Cardinal Energy Ltd.
TSX : CJ

Cardinal Energy Ltd.

July 29, 2014 15:29 ET

Cardinal Energy Ltd. Announces Significant Acquisition, Equity Financing and Dividend Increase

CALGARY, ALBERTA--(Marketwired - July 29, 2014) -

NOT FOR DISSEMINATION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.

Cardinal Energy Ltd. ("Cardinal") (TSX:CJ) is pleased to announce that it has signed a purchase and sale agreement to acquire approximately 1,900 Boe/day of long life oil production in the Wainwright area of Alberta (the "Acquisition").

The Acquisition is comprised of 99% crude oil, has an average working interest of 95.5%, includes associated infrastructure, is 99% operated and has a base decline rate of 5% to 7%. The Acquisition is expected to be accretive, on a per share basis, to production, cash flow from operations and proved plus probable reserves.

The Acquisition will be funded with a concurrent $148 million bought-deal financing (the "Financing") and bank debt.

Cardinal is also pleased to announce that the Board of Directors has approved a 30% increase to the monthly dividend from $0.05417 to $0.07 per share ($0.84 per share annualized). The dividend increase is expected to start with the September 2014 dividend payable in October 2014.

Wainwright Acquisition

The Acquisition consists of approximately 1,900 Boe/day of long life, (20 °API) crude oil with an average working interest of 95.5% and is consistent with Cardinal's strategy of building a solid production base. The Acquisition also includes a 100% working interest in three operated facilities.

Management of Cardinal had previously identified Wainwright as a potential new core area and the assets to be acquired offset Cardinal's current producing properties in Wainwright.

Highlighted benefits of the Acquisition are that it:

  • is accretive to cash flow from operations, production, proved plus probable reserves and net asset value per fully diluted share for 2014;
  • increases average production at closing to approximately 8,400 Boe/day;
  • decreases Cardinal's current corporate base decline;
  • allows Cardinal to reset its estimated 2014 simple payout ratio to approximately 35% after giving effect to the 30% increase to the current annual dividend; and
  • increases cash flow from operations by $31 million, on an annualized basis.

The assets to be acquired have the following characteristics:

Purchase price: $165 million ($170 million, net of customary closing adjustments)
Current Production: 1,900 Boe/day (99% oil)
2014 base decline rate: 5% - 7%
Proved and Probable Producing Reserves: (1) 9,760 Mboe (99% oil)
Proved plus Probable net present value: (1)(3) $176 million
Proved Plus Probable Reserves: (1) 9,778 Mboe (99% oil)
Proved Plus Probable reserve life index: 14 years
Netback: (2)(4) $44/Boe
Notes:
(1) Based on the GLJ Petroleum Consultants Ltd. ("GLJ") reserves evaluation effective December 31, 2013.
(2) Netback is a non-GAAP measure. Refer to the non-GAAP measures section of this press release.
(3) Before tax net present value based on a 10 percent discount rate and GLJ's January 1, 2014 forecast prices.
(4) Represents management's estimate based on a number of key assumptions including: (i) WTI oil average price of $100; (ii) Cdn$/US$exchange rate of $0.92; (iii) operating costs of $27 per Boe; (iv) an average royalty rate of 9%; and (v) a product mix of 99% oil.

The principal property to be acquired is a 100% working interest in the Wainwright "B" Pool Unit #1 which is producing about 1,400 Boe/day of crude oil. The Wainwright "B" Pool commenced production in 1973 and is currently under waterflood and the balance of the production comes from various unit interests and offsetting non unit lands in Wainwright.

In addition, Cardinal sees further development drilling opportunities in a bypass pay zone on the properties which it believes will provide it a multi-year year development drilling program which will more than offset the decline on the property.

Although Cardinal will fund a portion of the Acquisition with its balance sheet, 2014 year-end net debt is anticipated to be approximately $10 million, as cash flow from operations for the reminder of the year is expected to reduce borrowings incurred as a result of the Acquisition. Cardinal's credit facility, which currently has a borrowing base of $145 million and is set at $125 million will not change as result of the Acquisition, although Management believes a significant increase in the borrowing base is possible due to the higher percentage of proved producing reserves acquired in the Acquisition.

The Financing

In connection with the Acquisition, Cardinal entered into an agreement with a syndicate of underwriters co-led by CIBC World Markets Inc. and RBC Capital Markets and including Macquarie Capital Markets Canada Ltd., FirstEnergy Capital Corp., GMP Securities L.P. and National Bank Financial Inc. (collectively, the "Underwriters") pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 8,000,000 common shares of Cardinal at a price of $18.50 per common share for gross proceeds of approximately $148 million. Cardinal has granted the Underwriters an over-allotment option to purchase, on the same terms, up to an additional 800,000 Common Shares. This option is exercisable by the Underwriters, in whole or in part, at any time for a period of 30 days following closing. The maximum gross proceeds raised under the Financing will be approximately $163 million should the over-allotment option be exercised in full.

The common shares will be distributed by way of a short form prospectus in all provinces of Canada, in the United States and certain other jurisdictions as Cardinal and the Underwriters may agree on a private placement basis. Completion of the Acquisition and the Financing are subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. Closing of the Financing is expected to occur on August 15, 2014 and closing of the Acquisition is expected to occur on or about August 25, 2014.

Dividend Increase

The increase in the monthly dividend to $0.07 per share is consistent with Cardinal's target simple payout ratio of 30-35% of cash flow from operations. The Company's initial annual dividend of $0.65 per share set in December, 2013 was based on approximately 35% of its then estimated cash flow from operations. A combination of strong commodity prices, lower operating costs and higher production volumes have lowered the simple payout ratio as a percentage of cash flow from operations to well below 30%. An annual dividend of $0.84 per share should allow the Company to reset its simple payout ratio to approximately 35% of cash flow from operations post Acquisition.

This release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

About Cardinal Energy Ltd.

Cardinal is a junior Canadian oil focused company built to provide investors with a stable platform for dividend income and growth. Cardinal's operations are focused in all season access areas in Alberta.

Note Regarding ForwardLooking Statements and Other Advisories

This press release 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 and business opportunities, including expected 2014 production, product mix, cash flow from operations, netbacks, net debt to cash flow from operations, income taxes, Cardinal's capital expenditure program, drilling and development plans and the timing thereof and sources of funding. In addition, and without limiting the generality of the foregoing, this report contains forward-looking information regarding the Acquisition, the Financing and the benefits to be acquired therefrom including anticipated production, the increase to the dividend, drilling and reserves potential, recovery factors, waterflood potential, decline rates, drilling inventory, reserve life index, anticipated rates of return, operating costs, netbacks, cash flow from operations and other economics, and the impact of the Acquisition on Cardinal and its financial and operating results and development plans, including, on its production, cash flow from operations, net asset value, drilling inventory, production weighting, netbacks, decline rates, recovery factors, reserves, development capital spending, transportation and processing opportunities, outstanding bank debt, dividend sustainability and policy, including anticipated dividend increases and the amount and timing of such increases, total payout ratio, net debt to cash flow from operations ratio and free cash flow. This report also contains forward-looking information relating to the estimated purchase price of the Acquisition, the sources of funding of the Acquisition, the anticipated closing date for the Acquisition and the Financing and the timing of the dividend increase.
Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. 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; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; 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; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labor and services; the impact of increasing competition; ability to market oil and natural gas successfully; Cardinal's ability to access capital, and obtaining the necessary regulatory approvals, including the approval of the Toronto Stock Exchange and satisfaction of the other conditions to closing the Acquisition and the Financing and on the timeframes contemplated.

Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although the Company believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Cardinal can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The Acquisition and the Financing may not be completed on the anticipated time frames or at all and Cardinal's actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that Cardinal will derive there from. Management has included the above summary of assumptions and risks related to forward-looking information provided in this report in order to provide securityholders with a more complete perspective on Cardinal's future operations and such information may not be appropriate for other purposes.

This report contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Cardinal's prospective results of operations, cash flows, 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 document was made as of the date of this document and was provided for the purpose of describing the anticipated effects of the Financing, the Acquisition and the dividend increase on Cardinal's business operations. Cardinal disclaims any intention or obligation to update or revise any FOFI contained in this document, 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 document should not be used for purposes other than for which it is disclosed herein.

Readers are cautioned that the foregoing lists of factors 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).

These forward-looking statements are made as of the date of this report and Cardinal disclaims any intent or obligation to update publicly any forward-looking information, 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 report contains the terms "cash flow from operations", "free cash flow", "netbacks", "simple payout ratio", "total payout ratio" and "net 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 cash flow from operations, free cash flow, netbacks and total payout ratio to analyze financial and operating performance. Cardinal feels these benchmarks are key measures of profitability and overall sustainability for the Company. Each of these terms is commonly used in the oil and gas industry. Cash flow from operations, free cash flow, netbacks 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 financial performance calculated in accordance with GAAP. Cash flow from operations is calculated as cash flows from operating activities adjusted for changes in non-cash working capital and decommissioning expenditures. "Free cash flow" represents cash flow from operations less dividends declared and less management's expectation of the amount of capital expenditures necessary to maintain Cardinal's base production. "Total payout ratio" represents the ratio of the sum of dividends declared plus management's expectation of the amount of capital expenditures necessary to maintain our 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, simple payout ratio and total payout ratio are other key measures to assess our ability to finance dividends, operating activities and capital expenditures. Netback" or "netback per boe" 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. The term "net debt" is not recognized under GAAP and is calculated as bank debt plus or minus working capital (adjusted for the fair value of financial instruments). Net debt is used by management to analyze Cardinal's financial position and leverage.

Advisory Regarding Oil and Gas Information

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 press release contains estimates of the net present value of the future net revenue from the reserves associated with the Acquisition. Such amounts do not represent the fair market value of the 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 the 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.

Contact Information

  • Cardinal Energy Ltd.
    M. Scott Ratushny
    Chief Executive Officer and Chairman
    (403) 216-2706

    Cardinal Energy Ltd.
    Douglas Smith
    Chief Financial Officer
    (403) 216-2709

    Cardinal Energy Ltd.
    Suite 1400, 440 - 2nd Avenue S.W.
    Calgary, Alberta T2P 5E9
    (403) 234-8681
    (403) 234-0603 (FAX)
    info@cardinalenergy.ca