CALGARY, Alberta – Cardinal Energy Ltd. (“Cardinal” or the “Company“) (TSX: CJ) is pleased to announce its operating and financial results for the fourth quarter and year ended December 31, 2021.
FINANCIAL HIGHLIGHTS FROM THE FOURTH QUARTER OF 2021
- Fourth quarter 2021 production increased 10% over the same period in 2020;
- In the fourth quarter of 2021, adjusted funds flow(1) increased 293% to $53.5 million ($0.36 per basic share) as compared to the fourth quarter of 2020. Adjusted funds flow(1) for 2021 increased to $132.5 million, a 202% increase over 2020;
- West Texas Intermediate (“WTI”) oil prices averaged approximately US$77/bbl resulting in free cash flow(1) of $35.4 million in the fourth quarter of 2021 contributing to a fourth quarter net debt(1) reduction of $39.5 million over the third quarter of 2021;
- During 2021, Cardinal reduced its net debt(1) position by $68.6 million or 28% of the balance at the end of 2020;
- Net debt(1) at December 31, 2021 decreased to $178.2 million leading to a net debt to adjusted funds flow ratio(1) of 1.3.(1) See non-GAAP and other financial measures
The following table summarizes our fourth quarter and annual 2021 operating and financial highlights:
Three months ended December 31, | Year ended December 31, | |||||||||||||
($000’s except shares, per share and operating amounts) | 2021 | 2020 | % Chg | 2021 | 2020 | % Chg | ||||||||
Petroleum and natural gas revenue | 140,409 | 66,065 | 113 | 445,069 | 223,231 | 99 | ||||||||
Cash flow from operating activities | 51,973 | 12,810 | n/m | 125,121 | 43,525 | 187 | ||||||||
Adjusted funds flow (1) | 53,495 | 13,608 | 293 | 132,507 | 43,827 | 202 | ||||||||
per basic share | 0.36 | 0.12 | 200 | 0.92 | 0.39 | 136 | ||||||||
per diluted share | 0.33 | 0.12 | 175 | 0.86 | 0.39 | 121 | ||||||||
Earnings / (Loss) | 38,955 | 119,988 | (68 | ) | 284,415 | (363,160 | ) | n/m | ||||||
per basic share | 0.26 | 1.06 | (75 | ) | 1.98 | (3.20 | ) | n/m | ||||||
per diluted share | 0.24 | 1.04 | (77 | ) | 1.84 | (3.20 | ) | n/m | ||||||
Development capital expenditures (1) | 18,110 | 3,325 | n/m | 50,576 | 30,393 | 66 | ||||||||
Other capital expenditures | 621 | 242 | 156 | 1,493 | 1,113 | 34 | ||||||||
Property acquisitions, net | (10,069 | ) | – | n/m | (6,041 | ) | – | n/m | ||||||
Total capital expenditures | 8,662 | 3,567 | 143 | 46,028 | 31,506 | 46 | ||||||||
Common shares, net of treasury shares (000s) | 150,442 | 121,349 | 24 | |||||||||||
Bank debt | 142,412 | 192,115 | (26 | ) | ||||||||||
Adjusted working capital deficiency (1) | 23,235 | 10,284 | 126 | |||||||||||
Net bank debt (1) | 165,647 | 202,399 | (18 | ) | ||||||||||
Secured notes | 12,546 | 16,217 | (23 | ) | ||||||||||
Convertible debentures | – | 28,207 | (100 | ) | ||||||||||
Net debt (1) | 178,193 | 246,823 | (28 | ) | ||||||||||
Net debt to adjusted funds flow ratio (1) | 1.3 | 5.6 | (77 | ) | ||||||||||
Operating | ||||||||||||||
Average daily production | ||||||||||||||
Light oil (bbl/d) | 7,509 | 6,929 | 8 | 7,293 | 7,173 | 2 | ||||||||
Medium/heavy oil (bbl/d) | 9,857 | 8,220 | 20 | 8,533 | 8,093 | 5 | ||||||||
NGL (bbl/d) | 870 | 1,200 | (28 | ) | 915 | 911 | – | |||||||
Natural gas (mcf/d) | 13,733 | 13,653 | 1 | 14,093 | 13,585 | 4 | ||||||||
Total (boe/d) | 20,525 | 18,625 | 10 | 19,090 | 18,442 | 4 | ||||||||
Netback ($/boe) (1) | ||||||||||||||
Petroleum and natural gas revenue | 74.36 | 38.56 | 93 | 63.88 | 33.07 | 93 | ||||||||
Royalties | 14.67 | 5.90 | 149 | 11.49 | 4.93 | 133 | ||||||||
Net operating expenses(1) | 22.29 | 16.84 | 32 | 22.22 | 17.39 | 28 | ||||||||
Transportation expenses | 0.73 | 0.25 | 192 | 0.49 | 0.29 | 69 | ||||||||
Netback(1) | 36.67 | 15.57 | 136 | 29.68 | 10.46 | 184 | ||||||||
Realized loss on commodity contracts | 4.74 | 3.58 | 32 | 6.72 | 0.07 | n/m | ||||||||
Interest and other | 1.26 | 2.40 | (48 | ) | 1.79 | 1.94 | (8 | ) | ||||||
G&A | 2.34 | 1.64 | 43 | 2.15 | 1.97 | 9 | ||||||||
Adjusted funds flow netback (1) | 28.33 | 7.95 | 256 | 19.02 | 6.48 | 194 | ||||||||
(1) See non-GAAP and other financial measures
FOURTH QUARTER OVERVIEW
In the fourth quarter of 2021, oil prices continued to rise with the WTI benchmark oil price averaging US$77/bbl, an increase of approximately 9% over the average price in the third quarter. Cardinal’s successful drilling and well reactivation program increased our production by 5% over the prior quarter, which, combined with the higher commodity prices bolstered the Company’s adjusted funds flow by 42% over the third quarter of 2021 to $53.5 million ($0.36 per basic share). This contributed to a $39.5 million reduction in net debt, 18% of the net debt balance at the end of the third quarter.
During the fourth quarter, the Company spent a total of $18.1 million on development capital expenditures which included the drilling of three (3.0 net) wells and completion of four (4.0 net) wells in Southern Alberta. The Company also continued with its Enhanced Oil Recovery (“EOR”) CO2 injection program at Midale, Saskatchewan where the two new injection wells we drilled in the second quarter are injecting up to 9 mmcf/d of incremental CO2 (~500 tonnes/day).
Cardinal’s peer leading, low annual decline (~10%) asset base has allowed the Company to be very selective in allocating drilling capital while maintaining production volumes. In the 2nd half of 2021, Cardinal drilled 10 (8.5 net) wells, investing ~$12.8 million on these projects. Over three months since the last of these wells came on stream, production associated with this activity is currently approximately 1,600 boe/d, well above forecast. With current commodity prices, we expect the program in aggregate will pay out in the second quarter and has further reduced the risk of the identified follow-up locations, providing more confidence in the low cost, long term sustainability of our production base.
With increasing oil prices and improved payout periods, in the fourth quarter of 2021, we also accelerated our well reactivation program spending $2.8 million on recompletions and workovers throughout our operating areas. In the fourth quarter, Cardinal closed the disposition of approximately 200 boe/d of non-core production and associated lands and liabilities for gross proceeds of $10.5 million. Including the disposition, Cardinal spent $8.7 million on capital expenditures in the fourth quarter of 2021.
Increased adjusted funds flow combined with our disciplined capital program enhanced our free cash flow during the quarter contributing a net debt reduction of $39.5 million. During the fourth quarter, we repaid our 2020 second lien secured notes with a portion of our free cash flow extinguishing the higher interest rate debt. In addition, Cardinal continued with its debt reduction strategy and reduced net bank debt by $21.8 million during the fourth quarter. In 2021, Cardinal has reduced its net debt by $68.6 million or 28% below the net debt balance at December 31, 2020.
Fourth quarter 2021 net operating expenses per boe were 5% lower than the prior quarter at $22.29/boe due to lower fourth quarter Alberta electricity costs combined with higher production. In 2021, costs were higher than historical levels as Alberta power prices have significantly increased over 2020.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
Cardinal maintained our strong corporate emissions performance in 2021 with continued CO2 sequestration in Saskatchewan and implementation of various emissions reduction projects across Alberta. Through our world class Carbon Capture and Sequestration (“CCS”) EOR operation at Midale, the Company sequestered approximately 242,000 tonnes of CO2 in 2021. Two additional injection wells were drilled and brought online at Midale, Saskatchewan over the summer. These injectors will contribute to increasing sequestration to over 300,000 tonnes of CO2 in 2022 while supporting increased oil recovery from the Midale unit. To date, the Midale CCS EOR project has sequestered over five million tonnes of CO2 and has reduced oil production decline rates to approximately 3% to 5%. Cardinal also implemented emissions reduction projects at over 75 wellsites across Alberta, reducing vented greenhouse gas emissions by over 2,000 tonnes of CO2 equivalent.
Cardinal’s safety record continues to be in the top tier of the industry, as is our regulatory compliance approval level.
In 2021 and into 2022, Cardinal continued to actively participate in various government programs focused on well and pipeline abandonments and facility decommissioning. During 2021, Cardinal abandoned 201 wells, numerous pipeline segments and has initiated decommissioning of several inactive facilities.
OUTLOOK
Cardinal continues to implement its 2022 business plan and budget. The increase in commodity prices has enabled us to continue with our debt reduction strategy and accelerate our debt repayment at a rate not envisioned at the start of the year.
Our Board of Directors has approved a marginal increase in our capital program for 2022. Our initial 2022 budget of $75 million in capital spending and $9 million of abandonment and reclamation spending (“ARO”) will be increased by $15 million. Of the increase, approximately $5 million of the additional capital spending will be allocated to strategic Clearwater land acquisitions, a portion of which has been spent in the first quarter, and an additional $10 million will be spent on ARO with an increased focus on surface land reclamation and restoration in Alberta and Saskatchewan. With the increased ARO budget amount and our remaining government grant contributions we expect to spend over $24 million on ARO in 2022 which represents over four times the required regulatory spend.
To date in the first quarter of 2022, we have completed the drilling and completion of eight wells. Two Dunvegan light oil wells were drilled and completed and have commenced production following our type curve expectation. Two Ellerslie multi-leg horizontal wells were drilled and completed in the Brooks area of southern Alberta. The first well has been on production for approximately two weeks at rates double our type curve expectations in the area. The second Ellerslie well is expected to be on stream this week. In addition, Cardinal’s first four Clearwater wells at Nipisi have been drilled and completed and are also expected to commence production this week.
The remaining ten wells of our budgeted drilling activity for 2022 will be focused on select development at Midale, Brooks and in our Central Alberta area. Cardinal has identified a deep development inventory across our asset base which in combination with our low corporate decline rate puts the Company in an enviable position to sustain production volumes over the longer term with modest annual capital investments. Cardinal will continue to further upgrade our inventory through targeted land acquisitions as the opportunities present themselves.
We continue to improve our ESG metrics and our 2021 report will be available on our corporate website at www.cardinalenergy.ca on March 15, 2022. This years report reflects the efforts our team puts into improving our ESG footprint on a daily basis.
As we move through these tumultuous times, we are cognizant of our goals which are to reduce our corporate risk and return capital to shareholders. At the beginning of 2022, we outlined a definitive plan to enhance the long-term viability of the Company and to return capital to shareholders. The first phase of this plan is to begin a monthly sustainable dividend once our net bank debt level is below $100 million. At current prices and forecasted spending, we expect our net bank debt to be approximately $140 million at the end of the first quarter of 2022. If commodity prices remain strong, we expect to reach our phase one net debt target in the second quarter of 2022.
We expect to be able to announce the timing and amount of our dividend reinstatement with our first quarter results on May 12, 2022.
ANNUAL FILINGS
Cardinal also announces the filing of its Audited Financial Statements for the year ended December 31, 2021 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, 2021 on SEDAR on or prior to March 30, 2022. Electronic copies may be obtained on Cardinal’s website at www.cardinalenergy.ca and on Cardinal’s SEDAR profile at www.sedar.com.