Obsidian Announces Expanded 2022 Development Program

Source: www.gulfoilandgas.com 6/16/2022, Location: North America

- 2022 guidance increased to an average production range of 31,500 to 32,500 boe/d based on expanded capital development program
- Second half 2022 four-rig drilling program includes 38 operated wells (35.5 net) of which 26 wells (24.1 net) are expected to be on production by year-end
- Full year 2022 activity combined with our preliminary 2023 forecast increases 2023 average production to between 37,000 and 38,000 boe/d, a 52 percent increase over 2021

Obsidian Energy is pleased to provide an operational update on the success of our 2022 first half development program, as well as announce an expanded second half development program, increased 2022 guidance and a preliminary forecast for 2023.

OBE Announces Expanded 2022 Development Program…
The first half 2022 development program resulted in significant production growth for the Company from our Willesden Green, Pembina, and Peace River assets. An additional 38 wells (35.5 net) will be drilled over the second half 2022 for a total of 68 wells (65 net) rig-released this year. As a result, we are increasing our 2022 average production guidance to between 31,500 and 32,500 boe/d. Looking to 2023, we are providing a preliminary forecast of between $260 and $270 million of capital expenditures, further growing average production to between 37,000 and 38,000 boe/d.

“We entered 2022 with a bullish outlook on commodity prices that anchored our tactical decision to operate four drilling rigs during our first half development program,” said Stephen Loukas, Obsidian Energy’s Interim President and CEO. “Moreover, we secured contracts whereby we obtained the required services and materials to maintain the optionality to continue to operate four drilling rigs through to spring break-up in 2023. Notwithstanding recent service cost inflation, wellhead economics are extremely robust with compelling returns and recycle ratios at current commodity prices.”

Mr. Loukas continued, “Accordingly, our Board of Directors has decided to increase our second half 2022 capital expenditure budget to better align Obsidian Energy’s production profile with its vast resource base – while maintaining strong free-cash flow generation for further debt paydown. The pace of our drilling program is expected to result in production growth that allows for significant projected funds flow from operations and free cash flow growth as we execute on our development plans. The allocation of projected free cash flow will be evaluated as we approach our long-term debt targets and assess our reinvestment opportunities and return of capital strategies.”

We are revising our 2022 guidance in response to strong commodity prices and in conjunction with the expected successful completion of the refinancing of our existing debt facilities by mid-July. Our 2023 preliminary forecast anticipates drilling 51 wells across our portfolio of which two are Clearwater wells that we anticipate expanding as the play is further delineated during the second half of this year with drilling in and around our acreage. Both our revised 2022 guidance and 2023 forecast includes approximately 15 percent inflation on our capital program over levels experienced in the first half of 2022.

Our 2022 guidance and 2023 preliminary forecast increases average production to approximately 37,000 to 38,000 boe/d in 2023 and reaches our long-term debt target of under 1.0x net debt to funds flow from operations (“FFO“). Additionally, we expect our absolute long-term debt level to be $225 million or less, which we believe is an appropriate level to effectively manage potential fluctuations in commodity prices. This absolute debt level is expected to keep our Net debt to FFO at approximately 1.0x if WTI prices were to fall to approximately US$50 per barrel.

Our first half 2022 program was completed ahead of schedule with increased activity across our entire portfolio, resulting in significant production growth. In addition to completing the planned drilling in our Willesden Green, Pembina, and Peace River areas, we added eight wells (8.0 net) to our first half development program in our Viking area and accelerated the drilling of two wells (2.0 net) in Peace River from our second half 2022 program.

We plan to drill an additional 38 wells (35.5 net) over the second half of 2022 in our Willesden Green, Pembina, and Peace River assets, utilizing three rigs in the third quarter and expanding to four rigs in late 2022. Combined with the wells from our first half 2022 program, a total of 68 wells (65.0 net) will be rig-released in 2022, of which 55 wells (52.5 net) are expected to be on production by the end of 2022.

Peace River
The Company has rig-released four Bluesky wells (4.0 net) from the first half 2022 program to date. The first two came on production in mid-April and have produced an average of 327 boe/d per well initial production (“IP“) 30-day rates (99 percent oil). The remaining wells are in the process of being brought on production. From the 2021 program, IP 90-day rates from the first four Bluesky wells (4.0 net) averaged 447 boe/d per well (99 percent heavy oil).

Obsidian Energy plans to drill an additional 14 wells (13.5 net) in Peace River over the second half of the year. Twelve wells (12.0 net) will target the established Bluesky reservoir, following up on the solid results over the past eight months. The remaining two wells (1.5 net) in our second half development program will target the Clearwater play to further delineate our land base. Clearwater development will be a key focus for our 2023 plans as we continue to appraise our 487 prospective land sections, including further exploration and development drilling to increase our future inventory of locations.

Willesden Green
All ten wells (10.0 net) from our first half development program are rig-released and completed. Seven wells (7.0 net) are currently on production. The average per well IP 30-day rates were:

Faraway 8-3 Pad (3 wells): 190 boe/d (90 percent oi)
Crimson 8-19 Pad (2 Wells): 275 boe/d (76 percent oil)
Faraway 9-17 Pad (1 well): 267 boe/d (87 percent oil)
Faraway 14-17 (1 well): 237 boe/d (92 percent oil)
For the remainder of 2022, we plan to drill ten wells (10.0 net) targeting the Cardium formation and one gas-weighted Mannville well (0.5 net).

All five wells (4.5 net) from the first half program are on production. In addition to the first two wells averaging IP 30-day rates of 281 boe/d (82 percent oil), the remaining three averaged IP 30-day rates of 238 boe/d (84 percent oil). In our second half 2022 development program we plan to drill 13 Pembina wells (11.5 net), predominantly targeting the Cardium formation.

The first well in our eight-well (8.0 net) Viking program was spudded in mid-May, representing our return to development in the asset. Overall, the eight wells are expected to add approximately 1,000 boe/d on an IP-30 basis (67 percent light oil) with capital expenditures of approximately $12.5 million. Most of the drilling will be completed by the end of June with production expected early in the third quarter. Looking forward, we have ample capacity for further Viking development with our strong inventory of locations and 100 percent ownership of oil and gas infrastructure in the region.

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