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Cardinal Energy Ltd. Announces Third Quarter 2019 Results


CALGARY, Nov. 12, 2019 (GLOBE NEWSWIRE) — (TSX: CJ) Cardinal Energy Ltd. (“Cardinal” or the “Company”) is pleased to announce its operating and financial results for the quarter ended September 30, 2019.

The Company’s unaudited financial statements and management’s discussion and analysis for the quarter ended September 30, 2019, will be available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on Cardinal’s website at www.cardinalenergy.ca.

Highlights from the third quarter of 2019:

  • Cardinal generated free cash flow of $6.4 million during the third quarter increasing our total free cash flow for the first nine months of 2019 to $36.4 million.  We are utilizing our free cash flow to decrease net debt and provide shareholder returns by reducing our outstanding shares and continue with our sustainable dividend, which was increased in the third quarter.
    • Cardinal’s debt reduction strategy continued by decreasing third quarter 2019 closing net debt by 8% or $22 million over debt levels at December 31, 2018.
    • Since the announcement of our normal course issuer bid (“NCIB”) in July 2019, Cardinal has repurchased and cancelled 1.4 million shares and has also purchased 2.3 million shares in 2019 through an independent trust for settlement of vesting of restricted awards at our option to avoid issuing treasury shares.
    • Increased our dividend during the quarter by 50% while keeping the year-to-date total payout ratio at 61%.
    • Invested in projects that will show further operating cost reductions in 2020 and beyond.
  • Through the third quarter of 2019, COinjection at the Cardinal operated long life Midale enhanced oil recovery project has sequestered substantially more CO2 than the Company has directly emitted corporately year to date.

Financial and Operating Highlights

($ 000’s except shares, per share and operating amounts) Three months ended Sept 30, Nine months ended Sept 30,
2019 2018 % Chg 2019 2018 % Chg
Financial
Petroleum and natural gas revenue 95,483 113,551 (16) 295,699 320,177 (8)
Cash flow from operating activities 24,836 28,074 (11) 88,265 81,799 8
Adjusted funds flow (1) 27,571 27,072 2 92,946 79,708 17
  per share (2) 0.24 0.24 0.80 0.70 14
Earnings (loss) 417 9,068 (95) (19,188) (24,216) (21)
  per share (2) 0.08 n/m (0.17) (0.21) (19)
Dividends declared 5,372 12,467 (57) 12,597 37,107 (66)
  per share 0.045 0.105 (57) 0.105 0.315 (67)
Net debt (1) 247,760 250,728 (1) 247,760 250,728 (1)
Development capital expenditures (1) 15,789 21,280 (26) 43,982 48,139 (9)
Other capital expenditures 443 449 (1) 1,268 1,482 (14)
Acquisitions (Dispositions), net 52 (10,928) n/m 284 (28,170) n/m
Total capital expenditures 16,284 10,801 50 45,534 21,451 112
   
Common shares, net of treasury shares (000s) 114,333 116,039 (1) 114,333 116,039 (1)
   
Operating    
Average daily production    
  Light oil and NGL (bbl/d) 8,822 9,321 (5) 9,003 9,536 (6)
  Medium/heavy oil (bbl/d) 8,733 8,842 (1) 8,744 8,718
  Natural gas (mcf/d) 15,022 16,718 (10) 15,616 16,619 (6)
  Total (boe/d) 20,059 20,949 (4) 20,350 21,024 (3)
Netback ($/boe) (1)    
  Petroleum and natural gas revenue 51.74 58.92 (12) 53.23 55.79 (5)
  Royalties 9.76 10.94 (11) 8.70 9.79 (11)
  Net operating expenses (1) 20.57 19.94 3 21.15 20.42 4
  Transportation 0.36 0.30 20 0.35 0.24 46
 Netback 21.05 27.74 (24) 23.03 25.34 (10)
  Realized loss on commodity contracts 2.27 9.96 (77) 2.37 7.46 (68)
  Netback after risk management(1) 18.78 17.78 6 20.66 17.88 16
  Interest and other 1.82 1.59 14 1.82 1.57 16
  G&A 2.02 2.14 (6) 2.10 2.42 (13)
  Adjusted funds flow netback(1) 14.94 14.05 6 16.74 13.89 21
   
  1. See non-GAAP measures
  2. Weighted average diluted shares

Third Quarter Overview

Cardinal’s third quarter results were highlighted by continued strong adjusted funds flow due to relatively narrow Canadian oil price differentials.  The Company recorded $27.6 million, ($0.24 per diluted share) of adjusted funds flow, an increase of 2% over the same period in 2018.  The Alberta Government’s mandatory curtailment program combined with a planned Company owned major facility turnaround and unplanned third party facility outages limited our average daily production for the third quarter of 2019 to 20,059 boe/d.  During the third quarter of 2019, the Alberta government announced the relaxation of certain aspects of the oil production curtailment program, which resulted in the Company’s Alberta oil production no longer being curtailed effective October 2019.

Operationally, Cardinal drilled and completed two (2.0 net) Viking oil wells in the Forestburg, Alberta area to take advantage of our available facility capacity and reduce our per boe operating costs in the area through economies of scale.  In addition, Cardinal drilled ten (10.0 net) wells in the Bantry, Alberta area of which nine were stratigraphic test wells to de-risk future locations.  The Company continues to spend capital to focus on operating cost reductions including our successful electrical generation initiatives in which we expect to have six power generation projects online by the end of 2019 removing three to four megawatts of power consumption off the grid.  A priority of the Company is to reduce our environmental footprint by proactively adding pipeline liners in all of our areas and with our enhanced oil recovery scheme with COinjection at Midale.  In addition, during the third quarter, we spent $1.2 million for a total of $3.6 million in the first nine months of 2019 on asset retirement obligations (“ARO”) activities.  For the first nine months of 2019, as part of our ARO program, the Company has abandoned 54 (50.3 net) wells, 14 (11.3 net) facilities and reclaimed 38 (33.2 net) leases.

In the third quarter of 2019, reduced production, remediation of the previously disclosed discharge and a major facility turnaround in the House Mountain, Alberta area slightly increased Cardinal’s net operating expenses per boe by 1% over the second quarter of 2019.  Excluding the impact of the discharge remediation and turnaround, the Company’s net operating expenses were trending to approximately $19.75/boe.  Cardinal continues to focus on reducing its operating costs per boe through internal projects for power generation, reduced environmental exposure and increased production in areas where there is available Company owned facility capacity which will decrease our fixed costs per boe.  In addition, we continue to investigate opportunities to utilize our spare facility capacity bringing in third party volumes to reduce our fixed costs.

During the third quarter, Cardinal continued with its debt reduction strategy by reducing net debt by $1.9 million over the prior quarter.  The Company has now reduced our net debt by 8% or $21.9 million in 2019 through a portion of our free cash flow.  The debt repayment has taken the form of the maximum allowable buyback and cancellation of $5 million of convertible debentures through the normal course issuer bid in the first quarter and the repayment of approximately $16.9 million of net bank debt in the first nine months of 2019.  During the third quarter, the TSX approved the Company’s application for an NCIB as announced in our July 30, 2019 press release.  Since the commencement of the NCIB, Cardinal has repurchased and cancelled approximately 1.4 million common shares at an average price of $2.31.  In addition, Cardinal’s independent trustee has acquired 2.3 million common shares for the optional settlement of vesting restricted awards which the Company currently estimates could cover all restricted award vesting until the second quarter of 2021.  The combination of these two share purchase programs represents approximately 3% of our outstanding common shares.  During the third quarter, Cardinal also increased its monthly dividend by 50%, which we feel is a sustainable level as shown by the 77% total payout ratio in the third quarter of 2019.  In aggregate, Cardinal has generated $36.4 million (39% of adjusted funds flow) of free cash flow in the first nine months of 2019, which was used to repay debt, repurchase common shares and to decrease our future ARO.

During the third quarter, West Texas Intermediate (“WTI”) oil prices decreased approximately 6% over the second quarter of 2019 but the Alberta oil production curtailment program kept Canadian oil differential pricing relatively consistent and stronger than historical average differential pricing.  The Western Canadian Select (“WCS”) to WTI pricing differential averaged US$12.24/bbl while the Edmonton Light (“MSW”) differential averaged approximately US$4.80/bbl.  As a result, the Company’s third quarter commodity pricing decreased 9% over the second quarter of 2019 with our light oil price averaging $62.63/bbl and medium/heavy oil price averaging $59.21/bbl.

Cardinal’s risk management program is an important component of our business strategy as it is designed to mitigate the volatility in oil and gas prices experienced throughout the year and fix the downside of commodity prices to support our capital program and dividend.  The Company was opportunistic with the Canadian oil pricing increases experienced in early 2019 and the spikes caused by international geopolitical events in the third quarter of 2019.  During the third quarter, the Company entered into new contracts for 1,000 bbl/d of oil production fixed at an average price of US$60/bbl for the fourth quarter of 2019 and first quarter of 2020.  Cardinal also has 3,500 bbl/d hedged with WTI-WCS pricing differential hedges averaging approximately US$17/bbl and 3,250 bbl/d at an average wellhead CAD$52/bbl WCS pricing for the remainder of 2019.  The Company has also protected the downside with pricing floors averaging over CAD$69/bbl but retained upside on WTI pricing by locking in 4,750 bbl/d of our light oil with an average ceiling price of over CAD$85/bbl or with no ceiling at all through various puts. This risk management program has given Cardinal the ability to achieve its budgeted capital expenditures and fund its ARO while continuing to support our dividend program and reduce our debt or acquire our common shares on the open market.

Outlook

Strong realized pricing, our low production decline asset base and disciplined spending combined with a successful commodity risk management program has allowed Cardinal to execute our debt reduction strategy through the first nine months of 2019.  In 2019, the Company has also provided its shareholders with returns by purchasing approximately 3.7 million common shares on the open market for approximately $9.6 million and has increased its dividend by 50% effective July 2019.

Cardinal has been subject to regulated curtailment of its oil production for the past nine months, which was relaxed in October 2019.  Our curtailed oil production levels limited our total production to a range of 20,000 to 20,500 boe/d.  Through 2019, Cardinal has acquired access to several townships of land, on attractive royalty terms by committing to drill development wells.   These lands are in our Bantry core area directly offsetting our infrastructure in Southern Alberta.  Late in the third quarter, the Company commenced a multi-well drilling program to fulfill land earning farm-in commitments and take advantage of these additional drilling opportunities and has therefore increased its 2019 capital budget by $10 million to fund this activity.  We anticipate corporate production volumes will increase to approximately 21,000 boe/d in the first quarter of 2020 from the current 20,000 to 20,500 boe/d range.

Cardinal continues to upgrade its pipelines and facilities and has plans to bring on two additional power generation projects during the fourth quarter.  Including the increased capital expenditures, at current prices, we expect to continue to reduce debt levels and make purchases under our NCIB while keeping our total payout ratio below 100% in the fourth quarter of 2019.

The Company has named Stephanie Sterling, a director of Cardinal since 2017, as its independent Lead Director.

Cardinal is able to provide shareholders with a sustainable dividend and a continually improving asset base all supported by free cash flow.  We would like to thank our employees and Board of Directors for their contributions and our shareholders for their continuing confidence and support of Cardinal.  Cardinal plans to release its 2020 budget in mid-December 2019.



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