Banks slash credit facility of Athabasca Oil by 65%

CALGARY Athabasca Oil Corp.’s bankers have cut the oilsands producer’s credit by more than half, forcing the company to seek federal aid to survive the coronavirus-pandemic induced oil price crash.

After a review, Athabasca’s banking syndicate reduced its credit facility to $42 million, a 65-per-cent cut from $120 million previously, the company said.

“The company continues to pursue opportunities to access credit support offered by the Government of Canada during this uncertain economic environment created by the COVID-19 pandemic,” the company said in a release.

Athabasca is the first company in Alberta’s heavy oil industry to announce its intention to use the funding available by the federal government.

Without assistance, analysts say the company faces a challenge to repay the US$450 million in debt due February 2022, given the current outlook for oil prices.

“If current commodity price weakness lingers into 2021, we believe refinancing of the US$450 million senior secured notes due February 2022 will be a challenge,” Raymond James analyst Chris Cox said in a May research note.

Other Canadian oil and gas companies have also been through credit facility reviews this spring and had their facilities cut by an average of 15 per cent, National Bank Financial analyst John Hunt said in an interview, underscoring Athabasca’s fiscal challenges.

“This would be more punitive than their peers,” Hunt said of the cut.

Since the $42-million credit facility only covers the company’s letters of credit underpinning pipeline contracts, the cut effectively cuts the liquidity from the credit facility available to Athabasca “to zero,” Hunt said. “They can’t draw any cash on the line.”

In the company’s release, Athabasca said it still has $330 million cash or “near cash” on its balance sheet, but financial analysts have flagged that the company is burning cash following the collapse in oil prices.

“These guys need higher pricing,” Hunt said. “On strip pricing, I would have them with negative cash flow through 2021.”

The current federal programs available to Athabasca Oil were not designed to help companies retire higher interest rate debt, Hunt said.

To date, the federal government has announced a series of liquidity programs for embattled oil sector companies including funding available through Export Development Canada and the Business Development Bank of Canada, though those programs offer smaller loans between $15 million and $60 million.

On May 11, the federal government announced the Large Employer Emergency Financing Facility (LEEFF) for companies seeking $60 million or more in bridge loans.

Companies accessing those funds would be required to publish climate-related disclosures on how the company’s operations will help Canada meet its climate goals, among other restrictions on executive pay and share buybacks.

Natural Resources Minister Seamus O’regan did not respond to a request for comment.

Athabasca did not respond to a request for comment on whether it will be able to pay its February 2022 debts based on the current outlook for oil prices.

The COVID-19 pandemic has wiped out global oil demand that has led to a collapse in oil prices and left many indebted oil and gas producers in a precarious situation.

In response to the pandemic, oil producers in both Canada and the U.S. have shut in oil production to reduce costs.

Athabasca Oil stopped producing from its Hangingstone steam-based oilsands project as oil prices collapsed.

Athabasca bought its oilsands assets from Norwegian oil giant Statoil, now called Equinor, at the end of 2016 in a deal valued at $832 million at the time.

The company also produces light oil from operations in the Montney and Duvernay in Alberta.

The company’s share price has fallen roughly 63 per cent since the beginning of March from 35 cents each on the Toronto Stock Exchange to 13 cents on Monday.

“A difficult quarter across the sector, but particularly for Athabasca,” Raymond James’s Cox wrote in his note, in which he dropped his 12-month price target for the company to zero.

Cox said the company’s “high cost structure and low commodity price assumptions underpinning our forecasts, we don’t forecast sufficient asset value to cover the company’s debt obligations, underpinning our $0.00 per share target price.”

If current commodity price weakness lingers into 2021, we believe refinancing of the US$450 million senior secured notes due February 2022 will be a challenge.