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April 2010

Vol. 15, No. 15 Week of April 11, 2010

Unleashing record public offering

AOSC beats industry record, raises C$1.35B; PetroChina senior partner in first 2 projects; analysts say shows oil sands appetite

Gary Park

For Petroleum News

The verdict is in and it’s decisive: The Alberta oil sands are back in favor with investors.

Athabasca Oil Sands Corp., which has PetroChina as the majority partner in two of its planned commercial projects, planned to raise C$750 million in an initial public offering that was viewed as a test of both the strength of Canadian capital markets and the level of interest in the oil sands.

On both counts, AOSC posted a resounding victory.

An offering of 75 million shares raised C$1.35 billion at C$18 per share (a net C$1.269 billion after underwriters were paid) and could result in C$1.55 billion if the 11-company underwriting syndicate exercises its option to buy an additional 11.25 million shares within 30 days after the offering closes April 8.

And all that for a company that has yet to produce a single commercial barrel of oil.

The IPO is thus the largest in the Canadian petroleum industry and almost as large as the entire Canadian IPO market in 2009.

AOSC has received conditional approval to list its common shares on the Toronto Stock Exchange on or before June 17.

Mark Friesen, an analyst with Versant Partners, said the response demonstrates that “investors have an appetite for the oil sands,” which he said has lagged behind the recovery of other shares over the past year.

The interest in AOSC is “not being reflected across other publicly traded companies at the moment ... so I would hope this is a sign of things to come,” he told the Calgary Herald.

Tom Pavic, vice president of Sayer Energy Advisors, said the offering is a “good sign for the oil sands, which has been on the back burner.”

Six oil sands properties

Net proceeds from the IPO are dedicated to commercial development of AOSC’s six oil sands properties.

First on the list are recovery projects at the MacKay River and Dover leases, targeting ultimate planned capacity of 150,000 barrels per day and 200,000-270,000 bpd, respectively.

To achieve that goal, AOSC said in a regulatory filing it will need an additional cash infusion over the next five years to raise the C$2.39 billion it expects to spend developing commercial production at MacKay River in 2014 and Dover in 2015.

The next project is AOSC’s 100 percent-owned Dover West play, forecast to produce its first bitumen in 2016 and grow to 165,000 bpd.

“During the five-year period from 2015 to 2019, the company plans to undertake substantial capital expenditures to continue development of its projects,” the AOSC filing said.

PetroChina, having paid C$1.9 billion to enter the oil sands upstream, is ready to participate in other financing arrangements, according to AOSC’s prospectus.

“The terms of the PetroChina loans require that 90 percent of the cash flow derived from commercial production of the MacKay and Dover oil sands projects be used for repayment of outstanding balances under the PetroChina loans,” it said.

PetroChina has loaned AOSC C$430 million to retire its senior secured debt and is expected to contribute C$660 million over the next four years to fund AOSC’s 40 percent of the initial oil sands phases, starting with 35,000 bpd at MacKay River.

Estimates of 140 million barrels

An independent evaluation estimates AOSC has 140 million barrels of proved plus probable reserves and 7.1 billion barrels of contingent resources on its net 1.57 million acres.

“Management believes that the large scale of the company’s assets may also attract interest from other potential joint venture partners should the company choose to pursue that strategy,” AOSC said.

“Most of the company’s leases are located in proximity to Suncor (Energy’s) producing MacKay River (steam-assisted gravity drainage) project as well as other planned oil sands projects. As a large-scale leader in the area, Athabasca intends to opportunistically pursue acquisitions to complement its existing portfolio.”

Nexen testing interest

Hot on AOSC’s heels is Nexen, the fifth largest Canadian-based independent, which is testing industry interest in the Alberta heavy oil region by offering 18,000 barrels of oil equivalent per day and 1.25 million gross acres for bids.

A part of the company’s strategy of streamlining its operations and tightening its focus on other core areas, Nexen is hoping to fetch C$1 billion in asset sales over the next two years, with the heavy oil holdings expected to generate C$600 million-$800 million.

Chief Executive Officer Marvin Romanow said earlier this year Nexen wants to concentrate on ramping up production at its Long Lake oil sands project and further developing that resource; building on its success in British Columbia’s shale gas play; exploring and producing in the Gulf of Mexico; and working on international operations in the North Sea, Nigeria’s offshore Usan project and Yemen.

A Nexen spokeswoman said the company hopes it can take advantage of the current enhanced value of heavy oil, which currently generates about C$73.40 per barrel for Imperial Bow River heavy crude and C$80 per barrel for Edmonton Par.

The Scotia Waterhouse Web site said the properties for sale are primarily close to Lloydminster, which straddles the Alberta-Saskatchewan border.

Terry Peters, an analyst with Canaccord Adams, said in a note that Nexen has more desirable places to reinvest its capital, whether it is Long Lake, owned 65 percent by Nexen and 35 percent by OPTI Canada, the Horn River shale play in British Columbia and the Gulf of Mexico.

Waterous said declining heavy crude production in Mexico and Venezuela should raise interest in Canadian heavy crude in major refining centers such as the U.S. Gulf Coast, where coking capacity is being expanded to handle increasing Canadian supplies.

Identified as possible bidders are Canadian Natural Resources and Husky Energy, both leading heavy oil producers near Lloydminster, and Baytex Energy Trust.






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