CALGARY, May 10, 2019 /PRNewswire/ - OBSIDIAN ENERGY
LTD. (TSX – OBE, NYSE – OBE.BC) ("Obsidian Energy", the
"Company", "we", "us" or "our") is
pleased to announce its financial and operational results for the
three months ended March 31, 2019.
All figures are in Canadian dollars unless otherwise stated.
Michael Faust, Interim President
and CEO commented "Stepping into my role at Obsidian Energy, I am
focusing my attention on three main areas. First, I will ensure we
continue to deliver strong and repeatable well results from our
Cardium asset, focused on growing our light oil production,
consistent with the recent performance of the first 19 well
program. Second, I will prioritize the strength of our balance
sheet by ensuring we are spending within funds flow from operations
and seek to divest non-core properties, if the market conditions
are favorable, to reduce our overall leverage profile. My third
priority will be to conduct a thorough review of our cost structure
to identify areas for improvement, aiming to bring our costs in
line with peers. This initiative will be focused on both capital
expenditures and expenses. This will include streamlining internal
processes, improving operational productivity, and enhancing
capital efficiencies. Details of the cost reduction initiatives
will be presented at the Annual General Meeting."
Demonstrating Cardium Deliverability
During the first quarter of 2019, the Company drilled, completed
and equipped five Cardium wells (5.0 net). Of the 2019 wells that
we have drilled to date, we are particularly excited about our
12-18, three well pad, which has averaged initial production rates
over the first 30 days ("IP30") of 620 boe per day per well and
approximately 83 percent oil. The 12-18 pad is the most northern
pad drilled in the Crimson area, further demonstrating the extent
of our Willesden Green inventory. Over the past nine months, the
Company has drilled 19 Cardium wells (19.0 net) averaging an IP30
of 538 boe per day per well and approximately 86 percent oil.
The next phase of the program will resume after spring break-up
and continue until March 2020. We
have all our locations ready to license with the construction of
the first two pads expected to commence as soon as road conditions
and weather permits.
Q1 Production Beat and Improved Liquids Weighting
Obsidian Energy delivered strong operational results in the
first quarter 2019, highlighted by average oil production of 16,472
bbl per day and average total production of 27,651 boe per day.
Both figures are ahead of our pre-released target ranges for the
quarter. The production beat is attributed to the Cardium program's
strong production rates and was achieved in spite of considerably
colder temperatures observed in February.
The Company's liquids production weighting also improved in the
first quarter of 2019 to 67 percent liquids, a three percent
increase over the fourth quarter of 2018. This shift was the result
of our gas weighted legacy production that was shut-in toward the
end of 2018 and early 2019. The Company plans to further
rationalize the portfolio to focus the Company towards light oil
and higher margin production.
Strong Cash Flow Generation
With continued positive operational momentum and significant
improvements in Canadian benchmark prices, first quarter of 2019
funds flow from operations ("FFO") was $36 million or $0.07 per share, a $38
million increase over the previous quarter.
Operating netbacks in the first quarter of 2019 were
$18.98 per boe, a $17.00 per boe increase compared to the fourth
quarter of 2018. The increase was largely driven by crude oil
differential improvements, underpinned by the Company's focus on
its light oil, low operating cost Cardium development program which
resulted in a realized field netback in the first quarter of 2019
of $28.08 per boe, an increase of
$16.87 per boe compared to the
previous quarter.
Financial and Operating Highlights
|
|
Three months ended
March 31
|
|
|
2019
|
|
2018
|
% change
|
Financial
(millions, except per share amounts)
|
|
|
|
|
|
Cash Flow from
Operations
|
$
|
(1)
|
$
|
57
|
>(100)
|
|
Basic per
share
|
|
-
|
|
0.11
|
(100)
|
|
Diluted per
share
|
|
-
|
|
0.11
|
(100)
|
Funds Flow from
Operations (1)
|
$
|
36
|
$
|
35
|
3
|
|
Basic per share
(1)
|
|
0.07
|
|
0.07
|
-
|
|
Diluted per share
(1)
|
|
0.07
|
|
0.07
|
-
|
Net loss
|
|
(54)
|
|
(65)
|
(17)
|
|
Basic per
share
|
|
(0.11)
|
|
(0.13)
|
(15)
|
|
Diluted per
share
|
|
(0.11)
|
|
(0.13)
|
(15)
|
Capital
expenditures
|
|
34
|
|
60
|
(43)
|
Net Debt
(1)
|
$
|
497
|
$
|
405
|
23
|
Operations
|
|
|
|
|
|
Daily
production
|
|
|
|
|
|
|
Light oil and NGL
(bbls/d)
|
|
14,498
|
|
14,412
|
1
|
|
Heavy oil
(bbls/d)
|
|
4,096
|
|
4,751
|
(14)
|
|
Natural gas
(mmcf/d)
|
|
54
|
|
62
|
(13)
|
Total production
(boe/d) (2)
|
|
27,651
|
|
29,443
|
(6)
|
Average sales
price
|
|
|
|
|
|
|
Light oil and NGL
(per bbl)
|
$
|
58.52
|
$
|
64.25
|
(9)
|
|
Heavy oil (per
bbl)
|
|
30.62
|
|
31.34
|
(2)
|
|
Natural gas (per
mcf)
|
$
|
2.41
|
$
|
2.87
|
(16)
|
Netback per boe
(2)
|
|
|
|
|
|
|
Sales
price
|
$
|
39.95
|
$
|
42.52
|
(6)
|
|
Risk management
gain
|
|
(1.80)
|
|
(4.20)
|
(57)
|
|
Net sales
price
|
|
38.15
|
|
38.32
|
-
|
|
Royalties
|
|
(2.81)
|
|
(2.73)
|
3
|
|
Operating expenses
(3)
|
|
(13.49)
|
|
(14.86)
|
(9)
|
|
Transportation
|
|
(2.87)
|
|
(3.16)
|
(9)
|
|
Netback
(1)
|
$
|
18.98
|
$
|
17.57
|
8
|
1)
|
The terms 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.
|
2)
|
Please refer to the
"Oil and Gas Information Advisory" section below for information
regarding the term "boe"
|
3)
|
Includes the benefit
of processing fees totaling $2 million for 2019 (2018 – $3
million)
|
- FFO totaled $36 million
($0.07 per share) for the first
quarter of 2019 compared to negative $2
million ($nil per share) in the fourth quarter of 2018 and
$35 million ($0.07 per share) in the first quarter of
2018.
- Average production was 27,651 boe per day compared to 29,905
boe per day in the fourth quarter of 2018 and 29,443 boe per day in
the first quarter of 2018. Production decreased from the fourth
quarter of 2018 mainly attributable to the Company's shut-in
program of low net operating income legacy wells, which led to
lower gas volumes, as well as the Alberta Government's mandated
curtailment. Currently, we do not expect curtailment restrictions
to impact our go forward production forecast for the reminder of
the year.
- Capital expenditures, excluding decommissioning liabilities,
totaled $34 million, which included
drilling five development wells in Willesden Green, completion
activities to bring the remaining wells on production from the
Company's 2018 capital program and various optimization/maintenance
activities.
- Operating costs were $13.49 per
boe in the first quarter of 2019, despite extreme cold weather
across Alberta in February which
resulted in increased power, repair and maintenance costs.
Operating costs per boe were also higher than the fourth quarter of
2018 due to one-time costs saving initiatives in that quarter.
- General and administrative costs were $2.01 per boe in the first quarter of 2019
compared to $2.33 per boe in the
first quarter of 2018. The Company has been successful on a number
of cost reductions initiatives which led to the improvement from
the comparable period.
- Net Debt totaled $497 million,
including $378 million drawn on our
syndicated credit facility and $80
million of senior notes. On March 31,
2019, Senior Debt to Adjusted EBITDA, as calculated under
the Company's credit agreement was 2.9:1.
- Subsequent to March 31, 2019, the
Company entered into crude oil swaps on 950 barrels per day for the
third quarter of 2019 at $83.47 per
barrel and on 550 barrels per day for the fourth quarter of 2019 at
$82.10 per barrel. All trades were
completed in Canadian dollars.
The table below outlines select metrics in our key development
and legacy areas for the three months ended March 31, 2019 and excludes the impact of
hedging:
Area
|
Select Metrics –
Three Months Ended March 31, 2019
|
Production
|
Liquids
Weighting
|
Operating
Cost
|
Netback
|
Cardium
|
19,375
boe/d
|
70%
|
$13/boe
|
$28/boe
|
Deep Basin
|
1,501
boe/d
|
21%
|
$2/boe
|
$13/boe
|
Alberta
Viking
|
1,009
boe/d
|
40%
|
$15/boe
|
$16/boe
|
Peace
River
|
4,449
boe/d
|
88%
|
$14/boe
|
$8/boe
|
Key Development
Areas
|
26,334
boe/d
|
69%
|
$12/boe
|
$23/boe
|
Legacy
Areas
|
1,317
boe/d
|
36%
|
$38/boe
|
$(30)/boe
|
Key Development
& Legacy Areas
|
27,651
boe/d
|
67%
|
$13/boe
|
$21/boe
|
The table below provides a summary of our operated activity in
the third quarter.
|
|
|
|
|
Number of Wells Q1
2019
|
|
|
Drilled
|
Completed
|
On-stream
|
|
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
Cardium
|
|
|
|
|
|
|
|
Producer
|
|
5
|
5.0
|
9
|
9.0
|
4
|
4.0
|
Peace
River
|
|
0
|
0.0
|
0
|
0.0
|
2
|
1.1
|
Total
|
|
5
|
5.0
|
9
|
9.0
|
6
|
5.1
|
|
|
|
|
|
|
|
|
|
Hedging Program and Strategy Updates
The Board of Directors and management have completed a fulsome
review of our hedging strategy and believe that a conservative
hedging strategy will help provide certainty to our cash flow and
capital programs for 2019 and 2020. This combined with our capital
flexibility improves our ability to live within FFO, while offering
investors continued upside exposure to improving commodity prices.
At current prices, the program economics are robust, and as such,
the Company has begun building a hedging position for the second
half of 2019 and will work towards building a 2020 position. The
Company plans to take hedging contracts on a Canadian dollar basis
to limit foreign exchange management and where liquidity exists,
hedge Canadian differentials to protect wellhead pricing.
Currently, the Company has the following crude oil hedges in
place:
|
Q2 2019
|
Q3 2019
|
Q4 2019
|
WTI $USD
|
$56.53
|
-
|
-
|
bbl/day
|
2,000
|
-
|
-
|
WTI $CAD
|
$68.58
|
$83.47
|
$82.10
|
bbl/day
|
4,000
|
950
|
550
|
Total
|
|
|
|
bbl/day
|
6,000
|
950
|
550
|
The Company has no currency or gas hedges currently in
place.
Increasing our Cardium Focus in the 2019 Capital
Program
The Cardium continues to deliver strong results as evidenced by
the recently announced operational results and our quarterly
production rates. As part of our disciplined capital allocation
review, management has elected to remove $7
million of capital previously earmarked for two Deep Basin
wells and reallocate this capital to our Cardium asset adding two
additional wells. The Company now plans to drill a total of 18
Cardium wells in 2019, reaffirming its focus on the short cycle,
light oil and highest margin asset in our portfolio.
At this time, the total planned capital of $120 million for 2019 remains unchanged, with the
Board approving a second half 2019 capital spend, including
decommissioning expenditures, of $75
million. Of the approved second half capital spend,
approximately $50 million will be
allocated to drilling 13 primary Cardium wells. The capital program
remains flexible, with the ability to increase development activity
should pricing allow.
Updated Capital Program Details:
Capital
Category
|
# of
Wells
|
Net
Capital
|
Cardium
|
18
Producers
|
$81
million
|
Non-Operated
Development
|
2.5 net
Producers
|
$6 million
|
Existing Wellbore
Optimization
|
>25
Projects
|
$5 million
|
Maintenance &
Corporate
|
|
$16
million
|
Capital
Expenditures
|
|
$108
million
|
Decommissioning
Expenditures
|
|
$12
million
|
Total
|
|
$120
million
|
There are no changes to the full year production and cost
guidance figures. A review of the figures is outlined in the table
below:
Metric
|
2019 Guidance
Range
|
Production
|
26,750 to 27,750 boe
per day
|
Capital Expenditures
including
Decommissioning Expenditures
|
$120
million
|
Production Growth
Rate (1)
|
Flat
|
Operating
Costs
|
$14.00 - $14.50 per
boe
|
General &
Administrative
|
$2.00 - $2.50 per
boe
|
(1)
|
Relative to full year
2018 A&D adjusted production of 26,900 boe per day
|
Annual and Special Meeting to be held June 5, 2019
The Company's Annual and Special Meeting (the "Meeting")
for Shareholders is scheduled on Wednesday,
June 5, 2019 at 9:00 a.m. Mountain
Time (11:00 a.m. Eastern
Time). The Meeting will be held in the SunAlta Ballroom of
the Marriott Downtown Hotel, located at 110 – 9th Avenue SE
Calgary, Alberta.
There will be a corporate presentation given by Michael Faust, Interim President and CEO during
the Meeting.
To listen to a live broadcast of the presentation and the
question and answer period, please access the following URL:
https://event.on24.com/wcc/r/1990022/E40D0DB297F639B0E3563F924B869040
A replay of the audio webcast and a link to the Meeting
presentation will be available two hours afterwards on our website
at www.obsidianenergy.com
Electronic copies of our Management Information Circular, Proxy
Statement, financial statements, news releases, and other public
information are available on our website
at www.obsidianenergy.com, on SEDAR at www.sedar.com, and
on EDGAR at www.sec.gov.
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.
Abbreviations
Oil
|
Natural
Gas
|
|
bbl
|
barrel or
barrels
|
Mcf
|
thousand cubic
feet
|
bbl/day
|
barrels per
day
|
mcf/d
|
thousand cubic feet
per day
|
boe/d
|
barrels of oil
equivalent per day
|
mmcf/d
|
million cubic feet
per day
|
Non-GAAP Measures
Certain financial measures including FFO, FFO per share-basic,
FFO per share-diluted, Netback, net debt and Adjusted EBITDA
included in this press release do not have a standardized meaning
prescribed by IFRS and therefore are considered non-GAAP measures;
accordingly, they may not be comparable to similar measures
provided by other issuers. FFO is cash flow from operating
activities before changes in non-cash working capital,
decommissioning expenditures and office lease settlements which
also excludes the effects of financing related transactions from
foreign exchange contracts and debt repayments/ pre-payments and is
representative of cash related to continuing operations. FFO is
used to assess the Company's ability to fund its planned capital
programs. See "Calculation of Funds Flow from Operations" below for
a reconciliation of FFO to its nearest measure prescribed by IFRS.
Netback is the per unit of production amount of revenue less
royalties, operating expenses, transportation and realized risk
management gains and losses, and is used in capital allocation
decisions and to economically rank projects. See "Financial and
Operational Highlights" above for a calculation of the Company's
Netbacks. Net debt includes long-term debt and includes the effects
of working capital and all cash held on hand. See "Reconciliation
of Net Debt" below for a calculation of the Company's Net Debt.
Adjusted EBITDA is cash flow from operations excluding the impact
of changes in non-cash working capital, decommissioning
expenditures, financing expenses, realized gains and losses on
foreign exchange hedges on prepayments, realized foreign exchange
gains and losses on debt prepayment, restructuring expenses and
other expenses. Adjusted EBITDA as defined by Obsidian Energy's
debt agreements excludes the EBITDA contribution from assets sold
in the prior 12 months and is used within Obsidian Energy's
covenant calculations related to its syndicated bank facility and
senior notes. Additionally, under the syndicated credit facility,
realized foreign exchange gains or losses related to debt
maturities are excluded from the calculation.
Calculation of Funds Flow from Operations
(millions, except per
share amounts)
|
Three months
ended
March 31
|
2019
|
2018
|
Cash flow from
operating activities
|
$
|
(1)
|
$
|
57
|
Change in non-cash
working capital
|
|
27
|
|
(32)
|
Decommissioning
expenditures
|
|
2
|
|
2
|
Onerous office lease
settlements
|
|
1
|
|
5
|
Restructuring charges
– cash portion
|
1
|
|
1
|
Other
expenses(1)
|
6
|
|
2
|
Funds flow from
operations
|
$
|
36
|
$
|
35
|
|
|
|
|
|
Per share
|
|
|
|
|
Basic per
share
|
$
|
0.07
|
$
|
0.07
|
Diluted per
share
|
$
|
0.07
|
$
|
0.07
|
(1)
|
Includes legal fees
related to ongoing claims against former Penn West Petroleum Ltd.
("Penn West") employees related to the Company's 2014 restatement
of certain financial results
|
Reconciliation of Net Debt
|
As at
|
(millions)
|
March 31,
2019
|
March 31,
2018
|
Long term
debt
|
|
|
|
Current portion of
long-term debt
|
$
|
30
|
$
|
32
|
Long term portion of
long-term debt
|
428
|
335
|
Total
|
458
|
367
|
|
|
|
Working capital
deficiency
|
|
|
Cash
|
|
(3)
|
|
(2)
|
Accounts
receivable
|
|
(70)
|
|
(102)
|
Other
|
|
(12)
|
|
(14)
|
Bank
overdraft
|
|
1
|
|
-
|
Accounts payable and
accrued liabilities
|
|
123
|
|
156
|
Total
|
|
39
|
|
38
|
Net debt
|
$
|
497
|
$
|
405
|
|
|
|
|
|
|
Forward-Looking Statements
Certain statements contained in this document constitute
forward-looking statements or information (collectively
"forward-looking statements"). Forward-looking statements are
typically identified by words such as "anticipate", "continue",
"estimate", "expect", "forecast", "budget", "may", "will",
"project", "could", "plan", "intend", "should", "believe",
"outlook", "objective", "aim", "potential", "target" and similar
words suggesting future events or future performance. In addition,
statements relating to "reserves" or "resources" are deemed to be
forward-looking statements as they involve the implied assessment,
based on certain estimates and assumptions, that the reserves and
resources described exist in the quantities predicted or estimated
and can be profitably produced in the future. Please note that
initial production and or peak rates are not necessarily indicative
of long-term performance or ultimate recovery. In particular, this
document contains forward-looking statements pertaining to, without
limitation, the following: that we will continue to deliver strong
and repeatable well results from our fast track light oil Cardium
assets, consistent with the strong performance of the first 19
wells in the program; that we are working to deliver the best
possible financial structure in place to support the business that
will both allow for flexibility in times of volatility and
strengthen our balance sheet; that we will conduct a thorough
review of our cost structure to identify areas for improvement,
aiming to bring costs in line with peers, focusing on both capital
expenditures and expenses and how that goal will be achieved; that
we will seek to divest non-core properties, if the market
conditions are favorable, and redeploy proceeds to growing our
Cardium production; the next phases of our Cardium program
including locations and timing; how we expect to further
rationalize the portfolio to focus the Company towards light oil
production and higher margin production; that a conservative
hedging strategy will help provide certainty to our cash flow and
capital programs for 2019 and 2020 hedging and combined with our
capital flexibility improves our ability to live within FFO, while
offering investors exposure to improving commodity prices; that we
will work towards building a 2020 position and how the hedging
contracts will be structured; our drilling plans, locations and
focuses; our total planned capital for 2019 and that it remains
flexible, with the ability to increase development activity should
pricing allow; the guidance for production, operating costs,
G&A and production growth; and the date, time, place of our
Meeting and Corporate presentation to be conducted therein.
With respect to forward-looking statements contained in this
document, we have made assumptions regarding, among other things
that we do not dispose of any material producing properties other
than stated herein; the impact of the Alberta mandated production curtailment; our
ability to execute our long-term plan as described herein and in
our other disclosure documents and the impact that the successful
execution of such plan will have on our Company and our
shareholders; that the current commodity price and foreign exchange
environment will continue or improve; future capital expenditure
levels; future crude oil, natural gas liquids and natural gas
prices and differentials between light, medium and heavy oil prices
and Canadian, WTI and world oil and natural gas prices; future
crude oil, natural gas liquids and natural gas production levels;
future exchange rates and interest rates; future debt levels; our
ability to execute our capital programs as planned without
significant adverse impacts from various factors beyond our
control, including weather, infrastructure access and delays in
obtaining regulatory approvals and third party consents; our
ability to obtain equipment in a timely manner to carry out
development activities and the costs thereof; our ability to market
our oil and natural gas successfully to current and new customers;
our ability to obtain financing on acceptable terms, including our
ability to renew or replace our syndicated bank facility and our
ability to finance the repayment of our senior notes on maturity;
and our ability to add production and reserves through our
development and exploitation activities.
Although we believe that the expectations reflected in the
forward-looking statements contained in this document, and the
assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations will
prove to be correct. Readers are cautioned not to place undue
reliance on forward-looking statements included in this document,
as there can be no assurance that the plans, intentions or
expectations upon which the forward-looking statements are based
will occur. By their nature, forward-looking statements involve
numerous assumptions, known and unknown risks and uncertainties
that contribute to the possibility that the forward-looking
statements contained herein will not be correct, which may cause
our actual performance and financial results in future periods to
differ materially from any estimates or projections of future
performance or results expressed or implied by such forward-looking
statements. These risks and uncertainties include, among other
things: the possibility that we will not be able to continue to
successfully execute our long-term plan in part or in full, and the
possibility that some or all of the benefits that we anticipate
will accrue to our Company and our securityholders as a result of
the successful execution of such plans do not materialize; the
possibility that we are unable to execute some or all of our
ongoing asset disposition program on favourable terms or at all;
general economic and political conditions in Canada, the U.S. and globally, and in
particular, the effect that those conditions have on commodity
prices and our access to capital; industry conditions, including
fluctuations in the price of crude oil, natural gas liquids and
natural gas, price differentials for crude oil and natural gas
produced in Canada as compared to
other markets, and transportation restrictions, including pipeline
and railway capacity constraints; fluctuations in foreign exchange
or interest rates; unanticipated operating events or environmental
events that can reduce production or cause production to be shut-in
or delayed (including extreme cold during winter months, wild fires
and flooding); and the other factors described under "Risk Factors"
in our Annual Information Form and described in our public filings,
available in Canada at
www.sedar.com and in the United
States at www.sec.gov. Readers are cautioned that this list
of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak
only as of the date of this document. Except as expressly required
by applicable securities laws, we do not undertake any obligation
to publicly update any forward-looking statements. The
forward-looking statements contained in this document are expressly
qualified by this cautionary statement.
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SOURCE Obsidian Energy Ltd.