DBRS Confirms Athabasca Oil Corporation at B with Stable Trends

DBRS has today confirmed the Issuer Rating of Athabasca Oil Corporation (Athabasca or the Company) and its Senior Secured Second-Lien Notes (the Notes) at “B”, both with a Stable trend. The Recovery Rating for the Notes is RR4. The confirmation is based on DBRS’s view that the Company’s liquidity is sufficient to fund its capex through most of 2014, even if the $1.3 billion put/call option on the remaining 40% interest in Dover assets is delayed (the Dover Option). This view is based on the Company’s cash on hand ($481 million as at June 30, 2013), its $200 million credit facility, the expected $145 million to be received by the end of 2013 from the exercise of the Company’s option to sell its 50% light oil infrastructure assets and the Company’s ability to curtail capex.

Under the Dover Option agreement between the Company and PetroChina, the $1.3 billion option being exercised is conditional on the regulatory approval for the Dover assets. In August 2013, the Alberta Energy Regulatory (AER) panel approved the Dover Commercial Project, which was the first of three steps required to exercise the Dover Option. The remaining two steps include obtaining receipt of Order in Council and approval from Alberta Environment. Subsequent to the approval by the AER, the Fort McKay First Nation filed a notice seeking permission from the Court of Appeal of Alberta to appeal the AER’s decision; however, Athabasca expects remaining approvals will continue to progress and be unaffected by the application for leave to appeal. The Company expects to obtain the remaining approvals and exercise their Dover Option prior to the end of 2013.

The timing of the Dover Option being exercised remains critical for Athabasca to maintain its liquidity. In the event that there are further delays and the Dover Option cannot be exercised by April 2014, this could lead to a negative rating action by DBRS, barring further liquidity risk mitigation.

DBRS acknowledges that the Company has attractive light oil assets located in the liquids-rich Montney and the Duvernay, which could be monetized to maintain liquidity and to complete the development of its Hangingstone Project 1 (first steam is expected in late 2014 and a full ramp-up is expected within 18 to 24 months following the first steam). The timing of the potential asset sales would be critical should there be further delays in exercising the Dover Option post April 2014.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.

This rating is endorsed by DBRS for use in the European Union.