Quarterly / Earnings Reports | Third Quarter (3Q) Update

Obsidian Energy Reports Q3 2019 Results

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Obsidian Energy reported its Q3 2019 results.

Michael Faust, Interim President and CEO, commented, "Throughout the third quarter of 2019, Obsidian Energy continued to deliver on our commitments. We continue to operate within our Funds Flow from Operations, production remains strong and within guidance and we continue to be very pleased by the results we are seeing from the Cardium development program. In addition, we continue to focus on cost reduction efficiencies in our business and the success of these programs are significant, such that we are able to lower our full year operating cost per barrel guidance range to $13.50 - $13.75 per boe."

Highlights:

• FFO totaled $29 million ($0.40 per share) for the third quarter of 2019 compared to $41 million ($0.56 per share) in the second quarter of 2019 and $26 million ($0.36 per share) in the third quarter of 2018. The change from the previous quarter in 2019 was mainly due to commodity price volatility.

• Average production in the third quarter was 25,505 boe/d, ahead of internal estimates for the quarter. In October, the Company began bringing the first wells on production from its Phase 2 Cardium program. All 13 remaining wells in the program will be brought on-line throughout the fourth quarter of 2019 which will increase production rates.
  
  
• Capital expenditures for the quarter, excluding decommissioning liabilities, totaled $27 million. Early in the third quarter we began our Phase 2 Cardium development program drilling six wells.
  
  
• Operating costs were $14.65 per boe in the third quarter of 2019 compared to $14.53 per boe in the third quarter of 2018. The Company undertook several planned facility turnarounds in the quarter. As a result of successful cost cutting initiatives throughout 2019, the Company has reduced its full year 2019 operating cost guidance range to $13.50 - $13.75 per boe.
  
  
• General and administrative costs ("G&A") were $2.25 per boe in the third quarter and the Company has narrowed its full year 2019 G&A guidance range to $2.10 - $2.35 per boe. In 2019, we have completed several cost reduction initiatives which have removed approximately $8 million of gross G&A which will be fully realized in 2020.
  
  
• The Company continues to live within its means, posting third quarter Net Debt of $497 million, which is identical to December 31, 2018, and is expected to remain at approximately this level through year end 2019. In addition, the Company paid down its syndicated credit facility by $12 million during the third quarter, resulting in total long-term debt at quarter end of $467 million. On September 30, 2019, Senior Debt to Adjusted EBITDA, as calculated under the Company's credit agreement, was 2.93:1 compared to a 4.25:1 covenant limit.
  
  
• The next Syndicated Credit facility milestone date is November 19, 2019, where the banks have the right to reconfirm that February 28, 2020 will be the commencement date of the term-out period of the facility.
  
  
• As previously announced, the Company built on its fourth quarter 2019 hedge position, adding 2,663 barrels per day at an average price of $79.62 per barrel. All trades were completed in Canadian dollars to remove foreign exchange risk.
  
  
• As announced on September 10, 2019, the Board of Directors has initiated a formal process to explore strategic alternatives intended to evaluate the Company's strategic options and alternatives to maximize shareholder value. The process is ongoing, and the Company will provide an update at such time as the Board determines that further disclosure is necessary or appropriate.
  
  
• The Company continues to actively pursue the disposition of its interest in the Peace River Oil Partnership as it focuses its asset base and operations on the Cardium.

The table below outlines select metrics in our key development and legacy areas for the three months ended September 30, 2019 and excludes the impact of hedging:

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

Phase 2 Cardium Delivers Initial Results

Phase 2 of our Cardium light-oil development drilling program kicked-off early in the third quarter, with 13 wells planned for the second half of 2019 which remains on time and on budget. The initial 10-day production rates from the first two-well pad 7-24-43-8W5, which was brought onstream in mid-October, averaged 547 boe/d and 84% oil. The second two-well pad 14-24-43-8W5 was brought on production shortly thereafter and produced with an average 10-day initial production rate of 682 boe/d day and 87% oil. These wells continue to demonstrate strong early productivity and oil-weighting, consistent with results seen in Phase 1 of the Cardium development program.

Completions operations have been running smoothly with continued cost-discipline and schedule delivery. To date, 12 of 13 planned wells for the second half of 2019 have been rig released, seven of the 13 have been completed and all 13 wells are anticipated to be on production by the end of the year. In the third quarter the Company delivered our longest well to date at 5,487 meters of measured depth (02/05-02-043-08W5), set our pacesetter monobore design well at 10 days (00/09-05-043-07W5), and intermediate-casing well at 12.8 days (00/05-02-043-08W5).

2019 Guidance Updates

Obsidian Energy is pleased to provide updated full year 2019 guidance figures to reflect the progress being made on our top priorities to maintain strong and consistent delivery from our Cardium development program and reduce costs across the business. We have narrowed our expected production range to reflect the consistency of our Cardium development program, as well as the impact of our Carrot Creek asset disposition in the first quarter. The successful cost reduction initiatives employed this year have allowed us to significantly lower our guidance on operating costs and tighten the expected range of G&A. Our updated full year 2019 guidance is below;

Hedging Program

In the third quarter, the Company capitalized on the volatility of commodity prices building on its fourth quarter hedge position by 2,663 barrels per day at an average price of $79.62 per barrel. The Company will look for opportunities to layer on additional hedges going forward as pricing allows.

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

The Company has no currency or gas hedges currently in place.