In February, 2018, Crescent Point had 10 drilling rigs working within one township along the US border southwest of Torquay. These were a few of those rigs, with several on the horizon. This last year, there was hardly any drilling activity in the area at all. Through much of the last few months, there hasn’t been one drilling rig working west of Estevan. Photo by Brian Zinchuk

Once the gem of Crescent Point, its Saskatchewan properties are now “low decline, long-cycle assets”

CALGARY — For a company that briefly was the largest oil producer in Saskatchewan, affixing its name to multiple community rinks, Crescent Point Energy Corp did not mention the province in its revised five-year plan, announced Dec. 21.

It did, however, refer to its “low-decline, long-cycle assets.” But growth in this province is not discussed.

It was a big day for the company as it announced the completion of its strategic acquisition of Hammerhead Energy Inc, “an oil and liquids-rich Alberta Montney producer.”

“Our recent Alberta Montney consolidation marks the completion of our portfolio transformation,” said Craig Bryksa, president and CEO of Crescent Point, in a release. “Through this strategic transaction, we have enhanced the long-term sustainability of our business, including increasing the excess cash flow per share expected within our five-year plan by approximately 20 percent. This accretion also enhances our return of capital profile for shareholders. As we approach 2024, we are excited to build on the momentum and strong results we have achieved to-date within our resource plays, including through potential synergies from our recent Montney transaction. Our strategic priorities will now focus on continued operational execution, balance sheet strength and increasing our return of capital to shareholders.”

As part of the deal, Crescent Point is disposing of 5,000 boepd of non-core assets for $140 million with net proceeds directed to the balance sheet.

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The result will be annual average production of 198,000 to 206,000 boepd expected in 2024 with development capital expenditures of $1.4 to $1.5 billion. Of that, 80 per cent will be spent in Alberta, 20 per cent in Saskatchewan. That’s a huge reversal from several years ago, when the company would operate 27 drilling rigs in Canada, and all but one would be in Saskatchewan, and the outlier being in Alberta’s Swan Hills.

“During fourth quarter 2023, Crescent Point entered into agreements to dispose of its Swan Hills and Turner Valley assets in Alberta for total proceeds of approximately $140 million,” the release said.

“Crescent Point remains on track with its 2023 guidance which is expected to generate approximately $950 million of excess cash flow for the full year, based on average WTI price of approximately US$77.50/bbl for 2023,” the company said, adding, “Crescent Point plans to allocate the remaining 20 per cent of its 2024 budget to its long-cycle, low-decline assets in Saskatchewan, which are expected to generate annual average production of 55,000 boepd (95 per cent oil and liquids). The budget includes the continued advancement of decline mitigation programs, including waterfloods and polymer floods, in addition to further development of open-hole multi-lateral (OHML) wells. Crescent Point’s low-decline, high netback Saskatchewan assets are expected to account for approximately 50 percent of the company’s excess cash flow in 2024.”

In other words, half of the excess cash flow is coming from Saskatchewan, but only 20 per cent of the capital budget is being invested here, a clear indication of the company’s change of focus.

This was a Crescent Point frac near Oungre in 2017. Photo by Brian Zinchuk

 

As for why it’s targeting theses regions in Alberta, the drilling results speak for themselves. Crescent Point noted they “Achieved strong peak 30-day rates of 1,250 boepd and 1,350 boepd from recent pads in the Kaybob Duvernay and Alberta Montney.”

To that end, “The company plans to allocate 45 per cent of its 2024 budget to the Alberta Montney which is expected to generate annual average production of 97,000 boepd (50 per cent oil and liquids). Crescent Point plans to maintain three active drilling rigs in the Alberta Montney in 2024, drilling 60 net wells across its land base in the volatile oil fairway. The company’s operational initiatives include further enhancing its drilling and completion design and efficiently developing the recently acquired Montney assets by optimizing the number of wells drilled per section.

“Crescent Point plans to allocate 35 percent of its 2024 budget to the Kaybob Duvernay, which is expected to generate annual average production of 50,000 boepd (60 per cent oil and liquids). The company plans to maintain two active drilling rigs in the Kaybob Duvernay in 2024, drilling 45 net wells across its land base within the volatile oil and liquids-rich fairways, supporting production growth during the second half of the year and into 2025. This budget includes drilling longer lateral wells to improve efficiencies and further delineation of its land position, including the eastern and western portion of its land base.”

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Five year plan

As for that five year plan, here it is, verbatim:

“Crescent Point’s annual production is forecast to grow to approximately 260,000 boepd in 2028 under its five-year plan, driven by the company’s Alberta Montney and Kaybob Duvernay assets, with cumulative after-tax excess cash flow of approximately $4.7 billion at US$70/bbl WTI and $3.35/Mcf AECO. Under this five-year plan, the company expects to generate excess cash flow per share growth of seven percent on a compounded annual basis, or 15 percent including the benefit from expected share repurchases.

“This enhanced profile highlights the strong contribution of the newly acquired Alberta Montney assets, which are expected to provide the company with a combination of growing production and lower capital expenditure requirements to sustain production in later years. On a per share basis, Crescent Point’s cumulative excess cash flow under its five-year plan has increased by approximately 20 percent as a result of the transaction.

“In 2024, the recently acquired Montney assets are expected to produce 56,000 boepd, growing to 80,000 boepd by 2026, then remaining flat thereafter. During this same period, development capital expenditures are expected to gradually decline from $400 million in 2024 to $300 million toward the end of the five-year plan, resulting in significant excess cash flow generation.

“Crescent Point’s combined Alberta Montney and Kaybob Duvernay assets are expected to represent 80 percent of the company’s total production in 2028. Crescent Point’s disciplined capital allocation, in combination with its low-decline, long-cycle assets, is expected to allow the company to also moderate its base decline rate from 30 percent in 2024 to 27 percent toward the end of its five-year plan. During this period, Crescent Point expects to reduce its reinvestment ratio, or capital expenditures as a percentage of funds flow, by nearly 10 per cent.”

 

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