Shares of Obsidian Energy Ltd (OTC:OBE) are bucking Monday's market sell-off, rising as much as 15% by mid-morning, and still up about 7% by 12:30 p.m. EDT even as the market's rout accelerated. Fueling this rally was the announcement of several actions designed to unlock shareholder value.
Obsidian Energy announced that it has launched a sales process for its Viking assets in Alberta, Canada and that it is in discussion with China Investment Corporation about the sale of the company's jointly owned Peace River assets. The Canadian oil company said it would use any revenue processed from these sales to accelerate the growth of its Cardium assets in Canada as well as reduce debt and buy back shares.
"Today's announcement is the natural next step in our ongoing strategy to unlock shareholder value and establish Obsidian Energy as a growth company focused on optimizing our industry-leading position in the Cardium," according to CEO David French. It's also in response to a public spat with one of the company's largest shareholders, FrontFour Capital, which has demanded the company sell noncore assets and "aggressively shift the drilling program to the higher return Cardium."
In addition to these asset sales, Obsidian said it was "actively reviewing industry consolidation opportunities," which could see it potentially buy additional assets in the Cardium. That move would create "a company with best-in-class operating performance, financial discipline and industry-leading growth prospects," according to the CEO.
Investors cheered today's news because it could enable the company to realize the full value of these noncore assets. Further, it could potentially give the company the cash to accelerate drilling in its crown jewel Cardium assets as well as buy back its depressed stock, which is down 40% over the past year despite higher oil prices and its turnaround efforts. That buyback could be the key to getting Obsidian's stock moving in the right direction given how similar programs from rivals have fueled their recent outperformance.