Calgary, Alberta – OBSIDIAN ENERGY LTD. (TSX: OBE) (NYSE American: OBE) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to report operating and financial results for the second quarter of 2022.
|Three Months Ended
|Six Months Ended
|(millions, except per share amounts)|
|Cash flow from operating activities||125.0||42.2||208.9||70.6|
|Basic per share ($/share)2||1.52||0.57||2.55||0.96|
|Diluted per share ($/share)2||1.48||0.55||2.48||0.92|
|Funds flow from operations3||157.0||42.3||235.6||78.6|
|Basic per share ($/share)4||1.91||0.57||2.89||1.06|
|Diluted per share ($/share)4||1.86||0.55||2.80||1.04|
|Adjusted Funds flow from operations3||156.8||51.2||258.1||89.9|
|Basic per share ($/share)4||1.91||0.69||3.16||1.21|
|Diluted per share ($/share)4||1.85||0.67||3.07||1.19|
|Basic per share ($/share)||1.39||4.33||1.69||4.67|
|Diluted per share ($/share)||1.35||4.23||1.64||4.57|
|Light oil (bbl/d)||12,261||10,836||11,689||10,427|
|Heavy oil (bbl/d)||6,174||2,660||5,982||2,723|
|Natural gas (mmcf/d)||64||54||62||52|
|Total production5 (boe/d)||31,575||24,651||30,497||23,942|
|Average sales price 2,6|
|Light oil ($/bbl)||139.88||76.97||129.49||72.37|
|Heavy oil ($/bbl)||106.18||48.58||95.88||44.46|
|Natural gas ($/mcf)||7.38||3.21||6.21||3.21|
|Risk management loss||(4.66||)||(0.52||)||(5.58||)||(1.44||)|
|Net sales price||91.78||49.04||81.57||45.54|
|Net operating costs4||(14.02||)||(13.71||)||(13.98||)||(13.62||)|
(1) We adhere to generally accepted accounting principles (“GAAP“); however, we also employ certain non-GAAP measures to analyze financial performance, financial position, and cash flow, including funds flow from operations, adjusted funds flow from operations, net debt, netback, net operating costs and free cash flow. Additionally, other financial measures are also used to analyze performance. These non-GAAP and other financial measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS“) and therefore may not be comparable to similar measures provided by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss) and cash flow from operating activities, as indicators of our performance.
(2) Supplementary financial measure. See “Non-GAAP and Other Financial Measures“.
(3) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures“.
(4) Non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures“.
(5) Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”.
(6) Before risk management gains/(losses).
Detailed information can be found in Obsidian Energy’s unaudited consolidated financial statements and management’s discussion and analysis (“MD&A“) as at and for the three and six months ended June 30, 2022, on our website at www.obsidianenergy.com, which will be filed on SEDAR and EDGAR in due course.
KEY SECOND QUARTER 2022 RESULTS
Our first half 2022 development program resulted in significant production growth for the Company from our Willesden Green, Pembina and Peace River assets. Second quarter production increased to 31,575 boe/d – a 28 percent increase over the 24,651 boe/d in the second quarter of 2021. Higher production and commodity prices resulted in increased cash flow from operating activities, funds flow from operations (“FFO“) and adjusted FFO from the second quarter of 2021.
2022 Second Quarter Financial Highlights
- Strong Funds Flow – FFO increased by 271 percent to $157.0 million ($1.91 per share) for the quarter compared to $42.3 million ($0.57 per share) in the second quarter of 2021.
- Capital Development Growth – The Company continued to execute our development program during the second quarter of 2022 with capital expenditures of $40.3 million (2021 – $21.5 million) and decommissioning expenditures of $3.8 million (2021 – $0.5 million). Second quarter capital expenditures were predominately spent on drilling 11 wells (11 net) with 16 wells (15.7 net) completed and brought on stream in our Peace River, Willesden Green and Pembina assets.
- Continued Debt Reduction – Strong financial results and our continued focus on reducing debt resulted in a decrease in net debt by 21 percent from $435.7 million at June 30, 2021 to $343.0 million at June 30, 2022, representing 0.6 times annualized second quarter 2022 FFO. Subsequent to June 30, 2022, we completed our refinancing (see ‘Completed Debt Refinancing‘ below) and further reduced our debt levels through cash flow generated in July. We expect debt and leverage levels to be reduced further in 2022 from free cash flow generation.
- G&A Costs – General and administrative (“G&A“) costs were $1.64 per boe in the second quarter of 2022 compared to $1.69 per boe for the same period in 2021.
- Managed Net Operating Costs – Net operating costs of $14.02 per boe in the second quarter of 2022 were higher than the $13.71 per boe in 2021. The increase reflects higher repair and maintenance activity in 2022 as more projects became economic with higher commodity prices, higher power costs due to increased natural gas prices and general inflationary pressures in the industry. Net operating costs are expected to decrease from this level going forward due to the full year impact of lower cost new well production.
- Net Income – Higher commodity prices and production volumes contributed to net income of $113.9 million ($1.39 per share) for the second quarter of 2022 compared to net income of $322.5 million ($4.33 per share) in the respective period of 2021. In the second quarter of 2021, the Company recorded a $311.5 million impairment reversal within the Company’s Cardium asset due to higher forecasted commodity prices and strong drilling results.
2022 Second Quarter Operational Highlights
- Improved Production Levels – Average production for the quarter grew by 28 percent to 31,575 boe/d over the 24,651 boe/d in the second quarter of 2021, largely due to the strong performance from our first half 2022 drilling program.
- Completed First Half Development Activity – Continuing the momentum from our first quarter 2022 activities, our first half 2022 development program was completed early in June with strong results. Of the 30 wells (29.5 net) rig-released in the first half, 10 wells (10.0 net) were in Willesden Green, six wells (5.5 net) were in Pembina, six wells (6.0 net) were in Peace River, and eight (8.0 net) wells were in Viking. We brought 28 wells (27.3 net) on production by the end of the second quarter of 2022.
- Accelerated and Expanded Second Half Development Program – We secured the equipment and services needed to execute the largest development program that the Company has undertaken in several years and began our second half 2022 development early with the drilling of two wells (2.0 net) in Peace River. As announced in our June Guidance Release, 38 wells (36.0 net) will be drilled over the second half 2022 for a total of 68 wells (65.5 net) rig-released this year.
- Continued Focus on Decommissioning Liabilities Reduction – With most of our inactive legacy portfolio decommissioning completed in the first quarter of 2022, we are on track to meeting our goal of abandoning over 300 net wells and over 500 km of pipelines (net) this year.
2022 Highlights Subsequent to the Quarter
- Completed Debt Refinancing – On July 27, 2022, we completed a private placement issuance of senior unsecured notes and entered into new syndicated credit facilities providing a more favourable debt structure with long-term debt capital and credit facilities to meet our ongoing liquidity needs. The refinancing was composed as follows:
- Senior Unsecured Notes: We issued five-year senior unsecured notes (the “Notes”) in the amount of $127.6 million (the “Offering“) at a rate of 11.95 percent due on July 27, 2027.
- New Credit Facilities: The Company entered into new syndicated credit facilities with borrowing capacity of $205.0 million (the “New Credit Facilities“), consisting of $175.0 million revolving syndicated credit facilities (the “New Syndicated Facilities“) and a $30.0 million non-revolving term loan (the “New Term Loan“). We expect to repay the New Term Loan in the third quarter of 2022 from free cash flow from our operations.
- Debt Repayment: Upon completion of the Offering, we repaid all our previous senior secured notes due November 30, 2022, the outstanding balances under our previous credit facilities due November 30, 2022, and the PROP limited recourse loan due on December 31, 2022. In addition, the Company also closed out hedges that were put in place for the PROP 45 limited recourse financing (US$3.4 million) and fees associated with the refinancing ($6.1 million).
- After repayment, the outstanding balance on the New Credit Facilities was as follows:
- $130.0 million drawn on our New Syndicated Facilities; and
- $30.0 million of the New Term Loan.
- After repayment, the outstanding balance on the New Credit Facilities was as follows:
2022 DEVELOPMENT PROGRAM UPDATE
With our refinancing complete and equipment and services secured, we are focused on drilling an additional 38 wells (36.0 net) over the second half of 2022 in our Willesden Green, Pembina, and Peace River assets, utilizing three rigs in the third quarter and expanding to four rigs in late 2022. Combined with the wells from our first half 2022 program, a total of 68 wells (65.5 net) will be rig-released in 2022, of which 55 wells (53.0 net) are expected to be on production by the end of 2022.
In the second quarter, we completed the rig-release of all six wells (6.0 net) from the first half 2022 program. The remaining two Bluesky wells (2.0 net) from the first half drilling program were brought on production and are in the process of cleanup.
In the second half of the year, we plan to drill an additional 14 wells (13.5 net) in Peace River with 12 wells (12.0 net) targeting the established Bluesky reservoir. With Clearwater development a key focus for our 2023 plans, we will drill two wells (1.5 net) focused on the Clearwater play to further delineate our land base. Our development program, combined with increasing industry activity, is designed to continue to appraise our 487 prospective land sections, including further exploration and development drilling to increase our future inventory of locations.
All ten wells (10.0 net) from our first half development program are now on production, providing solid rates and robust economics for the Company. The average IP 30-day rates for the last three wells at the Faraway 8-10 Pad was 192 boe/d (91 percent oil).
We began drilling the ten wells (10.0 net) targeting the Cardium formation and one gas-weighted Mannville well (1.0 net) as part of our second half 2022 development program. The first of two wells (2.0 net) are on the Crimson 3-03 Pad, which is offset from the two 3-03 Pad wells drilled in 2021 that produced excellent IP 30-day rates of 494 boe/d (70 percent light oil).
All five Cardium wells (4.5 net) from the first half program are on production. In addition, one well in the three-well 2022 vertical Devonian drilling program was placed on production in mid-May and is averaging IP 30-day rates of 488 boe/d (93 percent oil). We began drilling our 13 well (11.5 net) second half development program, predominantly targeting the Cardium formation.
In May, the first well in our eight-well (8.0 net) Viking program was spudded, representing our return to development in the asset. A light oil focused play with a material degree of associated natural gas, Viking offers highly economic returns with current commodity prices while providing favourable spring ground conditions to drill during the typical spring break-up period. Currently, 8 wells (8.0 net) in the Viking program have been rig released and are expected to be on production by mid-August. Overall, the eight wells are expected to add approximately 1,000 boe/d on a 30-day, initial production basis (67 percent light oil).
2022 GUIDANCE; 2023 PRELIMINARY FORECAST
In June, we revised our 2022 guidance in response to strong commodity prices and in conjunction with the expected successful completion of the refinancing of our existing debt facilities and provided a preliminary 2023 forecast. Both 2022 and 2023 includes approximately 15 percent inflation on our capital program over levels experienced in the first half of 2022. Our 2022 guidance and 2023 preliminary forecast are expected to continue to result in meaningful production growth. Using a WTI price range of US$90/bbl to US$120/bbl for the second half of 2022, we expect our net debt to FFO ratio will be below 0.6x or less based on full year 2022 results considering the debt repayment from the free cash flow generation. Our guidance and preliminary forecast are reiterated and presented below.
|Production1||boe/d||31,500 – 32,500||37,000 – 38,000|
|% Oil and NGLs||66%||69%|
|Capital expenditures||$ millions||295 – 305||260 – 270|
|Decommissioning Expenditures2||$ millions||17||14|
|Net operating costs||$/boe||12.70 – 13.50||12.50 – 13.30|
|General & administrative||$/boe||1.45 – 1.55||1.30 – 1.40|
|Based on midpoint of above guidance|
|WTI Range3||US$/bbl||90.00 – 120.00||95.00|
|AECO Range3||CAD$/GJ||5.50 – 7.50||5.00|
|FFO||$ millions||455 – 580||650|
|Adjusted FFO4||$ millions||499 – 624||662|
|Free cash flow 4||$ millions||137 – 262||374|
|Net debt5||$ millions||257 – 132||(162||)|
|Net debt to FFO4,5||times||0.6x – 0.2x||N.A.|
(1) Mid-point of 2022E guidance range: 12,350 bbl/d light oil, 6,325 bbl/d heavy oil, 2,525 bbl/d NGLs and 64.6 mmcf/d natural gas. Average production volumes in 2022 do not include any forecasted production associated with Clearwater exploratory capital expenditures.
Mid-point of 2023F guidance range: 13,850 bbl/d light oil, 9,200 bbl/d heavy oil, 2,835 bbl/d NGLs and 69.8 mmcf/d natural gas.
(2) Decommissioning expenditures do not include grants and allocations to be utilized by the Company under the Alberta Site Rehabilitation Program (“ASRP“).
(3) 2022E pricing assumptions are for July to December. Mid-point pricing assumptions for our 2022E Guidance include WTI at US$105.00/bbl and AECO at $6.50/GJ from July to December.
(4) Pricing assumptions outlined are forecasted for the second half of 2022 and includes risk management (hedging) adjustments as of June 10, 2022. Guidance FFO and free cash flow (“FCF“) includes approximately $44 million of estimated charges for 2022 and $12 million for 2023 related to the deferred share units, performance share units and non-treasury incentive plan awards share-based compensation amounts which are based on a share price of $15.00 per share. The charge is primarily due to the Company’s increased share price in 2022 compared to the closing price on December 31, 2021, of $5.21 per share. Adjusted FFO excludes the estimated non-cash share-based compensation amounts for 2022 and 2023.
(5) Net debt figures estimated as at December 31, 2022, and 2023.
The Company continues to focus our hedging program on near term WTI positions to protect cashflow given our first half capital program. We have also built a solid foundation on summer AECO natural gas pricing, which is also highly constructive to the business. As at July 28, 2022, the following financial oil and gas contracts are in place on a weighted average basis:
WTI Oil Contracts
|Bought Put Price
|Sold Call Price
AECO Natural Gas Contracts
|Swap||July – October 2022||26,065||$||4.74|
Subsequent to June 30, 2022, in conjunction with our refinancing we closed out the previous hedges under PROP 45 for a risk management loss of US$3.4 million. The Company intends to implement additional hedging arrangements through swaps and collars for the remainder of 2022.
UPDATED CORPORATE PRESENTATION
For further information on these and other matters, Obsidian Energy will post an updated corporate presentation later today on our website, www.obsidianenergy.com.