Brian Zinchuk is editor and owner of Pipeline Online
Two rigs drilling south of Watford City, North Dakota, in 2014, back when the state had well over 100 drilling rigs punching holes. Photo by Brian Zinchuk
CALGARY – Crescent Point Energy Corp. is selling off its North Dakota assets to a private operator for US$500 million (approximately C$675 million) in cash. It’s a move that follows Crescent Point’s growing focus on Alberta production in the Duvernay play, where they have been seeing some stellar wells in the range of 1,500 barrels per day initial production.
But as their focus in Alberta has grown considerably, action to the east has declined. Crescent Point used to operate as many as 23 drilling rigs in Saskatchewan, most of them in the Bakken and Torquay formations. Those same formations extended into North Dakota, where the Torquay is known as the Three Forks. But as of Aug. 24, the company had just three rigs working in southeast Saskatchewan and one in southwest Saskatchewan.
Historically, Crescent Point had largely curtained drilling in areas it was about to sell, but RiggerTalk.com showed one Nabors rig working for Crescent Point north of Williston on Aug. 24.
“Over the last few years, we have taken several strategic steps to optimize our portfolio,” said Craig Bryksa, President and CEO of Crescent Point. “This transaction allows us to realize future value for an area with limited scalability while immediately enhancing our financial position and increasing our focus on our core operating areas.”
The company said this transaction allows Crescent Point to bring forward the expected future value of the assets, as the proceeds equate to over five years of the cumulative excess cash flow that was expected from these assets within the company’s long-term development plan at current commodity prices.
In the second quarter of 2023, these assets had gross production of approximately 23,500 boepd (89 per cent oil and liquids) with annualized net operating income of approximately $375 million at a WTI price of approximately US$75/bbl. Given the limited drilling inventory associated with these assets, production in North Dakota was expected to decrease to 18,000 boepd by 2027 and decline further in future years, Crescent Point said.
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North Dakota has been in production decline since November, 2019, when it produced an all-time high of 1.519 million barrels per day. As of June, 2023, that number was 1.125 million barrels per day, a decline of 394,000 barrels per day. That’s according to the Aug. 21 edition of the North Dakota Department of Mineral Resources Director’s Cut, a monthly update on the state’s oil industry. Put in perspective, the decline of North Dakota in four years is nearly equal to Saskatchewan’s total current production.
Crescent Point is accelerating its debt repayment with proceeds from this transaction. The company’s pro-forma net debt is expected to total less than $2.2 billion, or less than 1.0 times adjusted funds flow, at year-end 2023 at current commodity prices, down from $3.0 billion at the end of second quarter.
Since 2018, the company said it has acquired $3.0 billion of high-quality assets in the Kaybob Duvernay and Alberta Montney that were primarily funded through approximately $2.7 billion of non-core dispositions. Many of those sales were in its southeast Saskatchewan portfolio that once dominated the region.
These transactions have enhanced Crescent Point’s long-term per share metrics and are consistent with its strategy of focusing on high-return assets with significant inventory depth, the company said.
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2023 Guidance and outlook revisions
Crescent Point said it is lowering its 2023 annual average production guidance to a range of 156,000 to 161,000 boepd, which represents a reduction of approximately 4,500 boepd in comparison to the mid-point of its prior guidance range. The company’s revised annual forecast includes the production impact associated with the transaction, net of approximately 1,000 boepd of production outperformance from its remaining assets throughout the year.
Crescent Point is also decreasing its development capital expenditures guidance for 2023 by approximately $100 million, to a range of $1.05 to $1.15 billion. This reflects the company’s ongoing discipline and the removal of capital that was expected to be spent on the North Dakota assets following closing of the transaction.
Crescent Point plans to release its preliminary 2024 budget along with an updated five-year plan this fall.
The transaction is anticipated to close in fourth quarter 2023, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.
TPH&Co., the energy business of Perella Weinberg Partners, and TD Securities Inc. are acting as financial advisors to Crescent Point on the transaction. BMO Capital Markets and RBC Capital Markets acted as strategic advisors.
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