Obsidian Energy Announces Strategic Update with Additional $50 Million of Cardium Development

CALGARY, June 4, 2018 /CNW/ – OBSIDIAN ENERGY LTD. (TSX/NYSE – OBE) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to announce an additional $50 million of 2018 Cardium development capital, following up on our recent success in the Willesden Green play fairway.

David French, President and CEO commented, “We are entering a new stage of development by fast tracking our Cardium drilling in Willesden Green. Our recent results, material acreage position, and low base decline rate enable us to step up growth and provide torque to rising 2019 commodity prices. The short cycle inventory we see in our units and the halo of the play demand more investment. We will spend an incremental $50 million in the remainder of 2018, with the majority of production and cash flow coming on near year end.”

Adding $50 million of Willesden Green capital to drill 13 primary wells

The development capital increase includes 13 wells in the eastern part of Willesden Green, both inside the unit and along the halo flank of the area. All 13 wells are informed by offset producing wells that have exceeded internal expectations. Included in the $50 million is $4 million of infrastructure capital which sets up future development opportunities along the eastern side of the play. The capital will be spent throughout the third and fourth quarter, with production beginning to come on line late this year.

The incremental wells will be brought on production with an estimated 12-month capital efficiency of $20,000per boe per day, averaging over 80 percent rate of return at strip prices. We expect to add approximately 2,300 boe per day in full year 2019 from these wells, with monthly production hitting approximately 3,500 boe per day early in the year. We have multiple years of inventory, with line of sight to 80 Willesden Green primary locations and additional primary development potential currently being evaluated.

After initial one-time investment in related infrastructure, we believe we can lower capital efficiencies under $20,000 per boe per day in 2019 and continue to drive significant light oil production growth. We will provide further details on our developments plans and significant running room in the play this fall.

Program backstopped by our balance sheet; accretive to year-end 2019 leverage

We will fund this additional development primarily through our existing credit facility, supplemented with minor dispositions of underutilized and undeveloped acreage. As of May 31, approximately $310 million was drawn on our $440 million credit facility, providing us with sufficient liquidity to execute on this program. The amount drawn includes the recent payment of a US$24 million Senior Note maturity. Despite the increase in capital and backwardation in the crude forward curve, we expect year-end 2019 leverage metrics to approach 1.5 times Senior Debt to EBITDA as a result of the incremental production and cash flow from our development program.

Asset sales update

Since early May, we have entered into several transactions for existing third-party royalty interests totaling approximately $7.5 million in proceeds. Transaction metrics averaged over 20 times and $200,000 per boe per day based on trailing 12-month cash flow and production, respectively. We will continue to progress small additional deals for existing royalties and undeveloped acreage in the coming months.

We have chosen not to sell our Alberta Viking position at this time, as offers were below our view of intrinsic value given: the strong returns at strip pricing, depth of inventory, infrastructure processing advantage and the ability to fund our enhanced Cardium program via a different alternative.

We continue to have ongoing dialogue with China Investment Corporation regarding a potential sale of the Company’s Peace River assets towards the end of the year. We remain committed to reducing debt, accelerating growth and buying back shares with any meaningful asset sale proceeds.

Guidance Update

Our updated Total Capital Expenditure Guidance is as follows:

As a result of the additional Cardium wells not expected to come on stream until late in the year, we will update full year 2018 guidance as part of our normal second quarter release when final drilling and development plans are in place.