An anonymous director reports

OBSIDIAN ENERGY ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 RESULTS

Obsidian Energy Ltd. has released strong operating and financial results for the fourth quarter and full year 2023.

Detailed information can be found in Obsidian Energy's audited annual consolidated financial statements and management's discussion and analysis (MD&A) as at and for the year ended Dec. 31, 2023, on the company's website, which will also be filed on SEDAR+ and EDGAR in due course.

Key 2023 results

Obsidian Energy had an active 2023 capital program with both development and exploration/appraisal activities, providing a solid foundation as it enters the first year of the company's three-year growth plan to increase production to over 50,000 barrels of oil equivalent/day (boe/d) in 2026. Activity in the company's Peace River, Willesden Green/Pembina (Cardium) and Viking areas contributed to a 5-per-cent increase in average annual production to 32,275 boe/d, reaching 34,000 boe/d in December, 2023. When the impact of the company's share buyback program initiated in 2023 is included, this translates into 12-per-cent growth on a production per-share basis based on shares outstanding at Dec. 31, 2022, and 2023. In addition, Obsidian achieved over 120-per-cent reserve replacement of 2023 production in all reserve categories.

In 2023, commodity prices decreased over 2022 levels with WTI oil prices averaging $77.62 (U.S.) per barrel compared with $94.23 (U.S.) per barrel in 2022, and natural gas prices weakening due to supply growth and increased inventory levels. These lower commodity prices resulted in a 24-per-cent decline in the company's realized sales price (19-per-cent decline net of hedging activity) and drove a decrease to both the company's FFO (funds from operations) and netbacks compared with 2022, which was partially offset by the company's higher production levels, lower net operating costs and realized hedging gains. Capital expenditures totalled $292.5-million for the year, and the company repurchased and cancelled $47.4-million of shares outstanding to return capital to shareholders despite the lower commodity price environment.

2023 fourth quarter and full-year financial highlights:

• Substantial funds flow -- FFO was robust at $377.6-million ($4.67 basic per share) for 2023 compared with $450.7-million ($5.50 basic per share) in the prior year even with an 18-per-cent and 50-per-cent decrease in WTI oil and AECO natural gas prices, respectively. Fourth quarter 2023 FFO totalled $97-million ($1.23 per basic share) compared with $110.5-million ($1.34 per basic share) in the fourth quarter of 2022. Lower commodity prices in both 2023 periods primarily drove the decrease, partially offset by higher production, lower net operating costs and realized hedging gains.
• Capital development growth -- in 2023, the company's capital program provided production growth from established development areas as it continued to delineate, extend and discover new development areas (specifically in its Peace River area). Capital expenditures totalled $292.5-million (2022 -- $314.8-million), while decommissioning expenditures totalled $26.6-million (2022 -- $18.8-million). Fourth quarter capital expenditures were $100-million (2022 -- $97.1-million) and decommissioning expenditures were $7.7-million (2022 -- $3-million). Obsidian's activity over the fourth quarter of 2023 provided it with strong operational momentum as it begins to execute on its growth plan in 2024.
• Active share buyback program -- a total of approximately 5.4 million shares were repurchased and cancelled under the company's normal course issuer bid (NCIB) for $49.9-million ($9.30 per share) from NCIB inception in 2023 to Feb. 21, 2024. Current shares outstanding are 77,303,538. Of this amount, 2.2 million shares were repurchased and cancelled in the fourth quarter for $22.4-million ($10.22 per share). The board of directors approved renewing the company's NCIB once it expires later in February.
• Stable net debt -- net debt levels increased slightly to $330.2-million at Dec. 31, 2023, compared with $316.8-million at Dec. 31, 2022, largely due to a higher working capital deficiency from the company's active development program late in 2023 and its share buyback program during the year. In total, net debt comprised $107.5-million drawn on the company's $240-million syndicated credit facility, $117.4-million of senior unsecured notes and a $105.3-million working capital deficiency. Obsidian's balance sheet remains strong with a net debt/FFO ratio of 0.9 times at year-end 2023. Based on its current liquidity estimates and the terms and conditions of the applicable agreements, the company expects to make a semi-annual repurchase offer of $2-million to noteholders in March, 2024.
• Reduced net operating costs -- net operating costs were lower at $14.21 per boe in 2023 compared with $14.29 per boe in 2022 as the company benefited from its higher production base while executing an active maintenance program. For the fourth quarter of 2023, net operating costs decreased by 7 per cent to $13.66 per boe (2022 -- $14.63 per boe) due to lower power costs in addition to the company's higher production base.
• Lower G&A costs -- general and administrative (G&A) costs decreased to $1.61 per boe in 2023 compared with $1.64 per boe in 2022, and by 8 per cent to $1.51 per boe in the fourth quarter of 2023 compared with $1.64 per boe for the quarter in 2022. The decrease in 2023 is primarily attributable to the company's higher production base.
• Renewed office lease on improved terms -- in the fourth quarter of 2023, the company entered an office lease extension beginning in February, 2025, to mid-2028. Under the terms of the extension, it expects cash savings of approximately $8.5-million per year at the commencement of the lease.
• Net income -- net income in 2023 was $108-million ($1.33 per share basic) due to the company's strong operational results, which helped offset the impact of lower commodity prices compared with the prior year. In 2022, net income of $810.1-million ($9.88 per basic share) benefited from an asset impairment reversal (due to the company's significantly higher reserve value and higher commodity prices in the year) and the recognition of the company's substantial tax pool position through a deferred income tax asset. For the fourth quarter of 2023, the company had net income of $34.3-million (44 cents per basic share) compared with net income of $631.7-million ($7.69 per share) in the fourth quarter of 2022, largely due to the asset impairment reversal and the recording of the company's deferred income tax asset.

2023 fourth quarter and full-year operational highlights:

• Strong asset performance and efficiencies -- Obsidian achieved strong 2023 reserve results with volume increases across all categories, replacing production, adding new locations and improved efficiency of its capital program.
  • The company replaced 124 per cent of 2023 production on a proved developed producing (PDP) basis, 157 per cent on a total proved (1P) basis and 217 per cent on a total proved plus probable (2P) basis;
    • On a per-share basis, reserve volumes increased by 13 per cent, 15 per cent and 17 per cent for PDP, 1P and 2P, respectively, in 2023 over 2022;
    • The impact of drilling field extensions from the company's 2023 capital program combined with positive technical revisions were the major contributing factors to increased reserves;
  • Reserves before-tax net present value discounted at 10 per cent (NPV10) decreased from 2022 levels largely due to the impact of lower commodity prices to $1.5-billion, $1.9-billion and $2.6-billion on a PDP, 1P and 2P basis, respectively.
  • Obsidian's total undeveloped 2P reserve locations increased by over 30 new net locations to 343 total net locations booked (including 237 net locations in the Cardium, 42 net locations in the Bluesky, 11 net locations in the Clearwater, 48 net locations in the Viking, one net location in the Devonian and four net locations in the Mannville);
    • These locations were booked with a highly achievable total 2P five-year future development capital (FDC) of $1.4-billion (approximately $286-million per year);
  • Improvements from between 4 and 17 per cent in both finding and development (F&D) and finding, development and acquisition (FD&A) costs year-over-year show the stability of the company's reserve book and its ability to bring new production on stream efficiently.
• Achieved robust well results -- applying technical advancements across the company's acreage, its team realized considerable success in replacing production with new reserve additions, opening new development areas and attaining strong initial production (IP) rates, including:
  • Strong IP results from the four (4.0 net) Bluesky wells drilled at the Walrus 13-19 pad in Peace River during the second half of 2023 that also successfully tested a lower Bluesky zone, further expanding the potential of this play;
  • Solid production rates in the Dawson field in Peace River led to over 20 follow-up Clearwater inventory locations (currently unbooked in Obsidian's 2023 reserve report) identified in the area;
    • Since the company's last update, the 13-23 pad had a pad peak rate of 558 boe/d (100 per cent oil) with individual well IP 30-day rates of 226 boe/d (100 per cent oil) and 126 boe/d (100 per cent oil), respectively;
  • Continued strong performance at the Willesden Green (Cardium) Open Creek 9-17 pad with flat declines and high production rates, leading to further area development in 2024.
• Established new development fields -- Obsidian focused on unlocking the multizone potential of its Peace River asset through exploration/appraisal activities in early 2023, resulting in the discovery and establishment of two new development fields at Walrus (Bluesky formation) and Dawson (Clearwater formation). The Dawson acreage established the company's first Clearwater development area.
• Successful Viking development program -- the company expanded and further delineated the western region of its Viking play in 2023 with 19 (19.0 net) wells brought on production by the end of the year. Robust average production rates from this shallow, low-risk, highly economic resource play provide additional cash flow for the company's capital programs in 2023 and 2024.
• Finalized three-year growth plan (2024 to 2026) -- the company's growth plan highlights steady production increases over the three-year period with an annualized production growth rate of 16 per cent, reaching 50,000 boe/d in 2026 and contributing to increased FFO and higher FCF generation. Obsidian's strategy is to maintain production levels in its Willesden Green/Pembina (Cardium) and Viking light oil plays, and use the significant FCF from these assets to finance growth in its heavy oil business at Peace River.
• Active decommissioning program -- Obsidian successfully abandoned a combined total of 157 net wells and 617 net kilometres of pipeline in 2023 as part of activities from its decommissioning spend of $26.6-million.

2023 guidance and results

All operational metrics met or bettered the company's 2023 guidance, including production, capital expenditures, decommissioning expenditures, net operating costs, and G&A. Lower commodity prices in the fourth quarter largely contributed to FFO and FCF that were slightly below Obsidian's guidance levels. Net debt and leverage ratios were above forecasts largely due to the active share buyback program in the fourth quarter.

2023 development program

Obsidian's 2023 program included drilling 59 (58.5 net) wells across all its areas, including four (4.0 net) oil sands exploration (OSE) wells in Peace River to further develop and delineate the company's broad, high-quality asset base. With a high activity level throughout the year and an accelerated drilling program in the fourth quarter of 2023, a total of 56 (55.3 net) wells were put on production by the end of 2023, contributing to significant reserve additions and production growth. All the remaining seven (7.0 net) wells rig released in 2023 are now on stream.

As Obsidian placed the remaining wells from its 2023 program on stream, the company had a solid start to its 2024 first-half development program with continued development and exploration/appraisal drilling in the Clearwater and Bluesky formations in Peace River, and development of its Willesden Green/Pembina (Cardium) assets. Highlights from 2023 and an update on the company's 2024 activity can be found in Obsidian's 2023 capital program and 2024 guidance releases.

Hedging update

In 2023, the company had an active hedging program and entered into various oil and natural gas contracts, leading to a realized gain of $17.7-million during the year, including $15.5-million related to natural gas and $2.2-million related to oil. In 2024, Obsidian's focus has been on solidifying its natural gas hedge position given its concerns on natural gas storage levels. The contracts noted herein are currently in place on a weighted average basis.

Updated corporate presentation

For further information on these and other matters, Obsidian Energy will post an updated corporate presentation later today on the company's website.

Scotia Howard Well Energy & Power Conference

Obsidian Energy will be participating in the 52nd annual Scotia Howard Weil Energy & Power Conference in Miami, Fla., at the Mandarin Oriental Hotel. Stephen Loukas, president and chief executive officer, along with Peter Scott, senior vice-president and chief financial officer, will be hosting one-on-one meetings on Feb. 28 and 29, 2024, at the conference centre.

We seek Safe Harbor.