Obsidian Energy Announces Closing of Peace River Acquisition

Rhea-AI Summary

Obsidian Energy has completed its acquisition of Clearwater production assets and 148 net sections of land in the Peace River area, amounting to approximately 1,700 boe/d of oil production, as of April 2024. The acquisition, valued at $80.5 million, was funded through the company's syndicated bank facility and a $50 million term loan maturing in June 2025. CEO Stephen Loukas highlighted the strategic benefits of the acquisition, which includes 200 identified drilling locations, with 103 locations on trend with the company's successful Clearwater Dawson development. The acquisition fits into Obsidian's 2024-2026 corporate growth plan.

Positive

• Acquisition of 1,700 boe/d of Clearwater production.
• Expanded 148 net sections of land in Peace River area.
• Total acquisition valued at $80.5 million.
• Funding secured through syndicated bank facility and $50 million term loan.
• Identification of 200 drilling locations with 103 on trend with successful developments.
• Integration into the 2024-2026 corporate growth plan.

Negative

• Funding includes a $50 million term loan maturing in June 2025, potentially increasing financial strain.

Financial Analyst

Obsidian Energy's recent acquisition in the Peace River area enhances their production capacity and land holdings significantly. This $80.5 million deal will boost their output by approximately 1,700 boe/d. Given that Obsidian has financed this purchase through a syndicated bank facility and a $50 million term loan, it's essential to examine their debt levels closely. Acquiring assets is a double-edged sword: while it can drive growth, it can also strain financial stability if not managed well. Investors should keep an eye on the company's leverage ratios and debt servicing ability to assess the long-term sustainability of this acquisition. Furthermore, the maturity of the term loan in June 2025 indicates a relatively short timeframe for repayment, which could pressure cash flows if oil prices fluctuate. The expanded drilling locations and probable reserves provide upside potential, but those are contingent on several factors like capital availability and regulatory approvals. The direct impact on the company’s revenues will depend on the successful and timely development of these assets.

Energy Sector Analyst

This acquisition of Clearwater production and land by Obsidian Energy represents a strategic move within the oil and gas industry. The Peace River area is a known region for oil production and expanding holdings here aligns with industry trends of consolidating assets for better operational efficiency. Investors should understand that the mentioned production of 1,700 boe/d adds immediate output, but the true value lies in the potential drilling locations identified. The industry-standard terms like 'proved' and 'probable' reserves suggest a strong resource base, albeit one that requires further investment to realize fully. The 103 locations on trend with their Clearwater Dawson development indicate Obsidian's confidence in their geological assessment and the potential for enhanced recovery techniques. This positions Obsidian well for future growth, albeit with the usual risks associated with oil price volatility and regulatory hurdles. The advisories note regarding drilling locations highlights the need for capital planning and market conditions to be favorable for these prospects to materialize.

Calgary, Alberta--(Newsfile Corp. - June 26, 2024) - OBSIDIAN ENERGY LTD. (TSX: OBE) (NYSE American: OBE) ("Obsidian Energy", the "Company", "we", "us" or "our") is pleased to announce it has closed its previously announced acquisition of approximately 1,700 boe/d (100 percent oil, based on April 2024 actual production) of Clearwater production and 148 net sections of land in the Peace River area (the "Acquisition") from a third-party (the "Vendor").

Total consideration paid for the Acquisition was approximately $80.5 million (inclusive of liquids inventory and closing adjustments) with an effective date of May 1, 2024. The cash consideration for the Acquisition was funded from our syndicated bank facility and a $50 million term loan (the "Term Loan"), which matures in June 2025.

"We're pleased to have successfully completed this strategic acquisition that provides further upside and optionality within our Peace River operating area," said Stephen Loukas, Obsidian Energy's President and CEO. "With our expanded holdings in the region, we have identified ~200 total locations on these lands, of which 103 (including 49 proved plus probable locations) are on trend with our successful Clearwater Dawson development on the Peavine acreage. The Acquisition provides us further optionality both within our 2024-2026 three-year corporate growth plan, as well as beyond."

ADVISORS

Royal Bank of Canada, Bank of Montreal and Canadian Western Bank provided the Term Loan financing related to the Acquisition.

RBC Capital Markets acted as exclusive financial advisor and Burnet, Duckworth & Palmer LLP acted as legal advisor to Obsidian Energy with respect to the Acquisition.

ADDITIONAL READER ADVISORIES

DRILLING LOCATIONS

This news release discloses proved and probable drilling inventory obtained from the Vendor's Reserves Report in addition to internal analysis and account for drilling locations that have associated proved and probable reserves. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors.

OIL AND GAS INFORMATION ADVISORY

Barrels of oil equivalent ("boe") and barrels of oil equivalent per day ("boe/d") 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.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "budget", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "objective", "aim", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: the expected term of our Term Loan; our upside and optionality beliefs in the Acquisition as we progress on our 2024-2026 three-year growth plan and beyond.

With respect to forward-looking statements contained in this document, the Company has made assumptions regarding, among other things: that the Company does not dispose of or acquire material producing properties or royalties or other interests therein other than stated herein (provided that, except where otherwise stated, the forward-looking statements contained herein do not assume the completion of any transaction); that regional and/or global health related events (such as the COVID-19 pandemic) will not have any adverse impact on energy demand and commodity prices in the future; global energy policies going forward, including the continued ability of members of OPEC, Russia and other nations to agree on and adhere to production quotas from time to time; our ability to qualify for (or continue to qualify for) new or existing government programs created as a result of the COVID-19 pandemic or otherwise, and obtain financial assistance therefrom, and the impact of those programs on our financial condition; Obsidian Energy's views with respect to its financial condition and prospects, the stability of general economic and market conditions, currency exchange rates and interest rates, and our ability to comply with applicable terms and conditions under the Company's debt agreements, the existence of alternative uses for Obsidian Energy's cash resources and compliance with applicable laws; our ability to execute our plans as described herein and in our other disclosure documents, including the three-year growth plan, and the impact that the successful execution of such plans will have on our Company and our stakeholders; future capital expenditure and decommissioning expenditure levels; future net operating costs and G&A costs; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future hedging activities; future crude oil, natural gas liquids and natural gas production levels, including that we will not be required to shut-in production due to low commodity prices or the further deterioration of commodity prices or inability to access our properties due to blockades or other activism; future exchange rates and interest rates; future debt levels; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including extreme weather events, wild fires, infrastructure access and delays in obtaining regulatory approvals and third party consents; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; our ability to obtain financing on acceptable terms, including our ability (if necessary) to continue to extend the revolving period and term out period of our credit facility, our ability to maintain the existing borrowing base under our credit facility, our ability (if necessary) to replace our syndicated bank facility and our ability (if necessary) to finance the repayment of our senior unsecured notes and Term Loan on maturity or pursuant to the terms of the underlying agreement; and our ability to add production and reserves through our development and exploitation activities.

Although the Company believes that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions, or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements contained herein will not be correct, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: Obsidian Energy's future capital requirements; general economic and market conditions; demand for Obsidian Energy's products; and unforeseen legal or regulatory developments and other risk factors detailed from time to time in Obsidian Energy reports filed with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission; the possibility that we change our budget in response to internal and external factors, including those described herein; the possibility that the Company will not be able to continue to successfully execute our business plans and strategies in part or in full (including our three-year growth plan), and the possibility that some or all of the benefits that the Company anticipates will accrue to our Company and our stakeholders as a result of the successful execution of such plans and strategies do not materialize; the possibility that the Company is unable to complete one or more of the potential transactions being pursued, on favorable terms or at all; the possibility that the Company ceases to qualify for, or does not qualify for, one or more existing or new government assistance programs implemented in connection regional and/or global health related events or otherwise, that the impact of such programs falls below our expectations, that the benefits under one or more of such programs is decreased, or that one or more of such programs is discontinued; the impact on energy demand and commodity prices of regional and/or global health related events, and the responses of governments and the public to any pandemic, including the risk that the amount of energy demand destruction and/or the length of the decreased demand exceeds our expectations; the risk that there is another significant decrease in the valuation of oil and natural gas companies and their securities and the decrease in confidence in the oil and natural gas industry generally whether caused by a resurgence of the COVID-19 pandemic, the worldwide transition towards less reliance on fossil fuels and/or other factors; the risk that the financial capacity of the Company's contractual counterparties is adversely affected and potentially their ability to perform their contractual obligations; the possibility that the revolving period and/or term out period of our credit facility and the maturity date of our senior unsecured notes is not further extended (if necessary), that the borrowing base under our credit facility is reduced, that the Company is unable to renew or refinance our credit facilities on acceptable terms or at all and/or finance the repayment of our senior unsecured notes or Term Loan when they mature on acceptable terms or at all and/or obtain new debt and/or equity financing to replace one or all of our credit facilities, Term Loan and senior unsecured notes; the possibility that we breach one or more of the financial covenants pursuant to our agreements with our lenders and the holders of our senior unsecured notes; the possibility that we are forced to shut-in production, whether due to commodity prices failing to rise or other factors; the risk that OPEC and other nations fail to agree on and/or adhere to production quotas from time to time that are sufficient to balance supply and demand fundamentals for crude oil; general economic and political conditions in Canada, the U.S. and globally, and in particular, the effect that those conditions have on commodity prices and our access to capital; the risk that wars and other armed conflicts adversely affect world economies and the demand for oil and natural gas, including the ongoing war between Russian and Ukraine and/or hostilities in the Middle East; industry conditions, including fluctuations in the price of crude oil, natural gas liquids and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed (including extreme cold during winter months and hot during the spring and summer months, wild fires and flooding); the possibility that fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to hydrocarbons and technological advances in fuel economy and renewable energy generation systems could permanently reduce the demand for oil and natural gas and/or permanently impair the Company's ability to obtain financing on acceptable terms or at all, and the possibility that some or all of these risks are heightened as a result of the response of governments and consumers to public opinion and/or special interest groups. Additional information on these and other factors that could affect Obsidian Energy, or its operations or financial results, are included in the Company's Annual Information Form (See "Risk Factors" and "Forward-Looking Statements" therein) which may be accessed through the SEDAR+ website (www.sedarplus.ca), EDGAR website (www.sec.gov) or Obsidian Energy's website. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

Unless otherwise specified, the forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update or revise any forward-looking statements. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Obsidian Energy shares are listed on both the Toronto Stock Exchange in Canada and the NYSE American in the United States under the symbol "OBE".

All figures are in Canadian dollars unless otherwise stated.

CONTACT

OBSIDIAN ENERGY
Suite 200, 207 - 9th Avenue SW, Calgary, Alberta T2P 1K3
Phone: 403-777-2500
Toll Free: 1-866-693-2707
Website: www.obsidianenergy.com

Investor Relations:
Toll Free: 1-888-770-2633
E-mail: investor.relations@obsidianenergy.com

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/214495

FAQ

What did Obsidian Energy acquire in June 2024?

Obsidian Energy acquired Clearwater production assets and 148 net sections of land in the Peace River area, amounting to approximately 1,700 boe/d of oil production.

How much did Obsidian Energy pay for the Peace River acquisition?

Obsidian Energy paid approximately $80.5 million for the Peace River acquisition.

How was the Peace River acquisition funded?

The acquisition was funded through Obsidian Energy's syndicated bank facility and a $50 million term loan maturing in June 2025.

What is the strategic significance of Obsidian Energy's acquisition in Peace River?

The acquisition provides further upside and optionality within Obsidian Energy's Peace River operating area, fitting into their 2024-2026 corporate growth plan.

What is the total production capacity acquired by Obsidian Energy in Peace River?

Obsidian Energy acquired production capacity of approximately 1,700 boe/d (100 percent oil).