Corporate Presentation
BUILT TO LAST
April, 2015
Built for Purpose
Decline focused acquisitions
Low debt structure
Strong capital efficiency
Risk Management
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Cardinal Energy Ltd. - Profile
TSX: CJ
Shares Outstanding (1):
•
Basic
56,819,301
•
Fully Diluted
58,906,424
Annual dividend ($/share):
2015 average production (boe/d):
•
% oil and NGLs
$0.84/share
11,200
92%
Reserves (Mboe) (1)(2)
•
Total Proved
32,078
•
Total P&P
43,030
•
RLI Total P&P (years)
Net Debt(1):
11
$54MM
1. As at December 31, 2014
2. See Advisory
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Manage Debt
Corporate goal to always maintain a ratio of less than 1.0 x net debt to
cash flow from operations
Significant undrawn liquidity
$220 million credit facility borrowing base
$54 million year end 2014 net debt
No anticipated change in credit facility for 2015
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4
Debt to Cash Flow Ratio(1)
1. Source cite: FirstEnergy Capital (February 2015)
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Low Decline
1. Source cite: FirstEnergy Capital (February 2015)
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Hedging Strategy
Cardinal currently has the following crude oil hedges for 2015:
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Hedging Strategy
Cardinal has the following crude oil hedges for 2016:
1. Required volume to fund development capital and dividend at $US 65 WTI.
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8
Production Growth Per Share
10,821
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Reserve Growth Per Share
$14.73
$10.73
10,821
1. Net present value before tax discounted at 10% (See advisory)
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Asset Characteristics
Base production decline rate approximately 10%
97% operated production
90% working interest
>92% oil weighted
Concentrated in “2 Core Areas”
Multi year drilling inventory
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Cardinal Asset Base
Solid Base of Oil Production from 2
Core Areas
Wainwright
Bantry
Approximately 5,500 boe/d
production forecast for Q1
2015
Approximately 5,700 boe/d
production forecast for Q1
2015
Both areas have extensive
development drilling, consolidation
and growth potential
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Wainwright
Dominant land position with over 55
sections of land
Oil production under waterflood with
less than 10% decline
98% operated, average 95% working
interest
Control key infrastructure
By pass uphole drilling targets
Consolidation and growth
opportunities
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Wainwright Drilling
Average well cost $1.0 mm
(estimated)
IP (365) < $40,000/flowing boe
Reserves 83 mboe(1)
F&D $12.05/boe(1)
Multiyear drilling inventory in
excess of 30 locations
Only 2.5 net locations booked
1. Based on TPP reserves assigned by GLJ at year end 2014
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Wainwright Sparky Pools
Large oil in place (241 mmbbls)
The Wainwright B pool is a model for
the Wainwright Sparky Pools
Due to effective line drive water flood the
recovery is 45% to date
Current 2P reserve bookings forecast a
recovery factor (“RF“) of in excess of 50%
Manage the water floods to increase
recovery factors
1% increase in recovery factors yields
2.4 million barrels
OOIP(1)
(mmbbls)
Pool
Wain B
Wain West
Wain East
1.
2.
114
95
32
Cum Oil Current Booked (mmbbls)
RF
RF(2)
51
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11
45%
23%
36%
50%
30%
40%
OOIP internal estimate by Cardinal.
Cardinal year end 2014 reserve report.
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Bantry
Dominant land position with over
246 sections of land
97% operated, average 94%
working interest oil production
Solid Glauc drilling results to date
with over 80 locations identified.
The majority of base production is
currently under waterflood
Control key infrastructure
Solid low decline base production
Opportunities to expand area
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Bantry Glauc Type Curve Economics
Type
Curve
SAL*
Drilled
results to
date*
D&C ($MM)
$2.1
$2.1
Production, IP30 (boepd)
240
350
Production IP365 (boepd) estimate
140
200
Total P&P Reserves (Mboe) *
150
185
Year 1 Oil & NGLs (%)
92%
92%
NPV BT10(1) ($MM)
2.2
3.3
Rate of Return (%)
78%
189%
1.4
0.8
14.00
11.35
Production Efficiency ($/boed IP
365)
15,000
10,500
Netback Year 1
$31.00
$31.00
2.2
2.7
Payout (Years)
Reserve Cost ($/boe)
Recycle Ratio
Sproule escalated December 31, 2014 price forecast
*Based on TPP reserves assigned by Sproule at year end 2014
1. Net present value before tax discounted at 10%, see Advisory.
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Sensitivities
Oil (USD WTI)
WCS (CAD)
FX (USD/CAD)
Aeco (CAD)
$
$
55.00
53.00
0.8
$ 2.75
$
$
65.00
62.50
0.82
$ 2.75
$
$
75.00
70.00
0.84
$ 2.75
$
$
Netback ($/boe) after risk management
Average production target (boe/d)
$
$
$
$
($ millions)
Cash flow from operations ("CF")
Development capital
Dividends declared
Free cash flow
Total payout ratio
Net debt to CF
26.50
11,200
28.75
11,200
31.25
11,200
85.00
78.00
0.86
$ 2.75
33.50
11,200
95
30
48
17
104
30
48
26
114
30
48
36
125
30
48
47
82%
75%
68%
62%
0.6
0.5
0.3
0.2
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2015 Guidance
2014
2015e
% change
Operational
Average production (boe/d)
Development capital ($MM)(1)
Wells drilled 7,815
$36
7
11,200
$30
7
43%
‐17%
0%
Financial
Cashflow from operations ($MM)(2)
‐per share (basic)
Total dividend ($MM)
‐per share (basic)
Total payout ratio
Net debt/cashflow from operations
$95
$2.18
$33
$0.71
73%
0.5
$95
$1.67
$48
$0.84
82%
0.6X
‐%
‐23%
45%
18%
12%
20%
1. Development capital includes land and seismic.
2. 2015 WTI $US55 per bbl and FX rate of 0.8 $USD/CAD
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Track Record – Value Creation
Proven performance across commodities and throughout the cycle
•
Positive return on all equity issued in all companies
Campion Resources Ltd.
1998 - 2002
B.C.- Beg – Halfway
$5 Million - $35 Million
(Equity)
Java Energy Ltd.
2001 - 2004
AB - Rainbow – Bluesky
Sask - Oil
$2 Million - $22 Million
(Equity)
Southpoint Resources Ltd.
2003 - 2005
BC – Oil/Gas
$19 Million - $42 Million
(Equity)
Pilot Energy Ltd.
2004 - 2008
Sask. – Bakken
$13 Million - $76 Million
(Equity)
Midway Energy Ltd.
2009-2012
AB - Cardium - Beaverhill Lake
$118 Million - $550 Million
(Equity)
(Sale Price)
(Sale Price)
(Sale Price)
Cardinal Energy Ltd.
2012 - present
AB – Mannville Oil
(Sale Price)
(Sale Price)
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Corporate Information
Corporate Headquarters:
600, 400 – 3rd Avenue S.W.
Calgary, AB T2P 4H2
Bankers:
ATB Financial
CIBC World Markets Inc.
RBC Dominion Securities Inc.
Scotia Capital Inc.
Auditors:
KPMG LLP
Legal:
Burnet Duckworth & Palmer LLP
Reserves:
Sproule Associates Limited
GLJ Petroleum Consultants
Contacts:
Scott Ratushny
Email: scottr@cardinalenergy.ca Tel: (403) 216-2706
Laurence Broos
Email: laurenceb@cardinalenergy.ca Tel: (403) 727-2021
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Research Coverage
Target
BMO
$15.00
Target
Macquarie Equity Research
$19.00
(Feb 26-2015)
CIBC World Markets Inc.
$15.75
National Bank Financial
$15.50
(Feb 26-2015)
FirstEnergy Capital
$17.25
RBC Capital Markets
(Feb 27-2015)
GMP Securities
$17.00
(Feb 26-2015)
$18.00
(Feb 26-2015)
Scotiabank
$17.50
(Feb 27-2015)
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Advisory
Forward-looking Statements
Certain information in this document contains forward-looking statements. These statements relate to future events or the Company's future performance. All information and statements contained herein that are not
clearly historical in nature constitute forward looking statements, and the words "may", "will", "should", "could", "expect", "plan", "intend", "anticipate", "believe", "estimate", "propose", "predict", "potential", "continue", or
the negative of these terms or other comparable terminology are generally intended to identify forward looking statements. Specifically, this presentation contains forward-looking statements relating to: Cardinal’s
business plans and model; drilling, development and acquisition plans, costs and focus; cash flow from operations; free cash flow; debt levels; hedging and other risk management plans and strategies; expectations
relating to the success of exploration and development efforts, forecast production and targeted production growth, payout ratios; netbacks; anticipated capital requirements and capital expenditure plans and the
results therefrom; drilling inventory; expansion opportunities; base maintenance capital; anticipated cash available for the payment of dividends and funding of capital expenditures; decline rates; the performance of
existing and future wells; Cardinal’s dividend projections and policy and anticipated reserves. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment,
based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The reader is cautioned that assumptions used in the preparation of this information, although
considered reasonable by Cardinal at the time of preparation, may prove to be incorrect. Actual results achieved will vary from the information provided herein as a result of certain risks and assumptions made by
Cardinal and numerous known and unknown risks and uncertainties and other factors. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information
prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking information. Accordingly, prospective investors should not place undue
reliance on these forward-looking statements.
The forward‐looking information is based on certain key expectations and assumptions made by Cardinal's management, including expectations and assumptions concerning prevailing commodity prices, exchange
rates, interest rates, applicable royalty rates and tax laws; capital efficiencies; decline rates; future production rates and estimates of operating costs; the ability to produce and transport crude oil and natural gas to
market; performance of existing and future wells; reserve estimates and production level estimates; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of
budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; assessments of the
value of acquisitions; integrating acquisitions; the decisions or approvals of administrative tribunals; environmental and other regulations, results of operations; performance; business prospects and opportunities; the
availability and cost of financing, labor and services; the impact of increasing competition; and Cardinal's ability to access capital and such information may not be appropriate for other purposes. Readers are cautioned
that the foregoing lists of assumptions and risks are not exhaustive. Additional information on these and other factors that could affect Cardinal's operations or financial results are included in reports on file with
applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
The forward-looking information includes forward-looking financial information or financial outlook, within the meaning of securities laws, such as projected net debt, cash flows and projected net debt to cash flow ratio
and capital expenditures. The forward-looking financial information is based on assumptions which management of Cardinal considers reasonable as of March 31, 2015 however such information may prove to be
incorrect. Cardinal is providing the forward-looking financial information set out in this presentation for the purposes of providing readers with some context for the base cases presented herein; such information may
not be appropriate for other purposes other than as described herein. These forward-looking statements are made as of the date of this presentation and, other than as required by applicable securities laws, Cardinal
does not assume any obligation to update or revise them to reflect new events or circumstances.
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.
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Advisory
Non-GAAP Measures
Throughout this presentation the Company uses the terms “cash flow from operations”, “netback”, “net debt”, “free cash flow”, “simple payout ratio” and “total payout ratio”. These terms do not have a standardized
prescribed meaning under GAAP and these measurements may not be comparable with the calculation of similar measurements of other entities.
“Cash flow from operations” is calculated based on cash flow from operating activities before the change in non-cash working capital and decommissioning expenditures. Cardinal believes the timing of collection,
payment or incurrence of these items involves a high degree of discretion and as such may not be useful for evaluating Cardinal’s operating performance. Management utilizes cash flow from operations as a key
measure to assess the ability of the Company to finance dividends, operating activities and capital expenditures. Cash flow from operations should not be construed as an alternative to net earnings or cash flow from
operating activities determined in accordance with GAAP as an indication of Cardinal’s performance. A reconciliation of cash flow from operating activities to cash flow from operations is available in Cardinal’s
management, discussion and analysis available on SEDAR.
The term “net debt” is calculated as total bank debt (long term bank debt plus the current portion of bank debt) plus other current liabilities less current assets adjusted for the fair value of financial instruments. Net debt
is used by management to analyze the financial position and leverage of Cardinal.
“Free cash flow" represents cash flow from operations less cash 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 cash dividends declared plus development capital expenditures necessary to maintain the Company's base production divided by cash flow from operations. "Simple payout ratio" represents the ratio
of the amount of dividends declared, divided by cash flow from operations. Free cash flow and total payout ratio are other key measures to assess Cardinal's ability to finance dividends, operating activities and capital
expenditures.
“Netback” is calculated on a per 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.
Advisory Regarding Oil and Gas Information
The crude oil, natural gas and natural gas liquid reserves and related future net revenue 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 51-101 (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook effective as of December 31, 2014
and using Sproule's December 31, 2014 forecast product prices
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.
This presentation contains estimates of the net present value of our future net revenue from our reserves. Such amounts do not represent the fair market value of our reserves. There is no assurance that the forecast
prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and
there is no guarantee that the estimated reserves will be recovered. 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.
References herein to short-term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline
thereafter and are not indicative of long term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating aggregate production for us. A pressure
transient analysis or well-test interpretation has not been carried out in respect of all wells. Accordingly, we caution that the test results should be considered to be preliminary.
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Advisory
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, 2014 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, are proved locations, are probable locations and are unbooked locations. Unbooked locations have been identified by
management as an estimation of our multi-year 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.
“OOIP” is the Original Oil in Place as determined internally by Cardinal Energy Ltd. The estimates of OOIP have been prepared internally by a qualified reserves evaluator in accordance with NI 51-101 and the
COGEH handbook.
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