After a big rally in 2022, Canadian energy stocks under-performed in 2023. On the TSX, the information technology sector was the best performer in 2023, up 55.56%, while the energy sector as a whole lost 0.83%. One mid-cap energy exception, however, was Athabasca Oil (TSX:ATH).
Following a 102.5% gain in 2022, Athabasca Oil’s shares have risen another 73.03% in the last year. At the current C$4.40 per share, that’s a staggering total return of 2,414.39% over the past three years. Importantly, this high-growth stock remains a buying opportunity right now.
Athabasca Oil is a C$2.5 billion oil and gas producer with a top-tier, long-life asset base and a financially sustainable company. Over the past few years, management has focused on maximizing free cash flow (FCF) while maintaining the production base with low ongoing capital requirements.A C$145 million capital programme for 2023 will advance the expansion project at Leismer and operational readiness for light oil.
Under the new C$175 million capital programme, Athabasca expects to produce 37,500 barrels of oil equivalent per day (boe/d) by the end of 2024, an increase of 14% from the end of 2023. This year’s capital budget focuses on profitable production growth and strong FCF generation. In addition, the company plans to distribute 100 per cent of its free cash flow to shareholders through share buybacks this year. While not a dividend stock, strong capital gains more than make up for it.
On 19 December 2023, Athabasca Oil and Cenovus Energy announced the formation of a new joint venture, Duvernay Energy Corp. in which each party owns 70% and 30% and has contributed C$22 million and C$18 million, respectively, as seed capital to provide the newly formed independent energy company with Funding.
The two companies will combine their assets in the Kaybob Duvernay Resource Area in northwestern Alberta. Under a management and operating services agreement effective from 1 January 2024, Athabasca Oil will act as Duvernay Energy’s manager, with the expectation that Duvernay Energy will accelerate the creation of value for shareholders through production and cash flow growth.
Athabasca Oil management has stated that the newly formed joint venture will not impact the ability to fund its thermal oil division or its return on capital strategy. Finally, the deal combines 100 per cent of Athabasca’s and Cenovus’ working interests in the operating assets. As a result, the 2024 outlook for this mid-cap, low-priced energy stock remains very positive.
