ATB UPDATE Cardinal Energy Ltd. Credit Facility Increase Provides Additional Funding
Capacity For Reford Buildout The ATB Take: On May 27, 2024, before market open, CJ announced an increase in its credit facility from $155mm to $200mm with the maturity date being extended from May 2025 to May 2026. The credit line increase provides the line of sight for the funding to first oil for the Company's Reford project. The extension of the maturity date also reduces any remaining funding concerns, with first oil from Reford expected by fall 2025 relative to the revised maturity date of May 2026. Overall, while this is neutral for the stock, it helps firm
up the visibility for CJ to continue to build out Reford while maintaining its current dividend. Longer-term, the Company has acquired acreage for three SAGD projects with a total productive capacity of approximately 31 mboe/d, relative to current production of 22 mboe/d. The first project, Reford, is the smallest of the three projects with 6 mboe/d nameplate capacity. Once the first project is completed, corporate production will increase from 22 mboe/d to 28 mboe/d providing the cash flows to eventually build out the additional two projects. While the total development timeframe might be 7-10 years based on our estimates, the SAGD projects provide line of sight for longer-term organic growth from 22 mboe/d to north of 50 mboe/d over time while continuing to pay a healthy dividend. Funding improves for the second project once the first project begins to generate production by fall of 2025. As a result, we believe that CJ makes sense for total return investors who can take a longer-term view, especially ones who are bullish on long-dated oil relative to the current
backwardated strip.
Highlights: • Reford Outspend Details: Based on WTI strip pricing of US$77/bbl for 2024 and US$72/bbl for 2025, we estimate a corporate outspend of $3mm for the remaining three quarters in 2024 and $68mm for 2025 resulting in a total incremental outspend of
$71mm before first oil.
• Bankline Details: At the end of Q1/24, CJ was $87mm drawn on its credit facility. Remaining undrawn capacity increases from $68mm to $113mm with the credit facility increase, providing sufficient coverage of the estimated remaining $71mm outspend after dividends through first oil. Maturity date is also being pushed out from May 2025 to May 2026. First oil for Reford is expected in the fall 2025 with a rampup to nameplate
capacity of 6 mbbi/d by Q1/26. • Firms Up Our Thesis: Our thesis has been that the company has many funding options before needing to revisit the dividend. In Q1/24, the Company cut its 2024 base business capex with no impact to production outlook. Today, the credit facility increase covers any remaining FC outspend after dividends at strip. We believe the Company has additional options with no dividend concerns in our view unless WTI is at or below
US$65/bbI LT in 2025. Maintaining Outperform Rating and Price Target of $8.50: Our $8.50 target price is based on a 0.9x multiple of our risked NAV (in-line with peers) and implies a 2024 strip EV/DACF
multiple of 5.3x (adjusted for Reford capex spend).
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