Cardinal Announces its 2019 Operating and Capital Budget


CALGARY, Alberta, Feb. 28, 2019 (GLOBE NEWSWIRE) — (CJ:TSX) Cardinal Energy Ltd. (“Cardinal” or the “Company”) is pleased to announce that its Board of Directors has approved a base operating budget for 2019 that will focus on a sustainable dividend, long-term operating cost reduction initiatives, debt repayment and maintaining our production volumes at 2018 levels.

Highlights of 2019 Budget

  • Operating cost reduction initiatives targeting an 8% reduction in operating costs within 2019;
  • Forecasting debt repayment of 10% to 15% of total debt by year-end;
  • Low corporate decline rate allows for a conservative capital program to maintain production levels which are currently curtailed by the Alberta Government; and
  • As oil prices stabilize, dividend level to be re-evaluated in April 2019.

As the Company’s ability to increase production is limited by the Government of Alberta’s oil production curtailment initiative, Cardinal’s 2019 capital budget focuses on operating cost reduction projects and proactively reducing our environmental impact to ensure long-term sustainable development of our properties. In addition, with production growth limited during 2019, the budget forecasts a 10% to 15% reduction in total debt by the end of 2019. Pursuant to the Company’s normal course issuer bid announced in December 2018, Cardinal confirms that in 2019, it has purchased and cancelled the maximum allowable of 10% of the outstanding balance of debentures, below par redemption value, saving approximately $0.3 million of future interest and redemption costs.

2019 Budget

Cardinal’s 2019 base budget is expected to produce adjusted funds flow of approximately $90 to $100 million, 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 $1.47/mcf AECO natural gas price. With the Company’s operating cost reduction initiatives, Cardinal is forecasting to reduce operating costs per boe throughout 2019 by approximately 8% comparing first quarter to fourth quarter 2019 estimated operating expenses.

Cardinal’s capital program is structured to take advantage of our top tier low decline rate and contemplates drilling eight wells to sustain our current level of mandated curtailed oil production and fulfill previous drilling commitments on our lands. Approximately 20% of our capital budget is allocated to long-term operating costs reduction initiatives which include reducing our electricity and facility costs. The remainder of our $47 million capital budget is directed to well optimization, drilling, facility upgrades and continuing the expansion of enhanced oil recovery projects at Midale.

Our base capital program includes the drilling of six (6.0 net) oil wells in the Company’s Bantry, Alberta area to take advantage of a land earning farm-in opportunity. Cardinal also expects to drill two (1.5 net) wells in our Midale, Saskatchewan area where provincially mandated production curtailments are not in place.

The base capital program results in adjusted funds flow net of development capital expenditures of approximately $43 to $53 million to fund dividend payments and for debt repayment. Cardinal’s total payout ratio, which is represented by the capital program plus dividend payments divided by adjusted funds flow is expected to be 65%. As production growth is expected to be limited by the Alberta oil curtailment program, production is forecasted to average 20,400 to 20,800 boe/d for 2019.

2019 Budget Assumptions
US$ WTI $55
US/CAD Exchange Rate 0.76
US$ WTI-WCS Basis Differential $15.50
Operating costs $20.75 – $21.25
G&A $2.25 – $2.50

Risk Management

During the first quarter of 2019, with significantly narrower Canadian oil price differentials as compared with late 2018, in order to protect the capital program and the dividend, Cardinal has been opportunistic with its hedging activity. For the remainder of 2019, we have hedged approximately 73% of forecasted medium oil production including 3,225 bbl/d of Western Canadian Select (“WCS”) hedged at an average price of CAD$52 and WCS basis differential fixed on 3,500 bbl/d at an average differential price of US$16.94/bbl which is approximately US$27/bbl better than the average differential experienced in December 2018. Cardinal has also protected the downside of oil price fluctuations on approximately 40% of its light oil by hedging the WTI on production of 3,600 bbl/d hedged at an average floor price over CAD$70/bbl. The Company has also retained most of the upside on WTI pricing as 62% of our WTI hedges are collared with a ceiling average of approximately CAD$85/bbl and 38% of the light oil hedges do not have a ceiling on the WTI price. Cardinal also has fixed the price of 16% of its natural gas at an average AECO price of $1.55/gj.


Cardinal has budgeted $5.0 million for abandonments and reclamations in 2019 and has opted into an area based program approach implemented by the Alberta Government and plans to focus its 2019 abandonment and reclamation activities in our Southern Alberta areas.

We are committed to the environmentally responsible development of our resources and will continue to manage our abandonment and reclamation obligations with a view of long-term sustainability.

Input Effect on adjusted funds flow
US$1 change in WTI $4.0 million
CAD$1 MSW basis $1.2 million
CAD$1 WCS basis $0.9 million
FX $0.01 $2.6 million


With Canadian oil differentials narrowing significantly in the first quarter of 2019, Cardinal is cautiously optimistic about the coming year. Although not a long-term solution, the Alberta oil curtailment program has provided a much needed boost to Canadian oil prices in 2019. There are positive signs within the industry with recent approvals and ongoing projects which should help the Canadian oil and gas industry with additional safe and reliable egress options. Cardinal has taken a conservative approach with our 2019 budget and has locked in a portion of our adjusted funds flow with our risk management program which is intended to protect our capital program and dividend payment. Our conservative budget gives us the flexibility to increase our capital program, pay down additional debt and/or increase our dividend if commodity prices increase.

At our budgeted simple dividend payout ratio of approximately 15%, we are now in a position where the dividend level allows us to strengthen the Company with projects that improve both the short-term cash flows as well as improving the long-term viability of the business.

As stated in our December 6, 2018 press release, the Company’s Board of Directors will review the dividend level in April, 2019 to determine the appropriate level for the remainder of the year.

We are excited about our operating cost reduction initiatives which we expect will reduce our long-term operating cost levels to ensure sustainability through a fluctuating commodity price environment. Although growth will be muted by the curtailment program, our 2019 budget gives us the ability to solidify our balance sheet and set the Company up for future growth.

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 through challenging times.

Cardinal’s annual reserve results will be released on March 5, 2019 with the financial and operating results to be released on March 19, 2019.

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