Altura Reports 2019 Full Year and Updates on 2020

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(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)

Altura Energy (ATU.V, last at $0.155) reported its full-year 2019 results last night, showing net income of $2.2 million ($0.02/share) and cash flow from operations of $13 million ($0.13/share) on average annual production of 1,742 boe/day. That’s what Altura looks like in a “normal” world, but alas, nothing is normal about current times.

​Altura provided an update on its waterflood pilot which showed that, at 200-metre interwell spacing (i.e., 8 wells per section), the injected water was showing up at the adjacent producing wells too soon (presumably by fracs that are overlapping between wells), which means that 200-metre spacing is too close. In addition to tinkering with the configuration of the injection well, I would think that Altura could take the equipment from the existing injection well and use it elsewhere in the field where they can test the waterflood response on 400-metre spacing (i.e., 4 wells per section). If I was building economic models at Altura right now, I might run three cases: 1) a 4-well per section plan with no waterflood, 2) a 4-well per section plan with waterflood (pilot project needed), or 3) an 8-well per section plan with no waterflood. Each plan would have its own recovery factor, but the only one that I currently consider is the 4-well per section plan with no waterflood (i.e., the current state of affairs), with is expected to yield a recovery factor of 8-10% on ATU’s lands (which are estimated to contain ~480 million barrel of original oil in place).

There was also an update on the company’s new Pekisko play at Entice. 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 (which represents 73% of the water used during the well completion). That equates to about 150 boepd with about 1/3 of that being oil. The well is now shut in to conserve any further testing costs until oil prices improve.

​Even though ATU is at the low-end of the cost curve, I would expect them to manage themselves very conservatively during these insane times. Net debt at the end of 2019 was $0.6 million so ATU can hibernate for as long as needed. Two new wells have been drilled at Leduc Woodbend over the Q4-Q1 period, one of which has yet to be completed and tied-in. Altura’s oil hedges have a mark-to-market value of around $3 million and net capex in Q1 was $7 million, with no further discretionary spending planned during the year. I would peg current net debt at around $2.5-3 million net of the value of the hedge book and Q1 cash flow, but that’s a bit of a guess. All-in all, ATU is one of the least leveraged names in the energy patch. I expect them to hunker down and go into hibernation during this pricing trough in order to emerge on the other side much the same as they were before… a vessel that can take and deploy capital quickly into a big “tank” of oil in the ground at Leduc Woodbend.

Trying times on all fronts these days, but I think Altura will survive to see the other side… and at this stage of the game that’s as good as anyone can hope for in the energy sector. There’s just remarkable carnage out there. Remarkable.
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