Published: January 3, 2024 | Share This

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Athabasca Oil Corporation has entered into transaction agreements to create Duvernay Energy Corporation with Cenovus Energy. Duvernay Energy will be a standalone self-funded entity that will drive strong, high netback cash flow and production growth and is expected to unlock significant value. The transaction is aligned with Athabasca’s strategy to maximize cash flow per share growth and return capital to shareholders.

TRANSACTION OVERVIEW

Athabasca and Cenovus will jointly contribute assets into Duvernay Energy. Athabasca will own a 70 percent equity interest in Duvernay Energy with Cenovus owning the remaining 30 percent equity interest. Athabasca will manage Duvernay Energy through a management and operating services agreement. Duvernay Energy’s board of directors will include three members nominated by Athabasca and one member nominated by Cenovus.

On inception, Duvernay Energy will have strong liquidity including seed capital of $40 million and a $50 million new credit facility led by ATB Financial. Athabasca’s $22 million seed capital contribution to Duvernay Energy will be within its previous $175 million 2024 capital guidance ($135 million thermal oil and $40 million light oil). Athabasca is also contributing ~$20 million in expenditures related to Q4 2023 drilling operations on a 100 percent working interest multi-well pad and long lead inventory for future activity.

The transaction will have an effective date of January 1, 2024, is expected to close in the first quarter of 2024 and is subject to customary closing conditions and regulatory approvals, including competition act approval.

DUVERNAY ENERGY ASSETS

Duvernay Energy will be positioned with unparalleled pure-play exposure to the prolific Kaybob Duvernay resource play. Duvernay Energy’s assets will be primarily located in the volatile oil region.

In addition to the company’s existing joint venture assets, Duvernay Energy has exposure to ~46,000 acres of 100 percent working interest operated lands contiguous to its existing Duvernay assets. This acreage includes new lands strategically acquired by Athabasca through Crown land sales over the last 18 months and Cenovus’s contribution of Kaybob acreage. In total, Duvernay Energy will have exposure to ~200,000 gross acres in the liquids rich and oil windows with ~500 gross future well locations. The assets are serviced by existing infrastructure including two operated oil batteries with a gas pipeline network connected to both the Pembina Gas Infrastructure KA facility and the Keyera Simonette facility. Liquids are directly connected to the Pembina Peace liquids system. Duvernay Energy will also own an 8.1 percent working interest in the 7-4-63-16W5 gas facility.

Current production from Duvernay Energy is ~2,000 boe/d (~75 percent Liquids) with a defined and self-funded development plan.

DUVERNAY ENERGY DEVELOPMENT PLANS

Duvernay Energy’s development plans will leverage off significant de-risking activity on its acreage (74 horizontal wells) and on adjacent competitor activity. Duvernay Energy will execute a self-funded development plan that will target growth to ~25,000 boe/d (~75 percent Liquids) in the late 2020s with an inventory to support a stable production profile thereafter for approximately twenty years.

The company has extended production history with well results consistently supporting type curve expectations. At Kaybob East and Two Creeks, IP365’s have averaged ~550 boe/d per well (85 percent Liquids) on the last 12 wells. Latest well design will include lateral lengths up to 4,500 meters that are expected to yield stronger initial rates, larger reserves, and improved capital efficiencies. Individual well costs are estimated to be $10-14 million, depending on pad size, lateral length, and proppant loading.

The 2024 development program will include 12 gross wells (7.1 net wells) with a capital budget of ~$82 million. The program is expected to be funded from the $40 million seed capital contribution and cash flow from Duvernay Energy. The plan is expected to drive strong production momentum with production forecasted to average ~6,000 boe/d in 2025.

2024 Activity Consists of:

• 100 percent working interest activity: A recently spudded two-well pad at Kaybob East will be placed on production in Q2 2024. An additional two multi-well pads will spud mid-year and are expected to be placed on-stream in early 2025.

• 30 percent working interest joint venture activity: A three-well pad at Kaybob West is expected to spud in Q1 2024 and will be placed on production in Q2 2024. An additional four-well pad at Kaybob East is expected to spud in Q4 2024 and will be placed on production in 2025.

During 2024, Duvernay Energy is forecasting capital expenditures of $82 million, funded by cash flow from the entity and seed capital of $40 million from Athabasca ($22 million) and Cenovus ($18 million). Duvernay Energy will also benefit from ~$20 million in expenditures related to Athabasca’s Q4 2023 drilling operations on a 100 percent working interest multi-well pad and long lead inventory for future activity.

EXECUTIVE APPOINTMENTS

In conjunction with the transaction, Athabasca has appointed Bruce Beynon as vice president Light Oil, with primary responsibility for the development of the assets within Duvernay Energy. Beynon is a professional geologist with more than 30 years of oil and gas industry experience. Beynon is currently the president of Tiburon Exploration, a private consulting company. Beynon was executive vice president, Exploration and Corporate Development at Baytex Energy Corporation. Prior to the merger between Baytex and Raging River Exploration, Beynon held several positions with Raging River including president. Mike Wojcichowsky will assume the role of vice president, Drilling Completions Services and Light Oil Operations.

Robert Broen, President and CEO of Athabasca Oil Corporation, will also assume the role of chairman, president, and CEO of Duvernay Energy. The board of Duvernay Energy will consist of Rob Broen, Matt Taylor, chief financial officer of Athabasca, Cam Danyluk, general counsel and vice president Corporate Development Athabasca, and Jeff Lawson, senior vice-president Corporate Development, Cenovus.

Athabasca Oil Corporation is a Canadian energy company with a focused strategy on the development of thermal and light oil assets. Situated in Alberta’s Western Canadian Sedimentary Basin, the company has amassed a significant land base of extensive, high quality resources.

Cenovus Energy is an integrated energy company with oil and natural gas production operations in Canada and the Asia Pacific region, and upgrading, refining, and marketing operations in Canada and the United States. The company is focused on managing its assets in a safe, innovative and cost-efficient manner, integrating environmental, social and governance considerations into its business plans.

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