Obsidian Energy Announces Year-End 2018 Financial and Operational Results; Divests Non-Core Asset; Proposes 7:1 Common Share Consolidation; and Announces David French to Step Down as President and CEO

CALGARY, March 7, 2019 /PRNewswire/ – OBSIDIAN ENERGY LTD. (TSX – OBE, NYSE – OBE.BC) (“Obsidian Energy“, the “Company“, “we“, “us” or “our“) is pleased to announce its year-end 2018 financial and operational results. All figures are in Canadian dollars unless otherwise stated. Obsidian Energy’s audited consolidated financial statements and Management’s Discussion and Analysis (“MD&A“) as at and for the year-ended December 31, 2018 can be found on our website at www.obsidianenergy.com. The documents will also be filed on SEDAR and EDGAR in due course.

“Obsidian Energy implemented a manufacturing drilling model in the Cardium in the second half of 2018 that delivered significant cost efficiencies and demonstrable year-end reserve growth,” commented David French, President and CEO. “And while the widening differentials weighed on financial results for the quarter, as it did across the industry, the success of our efforts in the Cardium have set the foundation for 2019 and beyond.”

“We entered 2019 with a clear focus on prioritizing primary, short cycle, light oil Cardium development. Given the depth of our inventory and our disciplined approach to managing our non Cardium portfolio, we have the scale and flexibility for significant growth as oil prices strengthen. Because of the Alberta Government Curtailment Rules, the first half of 2019 is dedicated to ensuring the highest netback barrels are produced within our allocation. We intend to spend within funds flow from operations and maintain a portfolio of drill ready locations. We look forward to building upon the successes in the Cardium and are excited for the future it represents.”

“Having made further progress on reshaping our legacy portfolio and demonstrated the value of our approach to the Cardium, I feel now is the appropriate time to transition the Company to new leadership,” added Mr. French. “It has been a privilege to work with the Board and Obsidian Energy’s dedicated staff during the Company’s pivot to new growth. I have great confidence in the team and the Company’s future.” Mr. French will step down from the Company on March 29, 2019. Michael J. Faust has been named interim President and CEO, effective March 18, 2019.

“We would like to thank Dave for his positive contributions. He led the Company through its strategic transition towards the Cardium and materially reduced the costs of the legacy portfolio, which helps position the Company for success,” said Gord Ritchie, Chair of the Board. “We appreciate Dave’s efforts and wish him well in the future.”

“I would like to express my gratitude and appreciation to the staff and Board at Obsidian Energy for everyone’s efforts during my time as President and CEO,” said Mr. French. “I wish Mike every success in his new role as he guides the Company towards its refocused strategy.”

Please see accompanying press release for additional information.

Leading Drilling Results

The Company drilled 20 gross operated Cardium producing wells throughout the year, with 10 of the 14 second half 2018 (“H218“) program wells being brought online before the end of the year. These H218 wells have achieved high initial production rates, with high liquids weighting, that are meeting our initial expectations while costs are below budget. The Company has successfully yielded IP30 rates between 328 and 860 boe per day and capital efficiencies of approximately $18,500 per boe which remain competitive across the Western Canadian sedimentary basin. The strong results of the H218 Cardium drilling program emphasizes the potential of the Willesden Green asset which will be the main pillar of the Company during 2019.

In addition to the Cardium program, the Company successfully drilled eight gross wells in the Peace River Oil Partnership (“PROP“) area, four of which were brought on production in the first half of 2018. These four wells have reached some of the highest rates ever achieved in the area. Due to improved Western Canadian Select differentials in early 2019, the Company has decided to bring the remaining four wells on production. The Company also continued its delineation of the Deep Basin play and successfully drilled two development wells in 2018.

Achieved 2018 Production and Capital Guidance

Full year 2018 production was 28,953 boe per day, on the high end of our revised guidance range of 28,500 – 29,000 boe per day, despite spending $13 million less than our estimated full year revised capital guidance of $190 million. In the fourth quarter of 2018, the Company achieved production of 29,905 boe per day, which represents eight percent production growth over the third quarter of 2018. Our 2018 optimization program continued to maintain our shallow base decline and solid execution of our second half development program led to the strong performance in the quarter.

Full year 2018 capital expenditures were $168 million plus $9 million of decommissioning expenditures. This is well below our guidance, demonstrating our ability to manage capital in a difficult pricing environment. Total capital included 36 gross operated wells and the completion of Alberta Energy Regulator’s (“AER“) Directive 84 to build a gas gathering plant and associated infrastructure for Hydrocarbon Emission Controls and Gas Conservation in the Peace River area. Fourth quarter capital expenditures were $41 million, which included drilling 10 Willesden Green Cardium wells and one PROP well.

Lowest Quarterly Cost Structure Realized in More Than 10 years

Fourth quarter 2018 operating expenses were $33 million or $11.82 per boe and general and administrative costs were $5 million or $1.95 per boe. The reduction was due to increasing Cardium volumes and successful cost saving initiatives in the quarter. This represents the best operating and general and administrative costs per boe realized by the Company in more than 10 years.

Full year operating expenses were $147 million or $13.89 per boe, a decrease of $29 million versus full year 2017, comfortably within our revised guidance range of $13.75 – $14.00 per boe. Full year general and administrative costs were $24 million or $2.24 per boe. This represents a decrease of $7 million versus full year 2017 and is at the mid-point of our guidance range of $2.00 – $2.50 per boe. The Company will continue to focus on additional cost saving initiatives in 2019.

Second Half Optionality Remains to Enhance 2020 Outlook

Given the volatility of Alberta commodity prices, the Company has maintained the operational flexibility to adjust our second half 2019 capital program. Obsidian Energy has a large inventory of highly economic, drill ready locations and plenty of infrastructure head room to facilitate growth. We will continue to be prudent with respect to balance sheet management, targeting balanced capital spending to Funds Flow from Operations (“FFO“). As next quarter’s pricing plays out and we obtain further certainty on our full year cash flow profile, we will fine tune our capital program for the second half of the year.

Decreasing Decommissioning Liabilities with Cost Reductions

Obsidian Energy has been actively managing our ongoing liability for many years by approaching well, pipeline, and facility abandonments on a systematic basis. In 2018, the Company elected to participate in the AER’s Area Based Closure Program (“ABC“) and began the shut-in of our marginal Legacy portfolio. Obsidian Energy was able to shut-in a significant portion of its Legacy properties at minimal cost to the Company which will result in a reduction in our Legacy operating costs by an additional $4 million in 2019. Additionally, due to this activity we were able to reduce our overall Decommissioning Liability by approximately $24 million on a discounted basis versus the third quarter of 2018 due in part to these successful initiatives. We plan to continue this momentum into 2019 and target to reduce the average cost of abandoning wells by approximately 30 percent.

Financial and Operating Highlights

• FFO for the fourth quarter was negative $2 million, reflecting weaker realized pricing due to volatile crude oil differentials in the fourth quarter. Full year FFO was $92 million.
• Average liquids sales prices in the fourth quarter were $28.39 per boe and average natural gas sales prices were $2.46 per mcf. Lower realized liquids pricing was a direct result of lower WTI and historically wide Canadian differentials in the fourth quarter.
• Fourth quarter operating costs were $11.82 per boe. Operating costs per boe were significantly lower than the third quarter as a result of cost saving initiatives in the quarter and added Cardium volumes.
• Invested $41 million of capital expenditures across our key development areas and $4 million of decommissioning expenditures in the fourth quarter. Full year capital and decommissioning expenditures were $168 million and $9 million, respectively.
• Total Net Debt was $497 million at December 31, 2018 including $337 million drawn on our syndicated credit facility and $82 million of Senior Notes.

The table below provides a summary of our operated activity in the fourth quarter.

Updated Hedging and Marketing Position

Currently, the Company has the following crude oil hedges in place:

In late 2018, the decrease in crude oil prices allowed the Company to restructure part of its existing hedge book by removing a 1,000 barrel per day WTI swap in the third quarter of 2019 for proceeds of $0.5 million.

In the first quarter of 2019, the Company has foreign exchange contracts at an average of 1.300 on notional US$2 million per month. Currently, the Company has no natural gas hedges in place.

In late December, the Company also monetized the physical delivery contract for 15 mmcf per day to Northern Border Ventura for US$10.5 million or CAD$14 million. The decision to monetize the contract was due to an expansion in the forward curve spread between AECO and Northern Border Ventura gas pricing.

2019 Guidance Summary

Our total 2019 guidance remains unchanged.

Production and Cost Guidance:

Carrot Creek Disposition

In the first quarter of 2019, the Company signed a purchase and sale agreement to sell the associated production and mineral rights below the Cardium formation from its Carrot Creek property for $12.5 million. Production from the asset is estimated to be approximately 460 boe per day (72% gas weighted) in 2019. This divestiture is consistent with the Company’s focus on the Cardium formation, to which it retains the rights. The proceeds of this transaction will be used to pay down our syndicated credit facility. Transaction metrics are outlined below.

Covenant Amendment

In March 2019, the Company reached an agreement with the holders of our senior notes to amend our Senior and Total Debt to Adjusted EBITDA covenants for 2019. The amendment provides flexibility to execute the 2019 program within covenant levels.

The Senior Debt and Total Debt to Adjusted EBITDA covenants will be set at a maximum of 4.25:1 for 2019. The Adjusted EBITDA calculation will be based on a rolling EBITDA basis, resetting on January 1, 2019.  As part of the agreement, the Company agreed to pay an additional 50 bps if the covenant is less than or equal to 3.00:1, 100 bps if the covenant is greater than 3.00:1 and less than or equal to 4.00:1 and 150 bps if the covenant is greater than 4.00:1 and less than or equal to 4.25:1.

On January 1, 2020, the covenants will revert to the maximum ratios required prior to entering into the amending agreements (Senior Debt to Adjusted EBITDA – 3:1, Total debt to Adjusted EBITDA – 4:1).

Proposed Share Consolidation

The Board of Directors (“Board“) has unanimously concluded that a proposal of a share consolidation of Obsidian Energy’s common shares is in the best interest of the Company and its shareholders. The share consolidation will reduce the outstanding equity float to a level more in line with the Company’s peers and eliminate uncertainty regarding the Company’s plan to maintain its New York Stock Exchange (“NYSE“) listing. The proposed consolidation ratio will likely ensure continued compliance with the NYSE’s minimum share price listing requirement and reduced transaction costs for lot trading.

Stephen Loukas, a member of the Obsidian Energy Board and a Partner in one of the Company’s largest shareholders, stated “After thorough analysis and consideration, the Board has concluded that there is value in maintaining the Company’s listing on the NYSE, particularly in light of the significant ownership in Obsidian Energy’s shares by U.S. based investors. We believe maintaining the U.S. listing supports the Board’s goal of closing the gap between the Company’s current trading price and intrinsic value.”

Shareholders will be asked to pass a special resolution that will authorize the Board of Directors to direct the Company to amend our articles, in order to consolidate the Company’s issued common shares into a lesser number of issued common shares on the basis of seven (7) old common shares for one (1) new common share. The Board of Directors will retain the discretion to revoke the share consolidation resolution and elect not to proceed with the filing of the articles of amendment and the implementation of the share consolidation.

A share consolidation will be subject to approval of the Toronto Stock Exchange and the NYSE. Further information regarding the potential share consolidation and timing of the Annual and General Meeting will be included in the Company’s Management Information Circular to be disseminated later this spring. The Company’s shares will continue to trade on the NYSE during this time and until after the consolidation proposal has been addressed at the Annual General Meeting.

Year-End 2018 Financial Results Conference Call Details

A conference call will be held to discuss the results at 6:30 a.m. Mountain Time (8:30 a.m. Eastern Time) on March 7, 2019.

This call will be broadcast live on the Internet and may be accessed directly at the following URL:

https://event.on24.com/wcc/r/1950371/3519F2A1554A7061A1AF05ADB846B41C

Alternatively, to listen to the conference call, please call 403-451-9838 or 1-888-231-8191 (toll-free).

A questions and answer session will be held following Managements’ remarks for analysts and institutional investors.

A digital recording will be available for replay two hours after the call’s completion, and will remain available until March 21, 2019, 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-849-0833 or 1-855-859-2056 (toll-free) and enter Conference ID 4193633, followed by the pound (#) key.