Obsidian Energy Ltd 6-K, filed May 2, 2024
Obsidian Energy Ltd. (OBE)
About this 6-K
Obsidian Energy Ltd filed this 6-K on May 2, 2024.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
___________________ Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2024 Commission File Number 1-32895 ___________________
Obsidian Energy Ltd. (Translation of registrant's name into English)
Suite 200, 207 – 9th Avenue SW Canada (Address of principal executive offices) ___________________
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F Form 40-F ☑
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1)
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7)
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DOCUMENTS INCLUDED AS PART OF THIS FORM 6-K
See the Exhibit Index hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 2, 2024.
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OBSIDIAN ENERGY LTD. |
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By: |
/s/ Stephen Loukas
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Name: |
Stephen Loukas |
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Title: |
President and Chief Executive Officer |
EXHIBIT INDEX
Exhibit |
Description |
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99.1 |
News Release, dated May 2, 2024 |
99.2 |
Management’s Discussion and Analysis for the three months ended March 31, 2024 |
99.3 99.4 99.5 |
Financial Statements for the three months ended March 31, 2024 Quarterly Certification of the Chief Executive Officer under Canadian law Quarterly Certification of the Chief Financial Officer under Canadian law
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Exhibit 99.1
Obsidian Energy Announces First Quarter 2024 Results
(4.0 net) wells to the first half program
CALGARY, May 2, 2024 - OBSIDIAN ENERGY LTD. (TSX / NYSE American – OBE) (“Obsidian Energy”, the “Company”, “we”, “us” or “our”) is pleased to report strong operating and financial results for the first quarter of 2024.
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Three months ended March 31 |
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2024 |
2023 |
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FINANCIAL1 (millions, except per share amounts) |
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Cash flow from operating activities |
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58.7 |
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72.6 |
Basic per share ($/share)2 |
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0.76 |
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0.89 |
Diluted per share ($/share)2 |
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0.73 |
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0.87 |
Funds flow from operations3 |
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84.4 |
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94.3 |
Basic per share ($/share)4 |
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1.09 |
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1.15 |
Diluted per share ($/share)4 |
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1.05 |
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1.12 |
Net income |
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11.9 |
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30.5 |
Basic per share ($/share) |
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0.15 |
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0.37 |
Diluted per share ($/share) |
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0.15 |
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0.36 |
Capital expenditures |
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114.3 |
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107.1 |
Decommissioning expenditures |
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10.1 |
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8.7 |
Long-term debt |
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277.6 |
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259.3 |
Net debt3 |
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386.3 |
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351.4 |
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OPERATIONS |
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Daily Production |
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Light oil (bbl/d) |
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13,079 |
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12,809 |
Heavy oil (bbl/d) |
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6,748 |
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6,241 |
NGL (bbl/d) |
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2,783 |
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2,678 |
Natural gas (mmcf/d) |
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70 |
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69 |
Total production5 (boe/d) |
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34,238 |
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33,153 |
Average sales price2,6 |
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Light oil ($/bbl) |
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94.82 |
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101.51 |
Heavy oil ($/bbl) |
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60.39 |
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44.98 |
NGL ($/bbl) |
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50.43 |
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59.37 |
Natural gas ($/mcf) |
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2.38 |
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4.06 |
Netback ($/boe) |
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Sales price |
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57.07 |
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60.89 |
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Risk management gain |
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1.24 |
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0.88 |
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Net sales price |
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58.31 |
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61.77 |
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Royalties |
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(7.05 |
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(8.40 |
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Net operating costs3 |
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(13.91 |
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(14.57 |
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Transportation |
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(3.95 |
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(3.25 |
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Netback3 ($/boe) |
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33.40 |
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35.55 |
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Detailed information can be found in Obsidian Energy's interim consolidated financial statements and management's discussion and analysis ("MD&A") as at and for the three-month period ended March 31, 2024 on our website at www.obsidianenergy.com, which will also be filed on SEDAR+ and EDGAR in due course.
2
First quarter 2024 overview
Obsidian Energy completed the majority of our first half 2024 drilling program during the first quarter with five rigs in operation across our Peace River and Willesden Green/Pembina (Cardium) assets. In total, 25 (24.4 net) operated wells were rig released and 11 (11.0 net) operated wells were brought on production in the quarter. Initial results from our development and exploration/appraisal activities are encouraging, with strong production additions from an additional 17 (17.0 net) operated and four (1.3 net) non-operated wells that came on production subsequent to quarter end.
First quarter 2024 production increased by three percent (11 percent on a per share basis) to 34,238 boe/d from 33,153 boe/d in the first quarter of 2023. During the first quarter of 2024, FFO was $84.4 million ($1.09 per share), which was a 10 percent decrease (five percent on a per share basis) compared to the same period in 2023. Higher average production combined with lower net operating costs helped to partially offset lower natural gas prices, wider light oil differentials and higher share-based compensation (“SBC”) due to the appreciation of our share price during the period. The SBC units issued directly to employees under our compensation plans several years ago (when our share price was significantly lower) have now all vested and are no longer outstanding. As a result, the expected future impact of a $1.00 per share price change on SBC (and corresponding impact to FFO) is expected to decrease to approximately $2.4 million from $3.7 million previously. In the first quarter of 2024, we renewed our normal course issuer bid (“NCIB”) for a second year and remained active with our share buyback program through the re-purchase and cancellation of 1.05 million shares for $10.5 million ($9.94 per share).
“We are extremely pleased with the progress of our first half 2024 capital program across both our heavy and light oil operations,” commented Stephen Loukas, Obsidian Energy’s President and CEO. “Our first half development program is yielding strong initial results at or above our expectations. Within our Peace River program, our recent strong results at Harmon Valley South (“HVS”) unlocks incremental future Bluesky inventory within the area. Additionally, we are continuing development at our Walrus field with the drilling of a six-well pad, while also fast-tracking our first Clearwater formation development field at Dawson.”
Mr. Loukas continued, “Lastly, our Willesden Green/Pembina (Cardium) program has delivered strong results, allowing us to sustain stable volumes and cash flow within our light oil segment to continue to fund growth within our heavy oil segment as well as additional share buybacks. In summary, we remain confident in our ability to deliver our 2024 – 2026 three-year corporate growth plan (the “Growth Plan”) which we believe will create significant value for our stakeholders.”
3
2024 First Quarter Corporate Highlights
4
FIRST QUARTER 2024 CAPITAL program & HIGHLIGHTS
The Company had a strong start to our 2024 program with the first quarter pace of development and capital expenditures as anticipated, providing encouraging initial results at or above expectations. We completed the majority of our first half drilling program during the quarter with five rigs operating in our Peace River (Bluesky and Clearwater formations) and Willesden Green/Pembina (Cardium formation) areas. We are currently in the process of completion activities for the wells and have one rig drilling additional development wells at our new Peace River Dawson Clearwater field through spring break-up. The breakdown of operated wells that were rig released and on production during the first quarter of 2024 are as follows:
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Q1 Gross (Net) Wells |
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Rig Released |
On Production |
DEVELOPMENT WELLS |
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Heavy Oil Assets |
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Peace River (Bluesky) |
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7 (7.0) |
1 (1.0) |
Peace River (Clearwater) |
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1 (1.0) |
- |
Light Oil Assets |
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Willesden Green (Cardium/Mannville) |
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6 (5.7) |
4 (4.0) |
Pembina (Cardium) |
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4 (3.7) |
4 (4.0) |
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18 (17.4) |
9 (9.0)1 |
EXPLORATION/APPRAISAL WELLS |
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Peace River (Bluesky) |
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- |
- |
Peace River (Clearwater) |
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2 (2.0) |
2 (2.0) |
Peace River (OSE) |
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5 (5.0) |
n/a |
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7 (7.0) |
2 (2.0) |
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TOTAL OPERATED WELLS2 |
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25 (24.4) |
11 (11.0)1 |
(1) Seven (7.0 net) wells rig released in 2023 came on production in the first quarter of 2024; they are included in the total. (2) Excluding injection or disposal wells. |
Obsidian Energy also participated in 11 non-operated (5.8 net) wells during the first quarter, one (0.4 net) of which was a water injector well. In April, we brought an additional 17 (17.0 net) operated and four (1.3 net) non-operated wells onstream; most of our wells from our first half 2024 program are expected to be on production by the end of June.
Capital program highlights for the first quarter 2024 were as follows:
5
HEDGING UPDATE
Our hedging strategy focused on our natural gas position given our concerns regarding natural gas storage levels, leading to a realized gain of $3.8 million in the first quarter of 2024 related to these contracts. The Company entered into additional oil contracts for April and May with the following contracts currently in place on a weighted average basis:
Oil Contracts
Type |
Remaining |
Volume |
Swap |
WCS Differential |
April – June 2024 |
750 |
($18.80) |
WTI Swap |
April 2024 |
5,709 |
$112.70 |
WTI Swap |
May 2024 |
1,000 |
$113.72 |
WTI Collar |
April 2024 |
2,625 |
$110.10 – $116.99 |
WTI Collar |
May 2024 |
750 |
$112.30 – $118.38 |
AECO Natural Gas Contracts
Type |
Remaining |
Volume |
Percentage Hedged1 |
Swap Price ($/mcf) |
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AECO Swap |
April – October 2024 |
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43,365 |
61% |
$2.52 |
AECO Swap |
November 2024 – March 2025 |
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14,929 |
21% |
$3.74 |
AECO Collars |
November 2024 – March 2025 |
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4,976 |
7% |
$3.43 - $4.11 |
Electricity Contracts
Type |
Remaining |
Volume |
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Swap |
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Power Swaps |
April - December 2024 |
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144 MWh/d |
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$92.83 |
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6
ANNUAL AND SPECIAL MEETING
The Company’s Annual and Special Meeting (the “Meeting”) is scheduled for Thursday, May 2, 2024, at 9:00 am (MT) at the offices of Obsidian Energy, Suite 200, 207 – 9 Avenue SW, Calgary, Alberta. Access to the Meeting will, subject to Company’s by-laws, be limited to essential personnel, registered shareholders and proxyholders entitled to attend and vote at the Meeting as well as invited guests.
In association with the Meeting, our President and CEO, Stephen Loukas and other members of management will host a webcast presentation after the formal portion of the Meeting at 10:00 am MT (12:00 pm ET) (the “Presentation”).
The Presentation will be broadcast live on the Internet and may be accessed either through our website or directly at the webcast portal. Those who wish to listen to the Presentation should connect at least five minutes prior to the scheduled start time through the following numbers:
Canada / USA: 1-800-319-4610 (toll-free)
Toronto: 1-416-915-3239
Calgary: 1-403-351-0324
A question-and-answer session will be held following the Presentation. If you wish to submit a question to the Company, participants can do so ahead of time after registering on the webcast portal on the Intranet or by emailing questions to investor.relations@obsidianenergy.com. The updated corporate presentation and the Presentation will be available for replay on our website, www.obsidianenergy.com
Additional information about the Meeting can be found on our website.
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.
TEST RESULTS AND INITIAL PRODUCTION RATES
Test results and initial production rates disclosed herein, particularly those short in duration, may not necessarily be indicative of long-term performance or of ultimate recovery. Readers are cautioned that short-term rates should not be relied upon as indicators of future performance of these wells and therefore should not be relied upon for investment or other purposes. A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered preliminary until such analysis or interpretation has been completed.
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by the Company, we employ certain measures to analyze financial performance, financial position, and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income and cash flow from operating activities as indicators of our performance.
7
The Company's interim consolidated financial statements and MD&A as at and for three months ended March 31, 2024, will be available in due course on the Company's website at www.obsidianenergy.com and under our SEDAR+ profile at www.sedarplus.ca and EDGAR profile at www.sec.gov. The disclosure under the section "Non-GAAP and Other Financial Measures" in the MD&A is incorporated by reference into this news release.
Non-GAAP Financial Measures
The following measures are non-GAAP financial measures: FFO; net debt; net operating costs; netback; and FCF. These non-GAAP financial measures are not standardized financial measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. See the disclosure under the section "Non-GAAP and Other Financial Measures" in our MD&A for the three-month period ended March 31, 2024, for an explanation of the composition of these measures, how these measures provide useful information to an investor, and the additional purposes, if any, for which management uses these measures.
For a reconciliation of FFO to cash flow from operating activities, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
For a reconciliation of net debt to long-term debt, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
For a reconciliation of net operating costs to operating costs, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
For a reconciliation of netback to sales price, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
For a reconciliation of FCF to cash flow from operating activities, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
Non-GAAP Financial Ratios
The following measures are non-GAAP ratios: FFO (basic per share ($/share) and diluted per share ($/share)), which use FFO as a component; net operating costs ($/boe), which uses net operating costs as a component; netback ($/boe), which uses netback as a component; and net debt to FFO, which uses net debt and FFO as components. These non-GAAP ratios are not standardized financial measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. See the disclosure under the section "Non-GAAP and Other Financial Measures" in our MD&A for three months ended March 31, 2024, for an explanation of the composition of these non-GAAP ratios, how these non-GAAP ratios provide useful information to an investor, and the additional purposes, if any, for which management uses these non-GAAP ratios.
Supplementary Financial Measures
The following measures are supplementary financial measures: average sales price; cash flow from operating activities (basic per share and diluted per share); and G&A costs ($/boe). See the disclosure under the section "Non-GAAP and Other Financial Measures" in our MD&A for the three months ended March 31, 2024, for an explanation of the composition of these measures.
8
Non-GAAP Measures Reconciliations
Cash Flow from Operating Activities, FFO and FCF
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Three months ended |
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(millions) |
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2024 |
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2023 |
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Cash flow from operating activities |
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$ |
58.7 |
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$ |
72.6 |
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Change in non-cash working capital |
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13.4 |
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6.6 |
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Decommissioning expenditures |
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10.1 |
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8.7 |
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Onerous office lease settlements |
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2.3 |
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2.3 |
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Settlement of restricted share units |
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- |
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4.6 |
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Deferred financing costs |
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(0.6 |
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(0.5) |
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Other expenses1 |
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0.5 |
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- |
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Funds flow from operations |
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84.4 |
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94.3 |
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Capital expenditures |
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(114.3 |
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(107.1 |
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Decommissioning expenditures |
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(10.1 |
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(8.7 |
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Free cash flow |
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$ |
(40.0 |
) |
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$ |
(21.5 |
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Netback to Sales Price
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Three months ended |
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(millions) |
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2024 |
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2023 |
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Sales price |
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$ |
177.8 |
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$ |
181.7 |
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Risk management gain (loss) |
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3.8 |
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2.6 |
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Net sales price |
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181.6 |
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184.3 |
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Royalties |
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(22.0 |
) |
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(25.1 |
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Net operating costs |
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(43.2 |
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(43.5 |
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Transportation |
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(12.3 |
) |
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(9.7 |
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Netback |
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$ |
104.1 |
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$ |
106.0 |
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Net Operating Costs to Operating Costs
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Three months ended |
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(millions) |
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2024 |
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2023 |
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Operating costs |
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$ |
49.3 |
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$ |
49.0 |
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Less processing fees |
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(3.9 |
) |
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(3.6 |
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Less road use recoveries |
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(2.1 |
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(1.9 |
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Less realized power risk management gains |
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(0.1 |
) |
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- |
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Net operating costs |
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$ |
43.2 |
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$ |
43.5 |
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9
Net Debt to Long-Term Debt
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As at |
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March 31 |
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(millions) |
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2024 |
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2023 |
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Long-term debt |
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Syndicated credit facility |
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$ |
167.5 |
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$ |
139.0 |
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Senior unsecured notes |
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114.2 |
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127.6 |
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Unamortized discount of senior unsecured notes |
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(1.5 |
) |
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(2.2 |
) |
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Deferred financing costs |
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(2.6 |
) |
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(5.1 |
) |
Total |
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277.6 |
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259.3 |
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Working capital deficiency |
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Cash |
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(0.3 |
) |
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(0.1 |
) |
Accounts receivable |
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(83.2 |
) |
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(84.3 |
) |
Prepaid expenses and other |
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(14.3 |
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(12.3 |
) |
Accounts payable and accrued liabilities |
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206.5 |
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188.8 |
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Total |
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108.7 |
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92.1 |
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|
|
|
|
|
Net debt |
|
|
|
|
|
|
|
|
|
$ |
386.3 |
|
|
$ |
351.4 |
|
ABBREVIATIONS
Oil |
Natural Gas |
|
||
bbl |
barrel or barrels |
AECO |
Alberta benchmark price for natural gas |
|
bbl/d |
barrels per day |
GJ |
gigajoule |
|
boe |
barrel of oil equivalent |
mcf |
thousand cubic feet |
|
boe/d |
barrels of oil equivalent per day |
mcf/d |
thousand cubic feet per day |
|
MSW |
Mixed Sweet Blend |
mmcf/d |
million cubic feet per day |
|
WTI |
West Texas Intermediate |
|
|
|
WCS |
Western Canadian Select |
Electricity |
|
|
|
|
MWh |
Megawatt hour |
|
|
|
MWh/d |
Megawatt hour per day |
|
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the "safe harbour" provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “budget”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “objective”, “aim”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” or “resources” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: that we will file the interim consolidated financial statements and MD&A on our website, SEDAR+ and EDGAR in due course; our expected future impact of changes on share price to our SBC and FFO; our expectations for the Growth Plan; our expectations for net debt levels and G&A in the future; expected timing for drilling, rig releases, and on-production and onstream dates; our development locations; our hedges; expectations for the Meeting, Presentation and updated corporate presentation.
10
With respect to forward-looking statements contained in this document, the Company has made assumptions regarding, among other things: that the Company does not dispose of or acquire material producing properties or royalties or other interests therein other than stated herein (provided that, except where otherwise stated, the forward-looking statements contained herein do not assume the completion of any transaction); that regional and/or global health related events will not have any adverse impact on energy demand and commodity prices in the future; global energy policies going forward, including the continued ability of members of OPEC, Russia and other nations to agree on and adhere to production quotas from time to time; our ability to qualify for (or continue to qualify for) new or existing government programs created as a result of the COVID-19 pandemic or otherwise, and obtain financial assistance therefrom, and the impact of those programs on our financial condition; Obsidian Energy's views with respect to its financial condition and prospects, the stability of general economic and market conditions, currency exchange rates and interest rates, and our ability to comply with applicable terms and conditions under the Company’s debt agreements, the existence of alternative uses for Obsidian Energy's cash resources and compliance with applicable laws; our ability to execute our plans as described herein and in our other disclosure documents, including our Growth Plan, and the impact that the successful execution of such plans will have on our Company and our stakeholders including our ability to return capital to shareholders and/or further reduce debt levels; expectations and assumptions concerning applicable laws and regulations, including with respect to environmental, safety and tax matters; future capital expenditure and decommissioning expenditure levels; future net operating costs and G&A costs; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future hedging activities; future crude oil, natural gas liquids and natural gas production levels, including that we will not be required to shut-in production due to low commodity prices or the further deterioration of commodity prices; future exchange rates and interest rates; future debt levels; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including extreme weather events, wild fires, infrastructure access and delays in obtaining regulatory approvals and third party consents; the ability of the Company's contractual counterparties to perform their contractual obligations; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; our ability to obtain financing on acceptable terms, including our ability (if necessary) to continue to extend the revolving period and term out period of our credit facility, our ability to maintain the existing borrowing base under our credit facility, our ability (if necessary) to replace our syndicated bank facility and our ability (if necessary) to finance the repayment of our senior unsecured notes on maturity or pursuant to the terms of the underlying agreement; the accuracy of our estimated reserve volumes; and our ability to add production and reserves through our development and exploitation activities.
Although the Company believes that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements contained herein will not be correct, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: Obsidian Energy’s future capital requirements; general economic and market conditions; demand for Obsidian Energy’s products; and unforeseen legal or regulatory developments and other risk factors detailed from time to time in Obsidian Energy reports filed with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission; the possibility that we change our budget in response to internal and external factors, including those described herein; the possibility that the Company will not be able to continue to successfully execute our business plans and strategies in part or in full (including our Growth Plan), and the possibility that some or all of the benefits that the Company anticipates will accrue to our Company and our stakeholders as a result of the successful execution of such plans and strategies do not materialize (such as our inability to return capital to shareholder and/or reduce
11
our debt levels to the extent anticipated or at all); the possibility that the Company is unable to complete one or more of the potential transactions being pursued, on favorable terms or at all; the possibility that the Company ceases to qualify for, or does not qualify for, one or more existing or new government assistance programs implemented in connection regional and/or global health related events or otherwise, that the impact of such programs falls below our expectations, that the benefits under one or more of such programs is decreased, or that one or more of such programs is discontinued; the impact on energy demand and commodity prices of regional and/or global health related events (such as the COVID-19 pandemic), and the responses of governments and the public to any pandemic, including the risk of energy demand destruction; the risk that there is another significant decrease in the valuation of oil and natural gas companies and their securities and the decrease in confidence in the oil and natural gas industry generally whether caused by regional and/or global health related events, the worldwide transition towards less reliance on fossil fuels and/or other factors; the risk that the financial capacity of the Company's contractual counterparties is adversely affected and potentially their ability to perform their contractual obligations; the possibility that the revolving period and/or term out period of our credit facility and the maturity date of our senior unsecured notes is not further extended (if necessary), that the borrowing base under our credit facility is reduced, that the Company is unable to renew or refinance our credit facilities on acceptable terms or at all and/or finance the repayment of our senior unsecured notes when they mature on acceptable terms or at all and/or obtain new debt and/or equity financing to replace one or all of our credit facilities and senior unsecured notes; the possibility that we breach one or more of the financial covenants pursuant to our agreements with our lenders and the holders of our senior unsecured notes; the possibility that we are unable to complete the repurchase offer with our noteholders; the possibility that we are forced to shut-in production, whether due to commodity prices failing to rise or other factors; the risk that OPEC and other nations fail to agree on and/or adhere to production quotas from time to time that are sufficient to balance supply and demand fundamentals for crude oil; general economic and political conditions in Canada, the U.S. and globally, and in particular, the effect that those conditions have on commodity prices and our access to capital; the risk that wars and other armed conflicts adversely affect world economies and the demand for oil and natural gas, including the ongoing war between Russian and Ukraine and/or hostilities in the Middle East; industry conditions, including fluctuations in the price of crude oil, natural gas liquids and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed (including extreme cold during winter months, wild fires and flooding, drought (which could limit our access to the water we require for our operations or extreme warm weather in the spring or summer); the inability to access our properties due to blockades or other activism; the possibility that fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to hydrocarbons and technological advances in fuel economy and renewable energy generation systems could permanently reduce the demand for oil and natural gas and/or permanently impair the Company's ability to obtain financing on acceptable terms or at all, and the possibility that some or all of these risks are heightened as a result of the response of governments and consumers to a regional and/or global pandemic and/or the influence of public opinion and/or special interest groups. Additional information on these and other factors that could affect Obsidian Energy, or its operations or financial results, are included in the Company's Annual Information Form (See "Risk Factors" and "Forward-Looking Statements" therein) which may be accessed through the SEDAR+ website (www.sedarplus.ca), EDGAR website (www.sec.gov) or Obsidian Energy's website. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
Unless otherwise specified, the forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update or revise any forward-looking statements. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Obsidian Energy shares are listed on both the Toronto Stock Exchange in Canada and the NYSE American in the United States under the symbol "OBE".
All figures are in Canadian dollars unless otherwise stated.
12
contact
OBSIDIAN ENERGY
Suite 200, 207 - 9th Avenue SW, Calgary, Alberta T2P 1K3
Phone: 403-777-2500
Toll Free: 1-866-693-2707
Website: www.obsidianenergy.com;
Investor Relations:
Toll Free: 1-888-770-2633
E-mail: investor.relations@obsidianenergy.com
13
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended March 31, 2024
This management’s discussion and analysis of financial condition and results of operations (“MD&A”) of Obsidian Energy Ltd. (“Obsidian Energy”, the “Company”, “we”, “us”, “our”) should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and the Company’s audited consolidated financial statements and MD&A for the year ended December 31, 2023. The date of this MD&A is May 1, 2024. All dollar amounts contained in this MD&A are expressed in millions of Canadian dollars unless noted otherwise.
Throughout this MD&A and in other materials disclosed by the Company, we adhere to generally accepted accounting principles ("GAAP"), however the Company also employs certain non-GAAP measures to analyze financial performance, financial position, and cash flow, including funds flow from operations, netback, sales, gross revenues, net operating costs, net debt and free cash flow. Additionally, other financial measures are also used to analyze performance. These non-GAAP and other financial measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore may not be comparable to similar measures provided by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income and cash flow from operating activities, as indicators of our performance.
This MD&A also contains oil and natural gas information and forward-looking statements. Please see the Company's disclosure under the headings "Non-GAAP and Other Financial Measures", "Oil and Natural Gas Information", and "Forward-Looking Statements" included at the end of this MD&A.
Quarterly Financial Summary
(millions, except per share and production amounts) (unaudited)
|
|
Mar. 31 |
|
|
Dec. 31 |
|
|
Sep. 30 |
|
|
Jun. 30 |
|
|
Mar. 31 |
|
|
Dec. 31 |
|
|
Sep. 30 |
|
|
Jun. 30 |
|
||||||||
Three months ended |
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
||||||||
Production revenues |
|
$ |
177.3 |
|
|
$ |
173.3 |
|
|
$ |
200.4 |
|
|
$ |
166.0 |
|
|
$ |
180.9 |
|
|
$ |
206.5 |
|
|
$ |
210.6 |
|
|
$ |
276.5 |
|
Cash flow from operating activities |
|
|
58.7 |
|
|
|
117.7 |
|
|
|
95.3 |
|
|
|
67.1 |
|
|
|
72.6 |
|
|
|
126.5 |
|
|
|
121.4 |
|
|
|
125.0 |
|
Basic per share (1) |
|
|
0.76 |
|
|
|
1.49 |
|
|
|
1.18 |
|
|
|
0.82 |
|
|
|
0.89 |
|
|
|
1.54 |
|
|
|
1.48 |
|
|
|
1.52 |
|
Diluted per share (1) |
|
|
0.73 |
|
|
|
1.44 |
|
|
|
1.15 |
|
|
|
0.79 |
|
|
|
0.87 |
|
|
|
1.50 |
|
|
|
1.44 |
|
|
|
1.48 |
|
Funds flow from operations (2) |
|
|
84.4 |
|
|
|
97.0 |
|
|
|
98.9 |
|
|
|
87.4 |
|
|
|
94.3 |
|
|
|
110.5 |
|
|
|
104.6 |
|
|
|
157.0 |
|
Basic per share (3) |
|
|
1.09 |
|
|
|
1.23 |
|
|
|
1.22 |
|
|
|
1.07 |
|
|
|
1.15 |
|
|
|
1.34 |
|
|
|
1.27 |
|
|
|
1.91 |
|
Diluted per share (3) |
|
|
1.05 |
|
|
|
1.18 |
|
|
|
1.19 |
|
|
|
1.03 |
|
|
|
1.12 |
|
|
|
1.31 |
|
|
|
1.24 |
|
|
|
1.86 |
|
Net income |
|
|
11.9 |
|
|
|
34.3 |
|
|
|
24.8 |
|
|
|
18.4 |
|
|
|
30.5 |
|
|
|
631.7 |
|
|
|
40.7 |
|
|
|
113.9 |
|
Basic per share |
|
|
0.15 |
|
|
|
0.44 |
|
|
|
0.31 |
|
|
|
0.22 |
|
|
|
0.37 |
|
|
|
7.69 |
|
|
|
0.50 |
|
|
|
1.39 |
|
Diluted per share |
|
$ |
0.15 |
|
|
$ |
0.42 |
|
|
$ |
0.30 |
|
|
$ |
0.22 |
|
|
$ |
0.36 |
|
|
$ |
7.47 |
|
|
$ |
0.48 |
|
|
$ |
1.35 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Light oil (bbl/d) |
|
|
13,079 |
|
|
|
12,176 |
|
|
|
12,452 |
|
|
|
12,512 |
|
|
|
12,809 |
|
|
|
12,105 |
|
|
|
11,062 |
|
|
|
12,261 |
|
Heavy oil (bbl/d) |
|
|
6,748 |
|
|
|
5,851 |
|
|
|
6,260 |
|
|
|
5,356 |
|
|
|
6,241 |
|
|
|
5,983 |
|
|
|
5,854 |
|
|
|
6,174 |
|
NGLs (bbl/d) |
|
|
2,783 |
|
|
|
2,614 |
|
|
|
2,708 |
|
|
|
2,432 |
|
|
|
2,678 |
|
|
|
2,520 |
|
|
|
2,379 |
|
|
|
2,406 |
|
Natural gas (mmcf/d) |
|
|
70 |
|
|
|
68 |
|
|
|
69 |
|
|
|
64 |
|
|
|
69 |
|
|
|
67 |
|
|
|
64 |
|
|
|
64 |
|
Total (boe/d)(4) |
|
|
34,238 |
|
|
|
31,974 |
|
|
|
32,937 |
|
|
|
31,042 |
|
|
|
33,153 |
|
|
|
31,742 |
|
|
|
29,985 |
|
|
|
31,575 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 1 |
Cash flow from Operating Activities, Funds Flow from Operations and Free Cash Flow
|
|
Three months ended March 31 |
|
|||||
(millions, except per share amounts) |
|
2024 |
|
|
2023 |
|
||
Cash flow from operating activities |
|
$ |
58.7 |
|
|
$ |
72.6 |
|
Change in non-cash working capital |
|
|
13.4 |
|
|
|
6.6 |
|
Decommissioning expenditures |
|
|
10.1 |
|
|
|
8.7 |
|
Onerous office lease settlements |
|
|
2.3 |
|
|
|
2.3 |
|
Settlement of restricted share units |
|
|
- |
|
|
|
4.6 |
|
Deferred financing costs |
|
|
(0.6 |
) |
|
|
(0.5 |
) |
Other expenses (1) |
|
|
0.5 |
|
|
|
- |
|
Funds flow from operations (2) |
|
|
84.4 |
|
|
|
94.3 |
|
Capital expenditures |
|
|
(114.3 |
) |
|
|
(107.1 |
) |
Decommissioning expenditures |
|
|
(10.1 |
) |
|
|
(8.7 |
) |
Free Cash Flow (2) |
|
$ |
(40.0 |
) |
|
$ |
(21.5 |
) |
|
|
|
|
|
|
|
||
Per share – funds flow from operations (3) |
|
|
|
|
|
|
||
Basic per share |
|
$ |
1.09 |
|
|
$ |
1.15 |
|
Diluted per share |
|
$ |
1.05 |
|
|
$ |
1.12 |
|
Cash flow from operating activities and funds flow from operations decreased in Q1 2024 from Q1 2023 primarily due to lower production revenues, as a result of lower natural gas prices, in addition to higher transportation costs as we continue to increase development and production in our Peace River area as part of our 2024-26 growth plan.
Additionally, in Q1 2024, both cash flow from operating activities and funds flow from operations were impacted by higher share-based compensation charges related to our cash settled share-based incentive plans This expense was primarily due to the increase in the Company's share price and resultant mark-to-market charge (March 31, 2024 share price of $11.18 per share on the Toronto Stock Exchange compared to $8.99 per share at December 31, 2023). Settlement of the units or awards only occurs when they vest.
Business Strategy
In 2023, the Company announced a 2024-2026 growth plan with production expected to exceed 50,000 boe/d in 2026. The increase is expected to be driven primarily by the development of our Peace River assets, which are forecasted to more than triple production to 24,000 boe/d in 2026.
Our strategy for the three-year corporate growth plan is to maintain production levels in our light oil assets (Willesden Green and Pembina (Cardium) and Viking) and use the significant free cash flow expected to be generated from these assets to fund growth in our heavy oil business at Peace River until it becomes self-sustaining which, subject to commodity prices, is anticipated to be by 2026. Our plan anticipates continued development in both the Bluesky and Clearwater heavy oil formations, with Bluesky production providing the majority of the growth given the significant inventory adjacent to existing fields and our new Walrus development area.
The three-year plan allows the Company to focus on growing Peace River production and per share metrics, with potential options to return capital to shareholders and/or further reduce debt levels. In 2023, we began our share buyback program under our normal course issuer bid (“NCIB”) and continued to be active in Q1 2024. We have re-purchased and cancelled a total of approximately 6.1 million common shares for total consideration of approximately $57.8 million from the inception of the NCIB in 2023 to the end of Q1 2024. Purchases under the NCIB are subject to having $65 million of liquidity and complying with the terms of our current credit facilities.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 2 |
The Company continues to focus on our Environmental, Social & Governance ("ESG") initiatives and progressed our environmental remediation efforts during Q1 2024 by abandoning and reclaiming inactive fields. Currently, we anticipate spending between $23 - $24 million on our decommissioning expenditures in 2024. In the coming years, the Company will continue to focus on abandoning and reclaiming inactive fields across our portfolio while making a positive difference to the environment and communities where we live and work.
Business Environment
The following table outlines quarterly averages for benchmark prices and Obsidian Energy’s realized prices for the previous eight quarters.
|
|
Q1 2024 |
|
|
Q4 2023 |
|
|
Q3 2023 |
|
|
Q2 2023 |
|
|
Q1 2023 |
|
|
Q4 2022 |
|
|
Q3 2022 |
|
|
Q2 2022 |
|
|
||||||||
Benchmark prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
WTI oil ($US/bbl) |
|
$ |
76.96 |
|
|
$ |
78.32 |
|
|
$ |
82.26 |
|
|
$ |
73.78 |
|
|
$ |
76.13 |
|
|
$ |
82.65 |
|
|
$ |
91.55 |
|
|
$ |
108.41 |
|
|
Edm mixed sweet par price (CAD$/bbl) |
|
|
92.21 |
|
|
|
99.46 |
|
|
|
107.89 |
|
|
|
95.12 |
|
|
|
99.06 |
|
|
|
110.03 |
|
|
|
116.88 |
|
|
|
137.76 |
|
|
Western Canada Select (CAD$/bbl) |
|
|
77.80 |
|
|
|
76.76 |
|
|
|
93.07 |
|
|
|
78.89 |
|
|
|
69.44 |
|
|
|
77.38 |
|
|
|
93.62 |
|
|
|
122.06 |
|
|
NYMEX Henry Hub ($US/mmbtu) |
|
|
2.24 |
|
|
|
2.88 |
|
|
|
2.55 |
|
|
|
2.10 |
|
|
|
3.42 |
|
|
|
6.26 |
|
|
|
8.20 |
|
|
|
7.17 |
|
|
AECO 5A Index (CAD$/mcf) |
|
|
2.50 |
|
|
|
2.30 |
|
|
|
2.60 |
|
|
|
2.45 |
|
|
|
3.22 |
|
|
|
5.11 |
|
|
|
4.16 |
|
|
|
7.24 |
|
|
Foreign exchange rate ($US/CAD$) |
|
|
1.35 |
|
|
|
1.36 |
|
|
|
1.34 |
|
|
|
1.34 |
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.31 |
|
|
|
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Benchmark differentials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
WTI - Edm Light Sweet ($US/bbl) |
|
|
(8.65 |
) |
|
|
(5.19 |
) |
|
|
(1.86 |
) |
|
|
(2.96 |
) |
|
|
(2.86 |
) |
|
|
(1.61 |
) |
|
|
(2.05 |
) |
|
|
(0.50 |
) |
|
WTI - Western Canadian Select Heavy ($US/bbl) |
|
|
(19.33 |
) |
|
|
(21.88 |
) |
|
|
(12.89 |
) |
|
|
(15.04 |
) |
|
|
(24.77 |
) |
|
|
(25.66 |
) |
|
|
(19.86 |
) |
|
|
(12.80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Average sales price (1) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Light oil (CAD$/bbl) |
|
|
94.82 |
|
|
|
100.38 |
|
|
|
109.56 |
|
|
|
96.92 |
|
|
|
101.51 |
|
|
|
110.45 |
|
|
|
118.66 |
|
|
|
139.88 |
|
|
Heavy oil (CAD$/bbl) |
|
|
60.39 |
|
|
|
58.53 |
|
|
|
80.14 |
|
|
|
61.63 |
|
|
|
44.98 |
|
|
|
62.19 |
|
|
|
81.78 |
|
|
|
106.18 |
|
|
NGLs (CAD$/bbl) |
|
|
50.43 |
|
|
|
55.65 |
|
|
|
49.71 |
|
|
|
50.45 |
|
|
|
59.37 |
|
|
|
64.33 |
|
|
|
69.12 |
|
|
|
82.93 |
|
|
Total liquids (CAD$/bbl) |
|
|
79.08 |
|
|
|
82.85 |
|
|
|
93.40 |
|
|
|
82.04 |
|
|
|
80.08 |
|
|
|
90.80 |
|
|
|
101.36 |
|
|
|
123.32 |
|
|
Natural gas (CAD$/mcf) |
|
$ |
2.38 |
|
|
$ |
2.63 |
|
|
$ |
2.65 |
|
|
$ |
2.56 |
|
|
$ |
4.06 |
|
|
$ |
5.66 |
|
|
$ |
5.31 |
|
|
$ |
7.38 |
|
|
Oil
WTI prices averaged US$76.96 per bbl during Q1 2024, with WTI prices below US$75.00 per bbl in January before increasing throughout the quarter to over US$80.00 per bbl in March. The increase in pricing was mainly due to escalating geopolitical tensions in the Middle East and OPEC+ maintaining supply restrictions.
In Q1 2024, WCS differentials remained wide, averaging US$19.33 per bbl for the quarter, due to increasing inventories in Canada and uncertainty around the completion timing of the TMX expansion. MSW differentials averaged US$8.65 per bbl for Q1 2024 and were also wider then recent quarters with continued apportionment on the Enbridge mainline.
The Company currently has the following oil hedging contracts in place on a weighted average basis:
Type |
Volume |
|
Remaining |
Price |
|
||
WCS Differential |
|
750 |
|
April 2024 - June 2024 |
|
(18.80 |
) |
WTI Swap |
|
5,709 |
|
April 2024 |
|
112.70 |
|
WTI Collar |
|
2,625 |
|
April 2024 |
110.10 - 116.99 |
|
|
WTI Collar |
|
750 |
|
May 2024 |
112.30 - 118.38 |
|
|
WTI Swap |
|
1,000 |
|
May 2024 |
|
113.72 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 3 |
Natural Gas
In Q1 2024, both NYMEX and AECO prices remained weak due to supply growth along with the impact of mild temperatures in North America during the winter which contributed to increased inventory levels. The average NYMEX Futures price for Q1 2024 was US$2.24 per mmbtu, and in Alberta, AECO 5A prices averaged $2.50 per mcf. A brief cold snap in January was a significant contributing factor to the average price, with AECO 5A reaching close to $4.00 per mcf compared to below $2.00 per mcf in both February and March.
The Company currently has the following natural gas hedging contracts in place on a weighted average basis:
Type |
Volume |
|
Remaining |
Price |
|
||
AECO Swap |
|
43,365 |
|
April 2024 - October 2024 |
|
2.52 |
|
AECO Swap |
|
14,929 |
|
November 2024 - March 2025 |
|
3.74 |
|
AECO Collar |
|
4,976 |
|
November 2024 - March 2025 |
3.43 - 4.11 |
|
|
RESULTS OF OPERATIONS
Average Sales Prices (1)
|
|
Three months ended March 31 |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
% change |
|
|||
Light oil (per bbl) |
|
$ |
94.82 |
|
|
$ |
101.51 |
|
|
|
(7 |
) |
Heavy oil (per bbl) |
|
|
60.39 |
|
|
|
44.98 |
|
|
|
34 |
|
NGL (per bbl) |
|
|
50.43 |
|
|
|
59.37 |
|
|
|
(15 |
) |
Total liquids (per bbl) |
|
|
79.08 |
|
|
|
80.08 |
|
|
|
(1 |
) |
Realized risk management loss (per bbl) |
|
|
(0.02 |
) |
|
|
- |
|
|
N/A |
|
|
Total liquids, net (per bbl) |
|
|
79.06 |
|
|
|
80.08 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Natural gas (per mcf) |
|
|
2.38 |
|
|
|
4.06 |
|
|
|
(41 |
) |
Realized risk management gain (per mcf) |
|
|
0.61 |
|
|
|
0.43 |
|
|
|
42 |
|
Natural gas net (per mcf) |
|
|
2.99 |
|
|
|
4.49 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Weighted average (per boe) |
|
|
57.07 |
|
|
|
60.89 |
|
|
|
(6 |
) |
Realized risk management gain (per boe) |
|
|
1.24 |
|
|
|
0.88 |
|
|
|
41 |
|
Weighted average net (per boe) |
|
$ |
58.31 |
|
|
$ |
61.77 |
|
|
|
(6 |
) |
Production
|
|
Three months ended March 31 |
|
|||||||||
Daily production |
|
2024 |
|
|
2023 |
|
|
% change |
|
|||
Light oil (bbl/d) |
|
|
13,079 |
|
|
|
12,809 |
|
|
|
2 |
|
Heavy oil (bbl/d) |
|
|
6,748 |
|
|
|
6,241 |
|
|
|
8 |
|
NGL (bbl/d) |
|
|
2,783 |
|
|
|
2,678 |
|
|
|
4 |
|
Natural gas (mmcf/d) |
|
|
70 |
|
|
|
69 |
|
|
|
1 |
|
Total production (boe/d) |
|
|
34,238 |
|
|
|
33,153 |
|
|
|
3 |
|
In Q1 2024, production levels increased compared to Q1 2023 due to the Company's continued development program and strong drilling results. Q1 2024 production was temporarily impacted by extreme cold weather in January but restored production and new well activity increased production to our highest level since 2017. During Q1 2024, 18 wells (12.7 net) were brought on production, through operated and non-operated activities, across our Peace River, Cardium and Viking areas.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 4 |
Average production within the Company’s key development areas and within the Company’s Legacy asset area was as follows:
|
|
Three months ended March 31 |
|
|||||||||
Daily production (boe/d) (1) |
|
2024 |
|
|
2023 |
|
|
% change |
|
|||
Cardium |
|
|
24,058 |
|
|
|
24,496 |
|
|
|
(2 |
) |
Peace River |
|
|
7,287 |
|
|
|
6,885 |
|
|
|
6 |
|
Viking |
|
|
2,505 |
|
|
|
1,267 |
|
|
|
98 |
|
Legacy |
|
|
388 |
|
|
|
505 |
|
|
|
(23 |
) |
Total |
|
|
34,238 |
|
|
|
33,153 |
|
|
|
3 |
|
Netbacks
|
|
Three months ended March 31 |
|
|||||
(per boe) |
|
2024 |
|
|
2023 |
|
||
Netback: |
|
|
|
|
|
|
||
Sales price (1) |
|
$ |
57.07 |
|
|
$ |
60.89 |
|
Risk management gain (2) |
|
|
1.24 |
|
|
|
0.88 |
|
Royalties |
|
|
(7.05 |
) |
|
|
(8.40 |
) |
Transportation |
|
|
(3.95 |
) |
|
|
(3.25 |
) |
Net operating costs (3) |
|
|
(13.91 |
) |
|
|
(14.57 |
) |
Netback (3) |
|
$ |
33.40 |
|
|
$ |
35.55 |
|
|
|
|
|
|
|
|
||
|
|
(boe/d) |
|
|
(boe/d) |
|
||
Production |
|
|
34,238 |
|
|
|
33,153 |
|
The Company's netback decreased in Q1 2024 from the comparable period primarily due to lower realized commodity prices. This was partially offset by decreased royalties due to lower commodity prices and realized risk management gains on our natural gas risk management contracts in Q1 2024.
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Netback: |
|
|
|
|
|
|
||
Sales (1) (2) |
|
$ |
177.8 |
|
|
$ |
181.7 |
|
Risk management gain (3) |
|
|
3.8 |
|
|
|
2.6 |
|
Royalties |
|
|
(22.0 |
) |
|
|
(25.1 |
) |
Transportation |
|
|
(12.3 |
) |
|
|
(9.7 |
) |
Net operating costs (2) |
|
|
(43.2 |
) |
|
|
(43.5 |
) |
Netback (2) |
|
$ |
104.1 |
|
|
$ |
106.0 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 5 |
Production Revenues
A reconciliation from production revenues to gross revenues is as follows:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Production revenues |
|
$ |
177.3 |
|
|
$ |
180.9 |
|
Sales of commodities purchased from third parties |
|
|
3.8 |
|
|
|
5.4 |
|
Less: Commodities purchased from third parties |
|
|
(3.3 |
) |
|
|
(4.6 |
) |
Sales (1) |
|
|
177.8 |
|
|
|
181.7 |
|
Realized risk management gain (2) |
|
|
3.8 |
|
|
|
2.6 |
|
Gross revenues (1) |
|
$ |
181.6 |
|
|
$ |
184.3 |
|
The Company's production revenues and gross revenues were lower in Q1 2024 compared to Q1 2023, mainly due to lower commodity prices. This was partially offset by higher production volumes from our active development program, and greater realized risk management gains in Q1 2024 compared to Q1 2023.
Change in Gross Revenues (1)
(millions) |
|
|
|
|
Gross revenues – January 1 – March 31, 2023 |
|
$ |
184.3 |
|
Increase in liquids production |
|
|
7.0 |
|
Decrease in liquids prices |
|
|
(0.9 |
) |
Increase in natural gas production |
|
|
0.7 |
|
Decrease in natural gas prices |
|
|
(10.7 |
) |
Increase in realized natural gas risk management gain |
|
|
1.2 |
|
Gross revenues – January 1 – March 31, 2024 (2) |
|
$ |
181.6 |
|
Royalties
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Royalties (millions) |
|
$ |
22.0 |
|
|
$ |
25.1 |
|
Average royalty rate (1) |
|
|
12 |
% |
|
|
14 |
% |
For Q1 2024, both absolute royalties and the average royalty rate decreased from Q1 2023 largely due to lower commodity prices and new production in the lower rate pre-payout royalty phase.
Expenses
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Net operating (1) |
|
$ |
43.2 |
|
|
$ |
43.5 |
|
Transportation |
|
|
12.3 |
|
|
|
9.7 |
|
Financing |
|
|
12.0 |
|
|
|
11.7 |
|
Share-based compensation |
|
$ |
9.0 |
|
|
$ |
2.2 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 6 |
Operating
A reconciliation of operating costs to net operating costs is as follows:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Operating costs |
|
$ |
49.3 |
|
|
$ |
49.0 |
|
Less processing fees |
|
|
(3.9 |
) |
|
|
(3.6 |
) |
Less road use recoveries |
|
|
(2.1 |
) |
|
|
(1.9 |
) |
Less realized power risk management gain |
|
|
(0.1 |
) |
|
|
- |
|
Net operating costs (1) |
|
$ |
43.2 |
|
|
$ |
43.5 |
|
Operating costs have decreased compared to Q1 2023 mainly due to lower power costs and trucking costs, which was partially offset by increased costs due to our higher production base.
The Company had previously entered into power hedging contracts for 2024 to help minimize our exposure to power pricing volatility and their impact on net operating costs. In Q1 2024, the Company recorded a $0.1 million realized power risk management gain.
Transportation
The Company continues to utilize multiple sales points in the Peace River area to increase realized prices. New wells drilled in the Peace River area over the past year resulted in higher production and thus higher transportation costs in Q1 2024 compared to Q1 2023.
Financing
Financing expense consists of the following:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Interest |
|
$ |
6.7 |
|
|
$ |
6.3 |
|
Accretion on decommissioning liability |
|
|
4.2 |
|
|
|
4.4 |
|
Accretion on office lease provision |
|
|
0.2 |
|
|
|
0.3 |
|
Accretion on discount of senior unsecured notes |
|
|
0.1 |
|
|
|
0.1 |
|
Accretion on lease liabilities |
|
|
0.1 |
|
|
|
0.1 |
|
Loss on repurchased senior unsecured notes |
|
|
0.1 |
|
|
|
- |
|
Deferred financing costs |
|
|
0.6 |
|
|
|
0.5 |
|
Financing |
|
$ |
12.0 |
|
|
$ |
11.7 |
|
Obsidian Energy’s debt structure includes short-term borrowings under our syndicated credit facility and term financing through our senior unsecured notes. Interest charges were relatively unchanged in Q1 2024 compared to Q1 2023.
The Company has a reserve-based syndicated credit facility which is subject to a semi-annual borrowing base redetermination. The aggregate amount available under the syndicated credit facility is $260.0 million which was increased subsequent to March 31, 2024, previously $240.0 million, as part of our semi-annual borrowing base redetermination (typically completed in May and November of each year). At that time, the revolving period and maturity dates under the syndicated credit facility were extended to May 31, 2025 and May 31, 2026, respectively.
At March 31, 2024, the Company had senior unsecured notes outstanding totaling $114.2 million which mature on July 27, 2027. During Q1 2024, the Company re-purchased for cancellation $1.2 million principal amount of senior unsecured notes on the open market at an average price of $1,016 per $1,000 principal amount, in addition to the Repurchase Offer outlined below. The senior unsecured notes were initially issued at a price of $980 per $1,000 principal amount resulting in aggregate gross proceeds of $125.0 million and at an interest rate of 11.95 percent.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 7 |
The senior unsecured notes are direct senior unsecured obligations of Obsidian Energy ranking equal with all other present and future senior unsecured indebtedness of the Company.
As part of the terms of the senior unsecured notes, the Company is required, in certain circumstances, to make a repurchase offer at a price of $1,030 per $1,000 principal amount to an aggregate amount, including market purchases, of $63.8 million (the "Repurchase Offer"), based on free cash flow for the six months ended June 30 (typically offered in August) and based on free cash flow for the six months ended December 31 (typically offered in March). Minimum available liquidity thresholds and projected leverage ratios under the Company's syndicated credit facilities are also required to be met in order to proceed with a Repurchase Offer. The Company completed a Repurchase Offer for $2.0 million principal amount of senior unsecured notes in March 2024.
At March 31, 2024, letters of credit totaling $4.9 million were outstanding (December 31, 2023 – $4.9 million) that reduce the amount otherwise available to be drawn on our syndicated credit facility.
Share-Based Compensation
Share-based compensation expense relates to options ("Options") granted under the Company's Stock Option Plan (the “Option Plan”), restricted shares units (“RSUs") granted under the Restricted and Performance Share Unit Plan (“RPSU plan”), restricted awards granted under the Non-Treasury Incentive Award Plan (“NTIP”), deferred share units ("DSUs") granted under the Deferred Share Unit Plan (“DSU plan”) and performance share units (“PSUs”) granted under the RPSU plan.
Share-based compensation expense consisted of the following:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
DSUs |
|
$ |
4.4 |
|
|
$ |
(0.7 |
) |
PSUs |
|
|
1.6 |
|
|
|
0.4 |
|
NTIP |
|
|
0.9 |
|
|
|
0.4 |
|
Cash settled share-based incentive plans |
|
$ |
6.9 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
||
RSUs |
|
$ |
1.7 |
|
|
$ |
1.8 |
|
Options |
|
|
0.4 |
|
|
|
0.3 |
|
Equity settled share-based incentive plans |
|
|
2.1 |
|
|
|
2.1 |
|
Share-based compensation |
|
$ |
9.0 |
|
|
$ |
2.2 |
|
The change in share price at the balance sheet date results in a mark-to-market valuation which is used to calculate the PSU, DSU and NTIP future obligations. The increase in the Company's share price from $8.99 per share at December 31, 2023 to $11.18 per share at March 31, 2024 primarily drove the increase in share-based compensation.
General and Administrative Expenses ("G&A")
|
|
Three months ended March 31 |
|
|||||
(millions, except per boe amounts) |
|
2024 |
|
|
2023 |
|
||
Gross |
|
$ |
10.6 |
|
|
$ |
9.4 |
|
Per boe (1) |
|
|
3.41 |
|
|
|
3.14 |
|
Net (2) |
|
|
5.5 |
|
|
|
4.8 |
|
Per boe (1) |
|
$ |
1.77 |
|
|
$ |
1.60 |
|
The Company increased staffing levels in 2024 to align with our higher activity level and expanded capital program under our three-year growth plan which has contributed to higher absolute G&A costs in Q1 2024 compared to Q1 2023.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 8 |
The higher production levels partially offset the higher per boe G&A metrics in Q1 2024 compared to Q1 2023.
Depletion, Depreciation and Impairment
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Depletion and depreciation (“D&D”) |
|
$ |
55.0 |
|
|
$ |
51.6 |
|
|
|
|
|
|
|
|
||
PP&E Impairment |
|
$ |
0.9 |
|
|
$ |
0.1 |
|
The Company’s D&D expense increased in Q1 2024 from Q1 2023, primarily due to higher production levels.
In the first quarter of 2024, we recorded a $0.9 million (2023 - $0.1 million) impairment in our Legacy cash generating unit ("CGU") due to decommissioning spending in the area. The Legacy CGU has no recoverable amount, as such changes in our decommissioning liability are expensed each period.
Taxes
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Deferred income tax expense |
|
$ |
4.3 |
|
|
$ |
9.7 |
|
The Company recognized a deferred tax asset, as we expect to have sufficient taxable profits in future years in order to fully utilize the remaining deferred tax asset balance. The deferred income tax expense was due to the Company's net income and resultant reduction of our deferred income tax asset.
Net Income
|
|
Three months ended March 31 |
|
|||||
(millions, except per share amounts) |
|
2024 |
|
|
2023 |
|
||
Net income |
|
$ |
11.9 |
|
|
$ |
30.5 |
|
Basic per share |
|
|
0.15 |
|
|
|
0.37 |
|
Diluted per share |
|
$ |
0.15 |
|
|
$ |
0.36 |
|
In Q1 2024, net income was the result of the Company's increased production levels and positive operating results. This was partially offset by our higher depletion and share-based compensation expense as well as lower production revenues due to lower commodity prices when compared to Q1 2023.
In Q1 2023, net income was the result of the Company's production and strong netback.
Capital Expenditures
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Drilling and completions |
|
$ |
91.3 |
|
|
$ |
76.7 |
|
Well equipping and facilities |
|
|
22.7 |
|
|
|
28.1 |
|
Land and geological/geophysical |
|
|
- |
|
|
|
1.9 |
|
Corporate |
|
|
0.3 |
|
|
|
0.4 |
|
Capital expenditures |
|
$ |
114.3 |
|
|
$ |
107.1 |
|
In Q1 2024, the Company began our active first half 2024 development program with rigs running in our Peace River and Cardium plays. During Q1 2024, 18 (12.7 net) wells were brought on production, including operated and non-operated activities, which included 15 (9.7 net) wells in the Cardium and 3 (3.0 net) wells in Peace River.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 9 |
Drilling
|
|
Three months ended March 31 |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
(number of wells) |
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
||||
Oil |
|
|
26 |
|
|
|
21 |
|
|
|
32 |
|
|
|
27 |
|
Gas |
|
|
4 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Injectors, stratigraphic and service |
|
|
6 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
Total |
|
|
36 |
|
|
|
27 |
|
|
|
37 |
|
|
|
31 |
|
The Company drilled 25 (24.4 net) operated wells during Q1 2024. In addition, the Company had non-operated working interests in 11 (3.1 net) wells that were drilled by various partners during the period.
Environmental and Climate Change
The oil and natural gas industry has a number of environmental risks and hazards and is subject to regulation by all levels of government. Environmental legislation includes, but is not limited to, operational controls, site rehabilitation requirements and restrictions on emissions of various substances produced in association with oil and natural gas operations. Compliance with such legislation is expected to require additional expenditures and a failure to comply may result in fines and penalties which could, in the aggregate and under certain assumptions, become material.
Obsidian Energy is dedicated to our ESG initiatives to manage the environmental impact from our operations through our environmental programs which include resource conservation, water management and site abandonment/ reclamation/ remediation. Operations are monitored to minimize our environmental impact and allocate sufficient capital to reclamation and other activities to mitigate the impact on the areas in which the Company operates. The Company follows the Alberta Energy Regulator guidance under Directive 088 where a minimum amount of spending is required to abandon inactive sites.
The Company received Alberta Site Rehabilitation Program ("ASRP") grants and allocations of $30.2 million on a gross basis to the end of 2022 when the ASRP ended, a portion of which was received in allocation eligibility as an Alberta Area Based Closure program participant. Total grant support was determined once all project costs were finalized in 2023. These awards allowed the Company to expand our abandonment activities for wells, pipelines, facilities, and related site reclamation and thus reduced our decommissioning liability.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 10 |
Liquidity and Capital Resources
Net Debt
Net debt is the total of long-term debt and working capital deficiency as follows:
|
|
As at |
|
|||||
(millions) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Long-term debt |
|
|
|
|
|
|
||
Syndicated credit facility |
|
$ |
167.5 |
|
|
$ |
107.5 |
|
Senior unsecured notes |
|
|
114.2 |
|
|
|
117.4 |
|
Unamortized discount of senior unsecured notes |
|
|
(1.5 |
) |
|
|
(1.6 |
) |
Deferred financing costs |
|
|
(2.6 |
) |
|
|
(3.3 |
) |
Total |
|
|
277.6 |
|
|
|
220.0 |
|
|
|
|
|
|
|
|
||
Working capital deficiency |
|
|
|
|
|
|
||
Cash |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
Accounts receivable |
|
|
(83.2 |
) |
|
|
(70.0 |
) |
Prepaid expenses and other |
|
|
(14.3 |
) |
|
|
(12.8 |
) |
Accounts payable and accrued liabilities |
|
|
206.5 |
|
|
|
193.5 |
|
Total |
|
|
108.7 |
|
|
|
110.2 |
|
|
|
|
|
|
|
|
||
Net debt (1) |
|
$ |
386.3 |
|
|
$ |
330.2 |
|
Net debt increased compared to December 31, 2023, as a result of higher drawings under our syndicated credit facility due to our active development program. The majority of our wells from our Q1 2024 development program will come on production during Q2 2024.
Liquidity
The Company currently has a reserve-based syndicated credit facility with a borrowing limit of $260.0 million and $114.2 million senior unsecured notes due in 2027. For further details on the Company’s debt instruments please refer to the “Financing” section of this MD&A.
The Company actively manages our debt portfolio and considers opportunities to reduce or diversify our debt capital structure. Management contemplates both operating and financial risks and takes action as appropriate to limit the Company’s exposure to certain risks. Management maintains close relationships with the Company’s lenders and agents to monitor credit market developments. These actions and plans aim to increase the likelihood of maintaining the Company’s financial flexibility and an appropriate capital program, supporting the Company’s ongoing operations and ability to execute longer-term business strategies.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 11 |
Financial Instruments
Obsidian Energy had the following financial instruments outstanding as at March 31, 2024. Fair values are determined using external counterparty information, which is compared to observable market data. The Company limits our credit risk by executing counterparty risk procedures which include transacting only with institutions within our syndicated credit facility or companies with high credit ratings, and by obtaining financial security in certain circumstances.
|
Notional |
Remaining |
Price |
|
Fair value |
|
|
Oil |
|
|
|
|
|
|
|
WCS Differential |
750 bbl/d |
April 2024 - June 2024 |
($18.80)/bbl |
|
$ |
(0.1 |
) |
WTI Swap |
3,500 bbl/d |
April 2024 |
$109.84/bbl |
|
|
(0.2 |
) |
WTI Collar |
500 bbl/d |
April 2024 |
$108.45/bbl - $114.50/bbl |
|
|
- |
|
|
|
|
|
|
|
|
|
AECO |
|
|
|
|
|
|
|
AECO Swap |
43,365 mcf/d |
April 2024 - October 2024 |
$2.52/mcf |
|
|
6.7 |
|
AECO Swap |
14,929 mcf/d |
November 2024 - March 2025 |
$3.74/mcf |
|
|
1.3 |
|
AECO Collar |
4,976 mcf/d |
November 2024 - March 2025 |
$3.43/mcf - $4.11/mcf |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
Electricity |
|
|
|
|
|
|
|
Power Swap |
144 MWh/d |
April - December 2024 |
$92.83/MWh |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
6.8 |
|
Refer to the Business Environment section above for a full list of hedges currently outstanding including contracts that were entered into subsequent to March 31, 2024.
Based on commodity prices and contracts in place at March 31, 2024, the Company notes the following sensitivities:
The components of risk management within Income on the Consolidated Statements of Income are as follows:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Realized |
|
|
|
|
|
|
||
Settlement of natural gas contracts gain |
|
$ |
3.8 |
|
|
$ |
2.6 |
|
Total realized risk management gain |
|
$ |
3.8 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
||
Unrealized |
|
|
|
|
|
|
||
Oil contracts loss |
|
$ |
(0.3 |
) |
|
$ |
(0.1 |
) |
Natural gas contracts gain (loss) |
|
|
(4.0 |
) |
|
|
5.1 |
|
Total unrealized risk management gain (loss) |
|
|
(4.3 |
) |
|
|
5.0 |
|
Risk management gain (loss) |
|
$ |
(0.5 |
) |
|
$ |
7.6 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 12 |
The components of risk management within Expenses on the Consolidated Statements of Income are as follows:
|
|
Three months ended March 31 |
|
|||||
(millions) |
|
2024 |
|
|
2023 |
|
||
Realized |
|
|
|
|
|
|
||
Settlement of electricity contracts gain |
|
$ |
0.1 |
|
|
$ |
- |
|
Total realized risk management gain |
|
$ |
0.1 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
||
Unrealized |
|
|
|
|
|
|
||
Electricity contracts loss |
|
$ |
(0.7 |
) |
|
$ |
- |
|
Total unrealized risk management loss |
|
|
(0.7 |
) |
|
|
- |
|
Risk management loss |
|
$ |
(0.6 |
) |
|
$ |
- |
|
Sensitivity Analysis
Estimated sensitivities to selected key assumptions on funds flow from operations for the 12 months subsequent to the date of this MD&A, including risk management contracts entered into to date, are based on forecasted results.
|
|
Impact on funds flow from operations (1) |
|
|||||||||
Change of: |
|
Change |
|
|
$ millions |
|
|
$/share |
|
|||
WTI - Price per barrel of liquids |
|
WTI US$1.00 |
|
|
|
11.2 |
|
|
|
0.15 |
|
|
WCS - Price per barrel of liquids |
|
WCS US$1.00 |
|
|
|
5.0 |
|
|
|
0.07 |
|
|
Liquids production |
|
1,000 bbl/day |
|
|
|
26.9 |
|
|
|
0.35 |
|
|
Price per mcf of natural gas |
|
AECO $0.10 |
|
|
|
1.0 |
|
|
|
0.01 |
|
|
Natural gas production |
|
1 mmcf/day |
|
|
|
0.7 |
|
|
|
0.01 |
|
|
Effective interest rate |
|
|
1 |
% |
|
|
1.4 |
|
|
|
0.02 |
|
Exchange rate ($US per $CAD) |
|
$ |
0.01 |
|
|
|
6.6 |
|
|
|
0.09 |
|
(1) Non-GAAP financial measure or non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures”.
Contractual Obligations and Commitments
Obsidian Energy is committed to certain payments over the next five calendar years and thereafter as follows:
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Long-term debt (1) |
|
$ |
- |
|
|
$ |
167.5 |
|
|
$ |
- |
|
|
$ |
114.2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
281.7 |
|
Transportation |
|
|
7.4 |
|
|
|
7.6 |
|
|
|
6.1 |
|
|
|
4.6 |
|
|
|
3.7 |
|
|
|
7.8 |
|
|
|
37.2 |
|
Interest obligations |
|
|
17.5 |
|
|
|
19.5 |
|
|
|
13.6 |
|
|
|
13.7 |
|
|
|
- |
|
|
|
- |
|
|
|
64.3 |
|
Office lease (existing) |
|
|
7.5 |
|
|
|
0.8 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8.3 |
|
Lease liability (2) |
|
|
1.4 |
|
|
|
2.0 |
|
|
|
1.6 |
|
|
|
1.3 |
|
|
|
0.7 |
|
|
|
4.7 |
|
|
|
11.7 |
|
Decommissioning liability (3) |
|
|
13.3 |
|
|
|
21.8 |
|
|
|
20.2 |
|
|
|
18.7 |
|
|
|
17.4 |
|
|
|
75.6 |
|
|
|
167.0 |
|
Total |
|
$ |
47.1 |
|
|
$ |
219.2 |
|
|
$ |
41.5 |
|
|
$ |
152.5 |
|
|
$ |
21.8 |
|
|
$ |
88.1 |
|
|
$ |
570.2 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 13 |
At March 31, 2024, the Company had an aggregate of $114.2 million in senior unsecured notes maturing in July 2027 and the revolving period of our syndicated credit facility was May 31, 2024, with a term out period to May 31, 2025. Subsequent to March 31, 2024, the Company completed our semi-annual borrowing base redetermination which resulted in the revolving period and maturity dates under the syndicated credit facility extended to May 31, 2025 and May 31, 2026, respectively. In the future, if the Company is unsuccessful in renewing or replacing the syndicated credit facility or obtaining alternate funding for some or all of the maturing amounts of the senior unsecured notes, it is possible that we could be required to seek other sources of financing, including other forms of debt or equity arrangements if available. Please see the Financing section of this MD&A for further details regarding our outstanding debt instruments.
The Company is involved in various litigation and claims in the normal course of business and records provisions for claims as required.
Equity Instruments
Common shares issued: |
|
|
|
|
As at March 31, 2024 |
|
|
76,715,491 |
|
Issuance under Stock option plan |
|
|
96,474 |
|
Repurchase and cancellation of common shares |
|
|
(225,000 |
) |
As at May 1, 2024 |
|
|
76,586,965 |
|
|
|
|
|
|
Options outstanding: |
|
|
|
|
As at March 31, 2024 |
|
|
2,631,699 |
|
Exercised |
|
|
(96,474 |
) |
As at May 1, 2024 |
|
|
2,535,225 |
|
|
|
|
|
|
RSUs outstanding: |
|
|
|
|
As at March 31, 2024 |
|
|
1,624,683 |
|
Granted |
|
|
3,360 |
|
Vested |
|
|
(5,302 |
) |
Forfeited |
|
|
(5,176 |
) |
As at May 1, 2024 |
|
|
1,617,565 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 14 |
Supplemental Production Disclosure
Outlined below is production by product type for each area and in total for the three months ended March 31, 2024 and 2023.
|
|
Three months ended March 31 |
|
|||||
Daily production (boe/d) |
|
2024 |
|
|
2023 |
|
||
Cardium |
|
|
|
|
|
|
||
Light oil (bbl/d) |
|
|
11,285 |
|
|
|
11,992 |
|
Heavy oil (bbl/d) |
|
|
47 |
|
|
|
22 |
|
NGLs (bbl/d) |
|
|
2,684 |
|
|
|
2,600 |
|
Natural gas (mmcf/d) |
|
|
60 |
|
|
|
59 |
|
Total production (boe/d) |
|
|
24,058 |
|
|
|
24,496 |
|
|
|
|
|
|
|
|
||
Peace River |
|
|
|
|
|
|
||
Light oil (bbl/d) |
|
|
- |
|
|
|
- |
|
Heavy oil (bbl/d) |
|
|
6,565 |
|
|
|
6,077 |
|
NGLs (bbl/d) |
|
|
14 |
|
|
|
10 |
|
Natural gas (mmcf/d) |
|
|
4 |
|
|
|
5 |
|
Total production (boe/d) |
|
|
7,287 |
|
|
|
6,885 |
|
|
|
|
|
|
|
|
||
Viking |
|
|
|
|
|
|
||
Light oil (bbl/d) |
|
|
1,715 |
|
|
|
668 |
|
Heavy oil (bbl/d) |
|
|
94 |
|
|
|
99 |
|
NGLs (bbl/d) |
|
|
60 |
|
|
|
38 |
|
Natural gas (mmcf/d) |
|
|
4 |
|
|
|
3 |
|
Total production (boe/d) |
|
|
2,505 |
|
|
|
1,267 |
|
|
|
|
|
|
|
|
||
Legacy |
|
|
|
|
|
|
||
Light oil (bbl/d) |
|
|
79 |
|
|
|
149 |
|
Heavy oil (bbl/d) |
|
|
42 |
|
|
|
43 |
|
NGLs (bbl/d) |
|
|
25 |
|
|
|
30 |
|
Natural gas (mmcf/d) |
|
|
2 |
|
|
|
2 |
|
Total production (boe/d) |
|
|
388 |
|
|
|
505 |
|
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Light oil (bbl/d) |
|
|
13,079 |
|
|
|
12,809 |
|
Heavy oil (bbl/d) |
|
|
6,748 |
|
|
|
6,241 |
|
NGLs (bbl/d) |
|
|
2,783 |
|
|
|
2,678 |
|
Natural gas (mmcf/d) |
|
|
70 |
|
|
|
69 |
|
Total production (boe/d) |
|
|
34,238 |
|
|
|
33,153 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 15 |
Reconciliation of Cash flow from Operating Activities to Funds flow from Operations
|
|
Mar. 31 |
|
|
Dec. 31 |
|
|
Sep. 30 |
|
|
Jun. 30 |
|
|
Mar. 31 |
|
|
Dec. 31 |
|
|
Sep. 30 |
|
|
Jun. 30 |
|
||||||||
Three months ended |
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
||||||||
Cash flow from operating activities |
|
$ |
58.7 |
|
|
$ |
117.7 |
|
|
$ |
95.3 |
|
|
$ |
67.1 |
|
|
$ |
72.6 |
|
|
$ |
126.5 |
|
|
$ |
121.4 |
|
|
$ |
125.0 |
|
Change in non-cash working capital |
|
|
13.4 |
|
|
|
(30.3 |
) |
|
|
(3.6 |
) |
|
|
13.7 |
|
|
|
6.6 |
|
|
|
(20.9 |
) |
|
|
(21.9 |
) |
|
|
26.0 |
|
Decommissioning expenditures |
|
|
10.1 |
|
|
|
7.7 |
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
8.7 |
|
|
|
3.0 |
|
|
|
3.5 |
|
|
|
3.8 |
|
Onerous office lease settlements |
|
|
2.3 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
2.3 |
|
Settlement of restricted share units |
|
|
- |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
4.6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deferred financing costs |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
Other expenses (1) |
|
|
0.5 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.6 |
|
Funds flow from operations |
|
$ |
84.4 |
|
|
$ |
97.0 |
|
|
$ |
98.9 |
|
|
$ |
87.4 |
|
|
$ |
94.3 |
|
|
$ |
110.5 |
|
|
$ |
104.6 |
|
|
$ |
157.0 |
|
Changes in Internal Control Over Financial Reporting (“ICFR”)
Obsidian Energy’s senior management has evaluated whether there were any changes in the Company's ICFR that occurred during the period beginning on January 1, 2024 and ending on March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR. No changes to the Company’s ICFR were made during the quarter.
Off-Balance-Sheet Financing
Obsidian Energy has off-balance-sheet financing arrangements consisting of operating leases. The operating lease payments are summarized in the Contractual Obligations and Commitments section.
Non-GAAP and Other Financial Measures
Throughout this MD&A and in other materials disclosed by the Company, we employ certain measures to analyze financial performance, financial position, and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income and cash flow from operating activities, as indicators of our performance.
Non-GAAP Financial Measures
“Free cash flow” is funds flow from operations less both capital and decommissioning expenditures and the Company believes it is a useful measure to determine and indicate the funding available to Obsidian Energy for investing and financing activities, including the repayment of debt, reallocation to existing areas of operation, deployment into new ventures and return of capital to shareholders. See “Cash flow from Operating Activities, Funds Flow from Operations and Free Cash Flow” above for a reconciliation of free cash flow to cash flow from operating activities, being our nearest measure prescribed by IFRS.
“Funds flow from operations” is cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures, onerous office lease settlements, settlement of RSUs, the effects of financing related transactions from foreign exchange contracts and debt repayments, restructuring charges, transaction costs and certain other expenses and is representative of cash related to continuing operations. Funds flow from operations is used to assess the Company’s ability to fund our planned capital programs. See “Cash flow from Operating Activities, Funds Flow from Operations and Free Cash Flow” and "Reconciliation of Cash flow from operating activities to Funds flow from operations" above for reconciliations of funds flow from operations to cash flow from operating activities, being our nearest measure prescribed by IFRS.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 16 |
“Gross revenues” are production revenues including realized risk management gains and losses on commodity contracts and adjusted for commodities purchased from third parties and sales of commodities purchased from third parties and is used to assess the cash realizations on commodity sales. See “Results of Operations – Production Revenues” above for a reconciliation of gross revenues to production revenues, being our nearest measure prescribed by IFRS.
"Sales” are production revenues plus sales of commodities purchased from third parties less commodities purchased from third parties and is used to assess the cash realizations on commodity sales before realized risk management gains and losses. See “Results of Operations – Production Revenues” above for a reconciliation of sales to production revenues, being our nearest measure prescribed by IFRS.
“Net debt” is the total of long-term debt and working capital deficiency and is used by the Company to assess our liquidity. See “Liquidity and Capital Resources – Net Debt” above for a reconciliation of net debt to long-term debt, being our nearest measure prescribed by IFRS.
“Net operating costs” are calculated by deducting processing income, road use recoveries and realized gains and losses on power risk management contracts from operating costs and is used to assess the Company’s cost position. Processing fees are primarily generated by processing third party volumes at the Company’s facilities. In situations where the Company has excess capacity at a facility, it may agree with third parties to process their volumes to reduce the cost of operating/owning the facility. Road use recoveries are a cost recovery for the Company as we operate and maintain roads that are also used by third parties. Realized gains and losses on power risk management contracts occur upon settlement of our contracts. See “Results of Operations – Expenses – Operating” above for a reconciliation of net operating costs to operating costs, being our nearest measure prescribed by IFRS.
“Netback” is production revenues plus sales of commodities purchased from third parties less commodities purchased from third parties (sales), less royalties, net operating costs, transportation expenses and realized risk management gains and losses, and is used in capital allocation decisions and to economically rank projects. See "Results of Operations – Netbacks" above for a reconciliation of netbacks to sales and "Results of Operations – Production Revenues" above for a reconciliation of sales to production revenues being our nearest measure prescribed by IFRS.
Non-GAAP Financial Ratios
“Funds flow from operations – basic per share” is comprised of funds flow from operations divided by basic weighted average common shares outstanding. Funds flow from operations is a non-GAAP financial measure. See “Cash flow from Operating Activities, Funds Flow from Operations and Free Cash Flow” and “Reconciliation of Cash flow from operating activities to Funds flow from operations” above.
“Funds flow from operations – diluted per share” is comprised of funds flow from operations divided by diluted weighted average common shares outstanding. Funds flow from operations is a non-GAAP financial measure. See “Cash flow from Operating Activities, Funds Flow from Operations and Free Cash Flow” and “Reconciliation of Cash flow from operating activities to Funds flow from operations” above.
“Net operating costs per bbl”, “Net operating costs per mcf” and “Net operating costs per boe” are net operating costs divided by weighted average daily production on a per bbl, per mcf or per boe basis, as applicable. Net operating costs is a non-GAAP financial measure. See “Results of Operations – Expenses – Operating" above.
“Netback per bbl”, “Netback per mcf” and “Netback per boe” are netbacks divided by weighted average daily production on a per bbl, per mcf or per boe basis, as applicable. Management believes that netback per boe is a key industry performance measure of operational efficiency and provides investors with information that is also commonly presented by other oil and natural gas producers. Netback is a non-GAAP financial measure. See “Results of Operations – Netbacks” above.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 17 |
Supplementary Financial Measures
Average sales prices for light oil, heavy oil, NGLs, total liquids and natural gas are supplementary financial measures calculated by dividing each of these components of production revenues by their respective production volumes for the periods.
“Cash flow from operating activities – basic per share” is comprised of cash flow from operating activities, as determined in accordance with IFRS, divided by basic weighted average common shares outstanding.
“Cash flow from operating activities – diluted per share" is comprised of cash flow from operating activities, as determined in accordance with IFRS, divided by diluted weighted average common shares outstanding.
"G&A gross – per boe" is comprised of general and administrative expenses on a gross basis, as determined in accordance with IFRS, divided by boe for the period.
"G&A net – per boe" is comprised of general and administrative expenses on a net basis, as determined in accordance with IFRS, divided by boe for the period.
Oil and Natural Gas Information
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 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 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/d |
barrels per day |
mcf/d |
thousand cubic feet per day |
|
boe |
barrel of oil equivalent |
mmcf |
million cubic feet |
|
boe/d |
barrels of oil equivalent per day |
mmcf/d |
million cubic feet per day |
|
MSW |
Mixed Sweet Blend |
mmbtu |
Million British thermal unit |
|
WTI |
West Texas Intermediate |
AECO |
Alberta benchmark price for natural gas |
|
WCS |
Western Canadian Select |
NGL |
natural gas liquids |
|
|
|
LNG |
liquefied natural gas |
|
|
|
NYMEX |
New York Mercantile Exchange price for natural gas |
|
References to Q1, Q2, Q3 and Q4 are to the three-month periods ended March 31, June 30, September 30 and December 31, respectively.
Forward-Looking Statements
Certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: our three-year growth plan will expected production, development locations and formations, use of free cash flow and when we expect certain assets to become self-sustaining, based on certain pricing assumptions; our expectations for Bluesky and Clearwater production; our expectations for Peace River production growth and per share metrics, with potential options to return capital to shareholders and/or further reduce debt levels; our commitment to ESG matters and expected decommissioning expenditures in 2024; our hedges; our expectations in connection with taxable profits; the terms and conditions under our syndicated credit facility and senior unsecured notes; our expectations in connection with compliance with environmental legislation; that we are dedicated to managing our ESG initiatives to manage the environmental impact from our operations through the environmental programs which include resource conservation, water management and site abandonment / reclamation / remediation; how we plan to manage our debt portfolio; all information disclosed under "Sensitivity Analysis; our future payment obligations
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 18 |
as disclosed under "Contractual Obligations and Commitments"; that management contemplates both operating and financial risks and takes action as appropriate to limit the Company’s exposure to certain risks and that management maintains close relationships with the Company's lenders and agents to monitor credit market developments, and these actions and plans aim to increase the likelihood of maintaining the Company's financial flexibility and capital program.
With respect to forward-looking statements contained in this document, the Company has made assumptions regarding, among other things: that the Company does not dispose of or acquire material producing properties or royalties or other interests therein; that regional and/or global health related events will not have any adverse impact on energy demand and commodity prices in the future; that the Company's operations and production will not be disrupted by circumstances attributable to the COVID-19 pandemic and the responses of governments and the public to any resurgence of the pandemic; global energy policies going forward, including the continued ability and willingness of members of OPEC and other nations to agree on and adhere to production quotas from time to time; our ability to qualify for (or continue to qualify for) new or existing government programs, and obtain financial assistance therefrom, and the impact of those programs on our financial condition; our ability to execute our plans as described herein and in our other disclosure documents, including our three-year growth plan, and the impact that the successful execution of such plans will have on our Company and our stakeholders, including our ability to return capital to shareholders and/or further reduce debt levels; future capital expenditure and decommissioning expenditure levels; expectations and assumptions concerning applicable laws and regulations, including with respect to environmental, safety and tax matters; future operating costs and G&A costs and the impact of inflation thereon; future oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future hedging activities; future oil, natural gas liquids and natural gas production levels; future exchange rates, interest rates and inflation rates; future debt levels; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including extreme weather events such as wild fires, flooding and drought, infrastructure access and delays in obtaining regulatory approvals and third party consents; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; our ability to obtain financing on acceptable terms, including our ability (if necessary) to extend the revolving period and term out period of our credit facility, our ability to maintain the existing borrowing base under our credit facility, our ability (if necessary) to replace our syndicated bank facility and our ability (if necessary) to finance the repayment of our senior unsecured notes on maturity or pursuant to the terms of the underlying agreement; the accuracy of our estimated reserve volumes; and our ability to add production and reserves through our development and exploitation activities.
Although the Company believes that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements contained herein will not be correct, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that we change our budgets (including our capital expenditure budgets) in response to internal and external factors, including those described herein; the possibility that the Company will not be able to continue to successfully execute our business plans and strategies in part or in full (including our three-year growth plan), and the possibility that some or all of the benefits that the Company anticipates will accrue to our Company and our stakeholders as a result of the successful execution of such plans and strategies do not materialize (such as our inability to return capital to shareholders and/or reduce debt levels to the extent anticipated or at all); the possibility that the Company ceases to qualify for, or does not qualify for, one or more existing or new government assistance programs, that the impact of such programs falls below our expectations, that the benefits under one or more of such programs is decreased, or that one or more of such programs is discontinued; the impact on energy demand and commodity prices of regional and/or global health related events, including any resurgence of the COVID-19 pandemic, and the responses of governments and the public thereto, including the risk that the amount of energy demand destruction and/or the length of the decreased demand exceeds our expectations; the risk that there is another significant decrease in the valuation of oil and natural gas companies and their securities and in confidence in the oil and natural gas industry generally, whether caused by a resurgence of the COVID-19
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 19 |
pandemic or other regional and/or global pandemic, the worldwide transition towards less reliance on fossil fuels and/or other factors; the risk that the financial capacity of the Company's contractual counterparties is adversely affected and potentially their ability to perform their contractual obligations; the possibility that the revolving period and/or term out period of our credit facility and the maturity date of our senior unsecured notes is not extended (if necessary), that the borrowing base under our credit facility is reduced, that the Company is unable to renew or refinance our credit facilities on acceptable terms or at all and/or finance the repayment of our senior unsecured notes when they mature on acceptable terms or at all and/or obtain new debt and/or equity financing to replace our credit facilities and/or senior unsecured notes or to fund other activities; the possibility that we are unable to complete one or more Repurchase Offers when otherwise required to do so; the possibility that we are forced to shut-in production, whether due to commodity prices decreasing, extreme weather events such as the wild fires experienced in Alberta in Q2 2023, inability to access our properties due to blockades or other activism, or other factors; the risk that OPEC and other nations fail to agree on and/or adhere to production quotas from time to time that are sufficient to balance supply and demand fundamentals for oil; general economic and political conditions in Canada, the U.S. and globally, and in particular, the effect that those conditions have on commodity prices and our access to capital; industry conditions, including fluctuations in the price of oil, natural gas liquids and natural gas, price differentials for oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; fluctuations in foreign exchange, including the impact of the Canadian/U.S. dollar exchange rate on our revenues and expenses; fluctuations in interest rates, including the effects of increased interest rates on our borrowing costs and on economic activity, and including the risk that higher interest rates cause or contribute to the onset of a recession; the risk that our costs increase significantly due to ongoing high levels of inflation, supply chain disruptions, scarcity of labour and/or other factors, adversely affecting our profitability; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed (including extreme cold during winter months, wild fires, flooding and droughts (which could limit our access to the water we require for our operations)); the risk that wars and other armed conflicts adversely affect world economies and the demand for oil and natural gas, including the ongoing war between Russian and Ukraine and/or hostilities in the Middle East; the possibility that fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to hydrocarbons, government mandates requiring the sale of electric vehicles and/or electrification of the power grid, and technological advances in fuel economy and renewable energy generation systems could permanently reduce the demand for oil and natural gas and/or permanently impair the Company's ability to obtain financing and/or insurance on acceptable terms or at all, and the possibility that some or all of these risks are heightened as a result of the response of governments, financial institutions and consumers to a regional and/or global pandemic and/or the influence of public opinion and/or special interest groups; and the other factors described under "Risk Factors" in our Annual Information Form and described in our public filings, available in Canada at www.sedarplus.ca and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, the Company does not undertake any obligation to publicly update any forward-looking statements. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Additional Information
Additional information relating to Obsidian Energy, including Obsidian Energy’s Annual Information Form, is available on the Company’s website at www.obsidianenergy.com, on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
MANAGEMENT’S DISCUSSION AND ANALYSIS 20 |
Exhibit 99.3
Obsidian Energy Ltd.
Consolidated Balance Sheets
|
|
|
|
As at |
|
|||||
(CAD millions, unaudited) |
|
Note |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Cash |
|
|
|
$ |
0.3 |
|
|
$ |
0.5 |
|
Accounts receivable |
|
|
|
|
83.2 |
|
|
|
70.0 |
|
Risk management |
|
7 |
|
|
8.3 |
|
|
|
11.3 |
|
Prepaid expenses and other |
|
|
|
|
14.3 |
|
|
|
12.8 |
|
|
|
|
|
|
106.1 |
|
|
|
94.6 |
|
Non-current |
|
|
|
|
|
|
|
|
||
Property, plant and equipment |
|
3 |
|
|
2,002.8 |
|
|
|
1,944.0 |
|
Risk management |
|
7 |
|
|
- |
|
|
|
1.0 |
|
Deferred income tax |
|
11 |
|
|
206.5 |
|
|
|
210.8 |
|
|
|
|
|
|
2,209.3 |
|
|
|
2,155.8 |
|
Total assets |
|
|
|
$ |
2,315.4 |
|
|
$ |
2,250.4 |
|
|
|
|
|
|
|
|
|
|
||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
|
$ |
206.5 |
|
|
$ |
193.5 |
|
Current portion of long-term debt |
|
4 |
|
|
- |
|
|
|
2.0 |
|
Current portion of lease liabilities |
|
5 |
|
|
1.8 |
|
|
|
1.9 |
|
Current portion of provisions |
|
6 |
|
|
26.1 |
|
|
|
32.1 |
|
Risk management |
|
7 |
|
|
1.5 |
|
|
|
0.5 |
|
|
|
|
|
|
235.9 |
|
|
|
230.0 |
|
Non-current |
|
|
|
|
|
|
|
|
||
Long-term debt |
|
4 |
|
|
277.6 |
|
|
|
218.0 |
|
Lease liabilities |
|
5 |
|
|
5.8 |
|
|
|
6.1 |
|
Provisions |
|
6 |
|
|
148.3 |
|
|
|
149.9 |
|
Other non-current liabilities |
|
|
|
|
2.1 |
|
|
|
2.6 |
|
|
|
|
|
|
669.7 |
|
|
|
606.6 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
||
Shareholders’ capital |
|
9 |
|
|
2,166.3 |
|
|
|
2,175.1 |
|
Other reserves |
|
|
|
|
102.9 |
|
|
|
104.1 |
|
Deficit |
|
|
|
|
(623.5 |
) |
|
|
(635.4 |
) |
|
|
|
|
|
1,645.7 |
|
|
|
1,643.8 |
|
Total liabilities and shareholders’ equity |
|
|
|
$ |
2,315.4 |
|
|
$ |
2,250.4 |
|
Subsequent event (Note 4 and 7)
Commitments and contingencies (Note 12)
See accompanying notes to the unaudited interim consolidated financial statements.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 |
Obsidian Energy Ltd.
Consolidated Statements of Income
|
|
|
|
Three months ended |
|
|||||
(CAD millions, except per share amounts, unaudited) |
|
Note |
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
|
|
||
Production revenues |
|
8 |
|
$ |
177.3 |
|
|
$ |
180.9 |
|
Processing fees |
|
8 |
|
|
3.9 |
|
|
|
3.6 |
|
Royalties |
|
|
|
|
(22.0 |
) |
|
|
(25.1 |
) |
Sales of commodities purchased from third parties |
|
|
|
|
3.8 |
|
|
|
5.4 |
|
|
|
|
|
|
163.0 |
|
|
|
164.8 |
|
|
|
|
|
|
|
|
|
|
||
Other income |
|
8 |
|
|
2.1 |
|
|
|
1.9 |
|
Government decommissioning assistance |
|
|
|
|
- |
|
|
|
(0.4 |
) |
Risk management gain (loss) |
|
7 |
|
|
(0.5 |
) |
|
|
7.6 |
|
|
|
|
|
|
164.6 |
|
|
|
173.9 |
|
|
|
|
|
|
|
|
|
|
||
Expenses |
|
|
|
|
|
|
|
|
||
Operating |
|
|
|
|
49.3 |
|
|
|
49.0 |
|
Transportation |
|
|
|
|
12.3 |
|
|
|
9.7 |
|
Commodities purchased from third parties |
|
|
|
|
3.3 |
|
|
|
4.6 |
|
General and administrative |
|
|
|
|
5.5 |
|
|
|
4.8 |
|
Share-based compensation |
|
10 |
|
|
9.0 |
|
|
|
2.2 |
|
Depletion, depreciation and impairment |
|
3 |
|
|
55.9 |
|
|
|
51.7 |
|
Financing |
|
4 |
|
|
12.0 |
|
|
|
11.7 |
|
Risk management loss |
|
7 |
|
|
0.6 |
|
|
|
- |
|
Other |
|
|
|
|
0.5 |
|
|
|
- |
|
|
|
|
|
|
148.4 |
|
|
|
133.7 |
|
Income before taxes |
|
|
|
|
16.2 |
|
|
|
40.2 |
|
|
|
|
|
|
|
|
|
|
||
Deferred income tax expense |
|
11 |
|
|
4.3 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
||
Net and comprehensive income |
|
|
|
$ |
11.9 |
|
|
$ |
30.5 |
|
|
|
|
|
|
|
|
|
|
||
Net income per share |
|
|
|
|
|
|
|
|
||
Basic |
|
|
|
$ |
0.15 |
|
|
$ |
0.37 |
|
Diluted |
|
|
|
$ |
0.15 |
|
|
$ |
0.36 |
|
Weighted average shares outstanding (millions) |
|
|
|
|
|
|
|
|
||
Basic |
|
9 |
|
|
77.3 |
|
|
|
82.0 |
|
Diluted |
|
9 |
|
|
80.3 |
|
|
|
83.9 |
|
See accompanying notes to the unaudited interim consolidated financial statements.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2 |
Obsidian Energy Ltd.
Consolidated Statements of Cash Flows
|
|
|
|
Three months ended |
|
|||||
(CAD millions, unaudited) |
|
Note |
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
|
|
||
Operating activities |
|
|
|
|
|
|
|
|
||
Net income |
|
|
|
$ |
11.9 |
|
|
$ |
30.5 |
|
Depletion, depreciation and impairment |
|
3 |
|
|
55.9 |
|
|
|
51.7 |
|
Financing |
|
4 |
|
|
5.3 |
|
|
|
5.4 |
|
Share-based compensation |
|
10 |
|
|
2.1 |
|
|
|
2.1 |
|
Unrealized risk management gain (loss) |
|
7 |
|
|
5.0 |
|
|
|
(5.0 |
) |
Deferred income tax expense |
|
11 |
|
|
4.3 |
|
|
|
9.7 |
|
Government decommissioning assistance |
|
|
|
|
- |
|
|
|
0.4 |
|
Decommissioning expenditures |
|
6 |
|
|
(10.1 |
) |
|
|
(8.7 |
) |
Onerous office lease settlements |
|
6 |
|
|
(2.3 |
) |
|
|
(2.3 |
) |
Settlement of RSUs |
|
|
|
|
- |
|
|
|
(4.6 |
) |
Change in non-cash working capital |
|
|
|
|
(13.4 |
) |
|
|
(6.6 |
) |
|
|
|
|
|
58.7 |
|
|
|
72.6 |
|
Investing activities |
|
|
|
|
|
|
|
|
||
Capital expenditures |
|
3 |
|
|
(114.3 |
) |
|
|
(107.1 |
) |
Change in non-cash working capital |
|
|
|
|
11.2 |
|
|
|
1.5 |
|
|
|
|
|
|
(103.1 |
) |
|
|
(105.6 |
) |
Financing activities |
|
|
|
|
|
|
|
|
||
Increase in long-term debt |
|
4 |
|
|
60.0 |
|
|
|
34.0 |
|
Repayment of senior unsecured notes |
|
4 |
|
|
(3.2 |
) |
|
|
- |
|
Financing fees paid |
|
|
|
|
- |
|
|
|
(0.6 |
) |
Lease liabilities settlements |
|
5 |
|
|
(0.5 |
) |
|
|
(1.1 |
) |
Exercised compensation plans |
|
|
|
|
(1.6 |
) |
|
|
- |
|
Repurchase of common shares |
|
9 |
|
|
(10.5 |
) |
|
|
- |
|
|
|
|
|
|
44.2 |
|
|
|
32.3 |
|
|
|
|
|
|
|
|
|
|
||
Change in cash and cash equivalents |
|
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
0.5 |
|
|
|
0.8 |
|
Cash and cash equivalents, end of period |
|
|
|
$ |
0.3 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
||
Supplementary information |
|
|
|
|
|
|
|
|
||
Cash interest paid |
|
|
|
$ |
10.2 |
|
|
$ |
10.1 |
|
See accompanying notes to the unaudited interim consolidated financial statements.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3 |
Obsidian Energy Ltd.
Statements of Changes in Shareholders’ Equity
(CAD millions, unaudited) |
|
Note |
|
Shareholders’ Capital |
|
|
Other |
|
|
Deficit |
|
|
Total |
|
||||
Balance at January 1, 2024 |
|
|
|
$ |
2,175.1 |
|
|
$ |
104.1 |
|
|
$ |
(635.4 |
) |
|
$ |
1,643.8 |
|
Net and comprehensive income |
|
|
|
|
- |
|
|
|
- |
|
|
|
11.9 |
|
|
|
11.9 |
|
Share-based compensation |
|
10 |
|
|
- |
|
|
|
2.1 |
|
|
|
- |
|
|
|
2.1 |
|
Issued on exercise of equity compensation plans |
|
9 |
|
|
1.7 |
|
|
|
(3.3 |
) |
|
|
- |
|
|
|
(1.6 |
) |
Repurchase of shares for cancellation |
|
9 |
|
|
(10.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(10.5 |
) |
Balance at March 31, 2024 |
|
|
|
$ |
2,166.3 |
|
|
$ |
102.9 |
|
|
$ |
(623.5 |
) |
|
$ |
1,645.7 |
|
(CAD millions, unaudited) |
|
Note |
|
Shareholders’ Capital |
|
|
Other |
|
|
Deficit |
|
|
Total |
|
||||
Balance at January 1, 2023 |
|
|
|
$ |
2,221.9 |
|
|
$ |
101.2 |
|
|
$ |
(743.4 |
) |
|
$ |
1,579.7 |
|
Net and comprehensive income |
|
|
|
|
- |
|
|
|
- |
|
|
|
30.5 |
|
|
|
30.5 |
|
Share-based compensation |
|
10 |
|
|
- |
|
|
|
2.1 |
|
|
|
- |
|
|
|
2.1 |
|
Issued on exercise of equity compensation plans |
|
9 |
|
|
- |
|
|
|
(4.6 |
) |
|
|
- |
|
|
|
(4.6 |
) |
Balance at March 31, 2023 |
|
|
|
$ |
2,221.9 |
|
|
$ |
98.7 |
|
|
$ |
(712.9 |
) |
|
$ |
1,607.7 |
|
See accompanying notes to the unaudited interim consolidated financial statements.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS 4 |
Notes to the Unaudited Interim Consolidated Financial Statements
(All tabular amounts are in CAD millions except numbers of common shares, per share amounts, percentages and various figures in Note 7)
1. Structure of Obsidian Energy
Obsidian Energy Ltd. (“Obsidian Energy”, the “Company”, “we”, “us” or “our”) is an exploration and production company and is governed by the laws of the Province of Alberta, Canada. The Company's registered office is located at Suite 200, 207 - 9th Avenue S.W. Calgary, Alberta, Canada T2P 1K3. The Company operates in one segment, to explore for, develop and hold interests in oil and natural gas properties and related production infrastructure in the Western Canada Sedimentary Basin directly and through investments in securities of subsidiaries holding such interests. Obsidian Energy’s portfolio of assets is managed at an enterprise level, rather than by separate operating segments or business units. The Company assesses our financial performance at the enterprise level and resource allocation decisions are made on a project basis across our portfolio of assets, without regard to the geographic location of projects. Obsidian Energy owns the petroleum and natural gas assets or 100 percent of the equity, directly or indirectly, of the entities that carry on the remainder of the oil and natural gas business of Obsidian Energy.
2. Basis of presentation and statement of compliance
a) Basis of Presentation
The unaudited condensed interim consolidated financial statements ("interim consolidated financial statements") include the accounts of Obsidian Energy and our wholly owned subsidiaries. Results from acquired properties are included in Obsidian Energy’s reported results subsequent to the closing date and results from properties sold are included until the closing date.
All intercompany balances, transactions, income and expenses are eliminated on consolidation.
b) Statement of Compliance
These interim consolidated financial statements are prepared in compliance with IAS 34 “Interim Financial Reporting” and accordingly do not contain all of the disclosures included in Obsidian Energy’s annual audited consolidated financial statements. These financial statements should be read in conjunction with Obsidian Energy’s audited annual consolidated financial statements as at and for the year ended December 31, 2023. Except as noted below, these interim consolidated financial statements were prepared using the same accounting policies as in the annual consolidated financial statements as at and for the year ended December 31, 2023. The IASB issued amendments to IAS 1 "Presentation of financial statements" re: classification of liabilities as current or non-current which was effective for annual periods beginning on or after January 1, 2024. The amendment clarifies that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. These amendments to IAS 1 did not have a material impact on the Company's financial statements.
All tabular amounts are in millions of Canadian dollars, except numbers of common shares, per share amounts, percentages and other figures as noted.
These interim consolidated financial statements were approved for issuance by the Board of Directors on May 1, 2024.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5 |
3. Property, plant and equipment ("PP&E")
Oil and Gas assets/ Facilities, Corporate assets
Cost |
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
11,223.8 |
|
|
$ |
10,931.7 |
|
Capital expenditures |
|
|
114.3 |
|
|
|
292.5 |
|
Property acquisitions |
|
|
- |
|
|
|
0.6 |
|
Net decommissioning changes |
|
|
0.4 |
|
|
|
(1.0 |
) |
Balance, end of period |
|
$ |
11,338.5 |
|
|
$ |
11,223.8 |
|
Accumulated depletion and depreciation |
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
9,287.0 |
|
|
$ |
9,079.4 |
|
Depletion and depreciation |
|
|
54.6 |
|
|
|
204.9 |
|
Impairment |
|
|
0.9 |
|
|
|
2.7 |
|
Balance, end of period |
|
$ |
9,342.5 |
|
|
$ |
9,287.0 |
|
|
|
|
|
|
As at |
|
||
Net book value |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Total |
|
$ |
1,996.0 |
|
|
$ |
1,936.8 |
|
Right-of-use assets
The following table includes a break-down of the categories for right-of-use assets.
Cost |
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
31.1 |
|
|
$ |
25.8 |
|
Additions |
|
|
- |
|
|
|
5.3 |
|
Balance, end of period |
|
$ |
31.1 |
|
|
$ |
31.1 |
|
Accumulated amortization |
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
23.9 |
|
|
$ |
20.5 |
|
Amortization |
|
|
0.4 |
|
|
|
3.4 |
|
Balance, end of period |
|
$ |
24.3 |
|
|
$ |
23.9 |
|
|
|
|
|
|
As at |
|
||
Net book value |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Total |
|
$ |
6.8 |
|
|
$ |
7.2 |
|
Total PP&E
Total PP&E including Oil and Gas assets/Facilities, Corporate assets and Right-of-use assets is as follows:
|
|
|
|
|
As at |
|
||
PP&E |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Oil and Gas assets/Facilities, Corporate assets |
|
$ |
1,996.0 |
|
|
$ |
1,936.8 |
|
Right-of-use assets |
|
|
6.8 |
|
|
|
7.2 |
|
Total |
|
$ |
2,002.8 |
|
|
$ |
1,944.0 |
|
At March 31, 2024, the Company completed an assessment to determine if indicators of impairment or an impairment reversal were present. No indicators were noted for our Cardium, Peace River and Viking cash generating units ("CGUs").
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6 |
During the first quarter of 2024, we recorded a $0.9 million impairment (2023 - $0.1 million) in our Legacy CGU due to decommissioning spending in the area. The Legacy CGU has no recoverable amount, as such changes in our decommissioning liability are expensed each period.
4. Long-term debt
|
|
|
|
|
As at |
|
||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Syndicated credit facility |
|
$ |
167.5 |
|
|
$ |
107.5 |
|
|
|
|
|
|
|
|
||
Senior unsecured notes |
|
|
|
|
|
|
||
11.95% $117.4 million, maturing July 27, 2027 |
|
|
114.2 |
|
|
|
117.4 |
|
Total |
|
|
281.7 |
|
|
|
224.9 |
|
Unamortized discount of senior unsecured notes |
|
|
(1.5 |
) |
|
|
(1.6 |
) |
Deferred financing costs |
|
|
(2.6 |
) |
|
|
(3.3 |
) |
Total long-term debt |
|
$ |
277.6 |
|
|
$ |
220.0 |
|
|
|
|
|
|
|
|
||
Current portion |
|
$ |
- |
|
|
$ |
2.0 |
|
Non-current portion |
|
$ |
277.6 |
|
|
$ |
218.0 |
|
The Company has a reserve-based syndicated credit facility which is subject to a semi-annual borrowing base redetermination. The aggregate amount available under the syndicated credit facility is $260.0 million which was increased subsequent to March 31, 2024, previously $240.0 million, as part of our semi-annual borrowing base redetermination (typically completed in May and November of each year). At that time, the revolving period and maturity dates under the syndicated credit facility were extended to May 31, 2025 and May 31, 2026, respectively.
At March 31, 2024, the Company had senior unsecured notes outstanding totaling $114.2 million which mature on July 27, 2027. During the first quarter of 2024, the Company re-purchased for cancellation $1.2 million principal amount of senior unsecured notes on the open market at an average price of $1,016 per $1,000 principal amount, in addition to the Repurchase Offer outlined below. The senior unsecured notes were initially issued at a price of $980 per $1,000 principal amount resulting in aggregate gross proceeds of $125.0 million and at an interest rate of 11.95 percent. The senior unsecured notes are direct senior unsecured obligations of Obsidian Energy ranking equal with all other present and future senior unsecured indebtedness of the Company.
As part of the terms of the senior unsecured notes, the Company is required, in certain circumstances, to make a repurchase offer at a price of $1,030 per $1,000 principal amount to an aggregate amount, including market purchases, of $63.8 million (the "Repurchase Offer"), based on free cash flow for the six months ended June 30 (typically offered in August) and based on free cash flow for the six months ended December 31 (typically offered in March). Minimum available liquidity thresholds and projected leverage ratios under the Company's syndicated credit facilities are also required to be met in order to proceed with a Repurchase Offer. The Company completed a Repurchase Offer for $2.0 million principal amount of our senior unsecured notes in March 2024.
At March 31, 2024, letters of credit totaling $4.9 million were outstanding (December 31, 2023 – $4.9 million) that reduce the amount otherwise available to be drawn on our syndicated credit facility.
Financing expense consists of the following:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Interest |
|
$ |
6.7 |
|
|
$ |
6.3 |
|
Accretion on decommissioning liability |
|
|
4.2 |
|
|
|
4.4 |
|
Accretion on office lease provision |
|
|
0.2 |
|
|
|
0.3 |
|
Accretion on discount of senior unsecured notes |
|
|
0.1 |
|
|
|
0.1 |
|
Accretion on lease liabilities |
|
|
0.1 |
|
|
|
0.1 |
|
Loss on repurchased senior unsecured notes |
|
|
0.1 |
|
|
|
- |
|
Deferred financing costs |
|
|
0.6 |
|
|
|
0.5 |
|
Financing |
|
$ |
12.0 |
|
|
$ |
11.7 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 |
5. Lease liabilities
Total lease liabilities included in the Consolidated Balance Sheets are as follows:
|
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
8.0 |
|
|
$ |
6.0 |
|
Additions |
|
|
- |
|
|
|
5.3 |
|
Accretion charges |
|
|
0.1 |
|
|
|
0.4 |
|
Lease payments |
|
|
(0.5 |
) |
|
|
(3.7 |
) |
Balance, end of period |
|
$ |
7.6 |
|
|
$ |
8.0 |
|
|
|
|
|
|
|
|
||
Current portion |
|
$ |
1.8 |
|
|
$ |
1.9 |
|
Non-current portion |
|
$ |
5.8 |
|
|
$ |
6.1 |
|
6. Provisions
|
|
As at |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Decommissioning liability |
|
$ |
167.1 |
|
|
$ |
172.6 |
|
Office lease provision (existing) |
|
|
7.3 |
|
|
|
9.4 |
|
Total |
|
$ |
174.4 |
|
|
$ |
182.0 |
|
|
|
|
|
|
|
|
||
Current portion |
|
$ |
26.1 |
|
|
$ |
32.1 |
|
Non-current portion |
|
$ |
148.3 |
|
|
$ |
149.9 |
|
Decommissioning liability
At March 31, 2024, the decommissioning liability was determined by applying an inflation factor of 2.0 percent (December 31, 2023 - 2.0 percent) and the inflated amount was discounted using a credit-adjusted rate of 10.0 percent (December 31, 2023 – 10.0 percent) over the expected useful life of the underlying assets, currently extending over 50 years into the future. At March 31, 2024, the total decommissioning liability on an undiscounted, uninflated basis was $583.4 million (December 31, 2023 - $578.9 million).
Changes to the decommissioning liability were as follows:
|
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
172.6 |
|
|
$ |
182.3 |
|
Net liabilities added (1) |
|
|
0.2 |
|
|
|
1.3 |
|
Increase (decrease) due to changes in estimates |
|
|
0.2 |
|
|
|
(2.3 |
) |
Liabilities settled |
|
|
(10.1 |
) |
|
|
(26.6 |
) |
Government decommissioning assistance |
|
|
- |
|
|
|
0.4 |
|
Accretion charges |
|
|
4.2 |
|
|
|
17.5 |
|
Balance, end of period |
|
$ |
167.1 |
|
|
$ |
172.6 |
|
|
|
|
|
|
|
|
||
Current portion |
|
$ |
18.8 |
|
|
$ |
23.4 |
|
Non-current portion |
|
$ |
148.3 |
|
|
$ |
149.2 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 |
Office lease provision
The office lease provision represents the net present value of non-lease components on certain future office lease payments. The office lease provision was determined by applying an asset specific credit-adjusted discount rate of 6.5 percent (December 31, 2023– 6.5 percent) over the remaining life of the lease contracts to January 2025.
Changes to the office lease provision were as follows:
|
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
9.4 |
|
|
$ |
17.5 |
|
Settlements |
|
|
(2.3 |
) |
|
|
(9.0 |
) |
Accretion charges |
|
|
0.2 |
|
|
|
0.9 |
|
Balance, end of period |
|
$ |
7.3 |
|
|
$ |
9.4 |
|
|
|
|
|
|
|
|
||
Current portion |
|
$ |
7.3 |
|
|
$ |
8.7 |
|
Non-current portion |
|
$ |
- |
|
|
$ |
0.7 |
|
7. Risk management
Financial instruments consist of cash, accounts receivable, fair values of derivative financial instruments, accounts payable and accrued liabilities and long-term debt. At March 31, 2024, the fair values of these financial instruments approximate their carrying amounts.
The fair values of all outstanding financial commodity related contracts are reflected on the Consolidated Balance Sheets with the changes during the period recorded in income as unrealized gains or losses.
At March 31, 2024 and December 31, 2023, the only asset or liability measured at fair value on a recurring basis was the risk management asset and liability, which was valued based on “Level 2 inputs” being quoted prices in markets that are not active or based on prices that are observable for the asset or liability.
The following table reconciles the changes in the fair value of financial instruments outstanding:
Risk management asset (liability) |
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
11.8 |
|
|
$ |
6.2 |
|
Unrealized gain (loss) on financial instruments: |
|
|
|
|
|
|
||
Oil |
|
|
(0.3 |
) |
|
|
- |
|
Natural gas |
|
|
(4.0 |
) |
|
|
6.1 |
|
Electricity |
|
|
(0.7 |
) |
|
|
(0.5 |
) |
Total fair value, end of period |
|
$ |
6.8 |
|
|
$ |
11.8 |
|
|
|
|
|
|
|
|
||
Current asset portion |
|
$ |
8.3 |
|
|
$ |
11.3 |
|
Current liability portion |
|
|
(1.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
||
Non-current asset portion |
|
|
- |
|
|
|
1.0 |
|
Non-current liability portion |
|
$ |
- |
|
|
$ |
- |
|
Obsidian Energy had the following financial instruments outstanding as at March 31, 2024. Fair values are determined using external counterparty information, which is compared to observable market data. The Company limits our credit risk by executing counterparty risk procedures which include transacting only with institutions within our syndicated credit facility or companies with high credit ratings and by obtaining financial security in certain circumstances.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 9 |
|
Notional |
Remaining |
Price |
|
Fair value |
|
|
Oil |
|
|
|
|
|
|
|
WCS Differential |
750 bbl/d |
April 2024 - June 2024 |
($18.80)/bbl |
|
$ |
(0.1 |
) |
WTI Swap |
3,500 bbl/d |
April 2024 |
$109.84/bbl |
|
|
(0.2 |
) |
WTI Collar |
500 bbl/d |
April 2024 |
$108.45/bbl - $114.50/bbl |
|
|
- |
|
|
|
|
|
|
|
|
|
AECO |
|
|
|
|
|
|
|
AECO Swap |
43,365 mcf/d |
April 2024 - October 2024 |
$2.52/mcf |
|
|
6.7 |
|
AECO Swap |
14,929 mcf/d |
November 2024 - March 2025 |
$3.74/mcf |
|
|
1.3 |
|
AECO Collar |
4,976 mcf/d |
November 2024 - March 2025 |
$3.43/mcf - $4.11/mcf |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
Electricity |
|
|
|
|
|
|
|
Power Swap |
144 MWh/d |
April - December 2024 |
$92.83/MWh |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
6.8 |
|
Subsequent to March 31, 2024, the Company entered into the following additional financial instruments:
|
Notional |
Remaining |
Price |
Oil |
|
|
|
WTI Swap |
2,208 bbl/d |
April 2024 |
$117.23/bbl |
WTI Collar |
2,125 bbl/d |
April 2024 |
$110.49/bbl - $117.57/bbl |
WTI Collar |
750 bbl/d |
May 2024 |
$112.30/bbl - $118.38/bbl |
WTI Swap |
1,000 bbl/d |
May 2024 |
$113.72/bbl |
The components of risk management within Income on the Consolidated Statements of Income are as follows:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Realized |
|
|
|
|
|
|
||
Settlement of natural gas contracts gain |
|
$ |
3.8 |
|
|
$ |
2.6 |
|
Total realized risk management gain |
|
$ |
3.8 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
||
Unrealized |
|
|
|
|
|
|
||
Oil contracts loss |
|
$ |
(0.3 |
) |
|
$ |
(0.1 |
) |
Natural gas contracts gain (loss) |
|
|
(4.0 |
) |
|
|
5.1 |
|
Total unrealized risk management gain (loss) |
|
|
(4.3 |
) |
|
|
5.0 |
|
Risk management gain (loss) |
|
$ |
(0.5 |
) |
|
$ |
7.6 |
|
The components of risk management within Expenses on the Consolidated Statements of Income are as follows:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Realized |
|
|
|
|
|
|
||
Settlement of electricity contracts gain |
|
$ |
0.1 |
|
|
$ |
- |
|
Total realized risk management gain |
|
$ |
0.1 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
||
Unrealized |
|
|
|
|
|
|
||
Electricity contracts loss |
|
$ |
(0.7 |
) |
|
$ |
- |
|
Total unrealized risk management loss |
|
|
(0.7 |
) |
|
|
- |
|
Risk management loss |
|
$ |
(0.6 |
) |
|
$ |
- |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 10 |
Market Risks
Obsidian Energy is exposed to normal market risks inherent in the oil and natural gas business, including, but not limited to, commodity price risk, foreign currency rate risk, credit risk, interest rate risk, liquidity risk, supply cost risks and climate change risk. The Company seeks to mitigate these risks through various business processes and management controls and from time to time by using financial instruments.
There have been no material changes to these risks from those discussed in the Company’s annual audited consolidated financial statements as at and for the year ended December 31, 2023.
8. Revenue and Other Income
The Company’s significant revenue streams consist of the following:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Oil |
|
$ |
149.4 |
|
|
$ |
141.5 |
|
NGLs |
|
|
12.8 |
|
|
|
14.3 |
|
Natural gas |
|
|
15.1 |
|
|
|
25.1 |
|
Production revenues |
|
|
177.3 |
|
|
|
180.9 |
|
Processing fees |
|
|
3.9 |
|
|
|
3.6 |
|
Oil and natural gas sales |
|
|
181.2 |
|
|
|
184.5 |
|
Other income |
|
|
2.1 |
|
|
|
1.9 |
|
Oil and natural gas sales and other income |
|
$ |
183.3 |
|
|
$ |
186.4 |
|
9. Shareholders’ equity
i) Issued
Shareholders’ capital |
|
Common Shares |
|
|
Amount |
|
||
Balance, December 31, 2022 |
|
|
82,442,210 |
|
|
$ |
2,221.9 |
|
Issued pursuant to equity compensation plans (1) |
|
|
229,963 |
|
|
|
0.6 |
|
Repurchase of common shares for cancellation |
|
|
(5,083,635 |
) |
|
|
(47.4 |
) |
Balance, December 31, 2023 |
|
|
77,588,538 |
|
|
|
2,175.1 |
|
Issued pursuant to equity compensation plans (1) |
|
|
176,953 |
|
|
|
1.7 |
|
Repurchase of common shares for cancellation |
|
|
(1,050,000 |
) |
|
|
(10.5 |
) |
Balance, March 31, 2024 |
|
|
76,715,491 |
|
|
$ |
2,166.3 |
|
Pursuant to our return of capital initiative to our shareholders, in the first quarter of 2024 we renewed our normal course issuer bid ("NCIB") with the Toronto Stock Exchange. Purchases under the NCIB will be subject to having $65 million of liquidity and complying with the terms of our current credit facilities. During the first quarter of 2024, the Company utilized the NCIB which resulted in 1,050,000 common shares being repurchased and canceled at an average price of $9.94 per share for total consideration of $10.5 million. The total consideration paid includes commissions and fees and is recorded as a reduction to Shareholders' Equity.
ii) Earnings per share - Basic and Diluted
The weighted average number of shares used to calculate per share amounts was as follows:
|
Three months ended March 31 |
|
||||
Average shares outstanding (millions) |
2024 |
|
2023 |
|
||
Basic |
|
77.3 |
|
|
82.0 |
|
Dilutive impact (1) |
|
3.0 |
|
|
1.9 |
|
Diluted |
|
80.3 |
|
|
83.9 |
|
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 11 |
10. Share-based compensation
Share-based compensation expense relates to options ("Options") granted under the Company's Stock Option Plan (the “Option Plan”), restricted shares units (“RSUs") granted under the Restricted and Performance Share Unit Plan (“RPSU plan”), restricted awards granted under the Non-Treasury Incentive Award Plan (“NTIP”), deferred share units ("DSUs") granted under the Deferred Share Unit Plan (“DSU plan”) and performance share units (“PSUs”) granted under the RPSU plan.
The DSU, PSU's and NTIP's follow the liability method of accounting where the change in share price at the balance date results in a mark-to-market valuation. Settlement of the units or awards, which can be in the form of cash or shares, only occurs when they vest. The Options and RSU's follow the equity method of accounting where the fair value of the option or unit is calculated at the grant date and expensed over the expected life because these plans are typically settled in shares.
Share-based compensation consisted of the following:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
DSUs |
|
$ |
4.4 |
|
|
$ |
(0.7 |
) |
PSUs |
|
|
1.6 |
|
|
|
0.4 |
|
NTIP |
|
|
0.9 |
|
|
|
0.4 |
|
Cash settled share-based incentive plans |
|
$ |
6.9 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
||
RSUs |
|
$ |
1.7 |
|
|
$ |
1.8 |
|
Options |
|
|
0.4 |
|
|
|
0.3 |
|
Equity settled share-based incentive plans |
|
|
2.1 |
|
|
|
2.1 |
|
Share-based compensation |
|
$ |
9.0 |
|
|
$ |
2.2 |
|
The share price used in the fair value calculation of the DSU, NTIP and PSU obligations at March 31, 2024 was $11.18 per share (2023 – $8.63).
Restricted and Performance Share Unit plan
Restricted Share Unit grants under the RPSU plan
Obsidian Energy awards RSU grants under the RPSU plan whereby employees receive consideration that fluctuates based on the Company’s share price on the Toronto Stock Exchange ("TSX"). Consideration can be in the form of cash or shares purchased on the open market or issued from treasury.
RSUs (number of shares equivalent) |
|
Three months ended |
|
|
Year ended |
|
||
Outstanding, beginning of period |
|
|
1,290,042 |
|
|
|
874,130 |
|
Granted |
|
|
678,020 |
|
|
|
991,860 |
|
Vested (1) |
|
|
(338,804 |
) |
|
|
(541,357 |
) |
Forfeited |
|
|
(4,575 |
) |
|
|
(34,591 |
) |
Outstanding, end of period |
|
|
1,624,683 |
|
|
|
1,290,042 |
|
The fair value and weighted average assumptions of the RSUs granted during the periods were as follows:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Average fair value of RSUs granted (per RSU) |
|
$ |
9.64 |
|
|
$ |
9.79 |
|
Expected life of RSUs (years) |
|
|
3.0 |
|
|
|
2.6 |
|
Expected forfeiture rate |
|
|
0.1 |
% |
|
|
0.1 |
% |
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 12 |
Performance Share Unit grants under the RPSU plan
The RPSU plan allows Obsidian Energy to grant PSUs to employees of the Company.
The PSUs are classified as a liability on our Consolidated Balance Sheet as the PSUs are settled in cash. The PSU liability fluctuates based on the Company’s share price on the TSX at each period end date. Employees receive consideration only when the PSUs vest.
PSUs (number of shares equivalent) |
|
Three months ended |
|
|
Year ended |
|
||
Outstanding, beginning of period |
|
|
896,690 |
|
|
|
949,040 |
|
Granted |
|
|
271,940 |
|
|
|
239,360 |
|
Vested (1) |
|
|
(532,720 |
) |
|
|
(291,710 |
) |
Outstanding, end of period |
|
|
635,910 |
|
|
|
896,690 |
|
|
|
As at |
|
|||||
PSU liability |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Current |
|
$ |
2.1 |
|
|
$ |
9.8 |
|
Non-current |
|
|
2.1 |
|
|
|
2.6 |
|
Total |
|
$ |
4.2 |
|
|
$ |
12.4 |
|
Stock Option Plan
Obsidian Energy has a Stock Option Plan that allows the Company to issue options to acquire common shares (“Options”) to officers, employees, directors and other service providers.
|
|
Three months ended |
|
|
Year ended |
|
||||||||||
Options |
|
Number of |
|
|
Weighted Average |
|
|
Number of |
|
|
Weighted Average |
|
||||
Outstanding, beginning of period |
|
|
2,305,489 |
|
|
$ |
3.30 |
|
|
|
2,274,672 |
|
|
$ |
2.30 |
|
Granted |
|
|
336,210 |
|
|
|
9.65 |
|
|
|
260,780 |
|
|
|
10.32 |
|
Exercised (1) |
|
|
(10,000 |
) |
|
|
1.99 |
|
|
|
(229,963 |
) |
|
|
1.42 |
|
Outstanding, end of period |
|
|
2,631,699 |
|
|
$ |
4.11 |
|
|
|
2,305,489 |
|
|
$ |
3.30 |
|
Exercisable, end of period |
|
|
1,140,415 |
|
|
$ |
2.64 |
|
|
|
1,064,115 |
|
|
$ |
2.02 |
|
The fair value and weighted average assumptions of the Options granted during the periods were as follows:
|
|
Three months ended March 31 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Average fair value of Options granted (per Option) |
|
$ |
9.65 |
|
|
$ |
6.34 |
|
Expected volatility |
|
|
76.7 |
% |
|
|
82.4 |
% |
Expected life of Options (years) |
|
|
4.5 |
|
|
|
3.9 |
|
Expected forfeiture rate |
|
|
0.2 |
% |
|
|
0.2 |
% |
Non-Treasury Incentive Award Plan
The NTIP allows Obsidian Energy to grant NTIP Restricted Awards to employees of the Company.
The NTIP obligation is classified as a liability on our Consolidated Balance Sheet as the NTIP restricted awards are settled in cash. The NTIP obligation fluctuates based on the Company’s share price on the TSX at each period end date. Employees receive consideration only when the NTIP restricted awards vest.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 13 |
NTIP Restricted Awards |
|
Three months ended |
|
|
Year ended |
|
||
Outstanding, beginning of period |
|
|
328,994 |
|
|
|
689,228 |
|
Vested (1) |
|
|
(733 |
) |
|
|
(344,074 |
) |
Forfeited |
|
|
(999 |
) |
|
|
(16,160 |
) |
Outstanding, end of period |
|
|
327,262 |
|
|
|
328,994 |
|
|
|
As at |
|
|||||
NTIP liability |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Current |
|
$ |
3.6 |
|
|
$ |
2.7 |
|
Total |
|
$ |
3.6 |
|
|
$ |
2.7 |
|
Deferred Share Unit plan
The DSU plan allows the Company to grant DSUs to non-employee directors only.
The DSU plan is classified as a liability on our Consolidated Balance Sheet as the DSUs are settled in cash. The DSU liability fluctuates based on the Company’s share price on the TSX at each period end date. Non-employee directors receive consideration only upon redemption of the DSUs following retirement from the Board of Directors, not before this date, with the consideration based on the volume-weighted-average trading price of the common shares on the TSX.
Deferred Share Units |
|
Three months ended |
|
|
Year ended |
|
||
Outstanding, beginning of period |
|
|
1,893,280 |
|
|
|
1,811,245 |
|
Granted |
|
|
18,269 |
|
|
|
82,035 |
|
Outstanding, end of period |
|
|
1,911,549 |
|
|
|
1,893,280 |
|
|
|
As at |
|
|||||
DSU Liability |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Current |
|
$ |
21.5 |
|
|
$ |
17.1 |
|
Total |
|
$ |
21.5 |
|
|
$ |
17.1 |
|
At March 31, 2024, the Company had no outstanding DSUs that were redeemable.
11. Deferred income tax asset
|
|
Three months ended |
|
|
Year ended |
|
||
Balance, beginning of period |
|
$ |
210.8 |
|
|
$ |
246.4 |
|
Deferred income tax expense |
|
|
(4.3 |
) |
|
|
(35.6 |
) |
Balance, end of period |
|
$ |
206.5 |
|
|
$ |
210.8 |
|
The Company previously recognized a deferred tax asset, as we expect to have sufficient taxable profits in future years in order to fully utilize the remaining deferred tax asset balance. The deferred tax asset is reduced by net income for the period on an after-tax basis.
12. Commitments and contingencies
The Company is involved in various litigation and claims in the normal course of business and records provisions for claims as required.
OBSIDIAN ENERGY FIRST QUARTER 2024 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 14 |
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Stephen Loukas, President and Chief Executive Officer of Obsidian Energy Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together the “interim filings”) of Obsidian Energy Ltd. (the “issuer”) for the interim period ended March 31, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A.
5.3 N/A.
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2024 and ended on March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: May 2, 2024
(signed) “Stephen Loukas”
_______________________
Stephen Loukas
President & Chief Executive Officer
Exhibit 99.5
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Peter Scott, Senior Vice President and Chief Financial Officer of Obsidian Energy Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Obsidian Energy Ltd. (the “issuer”) for the interim period ended March 31, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A.
5.3 N/A.
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2024 and ended on March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: May 2, 2024
(signed) “Peter Scott”
_______________________
Peter Scott
Senior Vice President and Chief Financial Officer