Mr. Robert Broen reports

ATHABASCA OIL ANNOUNCES 2023 SECOND QUARTER RESULTS

Athabasca Oil Corp. has released its second quarter results, highlighted by continued operational momentum at Leismer, strong free cash flow and execution on its return of capital commitment through share repurchases. Athabasca is uniquely positioned as a low-leveraged company generating significant free cash flow through its low-decline, oil-weighted asset base.

Q2 2023 and recent corporate highlights:

• Production: approximately 34,000 boe/d (barrels of oil equivalent per day) (93 per cent liquids) consisting of approximately 29,000 bbl/d (barrels per day) in thermal oil and approximately 5,000 boe/d in light oil. The light oil facilities were temporarily shut-in during May in response to the Alberta wildfires. No damage was sustained and production was fully restored in June. The company is maintaining annual guidance of 34,500 to 36,000 boe/d, underpinned by production ramp-up at Leismer throughout the remainder of 2023;
• Cash flow: consolidated operating income of $95-million and adjusted funds flow (1) of $82-million. Cash flow was supported by structurally stronger WCS (Western Canadian Select) heavy differentials averaging $15 (U.S.) per barrel in Q2 ($25 (U.S.) per barrel Q1 2023);
• Capital program: $41-million focused on advancing the Leismer expansion project in thermal oil. Capital guidance for the year remains at $145-million;
• Free cash flow: $40-million of free cash flow supporting return of capital commitments;
• Executing return of capital commitment: $61-million in share buybacks (20 million shares at an average price of $3.04 per share) completed since April, representing 34 per cent of the company's annual normal course issuer bid limit;
• Balance sheet strength: net debt of $62-million with liquidity of $220-million, including cash of $132-million. The company maintains a low level of outstanding debt;
• Leismer update: commenced steaming on pad L8M in Q1 with four of the five well pairs placed on production in early June and the fifth expected to be on production in August. The asset is currently producing approximately 24,000 bbl/d, significantly ahead of prior production guidance. Drilling operations have recently been completed on four infill wells on pad L7 and four well pairs on pad L8S. These additional wells will support the expansion project that will drive growth to approximately 28,000 bbl/d by mid-2024. With the increased operating scale, the company forecasts approximately $5 per barrel margin improvement at Leismer in 2024.

Strategic update and corporate guidance:

• Production guidance: Overall production is expected to grow annually by 5 to 7 per cent through the company's current capital initiatives. Two thousand twenty-three guidance remains unchanged at 34,500 to 36,000 boe/d (93 per cent liquids). Athabasca's portfolio of long-life assets underpin a low corporate decline of approximately 5 per cent annually.
• Capital guidance intact: The company remains committed to executing a approximately $145-million capital program this year ($120-million thermal and $25-million light oil) with activity focused on advancing the expansion project at Leismer and operational readiness in light oil.
• Return of capital commitment: Athabasca is committed to allocating a minimum of 75 per cent of excess cash flow (adjusted funds flow less sustaining capital) in 2023 to shareholders through share buybacks. Additional excess cash flow allocation will be commodity price dependent and could include additional share repurchases dependent on valuation, further debt reduction or high-return growth projects.
• Capital efficient growth at Leismer: Leismer production is currently approximately 24,000 bbl/d and the company has successfully accelerated the on production dates for well pairs on pad L8M. A facility expansion and additional drilling will support sustainable growth to approximately 28,000 bbl/d by mid-2024 at a competitive capital efficiency of approximately $14,000 per barrel per day. This project is on track with previous guidance, will not impact the return of capital strategy and is expected to bolster future free cash flow generation through enhanced margins.
• Managing for free cash flow: Athabasca is positioned for continued margin growth in 2024 with the Leismer expansion and expected narrower WCS heavy differentials following the expected start-up of the Trans Mountain pipeline expansion. The company expects to generate approximately $1-billion in free cash flow (2) during the three-year time frame of 2023 to 2025.
• Thermal oil differentiation: Strong margins and free cash flow are supported by a thermal oil prepayout Crown royalty structure, with royalty rates between 5 to 9 per cent. Leismer is estimated to remain prepayout until 2027 and Hangingstone well into the 2030s ($85 (U.S.) WTI (West Texas Intermediate), $12.50 (U.S.) WCS differential). This results in maximum cash flow at current commodity prices and creates a significant advantage over the majority of industry oil sands projects.
• Excellent exposure to commodity upside: Athabasca has excellent exposure to upside in commodity prices with 25 per cent of forecasted 2023 production volumes hedged through collars, providing upside to approximately $98.50 (U.S.) WTI. Every $5-per-barrel-WTI change impacts annual cash flow by approximately $50-million (unhedged) and every $5-(U.S.)-per-barrel-WCS differential change impacts annual cash flow by approximately $80-million (unhedged).

(1) Cash flow from operating activities in Q2 2023 was $47-million.

(2) Pricing assumptions: 2023 realized prices in the first half (H1) and flat pricing of $80 (U.S.) WTI, $15 (U.S.) WCS heavy differential, $3 (Canadian) AECO and a 75-Canadian-cent-per-$1-(U.S.) foreign exchange rate (FX) for the second half (H2); 2024 to 2025 flat pricing of $85 (U.S.) WTI, $12.50 (U.S.) WCS heavy differential, $5 (Canadian) AECO and a 75-Canadian-cent-per-$1-(U.S.) foreign exchange rate.

Operations update

Thermal oil

Bitumen production for the second quarter of 2023 averaged 29,016 bbl/d. The thermal oil division generated operating income of $82-million ($33.79 per barrel at Leismer and $29.20 per barrel at Hangingstone) during the period, with capital expenditures of $30-million, primarily related to drilling operations and progressing the facility expansion at Leismer.

Leismer

At Leismer, four new well pairs at pad L8M were placed on production in early June, supporting production of approximately 24,000 bbl/d with a current steam oil ratio (SOR) of less than three times. The fifth new well pair on pad L8M is scheduled to be placed on production in early August. The five well pairs are expected to ramp up to approximately 6,000 bbl/d over six months and maintain a stable production profile for approximately five years. During the quarter, drilling commenced on the final four well pairs at pad L8S and four infill wells on pad L7. These wells have been rig released ahead of schedule and surface facilities are expected be completed this fall. Preliminary drilling results confirm consistent high-quality sands. These additional new wells are expected to support production in 2024 and beyond.

The facility expansion project continues to progress and will support sustainable growth up to approximately 28,000 bbl/d by mid-2024. This production level can be held with modest sustaining capital (approximately $6 per barrel) for many years into the future. The company is able to leverage existing excess steam capacity and has been pro-active in acquiring long-lead equipment. The project is budgeted at a competitive capital efficiency of approximately $14,000 per barrel per day and is expected to enhance margins by approximately $5 per barrel from current levels through increased operating scale. The company maintains future optionality for additional expansion projects that could support Leismer growth to its regulatory approved capacity of 40,000 bbl/d.

Leismer has a significant unrecovered capital balance of approximately $1.4-billion (2022 year-end), which ensures a low Crown royalty framework as the asset is estimated to remain prepayout until 2027 ($85 (U.S.) WTI, $12.50 (U.S.) WCS differential).

Hangingstone

At Hangingstone, initial work on the pad AA extension has begun in anticipation of drilling two future sustaining well pairs in 2024 to maintain base production. Non-condensable gas co-injection continues to aid in pressure support and reduced energy usage. Hangingstone's SOR averaged 3.6 times in the first half of 2023. Cost initiatives completed since 2020 and the lower SOR supported a $29.20-per-barrel operating netback during the quarter.

Light oil

Production for the second quarter of 2023 averaged 4,955 boe/d (55 per cent liquids). The light oil division generated operating income of $14-million ($29.92 per boe) during the period with capital expenditures of $11-million. Activity was focused on operational readiness in advance of the upcoming drilling season.

In the Duvernay oil window at Kaybob East and Two Creeks, the company has extended production history from 27 wells derisking an inventory of 290 gross future locations. The wells have consistently supported the company's type curve expectations with IP365's averaging approximately 550 boe/d per well, approximately 85 per cent liquids (latest 12 wells since 2020), demonstrating the significant potential of the asset.

The light oil land position has no near-term expiries and is ready for future development with approximately 850 gross Montney and Duvernay locations.

Light oil operations were temporarily affected by the Alberta wildfires in the second quarter of 2023. As a precautionary measure, Athabasca shut in its facilities temporarily for a portion of May. No damage was sustained to well sites or infrastructure and production was fully restored in June.

Business environment and outlook

Global oil benchmarks have weakened year over year as global recession concerns weighed on commodities. However, the war in Ukraine has amplified the emphasis on energy security and sanctions continue to alter energy flows across the globe. Athabasca maintains a constructive outlook on oil prices supported by years of industry underinvestment, OPEC+ cuts and demand trends moving higher.

Canadian WCS heavy differentials narrowed significantly in the second quarter with differentials improving to $15.08 (U.S.) per barrel, compared with $24.77 (U.S.) per barrel in the first quarter of 2023. The supply-demand outlook for heavy barrels is expected to be supported by the continued OPEC+ production cuts, the start-up of the Trans Mountain expansion pipeline (590,000 bbl/d) and the start-up of new global heavy oil refining capacity, specifically Pemex's Dos Bocas 340,000 bbl/d refinery. These factors are expected to improve the strength of WCS prices into the second half of 2023 and 2024.

About Athabasca Oil Corp.

Athabasca 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. Athabasca's common shares trade on the TSX under the symbol ATH.

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