Obsidian Energy Announces Second Quarter 2017 Financial And Operational Results

Announced Date :  Aug 09, 2017


Obsidian Energy Ltd. ("Obsidian Energy", the "Company", "we", "us" or "our") announces its financial and operational results for the three months ended June 30, 2017.
"This is a quarterly release with mixed emotion," commented David French, President and Chief Executive Officer. "We have lost a dear friend and leader in the passing of Rick George, the Chairman of the Board. His guidance and courage throughout Obsidian Energy's restructuring and re-emergence was instrumental to forging our new path. He leaves us with an imprint of the highest integrity and dedication to task that we will carry forward as a new Company. We wish his family peace through their immeasurable loss.

As our first quarter formally as Obsidian Energy, we are off to a solid start.  Despite limited activity in seasonal breakup conditions, we continued our operational momentum through the second quarter of 2017 to deliver strong production volumes and robust funds flow from operations.

As we look forward to our second half development program, we elected to reallocate and reduce our capital budget by $20 million to fit the current price environment yet our strong base production and early development results allow us to maintain production guidance. Company financials are stable with long term debt below $400 million, and we continue to actively extend our hedge book to underpin 2017 and 2018 development with a deep portfolio of investable projects across Alberta that work in a $45 to $55 West Texas Intermediate world.

The next several months will be very important as we embark on our most active development program in three years. We are well positioned to manage the current commodity environment and look forward to updating the market through the new lens of Obsidian Energy: disciplined, relentless, and accountable.

George Brookman, head of Obsidian Energy's Governance Committee, has assumed the role of Acting Chairman while the Board of Directors evaluates candidate options." 

Second Quarter Operational and Financial Highlights

Delivering on Production and Operating Cost Guidance

 - Corporate production averaged 30,436 boe per day during the second quarter, including 29,983 boe per day in our key development and legacy areas. Production in our key development areas was essentially in-line from the first quarter, as successful optimization and workover projects offset production declines during the seasonal breakup period.

 - Second quarter operating costs were $14.27 per boe, net of carried expenses. In addition to most annual maintenance and turnarounds normally occurring during the second quarter, this year we had additional expenses stemming from our very limited ability to spend in the second quarter of last year. We forecast spending to trend down through the second half of the year, and continue to target annual 2017 operating costs of approximately $13.00 to $13.50 per boe, net of carried expenses.

 - Funds flow from operations for the second quarter was $43 million ($0.09 per share) reflecting strong sales prices across our product streams and realized risk management gains.

Capital Realigned for the Current Price Environment

 - In light of softening commodity prices over the past several months, we believe it is financially prudent to realign our capital spend in the second half of the year. Accordingly, we are adjusting some of our 2017 development activity to reduce our full-year capital budget by $20 million to $160 million. Most of the capital changes are on projects that were intended to extend our double-digit percent growth through to next year.

  - Due to continued high production volumes from last winter's drilling program and a strong outlook for our second half development program, we do not expect the capital reductions to have a material effect on our full-year operational results. We remain confident in our ability to demonstrate self-funded double-digit percent growth from the fourth quarter of 2016 to the fourth quarter of 2017 and to meet our full year 2017 production guidance of 30,500 to 31,500 boe per day.

Financials are Stable and Strong

 - In the second quarter, we transitioned to a reserve-based syndicated credit facility with a group of nine lenders. The underlying borrowing base is $550 million, less the amount of outstanding pari passu senior notes, such that the Company will have $410 million of availability under the credit facility as at today's date. 

 - Our senior debt was $392 million at the end of the second quarter, including $275 million drawn on our $410 million revolving credit facility. Senior debt to EBITDA was 1.9 times as of June 30, 2017.

 - We continued to layer in additional hedges for the second half of 2018 to increase the certainty of our revenues as we plan our activity for the next year. Our crude oil exposure, net of royalties, is hedged approximately 50 percent through the second quarter of 2018, 30 percent in the third quarter of 2018, and 25 percent in the fourth quarter of 2018. Our natural gas exposure, is hedged on average 30 percent through the end of 2018, with additional hedged volumes in the first and second quarter of 2018 to support incremental gas production associated with our Mannville activity. 

 - A previously-announced minor asset disposition for $10 million successfully closed at the end of May. We also closed a minor previously-announced acquisition in Peace River, with our joint venture partner under the Peace River Oil Partnership.

Early Development Wins are Setting a Solid Stage for 2018

 - In the Cardium, we drilled 4 vertical injectors and brought on-line 17 injectors in Willesden Green to re-pressurize the reservoir around high performing wells drilled in late 2015 and early 2016. As we implement water injection over the last 15 months, we are seeing positive indications in several waterflood sites, including early indications of Gas Oil Ratio ("GOR") response and arresting decline. In PCU #9, vertical injector reactivations have resulted in GOR suppression and oil rate response in offsetting horizontal producers. We are currently running 1 rig in PCU #9 drilling 3 horizontal producers and will move another rig to Willesden Green near the end of the third quarter.

 - During the second quarter, we restarted over 800 boe per day of production that was shut-in last year due to ongoing issues at third-party processing facility. The facility was repaired ahead of schedule and we upgraded our gathering system in the area to ensure ongoing production reliability. This has also contributed to second quarter incremental operating costs incurred earlier than the budgeted on-stream date.

 - In Peace River, favorable weather conditions allowed us to continue development into breakup, drilling and bringing on production 5 wells in the second quarter. We currently have two rigs running in the area, and plan to drill 12 wells in the second half of the year. Work continues on our gas gathering infrastructure to meet the new Alberta Energy Regulator Directive 084 requirements.

 - In the Alberta Viking, we resolved minor artificial lift issues on select wells drilled in the fourth quarter of 2016, and saw Viking well performance increase back to our industry-leading type curve. We restarted development in the area in June, and have now finished drilling all 10 wells in our second half program. We expect these wells to be all on production by the end of September. Early flowback results on the first 4 wells look encouraging, and on average are exceeding last year's industry leading performance by approximately 20%.

 - In the Mannville, we are encouraged by continued positive industry results offsetting our acreage. We increased the average working interest in our operated 3 well program by approximately 10% to 80%. We successfully drilled our first Mannville well in July, targeting the Upper Mannville, and plan to have the well on production in September. We expect the remaining two Mannville wells to be on production early in the fourth quarter. The gas volumes will be processed at our nearby operated Crimson gas plant to minimize processing costs.

Operational Metrics

Obsidian Energy holds a focused portfolio with industry leading positions in the Cardium,Peace River, and Alberta Viking areas.

Maintaining Production Guidance and Re-Aligning Capital Spending

We are adjusting our 2017 development plans to reduce our full-year capital budget by $20 million to $160 million. Most of the capital changes are related to projects that were intended to extend our double-digit percent growth trajectory through next year.

Due to continued high production volumes from last winter's drilling program and a strong outlook for our second half development program, we do not expect the capital reductions to have a material effect on our full-year operational results. In our second half development program, we expect the majority of our new wells will be brought on production late in the third quarter or early in the fourth quarter. We remain confident in our ability to demonstrate self-funded double-digit percent growth from the fourth quarter of 2016 to the fourth quarter of 2017 and to meet our full year 2017 production guidance of 30,500 to 31,500 boe per day.

Updated Hedging Position

Our hedging program helps reduce the volatility of our funds flow from operations, and thereby improves our ability to manage our ongoing capital programs. We target having hedges in place for approximately 25 percent to 50 percent of our crude oil exposure, net of royalties, and 20 percent to 50 percent of our gas exposure, net of royalties. Refer to the "Financials are Stable and Strong" section for more information on our current hedging levels.

 

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