Obsidian Energy Ltd. Q1 FY2025 Earnings Call

Thank you for your patience. Welcome to Obsidian Energy’s First Quarter 2025 Results and Annual General and Special Meeting Webcast. The conference is being recorded. I will now hand it over to Mark Hawkins, Vice President, Legal. Please proceed.

Yes, and thank you for joining us on our call today. First, I’d like to point out that we will be referring to forward-looking information in connection with Obsidian Energy and the subject matter of today’s call. By its nature, this information contains forecasts, assumptions, and expectations about future outcomes, so we remind you that it’s subject to the risks and uncertainties affecting every business, including ours. Please refer to the disclosure at the end of the presentation, along with our public disclosure filings available on both SEDAR+ and EDGAR systems for a full discussion of significant factors and risks that could affect Obsidian Energy or that could affect future outcomes for the company. Thank you for your time. And now I’d like to turn it over to President and CEO, Stephen Loukas.

Thank you, Mark. Good afternoon, everyone, and thank you for joining today’s call. I would like to turn your attention to Page 3, where I’ll quickly go through a corporate overview. Our second quarter 2025 estimated production midpoint is approximately 29,200 BOEs a day, and that is pro forma for the sale of our Pembina assets, which we closed during the first week of April. Our production mix is approximately 72% oil and liquids. We currently have approximately 71 million shares outstanding as of April 30, which translates to a market capitalization of approximately $385 million. We have forecasted net debt of approximately $255 million at the end of the second quarter, which translates to net debt to FFO of approximately 1.1x. The map on the right basically dictates our production by geographic area, and you’ll see that it’s itemized across Peace River, our light oil business, which consists of Willesden Green, PCU #11, and our Viking position. Turning your attention to Page 4, it outlines our strategy. Our strategy is to deliver superior shareholder returns, driven by a couple of key pillars. One, the ultimate goal is to drive per share growth via a combination of production growth, share buybacks, and the reduction of debt. The strategy has been to utilize the free cash flow generation from our light oil assets and reinvest that into growing our Peace River asset. We always look to grow the intrinsic value of the business via targeted bolt-on transactions, farm-ins, or potential activity at land sales. And we aim to achieve all that by maintaining a prudent leverage position as well as having ample liquidity. Turning your attention to Page 5, we outline our strategic advantages. First, we have a high-quality asset base with a number of light oil assets that provide stable production, free cash flow generation, and also have significant potential for future growth. We have not spent much time talking about the growth potential of our light oil assets, but we certainly have the ability to do so in a market environment that is conducive to doing that. Additionally, as we’ve outlined over the last 1.5 years, our Peace River area offers substantial future production growth as well as the potential for Enhanced Oil Recovery (EOR), which we have commenced with an initial waterflood project in our Dawson field. We have additional upside via exploration, given the significant and substantial size of our undeveloped land position in Peace River. We’ve got a strong balance sheet, and we’re in a stable financial position. We have the ability to self-fund our growth while providing a return of capital, which we’ve chosen to execute via share repurchases. And we have a team that is technically adept, provides proven expertise and knowledge of our subsurface assets, and is very good on the operational front. Lastly, we’re committed to the highest health and safety standards. We would consider corporate governance to be a core competency, and we’re very active participants in the communities where we operate. With that, I’ll turn it over to Gary Sykes to walk you through the subsequent slides.

Thanks, Steve. So, in these next few slides, I’d like to cover some key attributes of our recent operated Pembina sale. As our stakeholders will know, we closed this transaction early last month for total consideration of approximately $320 million. That consideration consisted of $211 million in cash after closing adjustments, which was deployed to reduce debt, approximately 9.1 million in-play shares, representing around one-third of the outstanding shares of In-Play, and the acquisition of a 34.6% working interest in the Willesden Green Unit Production Unit #2, taking our ownership in this operated unit to close to 100%, where we have extensive future development plans. Just in terms of some key metrics, the disposition represented 10,300 barrels of oil equivalent per day as an average number for 2024, and we sold the asset for what we consider as full and fair value based on recent present transactions and the strong 2.7 multiple that we achieved based on 2024 net operating income. Overall, this transaction strengthens our balance sheet materially and allows us an increased level of focus and optionality on our two key operated assets: namely, our heavy oil Peace River asset and our light oil Willesden Green position. Next slide, please. Moving on to some additional specifics around what we see as the primary merits of the disposition. Post-transaction, on an operated basis, we like the effective balance in production between our light and heavy oil positions at Willesden Green and Peace River, respectively. Beyond that, our operated Viking asset continues to provide good additional optionality in our portfolio, and we retain our working interest in the Pembina Cardium Unit #11 asset, which provides stable and valuable contributions to our overall production mix. I’ve already talked about our use of cash proceeds to strengthen the balance sheet, so let me move to a few other key characteristics, specifically OpEx and Asset Retirement Obligations (ARO). On the OpEx side, we see around $1.60 per BOE improvement moving forward. Given the mature nature of Pembina and its related maturity, we have made a significant reduction of over 50% of our corporate asset retirement obligations, reducing our undiscounted obligations from $747 million to approximately $357 million. Finally, on this slide, and as mentioned previously, we’ve retained a material position in In-Play as part of the transaction, providing us exposure to potential future upside in addition to numerous options to crystallize value for existing Obsidian shareholders. Next slide, please. Okay, moving on, let me talk about some notable highlights in our year-to-date operations. We’ve been heavily weighted towards our heavy oil asset, where we had 5 rigs running in Q1. Our primary objectives were threefold: first, utilize frozen ground conditions to access exploration and appraisal targets in both the Clearwater and Bluesky formations to further delineate our land base and build future drilling inventory; second, as we approached breakup conditions, pivot to existing strong inventory in established field areas; and third, execute on our first dedicated Clearwater injection pilot. This is a 5-well pad in our Dawson field. Two producers are online, one producer will be brought online shortly, and we are presently drilling the first of two dedicated water injection wells. Needless to say, we’re excited about this pilot and the potential implications for future area development regarding a broader implementation of enhanced oil recovery technology. To finish off, on the financial highlights, we completed the Pembina asset sale and also completed our semi-annual borrowing base redetermination with our syndicated credit facility for $235 million, noting we were approximately $30 million drawn on this facility immediately post-closing of the Pembina transaction. Finally, we continued with our return of capital commitment through the repurchase of approximately 3.5 million shares for a consideration of $24.5 million through May 6 of this year. With that, I will pass it over to Peter Scott, our CFO.

Thanks, Gary. I appreciate that. Good afternoon, everybody. I’ll take you through some of the results for Q1. As a reminder, this includes the Pembina assets that we sold immediately post the quarter, which you can see readily in our production profile and in the net debt chart. Just taking you through some of our results for Q1, it was a good quarter for us. Production was 38,400 BOEs a day. That’s up 12% over Q1 last year, with the growth coming solely from heavy oil as we executed on our Peace River program. Capital expenditures for the quarter were $128 million. Q1 for us is usually a heavy capital quarter, which is typical. Last year, we were at $114 million, making this a strong capital expenditure level. Decommissioning expenditures on ARO were $6.6 million. Looking at our operating costs, they increased a bit in Q1 this year to $1,572 versus $1,391 last year. This increase is attributed to the Peace River activity as the wells initially come on stream and the higher water handling costs. With the Pembina disposition, we also incurred some land survey costs that we were required to update. To our benefit, we had lower power costs in the quarter, which helped us out. Overall, this results in a decent operating cost level. G&A came in at $1.61. G&A is usually a bit higher in the first quarter, given all the benefits paid to the government early in the quarter. Last year, we were at $1.77. Hence, G&A per BOE did come down. Translating this into overall netback, it remained flat at $33 per BOE compared to $33.40 last year. This translated into funds flow from operations of $100 million, representing a 19% increase over Q1 last year and a 25% increase on a per share basis given the NCIB activity that we had. With the heavier capital expenditures in the quarter, we posted negative free cash flow of about $35 million. We also spent just under $10 million on our NCIB. As a result, our debt increased to about $460 million from $411 million at year-end, largely due to a build in negative working capital of $50 million, directly correlated to the higher capital spending during the quarter. Typically, this will come down in the second quarter as our capital expenditures decrease. Our leverage ratios stand at 1.1x, and as you can see from the chart, our debt is projected to drop significantly with the Pembina disposition to an estimated $255 million at the end of Q2. Next slide, please. Now, I’d like to spend a little bit of time on guidance for the first half, primarily focusing on Q2. You can see on the right-hand side, we have some heavy oil and light oil asset characteristics broken out, along with some sensitivities to prices and economic factors. These sensitivities are primarily dictated by May and June as April has already concluded. For production, we project a range of 28,800 to 29,600. We are looking at spending capital expenditures of $37 million to $42 million. Overall, first half capital expenditures will be down $15 million to $20 million from our original forecast. There’s no real change to decommissioning expenditures. Our net operating costs are expected to come down in Q2 because the sold Pembina assets had relatively higher operating costs, leading to evident benefits in Q2. Our G&A is projected to rise slightly with the lower production base, but it remains solid at $2 per share. An anticipated $60 WTI will result in an expected FFO of $60 million or $0.86 per share. We expect to generate positive free cash flow of $16 million this quarter, and our debt is expected to decrease to $255 million at quarter-end, placing us at about 1.1x debt to funds flow from operations annualized for Q2. Crucially, this does not include the value of our in-play shares, which stands at 9.1 million shares currently valued at about $60 million and is not accounted for in that number. Next slide, please.

Yes. Thank you very much, Peter. Moving on to Slide 12, it represents an overview of our Peace River asset. One aspect I notice when I look at a map like this is that it often fails to portray the size of the region. The map on this slide is nearly 70 miles across, more than the distance from Calgary to Canmore. There are massive parts of this area that have yet to be explored. Following the consolidation of our ownership in Peace River in late 2021, Obsidian, after a thorough technical review of the established Bluesky play and the emerging Clearwater play, concluded that our Peace River asset contained a significant amount of unrealized value. The asset had previously been developed focusing on future secondary recovery, and as a result, it had been over a decade since a meaningful round of exploration had occurred in the area. Since then, we’ve not been alone in this conclusion, with competitors increasing their activity. However, the foundational land position and our proactive approach have both served as definitive advantages for Obsidian. Our land position now comprises approximately 700 square miles, and we are diligently working to develop the value of this vast resource. This journey is best portrayed on Slide 13. The drastic increase in our land position is the most obvious overall change to the asset. We have taken an aggressive stance in acquiring prospective land in the area, supported not just by our exploration program, but importantly, by the 15-year plus land tenure for the Peace River oil sands, which allows us to retain this value for decades to come. Not easily seen in the table is our change in infrastructure and egress. We now own or have a significant working interest in the key gas plants and oil batteries in the area. This strategic position is crucial given the gas conservation requirements for the area and necessary access to sales points. Our exploration and development programs have led to significant reserve additions by year-end 2024, moving from approximately 27.5 locations in 2021 to 16 2P locations. We've developed the Clearwater formation from test to over 4,000 BOE per day, showcasing 60% of our development program in the region. However, we haven't rested. Our land position continues to expand, this time through farm-in opportunities forming part of our 2025 development program that we will discuss later. Our exploration program has yielded meaningful results that will lead to future drilling and reserve additions, which we will explore in more detail on Slide 6. A key challenge with Peace River exploration is seasonal access. The Peace River oil field commences in the West on a flat agricultural belt and stretches over 70 miles eastward across the flat forest of Jackpine and Black Spruce. The region allows for easy and inexpensive winter exploration access, but is restricted to the coldest months of the year. We have to plan our programs around these limitations, starting with any exploration we want to undertake, then followed by development on all-season areas of the field later in the quarter. Our drilling rig programs commenced in Q1, focusing on testing and delineating our extensive land base. In total, we drilled seven exploration wells, all of which encountered good reservoirs and produced hydrocarbons from often limited production tests while access allowed. Five of these wells produced at or demonstrated promising cleanup profiles. However, this statement on its own does not capture the full story. So, let’s take a deeper look at two key areas of success. First is North Nampa, where we successfully drilled our second Clearwater well test in Q1. Our Northern Nampa land block spans 50 contiguous square miles of land and had not experienced any horizontal production tests before 2024. We drilled our first well of our 2024 exploration program, achieving an IP30 of 170 BOE per day and 16 API oil, notably light for the region. We drilled a second delineation well in Q1 of this year. The same narrative holds for the South Harmon Valley South exploration test. This winter, we drilled two exploration wells, including one vertical strat well on the southward trend of our established Harmon Valley South asset. Obsidian retains over 55 contiguous sections of land in the area along the same trend as this productive field. Reflecting on this, it's noteworthy that, by the latest provincial measurements, there are 135 billion barrels of oil in place in this region, and until this winter, no one had conducted production tests on the southern end of one of the most productive areas of the field. The reason for this stagnation is straightforward: when you drive to the Harmon South Valley field, the main field lies to the left side of the road, and no road has been built to the right yet. The two wells drilled in South HVS both encountered over 15 meters of oil pay in a high-quality reservoir. We drilled 11 legs on the 15 and 15 well, while cutting the 10 and 27 wells short at eight legs; this was done in a race against weather to initiate production. This leads us to our exploration results on Slide 15. Continuing the story on South HVS, we activated both wells and produced as long as conditions allowed while frozen. For 15 and 15, that extended for 41 days. The 10 and 27 well produced for 31 days. You have to contextualize how heavy oil wells clean up. During drilling, a continuous loss of fluid, primarily water, occurs in the reservoir. When production starts, the initial fluid produced is what was introduced into the reservoir. The water is lighter and more mobile than the thick heavy oil, and it comes out first. It’s crucial to generate the right conditions to allow the heavier oil to move. This process requires time. We had more time on 15 of 15 than 10 and 27, which reflects in the recorded production rates. The 15 of 15 well reached a promising rate of 151 BOE per day at an 83% water cut before being shut in, contrasting with the 10 and 27 well, which peaked at 69 BOE per day at a 95% water cut. This well was starting to clean up prior to shut-in due to access. Notably, each 1% improvement in water cut equates to nearly a 14-barrel oil production change. It’s worth noting that this was an eight-leg well. The first leg was for testing, with the remaining seven being horizontal production legs, thus having only 64% of the open hole of what a typical Bluesky well would show. Finally, considering tracer results from that well, only two of the seven horizontal legs definitively produced oil at the last pre-shut-in test. While a peak rate of 69 BOE per day may not seem significant, the underlying potential behind the well is far more promising. The same trend applies to our Clearwater results in Nampa highlighted on the slide. We have now tested three distinct sands, all of which exhibit some of the best oil quality in the region at close to or significantly above economic rates. Our North Nampa field has two wells: the first, the previously mentioned well at 170 barrels of oil per day and the recent one yielding an IP30 of 128 barrels of oil, also at 16 API. Taking these results into account and inspecting the overall area from where we started, we have drilled four very promising wells in the Clearwater Bluesky over nearly three townships of land that had never previously been tested using a horizontal multilateral approach. This propels our focus on exploration in this area forward. Following this with a balanced approach, we will conduct development drilling later in the quarter. In total, we drilled 19 development wells, and the results of these are just starting to reach significant production days. We drilled five wells in North HVS, offsetting some of our best wells from last year. We are very satisfied with the early production results from all five wells, with the longest active well being on 13 of 18, registering an IP16 of 424 BOE per day. We foresee the potential to drill additional wells in the area during the second half of the year when conditions permit. We also drilled five earning wells in the Bluesky as part of our development program, which further expanded our land position in areas we consider development-ready. We’ve seen initial IPs of 229 and 222 BOE per day from well 423, validating this approach. Similarly, our Clearwater program's first IPs of 229 and 222 BOE per day illustrate strong results, and we still have five more wells in the early stages of production that will enhance these two wells. While most of our production development program is still early, we are keenly anticipating our next updates with more results to share. Of particular importance is our first integrated waterflood pilot in Clearwater in Dawson. This pilot is designed to emulate patterns from other successful waterfloods in the formation and other fields. It will be the first of its kind in Peace River, and as Gary discussed, we are drilling the first injection well as we speak. Not to be overlooked is that our light oil assets remain among the top quality light oil assets in our portfolio. The primary focus of these assets in Q1 was our PCU#11 non-operated asset in Northwest Pembina, which is underdeveloped but holds significant potential. Obsidian retained our 44% working interest, and our partners drilled five wells in the first half of the year. Additionally, while the Pembina disposition yielded numerous benefits, Gary noted a key attribute being the consolidation of our working interest ownership on the east side of Willesden Green in Willesden Green Cardium Unit #2. Obsidian had not developed this part of the field largely due to a lower prior working interest. Coincidentally, this section of the Cardium field underlies the emerging Belly River play in an area where Obsidian has had substantial land base and drilling success on our first well. We have fashioned a revised development plan in this area that efficiently facilitates shared pads and facilities between these two plays. We maintain a drill-ready inventory in our Viking play for opportunities when conditions favor potential light oil investment. Lastly, on Slide #17, before I pass the presentation back to Peter, I would note that our Willesden Green asset consistently maintains a robust drill-ready inventory associated with gas-weighted optionality. Gas locations in both the Mannville formation and Cardium are executable should the macro environment dictate. This adaptability, combined with the rise of the Belly River play, where our first well demonstrated ongoing production improvement, empowers us to adjust our portfolio to focus on light oil or gas as required. Our ability to invest in these assets is evident in the historical production graph shown on this page. With that, thank you for your time, and I will turn it back over.

Thanks, Jay. I will now direct your attention to Page 8, where I will quickly walk you through our reserves and our pro forma NAV value. In the lower left-hand corner, you can see our pro forma reserves, adjusted for the Pembina asset disposition that occurred in April. The salient takeaway is that even at a $60 WTI assumption, we still trade below our PDP value. On the right-hand side, you will see the growth in reserves as of year-end 2024, which encompasses the Pembina asset. Looking over to the upper right-hand corner, you have our pro forma net asset value per share. This includes the market value of our in-play shares, roughly $60 million as of last night’s close, compared to our current share price. This illustrates the discount at which it trades across various price scenarios based on PDP, 1P, and 2P measures. With that, I will direct your attention to the final slide on Page 19, which discusses the reasons to invest in Obsidian Energy. Firstly, we have a well-defined strategy aimed at unlocking the potential for both our heavy and light oil assets. The overarching goal is to drive production and funds flow per share growth while continuing to return capital through share buybacks. We have a low decline asset base that is oil and liquids-weighted, holding substantial underlying reserve value. Additionally, we trade at a significant discount to our peers across various metrics. We have been active via our NCIB program, effectively purchasing and canceling around 16% of the total shares outstanding since the NCIB program's inception two years ago. Furthermore, our significant tax pools ensure we won’t be cash taxpayers for approximately ten years at $70 WTI, which will extend beyond that at present prices. Lastly, we are dedicated to making a material positive difference for all our stakeholders and communities where we operate. With that, we will pause and open the floor for Q&A.

Thank you very much. To remind everyone listening in, if you have a question for the management team, please submit it through the webcast portal, and we will do our best to address all questions in the allocated time. The first question pertains to the Peace River program. One of our shareholders would like to know, directed towards Jay probably, what is a waffle well, how do they differ from the usual multilateral wells, and what’s the theory behind their apparent efficacy?

Yes. Thank you, Susan. We have drilled our fifth waffle well as part of this recent program, and I would say the name says it all – it's not particularly clever. It's a series of conventional horizontal legs, still 11 as per our guidance, where we then drill subsequent legs that cross over on the same well perpendicularly to the primary producing leg, essentially forming a waffle pattern if viewed aerially. There are complicated pressure drawdown reasons why we believe this method could prove successful. However, the simplistic explanation I often provide is to imagine trying to exit downtown during a traffic jam with only one direction of flow. The waffle well allows hydrocarbons and pressure to flow in multiple directions in the reservoir before reaching the pump instead of having a single blocked or limited flow path. Hence, we're providing multiple avenues for the hydrocarbons to produce. It creates slightly more open hole conditions, and thus far, we are pleased with the results we are seeing.

Thank you very much, Jay. Another question concerns some February well results mentioned in our previous update. The inquiry centers around several wells in Peace River that were noted as underperforming. Could you provide additional information on what operational or geological adjustments have been made to enhance results? Have the wells begun performing better?

Jay, you can take that.

I appreciate that, thanks, Steve. We released some results in February 2025 focused on the Cadotte portion of our field. For context, that's the westernmost extent of our field where we tested the flank edges. In short, the wells encountered higher viscosity oil than expected. While hydrocarbons are present in the well, the fluid's reluctance to flow preferentially faced challenges. Consequently, we observed higher than anticipated gas rates on one well and higher water rates on some others. We still have mitigation strategies in mind to salvage that, either by producing the gas or subsequently disposing of the water on-site, while allowing the wells to produce at a slightly higher water cut than we originally expected. Currently, however, these wells are shut in while we approach a strategy to manage those solutions.

Thanks very much. Several questions arise surrounding the capital allocation post the Pembina sale, specifically regarding the in-play shares. With proceeds from this IPO, how does Obsidian balance debt reduction, share buybacks, and reinvestment in Peace River delineation? Are there plans to accelerate shareholder returns given the streamlined portfolio? What is the overall strategy with the in-place shares?

Yes, I'll take that. I think we have been quite prescriptive regarding the post-sale proceeds. The cash proceeds from that transaction were allocated to pay down debt. We were very active with buybacks throughout April, purchasing over 2 million shares, which is about 3% of the total shares outstanding in just that month. This occurred in the last three weeks. Our capital plan was updated to cut some capital from the first half plan in response to market conditions. We aim to keep our production flat as prices hover around these levels. The key takeaway is that this financial strategy is superior; we can buy back shares at a substantial discount. We don't forgo the opportunity to grow our production when we choose to do it. I’ve noticed some research framing this as negative, yet there's no reason to drive production growth in a $60 world—particularly when we can buy back our shares at considerable discounts to intrinsic value, yielding better returns compared to primary development economics today. That's our approach. Regarding the in-play shares, we are pleased with the transaction. We've publicly stated that the Cardium—specifically the Pembina portion of the field—needed consolidation. We executed a transaction that we believe provided fair value for Obsidian shareholders and placed those assets in the hands of a management team we trust will manage them well. While we aren't long-term shareholders of in-play, we see upside from current trading levels and will evaluate things over the next couple of months regarding our ultimate strategy.

Thank you, Steve. Related to the Pembina transaction, is there any plan to monetize additional non-core assets—or Peace River assets—or Viking assets to fund buybacks, or are we looking to bid on other companies out there?

Yes, we are not looking to sell additional assets. We are very comfortable with our current portfolio and don’t find ourselves in a position where we need to. We've effectively narrowed it down to two core areas, and the Viking can provide shorter-cycle, light oil drilling opportunities whenever prices allow. Regarding other M&A opportunities, we should evaluate everything that may become available in our area; this doesn't guarantee a pursuit. Some examination may simply be for benchmarking purposes, while others might present values worth considering. For now, we are content with capital allocation directed toward share buybacks, which raises the bar significantly.

Thank you. A quick query about how we transport our product to market. Do we deliver via oil and gas, Trans Mountain, or by pipeline?

Yes, so the short answer is that ultimately, our product gets delivered via pipelines. The light oil business operates much more simply; the majority of our production is connected to pipelines. At Peace River, due to the heavy oil nature and winter conditions, a significant portion of production—though not all—is trucked to dedicated terminals, which are pipeline-connected, ultimately reaching Edmonton.

Great. Thank you, Gary. We have numerous questions regarding our plans concerning oil prices and production, including our maintenance capital—what capital is needed to uphold production at 29,000 barrels a day? If oil prices stagnate further, we’ve stated we likely will adhere to a maintenance program. What would that imply for capital into 2026? And what WTI prices would be necessary to escalate production to the 35,000 to 40,000 barrels range?

Yes. Several questions are embedded in that, so I will address them sequentially. To frame this, we’ve indicated that at current prices, we are content to maintain production at 29,000 BOEs a day. We're not going to disclose what the maintenance capital needed to sustain that production level is—it’s a dynamic factor based on program specifics and service costs. The industry is about to enter spirited negotiations with service cost providers, especially at a $60 or potentially lower price level. Hence, there is a degree of fluidity to that answer. We will release our second-half budget by the end of June. About potential stagnation, we are prepared for that in the short term and have chosen a path that grows our production rate while simultaneously growing FFO per share. It’s incorrect to assert that we aren't growing. The ultimate objective of any growth program is to enhance per-share growth. It makes no sense to expand production but issue a bunch of shares in the process, leading to dilution. So, we’re comfortable at the current production level. Our balance sheet has the strength to maintain this, and we will react to evolving market conditions.

Thank you, Steve. A quick question regarding our recent news release. In summary, we stated that we experienced constructive results, and Jay elaborated on this concerning five of the seven pads. Can you specify which pads did not yield constructive results or provide additional insight for shareholders?

Certainly. The two pads we didn’t mention included the most southeastern test we've executed in the field among our Clearwater wells. This particular site has been producing consistently but at a sub-economic rate of around 24 barrels of oil per day, which is unsustainable. That rate can be attributed to the inflows relative to higher viscosity oil, so we are currently analyzing this aspect, but it's not deemed constructive at this point. The second was a Bluesky pad in Nampa, where we noted hydrocarbon presence and cleanup, yet did not yield a definitive conclusive test result. Results from that site will be pending additional analysis as we return in winter.

Thank you. A question about the current breakeven oil price for Peace River delineation drilling. If WTI remains below $60 a barrel or less, would Obsidian halt exploration to focus on shareholder returns? At what price level would drilling be halted?

I think the best way to frame it is that we’ve communicated that the first segment of our capital program this year was largely focused on exploration due to winter access factors. For the latter part of the year, we are shifting towards development wells, so we don’t anticipate an emphasis on exploration or delineation wells any longer.

Thank you. Do you have a budget estimate for share buybacks in May and June?

I am not going to disclose that; it would be unwise to do so.

Thank you. When the share count drops to the low $50 million range, would you consider instituting a dividend? What’s your ongoing process for shareholder returns?

I wouldn’t tie the potential for a dividend to share count specifically. It’s linked to strategic outlook. We have actively returned capital to shareholders through buybacks, which we view as a superior approach right now. There may come a time when instituting a dividend makes sense, and we will evaluate that in the right context.

Thank you very much. This was previously addressed in today’s news release, but the question was raised regarding the extent of debt that has been repaid post-Cardium sale and the current net debt to fund flow ratio?

Can you take it?

Certainly! It’s important to note that our debt to funds flow ratio stands at 1.1x using our annualized Q2 estimates. We consider this to be a conservative reading; many of our peers reference EBITDA for this metric, which for us would be lower. Importantly, this measure does not account for the value of our in-place share position, making it a prudent assessment of our current leverage.

Thank you very much. A question regarding asset retirement obligations: with the ARO involved in the Pembina transaction, does Obsidian maintain any responsibility for the ARO expense for these assets in 2025?

Certainly, Cliff, do you want to answer that?

Yes, happy to. The ARO associated with the transaction falls under the responsibility of the asset's new owner post-transfer. As for the specifics, the AER assigned minimum spend obligations in the prior year that included assets owned at that time. Thus, while Obsidian takes on spending responsibilities in 2025, we hold the discretion on how to deploy that financing.

Thank you. Could you elaborate on what plans you have to convert winter access roads in Nampa and North Dawson into all-year road access based on recent results?

It’s fair to say that we are currently evaluating that possibility in real-time. We will provide further comments when we release our second-half budget.

Thank you. Several questions relate to our future strategy and plans. Following today’s news release, it was stated that we will not be reestablishing a three-year growth plan. Are there any future plans to do so, or has this changed the company’s outlook? What actions are being taken to provide a revised strategy?

The strategy remains unchanged, which is to maximize shareholder value through various means. We decided to forgo publishing a three-year plan after selling the Pembina asset, representing approximately 11,000 BOEs of what was a 50,000 BOE a day target. We will publish our second-half budget at the end of June and will provide thoughtful remarks on 2026 and beyond when it is appropriate to do so.

Thank you, Steve. A question about specific actions taken to increase shareholder value during the current environment. What is the new shareholder proposition?

The company has undertaken multiple actions, which include delineating our Peace River asset base, the sale of the Pembina asset at what we deemed to be fair market value, significantly streamlining company operations while enhancing the balance sheet. In a higher price environment, we would recycle that capital into new production, but we've also been buying our shares. Therefore, the value proposition boils down to the ongoing effort to grow intrinsic business value. You either trust that our management team and Board will harvest value, or you do not, whereas those who do can take advantage of our active buyback program.

Thank you very much, Steve. A related question about our plans with the in-play shares.

That question has been addressed already.

Thank you. A question regarding the reasoning behind the reduction in drilling and whether this stems from asset conditions or commodity prices?

It’s a blend. As previously noted, it stems from commodity prices alongside a desire not to diminish our inventory at current prices while also capitalizing on the opportunity to buy shares at a substantial discount to intrinsic value.

Thank you. We have a question about the Peace River water slide. There is some information in today’s news release, but could you provide further details on the status and further plans for Clearwater?

Sure, Gary touched on where we stand as far as status goes, but we are currently in the process of drilling our first integrated waterflood pilot, which we denote as integrated since we are drilling both injectors and producers concurrently. This is occurring in Dawson, where we’re presently drilling the first of these single-leg injectors. The three producers have been drilled, two of which are currently in production and cleaning up. We look forward to commencing water injection in this area in the near future.

Great. Thank you very much. As a reminder to those on the webcast, if you have a question, please send it in. Otherwise, we are nearing the end of the call.

Thank you, Susan. I want to thank everyone for their interest in the company. Thank you for the questions, and we look forward to speaking with you in the near future. Have a good afternoon.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.