Cardinal Energy Ltd. (“Cardinal” or the “Company”) is pleased to announce that its Board of Directors has approved an operating and capital budget for 2020 that will focus on debt reduction, a sustainable dividend, operating costs reductions and increasing production volumes. Cardinal also announces that the Toronto Stock Exchange (the “TSX”) has accepted the notice of Cardinal’s intention to commence a normal course issuer bid (the “NCIB”).
Highlights of 2020 Budget
- Forecasting net debt reduction of 15% by year-end;
- Low corporate production decline rate allows for a conservative $60 to $65 million development capital expenditure budget;
- Generates free cash flow of $40 to $45 million for debt repayment, asset retirement obligation (“ARO”) expenditures or normal course issuer bid (“NCIB”) activity;
- Forecasting 6% debt adjusted production per share growth;
- Targeting a 5% decrease in operating and general and administrative (“G&A”) expenses;
- Reduction of our total 2020 net debt to annual adjusted funds flow ratio to 1.7x; and
- Increased adjusted funds flow results in a total payout ratio of approximately 65% to 70%.
Cardinal’s 2020 capital budget follows up on the success of our ongoing asset development with particular focus on drilling in Southern Alberta, which earns additional lands in our core area. Additionally, we plan to increase expenditures in our CO2 enhanced recovery project at Midale, continue with ongoing operating cost reduction projects including additional power generation projects throughout our operating areas, and proactively upgrading our pipeline and facility infrastructure. Cardinal’s 2020 budget includes the abandonment of over 80 non-producing wells and reclamation of 100 inactive leases as we continue to reduce our environmental footprint for the long-term sustainable development of our Company. In addition, the budget forecasts a 15% reduction in net debt. The Company has renewed its NCIB to purchase and cancel the maximum allowable 10% of the outstanding balance of convertible debentures (the “Convertible Debentures”) and will opportunistically repurchase and cancel common shares through our ongoing common share NCIB.
2020 Budget
Cardinal’s 2020 operating budget is expected to produce adjusted funds flow of approximately $125 to $130 million ($1.11 per share), assuming a royalty rate of 17%, a West Texas Intermediate (“WTI”) oil price of US$55/bbl, US/CAD exchange rate of 0.76 and a $1.75/mcf AECO natural gas price. During 2020, Cardinal’s operating expenses per boe are forecasted to decrease by approximately 5% over 2019 levels due to the Company’s 2019 cost reduction projects in operation for 2020 combined with new cost reduction projects being forecasted to be implemented in 2020.
Cardinal’s 2020 capital budget is structured to take advantage of our top tier low decline rate and includes drilling and completing 17 (14.6 net) wells and completing three (3.0 net) additional wells which were drilled in 2019. The drilling is focused on farm-in wells in our Alberta South business unit along with select development wells across our asset base and new CO2 injection wells at Midale, Saskatchewan. In addition, Cardinal will continue to optimize our multiple existing water flood projects and our carbon sequestration development at Midale where we sequester more CO2 than we directly emit throughout the entire Company. Approximately 80% of the Company’s oil’s production is under secondary recovery schemes including water and miscible floods. The Company’s 2020 capital budget will continue the successful operating cost reduction program initiated in 2019 which includes reducing our dependence on the power grid and upgrading our infrastructure to facilitate the handling of additional volumes through our underutilized facilities. The capital budget is allocated as follows:
Capital budget | $ mm |
Drill, complete and tie-in new wells | $26 – $28 |
Enhanced oil recovery, facility & pipeline upgrades | 20 – 22 |
Maintenance capital | 14 – 15 |
Total development capital expenditures | $60 – $65 |
Capitalized G&A and other | 3 – 4 |
Total capital expenditures | $63 – $69 |
The capital budget results in free cash flow of approximately $40 to $45 million for debt repayment, ARO expenditures or NCIB activity for our common share and Convertible Debenture buybacks and cancellations.
Cardinal’s total payout ratio, which is represented by the development capital expenditures plus dividend payments divided by adjusted funds flow is expected to be 65% to 70%. Production is forecasted to average 20,500 to 20,800 boe/d for 2020, which is approximately 3% higher than our estimated 2019 average. Forecasted production takes into account all planned facility turnarounds and downtime.
2020 Budget Summary
Average production (boe/d) | 20,500 to 20,800 | |
Adjusted funds flow ($ mm) | $125 to $130 | |
Closing net debt ($ mm) | $215 – $220 | |
Debt adjusted per share production growth (1) | 6% | |
Total capital expenditures ($ mm) | $63 – $69 | |
Operating costs ($/boe) | $19.75 – $20.25 | |
Transportation costs ($/boe) | $0.30 – $0.40 | |
G&A ($/boe) | $2.05 – $2.25 | |
US$ WTI ($/bbl) | $55.00 | |
US/CAD Exchange Rate | 0.76 | |
US$ WTI-WCS Basis Differential ($/bbl) | ($15.00) | |
US$ WTI-MSW Basis Differential ($/bbl) | ($5.00) | |
AECO ($/mcf) | $1.75 |
(1) Debt adjusted shares are calculated with weighted average outstanding shares adjusted for the change in net debt divided by an average share price of $2.50 for forecasted 2019 and the 2020 budget.