Athabasca Oil Corp. investors are focused this week on a crucial regulatory decision for the company's Dover oil sands project that would trigger a sale of its interest and generate $1.3-billion – proceeds needed to fund other operations.
The company, which has seen its shares pressured by worries over the fate of the northern Alberta project, reports second-quarter results on Wednesday, and the ruling by the Alberta Energy Regulator could come as early as Tuesday. The stock has fallen to a close on Friday of $6.87 on the Toronto Stock Exchange from almost $14 last fall.
If approved, the Dover project will eventually produce 250,000 barrels of bitumen per day. However, the company and the Fort McKay First Nation have been unable to resolve a dispute over a project buffer zone, forcing a full hearing process for the project. The band says it's not opposed to the project as a whole, but wants to make sure wildlife, and traditional hunting and trapping grounds already surrounded by other oil sands projects, are protected.
Uncertainty around the project hearing process and the final decision – likely to be released by mid-August – has been the main reason for the oil company's stock price decline over this year, said Athabasca vice-president Andre De LeeBeeck.
"The fact that we had the hearing surprised the market," Mr. De LeeBeeck said. "The market doesn't like surprises."
The approval of the steam-assisted gravity drainage (SAGD) project is crucial to Athabasca being able to sell its share of the project to PetroChina Co. Ltd., which already owns 60 per cent.
In 2010, PetroChina bought 60 per cent of both the Dover and MacKay River projects for $1.9-billion. The agreement had a put/call option, allowing either side to trigger the sale of the remaining 40 per cent to PetroChina, following regulatory approvals.
Athabasca has had to borrow money in the interim, and needs the cash from the sale to develop its other assets. While the company will not commit to any new capital expenditures until it has "line of sight" on the proceeds from Dover, Mr. De LeeBeeck emphasized the hearing is just a part of the business process.
"It's just what you have to go to if two parties cannot come to agreement."
Recent months have seen a number of changes at Athabasca. In early May, share prices dropped when Athabasca announced the abrupt departure of president Bryan Gould. The name of the joint venture operating company between Athabasca Oil and PetroChina – originally called Dover Operating Corp. – was changed in late May to Brion Energy Corp.
Mr. De LeeBeeck noted the company has other plans in the works, including a search for joint venture partners for its holdings in the Duvernay formation. "The growth strategy of the company is through joint venture."
But analyst Michael Dunn of FirstEnergy Capital Corp. said a quick decision on Dover is key for Athabasca.
"When that money didn't come in the door earlier this year, they had to borrow money at relatively high interest rates," Mr. Dunn said. "That's the concern – the longer they have to wait for that money, the more they'll have to spend borrowed money."
Last summer, Athabasca had appeared close to multibillion-dollar joint venture deals with Kuwait Petroleum Corp. and Spain's Repsol YPF SA to develop its Hangingstone and Birch oil sands projects, according to sources familiar with the talks. The deals were said to have stalled in late 2012 as the federal government agonized over its policy regarding foreign takeovers of oil sands assets.
The deal that could see PetroChina take over the Dover project was signed before Ottawa brought in new restrictions on foreign investment in Canada's oil sands.