- Successful drilling results to date in the second half 2021 drilling program
- Continued debt pay down and higher funds flow from operations
- Acquisition of remaining Peace River Oil Partnership ownership subsequent to the quarter
Obsidian Energy is pleased to report strong operating and financial results for the third quarter 2021.
KEY THIRD QUARTER 2021 RESULTS
We benefitted from favourable commodity prices in the third quarter, resulting in FFO, free cash flow generation and further debt reduction. Production levels continued to be strong, supported by a combination of our 2021 development program results and continued outperformance of our base production. Our development program was extremely active with 11 operated wells (10.2 net) rig released during the period, the majority of which were brought on production in October.
2021 Third Quarter Financial Highlights
Strong Funds Flow - FFO was $59.3 million ($0.79 per share) for the third quarter of 2021, an increase from the second quarter of 2021 ($42.3 million; $0.57 per share) and the third quarter of 2020 ($30.4 million; $0.41 per share). Higher commodity prices and continued strong production performance drove the increase.
Capital Development Program Growth - We entered the third quarter with momentum with our capital expenditures totalling $45.1 million (2020: $4.6 million) over the quarter. Our development activities were predominately focused on the Cardium formation in the Willesden Green and Pembina areas with 11 wells (10.2 net) rig released and three wells (3.0 net) on production during the quarter.
Continued Debt Reduction - Continued strong free cash flow generation resulted in a decrease in net debt to $428.1 million as at September 30, 2021, compared to $478.9 million at September 30, 2020. This included $340.0 million drawn on our syndicated credit facility (down from $395.0 million as at September 30, 2020), $58.9 million of senior notes and $29.2 million of a working capital deficiency.
Solid G&A Costs - Third quarter 2021 general and administrative ("G&A") costs were $1.82 per boe compared to $1.40 per boe in 2020. Lower production volumes in 2021 combined with several temporary measures taken in 2020 in response to the low commodity price environment reduced costs in the comparable period in 2020.
Maintained Operating Costs - Net operating costs of $13.28 per boe were lower than the second quarter of 2021 ($13.71 per boe) but higher than the third quarter of 2020 ($11.36 per boe). Similar to G&A, operating costs reflect the return to normal activity levels in 2021 compared to 2020, where the Company restricted discretionary spending and shut-in production due to the low commodity price environment.
Higher Net Income - Net income of $46.6 million ($0.62 per share) in the third quarter of 2021 benefitted from higher FFO and a net impairment reversal of $22.3 million. This compared to a net loss of $3.2 million ($0.04 per share) in 2020, largely due to the lower commodity price environment at that time.
2021 Third Quarter Operational Highlights
Increased Production Guidance - Continued strong performance from our base volumes and new well additions over 2021 resulted in average production of 24,164 boe/d in the third quarter of 2021. With two drilling rigs active in our Cardium assets, we brought three new wells on production in September, and expect to bring an additional 14 (13.0 net) wells on production in the fourth quarter and 13 (12.6 net) wells in the first quarter of 2022. Based on these results, we recently increased our full-year 2021 production guidance to between 24,300 and 24,500 boe/d, prior to the Peace River Oil Partnership ("PROP") acquisition.
Return to Peace River Area - The Company resumed development drilling in our Peace River asset in conjunction with our recent proposed acquisition (see "Highlights Subsequent to the Quarter") combined with the strong commodity price environment. Four infill development wells are planned for the fourth quarter, which are expected to be on stream by the end of January 2022.
Accelerated 2022 Development Program - The early start to our second half 2021 development program in June allowed the Company to accelerate our 2022 development program with the planned acceleration of three Cardium (2.8 net) wells into December 2021. Our 2022 program will benefit by maintaining access to the drilling rigs, minimizing mobilization costs and continuing drilling into 2022.
Reduction in Decommissioning Liabilities - A total of 80 net wells and 27 net kilometres of pipeline was abandoned during the third quarter of 2021 through participation in the Area Based Closure ("ABC") program and the Alberta Site Rehabilitation Program ("ASRP"). We spent $1.6 million and utilized $2.9 million of net grants in the third quarter.
Production Volumes by Product and Producing Region
Highlights Subsequent to the Quarter
Acquired Remaining Interest in Peace River - Subsequent to the quarter, we entered into a purchase and sale agreement (the "Agreement") to acquire the remaining 45 percent partnership interest in the Peace River Oil Partnership ("PROP") asset from our joint venture partner (the "Vendor"), through a wholly-owned subsidiary (the "Acquisition"). Based on the purchase price of $43.5 million, consideration at closing is expected to be approximately $36 million. The Acquisition has an effective date of July 1, 2021 with closing expected during the week of November 15, 2021.
Commenced Equity Offering - The Acquisition will be partially funded through a "best efforts" marketed equity offering of subscription receipts for gross proceeds of up to $22.5 million at $4.40 per subscription receipt. The remainder of the cash funding will be from a limited recourse debt financing against the acquired interest.
Amended Senior Credit Facility and Senior Note Repayment - In connection with the Acquisition, we have agreed to reduce our aggregate syndicated credit facility commitment amount by $25 million to $415 million at closing of the transaction. At the same time, the Company will repay approximately $3.3 million of its senior notes, which will leave approximately US$43.7 million outstanding with a maturity date of November 30, 2022.
Extended Employment Contract - The Company extended Stephen Loukas's employment contract as Interim President and CEO to December 31, 2022, subject to the option to terminate, if mutually agreeable to both parties, on July 1, 2022.
We refer you to our recent release dated November 2, 2021 for more details about the PROP Acquisition and its associated transactions.
2021 DEVELOPMENT PROGRAM UPDATE
Our second half development program advanced substantially with the drilling of 11 wells (10.2 net) and three gross/net wells brought on production in the quarter. Subsequent to the quarter, development activity has been significant with an additional five wells (4.8 net) rig-released and eight wells (7.2 net) brought on stream. On October 27, we announced the acceleration of three wells from our 2022 program to ensure uninterrupted drilling into 2022, allowing us to secure access to the drilling rigs and to minimize mobilization costs.
Willesden Green: Subsequent to our October 27 update, we rig released our ninth Cardium well in our second half program - the final of four wells (4.0 net) on the 6-22 Faraway pad. The wells are expected to undergo fracturing operations during the second week of November and be on production in mid-December. Drilling is underway on the first of two wells on our 4-17 Faraway pad site prior to finishing the year with one well at our existing 1-25 Crimson pad and an accelerated 2022 well at our 8-3 Faraway pad. These final four wells (4.0 net) are anticipated to be on production in early February of 2022.
Results for our earlier second-half 2021 wells are as follows:
- 3-3 pad - IP30 rates for the two wells averaged 494 boe/d (70 percent light oil)
- 3-29 pad - IP30 rate for the well was 201 boe/d (84 percent light oil)
- 1-33 pad - IP30 rate on the first well was 218 boe/d (71 percent light oil); following a pump repair, the second well averaged 372 boe/d (66 percent light oil) over the past 22 days
Pembina: We rig-released an additional Cardium well (0.9 net) since our last update, bringing the total to five Cardium wells (4.5 net) as part of our second half program. The first well at the 7-17 pad has produced at an average rate of 310 boe/d (69 percent light oil) for the 15 days post-cleanup. The remaining two wells have minor interventions underway with continuous production expected to begin in mid-November. The three remaining Pembina Cardium wells (2.8 net) from the 2021 program will be drilled in November and early December and are expected to be completed and brought on production in January 2022. In December 2021, we anticipate rig releasing the first of two additional, accelerated wells (1.8 net), with the second well finishing drilling in early January.
The two vertical non-Cardium wells (1.5 net) rig-released in October continue to produce at strong rates. The first well averaged 331 boe/d (97 percent light oil) over its first twenty-five days. The second well produced at an average of 222 boe/d (95 percent light oil) over its 10 days of production post-cleanup.
PROP: As part our 2021 development program, the Company is returning to drilling in our Peace River asset in the fourth quarter of 2021 with a four-well program (at 100 percent working interest post Acquisition). These wells target the Bluesky formation from our existing pads: three wells at the 6-31 pad and one at the 14-25 pad. Production from the four wells is expected to be on stream by the end of January 2022.
2021 UPDATED GUIDANCE
As per our PROP Acquisition news release of November 2, 2021, we updated our pro-forma guidance for 2021 after giving effect to the Acquisition, assuming the Acquisition closes during the week of November 15, 2021, and incorporating our third quarter and nine-month 2021 results. Using the mid-point of our post-acquisition guidance, we expect fourth quarter 2021 production to average approximately 26,730 boe/d, generating funds flow from operations of approximately $88 million.
