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Athabasca Oil Corporation (TSX: ATH) |
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October 22, 2012 Issue |
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The Most Powerful Name In Corporate News and Information |
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Focused on the Sustainable Development of Oil Sands in Northeastern Alberta and Light Oil Resources in Northwestern Alberta, Canada, Athabasca Oil Corporation has matured a Synergistic Growth Strategy that Adds Shareholder Value |
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www.atha.com
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Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – October 22, 2012
Mr. Svarte:
When we launched
Athabasca in 2006, the company was a pure-play oil sands developer. However,
a couple of years later, we started purchasing acreage in northwestern
Alberta, which contains liquids-rich natural gas. Therefore, we formed two
divisions, one to develop the thermal oil and the other to explore and
produce light oil.
Athabasca remains
bullish on oil prices, a belief that underpins our growth strategy in the
two areas where we expect to see considerable future expansion of liquids
production: oil sands, carbonates and liquids rich tight formations suitable
for multi-stage fracture completions.
Athabasca has
matured a growth strategy encompassing the synergies of long-lived oil sands
projects with a high return light oil and liquids rich gas development that
adds shareholder value. Athabasca is fully funded for all of its wholly
owned thermal oil projects filed and its light oil program from: cash on
hand; cash from operations; a reasonable level of debt; and, anticipated
proceeds from the Dover put/call option. The company has a fast-paced entrepreneurial culture attracting the very best talents from the industry that deliver quality results on time and on budget. Athabasca’s strategic vision is to produce 220,000 barrels of oil equivalent per day by the year 2020, with half from the Thermal Oil Division and half from the Light Oil Division.
CEOCFO: Has it worked so far? Have you changed peoples’ perception or is it a little too early to tell? Mr. Svarte: It is probably too early to tell. Our new name more accurately reflects what our company does. Athabasca is known for our technical excellence. So far, we have not had trouble attracting the top talent into our organization so it has helped our recruitment strategy.
CEOCFO: Athabasca’s site, www.atha.com, mentions world-class assets, unparalleled people and strong financial position. Would you tell us about each of these facets of Athabasca today? Mr. Svarte: What made Athabasca special in the first place is that we had very large and good assets. We saw early on that to be able to finance our operations we would take some venture partners, as we did in 2010 with PetroChina. As well, international oil companies like the asset base we have and want to talk to about forming a joint venture to build large oil sands projects.
Big projects attract talented people. These are engineers who really like to build things. That is what brings them here.
We are very well financed. We have about $70 million in the bank in the last quarter. We have the possible proceeds from exercising the put/call with PetroChina coming in at $1.3 Billion. That is almost unique for a company of our size to be in such a good financial position.
Our employees like our good corporate culture. We like to have fun at work. We are hard working, but at the same time, people should enjoy what they do. I think we have managed to marry that expectation together with delivering large amounts of work from the employees. We have hand picked the very best ones. We phone the high performers in other organizations and ask them to come over to Athabasca and that has worked out very well for us.
CEOCFO: What are the main projects happening on the ground today? What do you anticipate changing in the next year or two? Mr. Svarte: The Light Oil Division works at a very fast pace. You drill wells and put them into production straight away. In 2012, we are investing about $500 million this year to drill more than 40 wells. We have several hundred people in the field drilling wells every day, fracking them and putting them into production over the next two months.
When you compare that to the Oil Sands Division, it takes years to drill enough wells to prove you have a viable project, apply to the regulatory authorities for the necessary licences and approvals, then build the project and start steaming the reservoir. Then you produce the first barrel of thermal oil.
On October 4, Athabasca received the necessary approvals for the development of its first 12,000 barrels/day oil sands project. Located less than 20 kilometres (15 miles) from Fort McMurray, the Hangingstone Project 1 will use steam assisted gravity drainage (SAGD). This will be followed by additional SAGD projects, bringing the area’s potential production to more than 80,000 bbl/d. In 2013, the company plans to file regulatory applications for development of Hangingstone Projects 2 and 3.
CEOCFO: What is your take on the general energy and oil situation worldwide? How much affect does the macro environment have for you, if any? Mr. Svarte: As the International Energy Agency (IEA) predicts, the world will need 40% more energy by 2030 than is used today. We believe that Canada can provide an enormous amount of all kinds of energy that is safe, secure and reliable.
From the beginning, Athabasca decided to become an energy producer. We think the demand for oil will always be there. North America has an excellent pipeline system to efficiently take crude oil to refineries and then to consumers. Canada is looking at building several pipelines west to export crude to Asia. Looking at the growth projections and the aspirations of people in countries like China and India, there are hundreds of millions of people who want to live as we do.
CEOCFO: What are some of the different processes that you are using and the different types of properties that hold?
Mr. Svarte:
Athabasca is
developing thermal assisted gravity drainage (TAGD), an innovative process
for the in-situ recovery of bitumen.
TAGD uses an array
of downhole heaters installed in horizontal wells to heat the reservoir via
thermal conduction. Although several types of heaters could be used,
Athabasca currently employs electric resistance heaters. The bitumen
reservoir is heated to approximately 140-160 °C — a modest temperature when
compared to SAGD operations — producing a viscosity similar to that of
medium crude oil. Via gravity drainage, the bitumen flows to the bottom of
the reservoir where it is recovered by several horizontal production wells.
The company believes that ultimate recovery efficiencies from TAGD could be
similar to SAGD. TAGD offers several potential advantages over SAGD: the
ability to use a lower temperature which increases energy efficiency and
improves operational costs; and no water is required for the bitumen
recovery process. In the Light Oil Division, the team uses hydraulic fracturing in low permeability reservoirs to achieve economic hydrocarbon production rates from the wells. Hydraulic fracturing of the reservoir enhances permeability networks within the rock, enabling hydrocarbons to flow more freely into the wellbore. Fracture networks are created within the reservoir by pumping fluids under pressure into the geological formation. The type of fracture fluid used depends primarily upon the reservoir characteristics. 'Frac' fluid is generally either water-based or oil-based — it may also be pumped along with a gas (nitrogen or carbon dioxide). Chemicals may be added in order to alter the fluid characteristics. As part of the fracturing process, sand is also pumped into the formation; the sand (or proppant) is injected after the initial fluid (pad) in order to hold/prop the fracture networks open, providing a conduit for the reservoir fluids to flow to the wellbore. Numerous fracture stages (multi-stages) are placed along a horizontal wellbore.
CEOCFO: Athabasca is focused on achieving lower development and operational costs. What are you able to do to help contain the cost that maybe others are not? Mr. Svarte: At a smaller company, we can be very “lean.” We try to tie up field personnel with stock price compensation, so they actually feel like a part or the Athabasca family. That way we always feel that we can get the very best people, which is very important. Even though the costs are going up, it is not so much the cost per hour that really kills them. It is the fact that they get lower quality personnel that are much less efficient. If you have incentives in place that can attract the very best employees you can actually look after the development and production costs in a much better way. That is what we try to do.
The company is also ordering equipment from abroad, trying to make it into modular units that are as small as possible to make transportation easier and less expensive. This avoids having highly expensive workers in the field. It is much better to have them in a warmer, lower paid place somewhere in North America where we can transport from.
CEOCFO: Why should investors look at Athabasca Oil today? Mr. Svarte: Investors should realize that we have a tremendous potential when it comes to resources. Athabasca offers a rich portfolio of oil assets in Alberta.
The company has
significant bitumen resources in thermal oil and considerable light oil and
liquids-rich natural gas holdings. The company has amassed a land base of
over 3.5 million acres (net) and delineated more than 12 billion barrels
(gross) of contingent resource (best estimate) of which it holds
approximately 9.2 billion barrels (best estimate) since the sale of its
remaining 40% interest in the MacKay River thermal oil project on March 15,
2012. The company has matured a growth strategy encompassing the synergies of long-lived thermal oil projects with light oil and liquids-rich gas developments that are expected to build significant short-term cash flow. We have accomplished this thanks to the dedication and hard work of a talented team of professionals in a manner that is sustainable and respectful of our stakeholders.
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Athabasca has matured a growth strategy encompassing the synergies of long-lived oil sands projects with a high return light oil and liquids rich gas development that adds shareholder value. - Sveinung Svarte |
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