Thoughts on Obsidian Energy's Jan 15 waterflood applicationOn January 15, 2025 Obsidian Energy submitted an application for an enhanced oil recovery scheme on 1 ½ section of their Cadotte heavy oil field.
I’ve read the application. Here are my thoughts and my summary.
It is described as a water and surfactant flood (Waterflood)
Obsidian proposes to inject water to pressurize the zone and sweep oil from a single injector to the offsetting producers. One of the original wells, will be converted into the injector.
Waterfloods are typically used to maintain steady production (reduce annual oil production declines)
They can also be designed to bring old, end of life wells, back to their former glory.
These 1 ½ sections are estimated to contain about 2.3 million barrels of recoverable oil per section.
The oil wells in these 1 ½ sections are 13 – 19 years old.
These wells have already recovered almost all of the estimated recoverable oil
These end of life wells, currently produce between 4 – 19 barrels of oil per day, per well.
These wells initially produced as much as 346 bbls/day in their best month. For much of their lives, they appear to have produced in the 50-100 bbls oil/day range.
Obsidian predicts the proposed Waterflood will add another 2.3 million barrels of recoverable oil per section
If follows that this is not an attempt to stabilise current production. It is an attempt to rejuvenate these wells back to their former, higher production rates.
It will be very interesting to see how these old, end of life wells respond to this Waterflood.
If it is successful, and goes as predicted, it will demonstrate that OBE can increase its recoverable heavy oil from ~5% of the oil in the pay zone, to ~10%.
This appears to be a test case, with little downside. The affected wells are already at the end of their life.
Summary
If successful it may mean
1. Increased production at low cost
2. Increased reserves (proven producing, proven or probable)
3. It may give these wells another 13-19 years of life – thereby pushing back their restoration date and expense further into the future (lower present value of Asset Retirement Obligation, aka ARO).
4. Allow OBE to return some of the water produced by other wells, back to where it came from.
None of this appears to presently be in the share price.
These are my thoughts. I may be wrong. Please read the application yourself, and draw your own conclusions.
Sinerely,..................