CALGARY, Feb. 11, 2019 /PRNewswire/ – OBSIDIAN ENERGY LTD. (TSX – OBE, NYSE – OBE.BC) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to release its year-end 2018 independent reserves evaluation and provide Company updates on our recent drilling results, marketing and hedging portfolio, 2019 development and guidance revisions.
2018 Year-End Reserves Summary
The Company is pleased to present the results of its year-end 2018 independent reserves evaluation, prepared by Sproule Associates Limited (“Sproule“).
2018 marks the second year in a row that Obsidian Energy has achieved greater than 100 percent reserve replacement on proved plus probable (“2P“) and total proved reserves (“1P“). This increase is a direct result and recognition of the performance of our 2018 Cardium drilling program with a 1P and 2P reserve replacement in the Cardium of approximately 150 and 140 percent respectively. Our Cardium assets in Willesden Green continue to perform with 16 additional undeveloped locations added to our book’s primary Cardium count. The Company also continues to see benefits from its optimization and decline mitigation projects with an average three year proved developed producing (“PDP“) decline of 15.8 percent. We are excited about the future development opportunities, particularly in our Cardium assets, which will allow us to create long term value for our shareholders.
Reserve Highlights:
- Replaced 102 percent of 2018 production on a 2P reserves basis, 109 percent on a 1P reserves basis and 66 percent on a PDP reserves basis. Excluding legacy shut-ins and economic factors, the Company replaced 94 percent of total 2018 production on a PDP reserves basis.
- Reserve replacement was driven by strong well performance of the 2018 drilling program in both the Cardium and Peace River areas. 1P reserve replacement in the Cardium is approximately 150 percent and 2P reserve replacement in both the Cardium and Peace River areas is approximately 140 percent.
- Obsidian Energy’s average three-year PDP decline is 15.8 percent resulting in a reserve life index (“RLI“) of approximately 8, 10 and 13 years on a PDP,1P and 2P basis respectively.
- Through the disposition of natural gas weighted production and shutting in high cost gas weighted legacy production in 2018, our 2P liquids weighting increased by two percent, to 69 percent total liquids and our PDP liquids weighting increased by three percent, to 67 percent total liquids.
- Obsidian Energy added 16 net undeveloped locations to its primary Cardium count. Our total undeveloped reserve book remains conservative and highly achievable, with 175 total net locations booked, including 126 net locations in the Cardium.
- 2P finding and development (“F&D“) costs for our operated development activity in 2018 were $13.40 per boe. 2P F&D costs, including changes in future development capital, were $21.16 per boe.
- Despite $75 million of negative pricing impacts, before-tax net present value discounted at 10 percent (“NPV10“) for 2P reserves, is $1.7 billion at year-end 2018, based on Sproule’s commodity price forecast at December 31, 2018.
- NPV10 per share, adjusted for Net Debt, equates to approximately $2.40, $1.60 & $1.25 per share for 2P, 1P and PDP, respectively.
Cardium Drilling Program Update
All 14 wells of the second half 2018 Cardium program have been drilled and completed with 12 currently on production. Well performance on average is exceeding the updated type-curves presented at our Investor Day on November 15, 2018. The Company’s focus on cost reduction has resulted in an average well cost of $3.6 million on the first 14 wells, significantly below forecasted cost estimates. The final two wells off the 5-18 pad have been fractured, with one well setting a record for the Company’s longest Cardium well drilled to date at 5,290 meters of measured depth with 38 fracture stages. These two wells will be on production by mid-February.
Early rate performance of the wells is shown below. Aggregate production from the program has averaged approximately 3,620 barrels of oil per day and 4,693 boe per day in the last 30 days.
Pad |
Status |
Deliverability |
8-9 (3 wells) |
On production |
Average IP30 per well: 621 boepd (76% oil); IP60 per well: 477 boepd (71% oil) |
14-1 (2 wells) |
On production |
Average IP30 per well: 433 boepd (85% oil); IP60 per well: 338 boepd (84% oil) |
4-6 (3 wells) |
On production |
Average IP30 per well: 527 boepd (91% oil); IP60 per well: 563 boepd (84% oil) |
1-36 (2 wells) |
On production |
Average IP30 per well: 672 boepd (90% oil) |
9-2 (2 wells) |
On production |
Average IP10 per well: 502 boepd (90% oil) |
5-18 (2 wells) |
Fracturing complete |
Production expected mid-February |
Marketing and Hedging Portfolio Update
In late December, the Company monetized the physical delivery contract for 15,000 mmcf per day to Northern Border Ventura for US$10.5 million or CAD$14 million. The decision to monetize the contract was due to an expansion in the forward curve spread between AECO and Northern Border Ventura gas pricing.
The recent downward swing in oil prices also allowed the Company to restructure part of its existing hedge book by removing a 1,000 barrel a day WTI swap in the third quarter of 2019 for cash to Obsidian Energy of approximately $500,000.
2019 Development and Revised Guidance
In early December, the Alberta Government announced a mandatory curtailment program (“Curtailment“) to relieve excess supply of crude oil and bitumen in Western Canada. Since the announcement, there has been a meaningful contraction of Canadian differentials improving the outlook for Western Canadian producers. Obsidian Energy is supportive of these actions and views them as a near-term positive step for the energy industry in Western Canada.
In light of the Curtailment, Obsidian Energy has elected to defer a four-well pad with two Cardium wells and two Deep Basin wells to the second half of 2019. The deferral will reduce first half 2019 capital expenditures by approximately $20 million to $45 million. Our first half 2019 drilling program now consists of five Willesden Green Cardium wells which is underway with production expected near the end of March.
Based on preliminary estimates, the Company expects first quarter 2019 light and heavy oil production to be approximately 15,750 – 16,250 barrels per day net to Obsidian Energy, which reflects the curtailment requirements for the quarter. Total production for the first quarter of 2019, including natural gas liquids and natural gas is expected to be approximately 27,000 – 27,500 boe per day net to Obsidian Energy. Currently, the Company has approximately 2,200 boe per day behind pipe and if the Curtailment requirements were to be lifted or reduced, we would bring those volumes on production.
The full year 2019 optimization budget has been reduced by $3 million in favour of adding one Willesden Green Cardium well to the second half 2019 drilling program for a total of 16 Willesden Green Cardium wells and two Deep Basin wells with no changes to our full year capital estimate. The Company continues to evaluate its capital allocation decisions on an ongoing basis. At this time, we view the servicing of our credit facility and the Cardium development in Willesden Green as the most prudent use of investment dollars in our portfolio.
Due to mandated Curtailments and the decision to shift capital into the second half of 2019, Obsidian Energy is revising its guidance for full year production and growth rates. With reduced volumes, there will be follow-on affects to operating and general & administrative cost per boe. Obsidian Energy’s guidance assumes the Curtailment will remain throughout 2019 but continues to ease over the course of the year.
Production and Cost Guidance:
Metric |
Previous 2019 Guidance Range |
Updated 2019 Guidance Range |
Production |
28,000 to 29,000 boe per day |
26,750 to 27,750 boe per day |
Capital Expenditures including |
$120 MM |
No change |
Production Growth Rate (1) |
3%-6% |
Flat |
Operating Costs |
$13.00 – $13.50 per boe |
$14.00 – $14.50 per boe |
General & Administrative |
$1.75 – $2.25 per boe |
$2.00 – $2.50 per boe |
(1) Relative to projected full year 2018 production (using midpoint of guidance), adjusted for shut in volumes, of |
Capital Program Details:
Capital Category |
# of Wells |
Net Capital |
Cardium |
16 Producers |
$74 million |
Deep Basin |
2 Producers |
$7 million |
Non-Operated Primary Drilling |
2.5 net Producers |
$6 million |
Existing Wellbore Optimization |
>25 Projects |
$5 million |
Maintenance & Corporate |
$16 million |
|
Capital Expenditures |
$108 million |
|
Decommissioning Expenditures |
$12 million |
|
Total |
$120 million |
2018 Year-End Reserves Tables
In 2018, we engaged Sproule, an independent, qualified engineering firm, to evaluate 100 percent of our 1P and 2P reserves. Sproule conducted an independent reserves evaluation of Obsidian Energy’s reserves effective December 31, 2018. This evaluation was prepared in accordance with definitions, standards, and procedures set out in Canadian Oil and Gas Evaluation Handbook (“COGEH“) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101“). The Sproule reserves evaluation was based on Sproule’s December 31, 2018 forecast prices and costs. Reserves included below are Company gross reserves which are the Company’s total working interest reserves before the deduction of any royalties and excluding any royalty interests payable to the Company. The numbers in the tables below may not add due to rounding.
Summary of Reserves
As at December 31, 2018 |
|||||
Reserve |
Light & |
Heavy |
Natural Gas |
Conventional |
Barrel of Oil |
Estimates Category |
(mmbbl) |
(mmbbl) |
(mmbbl) |
(bcf) |
(mmboe) |
Proved |
|||||
Developed producing |
33 |
6 |
6 |
131 |
66 |
Developed non-producing |
1 |
0 |
0 |
3 |
2 |
Undeveloped |
14 |
1 |
2 |
41 |
24 |
Total Proved |
47 |
7 |
8 |
176 |
92 |
Total Probable |
17 |
4 |
3 |
57 |
33 |
Total Proved plus Probable |
64 |
11 |
11 |
233 |
125 |
Reserves Reconciliation – Proved
Light & |
Heavy |
Natural Gas |
Conventional |
Barrel of Oil |
|
Reconciliation Category |
(mmbbl) |
(mmbbl) |
(mmbbl) |
(bcf) |
(mmboe) |
Total Proved |
|||||
December 31, 2017 |
47 |
8 |
8 |
194 |
96 |
Extensions |
2 |
0 |
1 |
13 |
5 |
Infill Drilling |
1 |
0 |
0 |
3 |
2 |
Improved Recovery |
0 |
0 |
0 |
0 |
0 |
Technical Revisions |
2 |
0 |
1 |
19 |
6 |
Discoveries |
0 |
0 |
0 |
0 |
0 |
Acquisitions |
0 |
0 |
0 |
0 |
0 |
Dispositions |
(1) |
0 |
(0) |
(23) |
(5) |
Economic Factors |
0 |
0 |
(0) |
(7) |
(1) |
Production |
(4) |
(2) |
(1) |
(22) |
(11) |
December 31, 2018 |
47 |
7 |
8 |
176 |
92 |
Reserves Reconciliation – Proved Plus Probable
Light & |
Heavy |
Natural Gas |
Conventional |
Barrel of Oil |
|
Reconciliation Category |
(mmbbl) |
(mmbbl) |
(mmbbl) |
(bcf) |
(mmboe) |
Total Proved Plus Probable |
|||||
December 31, 2017 |
66 |
12 |
10 |
258 |
131 |
Extensions |
4 |
0 |
1 |
18 |
8 |
Infill Drilling |
1 |
0 |
0 |
3 |
2 |
Improved Recovery |
0 |
0 |
0 |
0 |
0 |
Technical Revisions |
(1) |
0 |
1 |
14 |
2 |
Discoveries |
0 |
0 |
0 |
0 |
0 |
Acquisitions |
0 |
0 |
0 |
0 |
0 |
Dispositions |
(1) |
0 |
(0) |
(31) |
(7) |
Economic Factors |
0 |
0 |
(0) |
(8) |
(1) |
Production |
(4) |
(2) |
(1) |
(22) |
(11) |
December 31, 2018 |
64 |
11 |
11 |
233 |
125 |
Summary of Before Tax Net Present Values
As at December 31, 2018 |
|||||
Net Present Value |
Discount Rate |
||||
$ millions |
Undiscounted |
5 Percent |
10 Percent |
15 Percent |
20 Percent |
Proved |
|||||
Developed producing |
2,140 |
1,474 |
1,128 |
921 |
784 |
Developed non-producing |
43 |
33 |
26 |
22 |
19 |
Undeveloped |
592 |
285 |
140 |
63 |
17 |
Total Proved |
2,774 |
1,792 |
1,294 |
1,006 |
820 |
Total Probable |
1,417 |
674 |
408 |
282 |
212 |
Total Proved plus Probable |
4,191 |
2,466 |
1,702 |
1,288 |
1,032 |
Future Development Capital
As at December 31, 2018 |
||
Future Development Capital |
||
$ millions |
Total Proved |
Total Proved |
2019 |
112 |
117 |
2020 |
113 |
131 |
2021 |
118 |
155 |
2022 |
127 |
154 |
2023 |
42 |
61 |
2024 and subsequent |
0 |
0 |
Total, Undiscounted |
511 |
618 |
Total, Discounted @ 10% |
416 |
498 |
Summary of Pricing and Inflation Rate Assumptions
Canadian Light |
Natural Gas |
|||||||
WTI |
Sweet Crude |
AECO-C |
Exchange |
|||||
As at December 31, 2018 (1) |
Cushing, Oklahoma |
40° API |
Spot |
Rate |
||||
Sproule Forecast |
($US/bbl) |
($Cdn/bbl) |
($Cdn/MMbtu) |
($US/$Cdn) |
||||
Year |
2018 |
2017 |
2018 |
2017 |
2018 |
2017 |
2018 |
2017 |
Forecast |
||||||||
2019 |
63.00 |
65.00 |
75.27 |
74.51 |
1.95 |
3.11 |
0.77 |
0.82 |
2020 |
67.00 |
70.00 |
77.89 |
78.24 |
2.44 |
3.65 |
0.80 |
0.85 |
2021 |
70.00 |
73.00 |
82.25 |
82.45 |
3.00 |
3.80 |
0.80 |
0.85 |
2022 |
71.40 |
74.46 |
84.79 |
84.10 |
3.21 |
3.95 |
0.80 |
0.85 |
2023 |
72.83 |
75.95 |
87.39 |
85.78 |
3.30 |
4.05 |
0.80 |
0.85 |
2024 |
74.28 |
77.47 |
89.14 |
87.49 |
3.39 |
4.15 |
0.80 |
0.85 |
2025 |
75.77 |
79.02 |
90.92 |
89.24 |
3.49 |
4.25 |
0.80 |
0.85 |
2026 |
77.29 |
80.60 |
92.74 |
91.03 |
3.58 |
4.36 |
0.80 |
0.85 |
2027 |
78.83 |
82.21 |
94.60 |
92.85 |
3.68 |
4.46 |
0.80 |
0.85 |
2028 |
80.41 |
83.85 |
96.49 |
94.71 |
3.78 |
4.57 |
0.80 |
0.85 |
2029 |
82.02 |
98.42 |
3.88 |
0.80 |
||||
(1) Prices Escalate at two percent after 2029, with the exception of foreign exchange which stays flat |