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 months ended September 30, 2020 which are available at www.sedar.com and on our website at www.cardinalenergy.ca.
FINANCIAL HIGHLIGHTS FROM THE THIRD QUARTER OF 2020
- Reduced our bank indebtedness by $13.2 million while net debt(1) decreased by $7.3 million compared to the second quarter of 2020;
- Increased adjusted funds flow(1) by $11.1 million over the second quarter of 2020 to $13.2 million ($0.12 per share);
- Reduced net operating costs(1) by $10.6 million leading to an 18% decrease in per boe net operating costs to $16.82/boe in the third quarter of 2020 as compared to the same period in 2019;
- Reduced the Company’s general and administrative (“G&A”) costs by $1.1 million leading to a 19% decrease in per boe G&A costs to $1.64/boe in the third quarter of 2020 compared to the same period in 2019;
- Reduced our capital program to $4.7 million for the third quarter of 2020 demonstrating our cost control and debt reduction strategy;
- Exchanged $28.2 million of our 5.5% maturing convertible debentures to a new issuance of 8% convertible debentures with a maturity date of December 31, 2022;
- Continued our risk management program hedging over 63% of our remaining anticipated 2020 oil production and approximately 25% of our first half 2021 oil production;
- Through our service providers, we received approximately $15 million in abandonment and reclamation expenditure government subsidies to reduce our future asset retirement obligations;
|(1)||See non-GAAP measures|
The following table summarizes our third quarter 2020 operating and financial highlights:
|Three months ended Sept 30,||Nine months ended Sept 30,|
|($000’s except shares, per share and operating amounts)||2020||2019||% Chg||2020||2019||% Chg|
|Petroleum and natural gas revenue||61,982||95,483||(35)||157,166||295,699||(47)|
|Cash flow from operating activities||18,950||24,836||(24)||30,715||88,265||(65)|
|Adjusted funds flow (1)||13,206||27,571||(52)||30,219||92,946||(67)|
|per share basic and diluted||$0.12||$0.24||(50)||$ 0.27||$0.80||(66)|
|Earnings / (Loss)||(4,659)||359||n/m||(483,149)||(19,246)||n/m|
|per share basic and diluted||$(0.04)||–||n/m||$(4.26)||$(0.17)||n/m|
|Development capital expenditures (1)||4,510||15,789||(71)||27,068||43,982||(38)|
|Other capital expenditures||232||495||(53)||871||1,552||(44)|
|Total capital expenditures||4,742||16,284||(71)||27,939||45,534||(39)|
|Common shares, net of treasury shares (000s)||113,496||114,333||(1)||113,496||114,333||(1)|
|Working capital deficiency||10,898||10,325||6||10,898||10,325||6|
|Net bank debt (1)||214,916||202,760||6||214,916||202,760||6|
|Net debt (1)||259,367||247,760||5||259,367||247,760||5|
|Net debt to adjusted funds flow ratio (1)||4.4||2.5||76||4.4||2.5||76|
|Total payout ratio (1)||34||77||(56)||101||61||66|
|Average daily production|
|Light oil (bbl/d)||6,860||7,890||(13)||7,255||8,058||(10)|
|Medium/heavy oil (bbl/d)||7,721||8,733||(12)||8,051||8,744||(8)|
|Natural gas (mcf/d)||13,448||15,022||(10)||13,562||15,616||(13)|
|Netback ($/boe) (1)|
|Petroleum and natural gas revenue||$38.16||$51.74||(26)||$31.21||$53.23||(41)|
|Net operating expenses(1)||16.82||20.57||(18)||17.58||21.15||(17)|
|Realized gain (loss) on commodity contracts||(3.63)||(2.27)||60||1.12||(2.37)||n/m|
|Netback after risk management contracts (1)||$11.95||$18.78||(36)||$9.86||$20.66||(52)|
|Interest and other||2.18||1.82||20||1.78||1.82||2|
|Adjusted funds flow netback (1)||$ 8.13||$14.94||(46)||$6.00||$16.74||(64)|
|(1)||See non-GAAP measures|
THIRD QUARTER OVERVIEW
In spite of the ongoing COVID-19 pandemic’s impact, the third quarter of 2020 brought some stability in oil prices as compared to the volatility experienced in the second quarter. This price stability combined with tighter Canadian oil differential pricing supported Cardinal’s debt reduction strategy which continued through the third quarter reducing our net bank debt by $7.3 million over the prior quarter. The Company continued to focus on cost control spending $4.7 million of capital expenditures while increasing our daily production by 3% over the prior quarter. Approximately 10% to 15% of the Company’s production remains shut-in awaiting a sustainable recovery in oil prices justifying the economics of reactivating the production.
Adjusted funds flow increased from $2.1 million in the second quarter of 2020 to $13.2 million ($0.12/share) in the third quarter, despite a $5.9 million realized hedging loss. The increase was supported by an 18% reduction in net operating costs per boe and a 19% reduction in G&A costs per boe when compared to our levels in the third quarter of 2019. In comparison with the third quarter of 2019, lower operating costs were the result of reduced workover and reactivation activity, reduced Company labor costs combined with lower environmental costs due to our proactive pipeline monitoring and upgrading program. Lower G&A costs were due to reduced salaries and bonus program contributions combined with decreased staff levels across the Company and Cardinal receiving the Canadian Emergency Wage Subsidy (“CEWS”) during the third quarter of 2020.
Cardinal’s $4.7 million capital program included one land earning well completion in Southern Alberta, required CO2 injection expenditures for the Company’s enhanced oil recovery project at Midale, Saskatchewan and miscellaneous expenditures on recompletions and facility and pipeline integrity projects throughout the Company’s operations.
During the third quarter of 2020, a disciplined capital program and reduced cost structure assisted Cardinal in decreasing our bank indebtedness by $13.2 million and lowered our net debt by $7.3 million. In addition, during the third quarter, Cardinal exchanged $28.2 million of our 5.5% convertible debentures maturing on December 31, 2020 for new 8% convertible debentures maturing on December 31, 2022.
During the third quarter, in coordination with our service company partners, Cardinal continued to benefit from government subsidy programs. On our behalf, service companies submitted a significant number of applications for abandonment and reclamation work on Cardinal’s wells and leases within the Alberta Site Rehabilitation Program (“SRP”) and the Saskatchewan Accelerated Site Closure Program (“ASCP”). Cardinal has received approximately $15 million of approvals to date with more subsidy application approvals expected in the future. These funds will be utilized to reduce our abandonment and reclamation liabilities of inactive wells and sites of which the majority is forecasted to be spent within the next year. It is expected that this initial round of government funding will cover the majority of expenditures to abandon approximately 17% of Cardinal’s inactive wells. Cardinal will continue to be an active participant in available government programs.
From a risk management perspective, for the remainder of 2020, Cardinal has hedged an average of 9,000 bbl/d of West Texas Intermediate (“WTI”) oil production at an average price of CAD$52.52/bbl. In addition, we have WTI collars locking in a floor of CAD$50/bbl on 1,000 bbl/d for the remainder of 2020.
Cardinal continues to work through its credit facility renewal process with our syndicate of banks. The reduction in commodity prices has impacted our projected future cash flow from operating activities and has emphasized our goal of reducing our overall debt level. We have received approval from the syndicate to further extend the revolving period and re-determination date to November 30, 2020 and continue to work through the application process for federal liquidity support programs. Currently, Cardinal is drawn approximately $204 million on its credit facility, a decrease of approximately 6% from the amount drawn at the end of the second quarter.
As the effects of the COVID-19 pandemic continue to impact global economies and our industry, Cardinal’s focus continues to be on the health and safety of our employees and service providers and managing our liquidity through disciplined efficient operation of our assets. Our corporate debt reduction strategy continued through the third quarter and with our strong hedging position, is forecasted to continue through the fourth quarter.
To date in 2020, we have spent $27.9 million of capital expenditures which were heavily weighted to the first quarter prior to the COVID pandemic. For the remainder of 2020, we expect to be on target with our annual $31 million capital expenditure forecast for the year. We anticipate that despite a minimal $3.1 million fourth quarter capital program, our top tier low decline rate should allow us to maintain our current production levels through the fourth quarter.
We will continue to navigate through these challenging times and despite the volatility, look forward to a recovery as we move into 2021.