CALGARY, Alberta – Cardinal Energy Ltd. (“Cardinal” or the “Company”) (TSX: CJ) is pleased to announce its operating and financial results for the first quarter ended March 31, 2023.
FINANCIAL AND OPERATING HIGHLIGHTS FROM THE FIRST QUARTER OF 2023
- Production increased 5% over the same period in 2022 due to ongoing strong base performance and excellent 2022 drilling results across our asset base;
- Adjusted funds flow(1) was $52.3 million which was allocated to capital expenditures(1) of $25.3 million and dividends of $28.7 million;
- Cardinal’s net debt(1) has decreased by 47% in the last 12 months closing at $78 million at March 31, 2023;
- Achieved a net debt to adjusted funds flow ratio(1) of 0.2x for the first quarter of 2023;
- In the last 12 months, Cardinal has repaid approximately $69 million of net debt and returned approximately $130 million to shareholders in the form of dividends, treasury share purchases and common share cancellations through our normal course issuer bid (“NCIB”); and
- Drilled four (4.0 net) Clearwater oil wells in the first quarter with initial production coming on in the last week of March and currently producing at rates well above expectations.
(1) See non-GAAP and other financial measures.
The following table summarizes our first quarter financial and operating highlights:
($000’s except shares, per share and operating amounts) | Three months ended March 31 | ||
2023 | 2022 | % Chg | |
Financial | |||
Petroleum and natural gas revenue | 134,977 | 174,338 | (23) |
Cash flow from operating activities | 41,089 | 50,043 | (18) |
Adjusted funds flow (1) | 52,310 | 86,551 | (40) |
per share – basic | 0.34 | 0.58 | (41) |
per share – diluted | 0.33 | 0.53 | (38) |
Earnings | 16,321 | 57,240 | (71) |
per share – basic | 0.10 | 0.38 | (74) |
per share – diluted | 0.10 | 0.35 | (71) |
Development capital expenditures (1) | 23,487 | 34,947 | (33) |
Other capital expenditures (1) | 968 | 849 | 14 |
Acquisitions, net | 872 | – | n/m |
Capital expenditures (1) | 25,327 | 35,796 | (29) |
Common shares, net of treasury shares (000s) | 157,129 | 151,891 | 3 |
Dividends declared | 28,742 | – | n/m |
Per share | 0.18 | – | n/m |
Total Payout ratio (1) | 100 | 40 | 150 |
Bank debt | 45,320 | 146,564 | (69) |
Adjusted working capital deficiency (1) | 32,713 | 645 | n/m |
Net debt (1) | 78,033 | 147,209 | (47) |
Net debt to adjusted fund flow ratio (1) | 0.2 | 0.7 | (71) |
Operating | |||
Average daily production | |||
Light oil (bbl/d) | 7,821 | 7,578 | 3 |
Medium/heavy oil (bbl/d) | 10,380 | 9,900 | 5 |
NGL (bbl/d) | 863 | 804 | 7 |
Natural gas (mcf/d) | 15,980 | 13,888 | 15 |
Total (boe/d) | 21,726 | 20,596 | 5 |
Netback ($/boe) (1) | |||
Petroleum and natural gas revenue | 69.03 | 94.05 | (27) |
Royalties | (13.17) | (18.61) | (29) |
Net operating expenses (1) | (25.40) | (24.35) | 4 |
Transportation expenses | (0.91) | (0.62) | 47 |
Netback (1) | 29.55 | 50.47 | (41) |
Realized gain on commodity contracts | 0.77 | – | n/m |
Interest and other | (0.69) | (1.12) | (38) |
G&A | (2.89) | (2.65) | 9 |
Adjusted funds flow (1) | 26.74 | 46.70 | (43) |
(1) See non-GAAP and other financial measures.
n/m – Not meaningful or not calculable
FIRST QUARTER OVERVIEW
First quarter 2023 adjusted funds flow of $52.3 million was 23% lower than the prior quarter primarily due to reduced global oil prices combined with wide Western Canadian Select (“WCS”) oil differentials. WCS differentials averaged almost US$25/bbl in the first quarter but have materially decreased in the second quarter averaging approximately US$15/bbl to date. On a per diluted share basis, adjusted funds flow was $0.33 per share while first quarter 2023 free cash flow(1) of $28.8 million was utilized for shareholder returns through our $0.06 per month dividend.
First quarter 2023 net operating expenses per boe were slightly lower than the prior quarter at $25.40/boe due to lower Alberta electricity costs. Although lower than the prior quarter, power costs remain higher than historical levels. To mitigate these high power costs, Cardinal has entered into power contracts that fix the price of about 70% of the Company’s average monthly Alberta power usage at an average price of approximately $85/MWh, which is 40% lower than the average price in the first quarter of 2023.
Cardinal’s net debt closed the first quarter of 2023 at $78.0 million which included $45.3 million of bank debt and $32.7 million of adjusted working capital deficiency(1). The $45.3 million of bank debt represents drawings of 29% on our $155 million credit facility. The higher debt level as compared to year-end levels was mainly the result of a one-time withholding tax payment of $8.4 million upon the annual vesting of our bonus share awards. Cardinal’s net debt to adjusted funds flow ratio remained low at 0.2x. During the first quarter, despite materially higher Canadian interest rates, Cardinal’s low debt levels resulted in a 38% reduction in interest and other costs per boe over the same period in 2022.
(1) See non-GAAP and other financial measures.
OPERATIONS
Cardinal’s average production increased 445 boe/d compared to Q4 2022 to 21,726 boe/d in the first quarter a result of ongoing optimization of our base production. The Company’s capital expenditures were $25.3 million during the quarter. This included drilling another four (4.0 net) successful Clearwater multilateral wells on our lands at Nipisi, upgrading and expanding infrastructure capacity within our asset base, and reactivating and recompleting wells.
Our 2023 Nipisi Clearwater drilling program has yielded exceptional results. Production began in late March with first oil showing up at each well within days. Currently these four wells combined are producing at over 1,000 bbl/d of oil which has pushed current corporate production over 22,000 boe/d. Drilled last winter and on-stream for over a year, our first four (4.0 net) Nipisi Clearwater multilateral wells, delivered a weekly peak average production of a combined 800 boe/d, these wells continued to produce above our forecasts, with current aggregate production of approximately 500 boe/d and have paid out over two times to date. The Company will continue with its measured development pace at Nipisi and expects to proceed with another drilling program here in early 2024.
Our Wainwright Central Alberta Rex multilateral discovery well, drilled and brought on production during the summer of 2022, continues to produce above expectation with current production of approximately 100 boe/d. We significantly expanded our land position here through additional acquisitions in in the first quarter. The Company has identified over 90 potential multi-lateral follow up locations on this trend to develop over the next several years and preparations are being made to resume drilling on this project this summer.
Optimization efforts during the first quarter across our asset base have continued to uphold Cardinal’s top decile base decline rate.
The Company will resume its 2023 drilling program during the second quarter, with programs starting in each of our Wainwright, Bantry, and Midale, Saskatchewan areas in May and June.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
Cardinal’s strong corporate emissions performance has continued in 2023 with ongoing CO₂ sequestration in Saskatchewan and further implementation of projects aimed at reducing emissions from our operations across Alberta. Through our world class Carbon Capture and Sequestration (“CCS”) enhanced oil recovery (“EOR”) operation at Midale, the Company sequestered approximately 69,000 tonnes of CO₂ equivalent during the first quarter of 2023. This amount of carbon sequestration exceeds our Scope 1 emissions. To date, the Midale CCS EOR project has sequestered 5.5 million tonnes of CO₂ and has reduced oil production decline rates from this project to approximately 3%.
Cardinal’s safety record continues to be in the top tier of the industry, as is our regulatory compliance level.
Cardinal will continue with our commitment to reduce our environmental footprint with $23 million in our 2023 budget for asset retirement obligations (“ARO”), more than 2.5 times our required regulatory spend requirements. In the first quarter of 2023, Cardinal spent approximately $4.8 million of this budget. Our environmental footprint is minimized through the use of multi-well padsites for new drilling with only one new lease built for our first quarter drilling program.
Cardinal continues to high grade assets, with minor dispositions of non-core assets, disposing of approximately $4.5 million of undiscounted future ARO liability from interests in 49 (22 net) wells and eight facilities in the first quarter of 2023.
OUTLOOK
The first quarter of 2023 demonstrated once again the strength of our low decline asset base. Despite first quarter drilling activity contributing virtually no production in the quarter as budgeted, our average corporate production saw a modest incline due to last year’s drilling activity and optimization efforts.
We will continue to pursue projects and opportunities that increase our sustainability and decrease our corporate risk.
Cardinal looks forward to reporting its second quarter financial and operating results and the drilling results from our Clearwater, Rex, Bantry and Midale, Saskatchewan drilling programs.
On behalf of the Board of Directors, Management and employees we would like to thank our shareholders for their ongoing support.