Grew year-over-year average daily production by 15 percent to 35,773 boe/d
Increased funds flow from operations by 41 percent on a per share basis to $115.2 million
($1.51 per share)
Completed first half capital program with 34 (33.4 net) operated wells rig released and 33 (32.4 net) wells brought on production
Completed the Peace River Clearwater acquisition, expanding our land base to 680 net sections with the addition of 148 net sections and production of 1,700 boe/d
Obsidian Energy is pleased to report strong operating and financial results for the second quarter of 2024.
Detailed information can be found in Obsidian Energy's interim consolidated financial statements and management's discussion and analysis ("MD&A") as at and for the three and six-month periods ended June 30, 2024 on our website at www.obsidianenergy.com, which will also be filed on SEDAR+ and EDGAR in due course.
SECOND QUARTER 2024 OVERVIEW
Our second quarter was highlighted by the highest average quarterly production level since 2016 of over 35,000 boe/d, driven by the successful closing of our Peace River Clearwater acquisition and an active development program. Obsidian Energy completed our first half drilling program with 34 (33.4 net) operated wells rig released (including five oil sands exploration wells) and 33 (32.4 net) wells brought on production. Second quarter 2024 production increased by 15 percent to 35,773 boe/d from 31,042 boe/d in the second quarter of 2023, despite a temporary second quarter production impact of approximately 1,550 boe/d due to blockades in the Peace River area.
The combination of increased average production volumes and higher oil prices resulted in FFO of $115.2 million ($1.51 per share basic) in the second quarter of 2024, a 32 percent increase (41 percent on a per share basis) compared to $87.4 million ($1.07 per share basic) in 2023. This was partially offset by the impact of higher royalties, additional transportation costs with our Peace River growth and an approximate $5 million ($0.07 per share basic) impact from the temporarily blockaded production. Obsidian Energy also remained active during the second quarter with the normal course issuer bid ("NCIB") for our share buyback program, resulting in the re-purchase and cancellation of 0.8 million shares for $8.7 million ($10.80 per share). In total, the Company has re-purchased and cancelled a total of 6.9 million common shares for total consideration of $66.6 million from the inception of the NCIB in 2023 to the end of the second quarter of 2024.
"The results of our first half 2024 capital program have generated strong initial momentum towards the execution of our three-year growth plan," commented Stephen Loukas, Obsidian Energy's President and CEO. "At Peace River, the successful completion of our development and exploration/appraisal program combined with our recent acquisition has further expanded our growth opportunities in both the Clearwater and Bluesky formation, providing additional future flexibility that will be reflected in our 2025 budget and beyond. Meanwhile, our light oil assets continued to deliver stable volumes and cash flow for the Company. During the second half of the year, we are planning a capital program with 38 (37.2 net) wells weighted towards further developing our Bluesky and Clearwater fields at Peace River. We intend to use free cash flow generated during the second half for debt repayment and further share purchases under the NCIB."
2024 SECOND QUARTER CORPORATE HIGHLIGHTS
Solid Funds Flow - The Company generated FFO of $115.2 million ($1.51 per share basic) compared to $87.4 million ($1.07 per share basic) in the second quarter of 2023. Increased production volumes combined with higher oil prices drove the 32 percent increase, partially offset by higher royalties associated with higher oil prices and additional transportation costs as we continue to expand development in our Peace River area. In addition, temporary blockades impacted our Peace River operations in the second quarter, resulting in a production decrease of approximately 1,550 boe/d for the quarter and a corresponding FFO reduction of approximately $5.0 million ($0.07 per share basic).
Capital Development Growth - Second quarter 2024 capital expenditures were $59.2 million (2023 - $39.5 million), while decommissioning expenditures totaled $4.0 million (2023 - $4.9 million). Capital expenditures focused on the completion and tie-in of new wells and drilling additional wells at our Dawson Clearwater development field.
Completed Peace River Clearwater Acquisition (the "Acquisition") - We added new Clearwater production, reserves and land in the Peace River area through the Acquisition for total consideration of $80.5 million, including closing adjustments. The cash consideration for the Acquisition was funded from our syndicated bank facility and a $50 million term loan (the "Term Loan"), which matures in June 2025.
Decreased Net Operating Costs - Net operating costs were lower at $13.83 per boe in the second quarter of 2024 compared to $15.06 per boe in 2023 due to our larger production base, our continued focus on controlling costs and lower power costs.
Lower G&A Costs - General and administrative ("G&A") costs decreased to $1.49 per boe in the second quarter of 2024 compared to $1.85 per boe in 2023. The impact of higher production levels offset the Company's increased staffing levels, undertaken to support our three-year corporate growth plan.
Increase to Net Debt - Net debt levels increased to $432.5 million at June 30, 2024, compared to $330.2 million at December 31, 2023, mainly due to the funding of our Acquisition through our Term Loan and syndicated credit facility. Net debt to second quarter 2024 FFO (annualized) was 0.9 times; with expected continued production growth resulting in higher FFO (at consistent commodity prices), we expect this ratio to decrease during the second half of 2024.
Increased Credit Facility Borrowing Base - We completed our semi-annual borrowing base redetermination of our credit facility in May, increasing the aggregate amount available under the syndicated credit facility by $20.0 million to $260.0 million and extending the revolving period and maturity dates to May 31, 2025, and May 31, 2026, respectively.
Active Share Buyback Program - In the second quarter of 2024, a total of 0.8 million shares were repurchased and cancelled under the Company's NCIB for $8.7 million ($10.80 per share).
In July 2024, we repurchased and cancelled an additional 0.25 million common shares at an average price of $10.01 per share for total consideration of approximately $2.5 million.
Net Income - Net income for the second quarter of 2024 was $37.1 million ($0.48 per share basic) as a result of the Company's higher revenues due to increased production and higher oil prices.
2024 SECOND QUARTER CAPITAL PROGRAM & HIGHLIGHTS
The Company had an active finish to our 2024 first half capital program with an accelerated second quarter pace of development at both our Peace River Bluesky and Clearwater development fields and the completion and tie-in of new wells. Capital program highlights for the second quarter of 2024 were as follows:
Completed First Half Development Program - We rig released all wells in our first half 2024 capital program, yielding results generally above our expectations with robust production additions from new development in our Peace River (Bluesky and Clearwater formations) and Willesden Green/Pembina (Cardium) areas. Most of the first half operated wells were brought on production by the end of the quarter with the remaining three (3.0 net) operated wells brought onstream in July.
With favourable conditions, Obsidian Energy accelerated development of both the Walrus (Bluesky formation) and Dawson (Clearwater formation) fields in Peace River in the second quarter.
Achieved Encouraging Initial Well Results - As new wells from our first half program continued to be placed onstream in the second quarter of 2024, we realized continued strong initial production ("IP") rates, including:
Peace River (Clearwater): The Clearwater Dawson field continues to provide robust production results above our expectations:
The Dawson 5-27 Pad (two wells) produced at a gross average 30-day IP rate of 293 boe/d (100 percent oil) per well.
The three well (3.0 net) Dawson 13-13 Pad was placed on production in July with encouraging early indications: gross average 15-day IP rates were 336 boe/d (100 percent oil) per well as they continue to clean up.
Peace River (Bluesky):
The six well (6.0 net) Walrus 15-19 Pad had a gross average 30-day IP rate of 144 boe/d (100 percent oil) per well after being placed back on production after the removal of the blockade at the site.
Willesden Green
The two-well (2.0 net) Faraway 8-34 Pad produced at an average 30-day IP rate of 122 boe/d (95 percent light oil) per well. These wells continue to improve with an average 60-day IP of 149 boe/d (94 percent light oil) per well, and a pad rate of 540 boe/d (83 percent light oil) as of July 30.
The Crimson 8-09 Pad (1.0 net) well was placed onstream at the end of the second quarter and is in the process of cleaning up.
Expanded Peace River Land, Production and Reserves - The Acquisition provided approximately 1,700 boe/d (100 percent oil) of Clearwater production and 148 net sections of land in the Peace River area, of which the Peavine acreage is on trend with our successful Clearwater Dawson development. The Acquisition provides us with further optionality within our 2024-2026 three-year corporate growth plan and beyond.
Completed Turnaround Activities - We completed all planned second quarter facility turnaround maintenance programs and commenced preparation for our 6-28 gas plant turnaround in our Pembina (Cardium) area in September 2024.
2024 WELLS RIG RELEASED AND ON PRODUCTION
In the first half of 2024, 34 (33.4 net) operated wells were rig released (including five oilsands exploration wells) and 33 (32.4 net) wells were brought on production. The breakdown of our first half 2024 wells as well as our planned wells to be rig released in the second half of 2024 are as follows:
Obsidian Energy also participated in 18 non-operated (6.3 net) wells during the first half of 2024, two (0.9 net) of which were water injector wells. At present, Obsidian Energy has four drilling rigs operating in our Peace River and Willesden Green/Pembina (Cardium) areas as we proceed with the execution of our second half 2024 capital program.
HEDGING UPDATE
Our hedging strategy focused on our natural gas position given our concerns regarding natural gas storage levels, leading to a realized gain of $8.2 million in the first six months of 2024 related to these contracts. The Company entered into additional oil contracts for the third quarter of 2024 with the following contracts currently in place on a weighted average basis:
