Q1 2023Q1 2023 is now complete.
It was an ugly quarter. From an investors point of view, it was characterized by OBE and WTI testing and bouncing off near term lows.
WTI got into the US$60's and OBE into the C$7's.
What does that mean for OBE's Q1/23 performance?
AND (more importantly)
Is that performance already in the share price?
Mgmt has given us some clues. On Jan 30/23 OBE put out a News Release in which they gave OBE's Funds Flow from Operations sensitivity to various price changes.
| Variable | Range | Change in 2023 FFO ($ millions) |
| WTI (US$/bbl) | +/- $1.00/bbl | 8.6 |
| MSW light oil differential (US$/bbl) | +/- $1.00/bbl | 5.5 |
| WCS heavy oil differential (US$/bbl) | +/- $1.00/bbl | 3.1 |
| Change in AECO ($/GJ) | +/- $0.25/GJ | 3.2 |
We know what FFO was in Q4/22, and we know what the average prices were then.
It follows that if we look at the difference in the above prices between Q4/22 and Q1/23, and apply the above sensitivities, we should get a rough idea of how FFO has changed from the prior quarter. (note this will not account for changes in volume - ie it assumes volumes are similar from Q4/22 to Q1/23. In reality, Q1/23 should have higher volume that Q4/22. This increase is an unknown. If its positive, then the actual Q1/23 FFO should be higher than indicated here).
WTI US$/bbl $82.56 vs $76.05 Difference is 6.51
MSW Light oil differential (US$/bbl) $2.96 vs 2.01 Difference is 0.95
WCS Heavy oil differential (US$/bbl) ($27.91) vs (19.78) Difference is 8.13
Change in AECO ($/GJ) $6.02 vs $3.25 Difference is 2.77
The AECO number is complicated by the existance of hedges.
| AECO Swap | October 2022 | | | 26,065 | | | 4.74 |
| AECO Swap | January 2023 – February 2023 | 14,976 | 23% | 6.18 |
| AECO Swap | March 2023 | 31,562 | 48% | 4.58 |
From these hedges, it looks like the post hedge price in Q4/22 and Q1/23 were about 5.47 vs 3.91 with a difference of 1.56
Applying those changes to the sensitivities we get (they must be divided by 4 to make it a quarterly number)
WTI -6.61 x 8.6 = -56.85 million
MSW Diff -0.95 x 5.5 = -5.23 million
WCS Dif 8.13 x 3.1 = 25.20 million
AECO 1.56/0.25 x 3.2 = -19.97 million
Added together it is -56.85 (this would be the difference if it applied to a whole year). It applies to one quarter, so the change on FFO from Q4/22 to Q1/23 (assuming volumes unchanged) is about -$14.21 million.
The FFO in Q4/22 was $110.5 million
Applying the above price changes, suggests FFO in Q1/23 of about $96.29 million.
To repeat what I wrote above, this assumes volumes are unchanged between the quarters. This is unlikely.
In Q4/22 average boe volume was 31,742 boe.
Q1/23 average boe volume should be higher than Q4/22. This number is presently unknown.
Q4/22 production was reduced/delayed by cold weather - ie expect a bounce back in Q1/23.
Q1/23 production may easily of been 4% higher than Q4/22. That will increase the Q1/23 FFO by an unknown about, but at least 4%. That would put it close to $100 million ish.
Now for the important part - what does that mean for the share price?
IF we use the above $96.29 million in FFO and 82 million shares, that is about $1.17 FFO/share in Q1/23. (if volume increased to about 33,000 boe, then its abotu $1.22 FFO/share)
Annualize $1.17 in FFO/share, and you get $4.68 FFO/share.
The closing price on March 31/23 was C$8.63
That is 1.84x annualized Q1/23 cash flow (assuming no increase in volume from prior quarter).
1.84x FFO is a very low number. (comparables are in generally in the 3's)
All told, product price wise, we just went though a bad quarter (probably the worst quarter of this year).
The share price is trading about 1.84x FFO. This assumes product prices do not increase through the rest of the year. (ie based on the low product prices witnessed in Q1/23)
Given the current low FFO multiple, it appears the poor product prices of Q1/23 are currently baked into the share price.
The above are back of the envelop applications of sensitivity information provided by OBE. The intent here, was to get a rough idea of how bad Q1/23 is going to be when the Q1/23 numbers are released.
AND
To get a feel for what impact that report may have on the current share price.
Instead of doing this on the back of an envelop, I did it here on stockhouse. There may be errors above (I've not proof read this). I've answered my questions to my own satisfaction.
It seems to me that Q1/23 is likely to come it at around $100 million in FFO.
It seems to me that the current share price is trading at about 1.8 ish times Q1/23
To me, that means two important things.
1. Even thought Q1/23 was bad, OBE probably still had FFO of around $100 million
2. We don't know what Q1/23 capex was, but I'm assuming it was about $100 million. ie, even in a bad Q1/23, with OBE spending aggressively on capex, they still likely matched FFO to capex!
3. The current share price is rediculously cheap (in absolute and comparable terms) based on really bad Q1/23 product prices. ie, all the Q1/23 bad product price news is already in the share price.
Note that as of this date, the WCS differential has continued to contract.