Obsidian Energy Announces Strong Third Quarter 2020 Results Driven by Successful First Half Development Program and Continued Improvements to our Cost Structure

CALGARY, AB, Nov. 2, 2020 /PRNewswire/ - OBSIDIAN ENERGY LTD. (TSX: OBE) (OTCQX: OBELF) ("Obsidian Energy", the "Company", "we", "us" or "our") announces strong third quarter 2020 financial and operational results. Funds from Operations ("FFO") improved in the quarter as the success of our development program earlier in the year and our lower cost structure more than offset the impact of lower commodity prices, year over year.

"Our strong third quarter performance is a direct result of the improvements we are driving across our business" said Stephen Loukas, Interim President and Chief Executive Officer of Obsidian Energy. "Our strategically-focused capital program in the first half of 2020 has strengthened our underlying production base, driving impressive performance and resulting in third quarter production volumes down only slightly year over year, even with a 33% lower capital investment to date in 2020. Combined with the significant improvements across our cost structure, we successfully generated free cash flow in the third quarter, allowing us to lower debt levels despite the challenging macro environment. Our improved efficiency and strong operational base position us well as we look into 2021 and at the opportunities we see ahead".

All figures are in Canadian dollars unless otherwise stated. Obsidian Energy's unaudited interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") as at and for the three and nine months ended September 30, 2020 can be found on our website at www.obsidianenergy.com. The documents will also be filed on SEDAR and EDGAR in due course.

FINANCIAL HIGHLIGHTS

• FFO in the third quarter of 2020 increased to $30 million ($0.41 per share) up from $25 million ($0.34 per share) for the second quarter of 2020 and $29 million ($0.40 per share) for the third quarter of 2019. FFO increased in the third quarter of 2020 as a result of higher commodity prices (compared to Q2 2020) as restrictions around the COVID-19 pandemic eased, which improved demand. In addition, the Company continues to benefit from lower Operating Expenses ("Opex") and General and Administrative ("G&A") expenses (compared to Q3 2019) as a result of our cost reduction initiatives.
• Year to date, we have generated free cash flow of approximately $37 million, as FFO of $92 million have exceeded capital and decommissioning expenditures in the same period of $55 million.
• As a result of our strong third quarter performance, net debt decreased in the quarter by $17 million to $479 million, including $395 million drawn on our syndicated credit facility and $63 million of senior notes at September 30, 2020, primarily due to free cash flow being applied to our syndicated credit facility.
• In the third quarter the Company continued to receive payments from the Federal Government's Canadian Emergency Wage Subsidy program ("CEWS"). These payments reduced our Opex by $0.08 per boe and reduced G&A expenses by $0.05 per boe in the third quarter of 2020.
• Net loss was $4 million ($0.05 per share) in third quarter compared to $22 million ($0.30 per share) during the second quarter of 2020 and $28 million ($0.38 per share) in the third quarter of 2019. The improvement from the second quarter was largely due to higher realized crude oil prices. The improvement from the previous year was driven by our improved cost structure and higher light oil volumes.
• On September 21, 2020, we formally launched our bid to acquire Bonterra Energy Corp in a value enhancing transaction that will create the "Cardium Champion". 
• Subsequent to quarter end, we successfully extended our syndicated credit facility to January 29, 2021.

OPERATIONAL HIGHLIGHTS

• Average production in the third quarter remained relatively stable as the success of our development program earlier in 2020, largely offset the impact of our lower capital investment driven by lower commodity prices. Production averaged 25,031 boe/d in the third quarter, down 3% from the second quarter of 2020 and 2% from the third quarter of 2019.     
• Opex was $11.36 per boe in the third quarter of 2020 compared to $8.51 per boe in the previous quarter of 2020, and $14.65 per boe in the third quarter of 2019. While year-over-year operating expenses were down 22%, reflecting the improvements we have made in 2020, operating expenses increased from the second quarter of 2020 as we completed scheduled turnarounds and resumed routine repairs on downhole pumps and other related activities. 
• G&A expenses were $1.40 per boe in the third quarter of 2020, compared to $1.36 per boe in the previous quarter and $2.25 per boe in the third quarter of 2019. G&A costs were down 38% from the same quarter last year and remained largely in line with the second quarter as we continue to benefit from efficiency improvements made starting in 2019 and continuing to date in 2020. Additionally, in response to a continued weak commodity price environment, we continue to seek opportunities to remove costs from the business where possible.
• Our first half 2020 development program continues to exceed expectations with some of the strongest new well production rates seen to date in our multi-year Cardium program.     
• Development capital and decommissioning expenditures were $6 million in the third quarter of 2020 as the Company restricted development spending in response to lower crude oil prices driven by the COVID-19 pandemic. For the first nine months of 2020, capital and decommissioning expenditures totaled $55 million.
• During the third quarter of 2020, in partnership with our service providers, the Company received grants under the Alberta Site Rehabilitation Program ("ASRP") totaling $17 million and an additional $4 million in allocation eligibility as an Area Based Closure participant. These awards will allow the Company to expand our decommissioning activities for inactive Legacy sites starting in the fourth quarter of this year and further reduce our decommissioning liability.

2020 DEVELOPMENT PROGRAM AND OPERATIONS UPDATE

Over the past several months, our staff continued to work diligently under the volatile commodity price environment which has resulted in continued strong production and netback results.  Results by area for the third quarter of 2020 are as follows:

 

 

FINANCIAL AND OPERATING HIGHLIGHTS

OUTLOOK

In response to the current commodity price environment, we prudently decided to pause our development drilling program and lower our 2020 capital expenditures. We anticipate our fourth quarter 2020 capital and decommissioning expenditures to total approximately $9 million. These activities are focused on highly capital efficient optimization activities and include $2 million added for minor infrastructure projects. The grants and allocations we have received under the ASRP of $21 million will allow us to further reduce our inactive abandonment liabilities in our Legacy assets and this work has now begun in the fourth quarter. Once completed, these projects will have the added benefit of further reducing operating expenditures as costs associated with inactive well sites are reduced or eliminated.

As we look ahead to 2021, and given the current broad-based volatility, we are closely monitoring commodity prices and remain ready to take advantage of our significant regional and operational flexibility when economic conditions merit the investment. With the recent strength in AECO pricing, we are evaluating our meaningful portfolio of natural gas-weighted opportunities in combination with our deep inventory of high return, light oil locations.

2020 PRODUCTION AND COST GUIDANCE 

BONTERRA ENERGY CORP. ("BONTERRA") TAKEOVER BID

As part of our strategy to proactively pursue Cardium-focused consolidation, on September 21, 2020, we formally launched a takeover bid to acquire all the issued and outstanding common shares of Bonterra ("Bonterra Shares") for the consideration of two Obsidian Energy common shares ("Obsidian Energy Shares") for each Bonterra Share (the "Offer"). Obsidian Energy and Bonterra have highly complementary operations and the compelling combination of the companies will create the Cardium Champion.  The combination would also result in material synergies driving increased cash flow, reduced debt levels, further lowering our breakeven $US WTI/barrel costs and ultimately allowing us to return money to shareholders. The combination is a compelling opportunity to create a stronger, more efficient company with a far superior future than what Obsidian Energy or Bonterra could achieve on a standalone basis. Benefits from the transaction include:

• The combined entity's increased size will make us a top 20 Western Canadian oil producer, with improved financial metrics, increased capital markets relevance and enhanced positioning for future Cardium consolidation;
• The combined entity will have a strong operating platform with a low decline production base, low cost structure and high netbacks;
• With improved efficiencies, we expect that the combined entity will have over $100¹ million cost saving synergies over three years resulting in increased FFO; and
• Higher free cash flow will achieve accelerated debt repayment (estimated to fall to 2 times EBITDA by year-end 2022), lower credit risk, improved access to capital and ultimately, the reinstatement of cash dividend payments and/or a share buy-back program.

The offer is open until January 4, 2021, at 5:00 pm (Mountain Standard Time).

EXTENSION TO SYNDICATED CREDIT FACILITY

On October 29, 2020, the Company entered into an amending agreement with our lenders which extended the revolving period of the syndicated credit facility to January 29, 2021. The end date of the term period remains at November 30, 2021. Additionally, the lenders have eliminated the October 31, 2020 and November 30, 2020 borrowing base redetermination dates and now have the option to complete a borrowing base determination on January 29, 2021.

HEDGING UPDATE

The Company has the following physical oil and financial natural gas hedges in place:

SPECIAL MEETING OF SHAREHOLDERS TO VOTE ON THE BONTERRA TAKEOVER OFFER

In connection with the Offer, the Company has scheduled a Obsidian Energy shareholder meeting to vote to approve the potential issuance of Obsidian Energy Shares for the applicable Bonterra Shares (the "Meeting") on, Monday, November 23, 2020 at 9:00 am (Mountain Standard Time).  The Meeting will take place at the Company's head office located at 200 – 207 9^th Avenue S.W., Calgary, Alberta. Please see the Company's management information circular for further details.

Due to restrictions on gatherings implemented by the Government of Alberta in response to the COVID-19 (Coronavirus) outbreak, guidelines issued with respect to social distancing and out of concern for the wellbeing of all participants, we strongly recommend that registered shareholders not attend the meeting in-person. Any person attending the Meeting in person will be required to follow the Company's health and safety measures, which will include physical distancing, use of personal protective equipment (including facemasks) and completion of a health-assessment. The precautionary measures being taken by the Company are intended to reduce the potential risks associated with the COVID-19 pandemic, and they may be further updated as necessary to take into account evolving recommendations and directives of public health authorities.

UPDATED CORPORATE PRESENTATION

For further information on these and other matters, Obsidian Energy has posted an updated corporate presentation which can be found on its website, www.obsidianenergy.com. 

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.

NON-GAAP MEASURES

Certain financial measures including FFO, FFO per share-basic, FFO per share-diluted, free cash flow, Netback Net debt and EBITDA, included in this press release do not have a standardized meaning prescribed by IFRS and therefore are considered non-GAAP measures; accordingly, they may not be comparable to similar measures provided by other issuers. FFO is cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures, office lease settlements, the effects of financing related transactions from foreign exchange contracts and debt repayments and certain other expenses and is representative of cash related to continuing operations. FFO is used to assess the Company's ability to fund its planned capital programs. See "Calculation of Funds Flow from Operations" below for a reconciliation of FFO to cash flow from operating activities, being its nearest measure prescribed by IFRS. Free cash flow is funds flow from operations less capital and decommissioning expenditures. Netback is the per unit of production amount of revenue less royalties, operating expenses, transportation expenses and realized risk management gains and losses, and is used in capital allocation decisions and to economically rank projects. Net debt is the total of long-term debt and working capital deficiency and is used by the Company to assess its liquidity. EBITDA is net income (loss) plus finance expenses (income), provisions for (recovery of) income taxes, and depletion, depreciation, impairment and accretion.

CALCULATION OF FUNDS FLOW FROM OPERATIONS

ABBREVIATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements"). Forward-looking statements are typically identified by words such as "anticipate", "continue", "es