Obsidian Energy Ltd. (OBE) Q1 2025 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Obsidian Energy’s First Quarter 2025 Results and Annual General and Special Meeting Webcast. [Operator Instructions] The conference is being recorded. I would now like to turn the conference over to Mark Hawkins, Vice President, Legal. Please go ahead.

Yes, and thank you for joining us on our call today. First, I’d like to point out that we will be referring to forward-looking information in connection with Obsidian Energy and the subject matter of today’s call. By its nature, this information contains forecasts, assumptions and expectations about future outcomes, so we remind you that it’s subject to the risks and uncertainties affecting every business, including ours. Please refer to the disclosure at the end of the presentation, along with our public disclosure filings available on both SEDAR+ and EDGAR systems for a full discussion of significant factors and risks that could affect Obsidian Energy or that could affect future outcomes for the company. Thank you for your time. And now I’d like to turn it over to President and CEO, Stephen Loukas.

Thank you, Mark. Good afternoon, everyone, and thank you for joining today’s call. I would like to turn your attention to Page 3, where I’ll quickly go through a corporate overview. Our second quarter 2025 estimated production midpoint is approximately 29,200 BOEs a day, and that is pro forma for the sale of our Pembina assets, which we closed during the first week of April. Our production mix is approximately 72% oil and liquids. We currently have approximately 71 million shares outstanding as of April 30, which translates to a market capitalization of approximately $385 million. We have forecasted net debt of approximately $255 million at the end of the second quarter, which translates to net debt to FFO of approximately 1.1x. The map on the right basically dictates our production by geographic area, and you’ll see that it’s basically itemized across Peace River, our light oil business, which consists of Willesden Green, PCU #11 and our Viking position. Turning your attention to Page 4 outlines our strategy. Our strategy is to deliver superior shareholder returns, and it’s really driven by a couple of key pillars. One, the ultimate goal is to drive per share growth via combination of production growth, share buybacks and the reduction of debt. The strategy has been to utilize the free cash flow generation from our light oil assets and reinvest that into growing our Peace River asset. We always look to further grow the intrinsic value of the business via targeted bolt-on transactions farm-ins or potential activity at land sales. And we look to achieve all that via maintaining a prudent leverage position as well as having ample liquidity. Turning your attention to Page 5. We outline our strategic advantages. First, we have a high-quality asset base with an established light oil – with a number of light oil assets that provide stable production, free cash flow generation and also have a significant potential for future growth. We have not spent a lot of time talking about the growth potential of our light oil assets, but we certainly have the ability to do so in a market environment that is conducive to doing that. Additionally, as we’ve outlined over the last 1.5 years, our Peace River area offers substantial future production growth as well as the potential for EOR, which we have commenced an initial waterflood project in our Dawson field. We have additional upside via exploration, given the significant and substantial size of our undeveloped land position in Peace River. We’ve got a strong balance sheet, and we’re in a stable financial position. We have the ability to self-fund our growth while providing a return of capital, which we’ve chosen to execute via share repurchases. And we have a team that is strongly – is very technically adept, provides proven expertise and knowledge of our subsurface assets and is also very good on the operational front. Lastly, we’re committed to the highest health and safety standards. We’ve got – we would consider corporate governance to be a core competency, and we’re very active participants within the communities where we operate in. With that, I’ll turn it over to Gary Sykes to walk you through the subsequent slides.

Thanks, Steve. So, in these next few slides, I’d like to cover off on a reminder of some of the key attributes on our recent operated Pembina sale. So, as our stakeholders will know, we closed this transaction early last month for a total consideration of some $320 million. That consideration consisted of $211 million in cash after closing adjustments, which was deployed to reduce debt, approximately 9.1 million in-play shares, which represents around one-third of the outstanding shares of in-play and the acquisition of a 34.6% working interest in the Willesden Green Unit production Unit #2, which takes our ownership in this operated unit to close to 100%, where we have extensive future development plans. Just in terms of some of the key metrics, the disposition represented 10,300 barrels of oil equivalent per day as an average number for 2024, and we sold the asset for what we consider as full and fair value based on the recent present transactions and the strong 2.7 multiple that we achieved based on 2024 net operating income. Coming out of this transaction then at a high level, this strengthens our balance sheet in a material way and allows us an increased level of focus and optionality on our two key operated banner assets, being namely our heavy oil Peace River asset and our light oil Willesden Green position. Next slide, please. I drop down into some additional specificity around what we see as some – as the primary merits of the disposition. Post transaction, on an operated basis, we like the effective balance in production between our light and heavy oil positions at Willesden Green and Peace River, respectively. Beyond that, our operated Viking asset continues to provide good additional optionality in our portfolio, and we retain our working interest in the Pembina Cardium Unit #11 asset, which continues to provide stable and valuable contributions to our overall production mix. I’ve already talked about our use of cash proceeds to strengthen the balance sheet. So, let me move to a few other key characteristics, namely OpEx and ARO, or Asset Retirement Obligations. Here, on the OpEx side of the house, we see around $1.60 per BOE improvement go forward. Given the mature nature of Pembina and related to that maturity, a commensurate significant decrease of over 50% of our corporate asset retirement obligations such that we now have a very different ARO book, reducing our obligations on an undiscounted basis from $747 million to approximately $357 million. Finally, on this slide, and as mentioned previously, we’ve retained a material position in in-play as part of the transaction, which allows us exposure to potential future upside in addition to numerous options to crystallize value for existing Obsidian shareholders. Next slide, please. Okay, moving on, let me talk about some notable highlights in our year-to-date. From an operations perspective, we’ve been heavily weighted towards our heavy oil asset, where we had 5 rigs running in Q1. Primary objectives were threefold, namely: one, utilize the frozen ground conditions to access exploration and appraisal targets in both the Clearwater and Bluesky formations to further delineate our land base and build future drilling inventory. Two, approaching breakup conditions, pivot to existing strong inventory in established field areas; and number three, execute on our first dedicated Clearwater injection pilot. This is a 5-well pad in our Dawson field. two producers are online. One producer will be brought online shortly, and we are presently drilling the first of two dedicated water injection wells. Needless to say, we’re pretty excited about this pilot and the potential implications for future area development, in terms of a broader implementation of enhanced oil recovery technology. Just to finish off then on the financial highlights. As discussed, we completed the Pembina asset sale. We also completed our semiannual borrowing base redetermination with our syndicated credit facility for $235 million, with a note that we were approximately $30 million drawn on this facility immediately post the Pembina transaction closing. And then finally, we continued with our return of capital to shareholders commitment through the repurchase of some 3.5 million shares for a consideration of $24.5 million through May 6 of this year. With that, I will pass it over to Peter Scott, our CFO.

Thanks, Gary. I appreciate that. Good afternoon, everybody. I’ll take you through some of the results of the company for Q1. As a reminder, this does include the Pembina assets that we sold immediately post the quarter. And you can see that readily in the production profile in the chart on the right – there as well as see it on the net debt chart as well. So, just taking you through some of our results for Q1, it was a good quarter for us. Production was 38,400 BOEs a day. That’s up 12% over Q1 last year. The growth is all from heavy oil as we executed on our Peace River program. Capital expenditures for the quarter were $128 million. Q1 for us is usually a heavy capital quarter, as is typical. Last year, we were $114 million. So, again, still a pretty heavy capital expenditure level, decommissioning expenditures on ARO, $6.6 million. And as we look at our operating costs, they are up a little bit Q1 this year at $1,572 versus $1,391 last year. The reason for that is the Peace River activity and as the wells initially come on stream and we have more water handling there than is typical so we have higher water handling costs. With the Pembina disposition, we also had some land survey costs that we were required to update. And then to the benefit, actually, we had some lower power costs in the quarter. So, that helped us out on that front. So – but overall, a decent operating cost level. Just talking about G&A for a second. G&A came in at $1.61. Again, G&A is usually a little higher in the first quarter given all the benefits that are paid to the government, etc., which is early in the quarter as comparison last year, at this time, we were $1.77. So, G&A per BOE did come down. When we translate this into overall netback, pretty flat, we were $33 a BOE compared to $33.40 last year. This translated into funds flow from operations of $100 million. That’s up 19% over Q1 last year and 25% on a per share basis given the NCIB activity that we had. As I mentioned, with the heavier capital expenditures in the quarter, we were negative free cash flow of about $35 million, and we also did spend just under $10 million on our NCIB. As a result, our debt did go up to about $460 million from $411 million at year-end. A big part of that growth is also our build in negative working capital, which was up $50 million, and that’s a direct correlation to the higher capital spending that we have in the quarter. And as the normal cadence of that, that will come down in the second quarter as our capital expenditures go lower. In terms of leverage ratios, that represents 1.1x. Again, as you can see in that chart on the right, our debt does drop significantly with the Pembina disposition and estimated to be $255 million at the end of Q2. Next slide, please. So, now I’d just like to spend a little bit of time on guidance that we have for the rest of the first half, which is really focused on Q2. So that’s the column I’ll focus on, on this slide. And then you can also see on the right-hand side, we do have some heavy oil and light oil asset level characteristics broken out as well as some sensitivities to prices and economic factors. And just to point that out that those prices and economic factors, the level is really dictated because they’re just affecting May and June because April is already completed. So, looking at the quarter which is what’s really relevant because this is post the disposition. As a reminder, it does include six days of the Pembina assets that we sold. So, it’s not quite a clean quarter, but fairly close. So, in terms of a production range, we’re looking at 28,800 to 29,600. We’re only looking at spending capital expenditures of $37 million to $42 million. So, overall, first half capital expenditures will be down $15 million to $20 million from what we were originally forecasting. No real change to decommissioning expenditures. Our net operating costs will be coming down in Q2. The Pembina assets that we sold had a relatively higher operating cost. So, we will see that benefit start to happen in Q2. Our G&A does go up a little bit with the lower production base, but still a very solid level at $2 a share. Looking at the $60 WTI level, we expect FFO or funds flow from operations to be $60 million or $0.86 a share. We do expect to generate positive free cash flow in the quarter of $16 million. And as I have mentioned already, that takes our debt down to $255 million at quarter end or about a 1.1x debt to funds flow from operations annualized for Q2. Importantly, this does not include our value of in-play shares, which we have 9.1 million shares. Current valuation is about $60 million. So, that is not included in that number. Next slide, please. Just a little bit on the capital program before I turn it over to Jay for some details. As I mentioned, we have reduced the number of wells that we will be drilling. The wells that you see on here, the exploration appraisal wells, those were drilled in Q1. So those were already done. The light oil asset wells in Pembina, those were drilled in Q1 as well. They were also included in our statement of adjustments. So, in effect, in-play paid for those through the disposition process and then really the changes up in Peace River and the Bluesky Clearwater area, where we reduced the number of wells to be drilled by eight. As Gary mentioned, we will be doing the waterflood pilot program. But overall, you can see now that we will be drilling 30 wells instead of the original 38. And with that, I’ll turn it over to Jay McGilvary.

Yes. Thank you very much, Peter. As we move on to Slide 12, it represents an overview of our Peace River asset. First thing I noticed when I look at a map like this is that it can really fail to portray the size of the region. The map you look at on this slide is nearly 70 miles across, or for context, more than the distance of Calgary to Canmore. As a result, there are massive parts of this area that are yet to be explored. Following the consolidation of our ownership in Peace River in late 2021, Obsidian, after a thorough technical review of the established Bluesky play and the emerging Clearwater play, concluded that our Peace River asset contained a significant amount of unrealized value. The asset had previously been developed with a focus on future secondary recovery, and as a result, it had been over a decade since a meaningful round of exploration has taken place in the area. Since that time, we’ve not been alone in this conclusion and competitor activity has continued to increase. However, the foundational land position and our decision to move early have both been a definitive advantage for Obsidian. Our land position is now approximately 700 square miles, and we are working diligently to develop the value of this vast resource. That journey is best portrayed on Slide 13. The drastic increase in our land position is the most obvious overall change in the asset. We have taken an aggressive position on acquiring prospective land in the area, supported not just by our exploration program, but importantly, by the 15-year plus land tenure for the Peace River oil sands that allows us to retain this value for decades to come. Not easily seen in the table is our change in infrastructure and egress. We now own or have a significant working interest in the key gas plants and oil batteries in the area. This is a key strategic position given the gas conservation requirements for the area and necessary access to sales points. Our exploration and development programs have led to significant reserve additions in year-end 2024 from approximately 27.5 locations in 2021 to 16 2P locations. We have developed the Clearwater formation from test to over 4,000 BOE per day and 60% of our development program in the region, but we haven’t rested. Our land position continues to grow, this time through farm-in opportunities as part of our 2025 development program that we will discuss later. Our exploration program has had meaningful results that will lead to future drilling and reserve adds. We will discuss that program in more detail on Slide 6. Key challenge with Peace River exploration is seasonal access. The Peace River oil field starts in the West on a flat agricultural belt and stretches over 70 miles eastward across the flat force of Jackpine and Black Spruce. The region makes for easy and inexpensive winter exploration access, but is limited only to the coldest months of the year. We have to plan our programs with these limitations in mind, starting with any exploration we want to accomplish, then followed by development on all season areas of the field later in the quarter. As a result, our 5 drilling rig programs started in Q1 focused on testing and delineating our extensive land base. In total, we drilled seven exploration wells, all of which encountered good reservoir and produce hydrocarbons from often limited production tests while access allowed. In total, 5 of these wells produced at or exhibited cleanup profiles we consider very promising. This statement by itself doesn’t provide the full story, however. So, let’s take a closer look at two key areas of success. First, in North Nampa, where we drilled our second successful Clearwater well test in Q1. Our Northern Nampa land block is 50 contiguous square miles of land and prior to 2024 did not have a single horizontal production test. We drilled the first well of our 2024 exploration programs with an IP30 of 170 BOE per day and 16 API oil, very light regionally for the area. We drilled a second delineation well in Q1 of this year. The same story holds true for South Harmon Valley South exploration test. This winter, we drilled two exploration wells, including one vertical strat with stock on the southward trend of our established Harmon Valley South asset. Obsidian owns over 55 contiguous sections of land in the area on the same trend as this established field. Step back and consider this for a moment, this is a region that by last measure of the province has 135 billion barrels of oil in place and until this winter, no one has done a production test on the southern end of one of the most productive areas of the field. Why? The reason actually is not particularly complicated. When you drive to the Harmon South Valley South field, the main field is on the left-hand side of the road and no one has built a road to the right, yet. These two wells drilled in South HVS both encountered over 15 meters of oil pay in high-quality reservoir. We drilled 11 legs on the 15 and 15 well and cut the 10 and 27 wells short at eight legs, seven horizontal in a race against weather so we could start production. That takes us to our exploration results on Slide 15. Let’s continue that story on South HVS. We turn both wells on and produce for as long as possible while frozen conditions allowed. For 15 and 15, that was 41 days. And for 10 and 27, that was 31 days. While that may seem like a lot, you have to contextualize how heavy oil wells clean up. During the drilling process, you are continually losing fluid, mostly water to the reservoir. Generally speaking, the more porous and permeable the reservoir, the more water you lose while you’re drilling. When you start producing that well, the first thing you must produce is the fluid you put there. The water is lighter and more mobile than the viscous heavy oil, and it comes out first. Then you have to pull down on the reservoir through pumping and create a pressure delta between the well and the reservoir. Heavy oil doesn’t want to move on its own, and you have to create the conditions for that to occur. All of this takes time. We had more time on 15 of 15 than 10 and 27, and that shows in the published production rates. 15 of 15 reached a promising rate of 151 BOE per day at 83% water cut before being shut in, compared to 10 and 27, which had a peak rate of 69 BOE per day and a 95% water cut. This well has just started cleaning up prior to having to be shut in due to access. At these fluid rates, each 1% improvement in water cut equates to a nearly 14 barrel oil per – oil production change. Now factoring that this was an eight-leg well. The first leg was a vertical whipstock to test and find the formation and the remaining seven were horizontal production legs. So, it’s only 64% of the normal open hole of a typical Bluesky well. Finally, take the tracer results from that well, where we saw only two of the seven horizontal legs definitively producing oil at the last test prior to shut-in. So, while a peak rate of 69 BOE per day may not sound like a headline, the storing potential behind the well is far more exciting. Same holds true for our Clearwater results in Nampa highlighted on the page. We have now tested three distinct sands, all of which are some of the best oil quality in the region at close to or well above economic rates. Our North Nampa field has two wells: the first, the aforementioned 170 barrel oil per day and the most recent with an IP30 of 128 barrels of oil also at 16 NPI. Now take those results and step back out to an area as a whole where we started. We have now drilled four very promising wells in the Clearwater Bluesky on nearly three townships of land that have never been previously tested with a horizontal multilateral. That’s why we’re leaning into exploration in this area. We then followed up sequentially by balancing this approach with development drilling later in the quarter. In total, we drilled 19 development wells, the results of which are just starting to approach significant production days. We drilled 5 wells in North HVS, offsetting some of the best wells we drilled last year. We are extremely pleased with the early production results from all 5 wells, the longest producing of which is on 13 of 18. And while we prefer IP30s, unfortunately, we are making releases today, and it has an IP16 of 424 BOE per day. We see even more wells to drill in the area in the second half of the year when conditions are appropriate. We also drilled five earning wells in the Bluesky as part of our development program, which further increased our land position in areas we consider development ready. The first IP30s on the 16 and 9 in 414 pads at 138 BOE per day and 259 BOE per day gross validate this approach. Similarly, our Clearwater program, our first IPs of 229 and 222 BOE per day from the 423 pad are very strong. These wells were brought on production early on the pad through SOPs [ph], while drilling operations were still underway. We have five more wells in the early stages of production offsetting these two wells. So, while most of our production development program is still in the early days of production, we are definitely looking forward to our next updates with additional results to report. Finally, of note, and Gary touched on this, is our first integrated waterflood pilot in the Clearwater in Dawson. The pilot is designed to mimic the patterns of other successful waterfloods in the formation and other fields. It will be the first of its kind in Peace River, and as Gary went into detail, we are drilling the first injection well as we speak. Finally, not to be forgotten, our light oil assets remain three of the top quality light oil assets in our portfolio. The busiest of these in the – was in the first quarter was our PCU#11 non-operated asset in Northwest Pembina. This is a jewel for the area and was not part of the Pembina disposition. It is an underdeveloped asset in the core area of the Pembina oil field. Obsidian retained our 44% working interest and saw five wells drilled in the first half of the year by our partners. Additionally, while the disposition of Pembina assets were beneficial on many metrics, one key attribute Gary spoke to is that it consolidated our working interest ownership on the east side of Willesden Green, in Willesden Green Cardium Unit #2. Obsidian had not developed this portion of the field, primarily due to the previous lower working interest. Coincidentally, this portion of the Cardium field underlies the emerging Belly River play in an area where Obsidian has had considerable land base and drilling success on our first well. We have now designed a revised development plan in this area of the field that efficiently allows for shared pads and facilities between these two plays. Finally, we will always maintain a drill-ready inventory in our Viking play for opportunities when conditions favor potential light oil investment. Finally, my last slide, Slide #17, before I hand the presentation back to Peter, I will note that our Willesden Green asset always maintains a strong drill-ready inventory of gas-weighted optionality. Gas locations in both the Mannville formation and Cardium are executable should the macro environment dictate. This combined with the emergence of the Belly River play, where our first well showed continual production improvement, as highlighted here on the slide, allows us to toggle our portfolio to light oil or gas as required. The consistent ability to invest in these assets is best highlighted by that historical production graph on this page. With that, thank you for the time, and I will turn it back over.

Thanks Jay. So, I will turn your attention to Page 8, where I will quickly walk you through our reserves and our pro forma NAV value. Looking at the lower left-hand corner, you can see our pro forma reserves. That’s pro forma for the disposition of our Pembina asset, which occurred in April. I think the overarching takeaway is that even at a $60 WTI assumption, we continue to trade below our PDP value. Turning your attention to the right-hand corner, lower right-hand corner of the slide, you will see the growth in reserves, and that is as of year-end 2024, so it does encompass the Pembina asset. Looking at the upper right-hand corner, it’s basically our pro forma net asset value per share. That does include the market value of our in-place shares, which is approximately $60 million as of last night’s close versus our current share price. And you can see the discount that it trades to in various price scenarios as well as across a PDP, 1P and 2P basis. And with that, I will turn your attention to the final slide on Page 19, which is why invest in Obsidian Energy. There is a number of reasons for that. First, we have a strategy directed at unlocking the potential for both our heavy and light oil asset. The overarching goal is to basically drive production and funds flow per share growth, while continuing to return capital via share buybacks. We have a low decline asset base that is oil and liquids weighted with significant underlying reserve value. We trade at a significant discount to our peers across a variety of metrics. And we have been very active via our NCIB program, having effectively purchased and canceled approximately 16% of the total shares outstanding since we commenced the NCIB program approximately 2 years ago. We also have significant tax pools that put us in a position where we won’t be a cash taxpayer for approximately 10 years at $70 WTI. Obviously, it will be longer than that at these prices. And lastly, we are dedicated to making a material and positive difference to all of our stakeholders and communities where we live and operate. And with that, we will pause and we will open it up for Q&A.

Thank you very much. And just to remind everybody who is listening in, if you have a question to submit to the management team, please do it through the webcast portal, and we will do our best to answer all the questions in the time allocated. Alright. First question right now is around Peace River and Peace River program, and one question that our shareholder would like to know, for Jay probably, is what is a waffle well, how do they differ from the usual multilateral wells, and what’s the theory behind why they appear to work better?

Yes. Thank you, Susan. So, we have drilled our fifth waffle well as part of this most recent program. And I would say the name kind of says it all. It’s not particularly clever. It’s a series of conventional horizontal legs, still 11 as per our booth guide, where we then drill some subsequent legs that come across on the same well perpendicular to the primary producing leg, essentially making a waffle pattern if you were to view it aerially from above. There is some complicated pressure drawdown reasons why we think this is potentially successful. But the simplistic reason I used to explain is simply imagine trying to exit downtown in a traffic jam, and you only have one direction of flow. The waffle well allows for hydrocarbons and pressure to move multiple directions in that reservoir before they reach the pump, as opposed to having a single and potentially blockaded or limited path of flow. So, we are basically giving more avenues for the hydrocarbons to produce. It results in slightly more open hole conditions. And thus far, we have been pleased with the results we are seeing from it.

Thank you very much, Jay. One, another question here is around actually some February well results that our update at that time said we noted several wells in Peace River that were underperforming. Could you provide some more information about it in terms of what operational geological adjustments have you done to improve results? And have the wells started performing?

Jay you can take that.

No, I appreciate that. Thanks Steve. So, we released a couple of results in February 2025 that were focused on the Cadotte portion of our field. And for the context, that is the westernmost extent of our field that we are testing the flank edges of that portion of the field. In short, the wells encountered higher viscosity oil than we expected. So, while there is hydrocarbons in the well, its willingness to flow preferentially were challenged. As a result, we saw higher than expected gas rates on one and higher water rates on some. So, we still have mitigation strategies we may employ to try to salvage that to either produce the gas or subsequently dispose of the water on site and continue to produce the wells at a slightly higher water cut than expected. But as of currently, the wells are shut in while we approach a strategy to manage those solutions.

Alright. Thanks very much. I got several questions that surround the capital allocation post the Pembina sale related to the in-play shares. With proceeds from this IPO, how does Obsidian balance debt reduction, share buybacks and reinvestment in Peace River delineation? Are there plans to accelerate shareholder returns now that the portfolio is streamlined? And what is the overall plan with the IPO shares?

Yes, I will take that. I mean I think we have been fairly prescriptive in that post the sale, in the proceeds, the cash proceeds from that transaction went to pay down debt. We were extremely active in the buyback during the month of April and purchased over 2 million shares, which is approximately 3% of the shares outstanding during the month of April alone. Candidly, it was in the last three or so weeks. And we have updated our capital plan such that we have cut some capital out from the first half plan in response to market conditions and have also signaled our intent to directionally keep our production flat to the extent that prices were to kind of hover around these levels. I think the overarching takeaway should be that, that is a financially superior decision that we have an opportunity to buy our shares at a material discount. We don’t forgo the opportunity to grow our production when we so choose to. I have read some of the research. And candidly, I have been surprised that it’s been positioned as if it’s a negative. There is no reason to force production growth in the $60 world, specifically – even more so when you can buy your shares back at material discounts to intrinsic value and candidly have better economics than primary development economics kind of sit today. So, I think that’s how we think about it. In regards to our in-place shares, we are kind of very pleased with the transaction, and we have been on record that the Cardium, specifically kind of the Pembina portion of the field was in need of consolidation. We feel that we effectuated a transaction that both offered fair value to Obsidian shareholders, but also put those assets in the hand of a management team that we think we will do quite well with them. I think it’s fair to say that we are not long-term shareholders of in-play, but at the same time, we see a significant amount of upside from the current trading levels, and we will just have to see how things evolve over the next couple of months as it relates to what our ultimate strategy will be.

Thank you, Steve. Related to that in the Pembina transaction is a question about if there are any plans to monetize additional non-core assets or Peace River assets or Viking to fund buybacks, or are we looking to bid on any other companies out there?

Yes. We are not looking to sell any additional assets. We are very comfortable with the portfolio today, and take it a step further, we just don’t need to. We have got it down effectively to two core areas and the Viking can offer short cycle kind of light oil drilling opportunities that allow you to quickly respond to prices where it’s conducive to do so. In regards to looking at other M&A opportunities, I think it’s fair to say that it’s incumbent upon us to look at everything that may become available in our area. It doesn’t necessarily mean that, that’s something that we are keen to do. I mean some of it is for benchmarking purposes. Some of it is because there is sometimes values where it might be interesting. But right here right now, we are quite comfortable allocating capital towards share buybacks and so it would be a very high bar.

Thank you. A quick question on how we get our product to market. Do we deliver it via oil and gas, Trans Mountain or via pipeline?

Yes, so the short answer is, ultimately, our product gets there via pipelines. The light oil business, quite a bit simple, the vast majority of production is tied into pipeline. At Peace River, just given the nature of the heavy oil and the winter conditions, generally speaking, a significant portion, not all of it, but a significant portion is trucked to dedicated terminals, which are pipeline connected and ultimately end up in Edmonton.

Great. Thank you, Gary. We have several questions around basically our plans in relation to oil prices and production, including what is our maintenance capital or what is our capital to hold production flat at 29,000 barrels a day? And if oil prices further stagnant, we have stated that we would likely stick to a maintenance program. How do you think about capital in that scenario? How would it play out into 2026? And what WTI price would you need to grow production again to that 35,000 barrels, 40,000 barrels range?

Yes. So, look, there is a number of questions kind of embedded within that. So, I will take them and if I forget, just remind me. But look, I think the way to think about it is we stated that at these prices, we are quite content to stay at 29,000 BOEs a day. We are not going to answer as to kind of what the maintenance capital is to hold that production flat. It’s really kind of a – there is a dynamic answer. I think it’s somewhat contingent on what kind of program do you want to drill, where are your service costs? I think it’s fair to say that industry is going to be having some spirited discussions with the service cost providers if we are in a $60 world or potentially even below that. And so I think it’s fair to say there is a lot of fluidity to that. But we have outlined that. We will release a second half budget at the end of June. In regard to kind of if prices were to stagnate, I mean we are assuming prices in the short-term will stagnate. And so, by extension, what we have chosen is a path that does grow production. It grows production per share, and it grows FFO per share. So, I think it’s a mistake to say that we are not growing. The ultimate end goal of a growth program is to have it manifest into per share growth. It makes no sense if you grow your production profile, but you are issuing a bunch of shares in that process and it’s ultimately dilutive. So, we are quite content at 29,000 BOEs. We have the balance sheet strength to see that through, and we will react to market conditions as they evolve.

Thank you, Steve. A quick question related to our news release today. Overall, that we stated that we experienced constructive results, and Jay spoke to this on five of the seven pads. And just wondering which pads did not show constructive results or if you have any additional insight to provide to shareholders?

Sure. So, the two pads we didn’t mention, one of which was the most Southeasternly test we have ever done in the field in one of our Clearwater wells. It’s been producing steadily at a sub-economic rate of about 24 barrels of oil per day, flat. So, while we are interested in that, the inflows related to higher viscosity. And as such, we are evaluating, but don’t see that as a constructive economic rate at this time. The other is a Bluesky pad up in Nampa, basically on where it would be a road into our Clearwater results. It was showing hydrocarbons and cleaning up, but we didn’t get a constructive test out there to make anything from a conclusionary point of view on that. So, that will be pending the next winter analysis.

Thank you. Question regarding somewhat Peace River, but overall is what is the current breakeven oil price for Peace River delineation drilling? And if WTI remains below $60 a barrel WTI or less, would Obsidian halt exploration to focus on shareholder return? What is the price where you stop drilling?

Yes. I mean I think the way to think about it is we have already outlined that the first part of our capital program this year was more skewed towards exploration drilling due to the fact that we had winter access. I think it’s a fair assumption that for the balance of the year, we are going to be much more focused on drilling in areas where kind of there more development wells. So, I don’t think you will see an emphasis on exploration or delineation wells in any form.

Thank you. Do you have an approximate budget for share buybacks in May and June?

I am not going to answer that question. It would be stupid of us to answer that question, I mean…

Thank you. Another question is, at what level – when you get share count down to the low $50 million range, would you consider a dividend? And what is your process or thinking for ongoing shareholder returns?

Yes. I think what we would say is I don’t know that, that question should be indexed to a share count range. I think it’s fair to say that it’s a function of the strategy. We have been returning capital aggressively to our shareholders. It’s been in the form of share buybacks. We think that’s a much kind of superior option at this juncture. And there could be a time when it may make sense to put a dividend in place, and we will evaluate that at the appropriate time and at the appropriate price that potentially makes the dividend truly sustainable.

Thank you very much. This was answered in today’s news release, but the question was asked was after the Cardium sale, how much debt has been repaid? And what’s the current net debt to fund flow ratio?

Can you take it?

Go ahead.

We have already outlined that kind of the debt to funds flow ratio is 1.1x at using 2Q annualized. We think it’s a conservative approach. A lot of our companies – our peers use EBITDA. It obviously will be lower than that on an EBITDA basis. It also does not attribute any value to our in-place share position. So, we think it’s a fairly conservative read of kind of where our leverage is today.

Thank you very much.

And just to add to that, I think what’s an important point to add is, what’s our liquidity that we have, when you look at our debt stack, we still have the $112 million of bonds outstanding. We have our syndicated credit facility at $235 million. And again, post the disposition, we only had $30 million drawn, so $200 million of liquidity sitting on there. So, I think that’s an important thing to keep in mind in this environment.

Thank you. Question about our asset retirement obligation, they would like some clarity that with the ARO that was part of the Pembina transaction, that’s now the response to the [ph] IPO, does Obsidian have any responsibility for the ARO expense for 2025 for these assets?

Sure. Cliff, do you want to answer that?

Yes, happy to. Okay. The situation with the ARO that’s part of the transaction is that it becomes the responsibility of the owner of the asset once it transfers over to them. So, it is in-play’s responsibility at this point. But to be more specific on the answer, the AER sets the ARO minimum spend obligations in the prior year, which includes the assets that are owned by the licensee at that time. So, Obsidian retains responsibility for the spend target for 2025, but has the discretion to deploy that as we see fit.

Thank you. A question if the company can provide any more detail on what plans do you have to convert winter road access to all year road access in Nampa and North Dawson based on the results to-date.

Yes. I think it’s fair to say that’s something that we are evaluating and something that we are considering in real time, and we will have more to say about that when we put out our second half budget.

Thank you. There is a couple of questions around our future strategy and plans. As per the news release today, we have stated that we are not going to be reissuing a 3-year growth plan at this time. Is there any plans for the future to do so, or has this changed the new look of the company? And what are you doing for a revised strategy?

Yes. The strategy hasn’t changed, which is to maximize shareholder value. And you can do that in a number of different ways. And what we have said is in response to prices, it doesn’t make sense to burn inventory at $60 a barrel or sub-$60 a barrel, even more so when you can buy your shares back at more attractive metrics. And so that is not a function. There is no strategy shift. We are pulling the 3-year plan on the basis that we sold the Pembina asset, and that was approximately 11,000 BOEs out of what was a 50,000 BOE a day target. We will lay out our second half budget at the end of June, and we will be thoughtful about kind of what we say about ‘26 and beyond when we feel we are in a position to do so.

Thank you, Steve. Related to that is what specific actions are you taking to increase shareholder value in the current environment? What is the new shareholder proposition?

Yes. I mean look, I think the company has taken a number of actions, which is a combination of delineating its Peace River asset base, selling an asset in the way of Pembina at what we felt was a very fair value and that significantly streamlined the company while also strengthening the balance sheet in a higher price environment, we would have recycled that capital into kind of new production, and we have been buying back our shares. So, I think to think about it in the way of a share – a value proposition, it’s just we are going to continue to grow the intrinsic value of the business and you either believe that you have got a management team and Board that will ultimately harvest value or you don’t. And so – and if you don’t, you can sell your stock and there is an active buyback program to buy it. So, I think I couldn’t be more direct than that.

Thank you very much, Steve. I believe we have answered this, but we have another question about what we are going to do with the IPO shares.

That’s already been answered.

Thank you. One question around why are we reducing our drilling? And is it an impact of the assets or more of the commodity prices?

It’s a combination, as we have outlined, it’s a combination of the commodity prices, not wanting to burn our inventory in this commodity environment and the opportunity to buy back shares at a material discount to intrinsic value.

Thank you. Just a question about the Peace River water slide, there is some information on the news release today, but can you provide a little bit more information on the status in terms of your further plans for the Clearwater?

Sure. Gary touched on where we are at from a status point of view, but we are drilling our first waterflood pilot, we call integrated, in that we are drilling the injectors and producers at the same time down in Dawson. We are currently drilling the first of these single leg injectors. The three producers have been drilled, two of them are currently on production and cleaning up, and we look forward to the start of water injection down there in the near future.

Great. Thank you very much. Just a reminder to people on the webcast, that if you have a question, please do send it in. And at this point, otherwise, we are ready to close up the call.

Thank you, Susan. I want to thank everyone for their interest in the company. Thank you for the questions, and we look forward to talking to you in the near future. Have a good afternoon.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.