Cardinal Announces Acquisition of Quality Low Decline Light Oil Assets, $170 Million Financing and Updated 2017 Guidance
Cardinal Energy Ltd. ("Cardinal" or the "Company") (TSX:CJ) is pleased to announce that it has entered into an agreement (the "Acquisition") to purchase high quality, low decline light oil assets in Western Canada (the "Assets") for cash consideration of $330 million (the "Purchase Price") before closing adjustments. The Assets to be acquired are in the Weyburn/Midale area of southeast Saskatchewan and in the House Mountain area of Alberta. The Assets will add 5,000 boe/d (100% oil and NGL's) of low decline light oil production (99% operated) that generate significant free cash flow and include a significant light oil development drilling inventory.
The Acquisition will be funded with a $170 million bought deal financing (the "Financing") and by Cardinal's credit facilities. We expect that the available lending limit under our credit facilities will be increased to $325 million following the closing of the Acquisition.
Cardinal is focused on keeping our debt to adjusted funds flow ratio to less than 1X.
Cardinal anticipates selling royalty interests and fee title lands (the "RI") associated with the Assets prior to year end, the proceeds of which will be applied to repay all or part of the Purchase Price funded by our credit facilities.
The Acquisition is consistent with Cardinal's strategy and business plan and will add $55 million of annualized operating income (revenue less royalties and operating expenses) to Cardinal based on the Assets Q1 2017 production and realized prices. Minimal capital has been spent on the Assets over the past few years and Cardinal believes that there are numerous optimization opportunities available as well as a potential to reduce operating costs per boe. The multiple of adjusted funds flow for the Acquisition based on the Purchase Price less estimated adjustments and the operating income above is 5.8X. Cardinal anticipates the adjusted funds flow multiple will fall below 4.0x after giving effect to the RI sales.
Benefits to Cardinal
Pursuant to the Acquisition, Cardinal will acquire a small working interest and RI in the Weyburn Unit and both a RI and a operated (68.84%) interest in the Midale Unit, both located in southeast Saskatchewan. All of these properties are under enhanced recovery schemes ("EOR") which are currently CO2/water floods. The Midale and Weyburn Units are two of the lowest decline oil units in Western Canada (below 6%) and both units have significant development drilling upside.
The Midale Unit has been under exploited as compared to the Weyburn Unit. Approximately one-third of the Midale Unit is under CO2/water flood and Cardinal believes there are significant upside opportunities with EOR optimization and expansion, infill drilling and recompletions. We estimate that there are up to 250 drilling locations in Midale.
The southeast Saskatchewan assets consist of production of 2,850 boe/d (100% light oil and NGL's) and 2P reserves effective as of December 31, 2016 of 18.4 MMboe, which includes 1.3 MMboe of royalty interest reserves. This long life reserve property has an 18 year reserve life index ("RLI") on a 2P basis (based on the production of 2,850 boe/d).
Historical operating costs for the southeast Saskatchewan assets have averaged $18.00/boe for 2016 and Q1 2017 and at $50 WTI (USD) and an exchange rate of 0.74, the assets have a $30.00/boe netback.
House Mountain Assets
The House Mountain property is operated and is located approximately 50 kilometres from our existing Mitsue field and will benefit from operational synergies in the area. The property includes an average 80% operated interest in 4 light oil producing units as well as a 100% interest in various non unit lands.
These assets produce light oil from the Beaverhill Lake formation. Numerous optimization and field operating cost reduction opportunities are available on these assets. Additionally there are over 25 un-fractured wells that can be multi-staged fractured to increase production. Cardinal has also identified in excess of 50 light oil drilling locations that will add to our future growth plans.
The House Mountain assets consist of production of 2,150 boe/d (100% light oil and NGL's) and 2P reserves of 10.2 MMboe, with a resultant 13 year RLI on a 2P basis (based on the production of 2,150 boe/d).
Total Reserves to be Acquired
This Acquisition adds to Cardinal's already high RLI properties. Cardinal's pro forma 2P RLI will increase from 12.7 to 13.4 years and the percentage of its 2P producing reserves will increase from 86% at year end 2016 to 90%. The Acquisition's 2P producing reserves represent 99% of the total 2P reserves being acquired.
Based on the report prepared by GLJ Petroleum Consultants Ltd. ("GLJ") as of December 31, 2016, the Acquisition will add significant reserves, increasing Cardinal's pro forma 2P producing reserves by 49%.
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.
SOURCE: Cardinal Energy Ltd.
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