Obsidian Energy Ltd T.OBE

Share price in perspective.

[JohnJBond]

Here is a look at the Q2/22 FFO for OBE and three similar companies.

OBE $1.91 FFO/share   (share price $10.29)

BTE  $0.61 FFO/share   (share price $6.69)

CPG $1.04 FFO/share   (share price $9.88)

SGY $0.94 FFO/share   (share price $9.24)


You may notice that SGY, CPG and OBE all have similar share prices in the $9's and low $10's.    Also notice that OBE has about double the FFO/share as the other two.

Look at BTE.     OBE has 3.1x more FFO/share in Q2, but OBE's share price is only 1.5X higher.

ie, OBE is trading at about half the price as the other 3!

Its one thing to be off the pack by 10-20% - but when you are half price, you know that isn't going to stay like that for long.

Take a closer look at BTE - yesterday they announced a similar intent as BTE - to reduce their debt until they get to a 1X debt ratio for a much lower oil price (in OBE's case, they picked $50WTI, whereas BTE picked $45WTI - essentially the same idea).

OBE views its target debt at $225 million, and expects to hit that number in Oct or Nov/22.

BTE views its target debt at $400 million, but doesn't expect to get there until 2024!!!!

Once they hit that "bullet proof" debt level, then returns start to flow to shareholders

It will be interesting to see if OBE gets much of an analyst boost in the morning.

Those funds holding BTE, CPG or SGY, or all the others similarly priced, may start to wonder if they should move those funds into OBE, thereby getting similar oil/gas exposure for half the price.

One bit of food for thought.    TSX companies can buy back upto 10% of their public float in a 12 month period.   With OBE's share price so cheap, mgmt may be able to reduce it from 82 million to 75 million ish.    Thats $70-80 million ish at todays prices.    At $15/share, its $105 ish million.

It may be a wise idea to start that Normal Course Issuer Bid ASAP - if only because once you've bought back 10% of the public float - they'll have to wait for 12 months before they can do it again.

If I were on the Board, I'd be thinking about getting the NCIB approved now - rather than wait until OBE's debt gets to $225 million.

[Tim14235]

have to pay that term loan first

[JohnJBond]

An NCIB on its own, does not require the company to buy anything.     However once approved, there is a limit on how much can be purchased over the next 12 months. If the Term Loan prohibits a NCIB, then thats a different matter. The Term Loan will be part of the debt paid down to get to $225.   As of today's NR, the total debt is $287.6 million The term loan

[Hendrick3]

John, I agree that this may be the cheapest well performing company I have ever seen. One factor I think contributes to this is an irrational fear of the ARO obligation they hold. In times of $30 oil price and $$500 million debt and undiscounted ARO of $500 million, it wasn't worth much. The reason of course is that in a bankruptcy the ARO would be provided for first in a liquidation as per

[JohnJBond]

Agreed. Companies tend to have about a 2 year trauma period post reorganiziation - ie when a public compan goes through a bankrupcy reorganization - in which the equity holders get wiped out, and the debt holders end up as the new equity holders - it takes about 2 years before the shares of those companies start trading at comparable multiples. OBE didn't go through that.   However

[Spanito]

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[masfortuna]

Hi John.  I worked through he numbers myself and I came to the same conclusion. I did this 18 months ago when DEBT was a possible problem. If oil did not stay elevated for 2 years OBE would not make the cut.  If on the other hand oil prices could stay elevated, obe will be extremely fruitful.  I rolled the dice and here we are at a 500% increase in sp. Debt will no longer be a

[Spanito]

This post has been removed in accordance with Community Policy