Athabasca Oil reinstated at Outperform at BMO as 'true turnaround story'
Athabasca Oil (OTCPK:ATHOF) +3.6% in U.S. trading Monday as BMO capital reinstates coverage with an Outperform rating and C$6.50 price target, saying the company has been a true turnaround story and is now one the few Canadian producers returning 100% of its free cash flow to shareholders.
BMO's Tariq Saad believes Athabasca (OTCPK:ATHOF) shares will continue to outperform as the company progresses with its buyback program and continues to sustainably increase volumes, and he expect its long-life low-decline asset base to negate the need for any reserve replacement, which drives modest sustaining requirements.
Relative to peers, Athabasca (OTCPK:ATHOF) is the most exposed to changes in the WTI-WCS differential, with every US$5/bbl improvement in the heavy differential equating to a ~$85M annual cash flow uplift, Saad says, seeing the potential for better differentials with the Trans Mountain expansion coming into service in 2024, coupled with the ramp-up of Pemex’s Dos Bocas heavy oil refinery.
Saad believes Athabasca's (OTCPK:ATHOF) valuation is well supported by its strong balance sheet, long reserve life index, commitment to accelerating shareholder returns, and growth potential.