2020 FINANCIAL HIGHLIGHTS
- Fourth quarter adjusted funds flow(1) of $13.6 million funded a conservative capital program of $3.6 million and supported a $12.5 million reduction in net debt(1) compared to the third quarter of 2020;
- Average fourth quarter production increased 5% over the prior quarter to average 18,625 boe per day as the Company reactivated production shut-in earlier in the year;
- Fourth quarter net operating expenses(1) per boe decreased 17% over the same period in 2019 averaging $16.84 per boe while annual net operating expenses(1) decreased by $37.9 million or 24% over 2019 to average $17.39 per boe;
- Fourth quarter 2020 general and administrative (“G&A”) expenses per boe decreased 27% over the fourth quarter of 2019 to average $1.64 per boe;
- Net debt(1) at December 31, 2020 of $246.8 million decreased $27 million or 10% from the high point of the year at the end of the first quarter of 2020. With the recently completed redemption of convertible debentures, our pro-forma net debt(1) at December 31, 2020 is reduced to $218.8 million, a $55 million or 20% reduction from the first quarter of 2020;
- During the fourth quarter, we completed the extension of our syndicated credit facility with a maturity in May 2022 and exchanged $16.2 million of 2020 maturing convertible debentures with new secured notes which mature in 2022;
- In the fourth quarter of 2020 a reversal of prior non-cash impairment charges of $122.7 million demonstrated a recovery in forward oil prices and an improved financial position.
(1) See non-GAAP measures
|Financial and Operating Highlights|
|($000’s except shares, per share and operating amounts)||Three months ended December 31,||Year ended December 31,|
|2020||2019||% Chg||2020||2019||% Chg|
|Petroleum and natural gas revenue||66,065||93,272||(29)||223,231||388,971||(43)|
|Cash flow from operating activities||12,810||31,714||(60)||43,525||119,979||(64)|
|Adjusted funds flow (1)||13,608||28,864||(53)||43,827||121,810||(64)|
|per share basic and diluted (1)||0.12||0.25||(52)||0.39||1.06||(63)|
|per share basic||1.06||(0.13)||n/m||(3.20)||(0.30)||n/m|
|per share diluted||1.04||(0.13)||n/m||(3.20)||(0.30)||n/m|
|Development capital expenditures (1)||3,325||19,621||(83)||30,393||63,603||(52)|
|Other capital expenditures (1)||242||397||(39)||1,113||1,665||(33)|
|Total capital expenditures||3,567||20,130||(82)||31,506||65,664||(52)|
|Common shares, net of treasury shares (000s)||121,349||113,657||7|
|Adjusted working capital deficiency(1)||10,284||29,291||(65)|
|Net bank debt (1)||202,399||202,599||–|
|Net debt (1)||246,823||247,599||–|
|Average daily production (2)|
|Light oil (bbl/d)||6,929||8,100||(14)||7,173||8,069||(11)|
|Medium/heavy oil (bbl/d)||8,220||8,657||(5)||8,093||8,722||(7)|
|Natural gas (mcf/d)||13,653||15,459||(12)||13,585||15,576||(13)|
|Netback ($/boe) (1)|
|Petroleum and natural gas revenue||38.56||50.12||(23)||33.07||52.45||(37)|
|Net operating expenses||16.84||20.31||(17)||17.39||20.94||(17)|
|Realized loss on commodity contracts||3.58||0.79||n/m||0.07||1.98||(96)|
|Netback after risk management (1)||11.99||19.39||(39)||10.39||20.33||(49)|
|Interest and other||2.40||1.62||48||1.94||1.77||10|
|Adjusted funds flow netback (1)||7.95||15.51||(49)||6.48||16.42||(61)|
(1) See non-GAAP measures
(2) See Supplemental Information Regarding Product Types
FOURTH QUARTER AND 2020 HIGHLIGHTS
Cardinal began 2020 with a plan to modestly increase production while continuing to reduce debt. Our successful first quarter 2020 drilling program was quickly halted in early March when the coronavirus pandemic (“COVID-19”) spread throughout the world. With the uncertainty of demand and the effect on commodity prices, we reacted quickly cutting our capital program by over 50% and reducing our well reactivation program to only essential expenditures. We focused on what we could control by reducing costs including capital costs, operating costs and compensation costs throughout the organization. Despite the difficult environment, Cardinal was able to lower our net debt from the high experienced at the end of the first quarter of $273.8 million to $246.8 million at the end of 2020, a 10% reduction.
Despite a conservative $3.6 million capital program, fourth quarter production increased by 5% over the prior quarter to average 18,625 boe per day. After capital expenditures, the majority of the fourth quarter adjusted funds flow of $13.6 million was earmarked for debt repayment as the Company reduced its net debt by $12.5 million in the fourth quarter.
In 2020, net operating expenses and net operating expenses per boe decreased 24% and 17%, respectively, over 2019 due to reduced labor costs combined with decreased well servicing and reactivations. After COVID-19 struck, the Company deferred non-essential well reactivations which reduced our operating costs by approximately $1.50 per boe during 2020. In addition, power generation initiatives completed in 2019 and early 2020 have assisted in reducing Cardinal’s Alberta power grid usage by 13% during 2020 compared to 2019 contributing to a 15% or $0.76 per boe decrease in 2020 power costs.
In response to COVID-19, Cardinal was quick to respond in reducing our G&A costs. Through a combination of reduced staffing, salaries and bonuses combined with certain government grants, our fourth quarter and annual G&A costs per boe decreased by 27% and 8%, respectively. Our total annual Board, executive and office staff compensation costs decreased by approximately 16% over 2019 demonstrating Cardinal’s commitment to cost reduction.
Through a challenging period in 2020, Cardinal successfully managed our financial position with a series of transactions. In August, we closed an exchange of $28.2 million of our 5.5% convertible debentures that were maturing in December 2020 for new 8% convertible debentures maturing in 2022. In December, Cardinal completed the extension of our syndicated credit facility with a maturity date in May 2022 and also entered into subscription agreements for a non-brokered private placement of secured notes for net proceeds of $16.2 million for which the proceeds were utilized to repay the remaining maturing 5.5% convertible debentures. Subsequent to year-end, the Company issued a redemption notice for all of the outstanding 8% convertible debentures. Prior to the redemption date, 99.3% of the outstanding debentures were converted into 22.4 million common shares which reduced the Company’s net debt by $28 million.
In the fourth quarter of 2020, Cardinal had earnings of $120 million compared to a loss of $15.1 million in the same period in 2019. During the quarter, increased forecasted commodity prices combined with improved economic stability and certainty, positively affected the Company’s outlook and future value of proved and probable oil and gas reserves and a non-cash impairment reversal of $122.7 million was recorded.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
In 2020, we participated in various government programs focused on well and pipeline abandonments and facility decommissioning which enabled us to make significant progress on our long-term abandonment and reclamation efforts. In 2021, we expect to continue with our meaningful abandonment and reclamation program and will strengthen our ESG performance as we build on our negative carbon footprint. Our annual 2020 ESG report is posted on our corporate website.
After a difficult and challenging 2020, 2021 is shaping up to be a significant improvement for Cardinal. Global optimism around COVID-19 vaccines and an economic recovery have created positive market sentiment and along with material increases in oil prices are leading to a vastly improved outlook for the Company. With the recently completed $28.2 million settlement of the 8% debentures and our continued debt repayment strategy, our financial position continues to strengthen.
Our 2021 budget based on WTI US$52/bbl, is focused on debt repayment and has a modest capital program emphasizing well reactivations and reducing our asset retirement obligations. If oil prices continue to remain above US$60/bbl, we will revisit our budget for the second half of the year and may modestly add to our capital program to ensure reserve replacement and production growth for 2021. Our focus will continue to be on our balance sheet and the reduction of our overall liabilities.
As we recover from the effects of COVID-19, our focus remains on the health and safety of our employees and contractors while continuing to execute our business plan with our top tier low decline asset base.
We would like to thank our staff for their hard work, our Board for their guidance and our stakeholders for their support through a difficult 2020.
Cardinal also announces the filing of its Audited Financial Statements for the year ended December 31, 2020 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 will file its Annual Information Form for the year ended December 31, 2020 on SEDAR on or prior to March 30, 2021. Electronic copies may be obtained on Cardinal’s website at www.cardinalenergy.ca and on Cardinal’s SEDAR profile at www.sedar.com.