CALGARY, Alberta – (CJ:TSX) Cardinal Energy Ltd. (“Cardinal” or the “Company”) is pleased to announce that its Board of Directors has approved an operating and capital budget for 2021 that will focus on debt reduction, maintaining production levels and abandonment and reclamation expenditures.
Highlights of 2021 Budget
- Generates adjusted funds flow of $70 to $75 million;
- Approximately $40 to $45 million or 55% to 60% of adjusted funds flow will be utilized for debt repayment;
- Forecasting a 20% reduction in net bank debt by year-end;
- Executing a conservative capital program of $25 to $30 million focused on reactivations, continued upgrades to our pipeline and facility infrastructure, and increasing CO2 injection at the Midale enhanced oil recovery project;
- Maintaining average production levels between 17,500 and 18,000 boe/d; and
- Investment of $5 million for asset retirement obligations (“ARO”) complementing the government subsidy grants.
Cardinal’s 2021 conservative budget takes advantage of our low corporate decline rate and focuses on optimizing our long life asset base. The budget includes reactivating and optimizing shut-in production, proactively upgrading our pipeline and facility infrastructure and increasing our CO2 injection program for our enhanced oil recovery project at Midale, Saskatchewan.
Cardinal’s 2021 budget is expected to produce adjusted funds flow of approximately $70 to $75 million and assumes an average royalty rate of 15%, a West Texas Intermediate (“WTI”) oil price of US$52/bbl, US/CAD exchange rate of 0.78 and a $2.52/mcf AECO natural gas price. During 2021, Cardinal’s operating expenses are forecasted to average approximately $18.00/boe however expensed well reactivations will add approximately $2.00/boe of operating costs in 2021 as the Company plans to increase the workover and well reactivation program that was suspended in 2020 due to low oil prices. The Company has a significant inventory of low cost workover candidates that will provide increased production to largely offset natural declines in 2021.
The 2021 budget does not contemplate drilling any new wells resulting in a 3% decline in average annual production. We will revisit a potential drilling program in the second half of 2021 depending on commodity price levels. Cardinal maintains a deep, diverse inventory of unbooked potential development drilling opportunities spread across our asset base. With continued strengthening in oil prices and the meeting of our debt reduction priorities, we expect development drilling activities to resume.
The 2021 budget results in adjusted funds flow net of capital expenditures and ARO expenditures of approximately $40 to $45 million which is earmarked for debt repayment.
2021 Budget Summary
|Average production (boe/d)||17,500 to 18,000|
|Adjusted funds flow ($ mm)||$70 to $75|
|Year-end net bank debt ($ mm)||$157 – $162|
|Total capital expenditures ($ mm)||$25 – $30|
|Operating costs ($/boe)||$20.00 – $20.75|
|Transportation costs ($/boe)||$0.30 – $0.40|
|G&A ($/boe)||$2.05 – $2.25|
|US$ WTI ($/bbl)||$52.00|
|US/CAD Exchange Rate||0.78|
|US$ WTI-WCS Basis Differential ($/bbl)||($13.50)|
|US$ WTI-MSW Basis Differential ($/bbl)||($5.50)|
Cardinal has allocated approximately $5 million of its 2021 budget for ARO expenditures which will complement the $18.4 million of government subsidies received to date from the Alberta Site Rehabilitation Program and the Saskatchewan Accelerated Site Rehabilitation Program through our service provider applications. The Company expects to receive the benefit of additional funding in subsequent government subsidies through these programs. In 2020, Cardinal executed on approximately 45% of the available funding with environmental, site decommissioning and well abandonments (119 gross operated wells abandoned) as well as a significant amount of work was completed on downhole abandonments and facility reclamations.
|Input||Effect on adjusted funds flow ($ mm)|
|US $1/bbl change in WTI||$3.8|
|US $1/bbl MSW basis||$1.5|
|US $1/bbl WCS basis||$2.9|
Cardinal will continue to prudently manage our balance sheet and asset base. As commodity prices have recovered materially since the lows experienced in 2020, the Company is in a position to accelerate debt reduction. Due to the low decline and deep inventory of reactivations across our asset base, in 2021, Cardinal will maintain production levels deploying limited capital. After taking into account the budgeted capital and ARO expenditures, our 2021 budget is expected to generate approximately $40 to $45 million (55% to 60% of adjusted funds flow) which will be utilized to reduce debt. Cardinal plans to exit the year with a healthy balance sheet targeting a 2.2x net bank debt to adjusted funds flow ratio.
During 2021, we plan to continue with our ARO and environmental spending through a $5 million Cardinal funded program which will complement the government subsidy programs to reduce our future liabilities and inactive well count.
Our conservative budget gives us the flexibility to pay down additional debt, increase our capital program or increase our ARO expenditures should commodity prices continue to increase, or reduce capital spending in the second half of 2021 if commodity prices deteriorate.
Cardinal’s annual 2020 reserve results will be released on February 25, 2021 with the 2020 financial and operating results to be released on March 16, 2021.