CALGARY, Alberta – Cardinal Energy Ltd. (“Cardinal” or the “Company“) (TSX:CJ) is pleased to present the results of its independent reserve report effective December 31, 2020. One hundred percent of Cardinal’s year-end 2020 reserves were evaluated by independent reserves evaluator GLJ Ltd. (“GLJ”) as at December 31, 2020 (the “2020 Reserve Report”). The 2020 financial information in this press release is unaudited and accordingly, such financial information is subject to change based on the results of the Company’s year-end audit.
SUSTAINABILITY AND OPERATIONS
The resilience, quality, and sustainability of our low decline asset base was demonstrated through an extremely challenging operational and financial period in 2020. The impacts on our business due to COVID-19 and the associated volatility in oil prices were profound and forced rapid decisions to reduce long-term negative consequences. Cardinal’s focus was to preserve financial liquidity, capture cost savings while keeping our operations safe, and maintaining the long-term value of our assets.
The year started off in a bullish fashion with WTI oil prices over US$60 per bbl and Cardinal kicking off a multi-well drilling program. This successful program consisted of six horizontal Glauconitic wells and one multi-leg Ellerslie horizontal well in our Bantry and Duchess fields in southern Alberta.
Then the world changed due to the COVID-19 pandemic. We spent the balance of 2020 in a survival mode cutting our capital budget by over 50% and significantly reducing our well reactivation program. The low decline nature of our assets performed exceptionally well as workover and reactivation costs were cut, salaries and wages were significantly reduced and capital spending halted, yet our production base was held relatively flat. We did shut down higher operating cost properties, some of which are still shut-in, and we will continue to review these properties to come up with long-term solutions to fix their cost structure. Production volumes averaged 17,169 boe/d in the second quarter of 2020 and as prices recovered, reached an average of 18,625 boe/d in the fourth quarter of 2020 without the benefit of drilling new wells as existing production was optimized and selective shut-in barrels were brought back on stream.
Throughout the second half of the year, commodity prices stabilized however there were ongoing restrictions and uncertainty when a second wave of the COVID-19 pandemic hit most countries. WTI oil prices averaged US$42.66 per bbl in the fourth quarter and closed at approximately $48.50 per bbl, an increase of 74% over the average price experienced in the second quarter of 2020. Oil prices through Q1 2021 have continued to strengthen to pre COVID-19 levels with recent spot WTI prices around US$60 per bbl further improving the long-term outlook for Cardinal and the industry.
RESERVE REPORT HIGHLIGHTS
All reserves information contained in this press release is based on the 2020 Reserve Report.
- The Net Present Value (“NPV”), discounted at 10% (“NPV10”) is $600 million, $712 million for our Proved Developed Producing (“PDP”) and Proved Plus Probable Producing (“P+PDP”) reserves respectively.
- Cardinal continues to maintain a long producing reserve life index(1) (“RLI”) of 9.5 years PDP and 12 years P+PDP based on fourth-quarter 2020 production which reflects the low decline, low-risk predictable nature of our asset base.
- Cardinal’s light and medium crude oil reserves, natural gas, and associated liquids saw positive technical revisions of 6.3 Mmboe and 6.7 Mmboe in the Total Proved (“TP”) and Total Proved plus Probable (“TPP”) reserves category, respectively. The Midale CO2 enhanced recovery project continues to exhibit improved performance.
- Cardinal maintained a high percentage of reserves as producing with the P+PDP reserves accounting for 82% of the Company’s total reserves.
- Based on the 2020 Reserve Report, the debt-adjusted, NPV10 (2) of the Company’s PDP reserves was $2.91 per basic share.
- 90% of Cardinal’s TPP reserves are associated with oil and natural gas liquids.
- Future Development Capital (“FDC”) was reduced by $51 million (19%) in the TPP reserves category as the Company has limited drilling plans in 2021.
Notes:
(1) RLI is calculated by dividing the reserves by the annualized fourth-quarter production of 18,625 boe per day, consisting of 10,172 bbl/d of light and medium crude oil, 4,977 bbl/d of heavy crude oil, 1,200 bbl/d of natural gas liquids and 13.7 MMcf/d of conventional natural gas.
(2) PDP net asset value is based on the before tax NPV10 of the PDP reserves less net debt of $247 million (unaudited) divided by the Company’s basic shares at December 31, 2020 of 121.3 million.
OIL AND GAS RESERVES
The 2020 Reserve Report encompasses 100% of Cardinal’s oil and gas properties and was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook(“COGEH”) and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).
Reserves Detail
Our 2020 Reserve Report reflects the impact of a materially lower commodity price forecast of the three consultant’s average (GLJ, McDaniel & Associates Consultants Ltd. and Sproule Associates Ltd.) used by GLJ. The forecast crude oil reference prices are 25% lower in the first five years from the 2019 Reserve Report forecast. There were 2.9 million barrels of TP and 2.3 million barrels of TPP heavy oil reserves removed due to low oil pricing at year end. These revisions were offset by the maintained low decline and improved performance in the Midale and other light and medium crude oil properties with associated natural gas and natural gas liquids.
The FDC was reduced by $47 million on a TP basis and $51 million on a TPP basis year over year due to the removal of some undeveloped locations primarily due to the change in forecasted commodity prices and the Company’s decision to have minimal drilling activity in 2021. FDC was also reduced from revisions to the CO2 purchase requirements and price. The FDC includes costs to develop the undeveloped reserves as well as maintenance capital and CO2 purchases.
In the 2020 Reserve Report, Cardinal has included all abandonment, decommissioning and reclamation (“ADR”) costs for active and inactive wells, pipelines and facilities. The ADR costs for the active assets are considered in the PDP reserves category. Full inclusion of all ADR costs is recommended by COGEH. Cardinal’s full inclusion of costs exceeds the NI 51-101 minimum requirement of ADR for active assets only. At year-end 2020, the 2020 Reserve Report included TPP ADR costs discounted at 10% of $79.8 million.
Consistent with prior years and in accordance with COGEH recommendations, Cardinal has included all operating costs, for active and inactive assets. The Company also includes the consideration of future maintenance costs which is included as part of the operating costs or as FDC.
Summary of Oil and Gas Reserves (1)
The following tables summarize certain information contained in the 2020 Reserve Report. Reserves included below are the Company’s estimated gross reserves as at December 31, 2020, as evaluated in the 2020 Reserve Report.
Reserves Category | Light and Medium Oil (Mbbl) |
Heavy Oil (Mbbl) |
Natural Gas Liquids (Mbbl) |
Conventional Natural Gas(2) (MMcf) |
Total BOE (Mboe) |
Proved Developed Producing | 36,186 | 18,934 | 2,984 | 37,531 | 64,359 |
Proved Developed Non-Producing | 1,371 | 1,011 | 179 | 6,901 | 3,711 |
Proved Undeveloped | 4,512 | 1,845 | 226 | 2,531 | 7,005 |
Total Proved | 42,069 | 21,790 | 3,389 | 46,963 | 75,074 |
Probable | 14,180 | 6,351 | 1,076 | 15,457 | 24,184 |
Total Proved Plus Probable | 56,249 | 28,141 | 4,465 | 62,420 | 99,258 |
Notes:
(1) Total values may not add due to rounding.
(2) Includes non-associated gas, associated gas and solution gas.
(3) In addition to the gross reserves indicated in the above table, the Company has 162 Mboe TPP royalty interest reserves comprised of 122 Mbbl light and medium crude oil and 238 MMcf of conventional natural gas.
Summary of Net Present Values of Future Net Revenue (Before Tax)
(Based on forecast price and costs)
As at December 31, 2020 (1)(2)(3)
Discounted at: | |||||
Reserves Category | 0.0% (M$) |
5.0% (M$) |
10.0% (M$) |
15.0% (M$) |
20.0% (M$) |
Proved Developed Producing | 950,174 | 770,949 | 600,164 | 488,401 | 412,823 |
Proved Developed Non-Producing(4) | (129,617) | (44,145) | (21,819) | (13,519) | (9,735) |
Proved Undeveloped | 142,042 | 78,913 | 49,693 | 32,440 | 21,164 |
Total Proved | 962,599 | 805,717 | 628,037 | 507,322 | 424,252 |
Probable | 692,446 | 312,338 | 183,298 | 123,502 | 90,055 |
Total Proved Plus Probable | 1,655,045 | 1,118,055 | 811,335 | 630,824 | 514,306 |
Notes:
(1) Total values may not add due to rounding.
(2) Based on three consultant’s average, as defined below, December 31, 2020 forecast prices and costs. See below for “Price Forecast”.
(3) Future net revenue has been reduced for future abandonment costs and estimated capital for future development associated with the reserves.
(4) The Proved Developed Non-Producing NPV includes the consideration of the inactive ADR costs of the Company. Excluding these costs the NPV10 of these reserves would be $32.9 million.
Reconciliations of Changes in Reserves
The following table sets out a reconciliation of the changes in the Corporation’s reserves as at December 31, 2020 against such reserves at December 31, 2019 based on forecast prices and cost assumptions in effect at the applicable reserve evaluation date:
Total Proved | |||||
Light and Medium Crude Oil (Mbbl) |
Heavy Crude Oil (Mbbl) |
Conventional Natural Gas (MMcf) |
Natural Gas Liquids (Mbbl) |
MBOE (Mboe) |
|
December 31, 2019 | 43,962 | 26,864 | 46,704 | 3,276 | 81,886 |
Technical Revisions (1) | 4,792 | (772) | 5,629 | 616 | 5,575 |
Improved Recovery | (7) | – | 1 | (1) | (8) |
Extensions and Infill Drilling | 628 | 346 | 3,098 | 25 | 1,515 |
Dispositions (2) | (113) | – | (7) | (2) | (116) |
Economic Factors (1)(3) | (3,387) | (2,882) | (3,452) | (211) | (7,055) |
Production | (3,805) | (1,766) | (5,009) | (315) | (6,722) |
December 31, 2020 | 42,069 | 21,790 | 46,963 | 3,389 | 75,074 |
Total Proved Plus Probable | |||||
Light and Medium Crude Oil (Mbbl) |
Heavy Crude Oil (Mbbl) |
Conventional Natural Gas (MMcf) |
Natural Gas Liquids (Mbbl) |
MBOE (Mboe) |
|
December 31, 2019 | 58,279 | 34,887 | 63,016 | 4,355 | 108,024 |
Technical Revisions (1) | 5,199 | (2,693) | 5,174 | 673 | 4,040 |
Improved Recovery | (15) | – | (10) | (1) | (17) |
Extensions and Infill Drilling | 722 | – | 3,555 | 28 | 1,342 |
Dispositions (2) | (143) | – | (9) | (2) | (147) |
Economic Factors (1)(3) | (3,987) | (2,286) | (4,297) | (273) | (7,262) |
Production | (3,805) | (1,766) | (5,009) | (315) | (6,722) |
December 31, 2020 | 56,249 | 28,141 | 62,420 | 4,465 | 99,258 |
Notes:
(1) Heavy oil reserves were revised downward due to truncation or uneconomic with this oil price forecast. Other positive or negative revisions are due to variations in performance versus previous forecasts.
(2) There were no reserve acquisitions in 2020.
(3) Economic factors have been calculated as the difference in reserves using the 2020 Reserve Report price forecast with the 2019 Reserve Report reserve forecasts. There is no consideration of changes in operating costs or price offset changes that occurred in 2020.
Price Forecast
The following table summarizes Consultant’s average (an arithmetic average of the price forecasts of GLJ, McDaniel & Associates Consultants Ltd. and Sproule Associates Ltd.) commodity price forecast and foreign exchange rate assumptions as at December 31, 2020, as applied in the 2020 Reserve Report, for the next five years.
Consultants Average Price Forecast(1) | ||||||
Exchange Rate |
WTI @ Cushing |
Canadian Light Sweet 40° API |
Western Canada Select 20.5° API |
Medium at Cromer 29° API |
Natural gas AECO – C spot |
|
Year | ($US/$C) | ($US/bbl) | ($C/bbl) | $C/bbl) | ($C/bbl) | ($C/MMbtu) |
2021 | 0.768 | 47.17 | 55.76 | 44.63 | 53.89 | 2.78 |
2022 | 0.765 | 50.17 | 59.89 | 48.18 | 57.58 | 2.70 |
2023 | 0.763 | 53.17 | 63.48 | 52.10 | 61.05 | 2.61 |
2024 | 0.763 | 54.97 | 65.76 | 54.10 | 63.25 | 2.65 |
2025 | 0.763 | 56.07 | 67.13 | 55.19 | 64.57 | 2.70 |
Note:
(1) Inflation is accounted for at 0% for 2021, 1.3% for 2022, and 2% thereafter.
Future Development Costs
FDC reflects the best estimate of the capital cost required to produce the reserves. The FDC associated with the TPP reserves at yearend 2020 is $219 million undiscounted ($152 million discounted at 10%).
millions $ | PDP | Total Proved | Total Proved plus Probable |
|
Total FDC, Undiscounted | 61.4 | 172.6 | 219.3 | |
Total FDC, Discounted at 10% | 34.2 | 119.9 | 151.8 |
FDC included at year-end 2020 for CO2 purchases, maintenance and facility capital in PDP, TP and TPP were $61 million, $69 million and $80 million, respectively. This represents 37% of Cardinal’s TPP FDC of $219 million. There are 76 net future locations included in the 2020 Reserve Report (including future CO2 injectors).