Obsidian Energy Ltd. (OBE) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Obsidian Energy's Corporate Presentation and Association with our Annual and Special Meeting. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Stephen E. Loukas, Interim President and CEO. Please go ahead.

This is Stephen Loukas, Interim President and CEO of Obsidian Energy, and I would like to welcome you to our corporate presentation in connection with our Annual and Special Meeting that was held earlier today. Turning to Page 2. I will point you to our advisories along with our disclaimers in the back of the presentation. Turning to Page 3. I'd like to focus on our high-level investment highlights. Our production is low decline in nature with -- on oil-weighted asset base with significant underlying reserves and peer-leading well results. We are the largest acreage holder in the Cardium with significant positions in both the Willesden Green and Pembina area. We have a very high-quality cold-flow and low-decline heavy oil Bluesky resource within Peace River and we have significant upside within the Clearwater play, and you should anticipate that we'll have more to say as we work our way towards the end of the year in regards to the Clearwater. In regards to infrastructure, we control our strategic infrastructure and that allows us to grow production with minimal incremental infrastructure spend. In the way of optionality, we are flexible and responsive to commodity price changes, and we have additional upside via waterflood management and EOR projects. For example, we can commit incremental capital to waterfloods to further mitigate declines and capture incremental reserves. On the ESG front, we have a strong commitment to ESG practices, including minimizing environmental impacts, and we'll have a lot more to say on the subject in subsequent slides within this presentation. Turning to Page 4, just in the way of a corporate overview. We have world-class assets and a very experienced team headquartered in Calgary, Alberta. Our production profile for -- our estimated production profile for 2022 is approximately 32,000 barrels equivalent a day. Our production mix was approximately 66% oil and liquids. At year-end 2021, we had 148 million barrels equivalent of 2P reserves, which equates to a 2P RLI index of approximately 13 years. At year-end 2021, we had a PDP decline rate of approximately 21% and significant tax pools of approximately $2.5 billion. Total shares outstanding number approximately 82 million. We have a market cap over $1 billion with net debt at March 31 of approximately $449 million, equating to an aggregate enterprise value of approximately $1.5 billion. Turning to Page 5, just outline -- which helps outline our strategy. We focus on driving per share growth via incremental asset development and debt reduction. While generating excess free cash flow and allowing us to act on growth opportunities at higher commodity prices, such as we've announced this morning with the Board's decision to increase our capital budget to capture what we deem to be very attractive wellhead economics. We have the ability to increase scale and manage cost structure through product additions. So to contextualize what that means is we're currently very much in an inflationary environment where our absolute operating costs are going up, but we're more than mitigating that by growing production and spreading those costs across a broader production profile. Our forecasted targeted total debt is approximately $225 million. That equates to approximately 1x debt to FFO at $50 WTI. And as we approach those thresholds, we will consider both returns of capital via stock buybacks as well as dividends. And with that, I'll turn it over to Peter Scott to walk you through some slides on the financial -- within the financial section.

Thanks, Steve. Hello, everybody. Welcome to the call. My name is Peter Scott. I'm the Senior Vice President and Chief Financial Officer of the company, and I'm pleased to present today our updated 2022 guidance as well as a preliminary look at our 2023 forecast. We have been steadily building our development plan really since late 2020 when prices began to recover from the depths of COVID, pricing impacts, obviously, as we've seen prices continue to be strong, where we are today. And we have the ability to take advantage of it with our team and the assets that we have, as Steve outlined. We're able to continue to pay down debt in this environment, and meet our debt targets also, as Steve outlined. So we think that this is a very good environment to be increasing our capital spending and meeting all our targets. On the slide, we're showing a progression from what we did in 2021 and then the plan we're looking to execute in 2022 and the early look at 2023. Focusing in on the capital line. For 2022, we are looking to increase capital to about $300 million compared to 2021, that's a little over double that amount. Steve mentioned inflation. We have included a 15% inflation bump in here from the first half of the year, given what's happening out there in the environment. But despite -- with that increase in capital, we're also growing our production 30% over 2021 level. In 2023, our preliminary look at capital, it's actually a little lower at about $265 million, and production really benefits from the 2022 plus 2023 program and is up 17% compared to what 2022 would be, and 50% over the 2021 level. So a strong production growth. How does that translate into financial results? While our funds flow from operations or FFO at $105 WTI, which is lower than where it is today would be up -- sorry, would be up to $520 million, which is really up $300 million over 2021, more than doubling that level, and we're generating free cash flow of $200 million, which we use to bring down our debt levels to about $200 million or a little less or 0.4x net debt to funds flow from operations, which is down considerably from the 1.9x at the end of 2021. In 2023, that continues, funds flow from operations rises to $650 million and that's at $95 WTI, generating even stronger free cash flow of $375 million, which would actually put us into a net cash position on our balance sheet and obviously giving us options on what to do with our investment strategies as well as return of capital initiatives. The [indiscernible] program provides strong growth in this high commodity price environment, which we're taking advantage of, as well as delivering a very strong balance sheet. Next slide, please. So with the commodity price environment out there, obviously, there is a lot of talk about taxes and tax pools, and how companies can react to that. Fortunately, we're in a very favorable tax position. We have about $2.6 billion of pools. About $2.2 billion of those pools are immediately deductible, meaning they're not subject to scheduled timing on how you can use them. And at $100 WTI, we wouldn't see ourselves being taxable for at least 6 years. We think the value of the tax pools is significant in this environment, maybe not recognized in our stock. One way to value them is to look at how fast you could use them. On the top left chart, it shows the cadence of using those pools anywhere from $200 million a year to $500 million per year. And if you think of free cash flow that I just went through is a good proxy for how they get used. Remember, in 2022, free cash flow is about $200 million. In 2023, it'd be $375 million. So that would be a proxy for how those pools could be used. You can see how it translates into a per share value of about $4.30 per share up to almost $5.60 per share in the case if you were to use more pools on a -- in any given year on a constant basis. So I think it just illustrates that there's significant value in those pools that probably isn't recognized in the stock today. The bottom left chart just really shows, if you could use the maximum pool deductions all at once, as they could be scheduled out, again, that obviously translates to a higher share price of $5.85 up to $6.76 in terms of value to the shares. So all in all, just to say, I think the tax pool is a very strong asset for us and will benefit as well as we look to deploy that free cash flow for other uses. Next slide, please. So looking at 2022, I think it's a year we really begin to differentiate ourselves. As I mentioned earlier, the team has really been building our program since late 2022, and that's allowed us to secure the services and equipment to execute on our program. But bear in mind, we do retain flexibility, and should commodity prices fall unexpectedly or to levels that don't really justify making that investment. We do have the ability to toggle and bring down capital spending. I won't to steal all of Jay's thunder, he'll go through our program in more detail in a few minutes here, but suffice it to say, we will continue to do development in all our areas. Cardium is obviously a fundamental piece for us with that large inventory and delivering excellent returns. Peace River is now a revitalized core area for us post the acquisition of our partner's interest back late in 2021. And as we're all hearing has some tremendous Clearwater upside that plays emerging on our acreage. And as we announced a little earlier this year, we even have a small program at our Viking play in Southeast Alberta to ensure the efficiency of those operations of that asset and certainly is very economic at these prices. On the financial side, first and foremost, we're looking to complete the refinancing project by mid next month. Obviously, the plans that we've outlined here are predicated [ on us ] completing that financing project, which we expect to do. We're looking to put in place, as we've mentioned before, a senior-subordinated structure with a senior structure providing the ongoing liquidity that we may need and the subordinated structure providing term on kind of long-term debt targets. With the free cash flow generation, as we've mentioned, we continue to pursue reducing our debt. Our targets, again, I think as Steve outlined, we want to be below 1x debt to funds flow from operations and an absolute debt target of $225 million or less. And as Steve mentioned, that would be about 1x at $50 WTI. As I showed you, our plan does build cash into 2023. And as we move through getting closer to that point, we'll be looking at our investment plans, including M&A and as well as return on capital options. So stay tuned, there will be more to come on that as we progress through the year. And with that, I will turn it over to Jay.

Thanks so much, Peter. My name is Jay McGilvary. I'm the Senior Director of Development here at Obsidian Energy. I've been pleased to take part in our development activity since 2017 and happy to see us grow into the pace and scale that we're currently employing today. When I last spoke to everyone in January, we had presented a 2022 budget with roughly 29 wells, that was roughly first-half weighted, but still has [indiscernible] second half of the year. As we stand today, I'm pleased to say that we've already accomplished 28 of those wells. We just spudded our sixth Viking well in our Esther field, and we plan to have 2 more of those complete prior to the end of half 1, and we will accomplish more in the first half of the year than we promised in January. Including carryover wells from 2021, we will bring 27 wells on production this year in the first half alone and an additional -- the additional wells, we'll drill 38 more in the second half of the year. Our expanded development program for the second half is really just a continuation of what we've already been successfully doing since we ramped up our pace and scale in October of last year. Though the impact of 2022 AA will be minimized, at least 12 of the wells that we are drilling in the second half of this year will be forecasted to come on in 2023. We recognize that we're in a unique opportunity right now to utilize both our expertise, our readiness and our execution to make sure that we can develop into commodity price with really robust economic returns, and that's what we're set up to do. But when we speak of 68 wells, I think it also implores us to speak about how far we've come in the last little while. For comparison, our 2020 program was only 10 wells. Our Q4 production was 23,644 BOE a day. Today, on almost entirely organic growth, except for only the acquisition of our 45% working interest in Peace River, we are forecasting 32,000 BOE per day this year and heading into 2023 momentum between 37,000 and 38,000 BOE per day, we are running. That is a testament to the value of our portfolio, our ability to be ready and our ability to execute and retain the services that we need into the half of this year. So speaking specifically to what we're going to do in the second half of this year, we are now realizing value across our entire portfolio. Historically, where you've seen this company come from the last couple of years, where we've been singular in our focus, drilling primarily within the Cardium, we have now seen tremendous value both on our ability to execute, but also the improvement in commodity price across all regions of our portfolio. That, in combination with the acquisition of the 45% working interest in Peace River, has seen us really grow into a robust company with an ability to use, what I like to call, macro levers within our portfolio. Our macro levers our ability to pivot to heavy oil or to gas or into more oil-weighted, high initial rate, lower -- steeper decline wells or shallower decline by focusing on waterflood or heavy oil. All these options and levers are readily available to us. We can then utilize micro levers within our individual assets where if we want to focus on GOR or working into new areas and expanding our infrastructure, those are available to us or we can focus more robustly on just infill drilling, and following up on some of the successful results we've had in the first half of this year, utilizing existing pads that are already built and shortening our time line for execution. Most importantly, our half 2 program is what I define as realistic and achievable. I think in our industry right now, you're going to have a lot of companies speaking about what they could do with the excess cash they have. For us, this is a question of what we can do. These are resources that we already have in place. In February of this year, there were 229 rigs working roughly in our industry. Resources right now in Alberta are a zero-sum game. If you want to grow, you have to cannibalize from someone else. We already have those resources in place. I also talked about realism in terms of how we're viewing commodity prices, but also the inflationary pressures that we're feeling as an industry as a whole. Peter spoke to it earlier, but we built in 15% inflationary pressure for the second half of this year over and above what we saw for first half actuals. Now that might seem aggressive, and we're obviously doing everything we can to improve efficiency and mitigate those costs, but it warrants us to be realistic about where those cost pressures are inflating. They're coming to us in the form of commodities primarily. So steel that goes into wells, cement that goes into wells, and the actual physical properties like sand that we need to put into our completions are where we're feeling the greatest pinches. And those are a supply issue as demand across the industry continues to increase. So we are addressing that by being realistic with what we can accomplish, pouring a capital budget that is achievable, but also keeps our momentum into robust growth in 2023, making us a stronger company, while still making significant debt repayments and changing the overall financial position of the company. With that, I'll happily move on to the next slide, talking about some of our results on our overall Cardium program. This is a slide that the Cardium team is immensely proud of. The first thing I always highlight on this slide is the overall population count. Obsidian has drilled 58 wells in the Cardium since 2018, nearly double any competitor in the Willesden Green asset. So this is not a fluke. This is something we've done achievable and repeatable throughout that asset. This is a testament to execution, decision-making, capital commitment, but also the quality of the reservoir in which we import these resources. I also highlight not just the EOR and the fact that we're outpacing individuals at 36 months, but the decisions that go into the front end of that curve. You notice that we start behind. This is a choice that we make in terms of being capitally prudent and value-seeking behavior. We don't overcapitalize our completions. We focus on completions that will have the longest return impact to the organization. That means a lower tonnage, higher spacing typically than some of our peers. But you can see by the time you pivot over months 6 and 7 that, that has pivoted in our favor, and we're realizing value at a rate greater than some of our competitors. This is a choice we've done repeatedly. It served us well, and we plan to continue it into our 2022 program as we move forward. With that, moving on to our individual assets. These are slides that we've spoken about quite a bit historically, but there's a big change now. We've included the economics on each of these slides, something that has not been in our deck over the last couple of months. And the reason being is that we want to be really fiscally prudent and honest about what we think DCET costs will be going forward. So you'll notice that we put those inflated costs as we've spoken to in the year. They are higher than we've seen previously, but they're immensely tied to where we think we can achieve in the second half of this year. More importantly, taking these inflated capital costs into the actual well economics, you see that we are still pouring an incredibly robust economic thesis across all of our assets, though, each asset gets there in a slightly different manner. You can see IRR is well north of 100% generally across our entire portfolio. But what I also would highlight is the payout metrics. Payout to me is a proxy for how you view risk. If you're bullish on commodity prices in the short term, you'll note that the payouts on these wells and the investment we're making in the second half of this year is incredibly quick. The cash flow will be back in our bank account before you know it, allowing us to further improve our financial position and obviously allowing us to [ deploy ] that capital elsewhere in the future. So regardless of how you view the long-term view and the total IRR of those projects, they are economically robust and short-term payouts that will be relatively low risk in the short term as we move forward. Looking at Willesden Green, specifically, you see some of those micro levers that I spoke about earlier. First of all, you see our traditional approach to some of the oil wells we drilled, but you also note at the bottom, a Cardium gas well that we plan to drill in the second half of this year. As we march northward in Willesden Green, we have the ability to increase our gas oil ratio on the wells that we drill, 3-03 and 8-36 and then up into 14-28 where by the definition, we become a gas area, allow us to capture some of the improvement in overall gas commodity prices within a localized portion of our asset. We don't have to pivot into a whole new area of development. We can do that on a localized basis within our existing infrastructure. That's the advantage of having several strong assets in our portfolio as opposed to being a single player on [indiscernible]. We can do the micro, but we can also do the macro at the same time. As we move into Willesden Green East Crimson, that was the focus of our first half program. And I'll highlight, as you look at the results in there, is that what we delivered was repeatable and achievable. The rates are relatively uniform. And I'm pleased to say, as we sit today, we're bringing 3 additional wells on this week. So you say just on production, we're getting updates as of this morning that those wells are up and running further and they'll mark the end of the wells that we plan to bring on in the first half of this year, as we await the completions on our Viking program in July. In the second half of this year, obviously, we'll drill the south 8-34 pad, continuing the trend that we've seen on 8-10 and 8-03, very stable wells that meet our expectations, but we've also [ layered in the ] Mannville well. We drilled the Mannville well in 2021. It was incredibly successful off the south end of that pad, and we're going back to the existing infrastructure to capitalize on gas prices below the Cardium play in that area. On to Pembina. Pembina has been a real pleasure in the last year here. One of the things I'd like to highlight on this map is the 8-27 pad, which is in one of our last press releases we highlighted was doing over 1,000 BOE a day and showing IPs on here of 238 BOE per day on average per well is only 8 miles from the overall discovery of the Pembina field. This is a long-life asset with tons of opportunity that we continue to exploit. The ability to drill a 3-well pad that can still produce at these rates within an existing mature waterflood is a testament to the technical ability and execution that the team put together, but also the effectiveness of the reservoir models that we do and our ability to produce into a field with existing infrastructure and strong operations. So this has been a tremendous success as we've returned to Pembina in the recent year. It's worked extremely well for us, and we plan to continue this momentum as an asset that we'll see activity going forward. At the bottom, in the very small bullet point, you note 2 Devonian wells. We drilled 1 Devonian well in the first half of the year. And though we're being slightly cagey on what we're saying about it, that's because we're still finding ways to increase our overall inventory in this play. We've seen some really successful results and understandably vertical wells drilled in the conventional reservoir are the highest economic return you can expect in our basin today. The requirement not to use fracture completions to reduce overall cost and our ability to drill vertically off existing pads makes for incredibly robust economics, and we are assertively seeking ways to continue to grow that inventory and make that a continual part of our development in a reasonable level. And then finally on to Peace River, Slide 14. Our return to Peace River has been incredibly successful. And you'll see that on the next slide on Slide 15. We plan to employ a rig working up there for the better part of the year starting in early July and then [ layered in ] a second rig in the second half of the year. As Steve mentioned, we're leaning more heavily into the Clearwater, but we've had incredible success in the Bluesky as well with really strong economic return and a manufactured approach to development within existing fields. As noted, as you see below, we have increased our overall footprint in the area with 23 sections for $13.7 million early this year. We identified 28 potential Bluesky locations incremental to the significant land base we already have, and we plan to begin exploiting those as early as 2023 or late this year with opportunities to go in and develop on some of these new land bases and further expand our footprint. As we move on to Slide 15 to speak specifically about some of those results we've seen in the Bluesky, I'd like to note 2 things on here. One, obviously, is 6-31 and the decline associated with the production that we're seeing on there. 6-31 was a 3-well pad drilled in a gap in the Harmon Valley South field. It had not been developed at that point, and we went in and drilled straightforward infill wells from a new pad. In March of this year, that pad was producing about 1,000 BOE a day. As of last week, it is producing 951 BOE a day. So when we talk about our ability to pick assets based on controlling decline, that is a testament to the fact that this heavy oil resource is both abundant, economic, but also shallower decline that we see in the fracture stimulation completions of the Cardium. So we're able to develop a balance in the overall portfolio by investing in both of these assets at the same time. The other pad that's exciting on here is 12-25. This is the exact opposite. When you look at the 9-35 well off there, that is a well that was drilled deeper than the existing wells. We drilled underneath an underperforming pad, a well that was drilled in high-quality conventional reservoir, but did not meet the expectations on its original production. We went back in and drilled 4 meters deeper within the existing field. That well, demarcated by the gray line at the top of the graph, has been absolutely lights out in terms of economics. Not only do you not have to build an additional pad, but you're able to produce the well at the highest rate we've seen in the field in quite some time, utilizing only 9 legs within the existing heart of the field. The ability to repeat this is something that we're evaluating very carefully because it opens up additional opportunities throughout the entire field. And finally, on to Clearwater. Steve mentioned it, as I said earlier, that Clearwater is becoming an even bigger part of how we identify ourselves as a company and where we're moving forward into 2023. We have 2 wells currently planned for the second half of this year, 1.5 net and we plan to drill to both further delineate on the shoulders of the additional work that we've done in the field, and also to explore or offset where we've seen strong competitor results in the field. I spoke to the fact that we had picked up additional land at the start of this year, and obviously, we're very excited about it. But I'd be remiss if we didn't pick up the fact that we picked up 37 additional sections in 2021 as well for only $800,000. And not to sound like a hipster, but we were picking up land in this area before it was cool. With that in mind, obviously, [ key line ], the results of Baytex as displayed there have been the industry leading in the Clearwater and the desire to follow up both in our Dawson assets down in the south of Peace River and across in the Seal will be a focus point in terms of how we develop going forward. We're positioned -- we're positioning ourselves by restocking our entire technical team. We've added 2 additional geologists and 2 additional reservoir engineers with experience in the field and Clearwater experience, and we're excited to be off and running again there with the ability to grow into the future. And finally, on the Viking side. Our decision to move and drill 8 Viking wells is a testament to how nimble we are as an organization. I view it as countercyclical or counter-seasonal. When the rest of the industry is laying down rigs due to breakup, we were able to continue our operations drilling 8 wells that were ready to go. It's also a testament to the fact that the economics of these plays have changed. Viking is one of our more heavily gas-weighted plays we have in the portfolio. And as you can see from the economics down on the page, the overall improvement in gas price has been a huge factor in terms of why you would want to come back into the Viking and develop it. It is now competitive both with Cardium and our heavy oil assets and something that we are able to do repeatedly year-over-year on this countercyclical basis. Not only has the commodity price improved, but I'll also highlight the fact that with the inflationary pressures that we're seeing in the second half, we had a very unique opportunity to capture lower capital costs by drilling at this point as opposed to waiting longer where we're seeing inflationary pressures come into play. So we're able to window a rig from a major, get in there, execute and return all in a very short period of time and in very quick and rapid execution. As I said, it's repeatable into 2023, and we plan to see with economically this something that's part of our portfolio from here going forward. So with that, I'll pass it over to Cliff, who's going to start walking us through some of our ESG initiatives. Thank you very much for your time.

Thanks, Jay. My name is Cliff Swadling. I'm the Vice President of Operations here at Obsidian Energy. I have been here since about 2017, and I'm going to present the ESG highlights from that period. And I just wanted to acknowledge that this ESG is something that comes along with many, many small projects, and those lead to big initiatives. It's given us the opportunity to really interact collaboratively with our people internally, our vendor contractors, First Nations, local governments and benefit the province of Alberta. Some of the key notes broken by Environmental, Social and Governance are a 40% reduction in GHG emissions between 2018 and 2021. Similarly, we've seen a 40% reduction in the injected fresh water usage over the last 3 years, and a 75% reduction in pipeline failures per 1,000 kilometers between 2017 and 2021. Right now, measured against total licensed pipelines, we are running about half of the industry average with our pipeline failures. So we're very proud of that accomplishment. On the Social side, we've had over 10,500 worker safety initiatives just in 2021. That includes hazard IDs, corrective actions, management observations, et cetera, et cetera. Our team is very involved in treating worker safety with the highest priority, and we're very pleased with these results. 26% of our employees are female with a third in leadership positions. And over the period of 5 years [ right before ] us, we have contributed over $1.8 billion economically. 86% of our Board members are independent. We have 6.5% insider ownership. What I'd like to do is focus on the GHG emissions side of it to start with on Slide 19. As mentioned, it's about a 40% reduction since 2018. And this is a multipronged approach. GHG emissions tend to get broken into 4 categories. There's flared, fugitive, combustion and vented emissions. Our company has seen an 88% reduction in flaring since 2018, primarily through a $75 million investment in the Peace River area infrastructure, which has set us up really well for development right now when the commodity prices are high, and we've got a large inventory of land to access. But that has taken 95% of what was previously flared and vented out of the air and put into the grid where we can sell it and make money off of it. So a double benefit from that project. The fugitive side, we've taken down 80% since 2018 and I have got some exciting new technology to show you coming up here. Combustion emissions are benefiting from plant consolidation and our focus going into next year and starting actually in the second half of this year will be to tackle some of the remaining vented emissions that are on our portfolio. If we go to Slide 20, I'm [indiscernible] excited about this particular technology. Back in 2019, as part of our [ FEMP ], we went out and purchased a forward-looking infrared camera and retrained one of our own operators to become an emissions technician. So his job was to go out, look at the facilities and identify any venting sources using this camera, after which they would get repaired and taken offline. So fugitive is just for everybody's benefit, our emissions of methane that escape process equipment during normal operations, say, a controller door that might be open or a tubing leak or something like that. And that worked pretty well for us. We were able to bring our emissions down considerably. This year and starting actually in the second half of last year, we entered into a research partnership with the University of Calgary and acquired a technology called PoMELO, which stands for portable methane leak observatory, which is a rooftop vehicle-mounted system that detects leaks immediately when you drive on to and around the location and notifies the technician, who can then take the camera and pinpoint it. It's improved our cycle time and has allowed us to initiate repairs basically immediately while we're on site. This is industry leading, and we believe it's going to be something that makes us one of the lowest fugitive emissions companies in the industry as we go forward. Let's go to Slide 21. Our water intensity and usage. As mentioned, our injected fresh water use is down 40%, our intensity similarly, and on the frac side, we're down 20% per well. So our goals with this are to maintain the low rate of freshwater use that we have achieved and continue to look for ways to reduce it even further as we strive to conserve this valuable resource. Going forward to Slide 22, asset retirement is part of our strategy of responsible full-cycle development. We started in 2018 by entering into the AER's Area Based Closure Program. We're one of the founding participants in that. And 2019 was our first real large-scale program where we kind of took an area of the company and said, we're going to abandon this full scale. Over 2020 and 2021, we continue to participate in that program, and we transitioned seamlessly into the Liability Management Framework Program through Directive 88 that came out in the beginning of this year. Along the way, we were also able to take advantage of participation in the Alberta Site Rehabilitation Program with up to $34 million in gross ASRP grants and allocations that we expect to be used up by the year-end here. We've got about $30 million of that used up to date. We're just cleaning up the last bit in the second half. But what I wanted to really highlight was the statistics and show what we've accomplished over that period of time. We've abandoned 1,033 wells. We've discontinued and abandoned 2,650 kilometers of pipeline, 60 facilities were fully abandoned and we've received 287 reclamation certificates. All of this has resulted in a $90 million reduction in our decommissioning liability, and approximately 97% of our inactive legacy wellbores have been fully abandoned so far. So we're incredibly pleased with our asset retirement obligation achievements. We have essentially concentrated any of the inactive ARO into our core operating areas where it's much easier to address. And we'll continue to follow along with the Liability Management Framework, either meeting or exceeding regulatory obligations over time and just making this a normal part of our business. And then lastly, on my side with Slide 23, just to showcase how we've invested in Alberta communities. We're really proud of this, having donated over $620,000 to local charities since 2017. Most of these recipients are chosen based on employee recommendations. It's very local. It's very collaborative with the areas that we tend to work in. There's a whole bunch of examples in the fine print below, but some of the key ones are the Drayton Area Community Food Bank. We've donated to the Peace River, Oyen and Rocky Food Banks as well Rocky Mountain House Search & Rescue, Clearwater Boys & Girls Club. I'd like to mention [ 4-H ] that's one we recently bought a couple of the cabs from. And then the picture on the left, one of the ones I'm most proud of where we -- we are one of the first donators to the -- anchor donators to the Drayton Valley Aquatic Centre. I get a chance to drive up there quite often in my role, and it's nice to see that facility coming together and getting ready to support the community, which includes all of our employees and their families. And with that, I will pass it back to Peter for a discussion on share-based compensation.

Great. Thanks, Cliff. Share-based compensation or SBC has obviously been a topic of conversation, and we certainly understand that. So we wanted to provide some more info around it and maybe some of the workings of how this ends up on our books. The table we provide various elements of what makes up the SBC or the share-based compensation. It's the deferred share units, the performance share units and nontreasury incentive award units. What we're showing on the table is that a balance sheet date. So those are cumulative numbers, showing the numbers outstanding as well as the liability associated with that. To be clear, and you'll hear me repeat this probably several times, that's not a cash payment that's been made. That's a liability that's been put there. Because a number of our plans here require a cash settlement, we have to account for them on a basis of the total liability at the time of the balance sheet date. And really that liability gets -- is based on what our share price -- what our share price is at the time of the balance sheet date. So it's what we call a marked-to-market kind of like what you have to do on the hedging side. So if our stock goes up, our share-based compensation goes up by the fact that the stock went up during that period. And so that change also goes through our funds flow from operations, even though it hasn't been cash that's paid out Obviously, if the stock goes down, the opposite does happen. So in terms of looking at this table, I just wanted to point out a couple of things. There's 2 things that really affect the value of the share-based compensation. One is the stock prices that I just talked about. And the other is, obviously, the number of awards that are outstanding. So to illustrate the stock price, if we look at the DSU numbers in the table on the left-hand side, and then we look at -- we look at the number at December 31, 2020, there was a little over 2 million DSUs outstanding with a valuation of $1.9 million. And if you look over on to the right-hand side, that was the stock price of $0.87 a share. If we fast forward to March 31, 2022, there's actually a little less DSUs outstanding, but roughly still above 2 million. That liability is now $22.8 million. And the reason for that, as you see over on the right-hand side, the stock price has gone from $0.87 a share, up over $10, which we've all benefited from to $11.08 a share. So the change in that liability is driven by what's happened with the stock price. Looking at the second factor, the number of awards outstanding. Again, looking at the DSUs, we look what happened in 2020. So at December 31, 2019, the end of the year, over 847,000 outstanding. That did increase by about 1.2 million units to a little over 2 million, as I mentioned, at the end of December 2020. So what happened in the year of 2020? Obviously, a very interesting year, stock -- sorry, the commodity price where it's down in the depths, going through COVID, company was conserving cash, making sure that we survive for another day. The directors elected to take their fee compensation not in cash, but in DSUs instead. So cumulatively, that would have been less than $1 million, but given where the stock price was and it's based -- and those awards are based on what the stock price is, that resulted in the DSUs going up to above 2 million DSUs outstanding. So as a result of that, you could see that liability was only $2 million, the share price at that time was well under $1 as we all remember. So suffice it to say that's how our stock-based compensation works. Again, accounting rules are causing us to mark to mark this every time at a balance sheet date. To give you a sense of how that changes over time, each $1 change in the share price is equivalent to about $3.5 million change in that liability and that's not paid out in cash. Cash has been paid out until after investing has occurred. So in the case of DSUs that doesn't happen until a director leaves the Board. And so that liability is retained on our books in that instance. So hopefully, that gives you a little bit more flavor of how our share-based compensation works and why it's recorded as it is in our books. And we'll continue to provide information on this as we go forward. Next slide, please. So I just wanted to look a little bit at our reserves and how they underpin the value of the company, and the share price that we are seeing today. As we illustrated on the last slide, obviously, our share price has come up a lot, but we still think there's a lot of value left in the stock, and it is underpinned by our underlying reserves. So this is our reserves at the end of last year, the end of 2021. And then we've shown you the NPV 10% discounted value at $75, $85 and then what strip pricing was back in May 17, 2022. And you can see that value ranges anywhere from $1.3 billion up to $2.5 billion. The chart on the right-hand side takes those reserve values and breaking it out by the various components, producing total proved or prooved plus probable or you can pick the number that you're comfortable with. And then we show the price line of $13.08, which was a few days ago when we had generated this chart. And you can see our share price is underpinned really by our PDP reserve value with the considerable upside based on 1P or 2P reserve values depending on what price deck you would like to use. And this obviously doesn't include any of the unbooked inventory that we have that Jay was talking about as well as Clearwater upside. So I think just the point we want to make here is that the reserves are solid and they are supporting a baseline here for the stock price. Next slide, please. So to wrap it up before we get into Q&A, we think the company has excellent assets. As speakers have talked about, we've got a very strong Cardium position with lots of inventory and running room and a low decline base. We've revitalized our Peace River asset, and it's underpinned by the existing Bluesky production and a very exciting opportunity emerging with the Clearwater. We generate tremendous free cash flow, which will [ lead ] to bolster our balance sheet prior to looking at our investment options as well as return of capital initiatives. And that free cash flow will be sheltered from taxes for many years to come. So that's an important differentiation, I think, about our company. And finally, I think we have been good stewards in our operations in -- with respect to the environment and the communities that we operate in, as Cliff went through. So I think the company is doing well. We've got an exciting plan ahead, and we're looking forward to executing on that. And with that, I'll turn it back to Steve and Susan to take us through Q&A.

Great. Thanks, Peter. At this juncture, I just want to thank everyone as we have now concluded the prepared section of the presentation. We'll take a moment to allow questions to come in and at which point we will answer them. Susan, over to you.

Great. Thanks very much, Steve, and thanks, everybody, for attending today. We've got several questions, [ some might ] have been sent into the Investor Relations line ahead of time, and we've got some through the call, so we'll just start right ahead with it. One of the first ones comes from Ken from Sound Investments. Can you speak to the future of the Viking property, please?

Sure. I'll take that initially before I hand it over to Jay. As Jay alluded to, I think it's fair to say that a couple of things. One, we control the infrastructure in the area. And as a result, we can grow production without having to spend capital on infrastructure. Two, with AECO prices where they currently are, those wells have become a lot more competitive within our portfolio. So certainly, there's a place for it within the portfolio, where we can continue to drill 8 to 12 wells a year and effectively fill our infrastructure. I think it's also fair to say that at a certain price, we would look to potentially monetize it and recycle capital into other parts of the portfolio. I think ultimately, we'll chase value. So I think that's the way we think about it internally, but Jay, I'll turn it over to you, and you can add your two cents.

Yes. Sure, Steve. The only thing I guess I would add to that as well stated is that as you look at that development program, as we highlight on Slide 17. Seven of those wells are in that cluster of existing wells, where we have established production and expectation. One of those wells, 4-22 is off to the West, it's a single well. Thus far, we have not readily developed that western side of that asset. It is wide open. Obviously, we're looking keenly at what the results in that 4-22 pad look like, but we expect that to open up a tremendous amount of additional potential in there that with these economics give us the -- afford us a lot of flexibility and options as we move forward on that asset. That's it for me.

Great. Thanks, Jay. Thanks, Steve. A couple of questions around our debt level targets. One from it as to where you think the debt level targets will be at the end of the second quarter. And another one from Nicolas that the long-term debt target is $225 million, and how far away are we from that presently?

Sure. Peter, do you want to take that?

Sure. So debt at the end -- sorry, the long-term debt target, $225 million, obviously will depend on what commodity prices are doing. We do expect that we will be approaching that in the fourth quarter of this year, assuming that prices continue to go in the direction that they're going. And then our net debt probably at the end of this quarter is going to be in that [ 350 ] range, probably a little bit less, it depends ultimately on what the working capital number comes out as our program continues to be executed here.

Great. Thanks, Peter. We have a couple of questions from different shareholders about the return of capital. And specifically, do you -- are there any updates on return of capital to shareholders from Jack. And where do you want to see the debt and production levels out before you start to return some of the free cash flow via buybacks or dividends from Ryan.

Yes, sure, I'll take that. I mean I think we've more or less outlined that both via the press release and some of the commentary during the presentation. We have an absolute debt target as it relates to this -- with this production base of approximately $225 million. As Peter just alluded to, a triple approach, if not hit that towards the end of the year. At that juncture, we will definitively consider returns of capital. How we prioritize between dividends versus buybacks will be a function of where the stock is trading at that point in time versus intrinsic value. If we were forced to make that decision today, we would prioritize buybacks over dividends, but that may change later this year or early next year.

Thanks, Steve. Follow-up from Jack is asking about if there's any -- what about the transfers related to Whitecap? And as well, is there any option for a partnership there?

So we've already publicly commented on our PCU #11 on the transfer of operatorship as it pertains to PCU #11. The terms of that transfer are undisclosed. Suffice it to say that Obsidian is not the type of company that gives away value for nothing. So we're happy with that transaction. We look forward to Whitecap operating that asset. We certainly look forward to participating in those wells. We think there'll be very, very strong performing wells. And who's to say what the future holds.

Thank you. From [ Tan ], we also have a question on the results of the 2 deeper target vertical wells in the Pembina. He would like to know if there's another layer of deposits at a lower level.

Sure. Jay, do you want to take that?

Sure. Admittedly, in the presentation, we're being a little cagey about how we speak to that. In a roundabout ways, we are fortunate that throughout that Pembina field, particularly a big rate in our North Pembina assets, we have layered hydrocarbon deposits throughout the entire stratigraphic column. We see opportunity both deeper and shallower on these assets. And we plan to look carefully at it.

Great. Thank you very much. I don't know if we have anything to add on this, but I'll ask it. [ Mark ] was asked about -- for some details on the 156 wells, pipelines and facilities that were given to Whitecap that were approved by the AER. How did that play into the announced Whitecap broad commercial agreement?

Jay or Peter, do you want to take that? I mean the short answer pertains to PC #11 and the transfer of operatorship. I wouldn't read into it beyond that. But Peter or Jay...

That's what it's about. So that's in order for them to be operator, we do need to transfer all those licenses, and that's what's occurred. It's just part of that transaction.

Great. Thanks, Peter. Going back to the operations area from Ken, the Cardium produces the good stuff, Light Sweet with the Peace River producing the less -- the heavier oil. With oil prices up, will we be focusing more on the Peace River now. And I think you did answer to this, but you may have something more to add.

Sure, I'll take that before I hand it over to Jay. I think the short answer is that these prices, they're both -- both plays are better than good. They're great. High netbacks in both plays, very attractive economics. We control the infrastructure. And so as a result, I mean, I think it's fair to say that, whereas historically or at least in recent memory, we've been very much focused on the Cardium and there's been a 1 legged stool. I think you can very much think of us now as is being two-legged with a robust position in the Bluesky within Peace River and an emerging play in the Clearwater.

Yes. I think that says it effectively, Steve. I mean, the proof is in the well counts for the second half of the year, and you see a relatively balanced approach to what we plan to do in Peace River and what we plan to do in the Cardium, and that's a testament to both the economics, the flexibility and the readiness on both assets.

And the other point I would make is we couldn't put forth the development plan that we have if we exclusively focused it on the Cardium. That's not to suggest that we don't have the inventory to do so, but you would definitively run into capacity constraints in the way of gas processing, et cetera, and that would necessitate more capital, and we're not looking to do that. So -- but -- most importantly, the well economics in Peace River stand [ at around ] 2 feet.

Great. Question from Craig. Has the U.S. SPR release affected your heavy oil pricing?

I think it's fair to say that it's had a marginal impact of heavy oil differentials widening. I think it's a short-term dynamic defined as over the next couple of months. And at that juncture, it will abate. And so once again, I mean, the economics are extremely robust, notwithstanding that heavy oil differentials might be a couple of dollars wider than they would have been 2 or so [ months ago ].

Thanks, Steve. And a question from [ Amit ] about hedging. He's questioning that, I haven't seen as many June hedges coming out and wondering if we can anticipate limited hedging going forward, given the program or does this open it up with the new expanded program. And will you be protecting that? What is your approach around hedging?

Yes. I mean, listen, I think at the end of the day, as it pertains to how we think about hedging at Obsidian [indiscernible]. We're not going to be systematic about it. I think it's fair to say that as our balance sheet has continued to improve, the risks associated with volatility around commodity prices are a little bit less pronounced or can probably a fair amount less pronounced than they've been historically. We've had a market view that prices were going higher. We've been right. It doesn't mean it will be right in the future. It doesn't mean that we don't hedge in the future. But in the immediate near term, we've made a tactical decision to decrease the hedge profile. That could change tomorrow. So I think it's fair to say we'll continue to hedge as we deem it to be prudent, overlaid with our market outlook.

Question about infrastructure. A couple of people have asked if we have any infrastructure issues, pipelines, et cetera. And specifically, what's our present capacity constraint in Peace River.

Sure. Cliff, do you want to handle that?

Thanks, Steve. No infrastructure challenges at this point in time. We've put a lot of effort over the years into revitalizing the pipeline gathering infrastructure and the facility infrastructure in the broader Cardium area. All of our gas plants are in great shape currently on their turnarounds. Our pipelines, as mentioned, are running at a failure frequency, half of industry average, and we've got plenty of capacity for any future development that we may want to take. Now like Steve alluded to, we will get to a point where we're at capacity limitations in our facilities at some point. There are a few debottlenecking projects that we can tackle. At this point in time, no concerns at all. And then what was the question on the infrastructure in Peace River, Susan?

Yes. Just asking about the present capacity. So I'm assuming concerns that we have enough capacity for our advanced or increased drilling there.

Perfect. Yes. That's the short answer, absolutely. We have plenty of capacity for gas takeaway. Our pipelines are in good shape. And as many of you know, the emulsion from Peace River is trucked out. Now Obsidian owns and maintains most of the road infrastructure in the fields and the areas up there. So we have direct access to all of our pads and our sites. We have contracts in place with our major trucking companies that extend out up to 2 years from today, and plenty of resources that are available to us to move that oil. We also have a number of different terminalling points that we can get oil to. So we're well diversified across pipeline and rail. And I have no concerns at all on whatever growth plans we put forward in Peace River when it comes to infrastructure capacity.

Okay. Thank you. Steve, this most probably going to come to you. We have a couple of questions that are related. One from Ken, and one from [indiscernible] about the amount of reserves and the potential that Obsidian has. Are you concerned about an unsolicited takeover or have there been any inquiries from other companies for a merger or buyout?

Yes. I mean, listen, the last thing that worries me is an unsolicited takeover. This is a public company. We're implicitly for sale every day. I mean I know others don't necessarily think that way, but that's fair to say that, that mindset is the mindset of this board. So no, we're not concerned about it. We're obviously not going to comment as it relates to whether we have received any interest. We're just not going to feed into speculation.

Great. One question from Tyler. Would Obsidian ever bid on firm transport on the Trans Mountain pipeline expansion?

Cliff, do you want to take that?

Sure. Yes, I think we're always looking for opportunities to improve our netbacks on our oil and secure egress. Now that said, we have plenty of options as stated, especially in the Peace River area to move oil out at this point in time. But yes, we'll take a look at it. If there's a value case in front of us that improves our netbacks and gives us better security when it comes to egress, then we'll always be shopping for that.

Thank you. One probably coming over to Peter about the share-based compensation. We have a couple of questions on that. One is from Nicolas and related to that future management performance bonuses are mitigated by some elements, having reached their caps. How much more exposure is there this year to potential increases in these management performance bonuses? And the other question is from Bill. Should there have been put a dollar cap on place with the stock-based compensation to account for the eventuality of a multiplying effect on the stock price?

Steve, do you want me to take the first and then you take the second?

Sure.

So on the -- just to be clear, the management performance bonus is really what that is, if you look back to that slide is the PSU component that has a multiplier effect that can be between 0 and 2 that information is detailed on that slide. It's about 1.9 based on how the stock has performed against its peers. So that's how that is measured. Given that it's at 1.9 out of 2, really, there's not a lot more that will be liability, that will be accumulated on those particular performance unit. So again, out of the elements that drive the change in stock based or share-based compensation, that will be a very small element on that.

And Susan, can you please repeat the second question?

Certainly. What's the -- sorry...

Whether there should be a cap placed on the...

Yes, whether there should have been a cap -- a dollar cap put in place on the SBC to account for the eventuality of the multiplying effect of the stock price.

Listen, I'll answer the question as a material shareholder. The answer is, absolutely not, right? I mean we should want that SBC number to be as big as possible. I know I'm going [indiscernible] as a material shareholder. I think when you look at kind of where these companies come from, I think there's a underappreciation as it pertains to some of the legacy issues that ail this company. There certainly is an appreciation as it relates to everything we had to do to ensure that this company didn't file for bankruptcy, which we managed to do without diluting shareholders as well as put ourselves in a position to buy back our 45% interest in Peace River when not one single bank in our syndicate was willing to lend to us. So I think the short answer is we're here today because of the hard work of this collective management team as well as a full employee base as well as the Board. We -- there's a number of directors, myself included, who have leaned in heavily with their personal relationships to help us get to where we are today, and there's a full alignment between shareholders and management. If you look at the grant values at the time, they are well within market. And the fact that the stock has gone up 10x, that's a high-class problem for all of us. So our job here is to get through this refinancing, which we will. And from there, ensure that we close the gap between current trading values and fair value because we're still materially undervalued relative to the comparables. I think as we work our way through this year, and taxability and tax pools and cost inflation comes to the forefront and the aggregate impacts of those factors are easier to sift through, I think our story is going to stand out. So quite proud of what we've accomplished, and I think the employees deserve credit for it and deserve to be fairly compensated as well.

Thanks, Steve. I realized we're going a little over time. We just have a few more questions if that's acceptable. We have a follow-up from Tyler regarding the potential return of capital. Once the debt target is reached, would you consider a [ Dutch auction ] repurchase program to accelerate capital return?

I think it's fair to say we'll consider everything is on the table as it pertains to creating shareholder value. So in short answer, yes.

Great. One about decommissioning liability. Question from Ken is referring to the year-end 2021 notes, Note 8, about the decommissioning liability of $596 million. He states that he understands how discounting works, but to write it off over 50 years, results in a very low number in view of the reserves being 20 years life. Can you comment on that, please?

Sure. Peter, do you want to take that, and I can chime in as well.

Sure. So the reserves actually have longer than the 20-year life. And the way that schedule of the ARO and the discounting is done is what is based on when the projected end of life for each of those reserves, facilities, et cetera, would be. So it's not -- there isn't a mismatch there. And so that's the way that calculation is done.

Perfect. Craig is asking about if we have all the infrastructure in place for our '23 expected levels. I do think Cliff responds to that, but if there's something to add. And also asking if we have target for debt levels by year-end '22 and midpoint '23?

Susan, can you repeat the second part of the question, please?

Sure. The second part of the question is about targets for debt levels for -- at the year-end '22 and midpoint '23.

We don't have a target for year-end '22. [indiscernible] to some extent, the market will dictate kind of where we ultimately get to our market pricing. We've already outlined what we deem kind of our target level to be in the way of absolute terms. And we think we'll get there towards the end of the year or certainly early next year.

And then, Susan, just to pile on to that capacity question. I think Cliff answered it pretty effectively, but safe to say that we don't make a plan going forward where we haven't already addressed our facility and capacity concerns. So that's already baked into the assumptions that we're making. Obviously, we spoke to some of the decisions we can make both between our assets and within our assets to help mitigate some of those costs, but we feel that we've got a line of sight to making sure we can deliver.

Perfect. Thanks so much, Jay. I have one last question here, recognizing that we're now almost 10 minutes over, but a good time to ask this one from Ken. This may sound like a long shot, but when can you hit 50,000 barrels a day.

Well, I think there's when we can hit it versus whether it's prudent to do so. I think what we've done right here right now is laid out a plan that basically takes into consideration growing our production to better align with our inventory base, while at the same time, offsetting some of the inflationary pressures that we're seeing in the base business, while at the same time allowing for ample free cash flow generation. Our price is even below strip pricing to further pay down debt and give ourselves a fair amount of optionality, as it relates to how we create value from there. Obviously, we believe the fact that we would look to return capital. As to whether or not we would look to grow production materially from there organically, it's a TBD, right? I mean, it's really a function of whether we deem it prudent to do so. And it's hard to answer that question given that it would be at least 12 to 18 months out. What I can say is right here right now, we're feeling pretty good about the pricing construct. I mean there's really, at the end of the day, an inability to -- for the industry to materially grow, initially because it was more shareholder-driven where the focus was on returns of capital. Now you have a dynamic where even if you want to grow, you can't, because there are -- there is -- the services and the materials needed to do so aren't readily available. We made a call and secured those access to services and materials. And so we're able to do so. As to what kind of the second half of 2023 and beyond looks like, it's just too opaque at this juncture.

Thanks, Steve. We just had one last question come in from Bill back on to the compensation aspect. Is the current $40 million accrued in Directors' compensation in line with your peers?

[indiscernible] go ahead, Peter.

First, and then you can add. So I think the answer would be yes, Bill. And when I went through the share-based compensation, the method that we're required to account for them is a cash settled method because of that cash settled component. Others would have an equity settled method, which has a totally different accounting treatment and meaning that instead of getting cash, the directors would get, or employees would get stock. And then once they have that stock, they hold that stock and they still get the same benefit of the run in the share price by holding that stock, unless, of course, they chose to sell it. So I think on balance, our compensation is in line and it is just the fact away that we have had to account for it and how that shows up, which I think is, in my personal opinion, anomaly in the accounting rules, but anyway, that's what we need to live with and that's the way that is reflected.

And just to add to that, I would say that our plan is actually more shareholder-friendly because we're settling in cash versus issuing shares that we deem to be undervalued. So a nuance but an important one.

Steve, at this time, I'm seeing no more questions in the queue. So I'd like to wrap it up.

Great. Well, thanks, Susan. I want to thank everyone for attending this conference call. We hope that you leave the call excited as to the story we certainly are. And we hope we've answered -- adequately answered your questions. Look forward to continuing the dialogue and report with many of the investors on the phone and as well as look forward to updating you as part of our 2Q earnings release in late July. Thank you.

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