Why Obsidian Energy Ltd's Stock Is Soaring Today

What happened

Shares of Obsidian Energy Ltd (NYSE: OBE) rallied on Wednesday, rising more than 13% at 2:30 p.m. EST. Fueling the Canadian oil stock's gains was a rebound in the price of oil and some public sparring between the company and a large shareholder.

So what

Oil prices rallied about 2.5% on Wednesday to more than $65 per barrel -- which was their highest level in more than a month -- after a closely watched U.S. government report showed an unexpected decline in oil storage levels. That report suggests the oil market is making progress on its efforts to drain off the excess supply that had weighed on crude prices in recent years. This news drove up most oil stocks today, adding a bit more fuel to Obsidian's rally.

However, the main fuel was some public back and forth between Obsidian and FrontFour Capital Group, which is one of its largest shareholders. Yesterday, FrontFour issued a letter to its fellow shareholders announcing its intention to nominate four highly qualified directors to the company's board as well as outlining a strategy that it believes will create value for investors. That plan includes selling the company's remaining non-core natural gas business as well as its operations in the Alberta Viking and Peace River plays in Canada. That plan would enable Obsidian to "aggressively shift the drilling program to the higher return Cardium," which it believes would create more value than the current strategy. Obsidian responded by saying it has already undergone an extensive strategic evaluation and is "aggressively looking at all options to increase shareholder value," though it believes it is on the right track with its current strategy.

Now what

Obsidian is still a company in transition. Because of that, it will barely grow this year before hitting the accelerator in 2019. While FrontFour's efforts, and higher oil prices, could accelerate this plan, this oil stock requires patience and could remain volatile while it gets back up on its feet.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.