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2023 GUIDANCE
With a strong start to our 2023 development program, Obsidian Energy expects to grow average production to approximately 32,000 to 33,500 boe/d in 2023 - a seven percent increase from 2022 at the mid-point. While still growing production, we are electing to moderate our capital spending and growth profile in this environment of increasing service costs and WTI crude oil prices, which are approximately US$20 per barrel lower from mid-year 2022 levels. At this time, we prefer to redirect capital previously earmarked for development towards the initiation of a normal course issuer bid ("NCIB").
We are pleased with our 2022 results, which will be announced in February and are reflected in the increases in our 2022 Reserve Report. Our fourth quarter 2022 capital program remained active despite extreme cold weather in December that hampered operations and production. Fourth quarter capital was approximately $97 million, bringing full year capital slightly below our 2022 guidance at $319 million (including the Peace River gas plant acquisition in September). Production averaged 31,742 boe/d for the fourth quarter, bringing full year 2022 production to 30,682 boe/d, which is slightly below the low end of guidance of 30,800 boe/d due to the impact of the cold weather on operations and facilities. Concerning wells spud in 2022, three wells (2.9 net) were rig released in January 2023 and eight (7.8) net wells are expected to be brought on production in 2023.
During 2023, the Company is planning between $260 and $270 million in capital expenditures for development and exploration/appraisal activities, plus an additional $26 to $28 million in decommissioning expenditures that accelerates our asset retirement obligations (decommissioning expenditures are higher in 2023 than in 2022 as the Alberta Energy Regulator increased industry spend targets for oil and gas companies in Alberta). Capital expenditures are primarily focused on development wells in all areas and incorporate the impact of inflationary pressures on drilling consumables and service costs, which were approximately 30 percent higher at the end of 2022 compared to 2021. Obsidian Energy has contracted rigs and services for the first half 2023 program to minimize the impact of future inflation. Our active first quarter 2023 development program will continue the momentum from the 2022 program, resulting in production growth and expected strong free cash flow. Should commodity prices be favourable, we are well positioned to act on opportunities and adjust the program upward during the second half of the year.
Net operating expenses are expected to be slightly lower than 2022 levels as higher production helps offset the impacts of inflationary pressures and planned facility turnaround activity during the year. Free cash flow ("FCF") generated in 2023 will be directed toward further debt reduction and to shareholders through the NCIB, resulting in a 2023 net debt to funds flow from operations ("FFO") of approximately 0.5 times (prior to any shares repurchased under an NCIB). Any FCF above expected guidance levels could be allocated towards additional development and exploration/appraisal activities, potential acquisitions and/or additional shareholder return of capital. Our full year 2023 guidance is presented below.
| 2023E Guidance | ||||
| Production1 | boe/d | 32,000 - 33,500 | ||
| % Oil and NGLs | % | 67% | ||
| Capital expenditures2 | $ millions | 260 - 270 | ||
| Decommissioning expenditures | $ millions | 26 - 28 | ||
| Net operating costs | $/boe | 13.50 - 14.40 | ||
| General & administrative | $/boe | 1.60 - 1.70 | ||
| Based on midpoint of above guidance | ||||
| WTI Range | US$/bbl | 80.00 | ||
| AECO | CAD$/GJ | 3.00 | ||
| FFO3 | $ millions | 395 | ||
| FCF (prior to NCIB) | $ millions | 105 | ||
| Net debt (prior to NCIB)4 | $ millions | 215 | ||
| Net debt to FFO4 | times | 0.5 | ||
Posted In: OBE
