Thoughts about OBE's Sept 30 News ReleaseAfter the market closed on Sept 30/24, OBE published its latest News Release.
Here are my thoughts.
As previously announced last September, OBE is in the process of increasing its production to about 50,000 boe, from the low 30,000’s.
It’s now a little over a year later, and OBE has reached some important milestones. One of the more obvious, being averaging about 40,000 boe in August.
Initially the 50,000 target was expected sometime in the second half of 2026.
OBE recently indicated this 50,000 target may be reached in the Spring of 2026 (several months sooner than initially expected).
The September 30 news release can be summarised in three words - More for Less.
OBE has found more oil than it expected, and raised its forecast 2024 production average.
One of the advantages of finding more oil than planed, is you don’t need to spend as much to find it. That is the other part of the Sept 30 news release. OBE announced it expects its 2024 capex to be about $15 million less than expected.
When you spend $15 million less than forecast, you can use that money elsewhere. OBE announced it will be using this money to reduce debt and buy back shares.
Elsewhere in the news release OBE said they will be drilling less Cardium wells, and more Clearwater wells in Q4. Translation, they are moving Capital Expenditure from Cardium to Clearwater.
The Clearwater wells have a lower finding and development cost, and a lower Capital Efficiency – ie one new barrel of Clearwater oil costs less than a barrel of Cardium oil. Spending money were you get the best return is how you get More for Less.
In my earlier thoughts I pointed out that OBE is a cash cow. I asked that OBE spend this cash wisely. Getting More for Less, is my definition of spending cash wisely.
While getting More for Less is great news, there is something else.
In Q3/23 – ie about a year ago, OBE produced just under 33,000 boe (32,937 boe to be precise).
In August / 24, about a year later, OBE produced about 40,000 boe. That is a 21% increase. Sounds great!
BUT in my view, that 21% is misleading.
OBE has three production areas
1. Viking
2. Cardium
3. Peace River
The first two are not growing.
The growth is coming from the Peace River (Bluesky and Clearwater heavy oil wells)
In Q3/23 OBE produced 6,260 bbls of heavy oil. As of mid September, OBE’s heavy oil production was apparently about 11,600 barrels. The reference for this is a job add OBE placed on Linkedin about 2 weeks ago for a Heavy Oil Exploitation Engineer. This add stated that Peace River production was about 12,400 boe. My understanding is about 800 of this is gas, and the rest oil – ie about 11,600 barrels of heavy oil.
6260 bbls to 11,600 bbls, is about an 85% increase.
Yes, that’s right, about an 85% growth rate in the first year.
When OBE gets to 50,000 boe (around the Spring of 2026), their heavy oil production is forecast to be about 24,000 bbls. That’s another 100% plus over the next year and a half ish.
From the outside, OBE may look like a company growing at 20% ish. But when you look a little closer, their production growth from the area they are growing, is much higher, ie around 70% plus.
When you separate the static Cardium and Viking areas, you have a Clearwater / Bluesky heavy oil producer growing at 70% plus!
Now compare that with their competitors in the Clearwater / Bluesky heavy oil area – Headwater, Spur, Baytex, Tamarack etc – some of which are priced 3-4X that of OBE. OBE’s production growth is much faster (as in several times faster).
Spur may be priced around $95,000 per flowing barrel, and Headwater may be priced around $75,000 per flowing barrel. I wonder how long OBE will be priced around $25,000 per flowing barrel, when OBE is growing those flowing barrels much faster?
More for Less - and a much higher production growth rate than the others.............I like the sound of that.
That's what I was thinking about today. I may be out to lunch, so please check my numbers yourself to see if I missed something.
Sincerely………………