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Cardinal Energy Ltd. Announces Second Quarter 2017 Results and Appointment of New Director

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CALGARY, Alberta, Aug. 01, 2017 (GLOBE NEWSWIRE) -- (TSX:CJ) Cardinal Energy Ltd. ("Cardinal" or the "Company") is pleased to announce its operating and financial results for the quarter ended June 30, 2017, as well as the appointment of a new member to its Board of Directors. 

The Company's unaudited financial statements and management's discussion and analysis for the quarter ended June 30, 2017, 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 2nd Quarter of 2017

During the quarter we:

  • Closed a strategic acquisition of light oil low decline properties at House Mountain and Midale for an adjusted purchase price of $297 million;
  • Increased our light oil and NGL weighting to 45% of our total oil and NGL production with the acquired assets;
  • Raised new equity for gross proceeds of approximately $170 million;
  • Increased our credit facilities to $325 million;
  • Increased production for Q2 2017 versus Q2 2016 by 17% to 17,154 boe/d;
  • Reduced operating costs on a unit basis by 10% from Q1 2017 to $20.57 per boe; and
  • Initiated a process to identify for sale certain royalty interests and fee title lands to reduce our bank debt.

Subsequent to the quarter we added 27 net sections of undeveloped lands in our core Bantry area which are prospective for Mannville oil.

Acquisition

On June 30, 2017, Cardinal closed its previously announced light oil acquisition for an adjusted purchase price of $297 million. The adjusted purchase price further increases certain of the previously announced positive metrics of the acquisition, being: 5.5X (estimated 2017) adjusted funds flow (based on $55 million of annualized operating income from the assets) and a recycle ratio of 2.1X.

Cardinal considers House Mountain and Midale to be top quality light oil assets. These long life low decline light oil assets also include significant light oil drilling inventory and other potential optimization opportunities.

The higher netbacks associated with these assets is expected to improve Cardinal's overall sustainability which will be further enhanced with anticipated royalty sales.

We have begun the process of understanding and integrating the newly acquired assets into Cardinal and welcome the addition of 54 employees, both in the Midale and House Mountain field offices and our Calgary office.

We feel confident in our ability to reduce operating costs on the acquired assets.  We also see areas for field optimization and will continue to work on our plans to expand our drilling inventory for 2018.

Operating Costs

Operating costs have begun the trend back to normalized values in Q2, decreasing on a unit basis from $22.96/boe in Q1 to $20.57/boe, a 10% decrease and trending towards our goal of second half 2017, $20/boe operating costs. Reduced workover frequency was the key driver behind operating cost per boe reductions.

Cardinal will continue to focus on reducing operating costs per boe in 2017. We expect to see operating synergies and per boe cost reductions on the recently acquired assets in the second half of 2017 and into 2018.

Credit Facility

Concurrent with the closing of the asset acquisition, Cardinal increased its credit facilities to $325 million and as at June 30, 2017 we had bank debt of $233 million. The increase funded the portion of the acquisition not funded by equity until the proceeds on royalty sales can be realized.  On a run rate adjusted funds flow basis, we are currently at 2.1 net bank debt to adjusted funds flow ratio, above our targeted net debt to adjusted funds flow ratio of less than 2.0 and our targeted net bank debt to adjusted funds flow ratio of less than 1.0. We expect to reduce the amount drawn on our credit facilities with potential royalty sales and expected free cash flow in the second half of 2017.

Appointment of New Director

We would like to announce the appointment of Stephanie Sterling to the Board of Directors. She holds a Bachelor of Science (Mechanical Engineering) degree and an MBA from the University of Alberta. Ms. Sterling is a recently retired senior executive with Shell Canada with over 25 years' experience in engineering, large project start-up and operations, governance, joint venture negotiations and relationships, risk management, business development and strategic planning. She has served as General Manager for Non-Technical Risk Integration, Community and Indigenous Relations for Shell in Canada, USA and Latin America where she was responsible for integrating risk management into new projects.  She also served as the Vice President Business and Joint Ventures for Shell's Heavy Oil business, where she was responsible for the joint venture governance, commercial negotiations and relationships for two significant joint ventures:  the Athabasca Oil Sands Project among Shell, Chevron and Marathon; and the AERA joint venture in California between Shell and Exxon.

Guidance

Based on our expectation for continued lower commodity prices (including the effect of recent increases in the US/Cdn exchange rate) and lower realized prices in the first half of 2017 compared to those used in our guidance for the House Mountain and Midale Acquisition Cardinal is revising its second half and annual 2017 guidance for adjusted funds flow and related financial information. Due to the expected reduction in adjusted funds flow we are also revising our annual guidance for development capital expenditures to maintain a total payout ratio of less than 100% for the second half of 2017. We have adjusted our pricing to $47.50 WTI for the second half of 2017 and reduced our capital spending by $8 million for the same period. Refer to our Management's Discussion and Analysis for a full description of the revised guidance.

Outlook

The second quarter of 2017 was transformational for Cardinal with the successful closing of the House Mountain and Midale acquisition. A more balanced crude oil production mix of approximately 45% light oil and liquids after the acquisition is expected to improve our netback.

We remain focused on our goal to create long term shareholder value through accretive growth and regular dividends.

The low decline rate of our base assets (including the recently acquired assets) require minimal capital to maintain production. We have a large inventory of economic projects including opportunities arising from the recent acquisition of Midale and House Mountain and a recent large land acquisition in the Bantry area.  However, current commodity prices (including the effect of the Canada-US exchange rate) has led the Board to consider whether expending growth capital to bring on production is the best use of available funds.  Cardinal has opted to use a conservative price forecast for budgeting purposes, to reduce expenditures which would have resulted in growth and to apply free cash flow to debt reduction.  

Financial and Operating Highlights

($ 000's except shares, per share and operating amounts)   Three months ended June 30,   Six months ended June 30,
    2017   2016   % Change   2017   2016   % Change
Financial                
Petroleum and natural gas revenue   67,602   50,124   35     130,176   83,548   56  
Cash flow from operating activities   12,986   11,167   16     28,369   29,142   (3 )
Adjusted funds flow(1)   15,781   16,922   (7 )   30,367   24,680   23  
basic and diluted per share   0.20   0.25   (20 )   0.39   0.37   5  
Earnings (loss)   1,218   (35,317 ) (103 )   8,780   (50,961 ) (117 )
basic and diluted per share   0.02   (0.52 ) (104 )   0.11   (0.77 ) (114 )
Dividends declared   9,406   7,202   31     17,424   14,119   23  
per share   0.105   0.105   -     0.21   0.21   -  
Net bank debt (1)   238,652   31,908   n/m     238,652   31,908   n/m  
Exploration and development capital   15,285   12,077   27     36,504   14,154   158  
Acquisitions, net   297,114   160   n/m     301,115   335   n/m  
Total capital expenditures   313,004   12,395   n/m     366,712   14,801   n/m  
Weighted average shares outstanding                
basic (000s)   79,612   67,356   18     77,596   66,541   17  
diluted (000s)   80,511   67,356   20     78,782   66,541   18  
                 
Operating                
Average daily production                
Crude oil and NGL (bbl/d)   13,817   12,870   7     13,415   12,734   5  
Natural gas (mcf/d)   20,021   10,506   91     16,506
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