Cardinal Energy Ltd. Announces Fourth Quarter 2018 Year-end Financial Results

Source Press Release
Company Cardinal Energy Group, Inc. 
Tags Capital Spending, Strategy - Corporate, Financial & Operating Data
Date March 19, 2019

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, 2018.

2018 FINANCIAL HIGHLIGHTS

  • Production for 2018 averaged 20,858 boe/d, an 11% increase over 2017. Fourth quarter production averaged 20,365 boe/d, after the Company voluntarily curtailed sales volumes due to low pricing, which impacted production by approximately 1,100 boe/d.

  • Despite curtailed production and increased regulatory and power costs, operating costs per boe moderately increased 1% in the fourth quarter of 2018 compared to the same period in 2017.

  • General and administrative costs per boe decreased 43% in the fourth quarter and 11% in 2018 over the same periods in 2017 due to reduced compensation and administrative costs demonstrating the Company’s commitment to reducing cash costs in a challenging environment.
  • Earnings increased to $84.8 million and $60.5 million for the fourth quarter and year ended December 31, 2018, respectively, predominantly due to a reversal of prior period impairments which was the result of positive reserve additions from the Company’s 2018 drilling program and well performance.      
  Three months ended December 31,    Year ended December 31, 
($ 000's except shares, per share and operating amounts)  2018  2017  % Change    2018  2017  % Change 
Financial               
Petroleum and natural gas revenue  59,077  97,646  (39)    379,254  313,844  21 
Cash flow from operating activities  6,968  24,442  (71)    88,767  76,530  16 
Adjusted funds flow (1)  5,513  28,421  (81)    85,221  83,672 
basic  0.05  0.26  (81)    0.74  0.89  (17) 
diluted  0.05  0.26  (81)    0.74  0.89  (17) 
Earnings (loss)  84,760  (54,307)  n/m    60,544  (57,597)  n/m 
basic  0.73  (0.49)  n/m    0.53  (0.61)  n/m 
diluted  0.70  (0.49)  n/m    0.52  (0.61)  n/m 
Dividends declared  9,573  11,896  (20)    46,680  40,904  14 
per share  0.080  0.105  (24)    0.395  0.420  (6) 
Net bank debt (1)  219,689  225,967  (3)    219,689  225,967  (3) 
Development capital expenditures  13,453  15,901  (15)    61,592  66,453  (7) 
Acquisitions, net  163  (15,661)  n/m    (16,757)  313,191  (105) 
Total capital expenditures  13,697  759  n/m    46,398  381,756  (88) 
Weighted average shares outstanding               
Basic (000s)  116,121  110,446    114,641  94,113  22 
Diluted (000s)  121,986  110,446  10    115,679  94,113  23 
               
Operating               
Average daily production               
Light oil (bbl/d)  8,394  8,325    8,724  5,624  55 
Medium/heavy oil (bbl/d)  8,256  8,732  (5)    8,601  9,526  (10) 
NGL (bbl/d)  972  886  10    770  652  18 
Natural gas (mcf/d)  16,460  18,032  (9)    16,579  17,431  (5) 
Total (boe/d)  20,365  20,948  (3)    20,858  18,707  11 
Netback (1)               
Petroleum and natural gas revenue  31.53  50.66  (38)    49.82  45.96 
Royalties  4.42  7.68  (42)    8.47  6.67  27 
Net operating expenses  20.32  20.06    20.40  20.60  (1) 
Transportation expenses  0.51  0.28  82    0.31  0.33  (6) 
Netback  6.28  22.64  (72)    20.64  18.36  12 
               
See non-GAAP measures (1) 

FOURTH QUARTER AND 2018 HIGHLIGHTS

Significantly reduced Canadian oil pricing resulted in challenges for the oil and gas industry in the fourth quarter of 2018.  While West Texas Intermediate ("WTI") oil prices decreased by 15% over the previous quarter, oversupply concerns and a lack of egress optionality impacted Canadian oil price differentials drastically.  The Western Canadian Select ("WCS") average benchmark price decreased by 59% while the Edmonton Light ("MSW") price decreased by 48% over the third quarter of 2018.  These pricing decreases were the major contributors to a 48% decrease in Cardinal’s fourth quarter oil and natural gas sales revenue compared to the third quarter of 2018.  In response to these record high Canadian oil differentials and in order to preserve the long-term value of our reserves, Cardinal voluntarily shut-in production which was not profitable with the extreme pricing change resulting in a decrease of approximately 1,100 boe/d to fourth quarter production. 

In order to combat these low prices, the Company also reduced all non-essential workovers and reactivations which helped to offset higher regulatory and power operating costs keeping Cardinal’s operating costs per boe within 1% of the same period in 2017.  Cardinal also reduced its planned fourth quarter capital expenditure program and its dividend in order to maintain its strong balance sheet.  During the fourth quarter, in response to the challenging environment, the Company cut administrative and cash compensation costs resulting in a decrease of 43% of general and administrative ("G&A") costs to $1.99/boe as compared to $3.50/boe in the same period in 2017.  This reduction demonstrates the entire Company’s commitment to decrease cash costs especially during uncertain and volatile times as experienced in the fourth quarter of 2018.  The result of these proactive measures was a year over year 3% decrease in net bank debt. 

In 2018, Cardinal drilled, completed and brought on production 17 (10.6 net) wells.  The Company experienced encouraging results specifically in Southern Alberta as evidenced by our positive reserve additions and improved production of new and existing wells as discussed in our March 5, 2019 press release.  The positive operational results combined with improved production levels on existing wells, led to Cardinal reversing $76.5 million of a previous impairment loss.  A combination of the reversed impairment loss and a significant unrealized gain on commodity contracts from the future value of our hedging program, led to earnings after tax of $84.8 million in the fourth quarter of 2018 and $60.5 million for the full year of 2018. 

In December 2018, the Alberta Government announced an oil production curtailment initiative in order to stabilize the discount of WCS and MSW oil prices to WTI prices.  While Cardinal does not believe this is a long-term solution to the egress options facing Western Canada, it had an immediate impact on oil price differentials in the first quarter of 2019 narrowing them to historical levels.  This has allowed Cardinal to continue with its well and productionreactivation program and although Cardinal’s 2019 oil production growth will be limited by curtailment in the year, we expect our adjusted funds flow will normalize to pre-fourth quarter 2018 levels.

OUTLOOK

While the fourth quarter of 2018 was challenging for Cardinal, we have a positive outlook on 2019 and beyond.  Our peer leading reserve results combined with the positive production response from our drilling program and our enhanced oil recovery projects position the Company’s assets for future success. Our top decile productiondecline rate continues to support our capital program, dividend and debt repayment initiatives during challenging times. 

The positive Canadian commodity pricing increases have allowed Cardinal to be opportunistic in locking in future value with its hedging program.  Approximately 73% of the Company’s WCS differential pricing has been locked in with either WTI-WCS pricing differential hedges or wellhead CAN$ WCS pricing.  The Company has also retained upside on WTI pricing by locking in 40% of our light oil with an average ceiling price of over CAD$85/bbl or with no ceiling at all through various puts.  This risk management program has given the Company the ability to achieve its budgeted capital expenditures and asset retirement obligations and continue with its dividend program while providing the upside of paying down debt.    

We feel our conservative 2019 budget will be supported through the recent activity on our risk management program and we will be vigilant on cost reduction initiatives which include decreasing our operating and G&A costs on a continuous basis.  Our goal in 2019 is to limit the issuance of any additional dilutive treasury shares.

Our first quarter revenues are tracking to our base operating budget giving us confidence that both our budget and business plan will set the Company up for years of success.  

We would like to thank our employees and Board of Directors for their ongoing contributions to the success of Cardinal and our shareholders for their support.

ANNUAL FILINGS

Cardinal also announces the filing of its Audited Financial Statements for the year ended December 31, 2018 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, 2018 on SEDAR on or prior to March 30, 2018. Electronic copies may be obtained on Cardinal's website at  and on Cardinal's SEDAR profile at  .

  Three months ended  Year ended 
($,000)  Dec 31,
2018 
Dec 31,
2017 
Dec 31,
2018 
Dec 31,
2017 
         
Cash flow from operating activities  6,968  24,442  88,767  76,530 
Change in non-cash working capital  (2,655)  2,912  (10,348)  1,525 
Funds flow  4,313  27,354  78,419  78,055 
Decommissioning expenditures  1,200  1,067  6,443  3,933 
Transaction costs  359  1,684 
Adjusted funds flow  5,513  28,421  85,221  83,672 

Oil and Gas Metrics

The term "boe" or barrels of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd