FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended March 31 |
||||||||||
2020 |
2019 |
|||||||||
FINANCIAL1 (millions, except per share amounts) |
||||||||||
Cash flow from Operations |
$ |
33 |
$ |
(1) |
||||||
Basic and Diluted ($/share) |
0.45 |
(0.01) |
||||||||
Funds Flow from Operations 2 |
37 |
36 |
||||||||
Basic and Diluted ($/share) |
0.51 |
0.50 |
||||||||
Net loss |
(746) |
(54) |
||||||||
Basic and Diluted ($/share) |
(10.22) |
(0.74) |
||||||||
Capital expenditures |
41 |
34 |
||||||||
Decommissioning expenditures |
8 |
2 |
||||||||
Net Debt 2 |
$ |
517 |
$ |
497 |
||||||
Average sales price 3 |
||||||||||
Light oil ($/bbl) |
$ |
50.59 |
$ |
64.88 |
||||||
Heavy oil ($/bbl) |
20.07 |
30.62 |
||||||||
NGL ($/bbl) |
22.52 |
21.44 |
||||||||
Natural gas ($/mcf) |
$ |
2.20 |
$ |
2.41 |
||||||
Netback 2 ($/boe) |
||||||||||
Sales price |
$ |
32.17 |
$ |
39.95 |
||||||
Risk management gain (loss) |
4.47 |
(1.80) |
||||||||
Net sales price |
36.64 |
38.15 |
||||||||
Royalties |
(2.23) |
(2.81) |
||||||||
Operating expenses 4 |
(12.04) |
(13.49) |
||||||||
Transportation |
(2.68) |
(2.87) |
||||||||
Netback 2 ($/boe) |
$ |
19.69 |
$ |
18.98 |
||||||
OPERATIONS |
||||||||||
Daily Production |
||||||||||
Light oil (bbls/d) |
12,512 |
12,376 |
||||||||
Heavy oil (bbls/d) |
3,644 |
4,096 |
||||||||
NGL (bbls/d) |
2,239 |
2,122 |
||||||||
Natural gas (mmcf/d) |
52 |
54 |
||||||||
Total production 5 (boe/d) |
27,092 |
27,651 |
(1) |
Effective June 5, 2019, the Company consolidated its common shares based on seven old common shares outstanding for one new common share. All figures in the table have been updated to reflect the 7:1 consolidation. |
(2) |
The terms Funds Flow from Operations (“FFO“) and their applicable per share amounts, “Net Debt”, and “Netback” are non-GAAP measures. Please refer to the “Non-GAAP Measures” advisory section below for further details. |
(3) |
Before risk management gains/(losses). |
(4) |
Includes the benefit of processing fees totaling $2 million for 2020 (2019 – $2 million). |
(5) |
Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”. |
MESSAGE TO SHAREHOLDERS
Obsidian Energy had a successful operational and financial start to the year, yielding strong results for the first quarter and achieving a number of significant operational and financial milestones. As previously announced, the Company successfully renegotiated the terms of our syndicated credit facility, senior notes and Calgary office lease at the end of the quarter which will provide the Company with additional go-forward financial flexibility. Operationally our team completed a successful ten well drilling program, with some of the strongest initial rates we have seen to date in our multi-year Cardium program. The full effect of the cost saving initiatives implemented throughout 2019 were demonstrated by the 19% decrease in general and administrative costs and the 11% decrease in operating costs from the first quarter of 2019. These efforts better position the Company to help withstand the market volatility at this crucial time for our industry.
The demand destruction caused by the COVID-19 global pandemic and the potential supply increase from the OPEC+ price war has caused a significant decrease in oil prices and Obsidian Energy has reacted quickly to this significant change in market conditions. At this time, our plan is to significantly limit further capital spending for the foreseeable future, temporarily shut-in uneconomic production and to continue to optimize all aspects of our business to reduce costs and maintain financial liquidity during this challenging time. The Board of Directors and executive team implemented a temporary salary reduction of 20% across all head office staff and a 10% reduction for field staff. In addition, the Company has suspended the employer contributions to the Employee Retirement Savings Plan and the Board of Directors have taken a temporary 10% reduction on their annual retainer fees. These initiatives have reduced operating costs by over $8 million and personnel costs by approximately $10 million if annualized.
The Company has applied for the Canadian Emergency Wage Subsidy (CEWS), a program announced by the federal government in which eligible companies may receive a subsidy of 75% of employee wages (up to a cap) for up to 12 weeks, applicable from March 15, 2020, to June 6, 2020. We have also applied for support under the Alberta Site Rehabilitation Program through our service providers. This program, which is primarily funded by the federal government’s COVID-19 Economic Response Plan, is expected to further allow the Company to continue well, pipeline, and infrastructure abandonment and reclamation projects by providing grants directly to service companies. Applications for these grants are subject to certain maximums and may be eligible for up to 100 per cent government funding. We will continue to watch for further details of all federal government support packages available to the Company and will seek further support as appropriate.
Operationally the Company continues to conduct detailed evaluations of our producing assets and will shut-in production where economic thresholds are not met. As of May 1, 2020, the Company has shut-in 3,784 boe/d across its properties, predominantly within our Peace River heavy oil asset. Shut-ins are being conducted in a manner that will allow production to be restarted in an efficient manner as oil prices recover.
FIRST QUARTER RESULTS
- FFO in the first quarter of 2020 totaled $37 million ($0.51 per share) compared to $54 million ($0.74 per share) for the fourth quarter of 2019 and $36 million ($0.50 per share) for the first quarter of 2019. The decline from the fourth quarter of 2019 is due to lower crude oil prices, specifically in March, as a result of the impact on demand from the COVID-19 pandemic as well as transaction expenses associated with execution of the credit facility, noteholder and amended Calgary lease agreements.
- Average production was 27,092 boe/d compared to 26,639 boe/d in the fourth quarter of 2019 and 27,651 boe/d in the first quarter of 2019. The Company continued to progress on our Cardium development program and brought five of ten wells drilled in the quarter on production by the end of March. See below for a detailed breakdown on the production components.
- Capital expenditures, excluding decommissioning liabilities, totaled $41 million, which included drilling ten development wells in Willesden Green and various optimization activities.
- Operating costs were $12.04 per boe in the first quarter of 2020 compared to $13.49 per boe in the first quarter of 2019. The Company continued to drive costs down across several categories which resulted in efficiencies and the lower result. This was partially offset by the impact of extreme cold weather across Alberta in January, which resulted in increased power and repair and maintenance costs.
- General and administrative costs were $1.63 per boe in the first quarter of 2020 compared to $2.01 per boe in the first quarter of 2019. The Company has been successful on a number of cost reductions initiatives throughout 2019 which are being realized in 2020.
- Net Debt totaled $517 million, including $407 million drawn on our syndicated credit facility and $67 million of senior notes. In March 2020, the Company executed final agreements resulting in the renewal of our syndicated credit facility, amendments to our senior notes and renewed terms on our Calgary office lease.
- Net Loss was $746 million during the first quarter of 2020 and was due to $763 million of non-cash, property, plant and equipment (PP&E) impairments resulting from lower forecasted commodity prices. Impairment losses related to PP&E may be reversed in future periods if commodity prices forecasts improve.
Production Volumes by Product and Producing Region – Three Months Ended March 31, 2020 |
|||||
Area |
Production (boe/d) |
Light Oil (bbls/d) |
Heavy Oil (bbls/d) |
NGLs (bbls/d) |
Gas (mmcf/d) |
Cardium |
21,739 |
12,197 |
40 |
2,168 |
44 |
Alberta Viking |
830 |
219 |
44 |
37 |
3 |
Peace River |
4,040 |
– |
3,432 |
3 |
4 |
Key Development Areas |
26,609 |
12,416 |
3,516 |
2,208 |
51 |
Legacy Areas |
483 |
96 |
128 |
31 |
1 |
Key Development & Legacy Areas |
27,092 |
12,512 |
3,644 |
2,239 |
52 |
Operating Cost and Netbacks by Producing Region – Three Months Ended March 31, 2020 |
||
Area |
Operating Cost ($/boe) |
Netback(1) ($/boe) |
Cardium |
9.63 |
21.51 |
Alberta Viking |
14.41 |
8.02 |
Peace River |
15.73 |
(4.84) |
Key Development Areas |
10.71 |
17.09 |
Legacy Areas |
50.69 |
(28.73) |
Key Development & Legacy Areas |
12.04 |
15.23 |
(1) |
Netback excludes risk management gains. |
2020 DEVELOPMENT PROGRAM AND OPERATIONS UPDATE
As previously announced in our Corporate and Operational update dated April 23, 2020, Obsidian Energy completed its first half capital program successfully and safely in the first quarter. All ten completed wells are on production or are ready to produce as pricing improves. Wells with production rates in the table below are currently producing.
Well |
Status |
02/04-28-043-08W5 (12-26 Pad) |
IP30: 1,012 boe/d (73% light oil) |
00/09-28-043-08W5 |
IP30: 925 boe/d (72% light oil) |
00/14-28-043-08W5 |
IP30: 1,145 boe/d (75% light oil) |
00/05-15-043-08W5 (1-27 Pad) |
Ready to produce |
00/15-16-043-08W5 |
Ready to produce |
00/02-30-042-07W5 (3-6 Pad) |
IP30: 692 boe/d (89% light oil) |
00/03-30-042-07W5 |
IP30: 363 boe/d (89% light oil) |
00/02-08-042-07W5 (14-17 Pad) |
IP10: 163 boe/d (90% light oil) |
00/04-30-042-07W5 |
IP10: 245 boe/d (90% light oil) |
00/15-32-042-07W5 (3-29 Pad) |
IP30: 443 boe/d (90% light oil) |
In response to the volatility of commodity prices amid the COVID-19 pandemic, all previously announced shut-ins were completed by May 1, 2020 as follows:
Area |
Production (boe/d) |
Light Oil (bbl/d) |
Heavy Oil (bbl/d) |
NGLs (bbls/d) |
Gas (mcf/d) |
Cardium |
576 |
438 |
– |
23 |
692 |
Alberta Viking |
144 |
– |
130 |
– |
81 |
Peace River |
3,064 |
– |
2,538 |
2 |
3,148 |
Total |
3,784 |
438 |
2,668 |
25 |
3,921 |
Obsidian Energy continues to monitor the commodity price environment and evaluate our portfolio to improve the overall financial flexibility of the business. The Company is prepared to take further action to shut-in additional production should oil prices not improve in the near term. Alternatively, we can quickly restart shut-in production once oil prices permit doing so. Our current first half 2020 guidance is provided below. Given the current volatility in the commodity markets we are not providing full year guidance at this time. We will provide updates as further production or financial decisions are implemented.
First Half 2020 Production and Cost Guidance |
||
Metric |
Guidance Range |
|
Production (boe/d) 1 2 3 |
25,500 – 26,000 |
|
Capital Expenditures ($millions) |
43 |
|
Decommissioning Expenditures ($millions) |
8 |
|
Operating Costs ($/boe) |
11.50 – 11.90 |
|
General & Administrative ($/boe) |
1.65 – 1.85 |
|
(1) |
Adjusted for January 2020 Carrot Creek Disposition of 115 boe/d (85% light oil) |
(2) |
Previous guidance included 600 boe/d of shut-in production |
(3) |
Mid-point of guidance 12,500 bbls/d light oil, 2,500 bbls/d heavy oil, 2,200 bbls/d NGLs and 51 mmcf/d natural gas |
2020 HEDGING PROGRAM
In 2020, the Company has the following hedges in place:
April |
May |
June |
|||
WTI (C$/bbl) |
78.11 |
77.92 |
77.41 |
||
Total (bbl/day) |
4,000 |
3,000 |
2,000 |
||
Q2 |
Q3 |
||||
(C$/GJ) |
1.59 |
1.60 |
– |
||
Total (GJ/day) |
25,000 |
24,000 |
– |
ANNUAL GENERAL MEETING
The Company is pleased to announce that its Annual General Meeting (“AGM“) will be scheduled for Thursday, July 30, 2020 at 10:00 am (Mountain Time), pursuant to the extension granted by the Toronto Stock Exchange. It is our intention to hold our AGM in person at the offices of Obsidian Energy depending on the Alberta Health guidelines in place on public gatherings at that time, and therefore the Company is reserving the right to restrict access to our AGM and/or conduct the AGM in a virtual format. Further announcements and information regarding the AGM will be made in due course. In addition, all information and documents that would normally be filed or delivered by the Company in connection with our AGM, including but not limited to our annual and interim request forms and executive compensation disclosure, will be delayed until the dissemination of our AGM materials on or about June 30, 2020, pursuant to exemptions provided by applicable securities regulators, including Alberta Securities Commission Blanket Order 51-518.
UPDATED CORPORATE PRESENTATION
For further information on these and other matters, Obsidian Energy has posted an updated Corporate Presentation which can be found on its website, www.obsidianenergy.com.