Crescent Point’s new 8-leg well Bakken wells are promising, but they’re only drilling 8 next year

Company releases third quarter results

CALGARY – Crescent Point Energy Corp. has been seeing substantial success with its new well design, being used in the area around Corning, Saskatchewan. They plan on drilling several more next year.

However, unlike seven years ago, when they deployed rigs by the dozen, each punching a hole every six days or so, this new well design only has eight wells of that type planned for all of 2024 in southeast Saskatchewan. (Numbers of other wells were not mentioned during the call.)

That’s according to the Crescent Point third quarter earnings call, held from Calgary on Nov. 2.

Most of the call focused on the company’s developing plays in Alberta’s Montney and Kaybob-Duvernay, and notably so, as they are getting wells coming in at 1,300 and 1,500 barrels per day, respectively.

But when the did get around to talking about Saskatchewan, this is what president and CEO Craig Bryksa said, “Within our longer cycle operations, we’re generating strong net backs and excess cash flow as we progress our decline mitigation programs to enhance ultimate recoveries from our large oil in place pools.

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“Our waterflood and polymer flood operations continue to support strong oil production with their Saskatchewan holdings, resulting in a low decline rate of approximately 15%. We’ve also achieved great success improving our open hole multilateral well design, with strong results to date in the Viewfield Bakken. We recently improved the design of these wells to extend our laterals to enhance production and reduce costs for drilling efficient. Our late latest wells using this approach consists of approximately two mile laterals across eight legs, which significantly increases reservoir contact and oil production. We recently achieved peak 30 day well results of over 300 barrels per day from our most recent two wells with 100% oil weighting and very attractive economics.

“We’re excited about this innovation as it has enhanced our overall returns and added new premium locations to our growth and we look forward to piloting this approach and other areas within our Saskatchewan assets.”

Chief operating officer Ryan Gritzfeldt said the company has done eight wells of this design to date.  He said, “Those range from one milers, one and a half mile,  to two milers, these last couple.

“The good thing about them, too, is we’ve gotten our two mile costs down to under $3 million, so we’ll continue to increase the economics on those. And based on that, we have eight planned and Viewfield next year. And then we also spud our first one in our Shaunavon play here, so (we) probably won’t have results before the end of the year on that Shaunavon well, but pretty excited to see what what we’ll get there. All of our various reservoir simulations we ran there, we’re kind of doing the same design: the eight, eight legs 50 meter spacing. So (we’re) really looking forward to see what we can get in our Shaunavon play.”

“The first the reason that we started trying this was in some parts of the play were a little bit thinner, but more important, more permeable. It also had the wet Lodgepole above, so fracking ended up fracking into that wet Lodgepole and bringing in water. So, now that the results we’ve seen, to your point on, you know, is it is it just capturing more resource or is it economics? It’s both you’re essentially getting, you know, in our view almost double the EOR on a little bit less capital. So, you know, obviously your economics look a lot better than doing it than with our older style – eight wells per section and fracking.”

Gritzfeldt said they didn’t expect to add rigs to get to those planned eight wells of this design, but it’s something to keep the company’s Saskatchewan production decline rate manageable, while also adding to their years of drilling inventory.

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Montney play

As mentioned previously, most of the press release and earnings call focused on the company’s Montey and Duvernay plays in Alberta, where the company is now devoting 70 per cent of its capital budget. The Montney play was purchased from Spartan Delta in a $1.7 billion deal.

Bryksa said, “It has been a busy year at Crescent Point as we continue to execute on our portfolio optimization strategy. Our recent acquisition in the Alberta Montney has generated strong returns for the company, and we have been impressed with the operational results achieved to date, which I will speak to shortly. We’ve also been active on the disposition side to further streamline our portfolio which included the sale of our North Dakota assets, which flows subsequent to the quarter. This transaction allowed us to bring for the future expected value for this area, while also strengthening our balance sheet.

“These transactions are consistent with our strategy to focus our portfolio on high return, high net backs short term and long cycle plays. This balanced portfolio allows us to deliver sustainable long term returns for our shareholders through a combination of discipline. per share growth, a significant return of capital and our balance sheets.

“I want to spend a few minutes touching on our Alberta Montney as we are very excited about this addition to our portfolio and our results. From a strategic perspective, the Alberta Montney provides a deep drilling inventory, positioning within the volatile oil window, consistent geology with significant resources in place, and the opportunity to enhance returns through drilling and completions optimization.”

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1,200 and 1,500 boepd wells

Bryksa continued, “Since entering the play, we continue to achieve consistent and repeatable results that are in line or ahead of our expectations, including some of the highest productivity wealth in the entire Western Canadian Sedimentary Basin. At Gold Creek West for example, our most recent has brought on stream achieved peak 30 day rates of 1,200 BOE per day, per well, with a high liquids weighting of nearly 70 per cent.

“In addition to these results, we are also making progress on reducing costs and are evaluating opportunities to develop certain areas of the play at tighter spacing that would provide additional drilling inventory.

“We are currently running a one rig program in the money but we’ll be evaluating, eventually looking to add a second rig to further accelerate the high return development of our deep inventory. Altogether the addition of these Montney assets has significantly enhanced the quality of our overall portfolio and the company’s long term outlook,” he said.

Kaybob Duvernay

“Shifting to the Kaybob Duvernay, we continue to generate very strong consistent results, which has been a major part of our production in 2023. If you recall, when we adjusted our 2023 production guidance to reflect our recent North Dakota disposition, our outperformance, largely driven from the Kaybob Duvernay, allowed us to partially offset the volumes that were sold.

“Our latest Kaybob pad which came on stream during the third quarter was ahead of our type-well forecasts that peak 30 Day rates of approximately 1,500 BOE per day, per well, comprise of over 80 per cent liquid. What’s notable from these results is that there they are more than double those of an offsetting path from the previous operator prior to our acquisition in 2021. And it is located on the eastern portion of our land, supporting future development in the area and investment in infrastructure in 2024. These results also highlight the benefits of our optimized well design and completion. Our Kaybob journey and Alberta money assets are both expected to generate a combination of sustainable production growth and excess cash flow generation for the company in the years ahead.”

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$809.9 million loss reported

It wasn’t all sunshine, however, the company reported a loss of $809.9 million in its latest quarter related to that North Dakota asset sale.

The company reported net income from continuing operations of $133.6 million for third quarter 2023. Crescent Point’s total after-tax net loss for the quarter of $809.9 million was driven by non-cash charges related to the announced sale of its U.S. assets. This included an impairment charge recorded on classifying these assets as held for sale and a deferred income tax expense related to the derecognition of all U.S. tax pools. In conjunction with the sale closing in fourth quarter and discontinuation of operations in the U.S., Crescent Point expects to record a non-cash gain of approximately $600 million, representing the cumulative foreign exchange gain on the company’s net investment in its U.S. subsidiary.

 

Key highlights

• Generated third quarter excess cash flow of $322 million ($0.60 per share), with full-year 2023 expected to total over $1.0 billion.
• Returned $480 million to shareholders year-to-date, including $188 million or 60 percent of excess cash flow, for third quarter.
• Repurchased 28.1 million shares for $287 million year-to-date, including 11.4 million shares for $125 million during the quarter.
• Achieved peak 30-day rates of up to 1,200 boe/d and 1,500 boe/d in the Alberta Montney and Kaybob Duvernay, respectively.
• Closed the disposition of North Dakota assets subsequent to the quarter, with proceeds directed toward the balance sheet.
• Maintaining preliminary 2024 guidance which is expected to generate $1.0 billion of excess cash flow at US$80/bbl WTI.

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Financial highlights

• Adjusted funds flow totaled $687.1 million during third quarter 2023, or $1.28 per share diluted, driven by a strong operating netback of $47.14 per boe.
• Development capital expenditures for the quarter, which included drilling and development, facilities and seismic costs, totaled $315.5 million.
• Crescent Point’s net debt as at September 30, 2023 totaled less than $2.9 billion, reflecting a reduction of approximately $125 million in the quarter. Subsequent to the quarter, the company closed its previously announced disposition of North Dakota assets. Crescent Point directed all proceeds from this disposition toward its balance sheet, with net debt currently at approximately $2.2 billion, or less than 1.0 times adjusted funds flow.
• Crescent Point has currently hedged approximately 30 percent of its oil and liquids production for fourth quarter 2023 and approximately 25 percent for 2024, net of royalty interest. The company has also hedged approximately 25 percent of its natural gas production for fourth quarter 2023 and approximately 40 percent for 2024.

Return of capital highlights

• Crescent Point’s total return of capital to shareholders in third quarter 2023, including the base dividend, was $187.5 million ($0.35 per share), or approximately 60 percent of its excess cash flow. Year-to-date as at October 31, 2023, the company has returned a total of approximately $480 million to shareholders.
• Crescent Point continues to prioritize share repurchases as part of its return of capital framework. During third quarter, the company repurchased approximately 11.4 million shares for $124.5 million. Subsequent to the quarter, an additional 1.9 million shares were repurchased for $21.0 million for a total of 28.1 million shares year-to-date.
• Based on third quarter 2023 results, Crescent Point’s Board of Directors has declared a special cash dividend of $0.02 per share payable on November 22, 2023, to shareholders of record as of the close of business on November 15, 2023. Special dividends are used in combination with share repurchases within the company’s return of capital framework, to ensure that Crescent Point fulfills its targeted return to shareholders for the quarter.
• Subsequent to the quarter, the Board also declared a quarterly cash base dividend of $0.10 per share payable on January 2, 2024, to shareholders of record on December 15, 2023.

Operational highlights

• Average production during third quarter 2023 was 180,581 boe/d, comprised of over 70 percent oil and liquids. Third quarter production included approximately 30,800 boe/d of non-core assets which were disposed of subsequent to the quarter.
• In its Saskatchewan operations, the company continues to advance its decline mitigation projects to further enhance its long-term sustainability and excess cash flow generation. Crescent Point remains on track to convert approximately 100 producing wells to water injection wells in 2023, further supporting its current base decline rate of approximately 15 percent in Saskatchewan. In addition to its decline mitigation programs, the company continues to progress its open-hole multi-lateral (“OHML”) development. In Southeast Saskatchewan, Crescent Point’s two most recent eight-leg OHML wells came on stream with a strong average peak 30-day rate of approximately 300 bbl/d (100% light crude oil) per well. The company plans to drill several additional eight-leg OHML wells in 2024, while also evaluating the application of this technique in other areas of its asset portfolio.

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• In the Kaybob Duvernay, the company brought on stream a multi-well pad within the eastern portion of its lands in the volatile oil window. This multi-well pad generated an average peak 30-day rate of approximately 1,500 boe/d per well (70% condensate, 13% NGLs), outperforming type wells and prior operator’s results in the area. Crescent Point recently commenced drilling two additional multi-well pads in this region of the play, which it expects to bring on stream in the first half of 2024.
• Subsequent to the quarter, Crescent Point recently brought on stream another multi-well pad in the northern portion of its Kaybob Duvernay lands with strong initial production. The company expects to have 30-day rates for this pad over the coming weeks. The consistency of results generated within this asset, alongside Crescent Point’s operational execution to-date, further support the recent addition of a second drilling rig to accelerate the development of inventory in this high-return asset.
• In the Alberta Montney, the company brought on stream three multi-well pads during third quarter across its Gold Creek and Karr areas, with results in-line or ahead of type well expectations. In Gold Creek West, Crescent Point’s pad generated a strong average peak 30-day rate of approximately 1,200 boe/d per well (63% light crude oil, 5% NGLs). In Gold Creek East, the company drilled a pad with shorter lateral length (less than 2,000 meters per well) which generated an average peak 30-day rate of approximately 900 boe/d per well (63% light crude oil, 7% NGLs). At Karr, the company’s pad produced an average peak 30-day rate of approximately 700 boe/d per well (90% light crude oil, 2% NGLs). Crescent Point is very pleased with the results it has generated since acquiring this asset and remains focused on further enhancing the attractive returns it is currently achieving in the play.

Outlook

Third quarter 2023 results reflect the company’s continued operational momentum and strategic execution.

Crescent Point expects to complete its 2023 capital program on budget, generating significant excess cash flow of over $1.0 billion for the year based on approximately US$80/bbl WTI. The company’s 2023 capital budget includes the recent removal of $100 million of expenditures following the sale of its North Dakota assets, further demonstrating its ongoing capital discipline and focus on maximizing excess cash flow generation.

Crescent Point’s preliminary 2024 annual average production guidance of 145,000 to 151,000 boe/d and development capital expenditures budget of $1.05 to $1.15 billion remains unchanged. As previously announced, Crescent Point plans to allocate 70 percent of its 2024 budget to its Kaybob Duvernay and Alberta Montney assets, with the balance allocated to its long-cycle assets in Saskatchewan. This guidance is expected to generate significant excess cash flow of approximately $1.0 billion in 2024 at US$80/bbl WTI, with approximately 60 percent to be returned to shareholders through dividends and share repurchases. The company plans to formalize its 2024 guidance prior to the end of the year.

The company said its strategy is centered around creating sustainable long-term returns for shareholders through a combination of per share growth, return of capital and balance sheet strength.

 

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