Source: Crescent Point Energy December 2021 corporate presentation

CALGARY – Crescent Point’s recent acquisition of Shell’s Kaybob Duvernay assets in west central Alberta has resulted in the company shifting a significant amount of its focus, and dollars, in that direction, and away from Saskatchewan.

On Dec. 6, Crescent Point Energy Corp. announced a $825 to $900 million capital budget for 2022, with “disciplined capital expenditures.” The announcement came on a day when West Texas Intermediate (WTI) oil was trading for US$68 per barrel, down from US$84 per barrel on Nov. 4.

Crescent Point expects to fully fund its 2022 capital expenditures budget and planned return of capital to shareholders at a low oil price of approximately US$40/bbl WTI. Assuming US$65/bbl to US$75/bbl WTI, the company expects to generate excess cash flow of approximately $750 million to $1.0 billion in 2022, prior to dividends and expected share repurchases, providing Crescent Point with “significant flexibility to create additional shareholder value in the current oil price environment. As the company continues to strengthen its balance sheet it will look to further increase its return of capital offering to shareholders in the context of its capital allocation framework.”

“We have established a disciplined budget for 2022 and expect to generate strong returns and significant excess cash flow for our shareholders,” said Craig Bryksa, president and CEO of Crescent Point. “In the coming year, we plan to build on our track record of strong performance focused on our key pillars of balance sheet strength and sustainability. Through our discipline and execution, including recent successes in the Kaybob Duvernay, we continue to make significant progress toward meeting our debt targets. As a result, we are accelerating our plans to return additional capital to shareholders in the form of another dividend increase and share repurchases. As we continue to strengthen our balance sheet, we expect to further increase our return of capital offering to shareholders in the context of our capital allocation framework.”

Crescent Point increased its cost inflation assumption for 2022, however, the assumed increase has been completely offset by well cost reductions recently realized in the Kaybob Duvernay.

The company increased its 2022 production guidance to 133,000 to 137,000 boepd from the preliminary range of 131,000 to 135,000 boepd. The increase reflects “the positive impact of Crescent Point’s strong operational performance, primarily driven by its Kaybob Duvernay asset,” according to the release.

Crescent Point also said there would be another quarterly dividend increase beginning first quarter 2022, and it planned share repurchases and the renewal of its credit facilities.

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The company plans on converting about 125 producing wells to water injection in 2022.

It is also expanding polymer floods and piloting a program to test carbon dioxide sequestration and enhanced oil recovery in Saskatchewan. Hints of this pilot program have been showing up in various places since this past summer.

Notably, neither the press release, nor the December 2021 corporate presentation included the number of planned wells to be drilled in its principle operating areas, something that had been a standard feature in Crescent Point press releases for most of its history. What was present, however, were percentages of its planned expenditures in each area. That, in turn, revealed a significant shift away from southeast Saskatchewan.

In recent years, most of the company’s capital expenditures had been in Saskatchewan. Even during the depths of the downturn, Crescent Point would operate in excess of 20 drilling rigs in Canada, typically with one in Alberta, four in Shaunavon, one or two in the Kindersley area, and the remainder in southeast Saskatchewan. Additional rigs would be working in the U.S. For several years, Crescent Point was consistently employing more rigs in Canada than any other company, often more than the number two and number three companies combined.

But on the day of the announcement, RiggerTalk.com showed just four rigs in Canada – one rig northwest of Fox Creek, Alberta, in its Duvernay asset. Another rig was drilling northwest of Shaunavon, while one rig worked southwest of Torquay, in the Flat Lake area. A third rig was north of Forget in the Viewfield area. In North Dakota, they had one rig, between Williston and Crosby.

Crescent Point Flat Lake battery south of Torquay on Oct. 27. Photo by Brian Zinchuk

The Kaybob Duvernay play in Alberta is now allocated 26 per cent of the budget. Shaunavon is 19 per cent, Viewfield is 18 per cent, North Dakota is 17 per cent and Flat Lake is 10 per cent. The last 10 per cent is “other.”

The presentation noted 15 per cent is allocated to long-term projects, including various decline mitigation and environmental initiatives.

The money going to the Kaybob Duvernay reflects their expected production, with Crescent Point thinking they’ll see 27 per cent of that expected production coming from that field in west central Alberta, in the area around Fox Creek.

During fourth quarter 2021, Crescent Point successfully concluded drilling its first multi-well pad in the Kaybob Duvernay, with completion operations currently underway. The company also recently started drilling its second multi-well pad in the play, with completions expected in the first half of 2022.

Crescent Point’s Kaybob Duvernay well costs, including drilling, completion, equip and tie-in, are now approximately $8.75 million. Current well costs are now down approximately $1.50 million, or 15 percent, from estimated costs when the company originally entered the play in second quarter 2021. These initial savings, which include the previously announced completion cost reductions of approximately 20 per cent, or $1 million per well, were realized despite using a larger frac design to increase recoverable reserves.

This asset is expected to generate approximately $275 to $350 million of net operating income less capital expenditures in 2022 at US$65/bbl to US$75/bbl WTI and production of approximately 37,000 boepd on average, up from approximately 30,000 boepd when it originally entered the play. The company now expects to repay the entire cash portion of the Kaybob Duvernay acquisition by year-end 2021. The sale, which was announced Feb. 17, 2021, saw of $550 million in cash and 50 million shares (valued at $157 million) in Crescent Point Energy common stock (TSX:CPG).

Southern Saskatchewan

Viewfield is something of the cash cow, with “strong excess cash flow generation driven by high netback and low decline asset base.” Viewfield is expected to make up 23 per cent of their production, but 18 per cent of the capital budget.

Shaunavon is expected to be 14 per cent of their production. At Shaunavon, they ran a step-out drilling program in 2021, and advanced their waterflood program and polymer floods.

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Flat Lake matches their expected production with the capital budget, both at 10 per cent. There they will continue to focus on two-mile horizontal development of Torquay zone. Crescent Point said they were advancing decline mitigation program within Ratcliffe zone following strong waterflood response to-date. The company is also reducing emissions through further optimization of current infrastructure. They said they were successfully reduced freshwater usage through innovative hydraulic fracture optimization.

Not too far south of Flat Lake, in North Dakota, the company said it has “high-impact wells with competitive full-cycle returns and repeatability.” Well cost reductions are approximately 30 per cent since 2017. The company is maximizing efficiencies through multi-well pad development and completions optimization. It is evaluating the feasibility of using recycled water in completions operations.

Dividends and buybacks

The company’s board of directors has approved and declared a first quarter 2022 dividend of $0.045 per share to be paid on April 1, 2022, to shareholders of record on March 15, 2022, which represents a 50 per cent increase from its fourth quarter 2021 dividend. On an annualized basis, this equates to a dividend payment of $0.18 per share. The company’s previously announced fourth quarter 2021 dividend of $0.03 per share is scheduled to be paid on January 4, 2022.

The new dividend level equates to a payout ratio of approximately seven percent of Crescent Point’s expected 2022 adjusted funds flow at US$50/bbl WTI. This payout ratio provides dividend sustainability at lower commodity prices, with the ability to grow over time. It also provides flexibility, allowing the company to continue to prioritize its balance sheet by allocating the majority of its near-term excess cash flow to debt repayment.

In addition to increasing its base dividend, Crescent Point also plans to allocate up to $100 million to share repurchases over the following six months. The company said in a release it “believes the current value of its common shares does not reflect its underlying fundamental value and that share repurchases provide an attractive opportunity to improve Crescent Point’s per share metrics.”

The planned share repurchases, which equate to over three percent of the company’s current market capitalization, are expected to be partially completed under Crescent Point’s existing normal course issuer bid (“NCIB”) which expires in March 2022. The company plans to renew its NCIB with the Toronto Stock Exchange in first quarter 2022.

Hedging

Approximately 50 per cent of Crescent Point’s oil and liquids production in 2022, net of royalty interest, is now hedged to further protect its balance sheet and expected excess cash flow generation. Crescent Point’s leverage ratio is expected to be at or below 1.0 times net debt to adjusted funds flow in early 2022, based on current forward strip commodity prices.

Credit renewal

During fourth quarter 2021, Crescent Point successfully renewed and extended its unsecured, covenant-based credit facilities with a maturity date of November 2025. Given its significant unutilized credit capacity, the Company downsized its credit facilities to $2.3 billion, better aligning the facilities with the size of the organization while reducing the carrying cost of maintaining undrawn credit capacity. Crescent Point expects to have an unutilized credit capacity of approximately $1.8 billion at year-end 2021.

 

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