Obsidian Energy provides corporate and operational update

Message to Shareholders

We are pleased to report that Obsidian Energy has quickly adapted to the challenging environment over the past few months by taking prudent and decisive actions resulting in a CDN $24 million reduction in our forecasted operating expenses for 2020. Due to improved oil prices, narrower oil differentials, renegotiated marketing & transportation contracts and the inherent flexibility within our portfolio, we anticipate that as of July 1, 2020 we will have returned approximately 3,300 boe/d or 88% of our previously announced shut-in volumes to production. July 2020 production is expected to average 26,100 boe/d (65% oil and NGL).

We continue to experience strong results from the wells drilled from our first half 2020 capital program, which has delivered some of the highest rates in the multi-year history of our Cardium program, while achieving 5% costs savings per well across the 10 well program versus our 2019 drill, complete, equip and tie-in per well average cost.  Accordingly,  this drilling program is forecasted to add approximately 2,400 boe/d to our 2020 annualized production on related capital expenditures of $35.8 million (inclusive of drilling/completion/equipping/tie-in costs, and inclusive of $4.0 million spent in Q4 2019), representing a highly-attractive forecasted annualized capital efficiency of $14,920/boe/d. As a result of the combination of our stringent attention to improving Obsidian Energy’s cost structure and the cumulative impact of the results of our Cardium development program, we now forecast our 2021 WTI break-even price to be US$42 per barrel. This highly competitive result will allow us to achieve cash flow neutrality inclusive of capital expenditures to maintain future production levels.

First Half 2020 Capital Program

All 10 development wells drilled in the first quarter of 2020 in our program are on production with the last two recently coming on in late May. These wells have delivered some of the strongest results to date in the history of our Cardium program.

Production Shut-In Program

Obsidian Energy carefully monitors the detailed financial performance of our fields and has further reduced costs to improve the ongoing business. Through cost reductions, successful negotiations on short term pricing arrangements, and improved oil prices, we have responded quickly to restore economic production at minimal cost. The Company has brought back on the majority of our shut-in production. The following volumes will remain shut-in as of July 1, 2020:

Obsidian Energy’s operations remain flexible, with the ability to shut-in or restore production as commodity price allows without impact to our subsurface reservoirs.

Amended Credit Facility Reconfirmation Date

The Company has a reserve-based syndicated credit facility with the underlying borrowing base and amount available to be drawn under the syndicated credit facility of $550 million and $450 million, respectively. The Company recently entered into an amending agreement with lenders which resulted in the extension of the previously scheduled re-confirmation date on June 22, 2020 to September 4, 2020. Additional details of the terms in the amending agreement are as follow:

• a revolving period reconfirmation date will occur on September 4, 2020, whereby the lenders may accelerate the end date of the revolving period to September 15, 2020 with the end date of the term period also concurrently accelerated to April 1, 2021; and
• the lenders have the option to complete a borrowing base determination on September 15, 2020. If the lenders elect not to complete a determination, the next scheduled borrowing base determination will occur on November 30, 2020, as previously disclosed.

Government Assistance Programs

In May 2020, we submitted 3,483 applications for consideration under the first funding increment of the Alberta Site Rehabilitation Program through our service providers. This program is expected to further allow the Company to continue well, pipeline, and infrastructure abandonment and reclamation projects by providing grants directly to service companies. As at the date of this release we continue to await award details for the 100% government-funded grants within this first increment.

In addition, the Company has been successful in its application to the Canadian Emergency Wage Subsidy (CEWS) and has received CDN $1.8 million to date. We anticipate additional support through this program, which was recently extended to August 29, 2020.

We will continue to be judicious in exploring all appropriate federal government support packages available to the Company and will seek further support as appropriate including additional phases of the Alberta Site Rehabilitation Program.

Strategic Alternative Process

Senior management and the Board of Directors continue to focus their attention on the evaluation of the Company’s strategic options and alternatives aimed at maximizing shareholder value, which was announced in September 2019. As the largest Cardium producer and acreage holder and given the macro economic environment, Obsidian Energy continues to actively pursue the objective of consolidation within the Cardium play to allow for the creation of additional scale, efficiency and financial strength.