Higher third quarter funds flow from operations of $124.7 million ($1.64 per share)
— a 34 percent increase over the third quarter of 2023 on a per share basis
2024 average production expected to be at the top end of guidance range
Robust Clearwater exploration/appraisal drilling results at West Dawson establishes new development field
Obsidian Energy is pleased to report our operating and financial results for the third 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 nine-month periods ended September 30, 2024 on our website at www.obsidianenergy.com, which will also be filed on SEDAR+ and EDGAR in due course.
THIRD QUARTER 2024 OVERVIEW
Obsidian Energy continued to increase average production quarter-over-quarter as we successfully executed on our growth plan in 2024. Third quarter average production grew by 21 percent to 39,714 boe/d from 32,937 boe/d in the third quarter of 2023 due to the Company's active development program and strong drilling results. In September, average production reached over 40,000 boe/d, of which our Peace River area comprised approximately 12,000 boe/d. The production increase was mainly driven by the 64 (52.0 net) wells brought on production during the first nine months of 2024: 47 (46.3 net) operated wells and 17 (5.6 net) non-operated wells.
The growth in production lead to higher revenues, and FFO of $124.7 million ($1.64 per share basic), a 26 percent increase (34 percent on a per share basis) compared to $98.9 million ($1.22 per share basic) in 2023. Third quarter 2024 revenues were partially offset by a 10 percent reduction in our average sales price (prior to hedging gains) from lower commodity prices. Obsidian Energy also continued our share buyback program with the normal course issuer bid ("NCIB") during the third quarter, resulting in the repurchase and cancellation of 1.0 million shares for $9.3 million (at an average of $9.18 per share). In total, the Company has repurchased and cancelled a total of 8.0 million common shares for total consideration of $75.9 million from the inception of the NCIB in 2023 to the end of the third quarter of 2024. Obsidian Energy has since repurchased and cancelled an additional 0.8 million shares for consideration of $6.5 million from October 1 to 30, 2024.
"We're excited with the strong results realized in 2024 from our development programs in our heavy and light oil assets," commented Stephen Loukas, Obsidian Energy's President and CEO. "New development volumes continue to be at or above our expectations, allowing us to reach a milestone for the Company of over 40,000 boe/d in average production in September. Given the success with our Clearwater and Bluesky formation drilling, we anticipate our heavy oil assets to exit 2024 at over 13,000 boe/d with further growth expected through to spring break-up in 2025. Additionally, our progress in delineating our Peace River asset continues as shown by our exceptional Bluesky well results at Harmon Valley South ("HVS") and the discovery of a new Clearwater development area at West Dawson. Our activities at West Dawson provided strong initial production rates and numerous follow-up locations that we intend to develop in 2025. At this juncture, we are comfortably ahead of our initial 3-year plan forecast. Lastly, during the fourth quarter we will commence the appraisal of our recently acquired Peavine and Gift Lake properties in Peace River."
2024 THIRD QUARTER CORPORATE HIGHLIGHTS
Strong Funds Flow - The Company generated FFO of $124.7 million ($1.64 per share basic) compared to $98.9 million ($1.22 per share basic) in the third quarter of 2023, primarily due to higher production revenues with increased production levels from our active development program and strong drilling results. Lower commodity prices partially offset FFO in 2024.
Capital Development Growth - Third quarter 2024 capital expenditures were $85.5 million (2023 - $45.9 million), while decommissioning expenditures totaled $6.3 million (2023 - $5.3 million). Capital expenditures largely focused on accelerated development drilling activities in Peace River and drilling and completing wells in Pembina (Cardium).
Maintained Operating Costs - Net operating costs were inline on a boe basis at $13.74 per boe in the third quarter of 2024 compared to $13.60 per boe in 2023 and $13.83 per boe in the second quarter of 2024. On an absolute basis, total operating costs increased on both a quarterly and year-to-date basis in 2024 due to the impact of higher production levels and increased trucking costs from our expanded Peace River operations.
Lower G&A Costs - General and administrative ("G&A") costs decreased to $1.37 per boe in the third quarter of 2024 compared to $1.51 per boe in 2023. Increased staffing levels to execute our growth plan in 2024 was more than offset by production additions, which led to the decrease on a per boe basis.
Net Debt - Net debt levels increased to $413.6 million at September 30, 2024, compared to $330.2 million at December 31, 2023, but decreased from $432.5 million at June 30, 2024. The increase in 2024 was mainly due to the funding of our Peace River acquisition that closed in June.
In October, we increased our syndicated credit facility (the "Credit Facility") to $300.0 million from $260.0 million with the addition of a new lender to the Company's banking syndicate. We used the increase in our Credit Facility to reduce the amount outstanding on our Term Loan to $10 million.
Active Share Buyback Program - In the third quarter of 2024, a total of 1.0 million shares were repurchased and cancelled under the Company's NCIB for $9.3 million (at an average of $9.18 per share).
From October 1 to 30, we repurchased and cancelled an additional 0.8 million common shares at an average price of $8.28 per share for total consideration of approximately $6.5 million.
Net Income - Net income for the third quarter of 2024 was $33.2 million ($0.44 per share basic) compared to $24.8 million ($0.31 per share basic) for the same period in 2023 due to the Company's higher revenues from increased production in 2024.
2024 THIRD QUARTER CAPITAL PROGRAM & HIGHLIGHTS
The Company remained active during the third quarter of 2024 with several initiatives to further develop and explore/appraise new and existing fields in our portfolio, further solidifying the growth potential and future value of our assets, particularly in our Peace River area. With four drilling rigs in operation, we had a strong start to our second half capital program that yielded results generally at or above expectations. Third quarter 2024 focused on accelerated development at both our Peace River Bluesky and Clearwater development fields, drilling in our Pembina (Cardium) area, successfully testing new drilling plans in our Bluesky HVS and facility designs in our Walrus fields in Peace River. Capital program highlights for the third quarter of 2024 were as follows:
Optimized Fourth Quarter 2024 Capital Program - The Company optimized our fourth quarter 2024 drilling program with the addition of three Clearwater development wells in the Peavine area and two exploration/appraisal wells at Gift Lake in Peace River, and an initial delineation well targeting the Belly River formation in Willesden Green. Considering the volatility in commodity prices and market uncertainty due to global factors, we adjusted our 2024 capital program by postponing our fourth quarter light oil program (excluding the accelerated Willesden Green Belly River well) to reallocate a portion of capital to incremental share buybacks and further debt reduction.
Achieved Encouraging Initial Well Results - New wells on production over the third quarter of 2024 continued to provide strong initial production ("IP") results above our internal expectations, including:
Peace River (Clearwater):
Dawson - The Dawson Clearwater field continues to provide robust production results above our expectations, averaging ~2,200 boe/d (100 percent oil) during the quarter as new production was brought online:
The two (2.0 net) wells at the Dawson 12-33 Pad were placed onstream in early September and produced at a gross average 30-day IP rate of 217 boe/d (100 percent oil) per well.
West Dawson - We drilled two (2.0 net) exploration/appraisal wells at the Dawson 9-21 Pad as a western step-out to our current producing Dawson development field. On production in early October, the wells exceeded production expectations with a gross average 24-day IP rate of 269 boe/d (100 percent oil) per well. With a higher-quality oil (API of approximately 16O), the West Dawson trend is expected to generate a higher netback compared to our existing Bluesky and Clearwater fields. We have initially identified over 25 follow-up locations in proximity to the 9-21 Pad to further develop this new Clearwater development field.
Peavine and Gift Lake (Acquired Lands) - We began our first development activity on the lands acquired as part of our June 2024 acquisition.
Peavine: Two of three (3.0 net) 2024 Clearwater development wells at the Peavine 8-13 Pad in the Peavine Metis Settlement area were rig-released and the third well spud by the end of October. All wells are expected on production in late November.
Gift Lake: We began construction on the Gift Lake 4-15 and 13-33 Pads within the Gift Lake Metis Settlement area in October in preparation to drill two (2.0 net) exploration/appraisal wells in late 2024.
Peace River (Bluesky):
HVS - Our HVS field continued to provide production results at the top end of our expectations.
HVS 13-18 Pad - The one (1.0 net) well produced at a gross average 30-day IP rate of 503 boe/d (100 percent oil) during the quarter.
HVS 13-08 Pad - One of the two (2.0 net) wells planned for the pad was placed onstream and produced at a gross average 30-day IP rate of 448 boe/d (100 percent oil). The second well is expected to be spud in December 2024.
HVS 8-28 Pad - The two (2.0 net) wells drilled in our second half 2024 program at this four-well pad were rig released during the quarter and are now on production. Initial results are encouraging as the wells continue to clean up.
Walrus - As we develop and further appraise our Walrus field, we continue to refine our technical knowledge of the area, giving us the ability to better delineate the thickest pay and more productive areas in preparation for follow-up locations from existing and future pads.
6-20 and 7-21 Pads - Two (2.0 net) wells from the second half 2024 program were brought onstream in the third quarter from the new future multi-well pads at the 6-20 and 7-21 locations and produced at gross average 30-day IP rates of 225 boe/d (100 percent oil) and 86 boe/d (100 percent oil), respectively. The 7-21 well produced at 132 boe/d over the last 30 days after the pump size was increased during cleanup operations. Both wells were equipped with additional surface facility tanks to accommodate increased total fluid production, resulting in increased production rates after installation.
15-01 Pad - We are currently drilling the four (4.0 net) wells at this pad, which was equipped with increased fluid handling facilities.
Cadotte - All three (3.0 net) wells at the Cadotte 13-15 Pad have now been rig released (two in the third quarter) with production expected onstream in November.
Pembina (Cardium):
16-36 Pad - Two (2.0 net) were drilled and placed on production with a gross average 30-day IP rate of 468 boe/d (80 percent oil) per well.
8-01 Pad - Two (2.0 net) wells were placed on production in late September and are producing at a gross average 30-day IP rate of 347 boe/d (91 percent oil) per well.
12-19 Pad - We rig released the remaining two (2.0 net) wells in our second half program at this pad, which is expected to be brought on stream in November.
Pembina Cardium Unit 11 (~45 percent working interest) - All nine (4.0 net) producing wells in this non-operated program were on production in the quarter and achieved a gross average 30-day IP rate of 350 boe/d per well.
Willesden Green (Belly River) - We began drilling our initial delineation well targeting the Belly River formation in October. Added as part of our optimized fourth quarter 2024 capital program, the well is expected to be on production by the end of 2024.
Completed Turnaround Maintenance Activities - We completed six planned facility turnaround projects in addition to waterflood, optimization and integrity projects across our properties during the third quarter, which will aid future operations and development. As a major part of this activity, we completed the Bigoray 6-28 battery, gas plant and field battery turnarounds in our Pembina (Cardium) area in September, completing our 2024 turnaround program.
2024 WELLS RIG RELEASED AND ON PRODUCTION
A total of 52 (51.4 net) operated wells were rig released (including five oilsands exploration wells) and 47 (46.4 net) wells were brought on production since the beginning of 2024. Of this, 18 (18.0 net) wells were rig released and 14 (14.0 net) wells were placed on production during the third quarter. The breakdown of our operated capital program wells for the first nine months of 2024 as well as our planned wells to be rig released in the fourth quarter 2024 are as follows:
Obsidian Energy also participated in 18 non-operated (6.3 net) wells in 2024, two (0.9 net) of which were water injection wells. At present, Obsidian Energy has three drilling rigs operating in our Peace River area and one in our Willesden Green area to complete the remainder of our 2024 capital program.
HEDGING UPDATE
Our hedging strategy led to a realized gain of $15.6 million in the first nine months of 2024, primarily related to our natural gas contracts. The following contracts are currently in place on a weighted average basis:
