Obsidian Energy Ltd (OBE) 2024 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to Obsidian Energy 2024 Annual and Special General Meeting Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Steven Lucas, President and CEO. Please go ahead.

Thank you. Good morning to all, and thank you for joining today's call for restart. I'd like to first point out that we will refer to forward-looking information in connection with Obsidian Energy and the subject matter of today's call. By its nature, this information contains forecast assumptions and expectations about future outcomes so we remind you it is subject to the risks and uncertainties affecting every business, including ours. Please refer to the disclosure at the end of the presentation, along with our public disclosure filings available on both SEDAR plus and EDGAR systems for a full discussion of significant factors and risks that could affect Obsidian Energy or that could affect future outcomes for the Company.

With that, I'd like to turn your attention to page 3 and would like to walk you through a very quick corporate overview. Our assets are world-class, and our team is experienced and delivering value for 2024, we are estimating approximately 36,000 BOE a day of production at the midpoint of our guidance.

That translates to approximately 12% year on year growth. Our production mix is estimated to be approximately 65% oil liquids with the balance being natural gas at year end 2023 reserves on a 2P basis were approximately [194 million] barrels of oil equivalent. That translates into a reserve life index of approximately 14 years with a PDP decline rate of approximately 21%. Lastly, we have an advantaged tax pool position with approximately $2.4 billion in the year end tax pools.

Just looking at our balance sheet, we have approximately 76.6 million shares outstanding translate into a market capitalization of approximately $905 million with $386 million net debt as of course, as of quarter end, March 31, that translates into an annualized FFO rate of approximately 1.1 times. And we would anticipate that that number will come down significantly quarter end as of June 30, given increased cash flow and debt repayment, that in summary, that translates into an enterprise value of approximately $1.3 billion.

Turning to page 4, just to quickly walk you through our strategic advantages and what differentiates Obsidian Energy from its peers. There are a couple of key points, one with a top-quality assets, which which translates into a diversified portfolio of low decline oil weighted assets with approximately 14 years of reserves across both light and heavy oil production mix.

We have a number of established core core areas which provide sustainable resource development and translates into stable production and cash flow. We have significant amount of exploration upside, which we are pursuing via our programs in both the blue-sky and the Clearwater in our Peace River play with stable finance positions and the ability to self-fund the growth profile while also providing the return of capital to shareholders, which we have aggressively done so via share buyback program last week, that technical excellence, which in the way of proven expertise and knowledge search, subsurface assets, drilling techniques and operational design that managed to improve our efficiencies and returns through capital operating cost reductions. Additionally, we're committed to strong ESG practices to improve people people's lives and minimize the environmental impact that we have in the areas that we operate.

Turning to page 5, our strategy is multi-pronged and can be described as follows. We have a goal of driving per-share growth via production growth, share buybacks and debt reduction. Our intent is to use our free cash flow from our light oil assets to invest in our Peace River heavy oil growth asset.

And we've outlined a plan to aggressively grow production to approximately 50,000 BOEs by 2026, representing a three-year CAGR of approximately 16%. And lastly, we intend to accomplish all that while maintaining prudent leverage with an estimated 2024 net debt FFO ratio of sub one times.

Turning to page 6, just to focus on a number of highlights that are occurring during 2024. As previously outlined, we intend to deliver 12% production growth. We anticipate our per-share production growth will be even greater.

Given our active share buyback program. We intend to generate free cash flow at the commodity price assumption that we have outlined, that will translate into stable debt levels. And we believe the cumulative impact of that, we'll only increase our production of shareholder value.

From an operational perspective, our intent is to spend approximately $345 million to $355 million in capital expenditures with an incremental $25 million, which includes an incremental approximately $25 million for exploration and appraisal.

Our growth is weighted towards our Peace River asset. We've been actively developing and de-risking our blue are walrus Blue Sky, and we've fast tracked our development within our Dawson Clearwater play. We've drilled a number of OC. wells to further test our acreage across both formations and we'll have more to say that say about that in the second half of this year.

From a financial perspective, we continue to reaffirm our FFO goal of approximately $400 million at our at the outlined commodity price assumptions, we repurchased and canceled approximately $3.2 million of our senior unsecured notes during the quarter.

During the quarter, we also expanded our debt capacity to further enhance our liquidity via the expansion of our credit facility by approximately $20.0 million to 260 million. Additionally, over the during the quarter, we purchased and canceled approximately 1.05 million shares, spending approximately $10.5 million, and we renewed our NCIB into 2025. And with that, I'll turn it over to our CFO, Peter Scott, who will walk you through 2024 guidance straight.

Thanks, Steve. Good morning, everybody. And yes, I'll give you a little bit more detail on our guidance here. As you can see on slide 7, on the left hand side, we're giving you some of the inputs and outputs on the right hand side, we're showing you the heavy oil and light oil, a breakdown of our business.

So as Steve mentioned, we're looking for from the midpoint of our guidance, 12% growth in production. That's 36,000 BOEs a day, you can see the range there from 35 to 50 to 36. 750. Drawing your attention to the right, you can see that's made up of 85 hundred BOEs a day of heavy oil, 27,500 BOE BOEs a day of light oil production growth is coming primarily from the heavy oil side of our business in Peace River, but we are also growing some light oil production volumes in terms of capital expenditures, as Steve outlined, the way that's broken down to the heavy oil business is about $180 million and then about $165 million light oil business.

The difference between the three 15 midpoint is just some other corporate capital expenditures. And in terms of the heavy oil business, it will be a net user of cash. We are investing in the heavy oil business to grow that production and reach it to a critical mass point, which will probably happen later into 2025 crossing into 2026.

And we're funding that with the light oil business, which you can see generate significant amount of free cash flow at the of $185 million. So translating that corporately using $75 WTI we do expect to generate $400 million of funds flow from operation and free cash flow of $27 million.

Again, that's at a $75 WTI price that would translate into net debt at the end of the year of about $315 million or a leverage ratio of 0.8 times. So again, below that one times target that we're looking for at the end of the year. And from a sensitivity standpoint, obviously, given our oil and liquids weighting, we are pretty sensitive to WTI prices at the bottom of the chart, you can see a $1 change in WTI is almost $7 million. This is for the last nine months of the year because obviously, Q1 is already actuals.

And you can see for the light oil differential at Edmonton, it's $4.7 million. And then for heavy oil, it's $2.4 million. So again, very sensitive to oil prices, which gives us lots of leverage to the upside in prices going forward.

Just drawing to your attention to the graph on the bottom right on how our production growth through the year. Obviously, with Q1, we have grown production from Q4. We expect it to continue to grow in Q2 and that'll come down slightly in Q three as the capital spending is much lower in Q2 due to spring breakup and then start to build again in Q4 and which is reflected in that graph.

So next slide. So just looking how we're doing in Q1 specifically, as mentioned, production of 34,238 BOEs a day, obviously growing from where we were in 2022 and 2023. And you can see on the graph on the right hand side, how that production has built back from 2021 and the line on that graph shows you how it's grown per share. Capital expenditures were $114 million in the quarter, a busy quarter for us, which it traditionally is following on from Q4 as well as again with decommissioning expenditures. Again, that's due to access a winter access areas. We're being active, solid cost performance on net operating costs down from where we were previously in '22 and '23, well within our guidance.

And then looking at G&A, it is up a little bit here in Q1 at $1.77 per BOE we have been adding staff as we've been executing on our capital program. We do expect this number to come down on a per-BOE basis, as I just showed you with production continuing to grow and expect that to fall within our range that we had on the previous slide.

Funds flow from operation was $84.4 million, and we did were a net user of cash as expected in the quarter of $40 million plus the $10 million of buyback that did bring net debt to $386 million, which is up from year end. But again, as expected, a net debt to funds flow ratio, as Steve mentioned, of 1.1 times, both debt and leverage levels will come down as we go forward here. Q2 is a very light capital quarter and we expect it to fall with the increase in production and increasing cash flow as prices have also been stronger than where they were in Q1. And the chart on the right hand side, you can see how net debt's come down from where for 2020 and with that I'll turn it over to Jay.

Yes.

Thank you very much, Peter. I'm Jamie Gilbert, the Senior Director of Development at Obsidian Energy is my pleasure today to speak to you all about our first half development exploration programs and also the year ahead. This first half of 2024 is the start of the ambitious three year growth plan that both Steve and Peter have been speaking to and will reference throughout the presentation today, we ran five active drilling rigs in the first half of 2024, two in our Cardium assets, Pembina and Willesden Green and three in Peace River focused on Blue Sky and Clearwater development and exploration. In January, when we presented our proposed guidance, we plan to drill 30 total wells in the first half of the year. And we are just establishing strong Clearwater production results and including the first well in seven to 13 pad, which produced an IP 33 hundred and 12 BOEs per day at 100% oil.

We saw these results as an opportunity to accelerate our first half activity. And as a result, we've increased our first half budget of 30 gross operated wells to an accelerated plan of 34. We will drill these four additional Clearwater wells in Dawson in the first half year and we'll have a drilling rig actively drilling Clearwater wells throughout the second quarter. We also completed at least one more Cardium well than initially planned. And the table on this slide reflects these changes.

Additionally, while I will speak to some of the new drilling results throughout the first quarter, it's important to note that in April alone, we have brought on 17 operated and 1.4 net non-operated wells, many of which are displaying promising early days of production, but are too early to speak to at this time. While it's early to speak, to most of these, it's worth noting that the pace of activity over the last month has been very significant.

On Slide 10, front and center in our 2024 budget is the increase in the scope and scale of our investment in the Peace River heavy oil asset discovery of our walrus BlueScope field, combined with the emergence of the Clearwater play into the region is a catalyst of our three-year growth plan. If you follow closely of Sydney's journey in the asset over the past few years are increasing land position and infrastructure footprint have been apparent and it continues to expand. We have increased our development opportunities and assured capacity growth, increased facility and sales point options behind the scenes, we've stepped up with an incredibly strong technical team who've led our renewed exploration appraisal program on the assets throughout the last year. At the start of the year, we released preliminary well results of these efforts in walrus, we have just brought on our second major blue-sky pad with six wells also in cleanup. We are continuing with our vertically stacked development pilot on this pad. We showed very promising results on a 13 and 19 pad next door in Q4, with the STACK development design come significant drilling inventory reserve adds and improved capital efficiencies from the shared surface facilities will be optimizing this pad in the weeks ahead.

On slide 11 in detail on our first half program, beyond the 15 of 19 six well development pad and Wallace the first 2024 results in our blue sky program come from our 80 28 pad drilled in Harmon Valley south. The two-well pad came on production in early April stepping back into portion of the reservoir that we size underperforming in the past, the wells are displaying an average IP per well IP 25 per well of 533 BOE per day or more than double our type curve expectations. We are now pivoting to plan for additional follow-up locations in the second half of the year from this pad.

Second part of our H1 activity was our exploration and appraisal appraisal programs. This starts with the five vertical oil sands evaluation wells denoted by the yellow dots on the map again, reservoir information and perspective, new areas. The program is focused on coring multiple zones in the blue, Sky and Clearwater throughout our acreage. We're very pleased with the results of this program, which delineated meaningful reservoir extensions in multiple areas of the Peace River acreage.

The second part of our active exploration program is our Woodstock drilling, where we focus on Clearwater opportunities in our Napa acreage up in the Northeast for Woodstock well, we drilled and cored initial vertical Lake to evaluate the reservoir prior to kicking off into multi-leg horizontal well. This has the benefit of gathering key reservoir data and also optimizing horizontal placement of the future drilling well, while still providing a productivity test from a horizontal well in late February, we released the first of these results on our NAP of six to 28 pad, which displayed in IP. 15 of 210 BOE per day and 16 degree API oil before being shut in due to surface or stripping restrictions due to breakup.

The second well itself, Napa was unfortunately access limited before testing was complete and we'll need to re-access the pad was freezing conditions allow again later in the year.

Diving into more detail on our Clearwater asset. We now have added this slide give you more detail on our Dawson area. We are currently drilling our eight Clearwater well in Dawson. And as stated before, we saw exceptional results from our South Dawson seven to 13 pad at the end of last year. So in H1 2024, we drove each of the offsetting wells to 7 to 13 one on either side. And while those wells have only been on production for six days. We are encouraged by the promising early results. At the end of H1. We will have drilled 11 wells in this acreage and proven up that difficult inventory for continuous development program on this asset going forward. At the northwest corner of the field, we drilled the orange dot OIC. well, a vertical oil sands evaluation core well. This is and there is emerging Clearwater industry activity in this area that follows along that greater Dawson trend. And we plan to follow up with horizontal producing wells later in 2024 here as well.

On to Slide 13 at Peace River is our growth catalysts. Our light oil assets are the engine of the Company. Our Cardium position is the best in the basin with core acreage throughout both Pembina, Willesden Green, the heart of the Cardium, the Cardium has been around for decades. The significant book locations proved the development of these assets still has a significant runway in our growth plan. Cardium remains the foundation of our growth were strong, repeatable economic results at the bottom. The page of Viking is not currently in our 2024 plans, but we keep an entire program ready should it be needed for the eight wells we drilled at the very end of 2023, six of them made the top 15 Viking well list in at least one analyst report for February. Those wells offset the 11 wells drilled in early 2023, which identified some of the top Viking producers in the entire basin last year. If commodity prices and need present themselves, we can layer in Viking activity at any specifically on slide 14, our Cardium play our Cardium development continues to provide dependable economic results and a deep proven reserves inventory of 200 plus locations visible in the production. The purple production wedge graph is our track record of consistent three-year growth of these assets.

As a bullet point highlights, we've completed detailed reservoir models on all of our primary Cardium assets to provide confidence on these opportunities well into the future. In the first half of this year, we drilled the 14 and 15 follow-up well to the 11 to 15 well in open Creek on the nine 17 pads. These results are highlighted on the right hand side of this page. The original 1115 was one of the top Cardium wells drilled last year and the 14 to 15 and initial results are showing very promising. Encouraging similarities. This portion of our field has not seen significant horizontal infill drilling, but a strong well has opened the door going forward and they're over 20 promising gross book locations of follow-up and open Creek as part of our light oil drilling portfolio, specifically on Slide 15 and our first half program, we are currently down for breakup and no additional drilling is taking place at this time. But we are still continuing completion operations in South Willesden Green three new pads have come on production in the Cardium in April. And we as we went into detail one of these on the 90 17 pad on the previous slide. Additionally, the two A 13 three-well pad in Crimson. So 90 10 to 321 BOE per day per well and the six and a three well pad. And Pembina has shown an IP. 10 of 366 BOE per day per well and a comparatively strong results across our entire Cardium acreage, while we always maintain strong inventory of drill-ready locations in the Cardium.

Additionally, we also pursue non-drilling very economic projects in our historical waterflood assets. And we successfully converted three additional injector wells in the first half of the year to reduce trucking costs and maintain our low decline. First half of 2024 has displayed strong results across all the fields and formations in our portfolio. We have a balanced exploration program with strong development results as our pace continues to increase with our growth plan. This campaign represents a strong foundation which you can build upon.

With that, I'll pass back over to Peter to provide details about the value of our taxes.

Thanks, Dave. Appreciate that. So on Slide 16, we're trying to give you some information about our tax pools, which I think is obviously a very important asset that we do have that probably not really appreciated by the market. In total, we have about $2.4 billion of tax pools. As you can see on the right hand side of those, about $1.8 billion are immediately deductible. So other words can be used to shelter our free cash flow. I think this is important because as you're probably seeing with some of our competitors, they are becoming taxable at these prices. And with these tax pools, this will allow us to shelter that free cash flow. And if you look at our three year plan, you can see we have free cash flow each year, but really building in 2026 months of the Peace River asset reaches that critical mass. And so that's important to be able to shelter that and be able to save that cash tax payments that would otherwise build.

Just to give you I tried to contextualize it for you on a on a per-share basis. If you look on the left hand side, we're showing if we use those tax pool that either are $200 million to up to a $500 million per year rate and what that would translate into a value. We've used an 8% discount rate because the tax pools are certain and so we can use them. And so that's why we've used a lower discount rate there, but that translates into $435 to up to $559 per share. So some pretty significant share value that we get to attribute go forward as we see these cash taxes.

The bottom part of the table just assumes if we were able to immediately deduct all those $1.8 billion tax pools, it comes up to about 654 a share. So needless to say, important asset that we have will be able to shelter our taxable income for many years go forward, which is a benefit for all of us.

So next slide, just looking at our reserves excuse me, our reserves really underpin the value of the company. What we're showing you here is the three different reserve categories proved developed, producing 1P and 2P and then at different price decks. So USWTI. $65 flat, $75 flat and $85 flat. And from that, you can see we get a range of value of $1.1 billion up to $2.8 billion in the 2P case.

And so that will allow you to triangulate our reserve value based on perhaps a price deck that you might be looking at on the right hand side, we're translating that into our per-share value on a net basis. So taking off our debt and when you look at that, you can see on the top chart that when we when we made this graph, our share price was [$1181].

Our PDP. valuation essentially is there or higher on a 1P base or sorry, on the 1P and certainly on a 2P basis. And then when you look at the 1P and 2P being layered on, you can see a share price underlying that anywhere from nine oh nine up to $30 per share. So suffice it to say, I think Arch, our reserve book certainly underpins the value of our share price doesn't include any of the upside that we have for all of the undeveloped inventory that's not included in our reserve.

Last point on this graph is just our growth in reserves on a volume basis as you can see with each category, we've grown those over the last three years and more importantly on a per share basis that you can see on the line graph and with that, I'll turn it back to Steve to conclude.

Thanks, Peter. I'll turn your attention to page 18 and why and why investors should investments in energy one, low-decline oil-weighted asset base with significant underlying reserves. Our strategy is focused on growing future production and per share metrics with an expectation to continue to return capital to shareholders as well as further reduce debt leverage levels.

We trade at a significant discount on both the reserve value and cash flow multiple basis when compared to our peers. We've been active with our share buyback program through our NCIB, we've purchased and canceled approximately 8% of shares outstanding between late between May of last year and May first, 2024, which translates to approximately 6.4 million shares and $60.6 million in capital expended.

And we renewed our NCIB share by ship by buyback program for another year. We have significant taxable position, which allows Obsidian Energy to be a noncash taxpayer for approximately 10 years, assuming $75 WTI. And lastly, we're dedicated to making a positive difference to the environment, stakeholders and the communities where we live and work.

And with that, that concludes our prepared remarks, and we'll pause and we'll start the Q&A session shortly.

All right. Thank you very much, gentlemen. My name is Susan software, which I am Investor Relations for Obsidian Energy. And we will start our Q&A session. So if anybody on the web can present your questions, please submit them. But in the meantime, we will start with some questions that came in previous to today. And the first one is regarding our Q1 2024 production on several questions about the estimates in February versus average production on a little bit lower for them for a quarter of what happened to affect the production in Q1, what's the appropriate production of appropriate production now and overall, why was it lower?

Thanks for the question, Susan?

Yes.

So we put out our press release in February about where current production was, which was based on field estimates about 36,500. If you remember, January was very cold. We did have a negative production impact in January with wells coming on. That obviously came up in February. We didn't have many wells coming on post that timeframe. They've come on in April, as Jay has described. So production did decrease somewhat in March, and that's how we get to that average, we are expecting production to increase in Q2, as I outlined in my remarks. And again, a slight dip in Q3 and then increasing again in Q4. So obviously, with the amount of wells that we have coming on at various times of the year is what really impacts the production.

Thank you. And we also have a question around around our three year growth plan that we announced around seven months ago. Since then, we've drilled exploration, infill and new area wells in walrus.

Now at Dawson, what have we learned and how has the knowledge changed our strategy for increasing Peace River production?

Yes, I'm happy to take that. I think as we've outlined in our press release, that we feel confident enough to pull forward our production and our drilling activity within data center, specifically the Clearwater. And we've been limited in that regard. I'm very happy with what we're seeing a little blue sky in a broadly defined. We've got full confidence that we will achieve kind of our plan. I think it's fair to say that we're a lot more confident the ultimate potential of the asset is greater than what we've stated and we'll have more to say in the quarters to come.

Thank you for your questions to the financial aspects with oil prices currently exceeding projections.

And in the $80 WTI range, how do we intend to deploy surface plus funds? Are considerations be made for dividends, stock buybacks or further expansion endeavors?

Yes, from our perspective, I don't think you'll see material change in our strategy. We've been active in the way of a share buyback program. And I would anticipate that that would continue and we've been very upfront and consistent that we see better uses for our capital than paying a dividend at this juncture that may be appropriate down the line. But right here right now, we don't think it's appropriate. And as it stands, I mean, our growth plan is on the aggressive side and we don't have any intention of expanding upon it in the immediate near term.

Thank you. Following that up regarding the share buybacks, besides the semi-annual cash flow sweep requirements, will we consider dedicating 100% of free cash close to the NCIB.

I think the way to think about it is world, we will dedicate our free cash flow where we think we get the best bang for our buck in regards to creating shareholder value. And that so happens to be the NCIB. then so be it. But if there's other opportunities that present themselves and we're also going to consider those. But I think it's fair to say that, you know, we've proven that you know that we are serious when we say that our shares were worn are undervalued and were prepared to buy them back.

Can I say that commodity prices, what is the impact of low natural gas prices on overall earnings per share for the quarter?

For the quarter. So on a sensitivity basis, natural gas prices are on Slide 7 of that presentation if you want to go back there. So a $0.25 change per GG. is approximately $1.5 million of funds flow from operations. And for us in the quarter, natural gas prices were probably but pretty close to our budget.

It was it wasn't a material impact on the quarter's a marginal negative. And then we've got the sensitivity on a go-forward basis outlined in the presentation. So you can make a fairly a fairly accurate and I guess on what the impact would be, albeit we have our budgeted price assumption also outlined in our guidance.

Thank you very much.

A couple of questions. Around our Viking asset, which Jay, who responded to questions about planning to drill Viking this summer like last year and what would cause our mind do you sell or is it too late as well as you know, are we looking at to increase the production of actually up to 5,000 BOE per day?

Yes. I mean, it's not too late to join the summer if we were to so choose to, um, you know, I think it's fair to say that some investors have extrapolated our intention to do so because they've seen us license wells on Friday that be a faulty observation. I think it's fair to say that we're constantly in a state of readiness regards to ensuring that we have portfolio optionality and I think right here right now, we're very happy with the results that we're getting both in our heavy oil assets as well as in the Cardium and some in a way our intention would be to not drill in the Viking.

Thank you.

Next question is around around our Cardium assets. One investor wants to know more about the outcome of the deeper drilling initiatives undertaken in the target area council to go more. They would appreciate insights on one of Obsidian notable strength, its reserves.

Sure.

As it pertains to the deeper Cardium program. We did have a small campaign that was two-pronged in the deeper formations within the Cardium. One was just reentry recompletions of existing vertical wells that we had a very successful program. And then we did have a modest drilling campaign with a vertical well. And really what's happened within our portfolio is that the emergence of the Clearwater and the economics associated with that has really just supplanted the value proposition for how we spend our exploration dollars. So well, that still is part of our portfolio. It's part of there, and we're still going to look at optimization opportunities within that. It's just not part of our current go-forward plan in terms of exploration.

Thank you and have a bit of a falloff in ad requests if we have any results from the Cardium wells offering, unlike camp.

Sure.

On the PC. 11 side, which is the bulk of our non-op activity and you see from the slide presentation. We have 20 non-operated wells within PC. 11. We expect about 12 gross wells to be drilled in the year, of which we are just under 45% working interest for this year. Only one of those wells has reached a meaningful IP30 in terms of production days, but we're seeing 349 BOE a day from that first well and we're excited about some of the early indications on the next two.

Great. Turning to the our capital program, after spending $114 million in the first quarter and 84 K through 12. Are we expecting to revise 2020 for CapEx? And what type of CapEx are we expecting for Q2?

I would not anticipate a material revision to CapEx at this juncture. But we're constantly tweaking CapEx as we make our way through the year. But I think it's fair to say that our guidance stands our initial guidance stands, and we won't really comment on Q2 specifics other than the fact that Peter has outlined that Q2 tends to be the on the seasonal low in the way of capital expense expenditures. And by extension, you should anticipate significant free cash flow generation.

Looking at our hedging book, a couple of questions around the fact that we've added some April oil hedges for swaps and collars and then May was lower. Any specific reason for starting of hedging in April in April and drop down? Is there any desire to hedge if we see $85 again?

Yes.

I mean, look, we're not going to comment on month-by-month activity. I think it's fair to say that we've been upfront about the fact that mid-80's is a very attractive price, and that's something that we would pursue. I think it's also fair to say that prices were not 85 bucks for May were in a backwardated market. And I think you might have gotten there for one day only in so far as if it was there for a prolonged period of time. And we missed it.

Great. Thank you.

On recent Pembina wells are better than in the past, but it operates in PCU eight, 11. How many potential PCU can be added on ARM.

So on page 11 is operated by Whitecap. Obsidian operates a probably north of 20 units, actually independent that are subdivided. So there's quite a few beyond just the two. So we're constant looking at opportunities, but are because of the extent of our footprint in the area of really what we're looking at is small consolidation opportunities within Pembina, not necessarily big unit tack-ons. We own the bulk of the primary reservoir already in that asset.

Great.

Thank you. And we got one question regarding compensation from Obsidian Energy and if there's plans to attract fresh talent or revise existing remuneration policies to better align with the company.

Yes.

And I think it's fair to say that we feel quite confident with them, the quality, technical team and as well as the other, the other facets of our organization from a human resource perspective, as we outlined earlier, we have staffed up that did translate into slightly higher G&A during this quarter. We anticipate that will come back down on a per-BOE basis as we grow production and we're feeling very confident as it relates to the quality that we have. And I'm very confident that our pay practices are in line given the very low attrition that rates that we've suffered over the last couple of years. So very comfortable in that regard.

Great. Thank you. And another question is, could you shed some light on the financial ramifications stemming from the completion of the new BC West Coast Pipeline project, understanding its implications on our financial landscape would be greatly beneficial.

Thanks.

Thanks for the question. Simply referring to the Trans Mountain expansion, which I think is operational now or imminently as it laid out in the presentation with sensitivities, the impact for us is really on the WCS differential, which we are expecting to narrow in Q2 one, that differential was $19.33 U.S. per barrel. Currently, I think it's trading at around $12 U.S. per barrel for us, a dollar change in WCS on an annual basis. Remember in the presentation, that's on a nine month basis on an annual basis is about 4 million. Our funds flow for operations. So where we're sitting today, that $7 change is almost about 30 million of funds flow from operations courses, production grows in the Peace River area that sensitivity, that 4 million will start to increase.

Thank you.

Good.

Turning to our drilling costs, are you seeing much drilling cost reduction with the pad design you're currently using?

Yes, absolutely. Our drilling cost reductions kind of coming on twofold. One is the scale of which our operations are taking place. The more scale, we add more wells per pad. The average well cost is reducing, but also as you progress up that Clearwater learning curve, our wells are getting faster and more efficient so we're seeing that cost come down, tangibly thinking

what is the potential impact on Afinion if Alberta's gas storage fills to its maximum capacity later?

Yes.

Thanks again for the question. The way we've set up our gas marketing operations, we feel confident that we would be able to still produce our gas, which means the impact to us on a production basis should be nothing or very minimal at best. And as a result of that, because of that, if that gas is associated gas, we're still able to produce all our oil. Obviously if storage fills, gas prices will go down. But we are fairly well hedged on the gas side through the summer. So we feel we're reasonably well protected on that front.

Thank you very much.

At this point, there are no more questions being asked online or on the webcast on. Steve, would you like to fill?

Sure. Just want to thank everyone for their participation and interest in Obsidian Energy. Look forward to talking to you soon.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.