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Good afternoon, ladies and gentlemen. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Obsidian Energy Q2 Results and AGM Presentation 2020 Conference Call. [Operator Instructions] Thank you.And I would like to turn the conference over to Laura Butynets, Investor Relations Analyst. Please go ahead.
Good morning, everyone. Thanks for joining us. This morning, we'll be discussing our 2020 second quarter financial and operating results.With me this morning on the call is Stephen Loukas, Interim President and Chief Executive Officer; Peter Scott, Chief Financial Officer; Aaron Smith, Senior Vice President of Development and Operations; Gary Sykes, Vice President of Commercial; and Mark Hawkins, Vice President of Legal, General Counsel and Corporate Secretary.Before I turn the call over to Steve, I'd like to point out that we will refer to forward-looking information in connection with Obsidian Energy and the subject matter of today's call. By its nature, this information contains forecast assumptions and expectations about future outcomes, so we'll remind you it is subject to the risks and uncertainties affecting every business, including ours. Please refer to 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 could affect future outcomes for Obsidian Energy.Please go ahead, Steve.
Thank you, Laura. I wanted to take an opportunity to thank everyone on the phone today. Myself and the team will go through both the 2Q operating results as well as a brief presentation with an overview of the company. At which point, we will open it up for Q&A to be submitted via the web platform.So if I would turn your attention to Page 3, just in a way of a brief corporate overview. Obsidian is roughly $550 million enterprise value today, comprised of approximately $500 million of net debt as of the end of 2Q and a market capitalization of approximately $50 million.In the way of reserves, as of year-end 2019, our 2P reserves were approximately 126 million barrels equivalent. Our RLI, our reserve life index, based off of once again 2019 year-end is approximately 14 years and with a PDP decline of approximately 17%. Our tax pool at the end of the year, approximately $2.5 billion, which means that we will not be a taxpayer for the foreseeable future.In the way of just guidance, we are effectively now providing full year 2020 guidance on the production front of between 25,000 and 25,500 BOE a day; total CapEx of approximately $62 million, which includes $11 million of decommissioning expense; full year operating cost of $11.10 to $11.50 per BOE; and full year G&A per BOE between $1.50 and $1.60.In regards to second half guidance, our production will be roughly 24,000 to 24,500 BOE a day. The decreasing production guidance is just a function of the fact that we are currently -- we will not be drilling during the third quarter. Total CapEx for the second half of the year from where we sit today of approximately $13 million. Now that number may change, contingent on what oil prices do in the fourth quarter of the year and whether a decision is made to commence a small drilling program during Q4.Our operating costs will be approximately $12 and $12.50 for the second half, and that simply reflects the lower volumes across which our operating costs will be spread across. And our G&A will continue to be in the $1.50 to $1.65 range, which is reflective of the cost that we moved to take out during the second quarter.Shifting to Page 4. Just wanted to go through basically our first half results and then speak to our short-term strategic priorities. Our original production guidance for the first half was between 25,500 and 26,000 BOE a day. We've managed to exceed that in a very challenging environment with total production of 26,482 barrels a day. That is net of shut-ins that we undertook during the second quarter, which were a function of commodity prices.Total CapEx came in at $41 million versus first half guidance of $43 million. That was just driven by lower overall drilling, completion and tie-in costs. Decommission expense was $8 million, right on top of our guidance. Operating costs were $10.32 versus $11.50 to $11.90 range. And G&A was $1.50 versus the $1.65 to $1.85 per BOE range. And those 2 metrics, meaning operating costs and G&A, coming in lower than guidance, were really a credit to the team in regards to moving very swiftly to basically shut in higher operating cost production and move to take out a significant amount of cost out of the company's operating structure, which we've outlined in some of our press releases.Speaking to our short-term priorities. In the environment that we're currently in, clearly the focus is to protect long-term asset value. We've made a decision, along with many of our peers, to effectively defer near-term development capital. That's just a function of oil prices not being conducive enough to warrant reinvestment economics.Having said that, we are ready to toggle to a very small drilling program to the extent that prices were to firm up $5 or so from here on a sustained basis. And that really speaks to the high-return inventory that we have.We also moved to temporarily shut in uneconomic properties. And I think it speaks to the flexibility inherent within the asset base where we can quickly, with minimal cost, make decisions to shut down and restart assets. You've seen a lot of our production, where approximately the better part of 90% of that production that we moved to shut in, effectively come back as of the 1st of July. And so that is inherently -- there's an inherent advantage that we have. And obviously, the focus on the environment is to continue to build liquidity through cost reduction initiatives.Turning to page -- Slide 5. Speaking to our long-term strategic priorities. I mean clearly, as I just articulated in layman's terms, the short-term initiative, our priority is to ensure survival. But in the intermediate to long term, it's all about how do we generate a superior shareholder return.There's really 3 pillars to that. The first is to drive per share growth via organic and primary development and debt paydown. I think via some of the more recent operating results, we've demonstrated that we've been very successful in lowering our breakeven -- corporate breakeven, which we'll speak to in a subsequent page, significantly versus where it stood 12 to 18 months ago. As a result, in a more normalized USD 50 WTI environment, we think we can easily keep production flat while basically generating significant free cash to pay down debt. We basically want to, in the near term, use that excess free cash flow to get our balance sheet down to what we'd call more of a sustainable leverage metric. And obviously, higher commodity prices north of $50 would go a long way in pulling that initiative forward.And then lastly, we've been very up-front about the need to create incremental scale and further decrease costs and further lower our breakeven point via consolidation in the Cardium. That is something that both this management team and Board believe needs to happen irrespective of commodity prices. And I would say to you that simply put, there's just too many -- too much in the way of duplicative costs in the Cardium Basin. There's 10-plus players in -- there need to be a -- there probably needs to be 2 to 3 players that ultimately survive. And I think the net result of that would be a company that has a breakeven cost that is probably something closer to the mid-30s in the way of being able to keep production flat, yet maintain free cash flow neutrality and also be of the size and scale that has a much better opportunity to resonate in the capital markets, defined as both the debt capital and equity capital markets.Shifting to Page 6. Speaking a little further to the corporate cost improvements that I alluded to as part of our first half operational results overview. Our first half OpEx came in at $10.32 per share -- per BOE. Our 2020 midpoint guidance in regards to OpEx is $11.30 per BOE, and that's taking into account the lower production profile in the second half of the year. If you look at the trend versus where this company stood in 2017, we will have taken out a better part of $4 in OpEx per BOE, which is just material in regards to driving that breakeven point down that I spoke to earlier.On the G&A front, very similar dynamic. If you look at basically our G&A per BOE in regards to where it stood in 2017 versus the midpoint of our 2020 guidance, that's a 42% reduction or over $1 per BOE. So collectively, it's a significant driver in improving the company's financial profile.A key question that one might ask is, well what have been the drivers behind that? Clearly, the 2019 restructuring program that we undertook, whereby we took the opportunity to streamline the organization via headcount reduction, has been part of the driver on the G&A front. But specific to the OpEx side of the equation, it's really been dual pronged. One has been just a very resilient and focused effort on the part of the operations team in regards to driving down operating costs. But additionally, part of the driver has been our ability to continue to add and grow production in Willesden Green. Incremental volume adds were anywhere from $4 to $6 per BOE. So holding the portfolio constant to the extent that we will continue to drill Willesden Green, which is obviously going to continue to be our focus, given that's where the higher returns reside, you should continue to see your OpEx per BOE decline, once again with a caveat that you're able to hold aggregate production volumes flat.Shifting to Page 7. This is a slide that I'm very much proud of, which is effectively our breakeven and where it stood in 2018, which was north of USD 55 per barrel. We have basically driven that down to where in 2020, our breakeven price to keep production flat while maintaining free cash flow neutrality, inclusive of our hedges, is approximately $30 million of WTI. And our forecasted 2021, number is USD 42, and that is based off of our 2020 exit production rate.So when comparing to our peers, that flatly puts us -- easily puts us in the top quartile. And I would add that there's probably $2, an incremental $2 that is attributable to our higher-than-market office lease. So we're quite pleased with the amount of -- what we've been able to chop in that regard.Shifting to Page 8, just in the way of investment highlights. This is obviously a bit of an overview in regards to the company. We're the largest acreage holder in the Cardium. If you think about the Cardium as really kind of 2 key plays, Pembina and Willesden Green, we have dominant positions in both of those sub-plays. The Cardium is one of Canada's lowest-cost light oil resources, very strong IRR and recycle ratios in the play. I'm very excited to report that based off of recent technical work over the last 12 to 18 months that the team has undertaken, we have increased our Pembina inventory significantly such that we now have over 900 gross Cardium locations.I do want to take a moment to draw a line of distinction between what we refer to as locations, which is to say that these are locations where we have identified and ascribed an individual type curve as opposed to some of the metrics that some of our Cardium peers would represent, which is simply a much more simplistic analysis where they ascribe a certain amount of locations to each one of their sections. And so we feel very confident in saying that we, by far, have the deepest inventory position in the Cardium. But we have over 250 Tier 1 locations, which we'll speak to the individual rates of return in the pages to come, which sets the company up extremely well for many years to come.We've seen very strong well performance since the beginning of 2018 when we began to toggle to our primary development program in Willesden Green, which is comprised of Crimson Lake and East Crimson. That's where the focus has been.Our 2019 OpEx in Willesden Green was $5.37 per BOE. That is further to the comment that I made in one of the previous slides where part of the reason as to why we've managed to decrease our corporate OpEx is because of lower OpEx adds in Willesden Green.We've managed to decrease our DCE&T cost by 8% since the second quarter of 2018, and all 10 of our first half 2020 wells are on production. The initial rates that we've seen over the first 90 days in a number of those wells have far exceeded expectations, some of the strongest that we've seen in the multiyear Cardium program to date.I think we've proven at this juncture that our operations are very flexible. It can quickly react to volatility in commodity prices. I think our second quarter is basically a testament to that. And we have a plethora of incremental opportunities in the portfolio, including waterflood and EOR projects, whereby with higher returns, some of those opportunities might become more of a focus within the portfolio.We also control and own the vast majority of our strategic infrastructure. And we, as a result, are able to grow near-term production in both Willesden Green and Pembina with minimal infrastructure spend, and as a result, put ourselves in a position to continue to earn attractive half-cycle economics.Shifting to Page 9. Just to speak to our Cardium development program. I think the way to think about it in the near term, we are going to continue to be focused on Willesden Green. We have obviously targeted our drilling to prioritize our highest returns. At prices of -- WTI prices of USD 45 or greater, you have attractive returns, which are ranked by IRR, payout and recycle ratios. Our program is flexible. So in that regard, we're license-ready, and we can quickly scale to an opportunity set that is a function of the price environment that we're in. And so with that comes a lot of optionality.We also have an optimization program, which has been focused on Pembina that we're quite proud of. We've been able to add a fair amount of production and overall capital efficiencies of sub-$10,000 per BOE with an oil liquids cut that is very similar to the overall corporate average. And that's something that has been a focus and will continue to be a focus during the second half of the year and as we make our way into 2021. And as I alluded to, we control our infrastructure and there's minimal, incremental near-term spend that would be necessary to continue to drill within Pembina and Willesden Green.Speaking to Page 10 and our first half development program. I won't get into the individual pad results, although you can see that there's a fair amount of data that we basically have provided both on the purpose -- both in this slide as well as in our press release earlier this morning. But the overall takeaway is our 12-26 pad as well as our -- our 12-26 pad has seen some of the strongest oil equivalent rates in our Cardium program. You've seen those rates be reflected in some of the industry research that tracks Cardium performance.If you look to a slide which tracks performance from February to April on the lower right-hand corner of the slide, you see that 4 of our wells -- 4 of our 10 wells were amongst the top performers drilling the program. There's another couple of wells that had not come on yet to be reflected in this analysis. I think if you were to further sensitize that slide and really focus on liquids cuts, our well performance is even more attractive versus that of competitors. So very, very pleased, very happy with the performance of the first half program. And perhaps just as importantly, we're highly confident in our ability to continue to extrapolate this performance into the years to come.Shifting to Page 11. It really speaks to and drill a little deeper down into our Cardium production. Our overall Cardium production has seen our liquids grow by 25% from fiscal year '17 and seen total production growth of 22% over that time period.As I have mentioned numerous times in my comments today, the focus has been on Willesden Green. And specific to Willesden Green, we've seen 119% liquids growth since 2017, 93% total production growth over that time period and a 49% OpEx per BOE improvement since 2017, which is a function of the higher volumes as well as the team taking out -- stripping out some costs.Shifting to Page 12, further to the optimization program. We believe that the program will -- we spent $8.4 million of capital in 2019 across 200 projects. That capital efficiency on a 12-month basis was sub-$8,000 per BOE with over 70% high oil weighting, so actually slightly higher than the corporate average.In 2020, we've spent $5 million in Q1, did not spend any in 2Q and have $3.1 million planned during the second half of the year. That has resulted in basically having added 787 barrels a day of production in 2019 with a 71% oil cut.Our 2020 program is basically yielding very similar metrics with 764 barrels a day and almost an 80% oil cut. And the net result of that is basically a dynamic where since March of 2019 through March of 2020, we've effectively managed to keep our production in Pembina flat, and that's despite not drilling a primary well. So it really speaks to our ability to shift our capital, focus our capital on the primary program within Willesden Green yet continue to add very cheap barrels in Pembina on a nonprimary basis while we effectively keep production flat.Shifting to Page 13, just basically speaks to and illustrates the 8% improvement in drilling costs that we've seen since 2018. So our wells would have cost $3.6 million or so in the second half of '18 versus $3.3 million that we achieved in 2020, given the environment that we're in, where we have obviously limited to no activity. The hope and expectation would be that we could potentially improve on that $3.3 million number.Page 14 really speaks to -- this is a bit of a revised slide, where it reflects the 400-or-so incremental locations that we have identified within Central Pembina. Net result is we have 900-plus total identified locations. Yet only 135 of them have been reflected in our reserve report as of year-end '19. So just a significant runway to seeing reserve adds in the years to come, assuming that commodity prices are accommodative.Shifting to Page 15. Effectively, what we will do the next couple of slides is dissect some of the locations that we spoke to in Page 14 by sub-play. Crimson Lake is the near-term focus at $3.2 million DCET cost and assuming USD 50 WTI, USD 6 light oil differential, $2.25 AECO and a $1.36 CAD-U.S. dollar exchange rate. You basically see tremendously strong returns of 118% IRRs, effectively a 1-year payout and a 12-month efficiency -- capital efficiency of $13,700.And so in the way of breakeven, in regards to breakeven to achieve a 10% IRR is USD 26.29. I mean clearly, we don't think that 10% IRR is attractive nor would we use our -- waste our best inventory in such a price environment, but just for illustrative purposes, that's what that were to work out to.Shifting to the next page where we speak to East Crimson. Slightly lower overall all-in cost of $2.9 million; directionally very similar IRR at 90%; a payout of slightly over a year, 1.2 years; and a capital efficiency of $14,700; and a breakeven that's approximately USD 30, USD 31 WTI to achieve a 10% IRR.I think if you were to think about Crimson Lake and East Crimson in tandem, that's over 100 locations between the 2 sub-plays. So those 2 plays alone could basically satisfy the company's inventory needs for a number of years to come to a more normalized price environment.Shifting to the following page, Page 17, West Pembina. We have a number of locations here with approximately 132 type curve locations. Got a projected $3 million overall DCET cost, an IRR of 57%, payout of 1.5 years and a total 12-month capital efficiency of $18,500.I would like to just make an overall point of distinction between how to think about a well in Willesden Green versus a well in Pembina. I think what you see in Willesden Green is that the wells tend to come on flusher. And so you have a higher initial rate with a higher decline, but the higher initial rate drives a higher IRR and 12-month capital efficiency given that you're recycling your capital a lot quicker. Wells in Pembina tend to come on a little bit less robust, but by extension, also have a more shallow decline. And so if you look at these capital efficiencies over, say, a 24-month or a 30-month basis, they would actually start to converge a bit more. Just something to keep in mind as one thinks about how they manage a portfolio over the intermediate to long term.Shifting to Page 18. This is Central Pembina, which is where we've added the vast majority of our incremental locations. We have over 500 to 600 that we have identified. And so that alone -- or the better part of 700, I should say. That alone is a company in and of itself. Total DCET cost of $2.3 million. These are short laterals. IRRs of approximately 60%, 12-month capital efficiencies of $18,900 and a breakeven that's closer to USD 27.69. So we're very, very pleased with the incremental upside that we see within this part of the Pembina field.Shifting to the Viking, which is not a near-term focus given the return profile that we have within our Cardium portfolio. Notwithstanding that, it is an attractive play, assuming a $1.2 million all-in well cost, which we think is easily achievable based off of some of the results that we've seen from some of the offset operators. You basically have a 47% IRR, a $12,600 capital efficiency and a USD 29 breakeven.And I think the one distinction between the Alberta Viking versus the Cardium is that it is a lot gassier. And as a result, to the extent that you were to see higher AECO pricing, these IRRs can change materially more favorable. So definitely an interesting flex asset within the portfolio and one that we would potentially look to focus on in the intermediate to long term.Lastly, speaking to Peace River. 2020 average production was 2,132 barrels a day, with over 3,000 barrels that were shut in at various stages during the quarter in response to the low commodity price environment. We've now basically returned 85% of our previous lease shut-in production as of the 1st of July. Obviously, it's a heavy oil asset with some potential for upside in the way of the Clearwater formation, which has been the focus of some other operators. And this is an asset that, in a more normalized environment, generates good free cash flow that in the near to intermediate term -- in the near term, we have been recycling into higher-return wells in the Cardium. But at a certain price threshold, would also potentially compete for capital. Or under the right circumstances and right environment, it's potentially an asset that could be disposed of to basically fast track -- further fast track development of our Cardium play.Shifting to Slide 21 and speaking to ARO, which has been more of a focus industry-wide over the last 18 or so months. And it certainly has been very much a focus of the company. What you saw is over the course of 2019, we were able to drive down our undiscounted ARO by over $200 million from $847 million to $621 million, and that's really a function of the success that we have had in having entered the ABC program. The net result is that you have seen our actual realized costs decrease anywhere from of 35% to 50% on well abandonment and significantly more than that on pipeline versus the government estimate numbers, which we use to derive our undiscounted number. It's a long-winded way of saying that the $604 million undiscounted number that we now basically disclose as part of our 2Q financials, we believe, is probably overstated relative to our actual experienced realized cost.Additionally speaking to our ABC spend, we spent $8.5 million on a year-to-date basis. The AER has suspended all residual 2020 ABC spend requirements and will fully credit towards 2021 whatever was spent in 2020. As a result, the lion's share of our ABC commitment has already been spoken for in 2021, which will be a tailwind to free cash flow generation in '21.Additionally, we've submitted the better part of 3,500 applications to the Alberta Site Rehabilitation Program during period 1. And those applications are -- continue to be reviewed. I think it's fair to say that the government -- the period 1 program was significantly oversubscribed and created a dynamic where the evaluation of those applications has taken longer than we and many of our peers would like. Notwithstanding that, we're cautiously optimistic that we will receive our fair share of awards during the period 1 program.Additionally, as an ABC participant, we do expect significant support under the period 4 program. The period 4 program, to be clear, is a program where $100 million has been earmarked specifically for ABC participants, of which we are one. So we expect to receive a pro rata share of that program.Additionally, the lion's share of our ARO obligation resides at the Cardium. The upside to that is this is obviously a play in a field that we will continue to be active in and will be producing for many decades to come. And as a result, it's easier to monitor. Additionally, there's a number of wells that can be reactivated, recompleted and repurposed. And that at the margin is really what we've been focused on as part of our optimization program. A number of those initiatives have simply been impactful reactivations and recompletions, which not only produce a very attractive capital efficiency that we previously alluded to, but also does have a net impact of converting an inactive ARO liability to active.Shifting to Page 22, which will -- where we really speak to our undeveloped reserves. As of year-end '19, our PDP ratio as a percentage of 1P was the better part of 70%, so truly, truly at the high end of the scale. I think it speaks to the fact of how conservatively booked we are versus our peers, or maybe put another way, how aggressively booked others are versus ourselves. And given the WTI price environment that we're in, I would not be surprised to see some of our peers have to basically unbook reserves.Speaking to kind of our 2P locations and the percentage that basically are booked versus the number of sections we have, you can also see just again another metric as to how conservatively booked we are. So significant running room to continue to book reserves in a normalized price environment.Page 23 refers to our hedge strategy. Entering the year, we had layered on a number of hedges to take advantage of obviously what we deem to be attractive WTI prices. Those hedges have since fallen away. Notwithstanding that, they were a significant tailwind given the pricing volatility that was experienced during the first half of the year. Our overall strategy is to hedge up to 50% of production volumes after royalties. And that's obviously to protect FFO, support the capital program and to better ensure the potential for debt repayment.Hedges are done on a CAD dollar basis as reflected in how the first half hedges are -- have been illustrated as we just don't want to deal with having to also manage the FX. It's also fair to assume that we haven't found more recent WTI prices to be constructive, which is why we have not entered into additional hedges. And obviously, with the benefit of hindsight, that was proven to be correct.In regards to gas, we did take the opportunity to hedge gas through the summer months. We were a little concerned about basis differential risk, but we have a much more constructive setup for winter gas. And entering into new hedges for -- on the gas side for winter 2020/'21 is something that we are definitively actively thinking about.Lastly, speaking to ESG, which has obviously become more of a focus over the last year or 2, both industry-wide as well as market-wide. We continue to be focused on minimizing the impact of operations on the environment. We're an active participant to -- within the ABC program and focused on continuing to abandon and reclaim areas as a whole and satisfy our ARO obligations. And all of our environmental programs meet or exceed the minimum thresholds.In regards to social and governance, we're committed to making a positive impact within the communities we operate in. We basically support and donate to a number of charities and organizations as well as industry lobbyist groups. And on the governance side, we continue to be comprised of a majority of independents. And a significant amount of the Board has sizable shareholdings, including myself.So turning lastly to Page 25. We have an experienced management and a very strong technical team. I think the vastly improved financial performance over the last 18 months is proof positive of that. And we yearn for a more normalized pricing environment where we could better display the full potential of the asset base given the significant strides that we've made both on the cost front as well as the vastly improved drilling results. So I will refer to you the appendix, where we have a number of footnotes, which basically anchor some of the analysis that you see -- you saw during the presentation.And with that, we will take a moment to pause and prepare for Q&A.
Thank you, Steve. We have several questions here for you.The first question is in regards to our strategic review process. Could you give us some kind of idea as to what your immediate vision for Obsidian's strategic review would look like? And would it require the merger of more than one competitor? Or is it possible to merge with one and still provide Obsidian shareholders with optimum value?
Sure. So just further to the strategic review, I think it's fair to say that we've been very up-front in regards to the fact that as a general comment, you've got a couple of trends. Number one is there's just less capital, both on the debt and equity side, that has been focused on energy. And in order to be able to competitively compete for capital in this current market environment, you truly need to have a differentiated value proposition. And as a result, you need to be able to be in a position to competitively compete against some of the plays in the United States, specifically the Permian.In that regard, I think if you look at the return metrics in the Cardium, we certainly feel that the play has the ability to compete. When you look at it on a -- on various metrics, including F&D, capital efficiency and further -- and even more so when you take into account that this is a low-decline asset, and low-decline assets allow for 2 things: one, just less sustaining capital to keep production flat. And moreover, they better allow you to sustain periods of commodity price volatility as we currently have gone through and are still going through today. So that's kind of the overarching point.Now against that backdrop, look, there's just too many players in the Cardium. It's just that simple. And companies that are 5,000, 10,000, 20,000, 25,000 barrels a day, they just do not resonate in today's capital markets. So there's a need for scale.Notwithstanding that, we are the largest player in the Cardium, both in the way of production, land-based inventory locations, et cetera. We're right in the -- smack in the middle of the oil and liquids fairways in both Pembina and Willesden Green.So if one is to talk about consolidation in the Cardium, they can't not talk about Obsidian, so I think we have a platform with which to help drive consolidation. But we're clearly focused in doing it in a manner that, number one, creates value for all our stakeholders. So to be clear, selling for cash kind of at trough valuation is not something that is probably to be -- deemed to be attractive by the Board. And as a result, very much focused on transactions that are stock swap-oriented, that can drive significant synergies where the capitalized value of those synergies is massive versus both our current market cap and enterprise value.And so that is the focus. And with that, I think we would achieve a much lower kind of corporate breakeven, easily drive it down to sub-$40 and potentially approaching $35. And whether you need 1 transaction, 2 transactions or 3 transactions, I mean, is really a function of who you transact with and also what valuation opportunities are available.I mean I think as we've seen 2Q results roll out, you're starting to see the differentiation between Obsidian results versus that of some of our other Cardium peers. We already have scale on a relative basis and have a very deep inventory position of hundreds of locations, which sets us up quite well for many years to come.
Thank you. The next question is, what are the discussions like with your bankers?
The discussions with our bankers is currently very constructive. I don't know that we could have said that necessarily a year ago. By all accounts, the team had a very tough 2018 on all metrics and -- which set ourselves up for what were initially some difficult discussions a year or so ago. Clearly, the operational performance has significantly improved since then, both in the way of cost structure as well as drilling performance, which has resulted in us putting up very strong financial performance on a year-to-date basis and us finally creating a track record of beating and exceeding expectations versus missing them.And I think there's no further evidence or better evidence of that than the fact that we have been able to successfully negotiate for a number of extensions without seeing our liquidity withdrawn or reduced. I think it was reduced by $10 million versus where it stood a year ago. And if you look at some of the redeterminations that were announced over the last couple of weeks, I think you've seen some fairly aggressive action. So in summary, we're quite pleased with where things lie with our banking syndicate today.
Thank you. The next question is, in a recent Financial Post article, you mentioned recapping of old wells. Does this create a problem when in discussions to sell or consolidate the company?
Sure. So I would assume that, that question is really a reference to ARO. And in regards to ARO, I think we have proven that we have an ability to significantly reduce our undiscounted ARO obligation. As I alluded to, our -- the number that we cite in our financials is simply using the government's guidelines. Notwithstanding that, we've achieved savings significantly lower than the government's guidelines. And as a result, I think it's fair to assume that we believe our obligation is overstated. But for the purposes of conservatism, we've simply anchored our estimate off of the government's numbers. And we've shown an ability to easily manage that within our allocated capital spend. And so no, it's not an issue.Now is it something that a potential counterparty may cite -- try to cite as to why they feel they may want to try to talk down value? Sure, but that's just negotiating. Against that backdrop, we have an industry-leading low decline rate with an unparalleled drilling inventory in the Cardium. So notwithstanding that, I'm not concerned about it.
Thank you. The next question is, can you comment on the status of your interim position and whether there is a CEO search in place?
In regards to my status as interim CEO, I have entered into an amended contract, whereby I will remain interim CEO through calendar year-end. So through 12/31/2020. And I think it's fair to say that the Board is constantly thinking about all their various options in regards to both a short and intermediate-term replacement. And so it's fair to say that, that is fluid.
Thank you. The next question is regard to OpEx. What is -- or why is OpEx going up from $10.32 in H1 to $11.30 for full year or $12.30 for the second half of the year?
Sure. OpEx is going up in the second half of the year. Notwithstanding that, we'll still be comfortably below our original guidance because your volumes decreased. So you had some -- at the margins, some onetime kind of OpEx that was taken out of 2Q, just given kind of the extreme price environment that you will put back in. And additionally, you're spreading out that -- spreading that OpEx across slightly lower production volumes. So your numerator grows slightly and your denominator shrinks, and that is why you get the result that you get.Having said that, when you compare it to our Cardium peers who have -- or even light oil-weighted peers who have similar liquids weightings, I think it speaks to how competitive we have truly become.
Thank you. The next question is on financing. It's a question on BDC and lease programs. Are we in control of some of the decisions here? Or are the banks, by way of the redetermination, in the driver seat? This question is trying to get a feel for what stakeholders benefit most from -- at least from these programs.
Sure. So look, the reality is that the Canadian RBL structure is one that has always been driven by semiannual redeterminations. And so that inherent -- that dynamic has always been in place in good times, bad times and so-so times. So that is something that is not specific to Obsidian, and it's something that we have shown an ability to continue to navigate.Moreover, the strength of our kind of drilling performance through the first half of the year as well as the depth of the inventory, certainly, is basically a tailwind to protecting collateral value. And when I say collateral value, I'm speaking to reserves. There's other companies that have much higher decline rates and/or inferior performance on the drilling side versus ourselves who will just be burning down their collateral value at a much faster rate than then we will. So on a relative basis, no, I mean, I can't say that I have a company-specific concern in that regard.Now in regards to the government programs, look, the details have been sparse. The actual number of companies that have received financing from EDC to BDC, I think you can count on one hand. Does not suggest that we haven't looked at and don't continue to look at those programs.But notwithstanding that, I think as a general comment, we're strong believers that new debt or incremental debt is not a substitute for consolidation of build scale and lowers corporate breakevens, which is truly what you need to improve your sustainability in the short, intermediate and long term.
Thank you. Next question relates to costs. How do you think you can further improve upon your corporate breakeven costs?
Yes. There's really 2 -- well it's really 3. It's really three-pronged. I mean one is just a continued rigorous focus on ensuring that costs that we've taken out don't come back into the structure. In that regard, I feel very, very, very good. I think as -- again, speaking for the organization, I think the proof is in pudding, that the initiatives that have been undertaken are driving demonstrable results. And so I'm quite confident that, that will be the case.Secondly is we actually have a pricing environment that allows you to not only grow production. As a result, you'd be able to spread out your fixed costs across a larger production base and effectively grow your -- or decrease your OpEx and G&A per BOE as a function of the denominator, i.e., your production volumes growing.And then lastly, which I've spoken to in a number of instances on this call, is this consolidation that takes out a lot of duplicative kind of overlapping costs. And in a perfect world, you get kind of a combination of consolidation as well as an environment that allows you to marginally grow production. And you could really -- you would see the dual impact of those dynamics.
Great. The next question refers to our well results. Well results have been really strong in 2020. Do you believe this is repeatable moving forward?
We very much feel that it is repeatable. As I alluded to, we have over 100 locations in Crimson Lake and East Crimson alone, and so there's an ability to continue to focus on Willesden Green in the near to intermediate term. And then additionally, the projected well results continue to improve in other parts of the Cardium as drilling costs continue to decrease and as we continue to do more technical work on the portfolio, which allows us to better identify the locations that we think are best positioned to drive kind of higher performance.I think it's fair to say with over 900 locations that there's a distribution in regards to returns. And in a perfect world, you're making decisions where the cadence of the wells or the inventory that you're picking is -- goes from higher return to lower return. And the more time we have to do incremental technical work, and at the margin -- some of that is also a function of some of the drilling that are -- some of the offset operators also conduct, the smarter we can be in that regard. But to answer the question, we believe it's definitively repeatable for years to come.
Thank you. That's all the questions we have. Thank you for joining the Q2 earnings call...
Excellent. Look, thank you for joining the call, and should there be any incremental questions, please forward them to Investor Relations. Enjoy the rest of your summer, everyone.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.