SUSTAINABLE DIVIDEND & GROWTH May 2018

Transcription

1 SUSTAINABLE DIVIDEND & GROWTH May 2018

2 Cardinal Profile Shares Outstanding TSX: CJ Basic (1) Fully Diluted (excluding debentures) MM MM 2018 Annual Dividend ($/share) $ Average Production Guidance (boe/d) 21,000-21,500 Light oil & NGL s (bbls/d) 9,775 (46%) WCS medium quality oil (bbls/d) 8,700 (41%) Natural gas (boe/d) 2,775 (13%) Annual Decline Rate +/- 10% Reserves (Mmboe) (2)(3) 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 (1) Bank line $325 MM Tax Pools ±$212 MM $1.5 B (1) Estimated as at March 31, 2018 (2) As at December 31, 2017 (Company interest reserves) (3) See Advisory 2

3 2017 in Review Mandate: Increase light oil exposure Increase netbacks Reduce operating Costs Maintain dividend 3

4 Grande Prairie Acquisition (March 2017) Grande Prairie Acquisition MM$ Acquisition Consideration Capital Expenditures 12 Total Capital Cash Flow from Assets 6 Net Capital Outlay Grande Prairie Acquisition YE 2017 PV10, MM$ PDP TP TPP YE 2017 Closing Reserves, Mmboe PV10 excludes consideration of abandonment liability 4

5 Midale/House Mountain Acquisition (July 2017) MM$ Acquisition Consideration Capital Expenditures 3 Total Capital Cash Flow from Assets 31 Net Capital Outlay ,000 5,000 4,000 Midale/House Mountain Historical Production SE Sask (Midale) boe/d 3,000 Midale/House Mtn Acq YE 2017 PV10, MM$ PDP TP TPP YE 2017 Closing ,000 1,000 House Mountain Reserves, Mmboe Jul Aug Sep Oct Nov Dec Jan-18 PV10 excludes consideration of abandonment liability 5

6 2017 Results Q Grande Prairie Acquisition At Q House Mountain and Midale Acquisition At Q Q % Increase over Q Light oil (bbl/d) 2,677 3,040 8,112 8, % WCS Priced oil (bbl/d) 9,596 10,074 9,531 8,845-8% NGL (bbl/d) % Nat Gas (mcf/d) 12,178 20,021 18,650 16,505 36% Production (boe/d) 14,616 17,154 21,463 21,243 45% 6

7 2017 in Review Mandate: Dec 31/16 Jan/2018 Increase light oil exposure Increase netbacks Reduce operating Costs Maintain dividend 22% 50% $14.86 $20.20 $23.24 $

8 2018 Outlook Sustainable Business Model Growth and Income funded thru cash flow, at less than 100% payout ratio Focus Areas: Reduce Net Bank Debt to 1x cash flow Maintaining best in class 10% decline Improve netback Begin long lead time operating cost reduction projects Maintain dividend 8

9 Cardinal Production By Area 9

10 Mitsue / House Mountain Mitsue House Mtn Focus: Capital projects to improve netbacks and decrease op costs Build out drilling inventory 10

11 Grande Prairie 7 well Hz program ( ) Average well performance above expectation Additional drilling H EOR (water flood) currently anticipated (2019) Q4 2017/Q New Drills Dunvegan Bar sand - ~1350m TVD High quality light oil (~75% liquids) 11

12 Central Operating Area 8% yoy reserves growth with water flood optimization Low predictable decline of ~ 5%/year >300 million barrels OOIP Majority of production is under secondary recovery Drill inventory developing 12

13 South - Bantry Strat Program Initial success ( ) focused in areas supported by abundant vertical well control 10 location strat program drilled (Jan- Feb 2018) to increase confidence in next round of horizontal drills 2018 Focus Operating cost optimization Primary area of initial drilling 2H drilling program Inventory expansion Water flood optimization 13

14 Midale Long term potential 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Recovery Factors 46% Long term potential 33% 24% 20% Weyburn Midale Produced to date Current EUR Directly offsets the Weyburn Unit Analogous reservoir to Weyburn, world class miscible flood reservoir Underdeveloped relative to Weyburn with minimal development since Focus Increase and optimize CO2 injection Initiate infill drilling program (producer and injector) Increase unit production 1% increase in recovery factor ~ replaces Cardinal s current annual production 14

15 Balance of 2018 Q Q Q Q Total Production 21,200 20,500 21,250 21,500+ Bank Debt $213 M $200 M Payout 98% Less than 100% Less than 100% Less than 100% Dividend $0.035/month $0.035/month $0.035/month $0.035/month 15

16 Cardinal 3 Year Strategic Plan Decrease bank debt to historical levels of <0.5x cash flow Reduce operating costs to $18 19/bbl Increase light oil weighting Deliver modest growth of 2 5%/per year Dividend growth 16

17 Corporate Information Corporate Headquarters Bankers Auditors Legal Reserves Contacts Cardinal Energy Ltd. 600, rd Avenue S.W. Calgary, AB T2P 4H2 ATB Financial CIBC World Markets Inc. RBC Dominion Securities Inc. Scotia Capital Inc. National Bank of Canada KPMG LLP Burnet Duckworth & Palmer LLP Sproule Associates Limited GLJ Petroleum Consultants Scott Ratushny E scottr@cardinalenergy.ca T Laurence Broos E laurenceb@cardinalenergy.ca T

18 Capital Spending Low decline results in low sustaining Capex Flat production profile achieved with 40-45% of adjusted funds flow 18

19 ARO Expenditures ARO Expenditures > Regulatory Obligations Additional abandonments and reclamation are done annually to stay ahead of requirements. Reactivations and recompletions continue to be part of our area optimization plans. 20% of Cardinal s ARO liability is associated with facilities, which are forecast for abandonment at the end of field life. Given the nature of Cardinal s long life assets, this is a long ways out. 19

20 Risk Management Hedging 1. Natural gas 7,333 gj/d at $2.37 for 2018 and 1,000 gj/d at $2.12 for Q WCS differential - 4,167 bbl/d for H at ~$19 and 1,500 bbl/d for H at ~$ Includes Collars for: Q ,000 bbl/d $65 X $75 Q3/ ,500 bbl/d $68 x $79 H ,500 bbl/d $70 x $83 20

21 Reserve Comparison Proved Developed Producing Proved Undeveloped Probable CJ s FDC is 1.3 x 2018 forecast adjusted funds flow 4,825 boed Proved 1,525 boed and Probable (1) Producing Reserves are 89% of Total Reserves 1,085/boed (1) 1,525 boed (1) Peer s FDC is 4 x 2018 forecast adjusted funds flow (1) Source: Scotiabank (2) RLI based on annualized WI production of 20,770 boepd (3) See Advisory 21

22 FD&A costs 2017 F&D / FD&A Costs (1) Incl FDC ( $/BOE) Transition to Lighter Bbls 3,300 boed F&D FD&A ,825 boed 4,825 boed (1) FD&A Operating Recycle Ratio 2.1 x 1,525 boed (1) 13.7 year 2P RLI 54% year over year reserve growth Replaced 6.3 x 2017 production 1,085/boed (1) 1,525 boed(1) 1,525 boed (1) (1) See Advisory 22

23 Increasing Higher API Reserve Mix P Reserves - Product Split % 2P Reserves, mboe % 38% 11% 40% 54% % 49% 33% 0 ye2015 ye2016 ye2017 WCS Pricing Light & NGL Gas 23

24 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 and inventory, expected future drilling, completion and operating costs, future production and production decline rates, plans to reduce our dependence on the power grid and the effects of the Alberta carbon tax program, plans to implement larger cost reduction projects, plans to improve our LMR, expected realized pricing, planned capital expenditures and the allocation thereof and the pursuit of light oil acquisitions and drilling opportunities. 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. Non-GAAP measures This presentation contains the terms "adjusted funds flow", "adjusted funds flow per share", "net debt to adjusted funds flow ratio", "net debt", "total payout ratio", "net bank debt", "netback" and "netback after risk management" 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, adjusted funds flow per share, net debt to adjusted funds flow ratio 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. Total payout ratio represents the ratio of the sum of dividends declared (net of participation in the DRIP and SDP) plus development capital expenditures divided by adjusted funds flow. The term "net debt" is not recognized under GAAP and is calculated as bank debt plus the principal amount of convertible unsecured subordinated debentures ("convertible debentures") and current liabilities less current assets (adjusted for the fair value of financial instruments and the current portion of the decommissioning obligation). Net debt is used by management to analyze the financial position, liquidity and leverage of Cardinal. 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. Netback is calculated on a boe basis and is determined by deducting royalties and operating expenses from petroleum and natural gas revenue. Netback after risk management includes realized gains or losses in the period on a boe basis. Netback and netback after risk management are utilized by Cardinal to better analyze the operating performance of our petroleum and natural gas assets taking into account our risk management program against prior periods. 24

25 Advisory Oil and Gas Advisories 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. 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. 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. Advisory Regarding Oil and Gas 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 and using consultants average forecast product prices prices as of December 31, 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. Where applicable, oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. BOEs 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 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given 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 Mcf: 1 Bbl, utilizing a conversion ratio at 6 Mcf: 1 Bbl may be misleading as an indication of value. These materials include estimates of Original Oil in Place (OOIP) (and recovery rates based on these estimates of 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. 25