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Cardinal Energy Ltd. Announces First Quarter 2018 Results

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CALGARY, Alberta, May 10, 2018 (GLOBE NEWSWIRE) -- Cardinal Energy Ltd. ("Cardinal" or the "Company") (TSX:CJ) is pleased to announce its operating and financial results for the quarter ended March 31, 2018. The Company also announces that its unaudited financial statements and management's discussion and analysis for the quarter ended March 31, 2018, 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 first quarter of 2018:

  • Adjusted funds flow increased by 75% and adjusted funds flow per share increased 21% over the same period in 2017.
  • First quarter 2018 operating costs decreased by 9% per boe over the same period in 2017 despite a number of non-recurring expenses.
  • Reduced March 31, 2018 net debt to adjusted funds flow ratio by 15% compared to December 31, 2017 and decreased net debt by 5% over year end 2017 levels.
  • First quarter 2018 crude oil and liquids production increased 3% compared to the fourth quarter of 2017 which included a 9% quarter over quarter increase in light oil production.
  • Our netback increased by 22% from the first quarter 2017 due to increased light oil and NGL production.  
  • Currently weighted 45% light oil and NGLs (Q1 2017 – 20%), with the balance of first quarter 2018 production being 42% WCS priced crude and 13% natural gas.
  • Maintained a total payout ratio below 100%.
  • Expanded our drilling inventory in the Bantry, Midale, Mitsue and Wainwright areas.
Financial and Operating Highlights    
     
($ 000's except shares, per share and operating amounts) Three months ended March 31,
    2018     2017   % Change
Financial      
Petroleum and natural gas revenue     94,779       62,574   51
Cash flow from operating activities     32,492       15,383   111
Adjusted funds flow(1)     25,551       14,586   75
  basic and diluted per share $   0.23   $   0.19   21
Earnings (loss)   (13,314 )     7,562   n/m
  basic and diluted per share $      (0.12 ) $   0.10   n/m
Dividends declared     12,281       8,018   53
  per share $   0.105   $   0.105   -
Net bank debt (1)   213,341       94,374   126
Exploration and development capital   12,800       21,219   (40)
Acquisitions, net   (5,028 )     28,710    n/m
Total capital expenditures   8,280     49,701   (83)
Weighted average shares outstanding      
  basic (000s)     113,397       75,557   50
  diluted (000s)     113,397       76,919   47
       
Operating      
Average daily production      
  Crude oil and NGL (bbl/d)     18,492       13,009   42
  Natural gas (mcf/d)   16,505       12,952   27
  Total (boe/d)     21,243       15,168   40
Netback(1)      
  Petroleum and natural gas revenue $   49.57   $   45.84   8
  Royalties     8.44       6.39   32
  Operating expenses     20.93       22.96   (9)
  Netback $   20.20   $   16.49    22
  Realized gain (loss)     (2.63 )     (2.34 ) 12
  Netback after risk management (1) $     17.57   $   14.15   24
(1) See non-GAAP measures      


Q1 Overview

During the first quarter of 2018, Cardinal increased production over the prior quarter while spending less than our budgeted amount of capital.  First quarter oil and NGL production increased 3% over the fourth quarter of 2017 which included a 9% quarter over quarter increase in our light oil production expanding our corporate netback. 

Cardinal's operating costs per boe down 9% over the first quarter of 2017 despite Alberta's carbon tax negatively impacting operating costs.  We estimate that approximately $0.42 per boe of our operating costs are attributable to the carbon tax on our electrical usage.  We have begun a program to reduce our dependence on the power grid and are developing projects in all of our operating areas to produce our own power through company owned cogeneration facilities. The first of these projects is expected to be completed early in the third quarter of 2018 with further projects starting prior to yearend. Electrical charges currently make up a large portion of our fixed operating costs, as we complete these projects we expect them to significantly lower our operating costs. As commodity pricing improves it allows us to take on larger cost reduction projects and work to fundamentally reduce our operating cost structure.

During the quarter, Cardinal spent approximately 70% of its annual budgeted environmental and asset retirement obligation ("ARO") expenditures which included lease reclamation and remediation and the abandonment of approximately 55 (44 net) suspended wells. These expenditures were divided between increased operating costs estimated at $0.75 per boe and ARO costs of $3.2 million. This operating cost increase in the quarter is a non-recurring expense and the capital portion is part of our yearly mandate to improve our Liability Management Ratio ("LMR"). Cardinal continues to strive to minimize the impact that our operations have on the environment.

With these initiatives now behind us, and both cogeneration power projects and economies of scale expected to have a significant effect on our fixed cost structure, our per unit operating costs are expected to see consistent quarterly improvement. Further capital for the balance of 2018 will be largely directed to adding production and reserves.

First quarter 2018 adjusted funds flow was impacted by a hedging loss of $5.0 million reflecting increasing West Texas Intermediate ("WTI") pricing.  The floor prices within Cardinal's current hedge book are higher in the second half of 2018 so in the current oil pricing environment, we expect that our net realizable pricing will continue to increase through the remainder of 2018.  During the first quarter, our Western Canadian Select ("WCS") hedge position lessened the impact of significantly wider WTI to WCS differentials where the differential averaged approximately US$10 per bbl more than the same period in 2017.  More recently in the second quarter of 2018, the WCS differential, which impacted approximately 42% of our production in the first quarter has narrowed towards historical levels.

Cardinal executed on a 10 well stratigraphic test drilling program in Bantry for exploration spending of $2.3 million of a budgeted $2.9 million.  These exploration wells, although they do not add production, have led to both an increased drill ready inventory and a higher confidence on location quality in both Cardinal's historical Glauconitic channel targets as well as the emerging Ellerslie play which is being developed by offset operators.

Cardinal continued the development of our light oil property at Grande Prairie, drilling, completing and bringing on production from the balance of our five well winter drilling program.  Initial production rates for the program remain above expectations and further drilling is planned for the second half of 2018.  Secondary recovery enhancement through the initiation of a water flood is expected to commence in 2019.  

Our solid low decline production base, which operates at a +- 10% decline, continues to deliver consistent results. A strategic light oil acquisition consolidating our interests in Midale and our targeted development capital program, which resulted in strong new well results from the drilling of one and completion of two Dunvegan light oil wells in Grand Prairie in the first quarter, enabled us to replace our declines and show production growth quarter over quarter.

Outlook

The combination of improved realized pricing on hedges, the increase in the price of WTI and the reduction of the WCS differential, along with reduced spending on ARO, environmental and exploration throughout the balance of 2018 is expected to result in significant increases in our free funds flow throughout the year.  Cardinal plans to use its funds flow in excess of its dividend and capital program to maintain production, reduce our bank indebtedness and grow production in the back half of 2018.   

Cardinal expects to complete its final divestment of a small non-core asset in the second quarter of 2018.  The proceeds of which are expected to reduce the net bank debt to less than $200 million.  With increased commodity prices, Cardinal is in a position to achieve its goal of 1x debt to run rate cash flow organically and no further asset sales are expected.

Cardinal has built a sustainable low decline asset base that is designed to deliver sustainable dividend payments and disciplined yearly production growth. Our inventory of quality light oil drilling opportunities continues to grow enabling our self-funding business model to excel in this improved commodity price environment.

May Dividend

Cardinal confirms that a dividend of $0.035 per common share will be paid on June 15, 2018 to shareholders of record on May 31, 2018. The Board of Directors of Cardinal has declared the dividend payable in cash. This dividend has been designated as an "eligible dividend" for Canadian income tax purposes.

About Cardinal Energy Ltd.

Cardinal is a junior Canadian oil focused company built to provide investors with a stable platform for dividend income and growth. Cardinal operates low decline oil properties in Alberta and Saskatchewan.

Note Regarding Forward Looking Statements

This press release contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to Cardinal's plans and other aspects of Cardinal's anticipated future operations, management focus, objectives, strategies, financial, operating and production results. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend", " may", "would", "could" or "will" or similar words suggesting future outcomes, events or performance. The forward-looking statements contained in this press release speak only as of the date thereof and are expressly qualified by this cautionary statement.

Specifically, this press release contains forward-looking statements relating to: our business strategies, plans and objectives, our drilling plans and inventory, expected future drilling, completion and operating costs, future production and production decline rates, plans to reduce our dependence on the power grid and the effects of the Alberta carbon tax program, plans to implement larger cost reduction projects, plans to improve our LMR, expected realized pricing, planned capital expenditures and the allocation thereof and the pursuit of light oil acquisitions and drilling opportunities.

Forward-looking statements regarding Cardinal are based on certain key expectations and assumptions of Cardinal concerning anticipated financial performance, business prospects, strategies, regulatory developments, current commodity prices and exchange rates, applicable royalty rates, tax laws, future well production rates and reserve volumes, future operating costs, the performance of existing and future wells, the success of its exploration and development activities, the suffic

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