Cardinal Energy Ltd. ("
Cardinal" or the
"
Company") (TSX: CJ) is pleased to announce its
operating and financial results for the second quarter ended June
30, 2021.
Selected financial and operating information is
shown below and should be read in conjunction with Cardinal's
unaudited condensed interim financial statements and related
Management's Discussion and Analysis for the three and six month
periods ended June 30, 2021 which are available at www.sedar.com
and on our website at www.cardinalenergy.ca.
Q2 2021 HIGHLIGHTS
- Adjusted funds
flow of $25.3 million ($0.16 per diluted share) was 57% higher than
the previous quarter and was impacted by a realized commodity price
risk management loss of $13.7 million;
- Maintained
capital discipline while executing a $10.3 million capital program
which included drilling two Midale injection wells for our Enhanced
Oil Recovery ("EOR") CO2 injection program;
- Second quarter
production of 17,949 boe/d was 5% higher than the same period in
2020;
- Free cash flow
reduced net debt by $12.1 million in the second quarter of 2021. In
the first six months of 2021, net debt has been reduced by $40.5
million or 16% of the net debt level at December 31, 2020;
- Subsequent to
the end of the second quarter, Cardinal closed the acquisition of
Venturion Oil Ltd. ("Venturion") adding approximately 2,400 boe/d
(~83% oil) focused in central Alberta for $47.5 million;
($ 000's except shares, per share and operating
amounts) |
Three months ended June 30 |
|
Six months ended June 30 |
|
|
2021 |
|
|
2020 |
|
% Chg |
|
|
2021 |
|
|
2020 |
|
% Chg |
Financial |
|
|
|
|
|
|
|
Petroleum and natural gas revenue |
|
99,106 |
|
|
31,711 |
|
213 |
|
|
|
184,653 |
|
|
95,184 |
|
94 |
|
Cash flow from operating activities |
|
22,463 |
|
|
(10,276 |
) |
n/m (3) |
|
|
35,738 |
|
|
11,765 |
|
204 |
|
Adjusted funds flow (1) |
|
25,300 |
|
|
2,065 |
|
n/m (3) |
|
|
41,449 |
|
|
17,013 |
|
144 |
|
per share basic |
$ |
0.18 |
|
$ |
0.02 |
|
n/m (3) |
|
$ |
0.30 |
|
$ |
0.15 |
|
100 |
|
per share diluted |
$ |
0.16 |
|
$ |
0.02 |
|
n/m (3) |
|
$ |
0.30 |
|
$ |
0.15 |
|
100 |
|
Earnings (loss) |
|
9,095 |
|
|
(27,546 |
) |
n/m (3) |
|
|
(16,866 |
) |
|
(478,490 |
) |
(96 |
) |
per share basic and diluted |
$ |
0.06 |
|
$ |
(0.24 |
) |
(125 |
) |
|
$ |
(0.14 |
) |
$ |
(4.22 |
) |
(97 |
) |
Development capital expenditures (1) |
|
10,028 |
|
|
776 |
|
n/m (3) |
|
|
15,935 |
|
|
22,558 |
|
(29 |
) |
Other capital expenditures (1) |
|
277 |
|
|
280 |
|
(1 |
) |
|
|
571 |
|
|
639 |
|
(11 |
) |
Acquisitions, net |
|
8 |
|
|
- |
|
n/m (3) |
|
|
3,334 |
|
|
- |
|
n/m (3) |
Total capital expenditures |
|
10,313 |
|
|
1,056 |
|
n/m (3) |
|
|
19,840 |
|
|
23,197 |
|
(14 |
) |
|
|
|
|
|
|
|
|
Common shares, net of treasury shares (000s) |
|
|
|
|
|
144,172 |
|
|
113,382 |
|
27 |
|
|
|
|
|
|
|
|
|
Bank debt |
|
|
|
|
|
178,239 |
|
|
217,206 |
|
(18 |
) |
Adjusted working capital deficiency (1) |
|
|
|
|
|
10,662 |
|
|
5,012 |
|
113 |
|
Net bank debt (1) |
|
|
|
|
|
188,901 |
|
|
222,218 |
|
(15 |
) |
Secured notes |
|
|
|
|
|
17,429 |
|
|
- |
|
n/m (3) |
Convertible debentures |
|
|
|
|
|
- |
|
|
44,451 |
|
(100 |
) |
Net debt (1) |
|
|
|
|
|
206,330 |
|
|
266,669 |
|
(23 |
) |
Net debt to H1 annualized adjusted funds flow ratio (1) |
|
|
|
|
|
|
|
2.5 |
|
|
7.8 |
|
(68 |
) |
Total payout ratio (1) |
|
|
|
|
|
38 |
% |
|
153 |
% |
(75 |
) |
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
Average daily production (2) |
|
|
|
|
|
|
|
Light oil (bbl/d) |
|
7,129 |
|
|
7,117 |
|
- |
|
|
|
7,086 |
|
|
7,454 |
|
(5 |
) |
Medium/heavy oil (bbl/d) |
|
7,638 |
|
|
7,134 |
|
7 |
|
|
|
7,688 |
|
|
8,217 |
|
(6 |
) |
NGL (bbl/d) |
|
986 |
|
|
772 |
|
28 |
|
|
|
1,097 |
|
|
804 |
|
36 |
|
Natural gas (mcf/d) |
|
13,173 |
|
|
12,873 |
|
2 |
|
|
|
13,765 |
|
|
13,620 |
|
1 |
|
Total (boe/d) |
|
17,949 |
|
|
17,169 |
|
5 |
|
|
|
18,166 |
|
|
18,745 |
|
(3 |
) |
Netback ($/boe) (1) |
|
|
|
|
|
|
|
Petroleum and natural gas revenue |
|
60.68 |
|
|
20.30 |
|
199 |
|
|
|
56.16 |
|
|
27.90 |
|
101 |
|
Royalties |
|
10.54 |
|
|
2.59 |
|
n/m |
|
|
9.18 |
|
|
4.20 |
|
119 |
|
Net operating expenses (1) |
|
21.56 |
|
|
14.81 |
|
46 |
|
|
|
21.47 |
|
|
17.94 |
|
20 |
|
Transportation expenses |
|
0.30 |
|
|
0.24 |
|
25 |
|
|
|
0.30 |
|
|
0.28 |
|
7 |
|
Netback (1) |
|
28.28 |
|
|
2.66 |
|
n/m(3) |
|
|
25.21 |
|
|
5.48 |
|
n/m(3) |
Realized hedging loss (gain) |
|
8.40 |
|
|
(2.12 |
) |
n/m(3) |
|
|
8.37 |
|
|
(3.38 |
) |
n/m(3) |
Netback after risk management (1) |
|
19.88 |
|
|
4.78 |
|
n/m(3) |
|
|
16.84 |
|
|
8.86 |
|
90 |
|
Interest and other |
|
2.07 |
|
|
1.58 |
|
31 |
|
|
|
2.15 |
|
|
1.59 |
|
35 |
|
G&A |
|
2.32 |
|
|
1.87 |
|
24 |
|
|
|
2.08 |
|
|
2.29 |
|
(9 |
) |
Adjusted funds flow netback (1) |
|
15.49 |
|
|
1.33 |
|
n/m(3) |
|
|
12.61 |
|
|
4.98 |
|
153 |
|
|
|
|
|
|
|
|
|
(1) See
non-GAAP
measures (2) See
Supplemental Information regarding Product
Types (3) Not
meaningful – ie. absolute greater than 300% or not calculable
SECOND QUARTER OVERVIEW
The second quarter of 2021 continued to build on
the momentum experienced in the prior quarter with increased oil
prices. West Texas Intermediate ("WTI") oil prices averaged over
US$66/bbl, a 14% increase over the first quarter average price.
During the second quarter, the Company spent
$10.0 million of development capital on the drilling of two
injection wells at Midale, Saskatchewan as we continue to develop
our EOR CO2 injection program, upgrading our facility and pipeline
infrastructure and well recompletion and workover activity. During
the second half of 2021, drilling plans include the drilling of six
(5.0 net) wells throughout our asset base. The second half drilling
program is underway with the second of two (2.0 net) wells
currently being drilled in central Alberta and the first of two
(1.0 net) wells currently being drilled at Elmworth, Alberta. The
remaining two wells will be drilled on our southern Alberta Bantry
property, where drilling is expected to begin in early
September.
During the second quarter, the Company generated
$25.3 million of adjusted funds flow which, after capital and asset
retirement spending, allowed Cardinal to decrease our net debt by
$12.1 million. The Company continues to execute its debt reduction
strategy and has decreased our net debt by over $40 million in the
first six months of 2021. In the past twelve months, Cardinal has
reduced its net debt by over $60 million, or 23%, to $206.3 million
as of June 30, 2021. At current pricing levels, the Company
forecasts our net debt to Q4 2021 annualized adjusted funds flow
ratio to be below 1.0x.
Second quarter 2021 net operating expenses per
boe were comparable with the prior quarter coming in at $21.56/boe.
Costs are higher than historical levels as Alberta power prices
have significantly increased in the first half of 2021. In the
first six months of 2021, Alberta power prices have averaged over
$100/MWh as compared to an average price of $46/MWh in 2020. This
equated to a second quarter 2021 increase of approximately
$2.90/boe in our total Alberta operating costs when comparing to
the same period in 2020. The Company has a number of initiatives
that it continues to evaluate to reduce our exposure to volatile
power prices. Cardinal second quarter net operating expenses were
also impacted by its increased workover and reactivation activity
in order to bring production back on that was deferred in 2020.
Increased oil prices boosted revenue in the
second quarter of 2021; however, the effect on Cardinal's adjusted
funds flow was reduced due to realized hedging losses. During the
last half of 2020, Cardinal hedged approximately 39% of its second
quarter 2021 oil production (6,000 bbl/d) to protect a portion of
our 2021 capital program. In the second half of 2021, after taking
into account the acquired Venturion production and associated
existing hedging contracts, approximately 17% (3,000 bbl/d) of the
Company's forecasted oil production is hedged. With the current
backwardation of the oil price curve, Cardinal will be selective in
our hedging activity. At this time, the Company remains unhedged
for 2022.
On July 15, Cardinal closed the acquisition of
Venturion which added approximately 2,400 boe/d of production (~83%
oil) predominantly focused adjacent to our Wainwright operating
area with the issuance of 6.3 million Cardinal common shares and
$27.5 million in cash. The cash portion was financed with the
issuance of $12.5 million of subordinated second lien notes and $15
million from the Company's existing bank facility. All incremental
bank borrowings from this acquisition are expected to be repaid
with Cardinal's free cash flow by the fourth quarter of 2021.
Cardinal will continue to look for synergistic acquisitions that
fit within our operating areas.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
("ESG")
Cardinal continues to be a net zero emissions
(scope 1) company. Through our world class Carbon Capture and
Sequestration ("CCS") enhanced oil recovery ("EOR") operation at
Midale, the Company has sequestered approximately 89,000 tonnes of
CO2 year to date and is forecasting to sequester over 200,000
tonnes in 2021. Two additional injectors are included in our
updated capital program which, over their first year of operation,
are forecasted to sequester over 50,000 tonnes of CO2 while
supporting incremental oil recovery from the Midale unit. To date,
the Midale CCS EOR project has sequestered approximately five
million tonnes of CO2 and reduced oil production decline rates to
approximately 3% to 5%.
Cardinal's safety record is in the top tier of
the industry as is our regulatory compliance approval level.
In 2021, Cardinal continues to actively
participate in various government programs focused on well and
pipeline abandonments and facility decommissioning. To date in
2021, Cardinal has abandoned approximately 135 wells, numerous
pipeline segments and has initiated work on inactive
facilities.
OUTLOOK
Moving into the second half of 2021, the Company
has confidence in its continued debt reduction strategy given the
current macro environment and our conservative capital program. As
our second half commodity hedging exposure decreases throughout the
remainder of 2021 and into 2022, under forecast pricing, we expect
to generate additional free cash flow enabling the Company to
continue to reduce our debt. Our goal remains to enhance
shareholder value through net debt repayment, increased focus on
carbon reduction and ESG initiatives and when appropriate, the
resumption of dividends and share buybacks.
We look forward to reporting our third quarter
results in November which will incorporate the Venturion
operations.
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, plans to focus on debt and risk reduction,
our 2021 capital programs and spending plans, our drilling plans,
adjusted funds flow, free cash flow and net debt, forecasted net
debt to Q4 2021 annualized adjusted funds flow ratio, debt to
adjusted funds flow ratio, the quality of our asset base and
decline rates, our abandonment and reclamation program, our future
ESG performance, our future financial position, plans to reduce
debt, share buyback and dividend plans, power cost reduction
initiatives, plans to reduce Venturion incremental net debt, future
hedging plans and plans to operate our assets in a responsible and
environmentally sensitive manner.
Forward-looking statements regarding Cardinal
are based on certain key expectations and assumptions of Cardinal
concerning anticipated financial performance, business prospects,
strategies, regulatory developments, production curtailments,
current and future commodity prices and exchange rates, applicable
royalty rates, tax laws, industry conditions, availability of
government subsidies and abandonment and reclamation programs,
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 sufficiency and
timing of budgeted capital expenditures in carrying out planned
activities, the timing and success of our cost cutting initiatives
and power projects, the availability and cost of labor and
services, the impact of competition, conditions in general economic
and financial markets, availability of drilling and related
equipment, effects of regulation by governmental agencies including
curtailment, the ability to obtain financing on acceptable terms
which are subject to change based on commodity prices, market
conditions and drilling success and potential timing delays.
These forward-looking statements are subject to
numerous risks and uncertainties, certain of which are beyond
Cardinal's control. Such risks and uncertainties include, without
limitation: the impact of general economic conditions; volatility
in market prices for crude oil and natural gas; industry
conditions; currency fluctuations; imprecision of reserve
estimates; liabilities inherent in crude oil and natural gas
operations; environmental risks; incorrect assessments of the value
of acquisitions and exploration and development programs;
competition from other producers; the lack of availability of
qualified personnel, drilling rigs or other services; changes in
income tax laws or changes in royalty rates and incentive programs
relating to the oil and gas industry including government subsidies
and abandonment and reclamation programs; hazards such as fire,
explosion, blowouts, and spills, each of which could result in
substantial damage to wells, production facilities, other property
and the environment or in personal injury; and ability to access
sufficient capital from internal and external sources.
Management has included the forward-looking
statements above and a summary of assumptions and risks related to
forward-looking statements provided in this press release in order
to provide readers with a more complete perspective on Cardinal's
future operations and such information may not be appropriate for
other purposes. Cardinal's actual results, performance or
achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no
assurance can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what benefits that Cardinal will derive there from.
Readers are cautioned that the foregoing lists of factors are not
exhaustive. These forward-looking statements are made as of the
date of this press release and Cardinal disclaims any intent or
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or results or
otherwise, other than as required by applicable securities
laws.
Supplemental Information Regarding Product
Types
This press release includes references to 2021
and 2020 production. The Company discloses crude oil production
based on the pricing index that the oil is priced off of. The
following table is intended to provide the product type composition
as defined by NI 51-101.
|
Light/Medium Crude Oil |
Heavy Oil |
NGL |
Conventional Natural Gas |
Total (boe/d) |
Q2/21 |
56% |
26% |
6% |
12% |
17,949 |
Q2/20 |
57% |
27% |
4% |
12% |
17,169 |
H1/21 |
55% |
26% |
6% |
13% |
18,166 |
H1/20 |
57% |
27% |
4% |
12% |
18,745 |
VENTURION |
27% |
56% |
1% |
16% |
2,400 |
Advisory Regarding Oil and Gas
Information
Where applicable, oil equivalent amounts have
been calculated using a conversion rate of six thousand cubic feet
of natural gas to one barrel of oil. Boes may be misleading,
particularly if used in isolation. A boe conversion ratio of six
thousand cubic feet of natural gas to one barrel of oil is based on
an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Utilizing a conversion ratio at 6 Mcf: 1 Bbl may be
misleading as an indication of value.
Non-GAAP measures
This press release contains the terms
"development capital expenditures", "other capital expenditures",
"adjusted funds flow", "adjusted funds flow per basic share",
"adjusted funds flow per basic and diluted share", "free cash
flow", "net debt", "net bank debt", "adjusted working capital",
"net operating expenses", "netback", "netback after risk management
contracts", "adjusted funds flow netback", "net debt to adjusted
fund flow ratio" and "total payout ratio" which do not have a
standardized meaning prescribed by International Financial
Reporting Standards ("IFRS" or, alternatively, "GAAP") and
therefore may not be comparable with the calculation of similar
measures by other companies. Cardinal uses adjusted funds flow,
adjusted funds flow per basic and diluted share and free cash flow
to analyze operating performance and assess leverage. Cardinal
feels these benchmarks are a key measure of profitability and
overall sustainability for the Company. Adjusted funds flow is not
intended to represent operating profits nor should it be viewed as
an alternative to cash flow provided by operating activities, net
earnings or other measures of performance calculated in accordance
with GAAP. As shown below, adjusted funds flow is calculated as
cash flows from operating activities adjusted for changes in
non-cash working capital and decommissioning expenditures.
Development capital expenditures represents expenditures on
property, plant and equipment (excluding capitalized G&A, other
assets and acquisitions). Other capital expenditures includes
capitalized G&A and other office assets. Free cash flow
is calculated as adjusted funds flow less dividends and capital
expenditures. Adjusted working capital includes current
assets less current liabilities adjusted for fair value of
financial instruments, current lease liabilities, the warrant
liability and current decommissioning obligations. The term
"net debt" is not recognized under GAAP and as shown below, is
calculated as bank debt plus the principal amount of convertible
unsecured subordinated debentures plus secured notes and adjusted
working capital. Net debt is used by management to analyze the
financial position, liquidity and leverage of Cardinal. "Net
bank debt" is calculated as net debt less the principal amount of
convertible debentures and secured notes. Net bank debt is
used by management to analyze the financial position, liquidity,
leverage and borrowing capacity on Cardinal’s bank line. "Net
debt to adjusted funds flow" is calculated as net debt divided by
adjusted funds flow for the specified period. The ratio of net debt
to adjusted funds flow is used to measure the Company's overall
debt position and to measure the strength of the Company's balance
sheet. Cardinal monitors this ratio and uses this as a key measure
in making decisions regarding financing, capital expenditures and
shareholder returns. Net operating expenses is calculated as
operating expense less processing and other revenue primarily
generated by processing third party volumes at processing
facilities where the Company has an ownership interest, and can be
expressed on a per boe basis. As the Company’s principal
business is not that of a midstream entity, management believes
this is a useful supplemental measure to reflect the true cash
outlay at its processing facilities by utilizing spare capacity
through processing third party volumes. Netback is calculated
on a boe basis and is determined by deducting royalties,
transportation costs and net operating expenses from petroleum and
natural gas revenue. Netback after risk management contracts
includes realized gains or losses on commodity contracts in the
period on a boe basis. Adjusted funds flow netback is
calculated as netback after risk management and also includes
interest and other costs and G&A costs on a boe basis.
Netback, netback after risk management contracts and adjusted funds
flow netback are utilized by Cardinal to better analyze the
operating performance of our petroleum and natural gas assets
taking into account our risk management program, interest and
G&A costs against prior periods.
The following table reconciles adjusted funds
flow:
|
Three months ended |
|
June 30, 2021 |
June 30, 2020 |
Cash flow from operating activities |
22,463 |
(10,276 |
) |
Change in non-cash working capital |
1,860 |
11,798 |
|
Funds flow |
24,323 |
1,522 |
|
Decommissioning expenditures |
977 |
543 |
|
Adjusted funds flow |
25,300 |
2,065 |
|
The following table reconciles net bank debt and
net debt:
|
As at |
|
June 30, 2021 |
June 30, 2020 |
Bank debt |
178,239 |
217,206 |
Adjusted working capital deficiency |
10,662 |
5,012 |
Net bank debt |
188,901 |
222,218 |
Secured notes |
17,429 |
- |
Principal amount of Convertible Debentures |
- |
44,451 |
Net debt |
206,330 |
266,669 |
Oil and Gas Metrics
The term "boe" or barrels of oil equivalent may
be misleading, particularly if used in isolation. A boe conversion
ratio of six thousand cubic feet of natural gas to one barrel of
oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Additionally,
given that the value ratio based on the current price of crude oil,
as compared to natural gas, is significantly different from the
energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may
be misleading as an indication of value.
About Cardinal Energy Ltd.
One of Cardinal's goals is to continually
improve our Environmental, Social and Governance profile and
operate our assets in a responsible and environmentally sensitive
manner. As part of this mandate, Cardinal injects and
conserves more carbon than it directly emits making us one of the
few Canadian energy companies to have a negative carbon
footprint.
Cardinal is a Canadian oil focused company with
operations focused on low decline light, medium and heavy quality
oil in Western Canada.
For further information: M.
Scott Ratushny, CEO or Shawn Van Spankeren, CFO or Laurence Broos,
VP Finance Email: info@cardinalenergy.caPhone: (403) 234-8681
Website: www.cardinalenergy.ca
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