SUSTAINABLE DIVIDEND & GROWTH January 2018

Transcription

1 SUSTAINABLE DIVIDEND & GROWTH January 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) Total Proved and Developed Producing ( PDP ) 66.4 Total Proved ( 1P ) 70.5 Total Proved Plus Probable ( 2P ) 94.7 RLI 2P (years) 13.2 Net Bank Debt (1) Bank line $325 MM Tax Pools $228 MM $1.5 B (1) As at December 2017 (2) As at December 31, 2016 (Company working interest reserves) (3) See Advisory 2

3 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 3

4 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 4

5 2018 Budget Unhedged Funds Flow $132,000,000 Adjusted Funds Flow (Post Hedging) $125,000,000 Capital Program $55,500,000 Free Cash Flow $69,500,000 Dividend Debt Repayment Share Buyback Growth Price Assumptions: WTI (USD) $55.00 AECO $ 1.75 US/CDN FX $ 0.78 WCS differential ($CAD) $

6 Sensitivities Commodity Sensitivity Budget Run Rate (1) 21,250 boe/d WTI (USD) $/bbl FX US$/C$ WTI (CAD) $/bbl AECO (CAD) $/mcf Netback ($/boe) Adjusted Funds Flow ( AFF ) $ MM AFF per share Dividend $ MM Free Cash Flow $ MM Total Payout Ratio % Net Bank Debt to CF (2) (1) Represents the mid point of production guidance, see advisory. (2) Excludes convertible debentures, see advisory. 6

7 Capital Spending Low decline results in low sustaining Capex Flat production profile achieved with 40-45% of adjusted funds flow 7

8 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. 8

9 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 ~$19 and 1,000 bbl/d for H at ~$

10 Capital Budget Hedging 10

11 Asset Base Area OOIP (1) MMbbls Oil Prod to Nov 2017 MMbbls (2) EOR GP North 8150 boepd 68% light oil 7% ngls 25% nat gas House Mitsue Cardinal boepd (1) 46% light oil + ngls 41% medium oil 13% nat gas North >1,300 >530 Water flood (Mitsue, House Mtn, GP in 2019) Central >300 >129 Water flood Central 5200 boepd 96% medium oil 4% nat gas Wainwright South >800 >105 Water flood South 4400 boepd 80% medium oil 20% nat gas Bantry Alderson Saskatchewan 3400 boepd 100% light oil Midale Sask - Midale >750 >155 Water flood CO 2 flood (1) Corporate and area production volumes are Cardinal s 2018 budget forecast (1) See advisory (2) Oil produced to November 2017 based upon government reported volumes 11

12 Production Profile Low decline Predictable GP Acquisition Apache Acquisition Turnaround Sustainable Guidance 21-21,500 boepd 0 Turnaround South Central North Sask 12

13 North Operating Area GP House Mtn Mitsue 1,000-2,200m TVD Conventional development Light oil focus Multi-zone potential Hz development Vertical development Well developed infrastructure footprint Half cycle future development 13

14 North Operating Area boe/d Weekly Field Estimated Production Mitsue GP House Mtn >1.3 billion barrels OOIP (1) Low base decline Legacy production under secondary recovery Recent drilling success at Grande Prairie ( GP ) 2018 Focus Operating cost optimization Water flood optimization Mitsue, House Mountain Drilling and completing 7 Dunvegan wells in GP GP water flood preparation (2019) Inventory build (1) See advisory 14

15 Mitsue High quality light crude (38-40 o API) ~1,800m TVD Stable base, under water flood Low decline production (~10%) Large remaining OOIP (1) Facility optimization projects complete in Q Infrastructure/pipeline optimization ongoing Future development potential Water flood optimization Vertical and horizontal development drilling (1) See advisory 15

16 House Mountain High quality light crude (38-40 o API) ~2,200m TVD Low decline (<15%) Large remaining OOIP (1) Offsetting recent horizontal success Future development potential Water flood optimization Horizontal re-entries Vertical and horizontal development drilling Operating cost reduction opportunities (1) See advisory 16

17 GP - Dunvegan Summer 2017 drills performing above expectation Completed 5 well Q4 17/ Q1 18 drilling program Encouraging initial productivity EOR (water flood) currently anticipated to be in place in 2019 Q4 17/Q1 18 Drilling Porgram 17

18 North - Upside Type Curve (1) Expectations GP Dunvegan Mitsue Verticals Mitsue Hz House Reentry House Hz GP Mitsue Potential Locations Capex per well ($MM) (D,C,E,T) $2.0 $1.5 $3.0 $1.6 $3.2 IP365 (boed) House Mtn EUR (Mboe) ROR 76% 80% 46% 43% 30% Payout (Yrs) NPV BT10 ($MM) $2.0 $2.1 $1.6 $1.7 $1.0 Short, medium and long term drilling opportunities complemented by new water flood at GP and water flood optimization at House and Mitsue (1) See advisory. 18

19 Central Operating Area Weekly Field Estimated Production Central Central >300 million barrels OOIP (1) Very low decline ~5% No recent drilling activity Majority of production under secondary recovery 2018 Focus Operating cost optimization Water flood optimization Inventory build Rex, Waseca, Sparky HZ multilaterals, multistage frac (1) See advisory 19

20 Central - Wainwright Shallow <750m TVD Concentrated asset Conventional oil development Multi-zone potential Recompletion Hz development Open crown opportunities Well developed infrastructure footprint Half cycle future development 20

21 Central Multilateral Drilling Upside Waseca trend Existing single leg hzs Up to 20m thick Type Curve Expectations (1) Waseca/Rex Multilaterals Potential Locations 20 Capex per well ($MM) (D,C,E,T) $1.0 IP365 (boed) 92 EUR (Mboe) 90 ROR >100% Rex channel targets 400m wide, 10-20m thick Payout (Yrs) 0.6 NPV BT10 ($MM) 1.9 Compelling economics, currently modest inventory depth (1) See advisory 21

22 South Bantry Area Shallow <1,100m TVD Infrastructure in place Majority of production under EOR Conventional oil development drilling area focus Multi-zone Hz potential Inventory defined by: Existing verticals Stratigraphic test wells 3D seismic Mannville Producers Competitor drilling post 2013 Cardinal drilling post Focus Operating cost optimization 2H drilling program Inventory expansion Glauc channels Ellerslie Arcs Water flood optimization 22

23 South Upside Type Curve (1) Expectations Glauc Channels Ellerslie Arcs Potential Locations Capex per well ($MM) (D,C,E,T) $1.8 $1.8 $- IP365 (boed) TBD EUR (Mboe) TBD ROR 47% 108% TBD Payout (Yrs) TBD NPV BT10 ($MM) TBD Mannville Producers Competitor drilling post 2013 Cardinal drilling post 2013 Glauc Channel trends Prospective Ellerslie areas (1) See advisory 23

24 Saskatchewan - Midale Weyburn Midale 77.2% working interest and operatorship in the Midale Unit 0.01% working interest in the Weyburn unit Various GORs on both the Midale and Weyburn Units Fee title lands in the Weyburn unit Non-unit lands and production in the Midale area 24

25 Saskatchewan >0.75 billion barrels OOIP (1) (Midale) Low base decline Under CO2 and water flood Acquisitions 2018 Focus Increase working interest Increase C02 injection Build long term integrated development plan First drills planned in Q4/18 Vintage Production (mbbls/d) Jun 53 Apr 57 Feb 61 Dec 64 Oct 68 Aug 72 Jun 76 Apr 80 Feb 84 Dec 87 Oct 91 Aug 95 Jun 99 Apr 03 Feb 07 Dec 10 Oct 14 pre s 1980s 1990s 2000s 2010s (1) See advisory 25

26 Midale Underperformance = Opportunity (1) Underperformance to date 1. Inefficient Injection Hz Injection in Vuggy Hz production in Marly Poor vertical permeability 2. Low well density 34 acres/well vs 20 acres/well at Weyburn (1) Weyburn Current recovery ~38% Current forecast recovery ~53% (1) Midale Current recovery factor ~21% Current forecast recovery ~25% (1) (assumes no additional drilling) (1) See advisory 26

27 Midale CO2 and Reservoir Material incremental recovery through CO2 injection Stable long term CO2 source Marly and Vuggy are segregated reservoirs Poor vertical permeability The Weyburn field is an excellent analog 27

28 1. Inefficient & Insufficient Injection 28

29 2. Low Well Density Inefficiently exploited compared to Weyburn 29

30 Saskatchewan - Upside Type Curve Expectations (1) Midale Hz Potential Locations 200+ Capex per well ($MM) (D,C,E,T) $1.2 Weyburn Midale IP365 (boed) 53 EUR (Mboe) 210 ROR 71% Payout (Yrs) 1.6 NPV BT10 ($MM) 2.2 Material long term inventory, more technical work ongoing, significant long term prize (1) See advisory 30

31 Potential Inventory Summary North Multi-zone potential Water flood optimization and initiation GP Mitsue House Cardinal 450+ potential locations Light and medium oil targets Material base optimization opportunities Potential Inventory North Central South Sk - Midale Total Potential Locations (1) Central Highly economic short term drilling potential Continued water flood optimization Wainwright South Multi-zone potential Legacy water flood optimization Bantry Alderson Saskatchewan Optimize CO 2 and water flood operation 2018/2019 drilling Midale Material potential drilling inventory plus significant EOR optimization opportunities (1) See advisory 31

32 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

33 Advisory 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 the 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 dividend policy, future payout ratios, capital expenditure plans, future abandonment and reclamation costs, anticipated operating costs, expected development capital, average and exit production, product mix, cash flow, net bank debt, net debt to cash flow, hedging plans, future acquisitions, drilling, completion and optimization opportunities, commodity prices and differentials, exchange rates, Cardinal s asset base and future opportunities and prospects for development and growth therefrom. 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 and future 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 increasing 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 and dividend re-investment plan and stock dividend plan participation. 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; ability to access sufficient capital from internal and external sources and access to markets. 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 forwardlooking 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. 33

34 Advisory This presentation contains future-oriented financial information and financial outlook information (collectively, "FOFI") about our prospective results of operations, cash flows, payout ratio and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this presentation were made as of the date hereof and is provided for the purpose of describing our anticipated future business operations. We disclaim any intention or obligation to update or revise any FOFI contained in this presentation, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this presentation should not be used for purposes other than for which it is disclosed herein. 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. Non-GAAP Measures This presentation contains the terms "adjusted funds flow", free cash flow, "total payout ratio", "netback", "net bank debt", "net bank debt" and "net bank debt to adjusted funds flow" 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 key measures of profitability and overall sustainability for the Company. adjusted funds flow and total payout ratio are not intended to represent operating profits nor should they 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 and decommissioning expenditures. "Netback" is calculated on a boe basis and is determined by deducting royalties and operating expenses from petroleum and natural gas revenue. Netback is utilized by Cardinal to better analyze the operating performance of its petroleum and natural gas assets against prior periods. Free cash flow represents adjusted funds flow less dividends declared and less development capital expenditures necessary to maintain the Company's base production "Total payout ratio" represents the ratio of the sum of dividends declared (net of participation in the DRIP and SDP) plus development capital expenditures necessary to maintain the Company's base production divided by adjusted funds flow. Total payout ratio is a key measures to assess our ability to finance operating activities, capital expenditures and dividends. The term "net bank debt" is not recognized under GAAP and 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. "Net bank debt to adjusted funds flow" is calculated as net bank debt divided by adjusted funds flow for the trailing twelve month period. The ratio of net bank debt to adjusted funds flow is used to measure the Company s overall debt position and to measure the strength of the Company s balance sheet. Cardinal monitors this ratio and uses this as a key measure in making decisions regarding financing, capital expenditures and dividend levels. 34

35 Advisory Advisory Regarding Oil and Gas Information The crude oil, natural gas and natural gas liquid reserves of Cardinal presented herein were evaluated by Sproule Associates Limited ("Sproule") and 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, 2016 and using Sproule's December 31, 2016 forecast product prices. Reserves as of December 31, 2016, have been included for the 2017 acquisition of the House Mountain and Midale areas. 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 gross basis (working interest before deduction of royalties without including any royalty interests) 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. 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. Drilling Locations This presentation discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the Company s most recent independent reserves evaluation as prepared by Sproule or GLJ as of December 31, 2016 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company s prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the drilling locations identified herein, 16.7 are proved locations, 15.2 are probable locations and the remaining are unbooked locations. Unbooked locations have been identified by management as an estimation of our multiyear drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by drilling existing wells in relative close proximity to such unbooked drilling locations, the majority of other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production. Type curve estimates 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. The estimates were based on 2018 budget price assumptions as indicated on Slide 5. 35