Obsidian Energy Ltd (OBE) 2019 Q1 法說會逐字稿

Good morning. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Obsidian Energy 2019 First Quarter Conference Call. (Operator Instructions) Thank you. Mr. Kyle Doucet, Corporate Planning and Investor Relations Lead, you may begin your conference.

Good morning, everyone, and thanks for joining with us. This morning, we will be discussing our 2019 first quarter financial and operational results. The format of this call will be audio only. With me this morning and speaking on the call is Michael Faust, President and Chief Executive Officer; David Hendry, Chief Financial Officer; and Aaron Smith, Senior Vice President of Development and Operations. The rest of the leadership team is also in attendance.

Before I turn over the call to Mike, I'd like to point out that we will refer to the forward-looking information in connection with Obsidian Energy in the subject matter of today's call. By its nature, this information contains forecasts, assumptions and expectations about future outcomes, so we will remind you, it is important to -- we'll remind you, it is subject to the risks and uncertainties affecting every business, including ours. Please refer to our public disclosure filings available on SEDAR and EDGAR systems for a full discussion of significant factors and risks that could affect Obsidian or could affect the future outcomes for Obsidian Energy.

Go ahead, Mike.

Thanks, Kyle. Good morning to everyone on the call, and we certainly appreciate you joining us today.

On our year-end conference call, I spoke about our path to creating significant and sustainable shareholder value. This year is starting off on the right foot with strong operational results and increased cash flow versus the previous quarter. In the time since our last call, I've gotten to know our team more in depth, and I can see 3 areas that I will focus my entire attention towards.

My first priority is maintaining our strong momentum in the Cardium, which continues to yield very strong results ahead of our expectations. We beat our prerelease production targets set forth in the quarter, and Aaron will discuss that in a few minutes in detail. I certainly intend to keep that focus, ensuring our team resumes development activities with the same attention to safety, focus and vigor following our spring breakup. We'll be constantly looking for ways to improve our performance and deliver the full potential of our Cardium asset.

Secondly, Dave and I are focusing on strengthening our balance sheet by ensuring that we are spending within funds flow from operation and looking for ways to monetize our noncore assets to reduce debt. Lastly, I've asked my team to conduct a very thorough review of our cost structure to identify any and every area in which we can make improvements and ultimately bring down our costs.

This initiative will include streamlining internal processes, improving operational productivity and also enhancing capital efficiencies. You will hear more from us on this subject at the upcoming AGM as we complete our review and put specific plans in place to make this happen. These 3 items are fundamental to our success as a business and improvement of shareholder value.

I'd like to now hand the call over to Dave Hendry, our CFO, to discuss our Q1 2019 financial highlights.

Thanks, Mike, and good morning. The first quarter of 2019 resulted in a strong start to the year with funds flow from operations coming in at $36 million, a $38 million increase from the previous quarter. The increase in FFO was largely driven by stabilized Canadian light and heavy oil differentials and improved WTI prices, with differentials averaging $4.85 and $12.22 per barrel, respectively, in the quarter. This was underpinned by a strong field netback of $28.08 per BOE in our Cardium area, an increase of $16.87 per BOE compared to the previous quarter.

In the first quarter, our capital spend totaled $34 million, which included 5 development wells in our Crimson area plus completion activities to bring the remaining wells on production from the company's 2018 capital program and various optimization activities.

Overall, production for the quarter averaged 27,651 BOE per day, beating our prerelease targets for the quarter. The production beat was attributable to our Cardium development program's strong production rates and was achieved despite the considerably colder temperatures experienced in February.

G&A costs for the quarter came in at $5 million or $2.01 per BOE and operating costs at $34 million or $13.49 per BOE despite the extreme cold weather across Alberta in February causing increased power and repair and maintenance costs.

After taking a pause on hedging over the past few quarters, management and the Board set forth a conservative hedging strategy that will provide protection for our cash flow and capital program while still allowing our shareholders to benefit if commodity prices continue to rise. As part of our hedging policy review, we are taking a more structured approach and plan to enter hedging contracts on a Canadian dollar basis to limit foreign exchange exposure and where liquidity exists, hedge Canadian differentials to protect wellhead pricing.

As such, the company began layering in a conservative oil hedge position of Canadian dollar denominated WTI fixed-price swaps for the second half of 2019. We will continue to build upon our current position and start to layer in additional hedges for 2019 and 2020, assuming favorable pricing.

As at March 31, 2019, net debt was $497 million, which includes $378 million drawn on our syndicate credit facility and $80 million of senior notes. This resulted in a senior debt to adjusted EBITDA of 2.9x, which is well within our amended covenant of 4.25x.

As Mike mentioned earlier, the strength of our balance sheet is a top priority for the company, recognizing the need to be disciplined with our spending and reduce overall debt. We will seek to monetize our noncore properties if market conditions are favorable and allocate potential proceeds between the balance sheet and development activities in the Cardium in a responsible manner.

I will now pass the call to Aaron Smith to discuss our operational results.

Thank you, Dave, and good morning, everyone. The first quarter of 2019 brought the 9-month 19-well drilling campaign in the Cardium to a close, with the next phase of the program to resume after spring breakup. The short-cycle light oil program continues to deliver strong results, which has averaged initial production rates over the first 30 days of 538 BOE per day per well at approximately 85% oil for all of 19 wells.

Of the 2019 wells that we have drilled to date, we are particularly excited about our 12-18 3-well pad, which has averaged initial production rates over the first 30 days of 620 BOE per day per well at approximately 83% oil. The 12-18 pad is the furthest north pad drilled in the Crimson area to date, further proving the consistency of our Cardium asset to the north, where we plan to drill 4 more wells in the second half of 2019.

I have been very pleased with the smoothness of our operation, which has allowed us to keep our costs low despite the extremely cold weather in February that Dave mentioned earlier. The average drill, complete, equip and tie-in costs of all 19 wells came in at an average of $3.8 million per well and without any major safety or environmental incidents. We are taking this time now during spring breakup to work through -- work with our service providers to help further streamline our processes and efficiencies to further reduce our drilling costs.

We are also reaffirming our focus on the short-cycle light oil and highest-margin asset in our portfolio, the Cardium. As such, we have elected to remove $7 million of capital previously earmarked for 2 Deep Basin wells and reallocate that capital by adding 2 additional wells in our Crimson asset. We plan to drill these wells offsetting the first 19 wells drilled in the area.

The total planned capital of $120 million for 2019 remains unchanged, with the Board approving a second half 2019 capital spend of $45 million, which includes decommissioning expenditures. Of the approved second half capital spend, approximately $50 million will be allocated to drilling 13 primary Cardium wells in our Crimson asset. While keeping within our commitment to spend within funds flow, should pricing allow, we have the ability to add additional wells towards the end of the year, accelerating our growth profile in 2020.

We will now open the call up for Q&A.

(Operator Instructions) And I don't see any questions in the queue at this time. I will turn the call back over to Mike Faust for closing remarks.

Thank you very much. As I've mentioned at the beginning of the call, we are absolutely headed in the right direction. The first quarter, I think, is an excellent demonstration of what we are capable of. We're positioning ourselves with the right financial and operational flexibility that's required to enhance shareholder value. We will continue to find ways to make improvement in every area of our company, and we look forward to discussing this all at the AGM.

Thank you, everyone, for taking the time with us this morning. Hope you have a great day. Take care.

Thank you very much, ladies and gentlemen. This concludes our call today. You may now disconnect.