RE:Another increase in short position in DecemberForgot to mention that the projected payout ratio for 2018
, which represents the capital program plus its dividend, is expected to be 84 per cent prior to any acquisitions.CJ has really low decline rate and needs less capex to replace prooduction but I had concerns about the dividend. This is based on Cardinal's 2018 budget which is expected to produce prehedging adjusted funds flow of $132-million, assuming a royalty rate of 15.8 per cent, an oil price of $55 per barrel, U.S./Canadian-dollar exchange rate of 0.78 and a $1.75-per-thousand-cubic-foot AECO natural gas price. After taking into account Cardinal's current commodity hedging exposure, adjusted funds flow is expected to be approximately $125-million. The company's base capital program will consist of drilling 13.5 oil wells ($18-million), well optimization and production enhancement projects ($20-million), and facilities and pipelines ($17.5-million) for a total base budget of $55.5-million. This base capital program results in cash flow net of development capital expenditures of $69.5-million.
The free cash flow of $69.5-million will be used to finance the dividend and to finance the cash portion of future acquisitions within Cardinal's existing asset base. All acquisitions done in 2018 will be financed with excess operating adjusted funds flow and Cardinal will not incur additional debt for these acquisitions.
Production is expected to average 21,000 to 21,500 boe/d for 2018 with capital spending weighted to the first six months of 2018 and production growth is expected to occur in the fourth quarter of 2018.
If WTI averages around $55 in 2018. Then CJ is in good share and no risk to dividend.