Additional thoughts regarding Q1/24Yesterday Obsidian Energy published its Q1/24 results, and held a web based Presentation followed by Questions and Answers.
The oral presentation can be found on OBE's web site. I encourage those interested to listen to it themselves. I heard it live, and then played it again this morning.
A few more thoughts came to mind.
Last year they drilled a batch of Viking wells during Break Up. The Viking area is accessable during break up, and drilling rigs tend to be available at a discount at this time of year.
This year, OBE has a batch of Viking wells licensed to drill, but during the Q@A they said they do not intend to drill them this break up. Translation - if oil jumps, this situation may change, but if oil stays in its recent range (high 70's - mid 80's), then they won't be drilling these wells during break-up.
It follows they will be paying down debt (working capital deficit) at maximum speed through Q2. How much will naturally depend on sales prices. April oil prices were in the $80's. Heavy oil differentials have declined with TMX going through line fill, and now production. The first few days of May have seen WTI dip into the high 70's. I suspect this won't last long with shoulder season ending and driving season about to start.
They said they will be drilling in Clearwater through Q2. They currently have an active rig one of their Dawson Clearwater pads. These wells take about 2 weeks each. Apparently they may keep this rig drilling from the same pad through break up. The other four drilling rigs they've been using are presently down for break up.
In otherwords, capex will be minimal in Q2.
Given the number of wells that come online in Q2, production may hit a new high for Obsidian (ie over 36,500). Combine that will high prices, and minimal Capex, and you get a lot of Q2 debt reduction.
They have a lot of drilling projected for Q3 and Q4. Which means bringing their working capital deficit down as much as possible during Q2 so they can re-extend it in H2 as needed.
The Q2 report is starting may look like Q1 - but with a lot more production; a lot more FFO; a lot more income; and a lot less debt.
And maybe quite a few less shares - they've been active with the NCIB (share buy back), and Q2 FCF generation should put them in a position to continue that strategy.