Volatility in Canadian oil price differentials, coupled with the recent decline in world oil prices have caused Cardinal to re-evaluate the current level of its dividend.
During the fourth quarter, Canadian oil producers have received embarrassingly low prices due to lack of pipeline egress. Industry is looking to truck and rail solutions to move oil to market instead of transporting it through the safest most cost effective way in pipelines. Our lack of provincial and federal government leadership and failure to act in getting new export pipelines built is costing not only Alberta, but all Canadians significant revenue and future investment in our country. This week’s Alberta government announcement is a much needed short term solution but will not solve the long-term takeaway capacity issue facing our industry.
We encourage our shareholders to voice their disapproval with the Alberta government and their local Federal Member of Parliament on the lack of progress on the construction of new export pipelines out of western Canada.
Although we don’t think that the current pricing differentials between Canadian barrels and US barrels will be permanent, we are obligated to our shareholders to protect our business and our balance sheet until Canadian prices improve.
Cardinal will temporarily reduce its monthly dividend to $0.01/month ($0.12/year) commencing with the December 2018 dividend payable on January 15, 2019.
The Board of Directors plans to review the dividend in April, 2019 and make adjustments to the dividend rate to reflect changes to price differentials and market conditions at that time.
Cardinal has been designed and organized to be a low decline, dividend paying company. We work on a daily basis to reduce our operating costs, to run our operations more efficiently and to maintain our peer leading low decline rate. We cannot however, control differential pricing, especially in a situation that has arisen to the extreme levels experienced in the last 90 days.
Our priority, first and foremost is to operate our business in the most prudent manner, to ensure Cardinal shareholders retain their long term value we have embedded in our assets and in our company.
In October, November and December we saw oil pricing below our cost to produce at some of our properties. The resulting loss of revenue caused our simple dividend payout ratio to exceed a level we are comfortable with. The announced dividend adjustment will allow Cardinal to catch up the lost free cash flow and maintain our balance sheet strength.
During the first part of the fourth quarter, Cardinal reached record production of approximately 22,000 boe/d, well ahead of our production guidance of 21,000 – 21,500 boe/d, driven by a combination of lower than forecasted base declines and positive drilling results at Bantry and Elmworth. Our development drilling inventory has materially expanded providing Cardinal confidence in both the long-term sustainability of the asset base and the future growth potential of our company. Since then, with widening Canadian oil price differentials we began to systematically shut-in our higher operating costs properties to avoid cash production losses. As of December 1, approximately 15% of our production was shut-in.
With the Alberta government’s announced mandatory production curtailment and the expected pricing improvements in Canadian oil differentials, we expect to bring back the majority of the shut in production in January 2019. Taking into account the estimated curtailed volume, January production is currently forecasted to average approximately 20,100 to 20,400 boe/d.
Our focus for 2019 will be to maintain the integrity of our asset base, reduce long term debt and undertake capital projects that create long term reductions in our operating costs.
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 low decline light and medium quality oil in Alberta and Saskatchewan.