CALGARY, ALBERTA–(Marketwired – Jan. 14, 2016) – Cardinal Energy Ltd. (“Cardinal” or the “Company“) (TSX:CJ) believes it is prudent to reset the Company’s budget to reflect the prolonged downturn in oil prices.
Cardinal has reduced its 2016 capital expenditure program from $35 million to $25 million. With the reduced capital program Cardinal expects to produce an average of 14,600 boe/d in 2016, consistent with our previous guidance. Q4 2015 production averaged approximately 13,800 boe/d. We expect cash flow from operations for 2016 to be reduced from our previous guidance of $92 million to $60 million in this lower commodity price environment.
The low decline nature of Cardinal’s assets, combined with strong drilling results in our Bantry property and optimization opportunities at Mitsue will enable Cardinal to achieve strong capital efficiencies in this low commodity price environment. We expect that our capital efficiencies for 2016 will see considerable improvement over 2015; as service costs are further reduced, and spending not directly related to production additions or cost reductions is reduced.
Our sustaining capital requirements are considerably lower than other producers given the low decline nature of our asset base. Our capital requirement to hold production flat in 2016 is approximately 42% of our cash flow from operations at current strip pricing after taking into account our hedge position.
In 2015, we took advantage of the low pricing environment and significantly increased our land position in the Bantry area. Cardinal also completed a large 3-D seismic shoot in Bantry. We saw substantial savings in the costs to shoot and process seismic and purchased land at both crown land sales and through freehold acquisitions at prices that were approximately 80% less than in 2014.
In all, we added 60 net sections (approximately 38,000 acres) of undeveloped land. We have added an additional 50 drilling locations giving us approximately 150 net undeveloped locations at Bantry. In the context of our production base, we are budgeting to drill 8 net wells this year in Bantry to hold production flat at 14,600 boe/d.
We will continue to add to our drilling inventory and optimization opportunities throughout our asset base in 2016 and will be in a strong position to grow when commodity pricing improves.
Cardinal has realized significant cost reductions in 2015 and will continue to focus on lowering costs of drilling, completions and operating expenses and expects to see further cost reductions after Q1 2016.
The Company believes that right sizing its dividend for the current crude oil price environment is prudent and will allow Cardinal to maintain its total payout ratio at less than 100% of cash flow from operations. The Company will not use its balance sheet to fund its dividend.
Cardinal is committed to stability and sustainability and as such has decided to reduce its dividend from $0.84 per year ($0.07 per month) to $0.42 per year ($0.035 per month) effective for the January 2016 dividend payable in February. The resizing of the dividend is intended to be a one time reduction for the year 2016.
With our commodity hedge portfolio and at current strip pricing, we expect to be able to maintain this reset dividend level and complete our revised capital budget with a total payout ratio of less than 100% and at a simple payout ratio of approximately 47%. In the event that crude oil prices continue to decline we have the ability to pull back about $15 million of our capital program but would see a 5-10% reduction in production for the year.
The revised 2016 guidance and capital program projects that Cardinal’s expected year end net bank debt of $90 million will remain unchanged through this year resulting in a net bank debt to cash flow from operations ratio of 1.6 and a net debt to cash flow from operations ratio of 2.4.
Cardinal confirms that a dividend of $0.035 per common share will be paid on February 15, 2016 to shareholders of record on January 29, 2016. The Board of Directors of Cardinal has declared the dividend payable in either cash or common shares at the election of the shareholder. 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’s operations are focused in Alberta.