Calgary, Alberta – OBSIDIAN ENERGY LTD. (TSX: OBE) (NYSE American: OBE) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to provide an operational update on the initial results from our first half 2022 development program as well as our 2021 development program. In addition, we are announcing the acquisition of 14 highly prospective sections of Peace River land with Bluesky and Clearwater opportunities, and a broad commercial agreement with Whitecap Resources Inc. (“Whitecap“) in our Pembina Cardium Unit No. 11.
“Building on our success from 2021, we quickly moved into our 2022 program and are very pleased with the results to date,” commented Stephen Loukas, Obsidian Energy’s Interim President and CEO. “I am particularly encouraged by the results across our Willesden Green, Pembina and Peace River areas as this points to the depth and diversity of our portfolio and allows for significant optionality across our future development programs. In addition, through recent crown land sales, we have expanded our prospective land holdings in the highly competitive Peace River region. We look forward to incorporating these new opportunities into our near-term development plans.”
2021 AND 2022 DEVELOPMENT WELL PROGRAMS
Our 2021 development program is complete with all 35 wells (33.8 net) on production. In our 2022 development program, a total of 20 wells (19.5 net) have been rig-released to date with eight wells (7.8 net) currently on production. Seven additional wells (6.7 net) are forecast to be on production before the end of the second quarter. Region specific results are discussed below.
The second half of 2021 marked the return to development drilling in Peace River. After pausing development activity for several years due to low commodity prices, drilling commenced along with the acquisition of the remaining 45 percent interest in the Peace River Oil Partnership in late 2021. The first well was on production the last week of December, and the remaining three wells were producing by January 18, 2022. The four wells averaged initial production (“IP“) 60-day rates of 448 boe/d per well (99 percent heavy oil); production rates continued to improve with the last ten days average production of 450 boe/d per well (99 percent heavy oil). As of March 31, 2022, the new Bluesky four-well development program produced approximately 145 Mbbls of heavy oil. At current production forecast and commodity strip prices, these new wells are expected to achieve payout in under six months from start of production.
In addition, we drilled our first operated well targeting the Clearwater formation in the region during the first quarter. As part of our broader exploration program, the well was drilled into an untested sand to appraise the formation for the March land sale. A high-quality reservoir was encountered, but the well did not produce hydrocarbons at an economic rate. This well directly informed our bidding strategy in our recent land sale success (as described below). Our land position remains highly prospective for the producing Clearwater sands already delineated in the area.
Total Peace River production has increased from approximately 2,900 boe/d in October 2021 to approximately 7,000 boe/d in March 2022 due to the acquisition and the recent development program results. Given the strength of our recent drilling results in combination with a strong commodity price outlook, the Company has accelerated our second half Peace River drilling program into the first half of the year. To date, we have rig-released four wells (4 net) from the 2022 program; two new Bluesky wells are expected to be on production around mid-April. Drilling is ongoing to accelerate our second half program, and we anticipate two further wells coming onstream in early June.
In 2021, the 21 Cardium wells drilled in our Willesden Green area formed the foundation of our development program. The average per well IP 30-day production from the program was 365 boe/d (78 percent light oil). Additionally, one Mannville gas well (1 net) was drilled as part of the program and placed on production in mid-October; the well utilized existing infrastructure and averaged IP 30-day production of 834 boe/d (11 percent light oil).
Ten additional wells (10 net) have been rig released in the 2022 development program; six wells (6 net) are currently on production – four of which were started in the last six days.
The second half 2021 and first half 2022 Cardium infill drilling program averaged IP 30-day rates of 246 boe/d per well (74 percent light oil) from 13 wells (11.8 net), which is consistent with expectations. These results further underline the value of our significant Cardium development opportunities in the Pembina area. The next three-well pad is scheduled to come on production in late April, pending weather conditions.
Two vertical Devonian wells came on production in September 2021, producing an average light oil IP 30-day rate of 254 bbl/d and an IP 90-day rate of 216 bbl/d. Due to the low capital cost of vertical drilling, this project achieved payout in under five months of production. For 2022, a two-well drilling program is underway with one well rig released and expected to be on production post spring break up. We made a tangible increase to our inventory of these highly economic vertical well opportunities in 2022, which continue to augment our horizontal well programs.
INCREASE IN PRODUCTION GUIDANCE RANGE
The strong results of our recent development program contributed to first quarter 2022 production of approximately 29,400 boe/d. In conjunction with the acceleration of several Peace River Bluesky wells, we are increasing our 2022 production guidance range for the year by 1,000 boe/d to 30,100 to 31,100 boe/d (mid-point: 30,600 boe/d). Capitalizing on the current strong commodity price environment, we continue to take advantage of the flexibility our portfolio offers while finalizing plans for the second half of 2022. We will provide further details on updates to our 2022 capital and development plans in May.
PEACE RIVER LAND ACQUISITION FROM MARCH 2022 ALBERTA CROWN LAND SALE
Obsidian Energy continues to add to our substantial land position in the Peace River area. In March, we successfully purchased 14 sections (8,960 acres) of prospective oil sands rights from the Alberta land sale in the Peace River region for a consideration of approximately $13.5 million. Obsidian Energy was the main driver behind this sale, posting the majority of the parcels, which attracted broad industry attention and generated $53.2 million in bonus consideration from all participants in the areas directly surrounding our established operations. This is the largest consideration generated at a land sale in Alberta in over a decade, signaling continued growth in demand and activity in the region.
The results of our successful top ranked Bluesky and Clearwater land acquisition was driven by a detailed technical evaluation and ranking of the various land parcels. Given our recent drilling results in the Bluesky formation, we have identified 28 potential Bluesky opportunities on the new land, representing approximately $115 million NPV10 (net present value, discounted at 10 percent) at WTI US$85.00/bbl based on a five-year development plan and an initial well cost of approximately $3.5 million per well. Similar to the Bluesky, our acquired Clearwater acreage offers significant exploration upside with identified 14 drilling opportunities, a contiguous land position with our current land holdings and represents a compelling risked value opportunity.
PEMBINA CARDIUM UNIT NO. 11 COMMERCIAL AGREEMENT
Obsidian Energy and Whitecap have entered a broad commercial transaction that enables the recommencement of development in one of the most prospective areas of the Cardium, Pembina Cardium Unit No. 11 (“PCU 11“), with upwards of 70 gross horizontal producing opportunities yet to be drilled. As part of this agreement, Obsidian Energy will transfer operatorship to Whitecap, while retaining its existing 44.7805 percent working interest in PCU 11.
COMPLETION OF SLAVE NORTH ABANDONMENT PROGRAM
During the first quarter of 2022, Obsidian Energy completed the last substantial component of our inactive legacy portfolio decommissioning. The project abandoned 221 net wells, 171 net km of pipelines and 10 net facilities, while decommissioning 227 net surface locations.
Since 2020, the Company has abandoned 747 net wells, 693 net km of pipelines and 49 net facilities, and completed Phase 1 environmental site assessments on all remaining legacy sites with participation in the Alberta Site Rehabilitation Program (“ASRP“). Utilizing $32 million in ASRP grants and required closure spending, these projects have yielded a combined net total asset retirement obligation reduction of $55.6 million.
DEBT FACILITY REFINANCING
Obsidian Energy is continuing discussions with lenders and market participants regarding refinancing our debt facilities during the first half of 2022 with the intent of incorporating senior and subordinated debt. This structure is expected to provide the Company with a stable capital source that provides operational liquidity and a longer-term maturity profile. Once this has been completed, we will provide further details to shareholders.
The Company continues to have an active hedge program. We are primarily focused on near term WTI positions to protect cashflow given our first half capital program. In addition, we have built a solid foundation on summer AECO natural gas pricing, which is also highly constructive to the business. As at April 11, 2022, the following financial oil and gas contracts are in place on a weighted average basis:
|Term||Notional Volume||Pricing (CAD)|
|Oil – WTI|
|January 2022||8,016 bbl/d||$||98.82/bbl|
|February 2022||8,634 bbl/d||$||102.50/bbl|
|March 2022||9,250 bbl/d||$||111.38/bbl|
|April 2022||7,750 bbl/d||$||121.07/bbl|
|May 2022||500 bbl/d||$||125.53/bbl|
|Natural Gas – AECO|
|January – March 2022||25,591 mcf/d||$||4.63/mcf|
|April 2022||21,326 mcf/d||$||4.43/mcf|
|May – October 2022||23,695 mcf/d||$||4.53/mcf|
In addition, PROP Energy 45 Limited Partnership, our wholly owned limited recourse subsidiary that purchased 45 percent of the PROP units from a third party on November 24, 2021, entered into the following financial hedges in conjunction with the acquisition financing:
|Term||Notional Volume||Pricing (USD)|
|Oil – WTI|
|Q1 2022||1,502 bbl/d||$||66.24/bbl|
|Q2 2022||1,121 bbl/d||$||65.11/bbl|
|Q3 2022||593 bbl/d||$||63.26/bbl|
|Q4 2022||606 bbl/d||$||62.30/bbl|
|Heavy Oil – WCS Differential|
|Q1 2022||939 bbl/d||($17.45)/bbl|
|Q2 2022||801 bbl/d||($15.43)/bbl|
ADDITIONAL READER ADVISORIES
OIL AND GAS INFORMATION ADVISORY
Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is misleading as an indication of value. Boe/d means barrels of oil equivalent per day.
TEST RESULTS AND INITIAL PRODUCTION RATES
Test results and initial production rates disclosed herein, particularly those short in duration, may not necessarily be indicative of long-term performance or of ultimate recovery. Readers are cautioned that short term rates should not be relied upon as indicators of future performance of these wells and therefore should not be relied upon for investment or other purposes. A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered preliminary until such analysis or interpretation has been completed.
|bbl||barrel or barrels||mcf||thousand cubic feet|
|bbl/d||barrels per day||mcf/d||thousand cubic feet per day|
|Mbbls||one thousand barrels||mmcf/d||million cubic feet per day|
|boe||barrel of oil equivalent||AECO||Alberta benchmark price for natural gas|
|boe/d||barrels of oil equivalent per day|
|WCS||Western Canadian Select|
|WTI||West Texas Intermediate|
FUTURE-ORIENTED FINANCIAL INFORMATION
This news release contains future-oriented financial information (“FOFI“) and financial outlook information relating to the Company’s prospective results of operations, operating costs, expenditures and production which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth below under “Forward-Looking Statements“. The Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, such FOFI, or if any of them do so, what benefits the Company will derive therefrom. The Company has included this FOFI in order to provide readers with a more complete perspective on the Company’s business as of the date hereof and such information may not be appropriate for other purposes.