Obsidian Energy Ltd 6-K, filed May 4, 2022
Obsidian Energy Ltd. (OBE)
About this 6-K
Obsidian Energy Ltd filed this 6-K on May 4, 2022.
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 2022
Commission File Number 1-32895
Obsidian Energy Ltd.
(Translation of registrant’s name into English)
Suite 200, 207 – 9th Avenue SW
Calgary, Alberta T2P 1K3
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) ☐
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 4, 2022.
| OBSIDIAN ENERGY LTD. | ||
| By: | /s/ Stephen Loukas | |
| Name: | Stephen Loukas | |
| Title: | Interim President and Chief Executive Officer | |
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EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | News Release, dated May 4, 2022 | |
| 99.2 | Management’s Discussion and Analysis for the three months ended March 31, 2022 | |
| 99.3
99.4
99.5 |
Financial Statements for the three months ended March 31, 2022
Quarterly Certification of the Chief Executive Officer under Canadian law
Quarterly Certification of the Chief Financial Officer under Canadian law | |
Exhibit 99.1
Obsidian Energy Announces First Quarter 2022 Results
• Strong first quarter average production of 29,407 boe/d; current production further grew to 33,000 boe/d based on recent drilling success
• Active first half four-rig drilling program with 19 operated wells (18.5 net) rig-released in the quarter and 14 wells (13.5 net) now on production
• Strong production rates from new Peace River wells from late 2021 and early 2022 programs
• 2022 production range further increased by 200 boe/d to between 30,300 to 31,300 boe/d
• Funds flow from operations was $101.3 million in the quarter, excluding $22.7 million of share-based compensation charges
• New member appointed to the Board of Directors
CALGARY, May 4, 2022 - OBSIDIAN ENERGY LTD. (TSX / NYSE American – OBE) (“Obsidian Energy”, the “Company”, “we”, “us” or “our”) is pleased to report operating and financial results for the first quarter of 2022.
| Three Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| FINANCIAL1 |
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| (millions, except per share amounts) |
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| Cash flow from operating activities |
83.9 | 28.4 | ||||||
| Basic per share ($/share)2 |
1.03 | 0.39 | ||||||
| Diluted per share ($/share)2 |
1.00 | 0.37 | ||||||
| Funds flow from operations3 |
78.6 | 36.3 | ||||||
| Basic per share ($/share)4 |
0.97 | 0.49 | ||||||
| Diluted per share ($/share)4 |
0.94 | 0.48 | ||||||
| Net income |
23.8 | 23.2 | ||||||
| Basic per share ($/share) |
0.29 | 0.32 | ||||||
| Diluted per share ($/share) |
0.28 | 0.31 | ||||||
| Capital expenditures |
103.4 | 29.5 | ||||||
| Decommissioning expenditures |
8.5 | 3.3 | ||||||
| Long-term debt |
368.4 | 439.9 | ||||||
| Net debt3 |
448.8 | 455.0 | ||||||
| OPERATIONS |
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| Daily Production |
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| Light oil (bbl/d) |
11,114 | 10,014 | ||||||
| Heavy oil (bbl/d) |
5,789 | 2,788 | ||||||
| NGL (bbl/d) |
2,432 | 2,056 | ||||||
| Natural gas (mmcf/d) |
60 | 50 | ||||||
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| Total production5 (boe/d) |
29,407 | 23,225 | ||||||
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| Average sales price6 |
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| Light oil ($/bbl) |
117.91 | 67.34 | ||||||
| Heavy oil ($/bbl) |
84.77 | 40.48 | ||||||
| NGL ($/bbl) |
68.09 | 41.04 | ||||||
| Natural gas ($/mcf) |
4.96 | 3.21 | ||||||
| Netback ($/boe) |
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| Sales price |
77.07 | 44.21 | ||||||
| Risk management gain (loss) |
(6.58 | ) | (2.44 | ) | ||||
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| Net sales price |
70.49 | 41.77 | ||||||
| Royalties |
(11.35 | ) | (2.68 | ) | ||||
| Net operating costs4 |
(13.93 | ) | (13.52 | ) | ||||
| Transportation |
(2.76 | ) | (1.79 | ) | ||||
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| Netback4 ($/boe) |
42.45 | 23.78 | ||||||
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| (1) | We adhere to generally accepted accounting principles (“GAAP”); however, we also employ certain non-GAAP measures to analyze financial performance, financial position, and cash flow, including funds flow from operations, net debt, netback, net operating costs 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 (loss) and cash flow from operating activities, as indicators of our performance. |
| (2) | Supplementary financial measure. See “Non-GAAP and Other Financial Measures”. |
| (3) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| (4) | Non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures”. |
| (5) | Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”. |
| (6) | Before risk management gains/(losses). |
Detailed information can be found in Obsidian Energy’s unaudited consolidated financial statements and management’s discussion and analysis (“MD&A”) as at and for the three months ended March 31, 2022, on our website at www.obsidianenergy.com, which will be filed on SEDAR and EDGAR in due course.
KEY 2022 RESULTS
Our first half 2022 development program resulted in significant production growth for the Company from our Willesden Green, Pembina and Peace River assets and from the acquired Peace River Oil Partnership (“PROP”) production late in the fourth quarter of 2021. First quarter production increased to 29,407 boe/d and has since further grown to approximately 33,000 boe/d currently – a 42 percent increase over the 23,225 boe/d in the first quarter of 2021 - due to our taking advantage of increased commodity prices and ability to accelerate our development program from our high-quality locations. Higher commodity prices and production resulted in increased funds flow from operations (“FFO”) from the first quarter of 2021.
2022 First Quarter Financial Highlights
| • | Strong Funds Flow – FFO increased by 117 percent to $78.6 million ($0.97 per share) for the quarter compared to $36.3 million ($0.49 per share) in the first quarter of 2021 including share-based compensation charges which impacted FFO. |
| • | Share-based compensation charges totaled $22.7 million for the quarter due to the Company’s significant 113 percent share price appreciation since December 31, 2021 (March 31, 2022: $11.08 per share; December 31, 2021: $5.21 per share). |
| • | Over half of the share-based compensation charge is derived from awards granted in 2019 and 2020 when our share price was below a dollar. Excluding share-based compensation charges, FFO was $101.3 million ($1.25 per share) for the quarter – a 162 percent increase when compared to the first quarter of 2021. |
| • | Capital Development Growth – The Company had an active four-rig program during the first quarter of 2022 with capital expenditures of $103.4 million (2021 - $29.5 million) and decommissioning expenditures of $8.5 million (2021 – $3.3 million). Included in capital expenditures was $13.7 million for land sale purchases in Peace River. First quarter capital expenditures were predominately spent on drilling 19 wells (18.5 net) with four wells (3.8 net) completed and brought on stream in our Willesden Green and Pembina assets. Subsequent to March 31, 2022, an additional 10 wells (9.7 net wells) were brought on production from our 2022 development program. |
| • | Continued Debt Facility Reduction – We continued to reduce the amounts outstanding under our debt facilities over the quarter, which included: |
| • | $311.8 million drawn on our syndicated credit facility ($321.5 million at December 31, 2021); |
| • | $47.1 million of senior notes ($54.9 million at December 31, 2021); and |
| • | $10.5 million on our PROP limited recourse loan ($16.0 million at December 31, 2021). |
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Net debt was $448.8 million at March 31, 2022, compared to $413.5 million at December 31, 2021, impacted by a higher working capital deficiency due to our increased activity levels (March 31, 2022: $79.4 million; December 31, 2021: $21.1 million) and accruals for the current portion of our share-based compensation plans (March 31, 2022: $31.4 million; December 31, 2021: $12.3 million). Although net debt increased at March 31, 2022, we expect debt and leverage levels to be reduced throughout 2022 from free cash flow generation.
| • | G&A Costs – General and administrative (“G&A”) costs were $1.57 per boe in 2022 compared to $1.69 per boe for the first quarter of 2021. Increased production helped reduce G&A on a per boe basis. |
| • | Managed Net Operating Costs – Net operating costs of $13.93 per boe in the first quarter of 2022 were higher than the $13.52 per boe in 2021. Net operating costs reflected higher repair and maintenance activity levels motivated by the current increased commodity price environment. Net operating costs are expected to decrease going forward due to the full year impact of lower cost new well production. |
| • | Consistent Net Income – Higher commodity prices and production volumes resulted in net income of $23.8 million ($0.29 per share), inclusive of higher share-based compensation charges, realized hedging losses and royalties. This compared to net income of $23.2 million ($0.32 per share) in 2021. |
| • | Acquired Substantial Land in Peace River – In the first quarter of 2022, we successfully purchased 23 sections (14,720 acres) of prospective oil sands rights from the Alberta land sale in the Peace River region for a consideration of approximately $13.7 million. We have identified 28 potential Bluesky locations and 14 potential Clearwater opportunities on the new land, creating a contiguous land position with a compelling value opportunity to complement our recent drilling activity. |
2022 First Quarter Operational Highlights
| • | Increased Development Well Activity – Building from our 2021 program, our 2022 development program is delivering strong drilling results and production rates from the largest first half program that the Company has undertaken in several years. Of the 19 wells (18.5 net) rig-released in the quarter, nine wells (9.0 net) were in Willesden Green, six wells (5.5 net) were in Pembina and four wells (4.0 net) were in Peace River. In addition to this, we participated in three Cardium oil wells that were drilled by a partner during the quarter. |
| • | Expansion of Peace River Area – With the Peace River acquisition in late 2021 and the recent development program results, total Peace River production increased from approximately 2,900 boe/d in October 2021 to approximately 6,500 boe/d at March 31, 2022. Current production is approximately 8,000 boe/d with the recent addition of new producing wells. |
| • | Continued Reduction in Decommissioning Liabilities – We completed the last substantial component of our inactive legacy portfolio decommissioning in the first quarter of 2022, utilizing $13.4 million of grants under the Alberta Site Rehabilitation Program (“ASRP”) in addition to $8.5 million of our own decommissioning funds. The project abandoned 221 net wells, 171 net km of pipelines and 10 net facilities, while decommissioning 227 net surface locations. |
2022 DEVELOPMENT PROGRAM UPDATE
Our first half 2022 development program started with increased activity across our Willesden Green, Pembina, and Peace River areas. The success of our first half 2022 drilling program has resulted in significant production growth to approximately 33,000 boe/d to date. In addition, we also accelerated the drilling of two wells (2 net) in Peace River that were initially planned in our second half 2022 program. As we complete our first half program, we are in the process of assessing potential second half 2022 development, which we expect to announce within the next six weeks in association with our refinancing plans. Region specific results are discussed below.
3
Peace River
Given the strength of our recent drilling results in combination with a strong commodity price outlook, the Company accelerated the drilling of two additional wells (2.0 net) from our second half 2022 drilling program into the first half of the year. To date, we have rig-released six wells (6.0 net) from the first half 2022 program. The first two new Bluesky wells from our 2022 program came on production in mid-April and are in the process of cleanup: the two-well pad has produced an average of 858 boe/d (99 percent oil) over the last three days. From the 2021 program, initial production (“IP”) 90-day rates from the first four Bluesky wells (4.0 net) averaged 447 boe/d per well (99 percent heavy oil).
Willesden Green
Our first half 2022 drilling program in Willesden Green is complete with the drilling and rig-release of all ten wells (10 net). In total, seven wells (7.0 net) are currently on production and the remainder are expected to be completed in May. The average per well IP 30-day rates from the wells was 276 boe/d (77 percent light oil). With our commitment to drilling some of the longest wells in the Cardium, we continue to achieve improvements in drilling efficiencies with a new pacesetter well in our Faraway area. Obsidian drilled its fastest Cardium well (spud to total depth) in the first half of 2022: the 100/7-23-42-7W5 well drilled 5,356 metres of total depth in 8.85 days, surpassing the previous pace setter well by approximately seven hours (previous well: 103/3-9-42-7W5, 5,349 metres).
Pembina
All five wells (4.5 net) planned for the first half program have now been drilled, rig-released and on production. The first two wells averaged IP 30-day rates of 281 boe/d (82 percent oil). The remaining three wells were brought on production in late April and are presently cleaning up. In addition, one well in the two-well 2022 vertical Devonian drilling program has been completed and is expected to be on production in mid-May.
Updated 2022 Guidance
Due to strong results from our development program in combination with the acceleration of wells from the second half development program, we have further increased our 2022 production guidance range from our April release by another 200 boe/d to 30,300 to 31,300 boe/d (mid-point: 30,800 boe/d) based on the same overall activity levels in our initial guidance. Capitalizing on the current strong commodity price environment, we continue to take advantage of the flexibility our portfolio offers while finalizing plans for the second half of 2022. We will provide further details on updates to our 2022 capital and development plans in association with our refinancing plans within the next six weeks.
ASRP UPDATE
During the first quarter of 2022, Obsidian Energy completed the last substantial component of our inactive legacy portfolio decommissioning. The project abandoned 221 net wells, 171 net km of pipelines and 10 net facilities, while decommissioning 227 net surface locations.
In 2022, we anticipate abandoning over 300 net wells and over 500 km of pipelines (net) during the year, further demonstrating our commitment to reducing our decommissioning liability.
SHARE-BASED COMPENSATION
The Company recorded a $22.7 million share-based compensation charge related to cash settled share-based incentive plans during the first quarter of 2022. This was primarily due to the Company’s significant 113 percent share price appreciation since December 31, 2021 (March 31, 2022: $11.08 per share; December 31, 2021: $5.21 per share).
4
Details of the share-based compensation expense are as follows:
| Three months ended March 31 |
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| 2022 | 2021 | |||||||
| Deferred share units |
$ | 12.1 | $ | 2.2 | ||||
| Performance share units |
6.0 | 0.2 | ||||||
| Non-treasury incentive awards |
4.6 | — | ||||||
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| Cash settled share-based incentive plans |
$ | 22.7 | $ | 2.4 | ||||
| Restricted share units |
$ | 0.8 | $ | 0.3 | ||||
| Stock options |
0.6 | — | ||||||
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| Equity settled share-based incentive plans |
$ | 1.4 | $ | 0.3 | ||||
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| Share-based compensation |
$ | 24.1 | $ | 2.7 | ||||
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Non-employee directors are eligible for deferred share units where management and employees are eligible for performance share units, non-treasury incentive awards, restricted share units and stock options. The performance share units have a payout multiplier that can range from zero to 2.0, which at March 31, 2022, was estimated at 1.93 based on the Company’s strong share performance over the past two years compared to peers.
The cash settled share-based incentive plans are classified as cash-settled and, as a result, will be impacted by changes in the Company’s share price at each quarter-end date; however, increases will be mitigated as certain performance share units have essentially reached their capped payout. Although accounted for as cash settled, the performance share units and non-treasury incentive awards can be settled in cash or shares at the discretion of the Board of Directors. Please refer to our annual consolidated financial statements at December 31, 2021 for further details on the accounting policies for each plan.
NEW ADDITION TO BOARD OF DIRECTORS
We are pleased to announce the appointment of Ms. Shani Bosman to our Board of Directors, who will also serve on the Operations and Reserve Committee. Ms. Bosman holds an MBA from the Haskayne Business School, University of Calgary, a Masters Certificate in Project Management from Mount Royal University, and a Bachelor Degree in Chemical Engineering from the University of Pretoria, South Africa. Ms. Bosman was the Vice President, Corporate Strategy, Performance, Planning and Investor Relations at Husky Energy Inc. from 2019 to 2021; she previously held Director roles in Technical Operations and Business and Asset Development at Husky Energy Inc. She is currently acting for a boutique independent consulting firm, BINGWA Inc., which she founded. Ms. Bosman will stand for election as an independent director to our Board of Directors at the upcoming Annual and Special Meeting of Shareholders (the “Annual Meeting”) on June 16, 2022.
HEDGING UPDATE
The Company continues to focus our hedging program on near term WTI positions to protect cashflow given our first half capital program. We have also built a solid foundation on summer AECO natural gas pricing, which is also highly constructive to the business. As at May 3, 2022, the following financial oil and gas contracts are in place on a weighted average basis:
| Term |
Notional Volume |
Pricing (CAD) |
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| Oil - WTI |
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| April 2022 |
8,183 bbl/d | $ | 121.81/bbl | |||||
| May 2022 |
4,000 bbl/d | $ | 133.42/bbl | |||||
5
| Natural Gas - AECO |
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| April 2022 |
21,326 mcf/d | $ | 4.43/mcf | |||||
| May – October 2022 |
26,065 mcf/d | $ | 4.74/mcf |
In addition, PROP Energy 45 Limited Partnership, our wholly owned limited recourse subsidiary that purchased 45 percent of the PROP units from a third party on November 24, 2021, entered into the following financial hedges in conjunction with the acquisition financing:
| Term |
Notional Volume |
Pricing (USD) | ||||||
| Oil - WTI |
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| Q2 2022 |
1,121 bbl/d | $ | 65.11/bbl | |||||
| Q3 2022 |
593 bbl/d | $ | 63.26/bbl | |||||
| Q4 2022 |
606 bbl/d | $ | 62.30/bbl | |||||
| Heavy Oil – WCS Differential |
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| Q2 2022 |
801 bbl/d | ($ | 15.43)/bbl | |||||
UPDATED CORPORATE PRESENTATION
For further information on these and other matters, Obsidian Energy will post an updated corporate presentation later today on our website, www.obsidianenergy.com.
ANNUAL AND SPECIAL MEETING
The Annual Meeting is scheduled for Thursday, June 16, 2022, at 9:00 am (Mountain Daylight Time) at the offices of Obsidian Energy. Access to the Annual Meeting will, subject to Company’s by-laws, be limited to essential personnel and registered shareholders and proxyholders entitled to attend and vote at the Meeting.
In association with the Annual Meeting, our Interim President and CEO, Mr. Stephen Loukas and other members of management will host a webcast presentation after the formal portion of the meeting at 10:30 am Mountain Daylight Time (12:30 pm Eastern Daylight Time) (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 five to 10 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 Presentation will be available for replay on our website, www.obsidianenergy.com
Additional information about the Meeting can be found on our website.
6
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 (loss) and cash flow from operating activities as indicators of our performance. The Company’s unaudited consolidated financial statements and notes and management’s discussion and analysis (“MD&A”) as at and for the three months ended March 31, 2022 are available on the Company’s website at www.obsidianenergy.com and under our SEDAR profile at www.sedar.com. 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: funds flow from operations; net debt; net operating costs; netback; and free cash flow. 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 months ended March 31, 2022, 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 funds flow from operations 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.
7
For a reconciliation of free cash flow to cash flow from operating activities, being our nearest measure prescribed by IFRS, see “Non-GAAP Measures Reconciliations” below.
Non-GAAP Ratios
The following measures are non-GAAP ratios: funds flow from operations (basic per share ($/share) and diluted per share ($/share)), which use funds flow from operations as a component; net operating costs ($/boe), which uses net operating costs as a component; netback ($/boe), which uses netback as a component. 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 the three months ended March 31, 2022, 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: cash flow from operating activities (basic per share and diluted per share); and general and administrative 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, 2022, for an explanation of the composition of these measures.
Non-GAAP Measures Reconciliations
2022 and 2021 Cash Flow from Operating Activities, Funds Flow from Operations and Free Cash Flow
| Three Months Ended March 31 |
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| (millions) |
2022 | 2021 | ||||||
| Cash flow from operating activities |
$ | 83.9 | $ | 28.4 | ||||
| Change in non-cash working capital |
(18.0 | ) | 10.3 | |||||
| Decommissioning expenditures |
8.5 | 3.3 | ||||||
| Onerous office lease settlements |
2.3 | 2.3 | ||||||
| Deferred financing costs |
(0.7 | ) | (1.0 | ) | ||||
| Financing fees paid |
— | 4.1 | ||||||
| Restructuring charges1 |
2.5 | (2.0 | ) | |||||
| Transaction costs |
0.1 | 0.1 | ||||||
| Other expenses1 |
— | (9.2 | ) | |||||
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| Funds flow from operations |
78.6 | 36.3 | ||||||
| Capital expenditures |
(103.4 | ) | (29.5 | ) | ||||
| Decommissioning expenditures |
(8.5 | ) | (3.3 | ) | ||||
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| Free Cash Flow |
$ | (33.3 | ) | $ | 3.5 | |||
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| (1) | Excludes the non-cash portion of restructuring and other expenses. |
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2022 and 2021 Netback to Sales Price
| Three Months Ended March 31 |
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| (millions) |
2022 | 2021 | ||||||
| Sales price |
$ | 204.0 | $ | 92.4 | ||||
| Risk management (loss) gain |
(17.4 | ) | (5.1 | ) | ||||
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| Net sales price |
186.6 | 87.3 | ||||||
| Royalties |
(30.0 | ) | (5.7 | ) | ||||
| Net operating costs1 |
(36.9 | ) | (28.3 | ) | ||||
| Transportation |
(7.3 | ) | (3.7 | ) | ||||
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| Netback |
$ | 112.4 | $ | 49.6 | ||||
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| (1) | Non-GAAP financial measure. |
2022 and 2021 Net Operating Costs to Operating Costs
| Three Months Ended March 31 |
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| (millions) |
2022 | 2021 | ||||||
| Operating costs |
$ | 40.3 | $ | 30.9 | ||||
| Less processing fees |
(1.9 | ) | (1.6 | ) | ||||
| Less road use recoveries |
(1.5 | ) | (1.0 | ) | ||||
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| Net Operating costs |
$ | 36.9 | $ | 28.3 | ||||
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2022 and 2021 Net Debt to Long-Term Debt
| Three Months Ended March 31 |
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| (millions) |
2022 | 2021 | ||||||
| Long-term debt |
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| Syndicated credit facility |
$ | 311.8 | $ | 386.0 | ||||
| PROP Limited recourse loan |
10.5 | — | ||||||
| Senior secured notes |
47.1 | 58.2 | ||||||
| Deferred interest |
1.0 | 2.3 | ||||||
| Deferred financing costs |
(2.0 | ) | (6.6 | ) | ||||
|
|
|
|
|
|||||
| Total |
368.4 | 439.9 | ||||||
| Working capital deficiency |
||||||||
| Cash |
(5.6 | ) | (2.2 | ) | ||||
| Accounts receivable |
(96.6 | ) | (52.4 | ) | ||||
| Prepaid expenses and other |
(10.0 | ) | (10.2 | ) | ||||
| Bank overdraft |
3.3 | — | ||||||
| Accounts payable and accrued liabilities |
189.3 | 79.9 | ||||||
|
|
|
|
|
|||||
| Total |
80.4 | 15.1 | ||||||
|
|
|
|
|
|||||
| Net debt |
$ | 448.8 | $ | 455.0 | ||||
|
|
|
|
|
|||||
9
ABBREVIATIONS
| Oil |
Natural Gas |
|||||
| bbl | barrel or barrels | mcf | thousand cubic feet | |||
| bbl/d | barrels per day | mmcf | million cubic feet | |||
| boe | barrel of oil equivalent | mmcf/d | million cubic feet per day | |||
| boe/d | barrels of oil equivalent per day | AECO | Alberta benchmark price for natural gas | |||
| MSW | Mixed Sweet Blend | NGL | natural gas liquids | |||
| WTI | West Texas Intermediate |
FUTURE-ORIENTED FINANCIAL INFORMATION
This release contains future-oriented financial information (“FOFI”) and financial outlook information relating to the Company’s prospective results of operations, operating costs, expenditures, production, FFO, free cash flow, net operating costs, and net debt, which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth below under “Forward-Looking Statements”. The Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, such FOFI, or if any of them do so, what benefits the Company will derive therefrom. The Company has included this FOFI in order to provide readers with a more complete perspective on the Company’s business as of the date hereof and such information may not be appropriate for other purposes.
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 unaudited consolidated financial statements and MD&A on our website, SEDAR and EDGAR in due course; our expectations for debt levels, leverage levels and net operating costs in 2022; our expectations of potential drilling opportunities in the Bluesky and Clearwater; our expected production guidance range for 2022; when we expect to announce our second half 2022 capital and development program; expected on production dates for certain wells; our expectations for abandoning of wells and pipeline during the year; our hedges; and our expectations for an updated corporate presentation and the Meeting and Presentation.
With respect to forward-looking statements and FOFI 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 and FOFI contained herein (including our guidance set out under “2022 Guidance”) do not assume the completion of any transaction); the impact of regional and/or global health related events, including the ongoing COVID-19 pandemic, on energy demand and commodity prices; 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 the pandemic; global energy policies going forward, including the ability 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 created as a result of the COVID-19 pandemic (including the ASRP) or otherwise, 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 and the impact that the successful execution of such plans will have on our Company and our stakeholders; future capital expenditure and decommissioning expenditure levels;
10
future operating costs and general & administrative 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; 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, such as wild fires and flooding, 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 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 notes and our wholly-owned subsidiaries limited-recourse loan on maturity; 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 and FOFI contained in this document, and the assumptions on which such forward-looking statements and FOFI 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 and FOFI 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 and FOFI involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements and FOFI 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 and FOFI. These risks and uncertainties include, among other things: the possibility that we change our 2022 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, 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; 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 with the COVID-19 pandemic and other 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, including the ongoing COVID-19 pandemic, and the responses of governments and the public to the pandemic, 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 pandemic, the worldwide transition towards less reliance on fossil fuels and/or other factors; the risk that the COVID-19 and/or other factors pandemic adversely affects the financial capacity of the Company’s contractual counterparties 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 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 notes and limited recourse debt in connection with the PROP acquisition when they mature on acceptable terms or at all and/or obtain debt and/or equity financing to replace one or all of our credit facilities, limited recourse debt and senior 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 notes; the possibility that we are forced to shut-in production, whether due to commodity prices decreasing, extreme weather events 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,
11
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 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; the risk that our costs increase significantly due to inflation, supply chain disruptions 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 and flooding); 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; 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 the ongoing COVID-19 pandemic and/or 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.sedar.com), 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 and FOFI 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 and FOFI 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.
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
12
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended March 31, 2022
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, 2022 and the Company’s audited consolidated financial statements and MD&A for the year ended December 31, 2021. The date of this MD&A is May 3, 2022. 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, 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)
| Three months ended |
Mar. 31 2022 |
Dec. 31 2021 |
Sep. 30 2021 |
June 30 2021 |
Mar. 31 2021 |
Dec. 31 2020 |
Sep. 30 2020 |
June 30 2020 |
||||||||||||||||||||||||
| Production revenues |
$ | 203.7 | $ | 149.8 | $ | 124.5 | $ | 111.0 | $ | 92.2 | $ | 72.8 | $ | 75.4 | $ | 48.2 | ||||||||||||||||
| Cash flow from operating activities |
83.9 | 62.6 | 65.5 | 42.2 | 28.4 | 11.1 | 34.8 | 2.1 | ||||||||||||||||||||||||
| Basic per share (1) |
1.03 | 0.81 | 0.88 | 0.57 | 0.39 | 0.15 | 0.47 | 0.03 | ||||||||||||||||||||||||
| Diluted per share (1) |
1.00 | 0.78 | 0.85 | 0.55 | 0.37 | 0.15 | 0.47 | 0.03 | ||||||||||||||||||||||||
| Funds flow from operations (2) |
78.6 | 80.0 | 59.3 | 42.3 | 36.3 | 26.4 | 30.4 | 24.7 | ||||||||||||||||||||||||
| Basic per share (3) |
0.97 | 1.04 | 0.79 | 0.57 | 0.49 | 0.36 | 0.41 | 0.34 | ||||||||||||||||||||||||
| Diluted per share (3) |
0.94 | 1.00 | 0.77 | 0.55 | 0.48 | 0.36 | 0.41 | 0.34 | ||||||||||||||||||||||||
| Net income (loss) |
23.8 | 21.7 | 46.6 | 322.5 | 23.2 | 0.2 | (3.2 | ) | (21.1 | ) | ||||||||||||||||||||||
| Basic per share |
0.29 | 0.28 | 0.62 | 4.33 | 0.32 | 0.01 | (0.04 | ) | (0.29 | ) | ||||||||||||||||||||||
| Diluted per share |
$ | 0.28 | $ | 0.27 | $ | 0.60 | $ | 4.23 | $ | 0.31 | $ | 0.01 | $ | (0.04 | ) | $ | (0.29 | ) | ||||||||||||||
| Production |
||||||||||||||||||||||||||||||||
| Light oil (bbl/d) |
11,114 | 11,155 | 10,314 | 10,836 | 10,014 | 10,055 | 10,952 | 12,800 | ||||||||||||||||||||||||
| Heavy oil (bbl/d) |
5,789 | 3,237 | 2,688 | 2,660 | 2,788 | 2,895 | 2,823 | 1,966 | ||||||||||||||||||||||||
| NGLs (bbl/d) |
2,432 | 2,310 | 2,213 | 2,162 | 2,056 | 2,087 | 2,244 | 2,278 | ||||||||||||||||||||||||
| Natural gas (mmcf/d) |
60 | 58 | 54 | 54 | 50 | 52 | 54 | 53 | ||||||||||||||||||||||||
|
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|
|||||||||||||||||
| Total (boe/d) |
29,407 | 26,352 | 24,164 | 24,651 | 23,225 | 23,644 | 25,031 | 25,872 | ||||||||||||||||||||||||
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|||||||||||||||||
| (1) | Supplemental financial measure. See “Non-GAAP and Other Financial Measures”. |
| (2) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| (3) | Non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures”. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | 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) |
2022 | 2021 | ||||||
| Cash flow from operating activities |
$ | 83.9 | $ | 28.4 | ||||
| Change in non-cash working capital |
(18.0 | ) | 10.3 | |||||
| Decommissioning expenditures |
8.5 | 3.3 | ||||||
| Onerous office lease settlements |
2.3 | 2.3 | ||||||
| Deferred financing costs |
(0.7 | ) | (1.0 | ) | ||||
| Financing fees paid |
— | 4.1 | ||||||
| Restructuring charges (1) |
2.5 | (2.0 | ) | |||||
| Transaction costs |
0.1 | 0.1 | ||||||
| Other expenses (1) |
— | (9.2 | ) | |||||
|
|
|
|
|
|||||
| Funds flow from operations (2) |
78.6 | 36.3 | ||||||
| Capital expenditures |
(103.4 | ) | (29.5 | ) | ||||
| Decommissioning expenditures |
(8.5 | ) | (3.3 | ) | ||||
|
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|
|||||
| Free Cash Flow (2) |
$ | (33.3 | ) | $ | 3.5 | |||
|
|
|
|
|
|||||
| Per share – funds flow from operations (3) |
||||||||
| Basic per share |
$ | 0.97 | $ | 0.49 | ||||
| Diluted per share |
$ | 0.94 | $ | 0.48 | ||||
| (1) | Excludes the non-cash portion of restructuring and other expenses. |
| (2) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| (3) | Non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures”. |
In Q1 2022, funds flow from operations and cash flow from operating activities were significantly higher compared to Q1 2021 due to 27 percent (approximately 6,200 boe per day) higher production volumes and higher commodity prices. In the second half of 2021 and into 2022, the Company increased development activities in response to higher commodity prices which led to higher production levels in 2022. Additionally, in Q4 2021, the Company acquired the remaining 45 percent interest of the Peace River Oil Partnership (“PROP”) from our joint venture partner which increased production levels by approximately 2,400 boe per day.
These results were partially offset by higher share-based compensation charges in Q1 2022 of $22.7 million related to certain share based incentive plans, primarily due to the significant increase in the Company’s share price and resultant mark-to-market charge (March 31, 2022 share price close of $11.08 compared to December 31, 2021 share price close of $5.21).
Business Strategy
Our strategy is focused on maintaining moderate production growth, operational excellence, improving our debt leverage and delivering top quartile total shareholder returns. We believe our plan to focus development activity on our Cardium and Peace River assets will generate value for all stakeholders. Our industry leading Cardium position with a deep inventory of high return wells offers a predictable, liquids weighted, production profile that is capable of generating growth and sustainable free cash flow. Additionally the Company’s consolidation of the 100 percent interest in PROP combined with our recent success of adding to our substantial land position in Peace River results in an asset base with compelling Bluesky development and significant Clearwater potential for future heavy oil production growth and cash flow generation, offering further value for stakeholders.
During Q1 2022, our drilling program had four drilling rigs active which resulted in 15 wells (14.5 net) drilled in our Willesden Green and Pembina areas and an additional four wells (4.0 net) in our Peace River area. The strong results of our recent development program contributed to Q1 2022 production of 29,407 boe per day, our highest quarterly production level since 2018.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 2 |
In conjunction with our plan to complete a debt refinancing during the first half of 2022 incorporating senior and subordinated debt, we are reevaluating our second half program and look to appropriately balance production growth, debt repayment and return of capital as we move forward through 2022.
In Q1 2022, we continued our participation in the Alberta Site Restoration Program (“ASRP”), focusing on inactive fields in Northern Alberta. Our decommissioning activity in 2021 and 2022 will benefit from over $37 million (gross) of ASRP grants, of which approximately $26.6 million (net) have been utilized since inception through to the end of Q1 2022.
Business Environment
The following table outlines quarterly averages for benchmark prices and Obsidian Energy’s realized prices for the previous eight quarters.
| Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | Q2 2020 | |||||||||||||||||||||||||
| Benchmark prices |
||||||||||||||||||||||||||||||||
| WTI oil ($US/bbl) |
$ | 94.29 | $ | 77.19 | $ | 70.56 | $ | 66.07 | $ | 57.84 | $ | 42.66 | $ | 40.93 | $ | 27.85 | ||||||||||||||||
| Edm mixed sweet par price (CAD$/bbl) |
115.64 | 93.36 | 83.77 | 77.30 | 66.61 | 50.29 | 49.83 | 29.55 | ||||||||||||||||||||||||
| Western Canada Select (CAD$/bbl) |
100.99 | 78.82 | 71.80 | 67.01 | 57.45 | 43.46 | 42.41 | 22.42 | ||||||||||||||||||||||||
| NYMEX Henry Hub ($US/mmbtu) |
4.95 | 5.83 | 4.01 | 2.83 | 3.56 | 2.53 | 2.00 | 1.72 | ||||||||||||||||||||||||
| AECO Index (CAD$/mcf) |
4.74 | 4.66 | 3.60 | 3.09 | 3.15 | 2.77 | 2.24 | 1.99 | ||||||||||||||||||||||||
| Foreign exchange rate ($US/CAD$) |
1.27 | 1.26 | 1.26 | 1.23 | 1.27 | 1.30 | 1.33 | 1.39 | ||||||||||||||||||||||||
| Benchmark differentials |
||||||||||||||||||||||||||||||||
| WTI - Edm Light Sweet ($US/bbl) |
(2.96) | (3.10 | ) | (4.08 | ) | (3.11 | ) | (5.24 | ) | (4.07 | ) | (3.51 | ) | (6.14 | ) | |||||||||||||||||
| WTI - WCS Heavy ($US/bbl) |
(14.53) | (14.64 | ) | (13.58 | ) | (11.49 | ) | (12.47 | ) | (9.31 | ) | (9.08 | ) | (11.47 | ) | |||||||||||||||||
| Average sales price (1) |
||||||||||||||||||||||||||||||||
| Light oil (CAD$/bbl) |
117.91 | 92.55 | 84.27 | 76.97 | 67.34 | 50.76 | 50.84 | 29.20 | ||||||||||||||||||||||||
| Heavy oil (CAD$/bbl) |
84.77 | 51.76 | 60.87 | 48.58 | 40.48 | 30.00 | 29.54 | 5.98 | ||||||||||||||||||||||||
| NGLs (CAD$/bbl) |
68.09 | 59.46 | 52.79 | 42.79 | 41.04 | 24.61 | 22.11 | 11.65 | ||||||||||||||||||||||||
| Total liquids (CAD$/bbl) |
101.72 | 80.07 | 75.55 | 66.95 | 58.27 | 43.14 | 43.06 | 24.18 | ||||||||||||||||||||||||
| Natural gas (CAD$/mcf) |
$ | 4.96 | $ | 5.05 | $ | 3.89 | $ | 3.21 | $ | 3.21 | $ | 2.81 | $ | 2.40 | $ | 2.14 | ||||||||||||||||
| (1) | Excludes the impact of realized hedging gains or losses. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 3 |
Oil
In Q1 2022, WTI averaged US$94.29 per barrel and increased steadily throughout the period with March settling at approximately US$108 per barrel. The increase was mainly due to concerns regarding overall supply compounded by the conflict in Ukraine and the sanctions that followed on Russian oil exports.
In Q1 2022, both Mixed Sweet Blend (“MSW”) and Western Canada Select (“WCS”) differentials strengthened during the period as inventory levels in Western Canada were drawn down. For the quarter, the WCS differential averaged US$14.53 per barrel and MSW differential averaged US$2.96 per barrel off WTI.
The Company has the following oil contracts in place on a weighted average basis:
| Term |
Notional volume |
Pricing | ||||||
| WTI |
||||||||
| April 2022 |
8,183 bbl/d | $ | 121.81/bbl | |||||
| May 2022 |
4,000 bbl/d | $ | 133.42/bbl | |||||
In addition, PROP Energy 45 Limited Partnership, our wholly owned limited recourse subsidiary that purchased 45 percent of the PROP units from a third party on November 24, 2021, entered into the following financial hedges in conjunction with the acquisition financing:
| Term |
Notional volume |
Pricing | ||||||
| WTI |
|
|||||||
| Q2 2022 |
1,121 bbl/d | US$65.11/bbl | ||||||
| Q3 2022 |
593 bbl/d | US$63.26/bbl | ||||||
| Q4 2022 |
606 bbl/d | US$62.30/bbl | ||||||
| Heavy Oil – WCS Differential |
|
|||||||
| Q2 2022 |
801 bbl/d | US($15.43)/bbl | ||||||
Natural Gas
NYMEX Henry Hub natural gas averaged US$4.95 per mmbtu for Q1 2022 reaching a high of US$6.70 per mmbtu in February as a result of higher demand due to cold weather and US LNG exports.
In Alberta, AECO 5A followed a similar trend to NYMEX Henry Hub averaging $4.74 per mcf for Q1 2022. AECO natural gas prices were impacted by cold weather in February, reaching a high of $6.15 per mcf before settling in the $4.00 per mcf range in March.
The Company has the following natural gas hedges in place on a weighted average basis:
| Term |
Notional volume |
Pricing | ||||||
| April 2022 |
21,326 mcf/d | $ | 4.43/mcf | |||||
| May – October 2022 |
26,065 mcf/d | $ | 4.74/mcf | |||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 4 |
Average Sales Prices
| Three months ended March 31 | ||||||||||||
| 2022 | 2021 | % change | ||||||||||
| Light oil (per bbl) |
$ | 117.91 | $ | 67.34 | 75 | |||||||
| Heavy oil (per bbl) |
84.77 | 40.48 | 109 | |||||||||
| NGLs (per bbl) |
68.09 | 38.20 | 78 | |||||||||
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| Total liquids (per bbl) |
101.72 | 58.27 | 75 | |||||||||
| Risk management loss (per bbl) |
(10.07 | ) | (3.82 | ) | 164 | |||||||
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| Total liquids price, net (per bbl) |
91.65 | 54.45 | 68 | |||||||||
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| Natural gas (per mcf) |
4.96 | 3.21 | 55 | |||||||||
| Risk management gain (per mcf) |
0.02 | — | — | |||||||||
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| Natural gas net (per mcf) |
4.98 | 3.21 | 55 | |||||||||
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| Weighted average (per boe) |
77.07 | 44.21 | 74 | |||||||||
| Risk management loss (per boe) |
(6.58 | ) | (2.44 | ) | 170 | |||||||
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| Weighted average net (per boe) |
$ | 70.49 | $ | 41.77 | 69 | |||||||
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RESULTS OF OPERATIONS
Production
| Three months ended March 31 | ||||||||||||
| Daily production |
2022 | 2021 | % change | |||||||||
| Light oil (bbls/d) |
11,114 | 10,014 | 11 | |||||||||
| Heavy oil (bbls/d) |
5,789 | 2,788 | 108 | |||||||||
| NGLs (bbls/d) |
2,432 | 2,056 | 18 | |||||||||
| Natural gas (mmcf/d) |
60 | 50 | 20 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total production (boe/d) |
29,407 | 23,225 | 27 | |||||||||
|
|
|
|
|
|
|
|||||||
Production levels have increased in Q1 2022 compared to the prior period due to strong results from the Company’s development program. Additionally, in Q4 2021 the Company acquired the remaining 45 percent interest in PROP which contributed 2,400 boe per day of primarily heavy oil production. In the comparable period of 2021, production results were impacted by minimal development activity as the Company had recently restarted drilling activity as commodity price started to improve at that time.
The Company has completed our 2021 development program with all wells on production by the end of Q1 2022. From our 2022 development program four wells (3.8 net) were on production by the end of the quarter with strong results.
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) |
2022 | 2021 | % change | |||||||||
| Cardium |
21,878 | 19,056 | 15 | |||||||||
| Peace River |
6,469 | 3,012 | 115 | |||||||||
| Alberta Viking |
690 | 794 | (13 | ) | ||||||||
| Legacy |
370 | 363 | 2 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
29,407 | 23,225 | 27 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | Refer to “Supplemental Production Disclosure” for details by product type. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 5 |
Netbacks
| Three months ended March 31 | ||||||||
| (per boe) |
2022 | 2021 | ||||||
| Netback: |
||||||||
| Sales price (1) |
$ | 77.07 | $ | 44.21 | ||||
| Risk management loss (2) |
(6.58 | ) | (2.44 | ) | ||||
| Royalties |
(11.35 | ) | (2.68 | ) | ||||
| Transportation |
(2.76 | ) | (1.79 | ) | ||||
| Net operating costs (3) |
(13.93 | ) | (13.52 | ) | ||||
|
|
|
|
|
|||||
| Netback (3) |
$ | 42.45 | $ | 23.78 | ||||
|
|
|
|
|
|||||
| (boe/d | ) | (boe/d | ) | |||||
|
|
|
|
|
|||||
| Production |
29,407 | 23,225 | ||||||
| (1) | Includes the impact of commodities purchased and sold to/from third parties - $0.3 million (2021 – $0.2 million). |
| (2) | Realized risk management gains and losses on commodity contracts. |
| (3) | Non-GAAP financial ratios. See “Non-GAAP and Other Financial Measures”. |
In Q1 2022, netbacks were higher than the comparable period due to higher commodity prices resulting from supply concerns including due to the conflict in Ukraine and the sanctions that followed on Russian oil exports. This was partially offset by realized hedging losses and higher royalties due to higher oil prices, as well as increased transportation costs due to the higher production in Peace River from the PROP acquisition and Bluesky wells brought on production at the end of Q4 2021.
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Netback: |
||||||||
| Sales (1) |
$ | 204.0 | $ | 92.4 | ||||
| Risk management loss (2) |
(17.4 | ) | (5.1 | ) | ||||
| Royalties |
(30.0 | ) | (5.7 | ) | ||||
| Transportation |
(7.3 | ) | (3.7 | ) | ||||
| Net operating costs (3) |
(36.9 | ) | (28.3 | ) | ||||
|
|
|
|
|
|||||
| Netback (3) |
$ | 112.4 | $ | 49.6 | ||||
|
|
|
|
|
|||||
| (1) | Includes the impact of commodities purchased and sold to/from third parties - $0.3 million (2021 – $0.2 million). |
| (2) | Realized risk management gains and losses on commodity contracts. |
| (3) | Non-GAAP financial measures. See “Non-GAAP and Other Financial Measures”. |
Production Revenues
A reconciliation from production revenues to gross revenues is as follows:
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Production revenues |
$ | 203.7 | $ | 92.2 | ||||
| Sales of commodities purchased |
3.1 | 2.0 | ||||||
| Less: Commodities purchased |
(2.8 | ) | (1.8 | ) | ||||
|
|
|
|
|
|||||
| Sales |
204.0 | 92.4 | ||||||
| Realized risk management loss (1) |
(17.4 | ) | (5.1 | ) | ||||
|
|
|
|
|
|||||
| Gross revenues (2) |
$ | 186.6 | $ | 87.3 | ||||
|
|
|
|
|
|||||
| (1) | Relates to realized risk management gains and losses on commodity contracts. |
| (2) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 6 |
Both production revenues and gross revenues were significantly higher in 2022 due to increases in both commodity prices and production volumes. Increases in gross revenues were partially offset by higher realized hedging losses during the period compared to Q1 2021.
Change in Gross Revenues (1)
| (millions) |
||||
| Gross revenues – January 1 – March 31, 2021 |
$ | 87.3 | ||
| Increase in liquids production |
19.2 | |||
| Increase in liquids prices |
79.9 | |||
| Increase in natural gas production |
3.0 | |||
| Increase in natural gas prices |
9.5 | |||
| Increase in realized oil risk management loss |
(12.4 | ) | ||
| Increase in realized natural gas risk management gain |
0.1 | |||
|
|
|
|||
| Gross revenues – January 1 – March 31, 2022 (2) |
$ | 186.6 | ||
|
|
|
|||
| (1) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| (2) | Excludes processing fees and other income. |
Royalties
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Royalties (millions) |
$ | 30.0 | $ | 5.7 | ||||
| Average royalty rate (1) |
15 | % | 6 | % | ||||
| (1) | Excludes effects of risk management activities and other income. |
For Q1 2022, both absolute royalties and the average royalty rate increased from the comparable period largely due to higher commodity prices.
Expenses
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Net Operating (1) |
$ | 36.9 | $ | 28.3 | ||||
| Transportation |
7.3 | 3.7 | ||||||
| Financing |
9.8 | 9.9 | ||||||
| Share-based compensation |
$ | 24.1 | $ | 2.7 | ||||
| (1) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
Operating
A reconciliation of operating costs to net operating costs is as follows:
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Operating costs |
$ | 40.3 | $ | 30.9 | ||||
| Less processing fees |
(1.9 | ) | (1.6 | ) | ||||
| Less road use recoveries |
(1.5 | ) | (1.0 | ) | ||||
|
|
|
|
|
|||||
| Net Operating costs (1) |
$ | 36.9 | $ | 28.3 | ||||
|
|
|
|
|
|||||
| (1) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 7 |
Operating costs have increased compared to Q1 2021 as a result of higher production and increased repair and maintenance activity as more projects become economic under the current commodity price environment. Additionally, inflation added general cost pressure and higher natural gas prices (which benefitted our revenue) increased power costs.
Transportation
The Company continues to utilize multiple sales points in the Peace River area to increase realized prices. The PROP acquisition and new wells drilled in Q4 2021, resulted in higher production and thus higher transportation costs in Q1 2022 when compared to Q1 2021. The increase in realized prices is partially offset by additional transportation costs.
Financing
Financing expense consists of the following:
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Interest on bank debt and senior notes |
$ | 5.5 | $ | 5.7 | ||||
| PROP Limited recourse loan |
0.5 | — | ||||||
| Advisor fees |
0.3 | 0.7 | ||||||
| Accretion on decommissioning liability |
2.5 | 1.5 | ||||||
| Accretion on office lease provision |
0.4 | 0.5 | ||||||
| Accretion on other non-current liability |
0.1 | — | ||||||
| Accretion on lease liabilities |
0.1 | 0.2 | ||||||
| Deferred financing costs |
0.7 | 1.0 | ||||||
| Debt modification |
(0.3 | ) | 2.3 | |||||
|
|
|
|
|
|||||
| Financing |
$ | 9.8 | $ | 11.9 | ||||
|
|
|
|
|
|||||
Obsidian Energy’s debt structure includes short-term borrowings under our syndicated credit facility and term financing through our senior notes and PROP limited-recourse loan. Financing charges were comparable in the 2022 and 2021 periods as higher interest rates under the Company’s current banking agreements in Q1 2022 were offset by lower balances under our syndicated credit facility and senior notes.
The interest rates on the Company’s syndicated credit facility are subject to fluctuations in short-term money market rates as advances on the syndicated credit facility are generally made under short-term instruments. As at March 31, 2022, 84 percent (December 31, 2021 – 82 percent) of the Company’s outstanding debt instruments were exposed to changes in short-term interest rates.
The Company has a reserve-based syndicated credit facility which is subject to a semi-annual borrowing base redetermination typically in May and November of each year. The aggregate amount available under the syndicated credit facility is $366.8 million which consists of a $260.0 million revolving syndicated credit facility and a $106.8 million non-revolving term loan. The revolving period under the syndicated credit facility is set at May 31, 2022, with the maturity date of both the syndicated credit facility and non-revolving term loan of November 30, 2022.
At March 31, 2022, the carrying value of the Company’s US dollar denominated senior notes was $47.1 million (December 31, 2021 – $54.9 million). Early in Q1 2022, the Company repaid senior secured notes in the amount of US$5.7 million (CAD $7.1 million) which resulted in a decrease in the carrying value. Additionally, a stronger Canadian dollar against the US dollar at the comparable balance sheet date contributed to a lower carrying value.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 8 |
Summary information on the Company’s senior notes outstanding as at March 31, 2022 is as follows:
| Amount (millions) |
Maturity date | Average interest rate |
Weighted average remaining term (years) |
|||||||||||||
| 2008 Notes |
US$ | 3.2 | November 30, 2022 | 9.37 | % | 0.7 | ||||||||||
| 2010 Q1 Notes |
US$ | 7.8 | November 30, 2022 | 8.82 | % | 0.7 | ||||||||||
| 2010 Q4 Notes |
US$ | 16.9 | November 30, 2022 | 7.91 | % | 0.7 | ||||||||||
| 2011 Notes |
US$ | 9.8 | November 30, 2022 | 7.76 | % | 0.7 | ||||||||||
In Q4 2021, as part of the 45 percent interest acquisition in PROP, a portion of the cash consideration was obtained through a new $16.3 million limited-recourse amortizing loan. The maturity date of the loan is December 31, 2022 and it has an interest rate of 10.5 percent. At March 31, 2022, $10.5 million was outstanding on the loan.
Share-Based Compensation
Share-based compensation expense relates to 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 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 | ||||||||
| 2022 | 2021 | |||||||
| DSUs |
$ | 12.1 | $ | 2.2 | ||||
| PSUs |
6.0 | 0.2 | ||||||
| NTIP |
4.6 | — | ||||||
|
|
|
|
|
|||||
| Cash settled share-based incentive plans |
$ | 22.7 | $ | 2.4 | ||||
| RSUs |
$ | 0.8 | $ | 0.3 | ||||
| Options |
0.6 | — | ||||||
|
|
|
|
|
|||||
| Equity settled share-based incentive plans |
1.4 | 0.3 | ||||||
|
|
|
|
|
|||||
| Share-based compensation |
$ | 24.1 | $ | 2.7 | ||||
|
|
|
|
|
|||||
In Q1 2022, the increase in share-based compensation is largely attributed to the significant increase in the Company’s share price which closed at $11.08 per share at March 31, 2022 (2021 - $1.82 per share) an increase from $5.21 per share at December 31, 2021 (2020 - $0.87 per share). The change in share price at the balance sheet date results in a mark-to-market valuation which is used to calculate the RPSU plan, DSU plan and NTIP plan future obligations.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 9 |
General and Administrative Expenses (“G&A”)
| Three months ended March 31 | ||||||||
| (millions, except per boe amounts) |
2022 | 2021 | ||||||
| Gross |
$ | 7.6 | $ | 6.3 | ||||
| Per boe (1) |
2.88 | 3.01 | ||||||
| Net |
4.1 | 3.5 | ||||||
| Per boe (1) |
$ | 1.57 | $ | 1.69 | ||||
| (1) | Supplementary financial measure. See “Non-GAAP and Other Financial Measures”. |
Increased staffing levels due to higher activity levels largely contributed to the increase in absolute G&A costs in Q1 2022. On a per boe basis, G&A was lower due to higher production levels.
Restructuring and other expenses
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Restructuring |
$ | 2.5 | $ | (2.0 | ) | |||
| Other |
$ | — | $ | (9.2 | ) | |||
In Q1 2022, restructuring expenses included severance charges as well as the acceleration of certain expenses under the RPSU plan due to staff changes.
Both restructuring and other expenses in Q1 2021 included settlement benefits of previously accrued costs.
Depletion, Depreciation and Impairment
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Depletion and depreciation (“D&D”) |
$ | 40.1 | $ | 24.5 | ||||
| PP&E Impairment |
$ | 11.3 | $ | 1.0 | ||||
The Company’s D&D expense has increased from the comparable period, primarily due to higher production and non-cash impairment reversal charges recorded in 2021 in the Cardium and Peace River cash generating units (“CGUs”) which increased the depletable base. These impairment charges were recorded mainly due to the improved commodity price environment and strong drilling results in the Cardium area along with the Company entering into an agreement to purchase the remaining 45 percent interest of our partner in PROP.
During Q1 2022, we recorded an $11.3 million impairment in our Legacy CGU due to accelerated decommissioning spending in the area. The Legacy CGU has no recoverable amount, as such changes in our decommissioning liability are expensed each period.
Taxes
As at March 31, 2022, the Company was in a net unrecognized deferred tax asset position of approximately $372.9 million (December 31, 2021 - $378.6 million). Since the Company has not recognized the benefit of deductible timing differences in excess of taxable timing differences, deferred tax expense (recovery) for the quarter is nil.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 10 |
Foreign Exchange
Obsidian Energy records unrealized foreign exchange gains or losses to translate U.S. denominated senior notes and the related accrued interest to Canadian dollars using the exchange rates in effect on the balance sheet date. Realized foreign exchange gains or losses are recorded upon repayment of the senior notes.
Foreign exchange gain or loss is as follows:
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Foreign exchange gain |
$ | 0.7 | $ | 0.7 | ||||
In Q1 2022, the Company repaid senior notes in the amount of US$5.7 million.
Net Income
| Three months ended March 31 | ||||||||
| (millions, except per share amounts) |
2022 | 2021 | ||||||
| Net income |
$ | 23.8 | $ | 23.2 | ||||
| Basic per share |
0.29 | 0.32 | ||||||
| Diluted per share |
$ | 0.28 | $ | 0.31 | ||||
In Q1 2022, net income was the result of the Company’s strong netback, predominantly due to higher commodity prices. This was partially offset by increased depletion and depreciation expenses and higher share-based compensation charges as a result of the Company’s significant share price appreciation during the quarter.
In Q1 2021, net income was due to the Company’s low cost structure and corresponding low operating costs, combined with a recovery within Restructuring and Other as a result of settlements on a previously accrued provision.
Capital Expenditures
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Drilling and completions |
$ | 67.8 | $ | 21.1 | ||||
| Well equipping and facilities |
21.8 | 7.4 | ||||||
| Land and geological/geophysical |
13.7 | 0.9 | ||||||
| Corporate |
0.1 | 0.1 | ||||||
|
|
|
|
|
|||||
| Capital expenditures |
103.4 | 29.5 | ||||||
| Property dispositions, net |
— | — | ||||||
|
|
|
|
|
|||||
| Total capital expenditures |
$ | 103.4 | $ | 29.5 | ||||
|
|
|
|
|
|||||
Continuing with the momentum from our 2021 development program, the Company was active during Q1 2022, utilizing four rigs and drilling across our Willesden Green and Pembina plays in the Cardium and Bluesky and Clearwater plays in Peace River. In addition, in Q1 2022, we successfully purchased 23 sections (14,720 acres) of prospective oil sands rights through Alberta land sales in the Peace River area for a consideration of approximately $13.7 million.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 11 |
Drilling
| Three months ended March 31 | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| (number of wells) |
Gross | Net | Gross | Net | ||||||||||||
| Oil |
22 | 19 | 8 | 6 | ||||||||||||
| Injectors, stratigraphic and service |
— | — | 1 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
22 | 19 | 9 | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company drilled 19 operated gross wells (18.5 net) during Q1 2022. In addition to this, the Company had a minor non-operated working interest on three oil wells that were drilled by a partner 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 restoration requirements and restrictions on emissions of various substances produced in association with oil and natural gas operations. Compliance with such legislation could 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 managing the environmental impact from our operations through our environmental programs which include resource conservation, water management and site abandonment/reclamation/remediation. Operations are continuously monitored to minimize both environmental and climate change impacts and allocate sufficient capital to reclamation and other activities to mitigate the impact on the areas in which the Company operates. Obsidian Energy voluntarily entered into the Government of Alberta’s Area Based Closure program (the “ABC program”) which allowed the Company to accelerate abandonment activities, specifically on inactive properties, in a more cost-effective manner through 2020 and 2021. In 2022, the Company is required to follow the new AER guidance under Directive 088 where a minimum amount of spending is required to abandon inactive sites.
The Company has received ASRP grants and allocations to date of over $37 million on a gross basis, a portion of which was received in allocation eligibility as an ABC program participant. Total grant support will be determined by final project costs. These awards have allowed the Company to expand our abandonment activities for wells, pipelines, facilities, and related site reclamation and thus reduce our decommissioning liability. We began utilizing the ASRP grants in Q4 2020 and continued this work in 2022.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 12 |
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, 2022 | December 31, 2021 | ||||||
| Long-term debt |
||||||||
| Syndicated credit facility |
$ | 311.8 | $ | 321.5 | ||||
| PROP Limited recourse loan |
10.5 | 16.0 | ||||||
| Senior secured notes |
47.1 | 54.9 | ||||||
| Deferred interest |
1.0 | 1.3 | ||||||
| Deferred financing costs |
(2.0 | ) | (2.7 | ) | ||||
|
|
|
|
|
|||||
| Total |
368.4 | 391.0 | ||||||
| Working capital deficiency |
||||||||
| Cash |
(5.6 | ) | (7.3 | ) | ||||
| Accounts receivable |
(96.6 | ) | (68.9 | ) | ||||
| Prepaid expenses and other |
(10.0 | ) | (9.1 | ) | ||||
| Bank overdraft |
3.3 | — | ||||||
| Accounts payable and accrued liabilities |
189.3 | 107.8 | ||||||
|
|
|
|
|
|||||
| Total |
80.4 | 22.5 | ||||||
|
|
|
|
|
|||||
| Net debt (1) |
$ | 448.8 | $ | 413.5 | ||||
|
|
|
|
|
|||||
| (1) | Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”. |
Net debt increased compared to December 31, 2021, as a result of an increase in the working capital deficit. Higher capital spending and share based compensation charges in the quarter increased accounts payable and accrued liabilities, which were partially offset by higher accounts receivable balances as a result of increased commodity prices and production. The higher working capital deficit was partially offset by lower drawings on the syndicated credit facility and repayments made on the senior notes and PROP limited recourse loan.
The Company’s credit facility was classified as a current liability at March 31, 2022 as the term-out date is within 12 months from the reporting date.
Liquidity
The Company has a reserve-based syndicated credit facility with a borrowing limit of $366.8 million which consists of a $260.0 million revolving syndicated credit facility and a $106.8 million non-revolving term loan. At March 31, 2022, $311.8 million was drawn. 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 appropriate capital program, supporting the Company’s ongoing operations and ability to execute longer-term business strategies. Management plans to refinance our debt structure in the first half of 2022 with the goal of having senior debt to provide operating liquidity and junior debt for term.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 13 |
On March 31, 2022, the Company was in compliance with all of our financial covenants which consisted of the following:
| Limit | March 31, 2022 | |||||||
| Senior debt to capitalization |
Less than 75 | % | 32 | % | ||||
| Total debt to capitalization |
Less than 75 | % | 32 | % | ||||
Financial Instruments
Obsidian Energy had the following financial instruments outstanding as at March 31, 2022. 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 volume |
Remaining term |
Pricing | Fair value (millions) |
|||||||||||||
| Oil |
||||||||||||||||
| WTI Swaps |
7,750 bbl/d | April 2022 | $ | 121.07/bbl | $ | (0.7 | ) | |||||||||
| WTI Swaps |
500 bbl/d | May 2022 | $ | 125.53/bbl | — | |||||||||||
| WTI Swaps (1) |
1,121 bbl/d | Q2 2022 | US$ | 65.11/bbl | (4.2 | ) | ||||||||||
| WTI Swaps (1) |
593 bbl/d | Q3 2022 | US$ | 63.26/bbl | (2.0 | ) | ||||||||||
| WTI Swaps (1) |
606 bbl/d | Q4 2022 | US$ | 62.30/bbl | (1.9 | ) | ||||||||||
| Heavy Oil Differential (1) |
801 bbl/d | Q2 2022 | US$ | (15.43)/bbl | (0.3 | ) | ||||||||||
| AECO Swaps |
|
|||||||||||||||
| AECO Swaps |
21,326 mcf/d | April – October 2022 | $ | 4.43/mcf | (4.0 | ) | ||||||||||
|
|
|
|||||||||||||||
| Total |
$ | (13.1 | ) | |||||||||||||
|
|
|
|||||||||||||||
| (1) | PROP Energy 45 Limited Partnership, our wholly owned subsidiary that purchased 45 percent of the PROP units from a third party on November 24, 2021, entered into the financial hedges in conjunction with the limited recourse acquisition financing. |
Refer to the Business Environment section above for a full list of hedges currently outstanding including trades that were entered into subsequent to March 31, 2022.
Based on commodity prices and contracts in place at March 31, 2022, a $1.00 change in the price per barrel of liquids would change pre-tax unrealized risk management by $0.5 million and a $0.10 change in the price per mcf of natural gas would change pre-tax unrealized risk management by $0.5 million.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 14 |
The components of risk management on the Consolidated Statements of Income are as follows:
| Three months ended March 31 | ||||||||
| (millions) |
2022 | 2021 | ||||||
| Realized |
||||||||
| Settlement of commodity contracts |
$ | (17.4 | ) | $ | (5.1 | ) | ||
|
|
|
|
|
|||||
| Total realized risk management loss |
$ | (17.4 | ) | $ | (5.1 | ) | ||
| Unrealized |
||||||||
| Commodity contracts |
$ | (10.7 | ) | $ | 0.6 | |||
|
|
|
|
|
|||||
| Total unrealized risk management gain (loss) |
(10.7 | ) | 0.6 | |||||
|
|
|
|
|
|||||
| Risk management loss |
$ | (28.1 | ) | $ | (4.5 | ) | ||
|
|
|
|
|
|||||
Refer to the Business Environment section above for a full list of hedges currently outstanding including trades that were entered into subsequent to March 31, 2022.
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 | |||||||||
| Price per barrel of liquids |
WTI US$1.00 | 6.5 | 0.08 | |||||||||
| Liquids production |
1,000 bbl/day | 28.3 | 0.35 | |||||||||
| Price per mcf of natural gas |
AECO $0.10 | 1.9 | 0.02 | |||||||||
| Natural gas production |
10 mmcf/day | 21.5 | 0.26 | |||||||||
| Effective interest rate |
1 | % | 1.6 | 0.02 | ||||||||
| Exchange rate ($US per $CAD) |
$0.01 | 6.5 | 0.08 | |||||||||
| (1) | Non-GAAP financial measure or non-GAAP ratio. See “Non-GAAP and Other Financial Measures”. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 15 |
Contractual Obligations and Commitments
Obsidian Energy is committed to certain payments over the next five calendar years and thereafter as follows:
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| Long-term debt (1) |
$ | 369.4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 369.4 | ||||||||||||||
| Transportation |
7.0 | 4.3 | 2.7 | 2.2 | 1.7 | 4.1 | 22.0 | |||||||||||||||||||||
| Interest obligations |
15.4 | — | — | — | — | — | 15.4 | |||||||||||||||||||||
| Office lease |
7.5 | 10.0 | 10.0 | 0.8 | — | — | 28.3 | |||||||||||||||||||||
| Lease liability |
3.1 | 2.9 | 0.5 | 0.1 | 0.1 | 4.9 | 11.6 | |||||||||||||||||||||
| Decommissioning liability (2) |
6.1 | 12.6 | 11.8 | 11.1 | 10.4 | 62.3 | 114.3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 408.5 | $ | 29.8 | $ | 25.0 | $ | 14.2 | $ | 12.2 | $ | 71.3 | $ | 561.0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (1) | The 2022 figure includes $311.8 million related to the syndicated credit facility and non-revolving term loan that is due for renewal in 2022 and $47.1 million of senior notes and $10.5 million related to the PROP limited recourse amortizing loan that both mature in 2022. Refer to the Financing section above for further details. Historically, the Company has successfully renewed its syndicated credit facility. |
| (2) | These amounts represent the inflated, discounted future reclamation and abandonment costs that are expected to be incurred over the life of the Company’s properties. |
The revolving period of our syndicated credit facility continues to May 31, 2022 when our borrowing base is redetermined, with a current term out period to November 30, 2022. In addition, at March 31, 2022 the Company had an aggregate of US$37.7 million in senior notes maturing November 30, 2022 and $10.5 million related to the PROP limited recourse loan maturing December 31, 2022. Management plans to refinance our debt structure in the first half of 2022 with the goal of having senior debt to provide operating liquidity and junior debt for term. 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 notes, it is possible that we could be required to seek to obtain 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 syndicated credit facility, senior notes and PROP limited-recourse loan.
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, 2022 |
82,017,608 | |||
| Issuance under Stock option plan |
59,688 | |||
|
|
|
|||
| As at May 3, 2022 |
82,077,296 | |||
|
|
|
|||
| Options outstanding: |
||||
| As at March 31, 2022 |
2,699,274 | |||
| Exercised |
(59,688 | ) | ||
|
|
|
|||
| As at May 3, 2022 |
2,639,586 | |||
|
|
|
|||
| RSUs outstanding: |
||||
| As at March 31, 2022 |
848,410 | |||
| Granted |
13,370 | |||
| Forfeited |
(6,946 | ) | ||
|
|
|
|||
| As at May 3, 2022 |
854,834 | |||
|
|
|
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 16 |
Supplemental Production Disclosure
Outlined below is production by product type for each area and in total for the three months ended March 31, 2022 and 2021.
| Three months ended March 31 | ||||||||
| Daily production (boe/d) |
2022 | 2021 | ||||||
| Cardium |
||||||||
| Light oil (bbl/d) |
10,914 | 9,803 | ||||||
| Heavy oil (bbl/d) |
48 | 47 | ||||||
| NGLs (bbl/d) |
2,364 | 1,985 | ||||||
| Natural gas (mmcf/d) |
51 | 43 | ||||||
|
|
|
|
|
|||||
| Total production (boe/d) |
21,878 | 19,056 | ||||||
|
|
|
|
|
|||||
| Peace River |
||||||||
| Light oil (bbl/d) |
— | — | ||||||
| Heavy oil (bbl/d) |
5,594 | 2,567 | ||||||
| NGLs (bbl/d) |
4 | 3 | ||||||
| Natural gas (mmcf/d) |
5 | 3 | ||||||
|
|
|
|
|
|||||
| Total production (boe/d) |
6,469 | 3,012 | ||||||
|
|
|
|
|
|||||
| Viking |
||||||||
| Light oil (bbl/d) |
143 | 157 | ||||||
| Heavy oil (bbl/d) |
104 | 123 | ||||||
| NGLs (bbl/d) |
22 | 40 | ||||||
| Natural gas (mmcf/d) |
3 | 3 | ||||||
|
|
|
|
|
|||||
| Total production (boe/d) |
690 | 794 | ||||||
|
|
|
|
|
|||||
| Legacy |
||||||||
| Light oil (bbl/d) |
57 | 53 | ||||||
| Heavy oil (bbl/d) |
43 | 51 | ||||||
| NGLs (bbl/d) |
42 | 28 | ||||||
| Natural gas (mmcf/d) |
1 | 1 | ||||||
|
|
|
|
|
|||||
| Total production (boe/d) |
370 | 363 | ||||||
|
|
|
|
|
|||||
| Total |
||||||||
| Light oil (bbl/d) |
11,114 | 10,014 | ||||||
| Heavy oil (bbl/d) |
5,789 | 2,788 | ||||||
| NGLs (bbl/d) |
2,432 | 2,056 | ||||||
| Natural gas (mmcf/d) |
60 | 50 | ||||||
|
|
|
|
|
|||||
| Total production (boe/d) |
29,407 | 23,225 | ||||||
|
|
|
|
|
|||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 17 |
Reconciliation of Cash flow from operating activities to Funds flow from operations
| Three months ended |
Mar. 31 2022 |
Dec. 31 2021 |
Sep. 30 2021 |
June 30 2021 |
Mar. 31 2021 |
Dec. 31 2020 |
Sep. 30 2020 |
June 30 2020 |
||||||||||||||||||||||||
| Cash flow from operating activities |
83.9 | 62.6 | 65.5 | 42.2 | 28.4 | 11.1 | 34.8 | 2.1 | ||||||||||||||||||||||||
| Change in non-cash working capital |
(18.0 | ) | 6.2 | (9.1 | ) | (2.3 | ) | 10.3 | 7.6 | (11.1 | ) | 15.2 | ||||||||||||||||||||
| Decommissioning expenditures |
8.5 | 2.7 | 1.6 | 0.5 | 3.3 | 2.3 | 0.6 | 0.2 | ||||||||||||||||||||||||
| Onerous office lease settlements |
2.3 | 2.1 | 2.3 | 2.4 | 2.3 | 2.3 | 2.4 | 6.2 | ||||||||||||||||||||||||
| Deferred financing costs |
(0.7 | ) | (1.1 | ) | (1.7 | ) | (1.7 | ) | (1.0 | ) | (2.8 | ) | — | — | ||||||||||||||||||
| Financing fees paid |
— | 0.3 | — | 0.3 | 4.1 | 5.6 | — | — | ||||||||||||||||||||||||
| Restructuring charges (1) |
2.5 | — | 0.1 | 0.1 | (2.0 | ) | 0.9 | — | — | |||||||||||||||||||||||
| Transaction costs |
0.1 | 3.4 | — | — | 0.1 | — | 2.9 | — | ||||||||||||||||||||||||
| Other expenses (1) |
— | 0.1 | 0.6 | 0.8 | (9.2 | ) | (0.6 | ) | 0.8 | 1.0 | ||||||||||||||||||||||
| Commodities purchased from third parties |
— | 3.7 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Funds flow from operations |
78.6 | 80.0 | 59.3 | 42.3 | 36.3 | 26.4 | 30.4 | 24.7 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Excludes the non-cash portion of restructuring and other expenses. |
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, 2022 and ending on March 31, 2022 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 (loss) 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 business units, and deployment into new ventures. 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.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 18 |
“Funds flow from operations” is cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures, onerous office lease settlements, the effects of financing related transactions from foreign exchange contracts and debt repayments, restructuring charges, transaction costs, certain other expenses and certain commodities purchased from third parties, 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” above for a reconciliation of funds flow from operations to cash flow from operating activities, being our nearest measure prescribed by IFRS.
“Gross revenues” are production revenues including realized risk management gains and losses on commodity contracts and adjusted for commodities purchased and sales of commodities purchased and is used to assess the cash realizations on commodity sales. See “Results of Operations – Production Revenues” for a reconciliation of gross revenues 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 and road use recoveries 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 as a means 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. 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 the per unit of production amount of revenue 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.
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” 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” above.
“Net debt to funds flow from operations” is net debt divided by funds flow from operations. Net debt and funds flow from operations are non-GAAP financial measures. See “Non-GAAP Financial Measures” 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”.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 19 |
“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 provide 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.
Supplementary Financial Measures
“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 | mmcf | million cubic feet | |||
| boe | barrel of oil equivalent | mmcf/d | million cubic feet per day | |||
| boe/d | barrels of oil equivalent per day | mmbtu | Million British thermal unit | |||
| MSW | Mixed Sweet Blend | AECO | Alberta benchmark price for natural gas | |||
| WTI | West Texas Intermediate | NGL | natural gas liquids | |||
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 strategy of maintaining moderate production growth, operational excellence, improving our debt leverage and delivering top quartile total shareholder return; our belief that our plan to focus development activity on our Cardium and Peace River assets will generate value for all stakeholders; that our Cardium position with a deep inventory of high return wells offers a predictable, liquids weighted, production profile capable of generating growth and sustainable free cash flow; that there is compelling Bluesky development and significant Clearwater potential for future heavy oil production growth and cash flow generation, offering further value for stakeholders; our plans for and expected debt refinancing and that we plan to appropriately balance production growth, debt repayment and return of capital as we move forward through 2022; our plans in connection with the ASRP; our hedges; the expected re-confirmation and term out dates, as applicable, in connection with our reserve-based syndicated credit facility; the semi-annual borrowing base redetermination dates, maturity dates and revolving period for the syndicated credit facility and not-revolving term loan; that the compliance with certain environmental legislation could 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; that the Company continuously monitors operations to minimize environmental impact and allocate sufficient capital to reclamation and other activities to mitigate the impact on the areas in
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 20 |
which the Company operates; that we are dedicated to managing the environmental impact from our operations through the environmental programs which include resource conservation, water management and site abandonment / reclamation / remediation; that the Company will follow the new AER guidance under Directive 088 where a minimum amount of spending is required to abandon inactive sites; that we will continue the ASRP work in 2022; 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, supporting the Company’s ongoing operations and ability to execute longer-term business strategies; and the sensitivity analysis and contractual obligations and commitments moving forward.
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; the impact of regional and/or global health related events, including the ongoing COVID-19 pandemic, on energy demand and commodity prices; 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 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 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; our ability to execute our plans as described herein and in our other disclosure documents and the impact that the successful execution of such plans will have on our Company and our stakeholders; future capital expenditure and decommissioning expenditure levels; future operating costs and G&A costs; 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 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 such as wild fires and flooding, 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 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 notes and our wholly-owned subsidiaries limited-recourse loan on maturity; 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 2022 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, 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; 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 with the COVID-19 pandemic and other 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
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 21 |
global health related events, including the ongoing COVID-19 pandemic, and the responses of governments and the public to the pandemic, 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 pandemic, the worldwide transition towards less reliance on fossil fuels and/or other factors; the risk that the COVID-19 pandemic and/or other factors adversely affects the financial capacity of the Company’s contractual counterparties 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 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 notes and limited recourse debt in connection with the Peace River Oil Partnership acquisition when they mature on acceptable terms or at all and/or obtain debt and/or equity financing to replace one or all of our credit facilities, limited recourse debt and senior 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 notes; the possibility that we are forced to shut-in production, whether due to commodity prices decreasing, extreme weather events 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 or interest rates; the risk that our costs increase significantly due to inflation, supply chain disruptions 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 and flooding); 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; 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 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 the ongoing COVID-19 pandemic and/or 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.sedar.com 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.sedar.com and on EDGAR at www.sec.gov.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | MANAGEMENT’S DISCUSSION AND ANALYSIS 22 |
Exhibit 99.3
Obsidian Energy Ltd.
Consolidated Balance Sheets
| As at | ||||||||||||
| (CAD millions, unaudited) |
Note | March 31, 2022 | December 31, 2021 | |||||||||
| Assets |
||||||||||||
| Current |
||||||||||||
| Cash |
$ | 5.6 | $ | 7.3 | ||||||||
| Accounts receivable |
96.6 | 68.9 | ||||||||||
| Risk management |
— | 1.8 | ||||||||||
| Prepaid expenses and other |
10.0 | 9.1 | ||||||||||
|
|
|
|
|
|||||||||
| 112.2 | 87.1 | |||||||||||
|
|
|
|
|
|||||||||
| Non-current |
||||||||||||
| Property, plant and equipment |
3 | 1,406.1 | 1,342.1 | |||||||||
|
|
|
|
|
|||||||||
| 1,406.1 | 1,342.1 | |||||||||||
|
|
|
|
|
|||||||||
| Total assets |
$ | 1,518.3 | $ | 1,429.2 | ||||||||
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Current |
||||||||||||
| Bank overdraft |
$ | 3.3 | $ | — | ||||||||
| Accounts payable and accrued liabilities |
189.3 | 107.8 | ||||||||||
| Current portion of long-term debt |
4 | 368.4 | 391.0 | |||||||||
| Current portion of lease liabilities |
5 | 4.0 | 4.1 | |||||||||
| Current portion of provisions |
6 | 18.1 | 23.4 | |||||||||
| Risk management |
7 | 13.1 | 4.2 | |||||||||
|
|
|
|
|
|||||||||
| 596.2 | 530.5 | |||||||||||
| Non-current |
||||||||||||
| Lease liabilities |
5 | 3.8 | 4.6 | |||||||||
| Provisions |
6 | 119.8 | 123.8 | |||||||||
| Other non-current liabilities |
8.8 | 6.8 | ||||||||||
|
|
|
|
|
|||||||||
| 728.6 | 665.7 | |||||||||||
|
|
|
|
|
|||||||||
| Shareholders’ equity |
||||||||||||
| Shareholders’ capital |
9 | 2,221.2 | 2,213.8 | |||||||||
| Other reserves |
98.2 | 103.2 | ||||||||||
| Deficit |
(1,529.7 | ) | (1,553.5 | ) | ||||||||
|
|
|
|
|
|||||||||
| 789.7 | 763.5 | |||||||||||
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 1,518.3 | $ | 1,429.2 | ||||||||
|
|
|
|
|
|||||||||
Subsequent event (Note 7)
Commitments and contingencies (Note 11)
See accompanying notes to the unaudited interim consolidated financial statements.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 |
Obsidian Energy Ltd.
Consolidated Statements of Income
| Three months ended March 31 |
||||||||||
| (CAD millions, except per share amounts, unaudited) |
Note | 2022 | 2021 | |||||||
| Production revenues |
8 | $ | 203.7 | $ | 92.2 | |||||
| Processing fees |
1.9 | 1.6 | ||||||||
| Royalties |
(30.0 | ) | (5.7 | ) | ||||||
| Sales of commodities purchased from third parties |
3.1 | 2.0 | ||||||||
|
|
|
|
|
|||||||
| 178.7 | 90.1 | |||||||||
| Other income |
1.5 | 1.0 | ||||||||
| Government decommissioning assistance |
12 | 13.4 | 4.8 | |||||||
| Risk management loss |
7 | (28.1 | ) | (4.5 | ) | |||||
|
|
|
|
|
|||||||
| 165.5 | 91.4 | |||||||||
|
|
|
|
|
|||||||
| Expenses |
||||||||||
| Operating |
40.3 | 30.9 | ||||||||
| Transportation |
7.3 | 3.7 | ||||||||
| Commodities purchased from third parties |
2.8 | 1.8 | ||||||||
| General and administrative |
4.1 | 3.5 | ||||||||
| Restructuring |
2.5 | (2.0 | ) | |||||||
| Share-based compensation |
10 | 24.1 | 2.7 | |||||||
| Depletion, depreciation and impairment |
3 | 51.4 | 25.5 | |||||||
| Foreign exchange gain |
4 | (0.7 | ) | (0.7 | ) | |||||
| Financing |
4 | 9.8 | 11.9 | |||||||
| Transaction costs |
0.1 | 0.1 | ||||||||
| Other |
— | (9.2 | ) | |||||||
|
|
|
|
|
|||||||
| 141.7 | 68.2 | |||||||||
|
|
|
|
|
|||||||
| Income before taxes |
23.8 | 23.2 | ||||||||
|
|
|
|
|
|||||||
| Deferred tax expense |
— | — | ||||||||
|
|
|
|
|
|||||||
| Net and comprehensive income |
$ | 23.8 | $ | 23.2 | ||||||
|
|
|
|
|
|||||||
| Net income per share |
||||||||||
| Basic |
$ | 0.29 | $ | 0.32 | ||||||
| Diluted |
$ | 0.28 | $ | 0.31 | ||||||
| Weighted average shares outstanding (millions) |
||||||||||
| Basic |
9 | 81.2 | 73.5 | |||||||
| Diluted |
9 | 83.6 | 76.0 | |||||||
See accompanying notes to the unaudited interim consolidated financial statements.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2 |
Obsidian Energy Ltd.
Consolidated Statements of Cash Flows
| Three months ended March 31 |
||||||||||||
| (CAD millions, unaudited) |
Note | 2022 | 2021 | |||||||||
| Operating activities |
||||||||||||
| Net income |
$ | 23.8 | $ | 23.2 | ||||||||
| Government decommissioning assistance |
(13.4 | ) | (4.8 | ) | ||||||||
| Depletion, depreciation and impairment |
3 | 51.4 | 25.5 | |||||||||
| Financing |
4 | 2.8 | 4.5 | |||||||||
| Share-based compensation |
10 | 1.4 | 0.3 | |||||||||
| Unrealized risk management loss (gain) |
7 | 10.7 | (0.6 | ) | ||||||||
| Foreign exchange gain |
4 | (0.7 | ) | (0.7 | ) | |||||||
| Decommissioning expenditures |
6 | (8.5 | ) | (3.3 | ) | |||||||
| Onerous office lease settlements |
6 | (2.3 | ) | (2.3 | ) | |||||||
| Deferred financing costs |
0.7 | 1.0 | ||||||||||
| Financing fees paid |
— | (4.1 | ) | |||||||||
| Change in non-cash working capital |
18.0 | (10.3 | ) | |||||||||
|
|
|
|
|
|||||||||
| 83.9 | 28.4 | |||||||||||
|
|
|
|
|
|||||||||
| Investing activities |
||||||||||||
| Capital expenditures |
3 | (103.4 | ) | (29.5 | ) | |||||||
| Change in non-cash working capital |
36.8 | 6.8 | ||||||||||
|
|
|
|
|
|||||||||
| (66.6 | ) | (22.7 | ) | |||||||||
|
|
|
|
|
|||||||||
| Financing activities |
||||||||||||
| Decrease in long-term debt |
4 | (9.7 | ) | (9.0 | ) | |||||||
| Repayment of senior notes/PROP limited recourse loan |
4 | (12.6 | ) | (1.4 | ) | |||||||
| Lease liabilities settlements |
5 | (1.0 | ) | (1.2 | ) | |||||||
| Exercised compensation plans |
1.0 | — | ||||||||||
|
|
|
|
|
|||||||||
| (22.3 | ) | (11.6 | ) | |||||||||
|
|
|
|
|
|||||||||
| Change in cash and cash equivalents |
(5.0 | ) | (5.9 | ) | ||||||||
| Cash and cash equivalents, beginning of period |
7.3 | 8.1 | ||||||||||
|
|
|
|
|
|||||||||
| Cash and cash equivalents, end of period |
$ | 2.3 | $ | 2.2 | ||||||||
|
|
|
|
|
|||||||||
Cash and cash equivalents includes cash and bank overdraft.
See accompanying notes to the unaudited interim consolidated financial statements.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3 |
Obsidian Energy Ltd.
Statements of Changes in Shareholders’ Equity
| (CAD millions, unaudited) |
Note | Shareholders’ Capital |
Other Reserves |
Deficit | Total | |||||||||||||
| Balance at January 1, 2022 |
$ | 2,213.8 | $ | 103.2 | $ | (1,553.5 | ) | $ | 763.5 | |||||||||
| Net and comprehensive income |
— | — | 23.8 | 23.8 | ||||||||||||||
| Share-based compensation |
10 | — | 1.4 | — | 1.4 | |||||||||||||
| Issued on exercise of equity compensation plans |
10 | 7.4 | (6.4 | ) | — | 1.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance at March 31, 2022 |
$ | 2,221.2 | $ | 98.2 | $ | (1,529.7 | ) | $ | 789.7 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| (CAD millions, unaudited) |
Note | Shareholders’ Capital |
Other Reserves |
Deficit | Total | |||||||||||||
| Balance at January 1, 2021 |
$ | 2,187.0 | $ | 103.6 | $ | (1,967.5 | ) | $ | 323.1 | |||||||||
| Net and comprehensive income |
— | — | 23.2 | 23.2 | ||||||||||||||
| Share-based compensation |
10 | — | 0.3 | — | 0.3 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance at March 31, 2021 |
$ | 2,187.0 | $ | 103.9 | $ | (1,944.3 | ) | $ | 346.6 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
See accompanying notes to the unaudited interim consolidated financial statements.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | 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 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 which includes 100 percent of the Peace River Oil Partnership (“PROP”) effective November 24, 2021.
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 Certain comparative figures have been reclassified to correspond with current period presentation.
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, 2021.
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, 2021.
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 3, 2022.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5 |
3. Property, plant and equipment (“PP&E”)
Oil and Gas assets/ Facilities, Corporate assets
| Cost |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Balance, beginning of period |
$ | 10,528.7 | $ | 10,838.3 | ||||
| Capital expenditures |
103.4 | 140.9 | ||||||
| Business acquisition |
— | 32.9 | ||||||
| Dispositions |
— | 0.1 | ||||||
| Net decommissioning changes |
12.0 | 62.3 | ||||||
| Derecognition on acquisition |
— | (545.8 | ) | |||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 10,644.1 | $ | 10,528.7 | ||||
|
|
|
|
|
|||||
| Accumulated depletion and depreciation |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Balance, beginning of period |
$ | 9,194.6 | $ | 9,942.6 | ||||
| Depletion and depreciation |
39.2 | 116.3 | ||||||
| Impairments |
11.3 | 19.5 | ||||||
| Impairment reversals |
— | (338.0 | ) | |||||
| Derecognition on acquisition |
— | (545.8 | ) | |||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 9,245.1 | $ | 9,194.6 | ||||
|
|
|
|
|
|||||
| As at | ||||||||
| Net book value |
March 31, 2022 | December 31, 2021 | ||||||
| Total |
$ | 1,399.0 | $ | 1,334.1 | ||||
|
|
|
|
|
|||||
Right-of-use assets
| Cost |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Balance, beginning of period |
$ | 24.8 | $ | 22.7 | ||||
| Additions |
— | 2.1 | ||||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 24.8 | $ | 24.8 | ||||
|
|
|
|
|
|||||
| Accumulated amortization |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Balance, beginning of period |
$ | 16.8 | $ | 13.2 | ||||
| Amortization |
0.9 | 3.6 | ||||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 17.7 | $ | 16.8 | ||||
|
|
|
|
|
|||||
| As at | ||||||||
| Net book value |
March 31, 2022 | December 31, 2021 | ||||||
| Total |
$ | 7.1 | $ | 8.0 | ||||
|
|
|
|
|
|||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6 |
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, 2022 | December 31, 2021 | ||||||
| Oil and Gas assets, Facilities, Corporate assets |
$ | 1,399.0 | $ | 1,334.1 | ||||
| Right-of-use assets |
7.1 | 8.0 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 1,406.1 | $ | 1,342.1 | ||||
|
|
|
|
|
|||||
At March 31, 2022, 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”).
During the first quarter of 2022, we recorded an $11.3 million impairment in our Legacy CGU due to accelerated 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, 2022 | December 31, 2021 | |||||||
| Syndicated credit facility |
$ | 311.8 | $ | 321.5 | ||||
| PROP Limited recourse loan 10.50%, maturing December 31, 2022 |
10.5 | 16.0 | ||||||
| Senior secured notes – 2008 Notes 9.37%, US$3.2 million, maturing November 30, 2022 |
4.0 | 4.7 | ||||||
| Senior secured notes – 2010 Q1 Notes 8.82%, US$7.8 million, maturing November 30, 2022 |
9.7 | 11.3 | ||||||
| Senior secured notes – 2010 Q4 Notes 7.85%, US$10.6 million, maturing November 30, 2022 |
13.2 | 15.4 | ||||||
| 7.95%, US$4.6 million, maturing November 30, 2022 |
5.8 | 6.8 | ||||||
| 8.20%, US$1.7 million, maturing November 30, 2022 |
2.1 | 2.5 | ||||||
| Senior secured notes – 2011 Q4 Notes 7.76%, US$9.8 million, maturing November 30, 2022 |
12.3 | 14.2 | ||||||
|
|
|
|
|
|||||
| Total credit facility and senior secured notes |
369.4 | 392.4 | ||||||
| Deferred interest |
1.0 | 1.3 | ||||||
| Deferred financing costs |
(2.0 | ) | (2.7 | ) | ||||
|
|
|
|
|
|||||
| Total long-term debt |
$ | 368.4 | $ | 391.0 | ||||
|
|
|
|
|
|||||
| Current portion |
$ | 368.4 | $ | 391.0 | ||||
| Non-current portion |
$ | — | $ | — | ||||
At March 31, 2022 and December 31, 2021, the term-out date of the syndicated credit facility was within one year of the balance sheet date, which resulted in the outstanding amount being presented as a current liability.
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 |
Additional information on Obsidian Energy’s senior secured notes was as follows:
| As at | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Weighted average remaining life (years) |
0.7 | 0.9 | ||||||
| Weighted average interest rate |
8.2 | % | 8.2 | % | ||||
The Company has a reserve-based syndicated credit facility which is subject to a semi-annual borrowing base redetermination typically in May and November of each year. The aggregate amount available under the syndicated credit facility is $366.8 million which consists of a $260.0 million revolving syndicated credit facility and a $106.8 million non-revolving term loan. The revolving period under the syndicated credit facility is set at May 31, 2022, with the maturity date of both the syndicated credit facility and non-revolving term loan being November 30, 2022.
In the first quarter of 2022, as a result of a one-time adjustment to reduce our undrawn borrowing availability on our syndicated credit facility, the Company made a US$5.7 million repayment on our senior secured notes which reduced the Company’s outstanding balance of our senior secured notes to US$37.7 million.
At March 31, 2022, letters of credit totaling $5.0 million were outstanding (December 31, 2021 – $5.0 million) that reduce the amount otherwise available to be drawn on the syndicated credit facility.
Financing expense consists of the following:
| Three months ended March 31 |
||||||||
| 2022 | 2021 | |||||||
| Interest on bank debt and senior notes |
$ | 5.5 | $ | 5.7 | ||||
| PROP Limited recourse loan |
0.5 | — | ||||||
| Advisor fees |
0.3 | 0.7 | ||||||
| Accretion on decommissioning liability |
2.5 | 1.5 | ||||||
| Accretion on office lease provision |
0.4 | 0.5 | ||||||
| Accretion on other non-current liability |
0.1 | — | ||||||
| Accretion on lease liabilities |
0.1 | 0.2 | ||||||
| Deferred financing costs |
0.7 | 1.0 | ||||||
| Debt modification |
(0.3 | ) | 2.3 | |||||
|
|
|
|
|
|||||
| Financing |
$ | 9.8 | $ | 11.9 | ||||
|
|
|
|
|
|||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 |
5. Lease liabilities
Total lease liabilities included in the Consolidated Balance Sheets are as follows:
| Three months ended March 31, 2022 |
Year ended December 31, 2021 |
|||||||
| Balance, beginning of period |
$ | 8.7 | $ | 10.4 | ||||
| Additions |
— | 2.1 | ||||||
| Accretion charges |
0.1 | 0.6 | ||||||
| Lease payments |
(1.0 | ) | (4.4 | ) | ||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 7.8 | $ | 8.7 | ||||
|
|
|
|
|
|||||
| Current portion |
$ | 4.0 | $ | 4.1 | ||||
| Non-current portion |
$ | 3.8 | $ | 4.6 | ||||
6. Provisions
| As at | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Decommissioning liability |
$ | 114.2 | $ | 121.6 | ||||
| Office lease provision |
23.7 | 25.6 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 137.9 | $ | 147.2 | ||||
|
|
|
|
|
|||||
| Current portion |
$ | 18.1 | $ | 23.4 | ||||
| Non-current portion |
$ | 119.8 | $ | 123.8 | ||||
Decommissioning liability
At March 31, 2022, the decommissioning liability was determined by applying an inflation factor of 2.0 percent (December 31, 2021 - 2.0 percent) and the inflated amount was discounted using a credit-adjusted rate of 9.0 percent (December 31, 2021 – 9.0 percent) over the expected useful life of the underlying assets, currently extending over 50 years into the future. At March 31, 2022, the total decommissioning liability on an undiscounted, uninflated basis was $583.4 million (December 31, 2021 - $594.6 million).
Changes to the decommissioning liability were as follows:
| Three months ended March 31, 2022 |
Year ended December 31, 2021 |
|||||||
| Balance, beginning of period |
$ | 121.6 | $ | 70.5 | ||||
| Net liabilities added (disposed) (1) |
0.6 | 0.1 | ||||||
| Acquisition |
— | 2.1 | ||||||
| Increase due to changes in estimates |
11.4 | 62.2 | ||||||
| Liabilities settled |
(8.5 | ) | (8.1 | ) | ||||
| Government decommissioning assistance |
(13.4 | ) | (11.0 | ) | ||||
| Accretion charges |
2.5 | 5.8 | ||||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 114.2 | $ | 121.6 | ||||
|
|
|
|
|
|||||
| Current portion |
$ | 9.2 | $ | 14.5 | ||||
| Non-current portion |
$ | 105.0 | $ | 107.1 | ||||
| (1) | Includes additions from drilling activity, facility capital spending and disposals related to net property dispositions. |
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 9 |
Office lease provision
The office lease provision represents the net present value of non-lease components on 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, 2021 – 6.5 percent) over the remaining life of the lease contracts, extending into 2025.
Changes to the office lease provision were as follows:
| Three months ended March 31, 2022 |
Year ended December 31, 2021 |
|||||||
| Balance, beginning of period |
$ | 25.6 | $ | 33.5 | ||||
| Increase (decrease) due to changes in estimates |
— | (0.7 | ) | |||||
| Settlements |
(2.3 | ) | (9.1 | ) | ||||
| Accretion charges |
0.4 | 1.9 | ||||||
|
|
|
|
|
|||||
| Balance, end of period |
$ | 23.7 | $ | 25.6 | ||||
|
|
|
|
|
|||||
| Current portion |
$ | 8.9 | $ | 8.9 | ||||
| Non-current portion |
$ | 14.8 | $ | 16.7 | ||||
7. Risk management
Financial instruments consist of cash, accounts receivable, fair values of derivative financial instruments, bank overdraft, accounts payable and accrued liabilities and long-term debt. At March 31, 2022, except for the senior notes described in Note 4 with a carrying value of $47.1 million (December 31, 2021 – $54.9 million) and a fair value of $46.9 million (December 31, 2021 - $54.4 million), the fair values of these financial instruments approximate their carrying amounts due to the short-term maturity of the instruments.
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, 2022 and December 31, 2021, 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 March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Balance, beginning of period |
$ | (2.4 | ) | $ | 0.2 | |||
| Unrealized loss on financial instruments: |
||||||||
| Commodity collars and swaps |
(10.7 | ) | (2.6 | ) | ||||
|
|
|
|
|
|||||
| Total fair value, end of period |
$ | (13.1 | ) | $ | (2.4 | ) | ||
|
|
|
|
|
|||||
| Current asset portion |
$ | — | $ | 1.8 | ||||
| Current liability portion |
$ | (13.1 | ) | $ | (4.2 | ) | ||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 10 |
Obsidian Energy had the following financial instruments outstanding as at March 31, 2022. 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 volume |
Remaining term |
Pricing | Fair value (millions) |
|||||||||||||
| Oil |
||||||||||||||||
| WTI Swaps |
7,750 bbl/d | April 2022 | $ | 121.07/bbl | $ | (0.7 | ) | |||||||||
| WTI Swaps |
500 bbl/d | May 2022 | $ | 125.53/bbl | — | |||||||||||
| WTI Swaps (1) |
1,121 bbl/d | Q2 2022 | US$ | 65.11/bbl | (4.2 | ) | ||||||||||
| WTI Swaps (1) |
593 bbl/d | Q3 2022 | US$ | 63.26/bbl | (2.0 | ) | ||||||||||
| WTI Swaps (1) |
606 bbl/d | Q4 2022 | US$ | 62.30/bbl | (1.9 | ) | ||||||||||
| Heavy Oil Differential (1) (1) |
801 bbl/d | Q2 2022 | US$ | (15.43)/bbl | (0.3 | ) | ||||||||||
| AECO Swaps |
|
|||||||||||||||
| AECO Swaps |
21,326 mcf/d | April – October 2022 | $ | 4.43/mcf | (4.0 | ) | ||||||||||
|
|
|
|||||||||||||||
| Total |
$ | (13.1 | ) | |||||||||||||
|
|
|
|||||||||||||||
| (1) | PROP Energy 45 Limited Partnership, our wholly owned subsidiary that purchased 45 percent of the PROP units from a third party on November 24, 2021, entered into the financial hedges in conjunction with the limited recourse acquisition financing. |
Subsequent to March 31, 2022 the Company entered into the following additional financial hedges:
| Notional volume |
Term | Pricing | ||||||||||
| Oil |
||||||||||||
| WTI Swaps |
433 bbl/d | April 2022 | $ | 135.05/bbl | ||||||||
| WTI Swaps |
3,500 bbl/d | May 2022 | $ | 134.55/bbl | ||||||||
| AECO Swaps |
|
|||||||||||
| AECO Swaps |
4,739 mcf/d | May – October 2022 | $ | 6.12/mcf | ||||||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 11 |
The components of risk management on the Consolidated Statements of Income are as follows:
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Realized |
||||||||
| Settlement of commodity contracts |
$ | (17.4 | ) | $ | (5.1 | ) | ||
|
|
|
|
|
|||||
| Total realized risk management loss |
$ | (17.4 | ) | $ | (5.1 | ) | ||
| Unrealized |
||||||||
| Commodity contracts |
$ | (10.7 | ) | $ | 0.6 | |||
|
|
|
|
|
|||||
| Total unrealized risk management gain (loss) |
(10.7 | ) | 0.6 | |||||
|
|
|
|
|
|||||
| Risk management loss |
$ | (28.1 | ) | $ | (4.5 | ) | ||
|
|
|
|
|
|||||
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 and liquidity 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.
8. Revenue and Other Income
The Company’s significant revenue streams consist of the following:
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Oil |
$ | 161.8 | $ | 70.6 | ||||
| NGLs |
27.0 | 7.1 | ||||||
| Natural gas |
14.9 | 14.5 | ||||||
|
|
|
|
|
|||||
| Production revenues |
203.7 | 92.2 | ||||||
| Processing fees |
1.9 | 1.6 | ||||||
|
|
|
|
|
|||||
| Oil and natural gas sales |
205.6 | 93.8 | ||||||
| Other income |
1.5 | 1.0 | ||||||
|
|
|
|
|
|||||
| Oil and natural gas sales and other income |
$ | 207.1 | $ | 94.8 | ||||
|
|
|
|
|
|||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 12 |
9. Shareholders’ equity
i) Issued
| Shareholders’ capital |
Common Shares |
Amount | ||||||
| Balance, December 31, 2020 |
73,516,225 | $ | 2,187.0 | |||||
| Issued pursuant to equity compensation plans (1) |
1,356,610 | 2.6 | ||||||
| Equity issue |
5,880,681 | 25.9 | ||||||
| Share issue costs |
— | (1.7 | ) | |||||
|
|
|
|
|
|||||
| Balance, December 31, 2021 |
80,753,516 | $ | 2,213.8 | |||||
| Issued pursuant to equity compensation plans (1) |
1,264,092 | 7.4 | ||||||
|
|
|
|
|
|||||
| Balance, March 31, 2022 |
82,017,608 | $ | 2,221.2 | |||||
|
|
|
|
|
|||||
| (1) | Upon vesting or exercise of equity awards, the net benefit is recorded as a reduction of other reserves and an increase to shareholders’ capital. |
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) |
2022 | 2021 | ||||||
| Basic |
81.2 | 73.5 | ||||||
| Dilutive impact of Options and RSUs |
2.4 | 2.5 | ||||||
|
|
|
|
|
|||||
| Diluted |
83.6 | 76.0 | ||||||
|
|
|
|
|
|||||
10. Share-based compensation
Restricted and Performance Share Unit (“RPSU”) plan
Restricted Share Unit (“RSU”) 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 TSX. Consideration can be in the form of cash, shares purchased on the open market or shares issued from treasury.
| RSUs (number of shares equivalent) |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Outstanding, beginning of period |
1,167,351 | 2,355,408 | ||||||
| Granted |
475,195 | 190,500 | ||||||
| Vested |
(784,514 | ) | (1,344,672 | ) | ||||
| Forfeited |
(9,622 | ) | (33,885 | ) | ||||
|
|
|
|
|
|||||
| Outstanding, end of period |
848,410 | 1,167,351 | ||||||
|
|
|
|
|
|||||
The fair value and weighted average assumptions of the RSUs granted during the period were as follows:
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Average fair value of units granted (per unit) |
$ | 10.55 | $ | — | ||||
| Expected life of units (years) |
3.0 | — | ||||||
| Expected forfeiture rate |
0.5 | % | — | |||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 13 |
Performance Share Unit (“PSU”) grants under the RPSU plan
The RPSU plan allows Obsidian Energy to grant PSUs to employees of the Company. Members of the Board of Directors are not eligible for grants of PSUs under the RPSU plan. The PSU obligation is classified as a liability due to the cash settlement feature and could be settled in cash, shares purchased on the open market or shares issued from treasury.
| PSUs (number of shares equivalent) |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Outstanding, beginning of period |
1,138,465 | 453,845 | ||||||
| Granted |
124,610 | 684,620 | ||||||
| Vested |
(181,018 | ) | — | |||||
| Forfeited |
(133,017 | ) | — | |||||
|
|
|
|
|
|||||
| Outstanding, end of period |
949,040 | 1,138,465 | ||||||
|
|
|
|
|
|||||
| As at | ||||||||
| PSU liability |
March 31, 2022 | December 31, 2021 | ||||||
| Current |
$ | 4.7 | $ | 0.2 | ||||
| Non-current |
4.6 | 4.2 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 9.3 | $ | 4.4 | ||||
|
|
|
|
|
|||||
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 March 31, 2022 |
Year ended December 31, 2021 |
|||||||||||||||
| Options |
Number of Options |
Weighted Average Exercise Price |
Number of Options |
Weighted Average Exercise Price |
||||||||||||
| Outstanding, beginning of period |
3,021,672 | $ | 1.56 | 961,954 | $ | 0.94 | ||||||||||
| Granted |
156,400 | 10.64 | 2,116,120 | 1.99 | ||||||||||||
| Exercised |
(478,798 | ) | 1.47 | (11,938 | ) | 0.56 | ||||||||||
| Forfeited |
— | — | (44,464 | ) | 8.74 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding, end of period |
2,699,274 | $ | 2.10 | 3,021,672 | $ | 1.56 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Exercisable, end of period |
668,615 | $ | 1.37 | 748,438 | $ | 1.29 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The fair value and weighted average assumptions of the Options granted for the period were as follows:
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Average fair value of Options granted (per option) |
$ | 6.56 | $ | — | ||||
| Expected volatility |
87.0 | % | — | |||||
| Expected life of Options (years) |
3.9 | — | ||||||
| Expected forfeiture rate |
0.3 | % | — | |||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 14 |
Non-Treasury Incentive Award Plan (“NTIP”)
In 2021, Obsidian Energy implemented the NTIP that allows the Company to issue restricted awards whereby employees receive consideration that fluctuates based on the Company’s share price on the TSX. The Company has the option to provide the consideration in the form of cash or shares purchased on the open market.
| NTIP Restricted Awards |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Outstanding, beginning of period |
1,093,800 | — | ||||||
| Granted |
3,400 | 1,120,660 | ||||||
| Forfeited |
(2,370 | ) | (26,860 | ) | ||||
|
|
|
|
|
|||||
| Outstanding, end of period |
1,094,830 | 1,093,800 | ||||||
|
|
|
|
|
|||||
| As at | ||||||||
| NTIP liability |
March 31, 2022 | December 31, 2021 | ||||||
| Current |
$ | 3.9 | $ | 1.4 | ||||
| Non-current |
3.2 | 1.1 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 7.1 | $ | 2.5 | ||||
|
|
|
|
|
|||||
Deferred Share Unit (“DSU”) plan
The DSU plan allows the Company to grant DSUs in lieu of cash fees to non-employee directors providing a right to receive, upon retirement from the Board, a cash payment based on the volume-weighted-average trading price of the common shares on the TSX.
| Deferred Share Units |
Three months ended March 31, 2022 |
Year ended December 31, 2021 |
||||||
| Outstanding, beginning of period |
2,018,499 | 2,087,580 | ||||||
| Granted |
15,315 | 239,754 | ||||||
| Exercised |
— | (308,835 | ) | |||||
|
|
|
|
|
|||||
| Outstanding, end of period |
2,033,814 | 2,018,499 | ||||||
|
|
|
|
|
|||||
| As at | ||||||||
| DSU Liability |
March 31, 2022 | December 31, 2021 |
||||||
| Current |
$ | 22.8 | $ | 10.7 | ||||
| Non-current |
— | — | ||||||
|
|
|
|
|
|||||
| Total |
$ | 22.8 | $ | 10.7 | ||||
|
|
|
|
|
|||||
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 15 |
Share-based compensation
Share-based compensation consisted of the following:
| Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| DSUs |
$ | 12.1 | $ | 2.2 | ||||
| PSUs |
6.0 | 0.2 | ||||||
| NTIP |
4.6 | — | ||||||
|
|
|
|
|
|||||
| Cash settled share-based incentive plans |
$ | 22.7 | $ | 2.4 | ||||
| RSUs |
$ | 0.8 | $ | 0.3 | ||||
| Options |
0.6 | — | ||||||
|
|
|
|
|
|||||
| Equity settled share-based incentive plans |
1.4 | 0.3 | ||||||
|
|
|
|
|
|||||
| Share-based compensation |
$ | 24.1 | $ | 2.7 | ||||
|
|
|
|
|
|||||
The share price used in the fair value calculation of the DSU, NTIP and RPSU plan obligations at March 31, 2022 was $11.08 per share (2021 – $1.82).
11. 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.
12. Government grants
The Company received a grant allocation under the Alberta Site Rehabilitation Program beginning in 2020. These awards have allowed the Company to expand our abandonment activities for wells, pipelines, facilities, and related site reclamation and thus reduce our decommissioning liability. The Company utilized $13.4 million of net grants during the first quarter of 2022 (2021 – $4.8 million).
| OBSIDIAN ENERGY FIRST QUARTER 2022 | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 16 |
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Stephen Loukas, Interim 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, 2022. |
| 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, 2022 and ended on March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: May 4, 2022
| (signed) “Stephen Loukas” |
|
|
| Stephen Loukas |
| Interim 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, 2022. |
| 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, 2022 and ended on March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: May 4, 2022
| (signed) “Peter Scott” |
|
|
| Peter Scott |
| Senior Vice President and Chief Financial Officer |