Obsidian Energy has announced its first half 2021 guidance as the Company continues to advance its development in the Cardium area.
A total of $35 million in capital expenditures plus $5 million in decommissioning expenditures is currently budgeted for the first half of 2021, furthering the Company's Cardium development activity in Willesden Green with a planned seven well drilling program that builds on the 2020 program where Obsidian Energy experienced strong production results. Assuming continued supportive commodity prices and weather conditions, Obsidian Energy could expand the first half drilling program to eight wells. The Company's successful optimization program will also continue with $4 million allocated in the first half of 2021 (included in the capital expenditure figures above) in order to capture further highly attractive capital efficiencies.
"Our 2020 drilling program resulted in some of the best wells we've seen in the history of our Cardium program," said Stephen Loukas, Obsidian Energy's Interim President and CEO. "Our first half 2021 program will build on these results with most of the wells adjacent to or very near our 2020 wells, which produced excellent production rates at very low operating costs. With shallow production declines and a strong portfolio of development opportunities, our expansion in this area forms the foundation in creating the 'Cardium Champion' along with potential future consolidation."
Obsidian Energy began its first half 2021 program in December, and has successfully rig-released the first two wells on the 4-35 Cardium pad located in Crimson Lake, which is adjacent to the 1-27 and 12-26 pads that were drilled in 2020 and produced some of the highest production rates in the Company's Cardium development history. One drilling rig is being utilized to deliver the seven-well program, offering significant operating and capital efficiencies. While Obsidian Energy expects to drill all seven wells prior to spring break up, current guidance assumes that only five wells are brought on stream in the first half of 2021 with the remaining two wells scheduled to be completed as soon as weather and ground conditions allow, giving the Company a jump-start on its second half capital program.
The first half development program will strengthen the Company's underlying production base and position it to maintain 2021 first half average production at 2020 exit levels, while generating incremental free cash flow for debt repayment. Obsidian Energy's operational flexibility provides management with the ability to quickly modify development plans as commodity prices fluctuate - increasing capital expenditures and adding new production in higher oil price environments or reducing development activities and protecting liquidity in low price scenarios. If WTI oil prices remain near US$50 per barrel, management anticipates utilizing two drilling rigs in its second half 2021 capital program.
Stephen Loukas continued, "Throughout 2021, we will continue to monitor commodity prices and be strategic in our capital allocation to optimize economic returns. With our land base held by production, we can grow light-oil production when it makes financial sense, with the added competitive advantage of being able to draw from a deep inventory of opportunities across our diverse portfolio."
The Company's Bigoray egress project continues to be on schedule and on budget with permitting and groundwork completed and key equipment on location. During January, pipeline, electrical and control system installations will be completed and approximately 450 boe/d of high netback, oil-weighted net production is expected to be restored by the end of the month. Obsidian Energy continues to pursue third-party processing revenue opportunities.
Obsidian Energy has successfully abandoned 99 net wells in the fourth quarter of 2020 supported through participation in the Alberta Site Rehabilitation Program ("ASRP"), resulting in a reduction of over $3 million to the Company's inactive decommissioning liability. This impact is in addition to 148 net wells abandoned by Obsidian Energy's Area Based Closure ("ABC") spending in the first half of 2020.
ASRP activity will be expanded in 2021 with anticipated deployment of nearly $10 million of ASRP grants. The Company expects to abandon an additional 422 net wells prior to the end of 2022 due to the support from this program. Grants previously awarded on Obsidian Energy licenses in the first two application periods were increased by $0.5 million to better reflect costs for these activities, bringing the total grants and allocations to date to $22 million. The Company expects to receive additional ASRP support grants via the fifth and sixth application periods, which are scheduled to open February 1, 2021.
In addition, Mr. Loukas' employment contract has been extended through the end of January 2021 to allow for the Board to negotiate a longer-term extension.