The company allowed its offer to buy Bonterra to expire on Monday.
Obsidian interim CEO Stephen Loukas said the economic environment has changed substantially since the company launched its offer last year.
Loukas said combining at the proposed exchange ratio is no longer in the best interests of Obsidian Energy or its shareholders.
Obsidian had offered two of its shares for each Bonterra share.
Bonterra had repeatedly recommended shareholders reject the bid.