Entering text into the input field will update the search result below

Cardinal Energy: Safest Yield In The Canadian Energy Sector

Cornerstone Investments profile picture
Cornerstone Investments


  • Cardinal pays a 7.7% yield that is fully covered at US$55 WTI.
  • Current share price is a result of lack of investor interest in Canadian energy sector but sentiment could turn very quickly.
  • We remain bullish on Cardinal due to the highly appealing yield and torque to higher oil price and narrowing WCS discount.

Cardinal Energy (OTCPK:CRLFF) will report its second quarter in early August and we thought it would be helpful to review Q1 and discuss several upcoming catalysts for the stock. We have been long Cardinal and have a cost base of around C$4.77. The stock suffered a major re-rating when it announced the light oil acquisition, an unfortunately timed acquisition. The market was very difficult in late 2016 and any company announcing acquisition was punished by the market. Cardinal has not been able to recover its lost ground despite several other Canadian O&G companies delivering superior returns, such as Gear (OTCQX:GENGF), Athabasca (OTCPK:ATHOF), and MEG (OTCPK:MEGEF). However, the aforementioned names were all high beta names with high torque to oil prices. Cardinal represents another opportunity that offers a highly attractive 7.7% yield which is fully covered at current strip pricing and has a wide margin of error as long as WTI stays above US$55. We continue to view Cardinal as a core holding for energy investors looking for safe yields.

In the last quarter (2018 Q1), Cardinal continued to deliver a strong quarter despite heavy WCS discount. The heavy oil discount has improved dramatically since Q1 and we expect Q2 to shape up to be a much stronger quarter from a cash flow and earnings perspective.

Production continues to shift towards light oil and Cardinal pursues its strategy of diversifying away from medium oil. We believe Cardinal's goal of providing modest production growth within cash flow is prudent and is supported by its industry-leading decline rate.

Netback has significantly improved from the same quarter last year due to higher WTI pricing and improved operating costs. The light oil acquisition has contributed to improved the netback

Bank debt increased during Q2 2017 but has since been consistently repaid by Cardinal through free

This article was written by

Cornerstone Investments profile picture
We are your best guide to cannabis investing. Read our 2021 Cannabis Sector Outlook here. We also provide in-depth industry analysis and coverage of 70+ cannabis stocks to help you get started.

Analyst’s Disclosure: I am/we are long CRLFF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (10)

pro8 profile picture
Canadian heavy oil near five-year low prompts drilling cuts
Improved pipeline prospects snarl rail talks: Cenovus CEO

The outlook for any O&G producer in Canada looks bleak... Canada is their own worst enemy.. and I own

I like Cardinal also. However, i am a little concerned about the WCS differential for the next year or two or three, until one and hopefully two of the pipeline expansions are up and running. Other sources of information feel the spread could stay in the $ 30 range for WCS, which influences all grades, especially with Syncrude coming back on line, and Fort Hills increasing output.
seems like Q2 earning is not good.
themacguy521 profile picture
Netback is excellent! $28 CDN
Very messy quarter. Operations seemed ok and netbacks were decent but their hedges are killing them. They're treading water until the hedges start rolling off in Q1 2019 and the pipelines start pumping (L3R & KXL).
Cornerstone Investments profile picture
Hedges are the price you pay to avoid bad times. We think the business is solid and look forward to the last royalty sale in Q3. Once leverage is below 1.0x we can start thinking about acquisitions and production growth.
WCS discount is currently still $30.
Cornerstone Investments profile picture
It's been very volatile. We hope to see the average dropping to US$20 for the rest of the year.
WCS discount is an interesting dilemma at the moment. Syncrude is coming back online faster than expected and at the same time CNQ's Horizons and Suncor's Fort Hills are just ramping up and pipeline capacity is completely tapped out. All the energy companies are in a staring contest at the moment because none of them want to commit to 4-5 year oil by rail deals (which costs $3-5/barrel more) so they're in a staring competition hoping someone else commits to relieve pressure. Rumours are Cenovus, CNQ or Suncor will announce big oil by rail deals which should help but we'll have to wait and see.
Chancer profile picture

C$4.77 is about US$3.67 today. My cost basis is US$3.61.

I considered buying more. But when US$ was dropping vs. Canadian $, my yield was declining on the conversion. I witnessed smaller cash dividends in US$ at same published yield. That exchange rate relationship may have reversed now. I will have to look at it again.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.