Cardinal Energy Ltd. — Annual Report 2020

Mar 16, 2021

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2020 FINANCIAL STATEMENTS

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MANAGEMENT’S REPORT

Management is responsible for the preparation of the accompanying financial statements. The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and include certain estimates that reflect management’s best estimates and judgments. Management has determined such amounts on a reasonable basis in order to determine that the financial statements are presented fairly in all material respects.

Management is responsible for the integrity of the financial information. Internal control systems are designed and maintained to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce reliable accounting records for financial reporting purposes.

KPMG LLP has audited the financial statements. Their examination included such tests and procedures, as they considered necessary, to provide reasonable assurance that the financial statements are presented fairly in accordance with International Financial Reporting Standards.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board exercises this responsibility through the Audit Committee, with assistance from the Reserves Committee in connection with the annual evaluation of our petroleum and natural gas reserves. The Audit Committee meets regularly with management and the independent auditors to ensure that management’s responsibilities are properly discharged, to review the financial statements and recommend that the financial statements be presented to the Board of Directors for approval. The Audit Committee also considers the independence of the external auditors and reviews their fees.

The Board of Directors has approved the information contained in the financial statements based on the recommendation of the Audit Committee.

signed “M. Scott Ratushny” M. Scott Ratushny Chief Executive Officer

signed “Shawn Van Spankeren” Shawn Van Spankeren Chief Financial Officer

March 16, 2021

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KPMG LLP 205 5th Avenue SW Suite 3100 Calgary AB T2P 4B9 Tel (403) 691-8000 Fax (403) 691-8008 www.kpmg.ca

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Cardinal Energy Ltd.

Opinion

We have audited the financial statements of Cardinal Energy Ltd. (the “Company”), which comprise:

• the balance sheet as at December 31, 2020 and December 31, 2019

• the statements of loss and comprehensive loss for the years then ended

• the statements of changes in shareholders’ equity for the years then ended

• the statements of cash flows for the years then ended

• and notes to the financial statements, including a summary of significant accounting policies

Hereinafter referred to as the “financial statements”.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and December 31, 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.

Assessment of the recoverable amount of the cash generating units

Description of the matter

We draw attention to note 2, note 3 and note 6 to the financial statements. The Company has recorded an aggregate non-cash impairment loss of $220.3 million related to the cash generating units (the “CGUs”) for the year ended December 31, 2020. The Company identified an indicator of impairment at March 31, 2020 for all CGUs and identified an indicator of reversal at December 31, 2020 for all CGUs and performed an impairment test to estimate the recoverable amount of each CGU.

The estimated recoverable amount of each CGU involves significant estimates including:

• The estimate of proved and probable oil and gas reserves and the related cash flows

• The discount rates.

The estimate of proved and probable oil and gas reserves and the related cash flows requires the expertise of independent third party reserve evaluators and includes significant assumptions related to:

• Forecasted oil and gas commodity prices

• Forecasted production

• Forecasted operating costs

• Forecasted royalty costs

• Forecasted future development costs.

The Company engages independent third party reserve evaluators to estimate the proved and probable oil and gas reserves and the related cash flows annually.

Why the matter is a key audit matter

We identified the assessment of the recoverable amount of the CGUs as a key audit matter. Significant auditor judgment was required to evaluate the results of our audit procedures regarding the estimate of proved and probable oil and gas reserves and the related cash flows and the discount rates.

How the matter was addressed in the audit

The following are the primary procedures we performed to address this key audit matter:

With respect to the estimate of proved and probable oil and gas reserves and the related cash flows as at December 31, 2020:

• We evaluated the competence, capabilities and objectivity of the independent third party reserve evaluators engaged by the Company

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• We compared forecasted oil and gas commodity prices to those published by other independent third party reserve evaluators

• We compared the 2020 actual production, operating costs, royalty costs and development costs of the Company to those estimates used in the prior year’s estimate of proved oil and gas reserves and the related cash flows to assess the Company’s ability to accurately forecast

• We evaluated the appropriateness of forecasted production and forecasted operating costs, royalty costs and future development costs assumptions by comparing to 2020 actual results. We took into account changes in conditions and events affecting the Company to assess the adjustments or lack of adjustments made by the Company in arriving at the assumptions.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

• Evaluating the appropriateness of the Company’s discount rates by comparing the discount rates to market and other external data

• Assessing the reasonableness of the Company’s estimate of the recoverable amount of each CGU by comparing the Company’s estimate to market metrics and other external data.

Other Information

Management is responsible for the other information. Other information comprises:

• the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

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Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this auditors’ report is Timothy Arthur Richards.

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Chartered Professional Accountants

Calgary, Canada March 16, 2021

5

BALANCE SHEET

BALANCE SHEET
As at December 31,
(thousands)	Note		2020		2019
ASSETS
Current assets
Trade and other receivables		$	29,261	$	39,724
Deposits and prepaid expenses			2,876		2,794
Fair value of financial instruments	18		1,506		261
			33,643		42,779
Non‐current assets
Exploration and evaluation assets	5		‐		272
Property, plant and equipment	6		715,490		1,003,200
Deferred tax	16		‐		103,576
			715,490		1,107,048
Total Assets		$	749,133	$	1,149,827
LIABILITIES
Current liabilities
Trade and other payables		$	42,421	$	69,871
Dividends payable	14		‐		1,938
Liability component of convertible debentures	9		‐		44,158
Lease liabilities	10		1,687		1,850
Decommissioning obligation	11		3,280		6,450
Fair value of financial instruments	18		8,415		3,407
Warrant liability	12		3,530		‐
			59,333		127,674
Non‐current liabilities
Lease liabilities	10		2,227		3,581
Bank debt	7		192,115		173,308
Secured notes	8		16,217		‐
Liability component of convertible debentures	9		26,886		‐
Decommissioning obligation	11		79,507		107,362
			316,952		284,251
Total Liabilities			376,285		411,925
SHAREHOLDERS' EQUITY
Share capital	13		1,054,169		1,062,194
Treasury shares	13		(3,041)		(5,182)
Equity component of convertible debentures	9		1,582		1,556
Contributed surplus			33,502		26,429
Deficit			(713,364)		(347,095)
Total Shareholders'Equity			372,848		737,902
Total Liabilities and Shareholders'Equity		$	749,133	$	1,149,827
Contractual obligations	20
Subsequent events	24

The accompanying notes are an integral part of these financial statements.

Approved on behalf of the Board of Directors,

signed " M. Scott Ratushny " signed " Greg T. Tisdale " M. Scott Ratushny Greg T. Tisdale Director Director

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STATEMENT OF LOSS AND COMPREHENSIVE LOSS

For the years ended December 31,
(thousands except per share amounts)	Note		2020		2019
Revenue
Petroleum and natural gas revenue	17	$	223,231	$	388,971
Royalties			(33,246)		(65,759)
Realized loss on commodity contracts	18		(495)		(14,664)
Unrealized loss on commodity contracts	18		(6,593)		(15,695)
Processing and other revenue	17		3,224		2,630
Other income	11		4,563		‐
			190,684		295,483
Expenses
Operating			120,600		157,949
Transportation			1,937		2,432
General and administrative			13,273		15,861
Share‐based compensation	15		3,745		7,160
Finance	21		21,873		22,607
Depletion and depreciation	6		67,080		92,082
Impairment	5,6		220,631		23,400
Loss (gain) on disposition and other	6,9		1,827		(759)
			450,966		320,732
Loss before deferred tax			(260,282)		(25,249)
Deferred tax expense	16		102,878		9,091
Loss and comprehensive loss		$	(363,160)	$	(34,340)
Loss per share	13
Basic and diluted		$	(3.20)	$	(0.30)

The accompanying notes are an integral part of these financial statements.

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STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

										Equity
				Common					Component
				Shares, net of						of						Total
				treasury				Treasury	Convertible		Contributed				Shareholders'
(thousands except number of common shares)				shares	Share Capital			Shares	Debentures			Surplus		Deficit		Equity
						(note 13)		(note 13)		(note 9)		(note 15)
As at January 1, 2019				116,197,095	$	1,072,284	$	‐	$	1,729	$	13,365	$	(294,756)	$	792,622
Purchase of common shares for RAs		(1)
settlements				(2,253,357)		‐		(6,400)		‐		‐		‐		(6,400)
Settlement of RAs (1)				1,386,255		5,800		1,218		‐		(7,905)		‐		(887)
Purchase of common shares for cancellation				(1,672,746)		(15,890)		‐		‐		12,054		‐		(3,836)
Purchase of convertible debentures
for cancellation				‐		‐		‐		(173)		‐		(76)		(249)
Share‐based compensation				‐		‐		‐		‐		8,217		‐		8,217
Tax adjustment on excess value of	RAs		(1)	‐		‐		‐		‐		698		‐		698
Dividends ($0.15 per share)				‐		‐		‐		‐		‐		(17,923)		(17,923)
Loss for the year				‐		‐		‐		‐		‐		(34,340)		(34,340)
As at December 31, 2019				113,657,247	$	1,062,194	$	(5,182)	$	1,556	$	26,429	$	(347,095)	$	737,902
As at January 1, 2020				113,657,247	$	1,062,194	$	(5,182)	$	1,556	$	26,429	$	(347,095)	$	737,902
Issuance of common shares				8,122,000		531		‐		‐		‐		‐		531
Purchase of common shares for RA	(1)
settlements				(679,436)		‐		(1,050)		‐		‐		‐		(1,050)
Settlement of RAs (1)				1,146,394		‐		3,191		‐		(4,069)		‐		(878)
Purchase of common shares for cancellation				(897,500)		(8,526)		‐		‐		6,040		‐		(2,486)
Purchase of convertible debentures
for cancellation				‐		‐		‐		(19)		‐		402		383
Extinguishment of convertible debentures				‐		‐		‐		(975)		975		‐		‐
Maturity of convertible debentures				‐		‐		‐		(562)		562		‐		‐
Issuance of convertible debentures				‐		‐		‐		1,582		‐		‐		1,582
Share‐based compensation				‐		‐		‐		‐		4,263		‐		4,263
Tax adjustment on excess value of	RAs		(1)	‐		‐		‐		‐		(698)		‐		(698)
Dividends ($0.03 per share)				‐		‐		‐		‐		‐		(3,511)		(3,511)
Share issue costs				‐		(30)		‐		‐		‐		‐		(30)
Loss for the year				‐		‐		‐		‐		‐		(363,160)		(363,160)
As at December 31, 2020				121,348,705	$	1,054,169	$	(3,041)	$	1,582	$	33,502	$	(713,364)	$	372,848

(1) Restricted Bonus Awards ("RAs")

The accompanying notes are an integral part of these financial statements.

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STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWS
For the years ended December 31,
(thousands)	Note		2020		2019
Cash provided by (used in)
Operating activities
Loss for the year		$	(363,160)	$	(34,340)
Adjustments for
Share‐based compensation	15		3,745		7,160
Depletion and depreciation	6		67,080		92,082
Impairment	5,6		220,631		23,400
Unrealized loss on commodity contracts	18		6,593		15,695
Unrealized foreign exchange loss (gain)			(23)		23
Other income	11		(4,563)		‐
Deferred tax expense	16		102,878		9,091
Accretion	9,11		8,806		9,458
Finance expense	8		13		‐
Loss (gain) on disposition and other	6,9		1,827		(759)
Decommissioning obligation settled	11		(2,849)		(6,571)
Change in non‐cash working capital	22		2,547		4,740
			43,525		119,979
Investing activities
Exploration and evaluation expenditures	5		(11)		(21)
Property, plant and equipment expenditures	6		(31,495)		(65,489)
Property acquisitions			‐		(396)
Proceeds from property dispositions			‐		242
Change in non‐cash working capital	22		(19,242)		16,838
			(50,748)		(48,826)
Financing activities
Dividends	14		(3,511)		(17,923)
Issuance of secured note, net of issue costs	8		16,204		‐
Issuance of common shares and warrants	12,13		4,061		‐
Repayment of lease liabilities	10		(1,986)		(2,463)
Convertible debentures issue cost	9		(375)		‐
Purchase of common shares for cancellation	13		(2,486)		(3,836)
Purchase of common shares for RAs settlements and withholding tax	13		(1,928)		(7,287)
Purchase of convertible debentures for cancellation	9		(170)		(4,846)
Maturity of convertible debentures	9		(16,244)		‐
Increase (decrease) in bank debt			16,000		(35,328)
Share issue costs	13		(30)		‐
Change in non‐cash working capital	22		(2,312)		530
			7,223		(71,153)
Change in cash and cash equivalents			‐		‐
Cash and cash equivalents, beginning of year			‐		‐
Cash and cash equivalents,end ofyear		$	‐	$	‐

The accompanying notes are an integral part of these financial statements.

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1 REPORTING ENTITY

NOTES TO FINANCIAL STATEMENTS

For the years ended December 31, 2020 and 2019 (Thousands of dollars, except per share amounts or unless otherwise stated)

Cardinal Energy Ltd. ("Cardinal" or the "Company") was incorporated pursuant to the Business Corporations Act (Alberta) on December 21, 2010 and commenced activity on May 30, 2012. The Company's principal business activity is the acquisition, exploration and production of petroleum and natural gas in the provinces of Alberta and Saskatchewan. Cardinal's principal place of business is located at 600, 400 – 3[rd] Avenue SW, Calgary, Alberta, Canada, T2P 4H2.

2 BASIS OF PREPARATION

These financial statements ("financial statements") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. A summary of the significant accounting policies and method of computation is presented in note 3.

The financial statements have been prepared on the historical cost basis. The methods used to measure fair values are discussed in note 4.

The financial statements are presented in Canadian dollars, which is the Company's functional currency. References to “USD” are to United States dollars.

Operating expenses in the statement of loss and comprehensive loss are presented as a combination of function and nature in conformity with industry practice. Depletion and depreciation is presented on a separate line by its nature while general and administrative expense is presented on a functional basis. Significant expenses such as salaries and share‐based compensation are presented by their nature in the notes to the financial statements.

The financial statements were authorized for issue by the Board of Directors on March 16, 2021.

Current Environment and Estimation Uncertainty

In March 2020, the World Health Organization declared a global pandemic due to the rapid outbreak of the coronavirus pandemic ("COVID‐19"). The measures taken in response to the outbreak such as quarantine and travel restrictions led to an unprecedented disruption to the global economy, significantly reduced worldwide demand for crude oil and resulted in a buildup of supply and inventory. The continued uncertainty created by COVID‐19 has had an adverse impact on the global economy and the impact continues to be far‐reaching and uncertain. In the fourth quarter of 2020, vaccines were approved and distribution began. In 2021, distribution continues throughout the world at varying paces and oil and gas commodity prices have continued to strengthen.

Although oil and gas commodity prices stabilized in the second half of 2020, the effect of the COVID‐19 pandemic resulted in a decline in Cardinal’s share price and market capitalization during 2020. The potential risk and impact of COVID‐19 relating to the Company has been taken into consideration in management’s estimates used for the year ended December 31, 2020; however, there could be a further prospective material impact in future periods.

These factors impacted Cardinal's results in 2020. The Company’s exploration and evaluation assets (note 5) and property, plant and equipment (note 6) were both impaired during the year due to a significant decrease in forecasted oil and gas commodity prices and plans. The current environment presents uncertainty and risk with respect to the Company's estimates including forecasted oil and gas commodity prices, the ultimate recovery of the proved and probable oil and gas reserves, exchange rates and interest rates. These estimates are subject to greater variability than normal and actual results may differ from these estimates due to the uncertainty of future events.

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6

Use of Judgements and Key Sources of Estimation Uncertainty

The timely preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the period. These estimates are subject to measurement uncertainty and the effect on the financial statements of changes in these estimates could be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical Judgments

i) Identification of cash generating units (“CGUs”)

Cardinal's assets are aggregated into CGUs for the purpose of calculating impairment. CGU's are based on an assessment of the unit's ability to generate largely independent cash inflows. The determination of these CGUs was based on management's judgment in regards to shared infrastructure, geographical proximity, petroleum type and similar exposure to market risk and materiality.

ii) Impairment of property, plant and equipment

Judgments are required to assess when internal or external indicators of impairment, or indicators of impairment reversal, exist and impairment testing is required. In determining the recoverable amount of PP&E, impairment tests are based on estimates of proved and probable oil and gas reserves and the related cash flows which are based upon a number of significant assumptions, such as forecasted production, forecasted oil and gas commodity prices, forecasted operating costs, forecasted royalty costs and forecasted future development costs. The estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

iii) Exploration and evaluation assets

The application of the Company's accounting policy for E&E requires management to make certain judgments as to future events and circumstances as to whether economic quantities of reserves have been found in assessing economic and technical feasibility.

iv) Deferred income taxes

Judgments are made by management to determine the likelihood of whether deferred income tax assets at the end of the reporting period will be realized from future taxable income. To the extent that assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognized in respect of deferred tax assets as well as the amounts recognized in earnings or loss in the period in which the change occurs.

v) Lease accounting regarding incremental borrowing rate and lease term

The incremental borrowing rates are based on judgments including economic environment, term, currency, and the underlying risk inherent to the asset. The carrying balance of the right‐of‐use assets, lease obligations, and the resulting interest and depletion and depreciation expense, may differ due to changes in the market conditions and lease term. Lease terms are based on assumptions regarding extension terms that allow for operational flexibility and future market conditions.

Key Sources of Estimation Uncertainty

i) Reserve estimates

Estimates of proved and probable oil and gas reserves and the related cash flows are based upon a number of significant assumptions, such as forecasted production, forecasted oil and gas commodity prices, forecasted operating costs, forecasted royalty costs and forecasted future development costs. Cardinal engaged independent third party reserve evaluators to evaluate the Company's estimates of proved and probable oil and gas reserves and the related cash flows at December 31, 2020 and 2019. Reserve adjustments are made annually based on actual volumes produced, the results from capital expenditure programs, revisions to previous estimates, new discoveries and acquisitions and dispositions made during the year.

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7

Proved oil and gas reserves are those forecasted quantities of petroleum and natural gas determined to be economically recoverable under existing economic and operating conditions with a high degree of certainty, of at least 90 percent, that those quantities will be equaled or exceeded. Proved and probable oil and gas reserves are those forecasted quantities of petroleum and natural gas determined to be economically recoverable under existing economic and operating conditions with a moderate degree of certainty, of at least 50 percent, that those quantities will be equaled or exceeded. Cardinal reports production and reserve quantities in accordance with Canadian practices and specifically in accordance with Standards of Disclosures for Oil and Gas Activities ("NI 51‐101").

Cardinal cautions users of this information that the process of estimating proved and probable oil and gas reserves is subject to a level of uncertainty. The proved and probable oil and gas reserves are based on current and forecast economic and operating conditions; therefore, changes can be made to future assessments as a result of a number of factors, which can include forecasted oil and gas commodity prices, new technology, changing economic conditions, future reservoir performance and development activity.

ii) Property, plant and equipment

Development and production assets within PP&E are depleted using the unit of production method based on estimated proved and probable oil and gas reserves determined using a number of significant assumptions, such as forecasted oil and gas commodity prices, forecasted production, forecasted operating costs, forecasted royalty costs and forecasted future development costs. The estimate of proved and probable oil and gas reserves and the related cash flows and the discount rate is part of the depletion calculation and the impairment test.

iii) Business combinations

In a business combination, management makes estimates of the fair value of assets acquired and liabilities assumed which includes assessing the value of petroleum and natural gas properties based upon the estimation of recoverable quantities of proved and probable oil and gas reserves and the related cash flows being acquired.

iv) Decommissioning obligation

Cardinal recognizes a provision for future abandonment activities in the financial statements equal to the net present value of the estimated future expenditures required to settle the estimated future obligation at the balance sheet date. The measurement of the decommissioning obligation involves the use of estimates and assumptions including the discount rate, the expected timing of future expenditures and the amount of future abandonment costs. The estimates were made by management and external consultants considering current costs, technology and enacted legislation.

v) Taxation

The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences, tax losses and other tax credits will reverse to ensure the appropriate estimate of the substantively enacted tax rates at the time of reversal and the likelihood of deferred tax assets being realized.

(vi) Derivatives

The Company's estimate of the fair value of derivative financial instruments is dependent on forecasted for oil and gas commodity prices and the volatility in those prices.

The estimated fair value of the warrant liability, which is considered a financial instrument, uses the Black‐Scholes pricing model incorporating assumptions on volatility, risk‐free interest rate, and the expected term.

(vii) Trade and other receivables

The Company has increased its monitoring of receivables due from petroleum and natural gas marketers and from joint asset partners to manage credit risk. The Company historically has not experienced any collection issues with petroleum and natural gas marketers as a significant portion of these receivables are with creditworthy purchasers. To protect against credit losses from joint asset partners, the Company has the ability to withhold production in the event of non‐payment and the ability to obtain the partners’ share of capital expenditures in

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advance of a project. The Company continues to expect that its receivables are substantially collectible at December 31, 2020.

3 SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently to all periods presented in these financial statements. Certain prior period amounts have been reclassified to conform to current period presentation.

(a) Business combinations

The acquisition method of accounting is used to account for acquisitions of subsidiaries and assets that meet the definition of a business under IFRS. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity to obtain benefits from its activities. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value at the acquisition date, except for deferred income taxes. The excess of the cost of an acquisition over the fair value of the identifiable assets and liabilities acquired is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets acquired, the difference is recognized immediately in earnings or loss. Acquisition costs incurred by the Company are expensed in earnings or loss in the period incurred.

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions with subsidiaries, are eliminated in preparing the financial statements.

(b) Jointly owned assets

Many of the Company's crude oil and natural gas activities involve jointly owned assets. The financial statements include the Company's share of these jointly owned assets and its proportionate share of the relevant revenue and related costs.

(c) Exploration and evaluation assets " E&E " and Property, plant and equipment " PP&E "

i) Recognition and measurement

E&E

Pre‐license costs are expensed in the statement of earnings or loss as incurred. E&E costs including the costs of acquiring licenses are capitalized as E&E. Costs are accumulated in cost centres by well, field or exploration area pending determination of technical feasibility and commercial viability.

E&E are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E are allocated to their related cash generating unit ("CGU").

The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proved and probable oil and gas reserves are determined to exist. A review of each exploration license or field is carried out at least annually to ascertain whether proved and probable oil and gas reserves have been discovered. Upon determination of proved and probable oil and gas reserves, E&E attributable to those proved and probable oil and gas reserves are first tested for impairment and then reclassified from E&E to PP&E or expensed in earnings or loss to the extent of any impairment.

PP&E

Items of PP&E, including development or production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses and are grouped into CGU's for impairment testing. When

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significant parts of an item of PP&E, including petroleum and natural gas interests, have different useful lives, they are accounted for as separate items (major components).

Gains and losses on disposal of an item of PP&E, including petroleum and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of PP&E and are recognized in earnings or loss.

ii) Subsequent costs

Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of PP&E are recognized as petroleum and natural gas interests only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in earnings or loss as incurred. Such capitalized petroleum and natural gas interests generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such reserves, and are accumulated on a field or geotechnical area basis.

iii) Depletion and depreciation

The net carrying value of development or production assets is depleted using the unit of production method by reference to the ratio of production to the related proved and probable oil and gas reserves. Natural gas volumes are converted to equivalent crude oil volumes based upon the relative energy content of six thousand cubic feet of natural gas to one barrel of crude oil. In determining its depletion base, Cardinal includes the forecasted future development costs necessary to develop proved and probable oil and gas reserves. These estimates are reviewed by independent third party reserve evaluators annually.

Depreciation of other assets is recognized in earnings or loss on a straight‐line basis or declining balance over their estimated useful life. Depreciation methods, useful life and residual values are reviewed at each reporting date.

iv) Derecognition

The carrying amount of an item of PP&E is derecognized when no future economic benefits are expected from its use or upon sale to a third party. The gain or loss arising from derecognition is included in earnings or loss and is measured as the difference between the net proceeds, if any, and the carrying amount of the asset.

v) Major maintenance and repairs

Ongoing costs to maintain properties are generally expensed as incurred. The costs of material replacement parts, turnarounds and major inspections are capitalized provided it is probable that future economic benefits in excess of cost will be realized and such benefits are expected to extend beyond the current operating period. The carrying amount of a replaced part is derecognized in accordance with our derecognition policy.

(d) Financial instruments

i) Non‐derivative financial instruments

Non‐derivative financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables, dividends payable, bank debt, secured notes and convertible debentures. Non‐derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through earnings or loss, any directly attributable transaction costs.

Cash and cash equivalents comprise cash on hand and term deposits held with banks with original maturities of three months or less and are classified as and measured at amortized cost.

Other non‐derivative financial instruments, such as trade and other receivables, trade and other payables, dividends payable, bank debt, and secured notes are classified as and measured at amortized cost using the effective interest method, less any impairment losses.

Financial assets and liabilities are offset and the net amount presented on the balance sheet if, and only if, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

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Convertible debentures are separated into liability and equity components. The liability component is recognized initially at the fair value of a similar liability that does not have an equity conversion option and the equity component is recognized as the difference between the fair value of the convertible debenture as a whole and the fair value of the liability component net of any deferred taxes. Any transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of convertible debentures is classified as and measured at amortized cost and is accreted to the original principal balance using the effective interest method. The equity component is not remeasured subsequent to initial recognition. Convertible debentures can be converted to share capital at the option of the holder and the number of shares to be issued does not vary with changes in fair value. The equity component and the accreted liability component will be reclassified to share capital upon conversion. Any balance in the equity component of convertible debentures that remains after the settlement of the liability will be transferred to contributed surplus.

(ii) Derivative financial instruments

The Company enters into certain financial derivative contracts in order to manage the exposure to market risks from fluctuations in commodity prices, power costs, interest rates and the exchange rate between Canadian and United States dollars. These instruments are not used for trading or speculative purposes. The Company has not designated its financial derivative commodity contracts as effective accounting hedges, and thus has not applied hedge accounting, even though the Company considers all financial derivative commodity contracts to be economic hedges.

All financial derivative commodity contracts are classified at fair value through earnings or loss and are recorded on the balance sheet at fair value. Transaction costs are recognized in earnings or loss when incurred.

The Company’s warrant liability is classified as fair value through earnings or loss and is recorded on the balance sheet at fair value. The warrant liability is included in current liabilities with any changes in fair value recognized as re‐measurement of warrant liability in the statement of loss and comprehensive loss.

iii) Share capital

Common shares are classified as shareholders' equity. Incremental costs directly attributable to the issue of common shares, net of any tax effects, are recognized as a deduction from shareholders' equity.

(e) Impairment

i) Financial assets

The Company recognizes loss allowances for expected credit losses ("ECLs") on its financial assets measured at amortized cost. Due to the nature of its financial assets, the Company measures loss allowances at an amount equal to expected lifetime ECLs. Lifetime ECLs are the anticipated ECLs that result from all possible default events over the expected life of a financial asset. ECLs are a probability‐weighted estimate of credit loss and are discounted at the effective interest rate of the related financial asset.

ii) Non‐financial assets

The carrying amounts of the Company's non‐financial assets are reviewed at each reporting date to determine whether there are any internal or external indicators of impairment or impairment reversal. If any such indicator exists, then the recoverable amount is estimated. E&E assets are assessed for impairment when they are reclassified to PP&E as petroleum and natural gas interests, and also if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the CGU). The estimated recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

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Value in use is generally computed by reference to the present value of the proved and probable oil and gas reserves and the related cash flows.

For the purpose of impairment testing, the goodwill acquired in a business combination is allocated to the CGU's that are expected to benefit from the synergies of the combination. E&E are allocated to the related CGU when they are assessed for impairment, both at the time of any triggering facts and circumstances as well as the reclassification to producing assets (petroleum and natural gas interests in PP&E).

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in earnings or loss. Impairment losses recognized in respect of CGU's are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit or group of units on a pro rata basis. Right‐of‐use assets (''ROU") and lease liabilities are re‐measured at each reporting period to reflect any contract modifications or reassessments that impact the remaining cash outflows under the contract.

An impairment loss in respect of PP&E and E&E recognized in prior periods is assessed at each reporting date for any internal or external indicators that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.

(f) Leased assets

The Company recognizes a right‐of‐use asset and a lease liability at the lease commencement date. The ROU asset is initially measured at cost based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the ROU asset or the lease term using the straight‐line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the ROU is periodically reduced by impairment losses, if any, and adjusted for certain re‐measurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. It is re‐measured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company's estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is re‐ measured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in earnings or loss if the carrying amount of the ROU asset has been reduced to zero. Lease payments are applied against the lease obligation, with a portion reflected as interest expense using the effective interest rate method. Cardinal presents the lease liability as its own line item on the balance sheets.

(g) Share‐based compensation

The grant date fair value of options and other dilutive equity instruments granted to employees is recognized as compensation expense, with a corresponding increase in contributed surplus or warrants, over the vesting period. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of instruments that vest.

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(h) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre‐tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are not recognized for future operating losses.

The Company's activities give rise to dismantling, decommissioning and site disturbance remediation activities. Provisions are made for the estimated cost of site restoration and capitalized in the relevant asset category. The decommissioning obligation recognized is the present value of management's best estimate of future expenditures required to settle the obligation using a credit‐adjusted rate. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized as a finance expense in earnings or loss whereas increases or decreases due to changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the decommissioning obligation are charged against the provision to the extent the provision was established.

(i) Revenue

Revenue from the sale of crude oil, natural gas and natural gas liquids is measured based on the consideration specified in contracts with customers and recognizes revenue when it transfers control of the product to the buyer. This is generally at the time the customer obtains legal title to the product and when it is physically transferred to the delivery mechanism agreed with the customer, often pipelines or other transportation methods.

The Company evaluates its arrangements with 3rd parties and partners to determine if the Company acts as the principal or as an agent. In making this evaluation, management considers if the Company obtains control of the product delivered, which is indicated by the Company having the primary responsibility for the delivery of the product, having the ability to establish prices or having inventory risk. If the Company acts in the capacity of an agent rather than as a principal in a transaction, then the revenue is recognized on a net‐basis, only reflecting the fee, if any, realized by the entity from the transaction. Royalty income is recognized as it accrues in accordance with the terms of the overriding royalty agreements. Revenues from processing activities are recognized over time as processing occurs, and generally billed monthly.

(j) Finance income and expenses

Finance expense comprises interest expense on borrowings and lease liabilities, accretion of the discount on decommissioning obligation, other finance expenses and impairment losses recognized on financial assets.

Borrowing costs and interest income are recognized in earnings or loss using the effective interest method.

(k) Government Grants

Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. If a grant is received but compliance with any attached condition is not achieved, the grant is recognized as a deferred liability until such conditions are met and fulfilled. When the grant relates to an income or expense item, it is recognized as a reduction to the related expense in the period in which the income is earned or costs are incurred. When the grant relates to an asset, it is recognized as a reduction to the net book value of the related asset and then subsequently in net earnings or loss over the expected useful life of the related assets through lower charges to impairment and/or depletion, depreciation and amortization. When the grant relates to a liability, it is recognized as a reduction to the liability and recognized in income. During the year ended December 31, 2020, Cardinal received government grants through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) of $4.6 million (2019 – nil). These grants were recognized as a reduction to general and administrative and operating expenses of $1.8 million (2019 – nil) and $2.8 million (2019 – nil), respectively.

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The Company also benefited from the Alberta Governments Site Rehabilitation Program (“SRP”) and Saskatchewan Governments Accelerated Site Closure Program (“ASCP”) resulting in a reduction in the decommissioning obligation liability of $4.6 million (2019 – nil) with the offset being recorded as other income in the statement of loss and comprehensive loss.

(l) Income tax

Income tax expense consists of current and deferred tax. Income tax expense is recognized in earnings or loss except to the extent that it relates to items recognized directly in equity.

Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination and that does not affect either accounting or taxable income or loss. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(m) Flow‐through shares

The resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow‐through share arrangements are renounced to investors in accordance with tax legislation. On issuance, the premium received on the flow‐through shares, being the difference in price over a common share with no tax attributes, is recognized on the balance sheet. As expenditures are incurred, the deferred tax liability associated with the renounced tax deductions is recognized through earnings and loss along with a pro‐rata portion of the deferred premium.

(n) Earnings per share

Basic earnings per share is calculated by dividing the earnings or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the earnings attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as convertible debentures, options, warrants and other dilutive instruments granted to employees. The number of additional shares related to convertible debentures is calculated assuming the debentures are converted into common shares by dividing the face value of convertible debentures by the conversion price. Earnings are adjusted for interest or accretion, net of tax, related to the convertible debentures.

(o) Change in accounting policies

Cardinal adopted amendments to IFRS 3 Business Combinations effective January 1, 2020, which will be applied prospectively to acquisitions that occur on or after January 1, 2020. These amendments did not result in changes to the Company's accounting policies for applying the acquisition method but could result in future acquisitions being

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accounted for as an asset acquisition as opposed to a business combination should the criteria of the optional asset concentration test within these amendments be met.

4 DETERMINATION OF FAIR VALUE

A number of the Company's accounting policies and disclosures require the determination of fair value. Fair value has been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair value is disclosed in the notes specific to that asset or liability.

The Company classifies the fair value of risk management assets and liabilities according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:

Level 1 ‐ Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 ‐ Fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level 3 ‐ Fair value is based on inputs for the asset or liability that are not based on observable market data.

(a) PP&E and E&E

The fair value of PP&E and E&E recognized in a business combination is based on market value. The market value of PP&E and E&E is the estimated amount for which PP&E and E&E could be exchanged on the acquisition date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of petroleum and natural gas interests (included in PP&E and E&E) is estimated with reference to the estimate of proved and probable oil and gas reserves and the related cash flows expected to be derived from petroleum and natural gas production based on reserve reports evaluated by independent third party reserve evaluators. The risk‐adjusted discount rate is specific to the asset with reference to general market conditions.

• (b) Cash and cash equivalents, trade and other receivables, trade and other payables and dividends payable

The fair value of cash and cash equivalents, trade and other receivables, trade and other payables and dividends payable is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. At December 31, 2020 and 2019, the fair value of these balances approximated their carrying value due to their short term to maturity.

(c) Bank debt, secured notes and convertible debentures

The fair value of bank debt approximates its carrying value as it bears a floating rate of interest and the margin charged by the lenders is indicative of current credit spreads. The secured notes bear interest at a fixed rate that the Company would expect to pay for similar financing transactions and accordingly the fair value approximates the carrying value. The convertible debentures bear interest at a fixed rate that the Company would expect to pay for similar financing transactions and accordingly the initial fair value approximated the carrying value. Subsequent to initial recognition, fair value is determined by trading in an active market.

(d) Derivatives

Derivatives are recorded on the balance sheet at fair value at each reporting period with the change in fair value being recognized as an unrealized gain or loss in the statement of earnings or loss. The fair value of forward contracts and swaps is determined by discounting the difference between the contracted prices and published forecasted oil and gas commodity prices as at the balance sheet date, using the remaining contracted volumes and a credit adjusted interest rate. The fair value of options and collars is based on option models that use published information with respect to volatility, prices and interest rates.

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(e) Share‐based compensation

The fair value of warrants and stock options is measured using a Black Scholes or other option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on publicly available information for similar companies), weighted average expected life of the instrument (based on expected general option or holder behaviour), expected dividends, and the risk‐free interest rate (based on government bonds). The fair value of bonus awards is determined on the date of grant based on the value of the Company's common shares.

5 EXPLORATION AND EVALUATION ASSETS

EXPLORATION AND EVALUATION ASSETS
		Exploration and
		Evaluation Assets
As at January 1, 2019	$	251
Additions		21
As at December 31, 2019		272
Additions		11
Impairment		(283)
As at December 31, 2020	$	‐

In 2020, management expensed $0.3 million (2019 – nil) of E&E assets associated with undeveloped land with pending expiries due to no future planned development activities.

6 PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT
	Petroleum and
		natural gas	Right‐of‐use			Corporate
		assets		assets		assets		Total
Cost
As at January 1, 2019	$	1,607,752	$	‐	$	4,080	$	1,611,832
Initial recognition		‐		5,461		‐		5,461
Additions		56,728		1,449		153		58,330
Acquisitions		396		‐		‐		396
Disposition		‐		(732)		‐		(732)
As at December 31, 2019		1,664,876		6,178		4,233		1,675,287
Additions		31,886		469		128		32,483
Changes in decommissioning obligation		(31,473)		‐		‐		(31,473)
Disposition		(1,980)		(33)		‐		(2,013)
As at December 31, 2020	$	1,663,309	$	6,614	$	4,361	$	1,674,284
Accumulated depletion and depreciation
As at January 1, 2019	$	(555,418)	$	‐	$	(1,885)	$	(557,303)
Depletion and depreciation		(89,226)		(2,406)		(450)		(92,082)
Disposition		‐		698		‐		698
Impairment		(23,400)		‐		‐		(23,400)
As at December 31, 2019		(668,044)		(1,708)		(2,335)		(672,087)
Depletion and depreciation		(64,775)		(1,871)		(434)		(67,080)
Disposition		688		33		‐		721
Impairment		(220,348)		‐		‐		(220,348)
As at December 31, 2020	$	(952,479)	$	(3,546)	$	(2,769)	$	(958,794)
Net book value
As at December 31, 2019	$	996,832	$	4,470	$	1,898	$	1,003,200
As at December 31, 2020	$	710,830	$	3,068	$	1,592	$	715,490

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The calculation of depletion for the year ended December 31, 2020 includes estimated future development costs of $219.3 million (December 31, 2019 ‐ $270.3 million) associated with the development of the Company's proved and probable oil and gas reserves.

For the year ended December 31, 2020, Cardinal capitalized $1.0 million of general and administrative expenses (2019 ‐ $1.5 million) and $0.5 million (2019 ‐ $1.1 million) of share‐based compensation.

During the year ended December 31, 2020, the Company disposed of a minor interest in a non‐core area resulting in a loss of $1.2 million.

Impairment and impairment reversal

2020:

As a result of assessments of internal and external indicators of impairment or impairment reversal, the Company performed impairment tests for its CGUs in 2020.

The estimated recoverable value of the Company’s CGUs was estimated as the value in use based on the net present value of before tax cash flows from proved and probable oil and gas reserves discounted between 12% and 20% depending on the reserves composition. The estimated recoverable amount of each CGU involves significant estimates including the estimate of proved and probable oil and gas reserves and the discount rates. The estimate of proved and probable oil and gas reserves includes significant assumptions related to forecasted oil and gas commodity prices, forecasted production, forecasted operating costs, forecasted royalty costs and forecasted future development costs. In determining the appropriate discount rate, Cardinal considered various characteristics and risks of the assets.

Impairment reversal is recognized to the extent that impairment had been previously recorded, but are limited to the net book value that would exist had the original impairment never been recorded, including estimates for depletion.

December 31, 2020

The Company identified an indicator of reversal at December 31, 2020 for all CGUs. At December 31, 2020, Cardinal determined that the estimated recoverable amounts of the Alberta Central, Alberta South, and Alberta North CGUs exceeded the carrying amounts of $116.7 million, $90.7 million, and $222.9 million, respectively. Accordingly, an aggregate non‐cash impairment reversal of $122.7 million was recorded. The impairment reversal was the result of a partial recovery of the forecasted oil and gas commodity prices, increased economic stability, and certainty in the oil and gas industry. The estimated recoverable amounts were based on proved and probable oil and gas reserves as evaluated by the Company’s independent third party reserve evaluators as at December 31, 2020.

The following table outlines forecasted oil and gas commodity prices and exchange rates used in the Company's impairment test at December 31, 2020. The forecasted oil and gas commodity prices are based on the average used by three independent third party reserve evaluators at December 31, 2020 and are a significant assumption in assessing the estimated recoverable amount.

		WTI		WCS		AECO	Exchange rate
		(USD $/bbl)(1)		**(CAD $/bbl)(1) **	(CAD	$/mmbtu)(1)	(US/CAD)
2021	$	47.17	$	44.63	$	2.78	0.77
2022	$	50.17	$	48.18	$	2.70	0.77
2023	$	53.17	$	52.10	$	2.61	0.76
2024	$	54.97	$	54.10	$	2.65	0.76
2025	$	56.07	$	55.19	$	2.70	0.76
Thereafter (inflation percentage and
exchange rate)		2.0%		2.0%		2.0%	0.76

(1) Three Consultants’ average, GLJ Ltd., McDaniel & Associates Consultants, and Sproule Associates price forecasts, effective December 31, 2020.

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A one percent change in the discount rate or a five percent change in the forecasted oil and gas commodity prices over the life of the reserves would result in changes in impairment of $2.8 million and $57.6 million, respectively.

March 31, 2020

The Company identified an indicator of impairment at March 31, 2020 for all CGUs. At March 31, 2020, Cardinal determined that the carrying amounts of the Alberta Central, Alberta South, and Alberta North CGUs exceeded the estimated recoverable amounts of $131.4 million, $103.4 million, and $250.4 million, respectively. Accordingly, an aggregate non‐cash impairment loss of $343.0 million was recorded. The impairment recognized was the result of a significant decline in forecasted oil and gas commodity prices due to oil demand issues caused by COVID‐19. The estimated recoverable amounts were based on proved and probable oil and gas reserves as evaluated by the Company’s independent third party reserve evaluators as at December 31, 2019 and updated by internal reserve evaluators to March 31, 2020.

The following table outlines forecasted oil and gas commodity prices and exchange rates used in the Company's impairment test at March 31, 2020. The forecasted oil and gas commodity prices are based on the average used by three independent third party reserve evaluators at March 31, 2020 and are a significant assumption in assessing the estimated recoverable amount.

		WTI		WCS		AECO	Exchange rate
		(USD $/bbl)(2)		**(CAD $/bbl)(2) **	(CAD	$/mmbtu)(2)	(US/CAD)
2020	$	29.17	$	19.21	$	1.74	0.71
2021	$	40.45	$	34.65	$	2.20	0.73
2022	$	49.17	$	46.34	$	2.38	0.75
2023	$	53.28	$	51.24	$	2.45	0.75
2024	$	55.66	$	54.28	$	2.53	0.75
Thereafter (inflation percentage and
exchange rate)		2.0%		2.0%		2.0%	0.75

(2) Three Consultants’ average, GLJ Ltd., McDaniel & Associates Consultants, and Sproule Associates price forecasts, effective March 31, 2020.

As a result, the Company has recorded an aggregate non‐cash impairment loss of $220.3 million related to the CGUs for the year ended December 31, 2020.

The independent third party reserve evaluators also assess many other financial assumptions regarding forecasted production, forecasted royalty costs, forecasted operating costs and forecasted future development costs along with several other non‐financial assumptions that affect reserve volumes. Management considered these assumptions for the impairment tests in 2020, however, it should be noted that all estimates are subject to uncertainty.

2019:

At December 31, 2019 Cardinal determined that the carrying value of the Alberta Central CGU exceeded the estimated recoverable amount and recorded an impairment loss of $23.4 million. The impairment loss recognized was the result of lower forecasted oil and gas commodity prices and higher forecasted costs within the Company’s Alberta Central CGU. The estimated recoverable amount of Cardinal’s impaired CGU at December 31, 2019 was $299.6 million. The Company did not identify any further indicators of impairment or impairment reversals for its other CGUs.

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7 BANK DEBT

The Company’s reserves‐based revolving credit facility of $225 million is comprised of a $205 million syndicated term credit facility and a $20 million non‐syndicated operating line credit facility (the "Facilities"). The Facilities are available on a revolving basis until May 31, 2021 and may be extended for a further 364 day period, subject to approval by the syndicate. If not extended, the Facilities will cease to revolve, the applicable margins will increase by 0.5% and all outstanding advances will be repayable on May 31, 2022. On a redetermination date, lenders could reduce the borrowing base to below amounts drawn, in which case, any short fall would have to be repaid within 30 days.

The available lending limits of the Facilities are reviewed semi‐annually based on the syndicate's interpretation of the Company's reserves, future commodity prices and costs. As the available lending limit of the Facilities is based on the syndicate's interpretation of the Company's reserves and future commodity prices and costs, there can be no assurance that the amount of the Facilities will not decrease at the next scheduled review. The next scheduled review date will be on or before May 31, 2021.

Advances under the Facilities are available by way of either prime rate loans, which bear interest at the banks' prime lending rate plus 2.0 to 5.5%, and bankers' acceptances, which are subject to fees and margins ranging from 3.0 to 6.5%. Interest and standby fees on the undrawn amounts of the Facilities depend upon certain ratios. The Facilities are secured by a general security agreement over all of the Company's assets. There are no financial covenants related to the Facilities, provided that Cardinal is not in default of the terms of the Facilities.

Letters of credit for $1.6 million were outstanding at December 31, 2020 (2019 – $1.6 million) that reduced the amount otherwise available to be drawn on the operating line credit facility.

Cardinal was in compliance with the terms of the Facilities at December 31, 2020. For the year ended December 31, 2020 the effective interest rate on the Company's bank debt was 4.3% (2019 – 4.4%).

At December 31, 2019, the Company had LIBOR loans outstanding of USD $130 million. In conjunction with the draws of US dollar denominated loans, the Company enters into foreign exchanges swaps to fully mitigate the exposure to movements in the exchange rate and reduce borrowing costs. As such the balance outstanding at December 31, 2019 consisted of a LIBOR loan totalling $169 million (USD ‐ $130 million) and a Canadian loan of $4.2 million.

8 SECURED NOTES

SECURED NOTES
		Secured
		notes
As at January 1, 2020	$	‐
Issued		16,204
Interest		13
As at December 31, 2020	$	16,217

On December 30, 2020, Cardinal entered into a subscription agreements for a non‐brokered private placement (“Private Placement”) of $16.9 million principal amount of second lien secured notes (“Secured Notes”) issued at a 4% discount for net proceeds of $16.2 million (issue costs ‐ $0.04 million). As part of the offering, each subscriber was also required to subscribe for a pro rata number of units (“Units”) totaling 8,122,000 Units, at a subscription price of $0.50 per Unit for net proceeds of $4.0 million (see note 12).

The Secured Notes bears interest at 12% per annum with an effective interest rate of 14.6%, with interest compounded and accrued semi‐annually and added to the principal amount outstanding, payable on maturity. The Secured Notes mature on June 30, 2022, and contains an extension provision, exercisable by either Cardinal or the holders on 30 days’ prior written notice, to extend the maturity date to November 30, 2022.

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9 CONVERTIBLE DEBENTURES

CONVERTIBLE DEBENTURES
	Number of
	convertible		Liability		Equity
5.5% Convertible debentures	debentures		component		component
As at January 1, 2019	50,000	$	48,146	$	1,729
Purchase of convertible debentures for cancellation	(5,000)		(4,823)		(173)
Accretion	‐		835		‐
As at December 31, 2019	45,000	$	44,158	$	1,556
Purchase of convertible debentures for cancellation	(549)		(541)		(19)
Debentures exchanged	(28,207)		(27,991)		(975)
Accretion	‐		618		‐
Maturity of convertible debentures	(16,244)		(16,244)		(562)
As at December 31, 2020	‐	$	‐	$	‐
8.0% Convertible debentures
As at January 1, 2020	‐	$	‐	$	‐
Issuance	28,207		26,625		1,582
Accretion	‐		261		‐
Balance at December 31, 2020	28,207	$	26,886	$	1,582

On June 19, 2020, Cardinal received approval for certain amendments to the existing 5.5% subordinated unsecured convertible debentures (“5.5% debentures”), with a conversion price of $10.50, that were maturing December 31, 2020. As a result, all debenture holders had the right to exchange their debentures for a new series of 8% convertible debentures. On August 5, 2020, $28.2 million aggregated principal amount of the 5.5% convertible debentures were exchanged for an equal aggregate principal amount of 8% subordinated unsecured convertible debenture (“8% debentures”) with interest payable in equal instalments semi‐annually, in arrears, on June 30 and December 31 of each year, with a conversion price of $1.25 per share, and a maturity date of December 31, 2022. The 8.0% convertible debentures were not redeemable by Cardinal prior to December 31, 2020. All of the outstanding 5.5% debentures matured on December 31, 2020 and were repaid in full in cash of $16.2 million. The 8% debentures are convertible at the option of the holder and repayable by the Company in cash or common shares at the Company’s discretion. See subsequent event note 24.

The 5.5% debentures were classified as a liability, net of issue costs and net of the fair value of the conversion feature at the date of issue which was classified within shareholders' equity. The 8% debentures have been classified as a liability and net of the fair value of the conversion feature at the date of issue which has been classified as shareholders' equity. The liability component will accrete up to the principal balance at maturity. The accretion of the liability component and interest payable are expensed on the statements of loss and comprehensive loss. If any of the convertible debentures are converted to common shares, a portion of the value of the conversion feature included in shareholders' equity and the liability component will be reclassified to shareholders' equity.

The normal course issuer bid (“NCIB”) previously announced in 2018 and renewed in 2019 expired on December 18, 2020. For the year ended December 31, 2020, the Company repurchased and cancelled $0.5 million (2019 ‐ $5.0 million) of the 5.5% debentures under the NCIB at an average rate of $31.072 (2019 – $96.9314) per $100 of face value, for a loss of $0.01 million (2019 – gain of $0.2 million).

For the year ended December 31, 2020 Cardinal recognized $2.7 million of interest (2019 ‐ $2.5 million) and $0.9 million of accretion (2019 ‐ $0.8 million) related to the convertible debentures. At December 31, 2020, the fair value of the 8% convertible debentures was $25.7 million. The Company recognized the amendment as an extinguishment of a portion of the 5.5% debentures resulting in a loss on modification of $0.2 million.

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10 LEASE LIABILITIES

LEASE LIABILITIES
		2020		2019
As at January 1,	$	5,431	$	6,478
Additions		469		1,449
Dispositions		‐		(33)
Finance cost		306		372
Lease payments		(2,292)		(2,835)
As at December 31,	$	3,914	$	5,431

At December 31, 2020, the Company had future commitments relating to lease liabilities as follows:

As at December 31,		2020		2019
Less than 1 year	$	1,877	$	2,137
1 ‐ 3 years		2,351		2,858
4‐5 years		9		1,020
Total undiscounted future lease payments		4,237		6,015
Amounts representing interest		(323)		(584)
Present value of net lease payments		3,914		5,431
Less current portion of lease liabilitles		(1,687)		(1,850)
Non‐currentportion of lease liabilities	$	2,227	$	3,581

The Company has lease liabilities for contracts related to office space, vehicles, and office equipment. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Discount rates during the year ended December 31, 2020 were between 6% and 8% (2019 – between 6% and 8%), depending on the duration of the lease term.

11 DECOMMISSIONING OBLIGATION

DECOMMISSIONING OBLIGATION
		2020		2019
As at January 1,	$	113,812	$	121,672
Liabilities incurred		131		372
Liabilities acquired		‐		‐
Liabilities disposed		(67)		(235)
Change in estimates		(31,604)		(10,049)
Government subsidy for decommissioning expenditures		(4,563)		‐
Decommissioning expenditures		(2,849)		(6,571)
Accretion		7,927		8,623
As at December 31,	$	82,787	$	113,812

The Company's decommissioning obligation results from its ownership interest in crude oil and natural gas assets including well sites, and facilities. At December 31, 2020, the total estimated amount to settle Cardinal's decommissioning obligation was $331 million (December 31, 2019 ‐ $336 million) on an uninflated and undiscounted basis and $440 million (December 31, 2019 ‐ $629 million) on an inflated and undiscounted basis.

The decommissioning obligation was determined by applying an inflation factor of 1.0% (2019 – 2.0%) and discounting the inflated amount using Cardinal's credit‐adjusted rate of 9.0% (2019 – 7.0%) over the expected useful life of the underlying assets of 20 to 50 years (2019 – 20 to 50 years). The $36.2 million (2019 ‐ $10.0 million) change in estimates for the year ended December 31, 2020 is a result of change in inflation rate, credit‐adjusted rate, estimated future abandonment costs, and change in timing of work expected to be completed.

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12 WARRANT LIABILITY

On December 30, 2020, as part of the Private Placement, Cardinal issued 8,122,000 Units consisting of one common share and one warrant at $0.50 per unit for net proceeds of $4.0 million. The warrants are exercisable at $0.55 per warrant for one common share. The warrants vest six months subsequent to the issuance date and have been classified as a current liability and expire on December 30, 2023. The warrants issued were classified as a financial liability as a result of a cashless exercise provision. In no event will Cardinal be required to settle the warrants through a cash payment.

The fair value of the warrants on the date of issuance and December 31, 2020 was determined using the Black‐ Scholes pricing model with the following inputs:

Share Price	$	0.83
Risk‐free interest rate		0.25%
Expected life (years)		3
Expected volatility		60%

13 SHARE CAPITAL

At December 31, 2020, the Company was authorized to issue an unlimited number of common voting shares without nominal or par value. Holders of common shares are entitled to one vote per share.

On December 30, 2020, as part of the Private Placement, Cardinal issued 8,122,000 Units consisting of one common share and one warrant at $0.50 per unit for net proceeds of $4.0 million (issue cost ‐ $0.03 million).

NCIB

On July 30, 2019, the Company announced that the Toronto Stock Exchange (“TSX”) had accepted the Company’s intention to commence an NCIB. Pursuant to the NCIB, the Company is permitted to purchase up to 11,128,148 common shares representing approximately 10% of its public float as of July 23, 2019 between August 2, 2019 and August 2, 2020. During the year ended December 31, 2020, the Company repurchased and cancelled 897,500 common shares (2019 – 1,672,746) at an average price of $2.77 per common share (2019 ‐ $2.29), for a total cost of $2.5 million (2019 ‐ $3.8 million). Share capital was reduced by the average carrying value of the shares repurchased with the difference between carrying value and purchase cost, including commissions and fees, being included in contributed surplus. The NCIB expired in August 2020.

Treasury Shares

RAs may be settled in cash, common shares issued from treasury or common shares acquired by an independent trustee in the open market for such purposes. During the year ended December 31, 2020, the trustee purchased 679,436 common shares (2019 – 2,253,357) for $1.0 million (2019 ‐ $6.4 million) for the potential settlement of future vesting Restricted Awards (“RAs”) and Performance Awards (“PAs”).

In 2020, the Company utilized 1,146,394 (2019 – 437,275) treasury shares to settle vesting RAs. As at December 31, 2020, 1,349,124 (December 31, 2019 – 1,816,082) common shares remained classified as treasury shares to be potentially used for future settlements.

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Loss per share

For the years ended December 31,		2020		2019
Loss	$	(363,160)	$	(34,340)
Loss per share
‐ Basic and diluted	$	(3.20)	$	(0.30)
Weighted average number of common shares
‐ Basic and diluted		113,414,802		115,314,709

The weighted average number of common shares is adjusted for shares purchased and cancelled and treasury shares purchased and held by the trustee.

For the year ended December 31, 2020, 3,992,659 RAs (2019 – 4,613,495), 846,369 PAs (2019 – nil), 22,565,600 ($28.2 million at $1.25) convertible debentures (2019 – 4,285,714) and 8,122,000 warrants (2019 – nil) were excluded from the calculation of diluted loss per share as their effect was anti‐dilutive.

14 DIVIDENDS

In March 2020, the Company announced a suspension of its dividend program. During the year ended December 31, 2020, $3.5 million (2019 ‐ $17.9 million) of dividends ($0.03 per common share) (2019 ‐ $0.15 per common share) were declared.

15 SHARE‐BASED COMPENSATION

The maximum number of common shares issuable under the Company's bonus award plan, in aggregate, cannot exceed five percent of the outstanding common shares. The Company's common shares traded at a weighted average share price of $0.94 (2019 ‐ $2.47) during the year ended December 31, 2020.

Bonus Awards

The Company has a bonus award plan whereby RAs and PAs may be granted to directors, officers, employees and other service providers. Awards granted according to the plan vest equally over three years from the date of grant and expire on December 15[th] of the third year following the year in which the award was granted. In the case of PAs, the award value is adjusted for a payout multiplier which can range from 0.0 to 1.5 and is dependent on the performance of the Company relative to pre‐defined corporate performance measures for a particular period. Awards are adjusted for dividends declared, either with a cash payment or incremental common shares, and are to be settled with either cash, common shares or a combination thereof at the Company's discretion.

	Number of PAs	Number of RAs
As at January 1, 2019	‐	3,444,409
Granted	‐	2,860,780
Settled	‐	(1,746,064)
Adjustment for dividends declared	‐	180,909
Forfeited	‐	(126,539)
As at December 31, 2019	‐	4,613,495
Granted	846,369	1,732,385
Settled	‐	(2,089,340)
Adjustment for dividends declared	‐	45,610
Forfeited / Expired	‐	(309,491)
As at December 31, 2020	846,369	3,992,659

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For the year ended December 31, 2020 the Company settled 2,089,340 (2019 – 1,746,064) RAs by issuing nil (2019 – 948,980) common shares, 1,146,394 (2019 – 437,275) treasury shares and a payment of $0.9 million (2019 – $0.9 million) for withholding tax in exchange for the remaining balance of 942,946 RAs (2019 – 359,809). There were no PAs settled in 2020.

The fair value of the granted awards was determined based on the value of the Company's common shares at the grant date. The weighted average market price of the Company's common shares used to value the RAs and PAs granted was $0.48 (2019 ‐ $2.45) and $0.43 (2019 – N/A), respectively.

Share‐based Compensation

Share‐based compensation for the year ended December 31, 2020 of $3.7 million (2019 ‐ $7.2 million) was expensed and $0.5 million (2019 ‐ $1.1 million) was capitalized.

16 DEFERRED TAX

During the year ended December 31, 2020, the Alberta government accelerated their previously announced corporate tax rate reduction to 8% effective July 1, 2020. Cardinal’s deferred tax asset was derecognized as there is not sufficient certainty the tax asset can be utilized given the current environment which resulted in a deferred tax expense of $102.9 million (2019 – $9.1 million) for the year ended December 31, 2020. Management considered many assumptions in this analysis, however, it should be noted that all estimates are subject to uncertainty.

Reconciliation of effective tax reduction:

For the years ended December 31,		2020		2019
Loss before deferred tax	$	(260,282)	$	(25,249)
Expected tax rate		25.4%		26.6%
Expected deferred tax recovery		(66,112)		(6,716)
Non‐taxable gain		‐		(202)
Flow‐through shares, net		‐		310
Change in unrecognized tax benefits		164,906		(3,238)
Change in statutory tax rates and other		4,084		18,937
Deferred tax expense	$	102,878	$	9,091

The following tables provide a continuity of the deferred tax asset (liability):

		As at									As at
		January 1,		Recognized						December 31,
		2019		in income			Equity		Other(1)		2019
PP&E and E&E	$	(50,934)	$		855	$	‐	$	(391)	$	(50,470)
Non‐capital losses		132,083			(7,699)		‐		‐		124,384
Decommissioning obligation		32,851			(5,742)		‐		‐		27,109
Share issue costs		1,849			(838)		‐		‐		1,011
Deductible restricted bonus awards		926			(1,332)		698		‐		292
Convertible debentures		(501)			300		‐		‐		(201)
Lease liabilities		‐			1,294		‐		‐		1,294
Debt issue costs and other		238			(160)		‐		‐		78
Unrealized (gain) loss on commodity contracts		(4,152)			4,228		‐		‐		76
Unrealized (gain) loss on foreign exchange		‐			3		‐		‐		3
Total	$	112,360	$		(9,091)	$	698	$	(391)	$	103,576

1) Premium reversal of the flow‐through shares.

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		As at							As at	As at
		January 1,		Recognized					December	31,
		2020		in income		Equity		Other	2020
PP&E and E&E	$	(50,470)	$	50,470	$	‐	$	‐	$	‐
Non‐capital losses		124,384		(124,069)		‐		‐	315
Decommissioning obligation		27,109		(27,109)		‐		‐		‐
Share issue costs		1,011		(1,011)		‐		‐		‐
Deductible restricted bonus awards		292		406		(698)		‐		‐
Convertible debentures		(201)		(114)		‐		‐	(315)
Lease liabilities		1,294		(1,294)		‐		‐		‐
Debt issue costs and other		78		(78)		‐		‐		‐
Unrealized (gain) loss on commodity contracts		76		(76)		‐		‐		‐
Unrealized (gain) loss on foreign exchange		3		(3)		‐		‐		‐
Total	$	103,576	$	(102,878)	$	(698)	$	‐	$	‐

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

For the years ended December 31,		2020		2019
PP&E and E&E	$	82,155	$	101,900
Decommissioning obligation		82,787		‐
Share issue costs		1,816		‐
Deductible restricted bonus awards		2,864		‐
Lease liabilities		3,914		‐
Debt issue cost and other		381		‐
Unrealized (gain) loss on commodity contracts		6,909		‐
Non capital losses		609,996
	$	790,822	$	101,900

The approximate amount of tax pools available to Cardinal as at December 31, 2020 is $1.4 billion (2019 ‐ $1.4 billion). The estimate of tax pools includes non‐capital losses ("NCLs") of approximately $611.3 million (2019 ‐ $522.2 million) that can be used to offset taxable income in future periods which expire between 2030 and 2040.

During the year ended December, 31, 2020, Cardinal received a proposal letter from the Canada Revenue Agency (“CRA”) wherein the CRA stated that it proposed to reduce certain non‐capital loss tax pools of approximately $192 million carried forward in the tax return filed for the year ended December 31, 2015. Cardinal disagrees with their position and firmly believes it will be successful in defending its position. Prior to the proposal letter, Cardinal had derecognized these tax assets and therefore no related deferred tax asset is recognized in the financial statements as at December 31, 2020.

17 REVENUE

Cardinal sells its production pursuant to variable‐priced contracts. The transaction price for variable priced contracts is based on the commodity price, adjusted for quality, location or other factors, whereby each component of the pricing formula can be either fixed or variable, depending on the contract terms. Commodity prices are based on market indices that are determined on a monthly or daily basis. Under its contracts, the Company is required to deliver fixed or variable volumes of crude oil, natural gas and natural gas liquids to the contract counterparty. The amount of revenue recognized is based on the agreed transaction price, whereby any variability in revenue relates specifically to the Company’s efforts to transfer production, and therefore the resulting revenue is allocated to the production delivered in the period during which the variability occurs. As a result, none of the variable consideration is considered constrained.

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Crude oil, natural gas, and natural gas liquids are sold under contracts of varying price and volume terms of up to one year. Revenues are typically collected on the 25th day of the month following production.

The following table details the Company’s petroleum and natural gas sales by product, and processing and other revenue generated by processing third party volume at facilities where the Company has an ownership interest:

For the years ended December 31,		2020		2019
Crude oil	$	208,802	$	373,942
NGL		5,988		6,012
Natural gas		8,441		9,017
Petroleum and natural gas revenue		223,231		388,971
Processing and other revenue		3,224		2,630

Included in accounts receivable at December 31, 2020 is $24.0 million (December 31, 2019 ‐ $30.8 million) of accrued petroleum and natural gas revenue.

18 FINANCIAL RISK MANAGEMENT

Cardinal's financial assets and liabilities consist of trade and other receivables, trade and other payables, risk management assets and liabilities, dividends payable, bank debt, secured notes, convertible debentures, and warrant liability. Risk management assets and liabilities arise from the use of derivative financial instruments.

The Company classifies fair value according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:

Level 1 ‐ Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 ‐ Fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level 3 ‐ Fair value is based on inputs for the asset or liability that are not based on observable market data.

Derivatives are recorded on the balance sheet at fair value at each reporting period with the change in fair value being recognized as an unrealized gain or loss in the statement of loss. The fair value of forward contracts and swaps is determined by discounting the difference between the contracted prices and published forward price curves as at the balance sheet date, using the remaining contracted volumes and a credit adjusted interest rate. The fair value of options and collars is based on option models that use published information with respect to volatility, prices and interest rates.

The Company does not apply hedge accounting for these contracts. The Company's production is usually sold using "spot" or near term contracts, with prices fixed at the time of transfer of custody or on the basis of a monthly average market price. However, the Company may give consideration in certain circumstances to the appropriateness of entering into long term, fixed price marketing contracts. The Company does not enter into commodity contracts other than to meet the Company’s expected sale requirements.

As at December 31, 2020 and 2019, the only assets or liabilities measured at fair value were the fair value of financial instruments which are classified as level 2, bank debt which is classified as level 2, secured notes which are classified as level 2, convertible debentures which are classified as Level 1, and warrant liability which is classified as Level 2.

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Carrying amount and fair value of financial assets and liabilities

Trade and other receivables are classified as financial assets at amortized cost and are reported at amortized cost. Trade and other payables, dividends payable, liability component of the convertible debentures, secured notes, and bank debt are classified as financial liabilities at amortized cost and are reported at amortized cost. The fair values of trade and other receivables, trade and other payables and dividends payable approximate their carrying amount due to the short‐term maturity of these instruments. The fair value of bank debt approximates the carrying amount due to the floating rate of interest and the margin charged by the syndicate is indicative of current credit spreads. The fair value of convertible debentures was determined based on the trading value on the Toronto Stock Exchange at the reporting date. The fair values of secured notes fluctuates in response to changes in the market rates of interest payable on similar instruments and credit changes. At December 31, 2020, the carrying value of the secured notes approximated fair value.

Risk management

Cardinal is exposed to normal market risks inherent in the oil and natural gas business, including, but not limited to, commodity price risk, foreign currency rate risk, credit risk, liquidity risk and interest rate risk. The Company seeks to mitigate these risks through various business processes and management controls and from time to time by using various derivative financial instruments and physical delivery sales contracts.

Commodity price risk

The Company is exposed to commodity price risk on petroleum and natural gas sales. Commodity prices for crude oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar, but also by world economic events that dictate the levels of supply and demand.

At December 31, 2020 Cardinal had the following commodity financial derivative contracts outstanding:

Type of instrument Remaining term Average quantity Average strike price	Fair value
CDN WTI Swap January 1, 2021 ‐ January 31, 2021 1,000 bbl/d 43.80 $ CDN WTI Swap January 1, 2021 ‐ March 31, 2021 1,500 bbl/d 58.07 $ CDN WTI Swap January 1, 2021 ‐ June 30, 2021 1,500 bbl/d 58.20 $ CDN WTI Swap January 1, 2021 ‐ September 30, 2021 1,000 bbl/d 59.00 $ CDN WTI Swap January 1, 2021 ‐ December 31, 2021 1,500 bbl/d 55.83 $ CDN WTI Swap April 1, 2021 ‐ June 30, 2021 500 bbl/d 58.55 $ USD WTI Swap January 1, 2021 ‐ March 31, 2021 1,000 bbl/d USD 42.30 $ USD WTI Swap January 1, 2021 ‐ June 30, 2021 1,000 bbl/d USD 42.80 $ CDN WTI Collar January 1, 2021 ‐ March 31, 2021 1,000 bbl/d 50.00 $ 60.20 $ CDN WTI Collar January 1, 2021 ‐ June 30, 2021 500 bbl/d 50.00 $ 65.00 $ CDN WCS Basis Swap January 1, 2021 ‐ June 30, 2021 1,500 bbl/d (16.42) $ USD WCS Basis Swap January 1, 2021 ‐ June 30, 2021 500 bbl/d USD (12.20) $ AECO Swap January 1, 2021 ‐ June 30, 2021 11,000 gj/d 2.40 $ AECO Swap July 1, 2021 ‐ December 31, 2021 11,000 gj/d 2.64 $	(558) (513) (991) (721) (3,025) (148) (729) (1,345) (282) (102) 541 245 200 519
	(6,909)

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The following table provides a reconciliation of the change in fair value of financial instruments:

	Fair value of financial	Fair value of financial
		instruments
As at January 1, 2019		15,379
Unrealized loss on commodity contracts		(15,695)
Unrealized loss on foreign exchange		(2,830)
As at December 31, 2019		(3,146)
Unrealized loss on commodity contracts		(6,593)
Unrealized gain on foreign exchange		2,830
As at December 31, 2020		(6,909)

Cardinal limits its credit risk by executing counterparty risk procedures which include transacting only with members of the syndicate for our credit facilities or institutions with high credit ratings and by obtaining financial security in certain circumstances. Based on December 31, 2020 commodity prices, a $1 per barrel change in the price of crude oil would have changed the unrealized loss by $2.3 million (2019 – $0.8 million) and a $0.10 per gigajoule change in the price of natural gas would have changed the unrealized loss by $0.4 million (2019 – $0.1 million).

Currency risk

Prices for oil are determined in global markets and are generally denominated in United States dollars. Natural gas prices obtained by the Company are predominantly influenced by North American supply and demand. The exchange rate effect is not quantified but generally a decrease in the value of the $CAD as compared to the $USD will increase the prices received by the Company for its petroleum and natural gas revenue.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Cardinal's receivables from petroleum and natural gas marketers, who comprised approximately 81% of the balance at December 31, 2020 (2019 – 77%), and joint venture partners. As at December 31, 2020, the Company's trade and other receivables balance was $29.3 million (December 31, 2019 ‐ $39.7 million) and $1.0 million (December 31, 2019 ‐ $1.9 million) was outstanding for greater than 90 days.

Receivables from petroleum and natural gas marketers are normally collected on the 25th day of the month following production and Cardinal has not experienced any material collection issues with its petroleum and natural gas marketers. Three of Cardinal’s external marketers comprised 92% of the revenue received for the year ended December 31, 2020 (2019 – 91%).

Cash and cash equivalents consist of cash bank balances and short‐term deposits maturing in less than 90 days. The carrying amount of cash and cash equivalents, when outstanding, fair value of financial instruments assets, and trade and other receivables represent the maximum credit exposure.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The financial liabilities on the balance sheet consist of trade and other payables, fair value of financial instruments, bank debt, secured notes, warrant liability, and convertible debentures. Trade and other payables are considered due within one year. The fair value of financial instruments, bank debt (see note 7), convertible debentures (see note 9), and secured notes (see note 8) are considered due between one and two years. The Company anticipates it will continue to have adequate liquidity to fund its financial liabilities. The Company has had no defaults or breaches on its financial liabilities.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The interest charged on outstanding bank debt fluctuates with the interest rates posted by the lender. Had the interest rate been 25 basis points higher (or lower) throughout the year ended December 31, 2020, earnings before tax

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would have been affected by approximately $0.5 million (2019 ‐ $0.5 million) based on the average bank debt outstanding.

19 CAPITAL MANAGEMENT

The Company's capital structure includes shareholders' equity, bank debt, secured notes, convertible debentures, the unused portion of its credit facilities and adjusted working capital (working capital excluding the warrant liability, fair value of financial instruments, current decommissioning obligation, and current lease liabilities).

	As at	As at
	December 31,	December 31,
	2020	2019
Shareholders' equity	376,378	737,902
Bank debt	192,115	173,308
Secured notes	16,217	‐
Convertible debentures (liability and equity component)	28,468	45,714
Undrawn component of bank credit facility	31,251	150,058
Adjusted workingcapital deficiency	10,284	29,291

Cardinal manages its capital to provide a flexible structure to support production maintenance, capital programs, and other operational strategies. Maintaining a strong financial position enables the capture of business opportunities and supports Cardinal's strategy of providing shareholder return through growth of the business, dividend payments, and common share repurchases.

The key measures that the Company utilizes in evaluating its capital structure are the credit available from the syndicate in relation to the Company's budgeted capital expenditures program and the ratio of net debt to adjusted funds flow. This ratio is calculated as net debt, defined as bank debt plus secured notes plus the principal amount of convertible debentures plus adjusted working capital deficiency (adjusted for the warranty liability, fair value of financial instruments, the current portion of the decommissioning obligation, current lease liabilities), divided by adjusted funds flow calculated as cash flow from operating activities before changes in non‐cash working capital, decommissioning obligation expenditures, and transaction costs for the prior 12 month period. Net debt and adjusted funds flow are non‐GAAP measures.

In order to manage its capital structure, Cardinal considers its net debt to adjusted funds flow ratio, its capital expenditures program, the current level of credit available from the syndicate, the level of credit that may be attainable due to increases in petroleum and natural gas reserves and new common equity if available on favorable terms. The Company prepares an annual capital expenditure budget, which is monitored quarterly and updated as necessary.

Cardinal's ratio of net debt to adjusted funds flow as at December 31, 2020 was 5.6 to 1, higher than the ratio at December 31, 2019 of 2.0 to 1 due to lower adjusted funds flow from reduced oil prices. Due to the significant oil demand reduction and the effect on oil prices due to COVID‐19, Cardinal expects this ratio will be above its targeted level of 2.0 to 1 until oil supply and demand balances and the impacts of the COVID‐19 pandemic stabilize. The Company will continue to monitor this ratio to endeavor to keep it within the targeted range.

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		Years	ended
	December	31, 2020	December	31, 2019
Bank debt	$	192,115	$	173,308
Secured note		16,217		‐
Principal amount of Convertible Debentures		28,207		45,000
Adjusted working capital deficiency		10,284		29,291
Net debt	$	246,823	$	247,599
Cash provided from operating activities	$	43,525	$	119,979
Change in non‐cash working capital		(2,547)		(4,740)
Funds flow	$	40,978	$	115,239
Decommissioning obligation expenditures		2,849		6,571
Transaction costs		‐		‐
Adjusted funds flow		43,827		121,810
Net debt to adjusted funds flow		5.6		2.0

20 CONTRACTUAL OBLIGATIONS

As at December 31, 2020, the Company had contractual obligations as follows:

		2021		2022	2023	2024	2025	Thereafter
Trade and other payables		42,421		‐	‐	‐	‐	‐
Lease liabilities		1,877		1,306	1,045	9	‐	‐
Bank debt(1)		‐		192,115	‐	‐	‐	‐
Secured notes		‐		20,156	‐	‐	‐	‐
Convertible debentures		2,257		30,464	‐	‐	‐	‐
Total contractual obligations	$	46,555	$	244,041	1,045	9	‐	‐

(1) Amount excludes interest

21 FINANCE

FINANCE
For the years ended December 31,		2020		2019
Interest ‐ bank debt	$	8,903	$	9,280
Other finance expenses, net		1,123		999
Interest ‐ convertible debentures		2,745		2,475
Interest ‐ secured notes		13		‐
Interest ‐ lease liabilities		306		372
Accretion of convertible debentures		879		835
Accretion of decommissioning obligation		7,927		8,623
Unrealized foreign exchange loss (gain)		(23)		23	(1)
Finance	$	21,873	$	22,607

(1) – Includes $0.6 million of realized loss on foreign exchange swap, $2.8 million of unrealized loss on foreign exchange swap, offset by $0.6 million of realized foreign exchange gain and $2.8 million unrealized foreign exchange gain on re‐evaluation of outstanding debt at year‐end.

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22 SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non‐cash working capital is comprised of:

For the years ended December 31,		2020		2019
Source (use) of cash
Trade and other receivables	$	10,463	$	(18,600)
Deposits and prepaid expenses		(82)		(101)
Trade and other payables		(27,450)		40,316
Dividends payable		(1,938)		493
	$	(19,007)	$	22,108
Allocated to operating activities	$	2,547	$	4,740
Allocated to investing activities		(19,242)		16,838
Allocated to financing activities		(2,312)		530
	$	(19,007)	$	22,108
Interest paid	$	11,958	$	12,135
Interest received	$	5	$	8

23 PERSONNEL EXPENSES

Cardinal's key management personnel consist of its directors and executive officers. In addition to director fees and salaries, bonuses and short‐term benefits paid to the directors and executive officers, respectively, directors and executive officers participate in the share based compensation plans detailed in Note 15. The compensation relating to key management personnel for the year recorded as general and administrative expenses was $4.2 million (2019 ‐ $4.5 million) and share based compensation costs were $2.4 million (2019 ‐ $4.1 million).

24 SUBSEQUENT EVENTS

On February 4, 2021, Cardinal issued a notice of redemption for all of the outstanding 8% debentures with a principal amount of $28.2 million, effective March 11, 2021. Prior to the redemption date, Cardinal issued 22,410,000 common shares upon the voluntary conversion of $28.0 million of principal amount of the 8% debentures representing approximately 99.3% of the outstanding debentures. The redemption of the remaining $0.2 million principal amount of the 8% debentures was funded through the Company's credit facility.

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