Thoughts about OBE Q4 and Full Year 2023 ResultsOn Feb 22/24, OBE released its Q4/23 and full year 2023 results.
Earlier in the year, on Jan 9/24 OBE provided an operations update.
My first thought is how do they compare?
PRODUCTION
On Jan 9/24 OBE estimated its 2023 production to be about 32,500 boe.
"We expect our full year 2023 average production to be approximately 32,500 boe/d based on preliminary estimates (at the top end of our 32,000 boe/d to 32,500 boe/d guidance range)," Jan 9/24
Today, the actual 2023 was 32,275 BOE. That is about 200 ish less than the guided number from Jan 9 (44 days ago).
My first impression is on Jan 9/24 they should of had a good idea about their own production (up to Dec 31/23). So how did they get that wrong after the fact? Their 2023 estimate was on Jan 9/24? I don't know. Some of their production comes from other operators (Whitecap), so maybe on Jan 9/24 they were guessing what their share from Whitecap would be in Dec 23 - maybe - I don't know, I'm speculating.
Now I'm curious about each quarter in 2023.
Q1/23 average production was 33,153 boe
Q2/23 average production was 31,042 boe
Q3/23 average production was 32,937 boe
Q4/23 average production was 31,947 boe
To get an average 2023 production of about 32,500 boe, Q4 needed to be about 32,870 ish - in reality it was 31,947.
ie, Q4/23 was about 900 ish barrels short per day. I suspect that may be too much to be explained by their whitecap share.
Elsewhere in today's Q4/23, 2023 results, OBE stated production reached
"34,000 boe/d in December 2023"
They don't give specifics - so that may of been an exit rate; it may of been a single day in December; it may of been the average in Dececember. I suspect it was a day rate - at or near the end of December.
If OBE was at 34,000 BOE sometime near the end of December, then all is forgiven, and there were apparently some choppy production rates in Q4/23.
If the Jan 9/24 ~32,500boe 2023 forecast was human error - hopefully that error has been elimated, and will never be seen again.
CLEARWATER
Today's update increased the disclosure about their Clearwater results from Dawson, on pad 13-23.
On Jan 9/24, we were given IP13 rates. This is unusual, and I attribute it to only having 13 days of data at the time to share.
The IP13 numbers were
"The two (2.0 net) wells at the Dawson 13-23 Pad were brought onstream on December 19 with a pad peak rate of 558 boe/d (100 percent oil) and an average IP 13-day rate of 375 boe/d (100 percent oil) post clean-up. On an individual basis, IP 13-day rates were 228 boe/d (100 percent oil) and 147 boe/d (100 percent oil)." Jan 9/24
Today's information provided the IP30 rates.
"Since our last update, the 13-23 Pad had a pad peak rate of 558 boe/d (100 percent oil) with individual well IP 30-day rates of 226 boe/d (100 percent oil) and 126 boe/d (100 percent oil), respectively." Feb 22/24.
Not much of a difference between IP13 and IP30 numbers - both look like satisfactory Clearwater wells. We will find out how they decline over time - hopefully like other Clearwater wells. This looks like a solid start for Dawson.
OFFICE LEASE
Today OBE reminded the market that their "onerous" lease commitment is approaching its end. To put this in context, OBE is a reorganzied Penn West.
The reorganization involved reducing debt, selling assets, reducing costs (cutting staff etc), etc etc - when the bulk of this was done, they were left with leased office space greater than their needs. Worse yet, the local market was not conducive to sub-leasing.
And then came covid. Lenders were uncomfortable lending, and OBE was in a pickle. OBE's leadership rose to the occasion, and found a way through. That period of financial distress enabled OBE's management team to renegotate the lease - but as I understand it, it was still an excess and heavy burden - which has been carried in their financial statements as "onerous lease" (or words to that affect). Finally this heavy financial weight is coming to an end. In today's NR, OBE stated
"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, we expect cash savings of approximately $8.5 million per year at the commencement of the lease." Feb 22/24
This sounds like the last bit of the Penn West reorganization, and it will be done at the end of Jan 31/25 (about 11 months from now).
An $8.5 million burdon per year has been a lot for OBE to carry. That is about 11c per share. An extra $8.5 million in cash flow. Or about 1/3 of their annual Asset Retirement Cost (ARO).
It looks like the annual lease cost is going from about $10 million per year down to about one and a bit million! (that is the sort of saving a good reorganization brings).
HEDGING
Nothing new today - OBE has excellent gas hedges that are mitigating the present low gas prices, and will continue to do so until the end of the summer. They also have lesser Nat gas hedges for next winter.
They get bonus points from me for not having sold oil forward into 2024. In 2024 I'm seeing lots of signs of a tightening oil situation - if that unfolds as it appears to me, then I want a company that is able to reap the full benefit of those higher prices.
CASH FLOW
Q4/23 cash flow was $117.7 million.
Q4/23 funds flow from operations was $97 million.
Im curous about the difference. Lets see if we can find out why!
The difference comes from an increase of 30.3 million change in non-cash working capital in Q4. That is a fancy way of saying accounts payable increased more than accounts recievable over the period. This sounds like what happens when you contract for various services (drilling for example), and have a period to pay the bill once the work is completed (30-90 days, whatever is contracted). When drilling slows down (Spring Break-up for example), the reverse occurs.
This means the working captial deficit increased.
On the subject of FFO per share - compare how OBE stacks up with others. Whitecap for example has a similar share price with FFO per share of about 77c. OBE had about 1.23. That means OBE's FFO per share was about 60% more than Whitecap, while their share price is fairly similar. Thats about 60% more bang for the buck!
DEBT
They basically have three kinds of debt
Credit Facility (Credit Line)
Unsecured Notes (Debintures)
Working Captial Deficit
The credit line and debintures are their offical debt. Its notable this total dropped as of Dec 31 2023 vs 2022. From 232.6 million down to 224.9 million.
The following statement is also worth noting.
"Subsequent to December 31, 2023, the Company repurchased for cancellation an additional $1.2 million principal amount of senior unsecured notes on the open market at an average price of $1,016 per $1,000 principal amount, resulting in a total of $116.2 million senior unsecured notes currently outstanding"
Misc other stuff
OBE has other income - I wondered what that might be, and found the following
"Other income includes $7.2 million in road use recoveries for 2023 (2022 - $6.9 million)."
That seems like quite a bit of money others are paying to use OBE's roads!
Final thoughts
First, double check the above if you feel like relying on any of it (secretaries don't seem to be a thing any more, and stockhouse doesn't come with a spell checker).
Second, all I really care about is OBE's goal of getting to 50,000 boe in 2026 from 32.275 boe in 2023. They say they touched 34,000 in Dec/23. Thats a good start. They should be quite a bit ahead of that presently, and by Q2/24 well on their way. I'm keeping an eye out for confirmation that the train has left the station. Is 34,000 in Dec that indication? Its a good suggestion. I think confirmation will come in Q1/24's results, and confirmation of that in Q2/24's results. If those numbers build significanlty on 34,000 boe, then the train has gone.