For Obsidian Energy Smaller Is Better

On June 26th of this year, Penn West Petroleum Ltd. became Obsidian Energy. The name change is part of a restructuring necessitated by a dramatic decrease in crude oil prices in 2014. Over the course of the last two years, Penn West had been selling assets as part of a debt reduction strategy.

 

Now a smaller company, Obsidian falls somewhere between Canada’s largest and smallest oil producers. In May production projections placed Obsidian’s’ daily output for this year at close to 30,000 barrels of oil equivalent (BOE). Obsidian currently employs 407 people.

 

Headquartered in Calgary, Alberta Obsidian has been in operation for 38 years. The Western Canadian Sedimentary Basin (WCSB) is the site of Obsidian’s oil and natural gas fields. This year the WCSB should yield around 31,000 BOE daily. The Pembina Cardium, the Peace River oil sands, and the Alberta Viking are the main areas for natural gas and oil production within the WCSB.

 

Obsidian controls the Esther area of the Alberta Viking. That area contains light crude oil and natural gas. The Esther area nets 1,976 barrels of oil equivalent daily. A good cost of production to retail value ratio and the use of shorter cycle wells are what makes Obsidian’s efforts in the Alberta Viking profitable.

 

In Cardium, Obsidian Energy employs a water flood platform to harvest 18,430 BOE daily. As the term suggests, water flooding utilizes the force of water to bring oil to the surface. This method increases production and results in a more stable rate of production.

 

Obsidian has partnered with the China Investment Corporation to form the Peace River Operated Partnership (PROP). Currently, PROP takes 4,928 BOE out the Peace River oil sands every day. Oil that comes from sand is normally thicker, making the use of heat necessary to bring it to the surface.

 

The viscosity of the Peace River oil is thin enough that cold-flow production can be used. Not having to use heat means the oil can be produced at a lower cost. That lower production cost and the area’s potential to produce oil for years bode well for future profitability.

 

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