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Obsidian Energy Announces First Quarter 2019 Financial and Operational Results


CALGARYMay 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 millionincrease 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 millionof 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



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