Calgary 鈥揙n March 20 Cardinal Energy Ltd. announced its operating and financial results for the quarter and year ended December 31, 2017 as well as its 2017 year end reserves.
The company increased annual production by 28 per cent and fourth quarter production by 43 per cent which included a 39 per cent increase in crude oil production compared to 2016.
Operating Highlights
The focus for Cardinal in 2017 was on two transformational light oil acquisitions, the Grande Prairie acquisition in late first quarter, 2017 and the Midale and House Mountain light oil acquisition on July 1, 2017.
Both acquisitions have helped to transform Cardinal from a medium quality (WCS) weighted asset base to a light oil weighted asset base. Along with each of the acquisitions came a large light oil drilling inventory, stable declines and high netback production.
Cardinal has spent a total of $46 million in the Grande Prairie area in 2017 including both the original acquisition and a 7 well drill program, resulting in a TPP PV10 reserve value of $100 million at year end 2017. We have now drilled a total of 7 Dunvegan light oil wells on our Grande Prairie lands acquired in 2017, which on a group basis are outperforming both historical drilling in the Elmworth Dunvegan pool as well as exceeding its own type curve for the play.
The company鈥檚 focus with the House Mountain and Midale acquisition for the balance of 2017 was to integrate and increase its understanding of the assets.
In House Mountain, Cardinal is seeing a positive waterflood response to initiatives undertaken in 2017. The company said prudent management of this asset has resulted in 3 million barrels of incremental high netback, light oil reserves being added to its yearend report due to the lower than forecasted decline rate.
The addition of Midale to its asset base in 2017 gave Cardinal a 鈥渨orld class oil asset鈥� under a combination of CO2 and waterflood.
鈥淲e see enormous unbooked upside in Midale, as the pool recovery factors are only half of its analog neighbor, the Weyburn Unit. The Midale Unit will provide Cardinal an ultra-low decline base of production with significant opportunities to grow this light oil resource over the foreseeable future,鈥� the company said in a release.
In its first 6 months of operating the Midale property Cardinal generated $15 million of operating income and incurred $1.5 million of capital expenditures of which $1.4 million were CO2 purchases. The production on the property was held flat at approximately 3,000 barrels of oil per day (bopd).
Our 2017 reserve additions were primarily low decline, high netback light oil in some of the best oil pools in Western Canada. Cardinal said it acquired these assets with the lowest FD&A number of its peers at $10.76 per barrel of oil equivalent (boe). This combined with our conservative FDC booking of $162 million (1.2x 2018 cash flow budget) gave Cardinal a 2.1x recycle ratio.
At current commodity prices, Cardinal will be able to generate significant cash flow to fund its dividend, to improve its financial flexibility by reducing our net bank debt and show modest year over year growth. Cardinal will continue to pursue initiatives to reduce our operating costs, 2017 saw a distinct and maintainable downward trend in per unit operating costs which we feel is repeatable in 2018 and 2019.
Outlook
2017 was a transformational year for Cardinal. The company said, 鈥淲e achieved our goal of diversifying our asset base with a focus on light oil. In the fourth quarter of 2017 light oil made up 53 per cent of our gross revenues. Cardinal has built a high quality sustainable asset base with an approximate 10 per cent annual decline rate.
鈥淲e delivered on our operational metrics while also achieving a very strong health, safety and environmental reclamation record. Our liability management ratio continues to improve and Cardinal is committed to spending a percentage of its operating budget every year on well abandonments and surface reclamation,鈥� the release said.
With approximately 77 per cent of Cardinal's production base currently being supported by existing enhanced oil recovery schemes, the company can, with modest reinvestment, maintain production volumes and generate free cash flow for years to come.
Cardinal鈥檚 focus for 2018 and beyond will be to deliver a combination of modest production growth, a reduction in net debt, an increase in netbacks, and a reduction in operating, general and administrative and other costs.
鈥淎s we navigate a new era for Canadian oil and gas companies Cardinal's focus will be on prudent business decisions and growth in shareholder value,鈥� the release concluded.
