Morningstar DBRS Comments on Obsidian Energy Ltd.'s Announced Sale of Operated Pembina Assets; Issuer Rating and Senior Unsecured Notes Rating Unchanged at B (high) With a Recovery Rating of RR4 on the Notes

Morningstar DBRS notes that Obsidian Energy Ltd. (Obsidian or the Company; rated B (high), Stable) announced on February 19, 2025, that it has entered into an agreement to divest their operated Pembina assets (the Transaction) for a total consideration of $320 million to InPlay Oil Corp (InPlay). Obsidian will receive $220 million in cash proceeds, $85 million of which will be in the form of InPlay's common shares (35% of InPlay's outstanding shares), and InPlay's 34.6% working interest in the Willesdren Green Cardium Unit #2 (WGCU#2) oil field, bringing Obsidian's ownership of WGCU#2 to 99.8% (valued at $15 million). The Transaction is expected to close in early Q2 2025.

Cash proceeds from the Transaction are expected to be used to initially pay down company debt, which will improve Obsidian's balance sheet and overall liquidity. Post the close of transaction, Obsidian will have a production base of more than 29,000 barrels of oil equivalent per day (boe/d) (based on estimated fourth quarter 2024 production) with Peace River becoming their largest asset, while further growing their Clearwater and Bluesky production.

Morningstar DBRS notes that the Transaction has no impact on the Company's credit ratings. The negative impact of the Transaction on the Company's size and scale is offset by an expected improvement in their cost structure, financial risk profile, liquidity and a reduction in the Company's asset retirement obligations (ARO) obligations. While the Transaction will reduce overall production volume of the Company by nearly 10,300 boe/d and proved reserves decline by 35% (both for pro forma year-end 2024), the Transaction is expected to reduce the Company's net operating costs by approximately $2.20/boe, thereby enhancing their overall cost efficiency and building a more focused portfolio with increased focus on Peace River oil play. The Transaction also reduces overall debt by $220 million and increases availability under the Company's Credit Facility.

Morningstar DBRS also notes the Transaction has no impact on the Recovery Rating of the Senior Unsecured Notes. The reduction in Obsidian's estimated value at default because of a reduction in proved developed producing reserves is offset by a reduction in the size of the Credit Facility and a reduction in the Company's ARO obligations.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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