Cardinal Energy Ltd. is pleased to announce its operating and financial results for the second quarter ended June 30, 2024.
FINANCIAL AND OPERATING HIGHLIGHTS FROM THE SECOND QUARTER OF 2024
Average production volumes of 22,376 boe/d were 3% higher than the first quarter of 2024, despite shutting in 250 boe/d of subeconomic natural gas, as volumes from the Company's strong first quarter drilling program positively impacted the quarter;
Adjusted funds flow(1) increased 55% over the first quarter of 2024 due to increased production, stronger oil prices and reduced net operating expenses;
Second quarter adjusted funds flow of $81.8 million was allocated as follows:
Decreased net debt by 17% over the prior quarter to close the second quarter at $99.2 million leading to a net debt to adjusted funds flow ratio(1) of 0.4x. At the end of the second quarter, Cardinal was drawn 39% on its recently expanded $200 million credit facility;
Production from seven wells drilled in the first quarter of 2024 added 1,980 boe/d to second quarter 2024 production; and
Development capital expenditures(1) were $18.8 million which included one (0.8 net) well drilled at Midale, Saskatchewan and recompletions and reactivations across our asset base. Exploration and evaluation expenditures of $10.8 million were spent on our Saskatchewan steam assisted gravity drainage ("SAGD") projects.
SECOND QUARTER OVERVIEW
Adjusted funds flow for the second quarter of 2024 was $81.8 million ($0.51 per basic and diluted share) compared to $52.8 million in the first quarter of 2024 ($0.33 per basic and diluted share). Adjusted funds flow for the second quarter was positively impacted by increased oil production, higher average oil prices, and lower net operating expenses.
Average production for the second quarter of 2024 was 3% higher than the previous quarter and 6% higher than the second quarter of 2023. The low-decline nature of our asset base and optimization efforts through the first half of 2024 continued to contribute to Cardinal's top decile base decline rate. The Company's successful first quarter 2024 drilling program added 1,980 boe/d from seven wells to second quarter production allowing the Company to reduce its 2024 capital program by a previously announced $16 million. During the second quarter, Cardinal temporarily curtailed low netback natural gas production of approximately 250 boe/d as a result of current natural gas prices. Cardinal anticipates bringing this production back on-stream when it is economically prudent to do so.
Cardinal experienced robust revenue growth in the second quarter driven by increased oil production levels and higher oil pricing. In the second quarter of 2024, a 5% increase in West Texas Intermediate ("WTI") oil prices combined with Western Canadian Select ("WCS") differentials narrowing by 30% to average US$13.61/bbl, resulted in a 21% increase in revenue in the second quarter compared to the prior quarter.
Net operating expenses per boe decreased 10% in the second quarter to $23.65/boe compared to $26.17/boe in the first quarter of 2024 and were 4% lower than the same period in 2023. Net operating expenses were lower in the second quarter of 2024 compared to the prior quarter due to higher production and lower Alberta power prices and usage combined with lower workover and well servicing costs. During the second quarter of 2024, Alberta power prices decreased over 50% compared to the prior quarter while consumption decreased by approximately 10% over the heavy usage winter months as experienced in the first quarter of 2024.
We have maintained a strong financial position with prudent financial management and a disciplined approach to capital allocation. Cardinal's net debt closed the second quarter of 2024 at $99.2 million, a decrease of 17% over the prior quarter. During the second quarter, the Company renewed its credit facility which was increased to $200 million with an additional lender and will support the future development of our SAGD project. At the end of the second quarter, Cardinal was drawn $77.9 million or 39% of the available limits on the credit facility. The Company's net debt to adjusted funds flow ratio remained low at 0.4x. During the second quarter, Cardinal allocated our adjusted funds flow with 25% to net debt reduction, 13% to SAGD capital for future production growth, 24% allocated to production maintenance capital, 2% to ARO and 36% to direct shareholder returns with our monthly dividend.
In the second quarter of 2024, the Company's development program was focused on recompletions and reactivations and infrastructure upgrades across our asset base. Cardinal spent $18.8 million on development capital expenditures which included drilling one (0.8 net) well at Midale late in the second quarter. We continued with our well reactivation program spending $4.1 million on recompletions throughout our operating areas. Cardinal also constructed new facilities and upgraded existing infrastructure across our asset base and continued with the enhanced oil recovery program with CO2 injection at Midale with ~$750,000 spent on CO2 purchases.
During the second quarter, Cardinal spent $10.8 million on exploration and evaluation expenditures related to our Saskatchewan SAGD projects. To date in 2024, the Company has incurred $26.9 million on exploration and evaluation of which $25.3 million is attributable to the Reford SAGD project. The expenditures are related to ongoing facility modular components, initiation of water infrastructure projects, power generation, fuel gas pipeline infrastructure and surface preparation for the facility. The project continues to track to our forecasted timeline and cost estimate.
SASKATCHEWAN THERMAL PROJECT UPDATE
Cardinal's 6,000 bbl/d SAGD project at Reford, Saskatchewan remains on schedule and on budget with completion of the initial development phase expected prior to the end of fiscal 2025.
In the first half of 2024, Cardinal invested $25.3 million in the Reford SAGD project. Significant activities undertaken during the second quarter with this project included: fabrication of the central processing facility modular components, optimization of resource mapping, the hiring of additional project team members and ongoing community engagement initiatives.
On a dollars spent basis, the project was 15% completed by the end of the second quarter of 2024 and on a timeline basis, we are 25% complete. We continue to track to budget on both costs and timeline.
Key activities planned for the remainder of 2024 include:
Ongoing fabrication of the central processing facility modular components;
Design and engineering of the water infrastructure required to generate steam;
SAGD well pair design and placement work, including procurement of long-lead items; and
Commencement of earthworks for the central processing facility and the first SAGD well pad.
DRILLING OPERATIONS UPDATE
As budgeted, activity in the second quarter was moderate with one (0.8 net) well drilled during the quarter at Midale which is expected to be onstream in the third quarter. Currently, Cardinal has two rigs active, drilling in the Midale and Elmworth areas.
Performance of our first quarter program continues to exceed expectations which, as previously disclosed, allowed the Company to reduce full year development capital while maintaining production guidance. Details on production performance on first quarter drilling activities is as follows:
Three (3.0 net) Clearwater oil wells at Nipisi were drilled and came on-stream late in the first quarter. Current production from these wells is approximately 700 boe/d (94% heavy crude oil and 6% conventional natural gas);
Two (2.0 net) Clearwater equivalent oil wells at Buffalo Lake were drilled and came on-stream at the end of the first quarter. Current production is approximately 400 bbl/d (100% heavy crude oil). Three additional wells are planned at Buffalo Lake in the third quarter of 2024; and
Two (2.0 net) Ellerslie oil wells at Tide Lake were drilled and came on-stream midway through the first quarter. Both wells have paid out and are currently producing of approximately 1,000 boe/d (85% medium crude oil and 15% conventional natural gas) well above expectations. Three additional wells are planned for later in the year in this area.
Cardinal continues to focus on the efficient deployment of capital by increasing its multi-year conventional drilling inventory to complement its low-decline production base. In late Q2 the Company resumed its reduced 2024 drilling program with plans to drill 11 additional wells through 2024.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
Cardinal continued our CO2 sequestration activities in Saskatchewan, with approximately 27,000 tonnes sequestered during the second quarter of 2024. As part of our enhanced oil recovery operation at Midale, Saskatchewan, 5.7 million tonnes of CO2 have been sequestered here. This has helped to reduce annual oil production decline rates within this project to approximately 3%.
Cardinal's safety record continues to be in the top tier of the industry, as is our regulatory compliance level.
During the first half of 2024 Cardinal deployed almost $6 million towards abandonment and reclamation activities, continuing with our proactive approach to reducing liabilities and the environmental footprint of our asset base. We are on track to exceed our regulatory spend requirements for 2024.
OUTLOOK
The second quarter of 2024 continued to demonstrate the strength of Cardinal's low-decline asset base. Despite the curtailment of approximately 250 boe/d of uneconomic natural gas production in the second quarter, production increased 3% over the prior quarter due to our low-decline asset base and strong first quarter drilling results.
Cardinal will continue to pursue projects and opportunities that increase our sustainability and decrease our corporate risk. The Company's commitment to the Reford SAGD project will be fundamental in extending corporate reserve life and enhancing long-term sustainability. The project continues to progress on schedule and on budget.
In addition to the development of the Reford SAGD project, Cardinal is continuing to build both on its successful 2024 development program across its conventional asset base and is progressing the assessment of our second planned SAGD project south of Reford at Kelfield, Saskatchewan.
Cardinal has plans to drill 21 conventional oil wells this year:
Q1/Q2: nine (8.8 net) wells were drilled;
Q3/Q4: 12 (11.3 net) wells are forecasted to be drilled with production expected in early Q4 which includes:
Three (3.0 net) in the southern area for Ellerslie oil;
Three (3.0 net) additional Clearwater oil wells at Buffalo Lake;
Three (2.3 net) Midale wells;
Two (2.0 net) Elmworth Dunvegan light oil wells; and
One (1.0 net) Central Alberta Mannville oil well.
Under current strip pricing, Cardinal is forecasting that adjusted funds flow for 2024 and 2025, driven by our low-decline conventional oil and gas assets, will fully fund ongoing returns to shareholders and the development of the Reford SAGD project. The execution of the Reford project expected to be fully commissioned in late 2025, will provide Cardinal with the flexibility to revisit its framework for both shareholder returns and future capital spending budgets.
On behalf of the Board of Directors, management and employees, Cardinal would like to thank our shareholders for their continued support.
