Cardinal Energy Reports Q1 2019 Results

Cardinal Energy Ltd. reported its Q1 2019 results.

Highlights from the first quarter of 2019:

• Adjusted funds flow increased by 16% and adjusted funds flow per share increased 9% over the same period in 2018.

• As compared to the fourth quarter of 2018, adjusted funds flow increased by $24.1 million to $29.6 million.

• General and administration ("G&A") costs per boe decreased 14% over the same period in 2018 as the Company reduced cash compensation costs in a volatile commodity price environment.

• Continued with the Company’s debt reduction strategy by decreasing net debt by $11.8 million or 4% over debt levels as at December 31, 2018.

• Bought back and cancelled the maximum allowable of 10% of outstanding debentures pursuant to the normal course issuer bid announced in December 2018.

• Total payout ratio decreased to 50% while the simple payout ratio decreased to 12% highlighting Cardinal’s focus on strengthening our balance sheet.

Q1 Overview

During the first quarter of 2019, Cardinal recovered from the low oil prices and record wide Canadian oil pricing differentials that industry experienced in the fourth quarter of 2018 and reactivated the production that was voluntarily shut-in during late 2018. While the Company’s first quarter oil production was restricted by the Alberta Government’s mandatory curtailment program, Cardinal managed to maintain volumes at our budgeted production levels. There were no new production volumes added through drilling in the quarter as our low production decline allowed us to maintain our production at mandated levels. Although we do not believe this program is a long-term solution, restricted production levels led to Canadian oil pricing differentials significantly narrowing in the first quarter of 2019 and adjusted funds flow increasing to $29.6 million or $0.25 per share which compared to $5.5 million ($0.05 per share) of adjusted funds flow in the fourth quarter of 2018.

Stronger West Texas Intermediate ("WTI") oil prices combined with narrow Canadian oil differentials led to a 62% increase in corporate pricing over the fourth quarter of 2018 and a 3% increase over the same period in 2018. The increased pricing combined with decreased hedging losses and lower G&A costs increased the adjusted funds flow netback by 21% over the same period in 2018.

Due to higher regulatory and electricity costs combined with one-time well reactivation costs, operating costs increased 9% to $22.63 per boe in the first quarter of 2019 compared to the same period in 2018. As our operating cost reduction initiatives are implemented throughout 2019, we expect to see quarterly reductions in our costs and costs per boe. Electricity costs make up approximately 25% of our total operating costs; therefore, we have begun a program to reduce our dependence on the power grid and are developing projects in all of our operating areas to produce our own power through company owned generation facilities.

Our first quarter 2019 development capital expenditures of $11.1 million were allocated to the drilling of one oil well and one stratigraphic test well in Bantry, Alberta and ongoing pipeline, infrastructure, operating cost reduction initiatives and enhanced oil recovery projects throughout all of our operating areas.

The increase in adjusted funds flow combined with Cardinal’s disciplined capital program allowed the Company to reduce net debt by $11.8 million or 4% during the first quarter. Pursuant to the normal course issuer bid announced in December 2018, during the first quarter of 2019, we bought back and cancelled the maximum allowable amount of convertible debentures below par at a price of 96.9314 for a gain of $0.2 million and reduced future interest costs by approximately $0.1 million. Our reduced net debt and increased adjusted funds flow reduced the Company’s run rate net debt to adjusted funds flow ratio to 2.2x while our total payout ratio decreased to 50%.

The positive Canadian commodity pricing increases have allowed Cardinal to be opportunistic in locking in future value with our risk management program. Approximately 71% of the Company’s WCS differential pricing has been locked in with either WTI-WCS pricing differential hedges or wellhead CAD$ WCS pricing. The Company has also protected the downside with pricing floors averaging over CAD$69/bbl but retained upside on WTI pricing by locking in 58% 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 Cardinal 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.

Outlook

The combination of improved realized pricing, a strong risk management program, our disciplined capital expenditure program and forecasted reduction in future operating costs is expected to result in significant increases in our free adjusted funds flow throughout the year. Cardinal plans to use its adjusted funds flow in excess of its dividend and capital program to continue to reduce debt and solidify our balance sheet.