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Obsidian Energy(OBE) - 2025 Q2 - Quarterly Report

Financial and Operational Highlights Quarterly Financial Summary Obsidian Energy's Q2 2025 production revenues and net income declined significantly due to lower production volumes following an asset disposition Q2 2025 vs Q2 2024 Financial and Production Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Production revenues | $136.3M | $208.4M | -34.6% | | Funds flow from operations | $65.8M | $115.2M | -42.9% | | Net income | $15.3M | $37.1M | -58.8% | | Total production (boe/d) | 28,943 | 35,773 | -19.1% | | Light oil (bbl/d) | 6,314 | 13,782 | -54.2% | | Heavy oil (bbl/d) | 12,041 | 7,026 | +71.4% | Cash Flow Analysis Funds flow from operations and free cash flow decreased in Q2 2025, driven by lower revenues from weaker commodity prices and asset sales Cash Flow Summary (in millions) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Cash flow from operating activities | $55.2 | $77.9 | $151.9 | $136.6 | | Funds flow from operations | $65.8 | $115.2 | $165.9 | $199.6 | | Free Cash Flow | $21.6 | $52.0 | $(13.3) | $12.0 | - The decrease in cash flow and FFO was mainly driven by lower commodity prices and reduced production following the disposition of the operated Pembina assets at the start of Q2 202510 Business Overview and Strategy Pembina Disposition The company closed the disposition of its Pembina assets, using the cash proceeds to strengthen its balance sheet by paying down debt - The disposition of Pembina assets closed on April 7, 2025, with total consideration including ~$211 million in cash, 9,139,784 InPlay common shares, and a $15 million property interest swap11 - Cash proceeds were used to pay down debt on the syndicated credit facility, and the company is now in exclusive negotiations to sell its entire InPlay share position12 Business Strategy The company's strategy now focuses on a balanced portfolio, growing Peace River production, and enhancing shareholder returns via its share buyback program - The company aims to grow production in the Peace River area, where it has a significant land base of over 700 net sections, focusing on Clearwater and Bluesky formations14 - The company is continuing its return of capital initiative via its Normal Course Issuer Bid (NCIB), having repurchased approximately 16.7 million common shares (about 20% of outstanding shares) for $140.2 million since the program's inception in 202315 Business Environment and Commodity Prices The business environment in Q2 2025 was characterized by lower WTI oil prices and weaker AECO natural gas prices compared to the prior year Benchmark Price Averages | Benchmark | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | WTI oil ($US/bbl) | $63.74 | $71.42 | $80.57 | | WCS (CAD$/bbl) | $73.89 | $84.04 | $91.82 | | AECO 5A (CAD$/mcf) | $1.69 | $2.17 | $1.18 | - WTI prices increased late in Q2 2025, driven by the Iran-Israel conflict and potential supply risk21 - AECO natural gas prices were suppressed by increased supply and higher inventory levels, with prices hitting a quarterly low of $0.80 per mcf in June23 Hedging Activities The company maintains an active hedging program with significant WTI, WCS, and AECO swap contracts extending into 2026 to mitigate price volatility Selected Outstanding Hedges | Type | Volume | Term | Price | | :--- | :--- | :--- | :--- | | WTI Swap | 12,375 bbls/d | July 2025 | $86.29/bbl | | WTI Swap | 4,000 bbls/d | Dec 2025 | $90.23/bbl | | WCS Differential | 7,750 bbls/d | Q3 2025 | $(18.83)/bbl | | AECO Swap | 25,118 mcf/d | Jul-Oct 2025 | $2.24/mcf | Results of Operations Production Total production decreased 19% year-over-year due to the Pembina Disposition, though heavy oil production surged 71% from Peace River development Daily Production by Type (Q2 2025 vs Q2 2024) | Product | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Light oil (bbl/d) | 6,314 | 13,782 | (54)% | | Heavy oil (bbl/d) | 12,041 | 7,026 | 71% | | NGL (bbl/d) | 2,189 | 3,193 | (31)% | | Natural gas (mmcf/d) | 50 | 71 | (30)% | | Total (boe/d) | 28,943 | 35,773 | (19)% | - Production from the Cardium area fell 44% YoY in Q2 2025, while Peace River production grew by 78% over the same period29 - In the first six months of 2025, the company drilled 37 (32.6 net) wells and brought 39 (34.6 net) wells on production27 Average Sales Prices and Revenues The company's weighted average sales price and production revenues fell due to a 26% decline in total liquids prices and lower production volumes Average Sales Prices (Q2 2025 vs Q2 2024) | Product | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Light oil (per bbl) | $91.09 | $107.61 | (15)% | | Heavy oil (per bbl) | $61.27 | $79.73 | (23)% | | Total liquids (per bbl) | $68.11 | $91.64 | (26)% | | Natural gas (per mcf) | $2.00 | $1.33 | 50% | | Weighted avg (per boe) | $51.83 | $64.11 | (19)% | - Production revenues and gross revenues were lower in 2025 compared to 2024, mainly due to lower realized oil prices and lower production volumes from the Pembina Disposition37 Netbacks The corporate netback decreased to $27.13 per boe, primarily due to lower realized sales prices and higher transportation costs from growing Peace River production Netback per boe | Component (per boe) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Sales price | $51.83 | $64.11 | | Royalties | $(6.03) | $(8.34) | | Transportation | $(4.49) | $(4.15) | | Net operating costs | $(13.54) | $(13.83) | | Netback | $27.13 | $38.99 | - The decrease in netback was driven by lower oil prices, while transportation costs were higher due to increasing Peace River production32 Expenses Operating and Transportation Costs Net operating costs decreased due to the lower production base, while transportation costs rose year-to-date with increased Peace River production - Q2 2025 net operating costs were lower than Q2 2024 mainly due to the lower production base following the Pembina Disposition44 - Higher production from new wells in the Peace River area resulted in higher transportation costs in the first six months of 2025 compared to the 2024 period45 Financing Costs Financing expenses decreased in Q2 2025 due to lower interest charges resulting from reduced debt following the Pembina Disposition - Interest charges were lower in 2025 due to reduced drawings on the syndicated credit facility after the Pembina Disposition proceeds were used for debt repayment46 - The company has a $235.0 million syndicated credit facility maturing in May 2027 and $112.2 million in senior unsecured notes due July 20274748 - The company expects to make a $48.4 million Repurchase Offer for its senior unsecured notes in August 2025, based on its free cash flow and liquidity50 Share-Based Compensation Share-based compensation recorded a recovery in Q2 2025, driven by a mark-to-market gain on liability-based awards due to a lower share price Share-Based Compensation (in millions) | Component | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Liability based incentive plans | $(2.6) | $(1.4) | | Equity based incentive plans | $2.4 | $2.3 | | Total | $(0.2) | $0.9 | - The change in share price affects the mark-to-market valuation of PSU and DSU obligations, with the share price closing at $7.58 on June 30, 2025, down from $10.24 a year prior55 General & Administrative (G&A) Expenses Gross G&A expenses remained stable, but G&A costs per boe increased due to lower production volumes following the Pembina Disposition G&A Expenses | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross G&A (millions) | $9.9 | $10.0 | | Gross G&A (per boe) | $3.78 | $3.06 | - On a per boe basis, G&A costs were higher in 2025 due to the impact of the Pembina Disposition on production volumes57 Depletion, Depreciation and Impairment (DD&I) D&D expense decreased due to the disposition of the Pembina assets, which also resulted in a non-cash impairment loss of $15.4 million - D&D expense decreased in 2025 because the Pembina Assets were classified as held for sale in Q1 and then sold early in Q2, reducing production levels58 - A non-cash, pre-tax impairment loss of $15.4 million was recorded on the Pembina Assets in 2025 when they were reclassified as held for sale59 - A $14.2 million impairment reversal was recorded in the Legacy cash generating unit (CGU) during the first six months of 2025 due to a reduction in the decommissioning liability60 Net Income Net income for Q2 2025 decreased significantly to $15.3 million, driven by lower production revenues from weaker oil prices and reduced volumes Net Income Summary | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income (millions) | $15.3 | $37.1 | | Diluted per share | $0.21 | $0.46 | - The decrease in net income was a result of lower production revenues, which was partially offset by lower depletion and depreciation expense following the Pembina Disposition62 Capital Management and Liquidity Capital Expenditures and Drilling Capital expenditures were moderated in Q2 2025 in response to lower commodity prices, with a focus on bringing previously drilled wells on production Capital Expenditures (in millions) | Category | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Drilling and completions | $14.6 | $37.7 | $102.4 | $129.0 | | Well equipping and facilities | $25.0 | $21.2 | $58.8 | $43.9 | | Total Capital Expenditures | $40.2 | $59.2 | $168.6 | $173.5 | - Capital spending was moderated in Q2 2025 in response to lower and more volatile commodity prices63 - In the first six months of 2025, the company drilled 37 gross (33 net) wells, of which 35 were oil wells65 Liquidity and Capital Resources Net Debt Net debt decreased by $141.5 million to $270.2 million, driven by the use of cash proceeds from the Pembina Disposition to pay down debt Net Debt Calculation (in millions) | Component | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Syndicated credit facility | $114.0 | $225.0 | | Senior unsecured notes | $112.2 | $114.2 | | Total Long-term debt | $222.8 | $335.4 | | Working capital deficiency | $47.4 | $76.3 | | Net debt | $270.2 | $411.7 | - The decrease in net debt was a result of lower drawings on the credit facility after applying the ~$211 million in cash proceeds from the Pembina Disposition70 Investment in InPlay The company received over 9.1 million InPlay shares from the Pembina Disposition and is now in exclusive negotiations to sell the entire position - The company received 9,139,784 InPlay shares as part of the Pembina disposition and has classified this investment as held for sale73 - Subsequent to June 30, 2025, a third party made a non-binding offer to acquire the company's entire InPlay share position at a premium to the market price75 Financial Instruments and Risk Management The company utilizes financial instruments to manage commodity price risk, recording a realized loss of $1.7 million and an unrealized gain of $8.8 million in Q2 2025 Risk Management Results (in millions) | Component | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total realized gain (loss) | $(1.7) | $4.0 | | Total unrealized gain (loss) | $8.8 | $3.0 | | Total risk management gain | $7.1 | $7.0 | - The company has provided sensitivities indicating that a US$1.00 change in WTI price would impact annual funds flow from operations by $8.1 million81 Contractual Obligations and Commitments The company has total contractual obligations of $450.9 million, with significant payments for long-term debt and decommissioning liabilities due through 2027 and beyond Summary of Contractual Obligations (in millions) | Obligation | 2025 (6 months) | 2026 | 2027 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $48.4 | $- | $177.8 | $- | $226.2 | | Transportation | $8.6 | $15.7 | $12.9 | $17.8 | $67.0 | | Decommissioning liability | $14.9 | $13.0 | $12.0 | $65.6 | $105.5 | | Total | $82.9 | $50.5 | $220.3 | $97.4 | $450.9 | Equity Instruments As of July 29, 2025, the company had 67.1 million common shares outstanding, reflecting repurchases under its buyback program Changes in Equity Instruments | Instrument | As at June 30, 2025 | As at July 29, 2025 | | :--- | :--- | :--- | | Common shares | 67,708,673 | 67,102,203 | | Options outstanding | 2,461,908 | 2,451,768 | | RSUs outstanding | 1,877,838 | 1,793,000 | Supplemental and Other Information Supplemental Production Disclosure This section details production by area, highlighting the decline in the Cardium area and significant heavy oil growth from the Peace River area Q2 2025 Daily Production by Area (boe/d) | Area | Light Oil (bbl/d) | Heavy Oil (bbl/d) | Total (boe/d) | | :--- | :--- | :--- | :--- | | Cardium | 5,568 | 24 | 14,462 | | Peace River | 11 | 11,910 | 12,827 | | Viking | 663 | 79 | 1,338 | | Legacy | 72 | 28 | 316 | Non-GAAP and Other Financial Measures The company uses non-GAAP measures like funds flow from operations and net debt to provide additional insight into its financial performance - The report employs non-GAAP measures including funds flow from operations, netback, sales, gross revenues, net operating costs, net debt, and free cash flow392 - Reconciliations for key non-GAAP measures like Funds Flow from Operations, Free Cash Flow, Net Debt, and Netbacks are provided within their respective sections of the MD&A939498100 Forward-Looking Statements This section outlines assumptions, risks, and uncertainties related to forward-looking statements concerning production growth, development plans, and financial strength - Forward-looking statements in the report include expected production growth in Peace River, future development pace, plans to maintain financial strength, and monetization of the InPlay share position112 - Key assumptions include commodity prices, production levels, exchange rates, and the ability to execute capital programs and obtain financing114 - The report lists numerous risks and uncertainties, such as trade tariffs, commodity price volatility, geopolitical events, and industry conditions, that could impact future results117118