(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long ATU.V)
The following outlines Altura Energy's full-year 2019 results and its current strategy for navigating the severe downturn in the energy market.
2019 Performance (The "Normal" World)
Altura Energy (ATU.V, last at $0.155) reported solid financial metrics for the full-year 2019, reflecting pre-crisis conditions:
- Net Income: $2.2 million ($0.02/share)
- Cash Flow from Operations: $13 million ($0.13/share)
- Average Annual Production: 1,742 boe/day
Leduc Woodbend: Waterflood Pilot Results
Altura provided an update on its effort to enhance recovery at the Leduc Woodbend asset (estimated to contain ~480 million barrels of original oil in place):
- Pilot Failure: The waterflood pilot using 200-metre interwell spacing (8 wells per section) showed that the injected water was appearing at adjacent producing wells too soon (presumably due to overlapping fractures). This indicates that 200-metre spacing is too close.
- Revised Strategy: The company could re-test the waterflood response using the existing equipment at 400-metre spacing (4 wells per section).
- Economic Modeling: The most conservative and current viable plan is the 4-well per section plan with no waterflood, which is expected to yield a recovery factor of 8-10% on ATU's lands.
Entice: Pekisko Well Update
The first well in the company's new Pekisko play at Entice has been shut in to conserve capital:
- Production Test: After being equipped with artificial lift on March 5th, the well produced 645 barrels of sweet 25-degree API oil, 6.5 million cubic feet of gas, and 4,500 barrels of water over the next eleven or twelve days. This water volume represents 73% of the water used during the well completion.
- Initial Rate: This equates to about 150 boepd, with roughly one-third of that being oil.
- Status: The well is now shut in to conserve further testing costs until oil prices improve. The management’s call of a "hydrocarbon accumulation" is encouraging, but waiting for improved economics is prudent.
Financial Strength and Hibernation Plan
Altura is one of the least leveraged companies in the energy sector and is positioned to survive the current pricing trough by managing conservatively.
- Net Debt (End of 2019): $0.6 million.
- Capital Management: Net capital expenditure (capex) in Q1 was $7 million, with no further discretionary spending planned for the rest of the year.
- Hedging: Oil hedges have a mark-to-market value of around $3 million.
- Current Debt Estimate: Current net debt is estimated to be around $2.5 - 3 million (net of the value of the hedge book and Q1 cash flow).
- Survival Thesis: Altura's strong balance sheet allows it to hunker down and go into hibernation. The Leduc Woodbend asset acts as a large "tank of oil in the ground" where capital can be quickly deployed when the financial climate improves.
Given the "remarkable carnage" in the energy sector, Altura’s ability to survive and emerge on the other side largely unchanged is the best possible outcome.
Happy Hunting,
Malcolm Shaw
