What to expect from OBE's 2023 ForecastOn June 16/22 OBE published a preliminary forecast for 2023.
That forecast is based on WTI of $95 and AECO of $5
OBE's price forecast isn't a forecast of what the actual WTI and AECO prices might be.
Instead they need to use current prices or current 2023 strip prices in their published 2023 forecast. Or better yet, use a range of prices to give investors a range of possibilities based on different WTI and AECO prices.
Presently WTI is about $80 and AECO is about $5.50.
The June 16/22 forecast had adjusted Funds Flow of $662 million.
So what will that number be if we change the WTI price from $95 to 80. And what will happen if we change the AECO number from $5 to $5.50.
We can't figure it out exactly, but we can get a rough idea of what it will look like.
OBE's 2023 estimated production (from June) is: 13,850 bbl/d light oil, 9,200 bbl/d heavy oil, 2,835 bbl/d NGLs and 69.8 mmcf/d natural gas
Lets assume OBE decides to stick to those targets (this is an assumption, because at current prices, they may choose to increase light oil (and associated products), and put less into heavy oil.
That means 2023 adjusted funds flow would be somewhere around $130 million less.
ie, instead of $662 million is may be closer to $532 million.
They forecast about $265 million 2023 cap ex.
That suggests at $80 WTI and $5.50 AECO free cash flow may be around $267 million ish.
Thats about $6.5 adjusted funds flow per share (assuming they don't use any of that free cash flow to buy back shares - which is an assumption unlikely to be correct. The more shares they buy back, the higher this FFO per share becomes. For example if they buy back 10%, then the FFO per share would be about $7.1 per share.
These are rough numbers, and they may be off by $10 - 20 million, but in the scheme of things, that error don't make much difference.
Back of the envelop math suggests OBE is currently trading at about 1.5X next years forecast FFO per share, using current oil and gas prices.
That is likely to be made public knowledge when OBE comes out with their 2023 forecast mid this month (ie in about 10 days, or a week and a half).
Particularly note the free cash flow in the $267 million range (aka a quarter of a billion!).
The industry standard has quickly become to return 75% of this free cash flow to owners.
That means something like $200 million to be returned to 82 million share holders (through share buy backs and dividends). That is $2.40 ish per share (at current share prices).
All of which makes OBE look pretty attractive at currenly unattractive oil/gas prices.
Those who like to make their own WTI and AECO forecasts for 2023 can factor in such things at the completion of the Trans Mountain pipeline expansion (end of 2023) - ie higher oil prices in Canada. The expansion of US LNG export capacity in 2023 - ie higher natural gas prices in US and Canada. Return of China to the oil market, and continued reduction in Russian oil production as their slow down in drilling starts to reduce their production capacity.
I was thinking that OBE's mid December 2023 forecast might be a negative given it would be a reduction of their June 2023 forecast. However after crunching a few numbers to get a feel for what an $80 WTI 2023 forecast looks like, it looks pretty good. It has the potential to have a positive impact on the share price.