ADDING VALUE PER SHARE March 2019

Transcription

1 ADDING VALUE PER SHARE March 2019 In the current commodity price environment, Cardinal s low decline model excels. Our low capital requirements to maintain our production levels enables us to significantly reduce debt, in an era of mandated production curtailments.

2 Cardinal Energy Ltd. Cardinal Energy Ltd. ( Cardinal ) is a low decline oil producer with focused operations in Alberta and Saskatchewan. We operate in 4 concentrated areas: 1. SE Saskatchewan (light oil) 2. South Area (WCS oil) 3. Central Area (WCS oil) 4. North Area (light oil) Midale Located between Brooks and Medicine Hat, Alberta Centered around Wainwright, Alberta Mitsue Unit, House Mountain Units and Grande Prairie, Alberta 2

3 2019 Objectives In November of 2018 we achieved peak production of 22,000 Boe/d before shutting in production due to challenging oil differentials in Q We are currently producing approximately 20,300 Boe/d, a rate that is restricted due to the Government of Alberta s production curtailment order for oil producers in Alberta. As we are restricted from growing our production in 2019 our focus for 2019 is on capital projects that reduce our long term operating costs and repayment of debt. In a year with no production growth, we expect to achieve a 4-7% increase in cash flow from efficiencies and income realized from the capital projects, apart from any commodity price effect. 3

4 2019 Objectives Mandate: Maintain and/or increase dividend Reduce operating costs Reduce debt Provide a positive return to shareholders thru these initiatives adding per share value thru increased netbacks. 4

5 Cardinal Profile Shares Outstanding TSX: CJ Basic (1) Diluted (excluding debentures) MM MM 2019 Annual Dividend ($/share) $ Average Production Guidance (boe/d) limited by curtailment 20,300 Light oil & NGL s (bbls/d) 9,150 (45%) WCS medium quality oil (bbls/d) 8,400 (41%) Natural gas (boe/d) 2,750 (14%) Annual Decline Rate +/- 10% Reserves (Mmboe) (3)(4) Proved and Developed Producing ( PDP ) 71.0 Total Proved ( 1P ) 78.8 Total Proved Plus Probable ( 2P ) RLI 2P (years) 13.7 Net Bank Debt (2) Bank line $325 MM Tax Pools ±$200 MM $1.5 B (1) As at February 1, 2019 (2) As at September 30, 2018 (3) As at December 31, 2017 (Company interest reserves) (4) See Advisory 5

6 Sustainability Analysis Commodity Sensitivity Base production 20,500 boe/d WTI (USD) $ 50 $ 55 $ 65 $ 75 FX (USD/CAD) $ 0.75 $ 0.75 $ 0.75 $ 0.75 WTI ($CAD/BBL) MSW-to-WTI Differential ($US/BBL) ( 5) ( 5) ( 5) ( 5) WCS-to-WTI Differential ($US/BBL) ( 16) ( 16) ( 16) ( 16) Adjusted Funds Flow ($MM) (1) Dividend ($MM) ARO ($MM) Adjusted Funds Flow in excess of Dividend and ARO spending ($MM) Payout Ratio before Capital 24% 19% 13% 10% (1) This is a non-gaap financial measure which is defined in the Non-GAAP measures section. 6

7 Op Cost Reduction Initiatives Wainwright: Oil blending and facility optimization opportunities, lower operating costs and increase third party revenues Independent power generation at facilities and pad sites, lower operating costs and reduce risk of increasing power prices House Mountain: Independent power generation, lower operating costs and reduce royalties Mitsue: Oil blending facility opportunities, increase facility revenues and enable us to process crude oil from the emerging Clearwater play Cogen power generation, lower operating costs Other projects identified for 2020 in other operating areas Electrical charges make up $4-$5/boe of our operating costs 7

8 Decline Rates Cardinal ± 10% Source: Scotiabank, Statsbook, May

9 Inventory - Potential Light Oil Midale GP Dunvegan Wainwright Viking Mitsue Gilwood infills House Mtn Swan Hills infills Bantry Arcs Medium WCS Bantry Glauc, Ellerslie Wainwright Waseca, Rex Mitsue Mannville Over 500 development locations, a ± 20 year drilling inventory 9

10 Bantry Large land base focused on Mannville medium conventional oil development Current area production 4,700 boe/d Owned and operated infrastructure Recently acquired 58 net sections via farmin with identified drilling inventory Over 120 booked and unbooked locations Recent drilling with 3 multi leg Ellerslie horizontals that are exceeding our type curve Cardinal lands Farmin lands 10

11 Bantry Economics Glauc Economics (1) Capex (MM$) 1.8 IP 365 (boe/d) 130 EUR (mboe) 160 Payout (years) 1.2 ROR (%) 88% NPV BT10 (MM$) 1.9 Ellerslie Economics (1) Capex (MM$) 1.2 IP 365 (boe/d) 135 EUR (mboe) 155 Payout (years) 0.5 ROR (%) >400% NPV BT10 (MM$) 3.1 (1) Based on WCS C$60/bbl and AECO $1.50/mcf 11

12 Midale = Opportunity (1) Underdeveloped relative to Weyburn analogue Inefficient and insufficient injection Low well density Lower recovery Weyburn Midale Estimated OOIP (1) (1) Current CO2 Inj. Rate ~110 ~17 (mmcf/d) Well Density (acres/well) Current Recovery Factor (1) ~38% ~21% (1) See advisory 12

13 Inefficient & Insufficient Injection 13

14 Midale Development Weyburn Midale Existing Midale CO2 phases Future Development (>200 potential locations) CO2 Development Areas Enhance existing phases ( ) Expand existing and develop new phases (2019+) Peripheral areas (unit and non unit) Test horizontal multifrac (2019) Offsetting competitor activity Expand multifrac development (2020+) 14

15 Grande Prairie 9 well Hz program ( ) Average well performance above expectation EOR (water flood) to be implemented in 2019 Further development drilling in /2018 New Drills Dunvegan Bar sand - ~1350m TVD High quality light oil (~75% liquids) 15

16 House Mountain Swan Hills Netpay Drilling Inventory Average h ~ 9 m Average Φ ~ 7% Average S wi ~ 25% OOIP ~ 410 MMB Current RF = 38% Oil API 41 degrees 16

17 ARO A recent liability program proposed by the Alberta Energy Regulator would require companies to spend 4% of deemed inactive liability per year to satisfy the new requirements. Estimated Cardinal required spend for 2019: $5 million Estimated Cardinal actual spend for 2019: $5-7 million Spend more when oil prices are high, spend required amounts when oil prices are lower. *Area Based Closure (ABC) program announced by AER on July 18,

18 Balance Sheet Strength $201 mm net bank debt (Q3 2018) $325 mm credit facility 18

19 Risk Management Oil WTI Current Hedge Summary Hedging Volume Type Low High Index Volume Type Low High Index ($CAD) Jan 1, Apr 30, ,000 bbl/d Swap CDN$WTI Jan 1, Dec 31, bbl/d Swap CDN$WCS Feb 1, Dec 31, bbl/d Swap CDN$WTI Jan 1, Dec 31, bbl/d Swap CDN$WCS Jan 1, Jun 30, bbl/d Collar CDN$WTI Feb 1, Dec 31, bbl/d Swap CDN$WCS Jan 1, Jun 30, bbl/d Collar CDN$WTI Feb 1, Dec 31, bbl/d Swap CDN$WCS Jan 1, Jun 30, bbl/d Collar CDN$WTI Feb 1, Jan 31, bbl/d Swap CDN$WCS Jan 1, Dec 31, bbl/d Collar CDN$WTI Apr 1, Dec 31, bbl/d Swap CDN$WCS Mar 1, Dec 31, bbl/d Collar US$51 US$65.25 WTI Mar 1, Jan 31, bbl/d Swap CDN$WCS Apr 1, Dec 31, ,500 bbl/d Put US$50 WTI Feb 1, Dec 31, bbl/d Basis swap CDN$WCS Feb 1, Feb 28, bbl/d Basis swap CDN$WCS Natural Gas Mar 1, Dec 31, ,000 bbl/d Basis swap CDN$WCS Jan 1, Mar 31, ,000 gj//d Swap 2.12 CDN$AECO Mar 1, Dec 31, ,000 bbl/d Basis swap CDN$WCS Jan 1, Mar 31, gj//d Swap 1.36 CDN$AECO Mar 1, Dec 31, bbl/d Basis swap CDN$WCS Jan 1, Mar 31, gj//d Swap 1.36 CDN$AECO Apr 1, Mar 31, ,000 gj//d Swap 1.50 CDN$AECO Apr 1, Mar 31, ,000 gj//d Swap 1.60 CDN$AECO Oil WCS ($CAD) 19

20 Corporate Information Management M. Scott Ratushny Chief Executive Officer Shawn Van Spankeren Chief Financial Officer Dale Orton Chief Operating Officer Robert Wollmann Senior Vice President Exploration Laurence Broos VP Finance Connie Shevkenek VP Engineering Wes Heatherington VP North Area Jay Laforge VP Central Area Ken Younger VP South Area David Kelly VP - Saskatchewan Directors John Brussa David Johnson M. Scott Ratushny Stephanie Sterling Greg Tisdale Contacts: Scott Ratushny E scottr@cardinalenergy.ca T Laurence Broos E laurenceb@cardinalenergy.ca T Banks CIBC World Markets Inc. ATB Financial RBC Dominion Securities Inc. Scotia Capital Inc. National Bank of Canada Auditors KPMG LLP Legal Burnet Duckworth & Palmer LLP Reserves GLJ Petroleum Consultants 20

21 Advisory Note Regarding Forward Looking Statements This presentation contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to Cardinal's plans and other aspects of Cardinal's anticipated future operations, management focus, objectives, strategies, financial, operating and production results. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend", " may", "would", "could" or "will" or similar words suggesting future outcomes, events or performance. The forward-looking statements contained in this presentation speak only as of the date thereof and are expressly qualified by this cautionary statement. Specifically, This presentation contains forward-looking statements relating to: our business strategies, plans and objectives, our drilling plans, future production and production decline rates, expected adjusted funds flow and the allocation thereof, plans to reduce our bank indebtedness, plans to implement and develop cost reduction projects, anticipated dividend and dividend payout ratio, anticipated bank debt, anticipated maintenance capital spend in 2019 and estimated actual and required amounts to satisfy the Alberta Energy Regulator area based closure program. Forward-looking statements regarding Cardinal are based on certain key expectations and assumptions of Cardinal concerning anticipated financial performance, business prospects, strategies, regulatory developments, current commodity prices and exchange rates, applicable royalty rates, tax laws, future well production rates and reserve volumes, future operating costs, the performance of existing and future wells, the success of its exploration and development activities, the sufficiency and timing of budgeted capital expenditures in carrying out planned activities, the availability and cost of labor and services, the impact of competition, conditions in general economic and financial markets, availability of drilling and related equipment, effects of regulation by governmental agencies, the ability to obtain financing on acceptable terms which are subject to change based on commodity prices, market conditions, drilling success and potential timing delays. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Cardinal's control. Such risks and uncertainties include, without limitation: the impact of general economic conditions; volatility in market prices for crude oil and natural gas; industry conditions; currency fluctuations; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations; environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition from other producers; the lack of availability of qualified personnel, drilling rigs or other services; changes in income tax laws or changes in royalty rates and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; and ability to access sufficient capital from internal and external sources. Management has included the forward-looking statements above and a summary of assumptions and risks related to forward-looking statements provided in this presentation in order to provide readers with a more complete perspective on Cardinal's future operations and such information may not be appropriate for other purposes. Cardinal's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Cardinal will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of this presentation and Cardinal disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws. Certain information contained in this presentation contains future oriented financial information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by Cardinal's management to provide an outlook of Cardinal's activities and results and has been prepared based on a number of assumptions including the assumptions set forth herein and in the 2017 GLJ Report (as defined herein). The actual results of operations of Cardinal and the resulting financial results will likely vary from the amounts presented herein, and such variations may be material. Cardinal and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments. However, because this information is subjective and subject to numerous risks it should not be relied on as necessarily indicative of future results. Except as required by applicable securities laws, Cardinal undertakes no obligation to update suchfofi. 21

22 Advisory Non-GAAP measures This presentation contains the terms "adjusted funds flow" and "net bank debt" which do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or, alternatively, "GAAP") and therefore may not be comparable with the calculation of similar measures by other companies. Cardinal uses adjusted funds flow and total payout ratio to analyze operating performance and assess leverage. Cardinal feels these benchmarks are a key measure of profitability and overall sustainability for the Company. Adjusted funds flow is not intended to represent operating profits nor should it be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of performance calculated in accordance with GAAP. Adjusted funds flow is calculated as cash flows from operating activities adjusted for changes in non-cash working capital, decommissioning expenditures and acquisition costs. Net bank debt is calculated as bank debt plus current liabilities less current assets (adjusted for the fair value of financial instruments and the current portion of the decommissioning obligation). Net bank debt is used by management to analyze the financial position, liquidity and leverage of Cardinal. Oil and Gas Advisories and Information The crude oil, natural gas and natural gas liquid reserves of Cardinal presented herein were evaluated by GLJ Petroleum Consultants ( GLJ ), Cardinal's independent reserves evaluators, in accordance with the requirements of National Instrument ( NI ) and the Canadian Oil and Gas Evaluation Handbook effective as of December 31, 2017 with a preparation date of March 30, 2018 and using consultants average forecast product prices as of December 31, 2017 (the 2017 GLJ Report ). Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. Reserves included herein are stated on a company interest basis (working interest before deduction of royalties plus royalty interests received) unless noted otherwise. The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties due to the effects of aggregation. The estimated values of the future net reserves disclosed do not necessarily represent the market value of such reserves. Cardinal has presented certain type curves and well economics for Bantry, which have been prepared internally by Cardinal. These estimates have not been prepared in accordance with National Instrument and there is no certainty that such volumes or metrics indicated will be recovered or achieved. In presenting such type curves, inputs and economics information and in this presentation generally, Cardinal has used a number of oil and gas metrics which do not have standardized meanings and therefore may be calculated differently from the metrics presented by other oil and gas companies. Such metrics include "EUR", "NPV10", "payout", "rate of return" (or "ROR") and "reserves life index" (or "RLI"). EUR represents the estimated ultimate recovery of resources associated with the type curves presented. NPV BT10 represents the anticipated net present value of the future net revenue, before taxes, discounted at a rate of 10% associated with the type curves presented. Payout means the anticipated years of production from a well required to fully pay for the development well capital of such well. ROR means the rate of return of a well or the discount rate required to arrive at a net present value equal to zero. Reserves life is a measure of the volume of Cardinal's reserves divided by the annual average production. Certain production figures in this presentation is based on initial, early and/or test or production/performance rates. Such rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not indicative of long term performance or of ultimate recovery. Declines may occur as a result of, among other things, well stabilizations and natural declines and, as such, may be lower than the initial volume amounts reported herein. 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. These materials include recovery rates based on estimates of Original Oil In Place (OOIP) that have been internally estimated by Cardinal. The OOIP estimate has not been prepared in accordance with National Instrument and there is no certainty that such volumes exist or that such volumes will be recovered. OOIP is the equivalent to Discovered Petroleum Initially In Place (DPIIP) and is defined in the Canadian Oil and Gas Evaluation Handbook as the quantity of oil that is estimated to be in place within a known accumulation prior to production and referenced as discovered resources. There is no certainty that it will be viable to produce any portion of the resources. 22

23 Advisory Oil and Gas Advisories and Information Continued "Proved" or "1P" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. Certain other information contained in this presentation has been prepared by third-party sources, which information has not been independently audited or verified by Cardinal. No representation or warranty, express or implied, is made by Cardinal as to the accuracy or completeness of the information contained in this document, and nothing contained in this presentation is, or shall be relied upon as, a promise or representation by Cardinal. Other Advisories Cash dividends are not guaranteed. Although Cardinal intends to make dividends in the amounts indicated to shareholders, cash dividends may be reduced or suspended. The actual amount distributed, if any, will depend on numerous factors and conditions existing from time to time. 23