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
degrees 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 Forward-Looking 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
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
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