CALGARY, ALBERTA–(Marketwired – March 16, 2016) –
Editors Note: There is a photo associated with this press release.
Cardinal Energy Ltd. (“Cardinal” or the “Company“) (TSX:CJ) is pleased to announce its operating and financial results for the quarter and year ended December 31, 2015 as well as its 2015 year end reserves.
2015 Financial and Operating Highlights
- During the fourth quarter of 2015 Cardinal completed an acquisition in the Slave Lake area of Alberta (the “Mitsue Acquisition“) establishing a new core area. The acquired assets consisted of an aggregate of approximately 3,300 boe/d low decline light oil focused production. These assets are consistent with Cardinal’s strategy of acquiring high working interest, operated, low decline light oil properties. The Mitsue Acquisition was also consistent with our business strategy of focusing future acquisitions on light oil properties.
- Cardinal lowered average unit operating costs by 7% to $22.43 per boe for the year ended December 31, 2015 compared to $24.15 per boe in 2014, despite an increase in fourth quarter unit operating costs due to increased operating costs from the Mitsue Acquisition.
- Cardinal’s cash flow from operations was approximately $95 million in 2015 and 2014, despite the significant decline in commodity prices in 2015.
- Cardinal grew average production per basic share by 12% from 179 boe/d per million shares in 2014 to 201 boe/d per million shares in 2015.
- The Company attained record average daily production of 13,792 boe/d in Q4 2015.
- General and administrative expense (“G&A”) decreased on a per boe basis from $4.91 in Q4 2014 to $1.92 in Q4 2015. On an annualized basis, G&A decreased 35% from $3.89 per boe in 2014 to $2.51 per boe in 2015.
- Achieved a total payout ratio after development capital expenditures and dividends of 87% for the year ended December 31, 2015.
2015 Reserve Highlights
- Net present value before tax discounted at 10% of total proved plus probable reserves (“2P”) was $857 million.
- Increased total proved reserves (“1P”) by 37% to 44.0 Mmboe. 1P reserves per share increased 20% from 2014 on both a basic and fully diluted basis. Proved reserves are 74% of Cardinal’s 2P reserves.
- 2P reserves increased by 38% to 59.5 Mmboe in 2015. On a per share basis, 2P reserves increased by 21% on both a basic and fully diluted basis.
- Cardinal’s reserves include 13 booked proved undeveloped locations and 8.8 booked probable undeveloped locations.
- All in future development costs used in the reserves evaluation is a conservative $44 million.
- Cardinal’s proved producing reserve life index increased by 8% to 8.2 years, its proved reserves life index increased to 8.7 years and its 2P reserve life index increased to 11.8 years based on fourth quarter production of 13,792 boe/d.
- In 2015, Cardinal replaced 5 times its average daily production, primarily with proved producing reserves.
- Cardinal achieved recycle ratios of 2.6 including hedges and 1.4 excluding hedges on a 2P basis in 2015.
- 2015 finding and development costs were $9.87 on a 1P basis and $10.89 on 2P basis.
- Finding, development and acquisition costs in 2015 were $11.99 per boe on a 1P basis and $9.54 on a 2P basis. Cardinal considers FD&A costs as a more accurate measure of its yearly performance as acquisitions are a significant part of its business model.
| FINANCIAL AND OPERATING HIGHLIGHTS | |||||||||||||||
| (000’S except shares, per share and per boe amounts) | Three months ended December 31, |
Year ended December 31, |
|||||||||||||
| 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||
| Financial | |||||||||||||||
| Petroleum and natural gas revenue | 43,300 | 63,159 | (31 | ) | 178,100 | 206,685 | (14 | ) | |||||||
| Cash flow from operations | 17,955 | 26,570 | (32 | ) | 94,646 | 95,179 | (1 | ) | |||||||
| basic per share | $ | 0.29 | $ | 0.47 | (38 | ) | $ | 1.61 | $ | 2.18 | (26 | ) | |||
| fully diluted per share | $ | 0.29 | $ | 0.46 | (37 | ) | $ | 1.61 | $ | 2.12 | (24 | ) | |||
| Net earnings (loss) | 938 | 26,879 | (97 | ) | (95,898 | ) | 53,806 | (278 | ) | ||||||
| basic per share | $ | 0.01 | $ | 0.47 | (98 | ) | $ | (1.63 | ) | $ | 1.23 | (233 | ) | ||
| fully diluted per share | $ | 0.01 | $ | 0.46 | (98 | ) | $ | (1.63 | ) | $ | 1.20 | (236 | ) | ||
| Dividends declared | 13,664 | 11,920 | 15 | 49,911 | 32,588 | 53 | |||||||||
| per share | $ | 0.21 | $ | 0.21 | – | $ | 0.84 | $ | 0.71 | 18 | |||||
| Net debt | 146,185 | 54,065 | 170 | 146,185 | 54,065 | 170 | |||||||||
| Net debt to cash flow from operations | 2.0 | 0.5 | n/m | 2.0 | 0.5 | n/m | |||||||||
| Development capital expenditures | 11,055 | 10,042 | 10 | 36,571 | 37,873 | (3 | ) | ||||||||
| Weighted average Shares outstanding | |||||||||||||||
| basic | 62,957 | 56,745 | 11 | 58,852 | 43,604 | 35 | |||||||||
| fully diluted | 64,280 | 58,010 | 11 | 58,852 | 44,906 | 31 | |||||||||
| Operating | |||||||||||||||
| Average daily production | |||||||||||||||
| Crude oil and NGL (bbl/d) | 12,176 | 10,197 | 19 | 10,792 | 7,102 | 52 | |||||||||
| Natural gas (mcf/d) | 9,696 | 4,147 | 134 | 6,273 | 4,277 | 47 | |||||||||
| Total (boe/d) | 13,792 | 10,888 | 27 | 11,838 | 7,815 | 51 | |||||||||
| Netback | |||||||||||||||
| Petroleum and natural gas revenue | $ | 34.13 | $ | 63.05 | (46 | ) | $ | 41.22 | $ | 72.46 | (43 | ) | |||
| Royalties | 4.20 | 8.83 | (52 | ) | 5.19 | 9.60 | (46 | ) | |||||||
| Operating expenses | 23.66 | 25.74 | (8 | ) | 22.43 | 24.15 | (7 | ) | |||||||
| Netback | 6.27 | 28.48 | (78 | ) | 13.60 | 38.71 | (65 | ) | |||||||
| Realized gain (loss) on derivatives | 11.02 | 4.75 | 132 | 11.59 | (0.11 | ) | n/m | ||||||||
| Netback after risk management | $ | 17.29 | $ | 33.23 | (48 | ) | $ | 25.19 | $ | 38.60 | (35 | ) | |||
Fourth Quarter and 2015 Operations
The fourth quarter of 2015 was focused on the closing and integration of the Mitsue Acquisition which added approximately 3,300 boe/d of light oil production to Cardinal. The main asset in the Mitsue Acquisition was the operated units in the Mitsue Gilwood Sand Units. The acquisition of these high working interest assets pursuant to the Mitsue Acquisition is consistent with our business strategy of focusing future acquisitions on light oil properties.
The Mitsue Acquisition increased Cardinal’s unit operating costs, both in Q4 2015 and the first quarter of 2016. In Q4 2015, the Company averaged $23.66/boe in unit operating costs, an increase of 14.9% over Q3 2015. Cardinal has begun several initiatives that have and will further reduce unit operating costs both in the Mitsue area and for the rest of the Company. Cardinal expects to see a significant improvement in unit operating costs in Q2 2016, and further reductions throughout the year as the Company is able to apply capital to the field to further reduce day to day operating expenses.
Capital spending on the balance of Cardinal’s assets in Q4 2015 were focused on the Bantry area. Cardinal significantly expanded its land position in this area adding 23 sections of crown lands and 19 sections of freehold lands in Q4. Throughout 2015, Cardinal added a total of 60 net sections of undeveloped land to this core area. In Q4 the Company also drilled and completed one net Glauconite well in Bantry and brought the well on production during the quarter.
In 2015 Cardinal drilled 8 (7.75 net) Glauconite horizontal drills at Bantry. At year end 7 of the 8 wells had been completed and brought on stream. These wells averaged 300 boe/d in the first 90 days of production(1) exceeding the forecast of the average GLJ undeveloped Glauconite location(2) by 40% (~85 boepd). The Glauconite horizontal wells drilled in Bantry by Cardinal in 2015 were booked by GLJ in the 2015 reserve evaluation at an average of 197 Mboe (2P) versus the assessed value of the undeveloped reserves in the reserve report, which Cardinal uses as its type curve, which are booked at an average of 140 Mboe (2P).
The low decline of Cardinal’s asset base, combined with the exceptional drilling results, have enabled us to keep base production flat with very little in the form of capital expenditures.
| (1) | Production on a BOE basis for the 2015 drills considers the first month of production on an average daily rate, subsequent months are actual production rates where available. Natural gas and NGL production rates are based on historical production ratios. | |
| (2) | The average of the GLJ undeveloped Glauconite locations as estimated from the year end 2015 NI51-101 reserves evaluation. |
Hedging Update
Cardinal maintains an active hedging program as part of its business strategy. The hedging program has recently been changed by the Board of Directors to allow the Company to hedge up to 75% of its production for the next 12 months, 50% of its production for the second year and 30% of its production for the third year.
To view a current summary of the crude oil volumes currently hedged to WTI (in CAD), please visit the following link: http://www.marketwire.com/library/20160316-1047047-F1gr.png
In addition to the crude oil WTI hedges, Cardinal has also hedged approximately 6,000 bbl/d of WCS/WTI differential for the balance of 2016 at an average price of $18.24 per boe. Cardinal has also hedged about half of its anticipated 2016 natural gas production at various prices above $2/Mcf.
Summary of Reserves
Cardinal’s year end 2015 reserves were evaluated by independent reserves evaluators Sproule Associates Ltd. (“Sproule”) and GLJ Petroleum Consultants (“GLJ”). These evaluations of all of the Company’s oil and gas properties were done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI 51-101 will be included in Cardinal’s Annual Information Form which will be filed on SEDAR on or before March 30, 2016.
Summary of Oil and Gas Reserves(1)
As at December 31, 2015
| Gross Reserves (2) | |||||
| Oil & Liquids(3) (Mbbl) |
Natural Gas(4) (Mmcf) |
Equivalents (Mboe) |
% of Total Proved |
% of Total Proved & Probable |
|
| Proved producing | 37,433 | 24,221 | 41,469 | 94% | 70% |
| Proved non-producing | 1,097 | 404 | 1,164 | 3% | 2% |
| Proved undeveloped | 1,259 | 585 | 1,357 | 3% | 2% |
| Total proved (5) | 39,789 | 25,209 | 43,990 | 100% | 74% |
| Probable additional | 14,110 | 8,550 | 15,535 | 26% | |
| Total proved plus probable (5) | 53,899 | 33,759 | 59,525 | 100% | |
| (1) | Based on Sproule’s December 31, 2015 price forecast. | |
| (2) | Gross reserves are the Company’s total working interest reserves before deduction of royalties and without including any of our royalty interests. | |
| (3) | Includes light and medium crude oil, heavy oil and natural gas liquids. | |
| (4) | Includes solution gas. | |
| (5) | Numbers may not add due to rounding. |
Summary of Before Tax Net Present Values
As at December 31, 2015 (1)
| NPV Before Income Tax | % of Total | |||
| 0% (M$) |
10% (M$) |
Unit Values PV10/boe(2) ($/boe) |
Proved & Probable PV10 |
|
| Proved producing | 842,984 | 668,665 | 16.12 | 78% |
| Proved non-producing | 30,873 | 12,404 | 10.66 | 1% |
| Proved undeveloped | 20,730 | 11,098 | 8.18 | 1% |
| Total proved (3) | 894,587 | 692,167 | 15.73 | 81% |
| Probable additional | 568,211 | 165,138 | 10.63 | 19% |
| Total Proved plus Probable (3) | 1,462,798 | 857,305 | $14.40 | 100% |
| (1) | Based on Sproule’s December 31, 2015 price forecast. | |
| (2) | Unit values are based on gross reserves. | |
| (3) | Numbers may not add due to rounding. |
Reserves Reconciliation
| Gross Reserves | MBOE | % Gas | |||||
| Proved | Probable | Proved and Probable |
2P | ||||
| December 31, 2014 | 32,078 | 10,952 | 43,030 | 7% | |||
| Extensions & Improved Recovery | 521 | 567 | 1,087 | ||||
| Technical Revisions(1) | 2,907 | (492 | ) | 2,414 | |||
| Acquisitions(2) | 13,188 | 4,662 | 17,850 | ||||
| Economic Factors | (403 | ) | (153 | ) | (556 | ) | |
| Production | (4,301 | ) | – | (4,301 | ) | ||
| December 31, 2015 | 43,990 | 15,535 | 59,525 | 9% | |||
| % Revision change from December 31, 2014 | 8% | -7% | 4% | ||||
| 2015 Reserve Additions(3) | 16,213 | 4,583 | 20,796 | ||||
| (1) | Technical revisions of 810 MBoe proved and 876 MBoe proved and probable reserves are a result of the post acquisition renegotiation of a gas processing contact in the Mitsue area which improved the economics and recoverable reserves for the remaining gas wells in this area. | |
| (2) | In accordance with the requirements of NI 51-101, the reserve estimates for acquisitions are the reserves as of December 31, 2015 plus production from date of acquisition date. | |
| (3) | 97% of the 1P reserve additions are proved producing reserves. |
Reserves Growth Per Share
| Year end 2015 | Year end 2014 | |||||||
| Reserves/Share, (boe/share) | Basic | Fully Diluted |
% change Basic |
% change Fully Diluted |
Basic | Fully Diluted |
||
| Proved Producing | 0.64 | 0.61 | 20% | 20% | 0.53 | 0.51 | ||
| Total Proved | 0.68 | 0.65 | 20% | 20% | 0.56 | 0.54 | ||
| Total Proved and Probable | 0.91 | 0.88 | 21% | 21% | 0.76 | 0.73 | ||
| NPV10/Share ($/share) | ||||||||
| Proved Producing | 10.27 | 9.89 | -15% | -15% | 12.09 | 11.66 | ||
| Total Proved | 10.63 | 10.24 | -15% | -15% | 12.48 | 12.04 | ||
| Total Proved and Probable | 13.16 | 12.68 | -14% | -14% | 15.27 | 14.73 | ||
| Number of Shares (000’s) | 65,124 | 67,595 | 56,819 | 58,906 | ||||
Outlook
Cardinal will continue to maintain a conservative approach to capital spending in 2016. Management believes it has done a prudent job of reducing G&A, unit operating costs and capital costs over the past 18 months. We believe that many of these costs savings will become permanent and that the overall cost structure of our business will have been permanently changed. We have now hedged an appropriate amount of our 2016 production to meet our budget expectations in 2016.
The low decline of our base production, allows us to drill a limited number of wells in 2016. We are still completing our technical review of the newly acquired assets in the Mitsue area and will focus our capital on low cost well recompletion and operating cost reduction initiatives in this area in 2016. If we see a modest increase in oil prices we expect to apply the extra cash flow towards drilling in the Mitsue area later this year.
Cardinal maintains a conservative borrowing policy. At year end we had approximately $92 million drawn on our $150 million credit facility. The credit facility is reviewed semi-annually and Cardinal does not expect any change in the amount of our credit facility at the next review, which is currently scheduled to be completed in May of 2016.
We expect that our dividend is safe to the downside in 2016 and we do not anticipate a dividend increase in 2016 unless we see a sizable sustained upward movement in the price of oil.
All in all, we are happy with the end results of a tumultuous 2015 and feel that the worst in commodity pricing is behind us.
Our staff, both in our head office and in the field has done a remarkable job adapting to our new pricing environment. They have become more efficient on a day to day basis and have brought forward countless ideas for cutting costs and operating more efficiently despite having had to endure salary and bonus reductions.
On behalf of all of the directors and officers of Cardinal, I would like to thank all our employees and field contractors for banding together and helping us navigate through a tough period.
Annual Filings
Cardinal also announces the filing of its Audited Financial Statements for the year ended December 31, 2015 and related Management’s Discussion and Analysis with the Canadian securities regulatory authorities on the System for Electronic Analysis and Retrieval (“SEDAR”). In addition, Cardinal expects to file its Annual Information Form for the year ended December 31, 2015 on SEDAR on or prior to March 30, 2016. Electronic copies may be obtained on Cardinal’s website at www.cardinalenergy.ca and on Cardinal’s SEDAR profile at www.sedar.com.
March Dividend
Cardinal confirms that a dividend of $0.035 per common share will be paid on April 15, 2016 to shareholders of record on March 31, 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 all season access areas in Alberta.