Calgary, Alberta- OBSIDIAN ENERGY LTD. (TSX: OBE) (NYSE American: OBE) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to provide an update on our 2022 second half development program, our 2023 guidance, and the release of our inaugural environment, social and governance report for 2021.
We are committed to delivering a budget that balances production growth and free cash flow generation for 2023. Given the considerable optionality of our asset base coupled with results from drilling programs that are still in progress from our active 2022 capital program, and the recent volatility in both oil prices and heavy oil differentials, we are deferring the release of our 2023 capital budget and associated guidance until January 2023 to allow more time to refine and optimize our operating plans.
While evaluating various development opportunities for our 2023 program and considering different pricing scenarios, the Obsidian Energy team is moving ahead with plans and preparation for first quarter 2023 development. We expect that the 2023 program will include drilling in all core areas including first quarter 2023 drilling in our Viking area following the successful step-out well in 2022, and a significant Clearwater exploration and Bluesky program in Peace River. Once the 2023 capital budget has been approved, detailed guidance along with our intentions regarding continued debt repayment and shareholder return of capital will also be provided.
2022 DEVELOPMENT PROGRAM
Since the end of the third quarter, an additional 14.0 wells (13.4 net) were rig-released, including four Cardium wells (4.0 net) in Willesden Green, three Cardium wells (2.9 net) and one vertical Devonian well (0.5 net) in Pembina, and five Bluesky wells (5.0 net) and one Clearwater well (1.0 net) in Peace River. We expect to finish drilling the remainder of our 35 well (33.9 net) second half 2022 program with the final two wells (1.9 net) rig released in early January 2023. In total, we expect 61 wells (59.7 net) from the 2022 development program will be rig-released in 2022, of which 49 wells (47.9 net) are planned to be on production by the end of the year. In addition, two wells (1.8 net) were rig released and nine wells (8.6 net) were on production from our 2021 development program during 2022.
Our Willesden Green development continues to provide strong returns to the Company. The Crimson 3-03 Pad exhibited top tier results with one of the wells leading the top Cardium well list in Alberta for October1 when the well produced 15,800 bbls at an average rate of 510 bbl/d of oil. In total, the two wells on the pad reached peak initial production (“IP“) rates of 1,187 boe/d (47 percent oil). (BOE Report edit: See the 3-03 pad on a map here)
Since the third quarter, Obsidian Energy rig released four wells (4.0 net) targeting the Cardium formation. Currently, the North Crimson 9-04 Pad well is on production with an IP-30 average rate of 341 boe/d (39 percent oil). This well targeted the north end of the Willesden Green field, expanding our core Cardium Willesden Green drilling inventory and adding incremental reserves to the field. The Mannville 2-18 Pad gas well drilled late in the third quarter produced at peak 30-day rates of 1,028 boe/d (14 percent liquids). Three additional Cardium wells drilled in the third quarter have been completed and are waiting to come on production in late December and early January.
The 16-09 Pad has cleaned up with peak 30-day production pad rates of approximately 516 boe/d (60 percent oil) for the two newest wells. One Devonian vertical well is under-going tie-in and is expected to be on production in December following successful stimulation. Currently, three wells (2.9 net) from the South Pembina 14-6 Pad are completed and awaiting facility tie-in in December.
In addition, the first non-operated development well at PCU#11 (1-25-49-11W5, 44.8 percent working interest) came on production in October. The well was recognized as the top Alberta Cardium producer in October at 610 bbl/d oil2.
Our Bluesky development continues to deliver strong program results highlighting the strength of our position in the Peace River oil play. From a recent notable well report3, Obsidian Energy drilled the top three cumulative production heavy oil wells over the last 12 months within our Bluesky development, with five of our wells being in the top ten for the province.
In the fourth quarter to date, we rig-released five Bluesky wells (5.0 net) from our second half 2022 program, with two wells (2.0 net) currently producing to rate constrained temporary facilities during their clean up process in our Seal property. In total, five Bluesky wells (5.0 net) continue to produce through these temporary production facilities, which are expected to be tied-in to permanent facilities through December and early January.
In November, we rig released the first of our two second half wells (2.0 net) targeting the Clearwater play. Drilled in the Seal area, this well is currently in the process of cleaning up; early results are encouraging with current production of 110 bbl/d using a rate-limited pump. As per our laboratory test, oil quality is 11.7o API with viscosity superior to our Bluesky production. The second well, located in our Dawson field immediately adjacent to the Peavine Clearwater play, spud on December 15 with testing planned in early 2023. These wells will further delineate our land base and provide key information about our Clearwater assets, which will be used to determine the focus and scope of our 2023 Clearwater exploration and development program. We anticipate having an active first half 2023 Clearwater program comprised of vertical oil sands evaluation wells and exploratory drilling locations.
We also purchased a further two-and-a-half sections (approximately 1,600 acres) of land with prospective Bluesky and Clearwater rights in the Peace River area in the fourth quarter. This brings our total land ownership to 500 sections of heavy oil rights in Peace River.
The eight wells (8.0 net) from our Viking program continue to perform extremely well and within expectations. Closely following the successful step-out well that displayed prolific peak rates of 242 boe/d (88 percent oil) and an IP 90-day rate of 201 boe/d (86 percent oil), respectively, we plan to accelerate our western Viking development in the first quarter of 2023.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) REPORT
We are pleased to announce the release of our inaugural environmental, social and governance report for year-end 2021 (the “ESG Report“), which presents a comprehensive view of the Company’s commitment to sustainability across the organization and the communities we work in. We are proud of our commitment to strong ESG practices that include minimizing our environmental impact, creating a culture where individuals and our communities are valued, and implementing best-in-class governance practices to ensure we are acting in the interests of our stakeholders.
“We believe in supporting our communities, contributing to the economy, providing a safe workplace, minimizing our environmental impact and acting in the interests of our stakeholders,” said Stephen Loukas, Interim President and CEO. “Strong stewardship is an integral part of our organization and shapes how we run the business. We are excited to share the results of our journey and look forward to advancing our sustainability practices as part of our long-term strategy.”
Key highlights from our ESG Report includes:
- Obsidian’s ESG approach to sustainability along with key initiatives, metrics, and accomplishments
- 30 percent reduction in decommissioning liabilities since 2018
- 40 percent decrease in total greenhouse gas emissions since 2018
- 40 percent and 35 percent reduction in our fresh water usage and intensity since 2019
- Implemented over 10,500 worker safety initiatives since 2017
- Maintained lost time injury frequency below industry average at 0.18 cases per 200,000 work hours in 2021
- Provided over $1.8 billion in economic contribution to local communities, suppliers, and other stakeholders since 2017
- The Board’s and executives’ equity-based compensation links pay with total shareholder return – measured through a series of corporate goals and performance targets, including specific ESG metrics
- A key and growing focus of the Board and management involves the responsibility for oversight and approval of ESG strategies and goals to ensure our actions minimize impact to the environment and stakeholders, and that a strong ESG culture is integrated throughout the Company
The Company continues to focus our hedging program on near term WTI positions to protect cashflow given our first half capital program. As at December 15, 2022, the following financial oil and gas contracts are in place on a weighted average basis:
WTI Oil Contracts
|Swap Price (C$/bbl)|
|WTI Collar||October 2022||10,000||109.75||130.07||–|
|WTI Swap||November 2022||1,950||123.97|
|WTI Collar||November 2022||7,000||106.07||126.77||–|
|WTI Collar||December 2022||2,000||105.00||130.20||–|
AECO Natural Gas Contracts
|Swap Price (C$/mmf)|
|AECO Swap||October 2022||26,065||4.74|
|AECO Swap||December 2022 – March 2023||14,976||6.18|
|AECO Swap||April 2023 – October 2023||27,487||4.07|
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.
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.
|API||American Petroleum Institute||AECO||Alberta benchmark price for natural gas|
|bbl||barrel or barrels||mcf||thousand cubic feet|
|bbl/d||barrels per day||mmcf||million cubic feet|
|boe||barrel of oil equivalent||mmcf/d||million cubic feet per day|
|boe/d||barrels of oil equivalent per day||NGL||natural gas liquids|
|MSW||Mixed Sweet Blend|
|WTI||West Texas Intermediate|