(Idea) Cardinal Energy - Transitioning To An SAGD Growth Company
Editor’s Note: We recommend that you read Jon’s write-ups on Cardinal Energy from Jan and April 2025. Both write-ups are now public for you to read.
Jan 2025
April 2025
Below is the latest write-up from Jon. Please consider becoming a paid subscriber!
By: Jon Costello
Note: Dollars are in Canadian currency unless otherwise specified.
Cardinal Energy (CJ:CA) continues its transformation to a high-opex, low-decline conventional producer with a limited inventory runway to an operator focused on steam-assisted gravity drainage (SAGD) with attractive long-term growth prospects. Recent developments demonstrate that the transition remains underway.
Cardinal’s first SAGD project, Reford 1, was completed on budget and earlier than expected. It began commercial crude production earlier this year. On Monday, January 26, the company announced that the project is producing approximately 6,500 bbl/d of heavy crude oil, above its nameplate capacity of 6,000 bbl/d.
Introducing Reford 2
In the same press release, Cardinal disclosed that over the past six months, it had acquired a 100% working interest in the Reford 2 project. The project received a final investment decision in late January.
Reford 2 sits 6 miles north of Reford 1. Its reservoir targets the same channel of oil and possesses analogous geological and reservoir attributes. It has a design capacity of 4,250 bbl/d and is expected to cost $140 million, or $32,900 bbl/d, with the option to expand to 6,500 bbl/d for an additional $40 million. Expansion to 6,000 bbl/d would bring the project’s cost to $27,700 bbl/d.
Reford 2 will use some of the same infrastructure as Reford 1. Production is expected to begin 18 months after commencing construction. Like Reford 1, Reford 2 is expected to have a 20-year operating life. It is expected to sustain flat production over that timeframe.
To help finance Reford 2, Cardinal executed a $95.15 million bought deal financing, in which it sold 11 million common shares at $8.65 per share.
Reford 2’s Cash Flow Potential
On January 28, Cardinal announced it sold 11 million common shares, representing 6.6% of its 167.5 million fully diluted shares outstanding prior to the sale. The sale came at $8.65 per share, raising $95.15 million. If the overallotment option of an additional 1.1 million shares is exercised in full, the proceeds will increase to $104.67 million. In that case, the dilution to shareholders increases to 7.2%.
The equity offering’s proceeds will be used to repay borrowings on Cardinal’s revolving credit facility and to advance the development of Reford 2. Assuming the full overallotment is exercised, Cardinal’s net debt would fall to approximately $170 million.
The project’s financial returns justify the dilutive equity raise.