if the Dover option is exercised.
Plus, some people, like CIBC analyst Andrew Potter, believes “there is plenty of opportunity” left for the company.
The way he sees it, Athabasca is trading around only 30 to 50 cents per barrel of oil sands resource, assuming the second put is also exercised, which is “a very low level and implies zero value for Deep Basin lands.”
Assuming the Dover stake is also sold off, he believes value comes from stringing together more joint venture deals, starting construction on the wholly-owned Hangingstone oil sands project and demonstrating progress on the Leduc carbonate position.
Mr. Potter also points out that PetroChina could ultimately become an outright buyer of the whole company, should the political appetite for such a deal exist.
Acquiring Athabasca's Dover stake is also very expensive for PetroChina relative to simply bidding outright for the company. And in an outright takeover, the acquirer would “rather inexpensively get an additional 8.1 billion barrels of resources plus 1.7 million acres of undeveloped lands prospective for liquids rich/tight oil opportunities.”
On top of that, “there is no stand-still agreement between PetroChina and Athabasca to prevent such an outcome, although we note that ATH’s shares are quite tightly held which means a friendly deal would be the only plausible outcome,” he added.
As the prospects for such a deal play out, Athabasca’s Hangingstone development will become the nearest-term development asset in its remaining oil sands portfolio, with first steam still scheduled for 2014. That's far away for current investors.