Cardinal Energy

Absolutely no change in view here. CJ is my largest dividend-paying position and I'm happy to own this one, especially in this oil tape. The legacy assets continue to show low declines and the company's focus on bite-size SAGD projects marks an interesting evolution in the story. CJ isn't particularly cheap on NAV, but it has solid reserve-life-indexes in all categories that give me comfort in the sustainability of its circa-7% dividend yield.

I've known CJ for a loooong time. My favourite time was when I bought good chunk at about $1.25 after COVID and rode it to multiples of that in a relatively short time period. Then, maybe a couple of years ago, when I wanted to see CJ increase its dividend, it instead decided to go down the path of bite-size SAGD (thermal oil development) projects in Saskatchewan and I exited the name. I feared that the SAGD would be too capital intensive and than CJ would stress its balance sheet during the construction process, maybe putting its juicy 6-cent monthly dividend at risk. Well, here we are today and Redford 1 (the first of CJ's bite-sized SAGD projects) is built and running above design capacity, having been completed on time and on budget. The Redford 1 project is about 6,000 bopd of thermal oil which basically produces with little to no decline if well pairs are managed and sequenced properly. Add Redford 1 to CJ's ~20,000 bopd of low-decline (~10% annually) assets in Saskatchewan and you're looking at a 25,000-26,000 bopd producer with very low declines. Now you may as well add in Redford 2, because CJ is building Redford 2, with an initial design capacity of 4,250 bopd (expandable to 6,000 bopd) for capex of just $140 million. That capex will be funded from cash flow and proceeds from the company's recent (and oversubscribed) ~$100 million equity financing at $8.65/share (which saw solid insider buying). Redford 2 will take CJ up to around the 30,000 bopd mark by the end of 2027 and it will further reinforce the low-decline nature of the production profile. To me, oil prices aside, this will increase NAV per share, it will increase cash flow per share, it will increase the reserve-life-index of the company, and it will increase reserves per share. These are all good things... and it will do this while paying me 6 cents per month. That's an 8% yield at a $9 share price, a 7.6% yield at a $9.50 share price, or a 7.2% yield at a $10 share price. CJ still has over $1 billion in tax pools and, depending on when it decides to stop growing through these "bite size" SAGD development projects, it could have capacity to increase its dividend down the road. The venerable Murray Edwards is all over this one and gets paid a lot of dividends and interest by CJ, so think of this as owning a piece of Murray Edwards's personal piggy bank. I think that CJ's yield is attractive for a company with declines that are as low as they are, alongside an expanding corporate RLI through these small-scale SAGD developments. I've been buying stock from $8.85 through $9.40 and have made this my largest dividend-paying position.