Brian Zinchuk is editor and owner of Pipeline Online
Crescent Point Flat Lake battery south of Torquay on Oct. 27. Photo by Brian Zinchuk
CALGARY – Much of the discussion in Crescent Point Energy Corp.’s third quarter earnings call on Oct. 28 was about the company’s April 1, 2021 Kaybob Duvernay acquisition in Alberta from Shell for $647.1 million cash and 50 million shares, and its subsequent development. The references to Saskatchewan were principally around further build-out of its waterflood programs.
This is in sharp contrast from a few years ago, pre-COVID, when, at times, Crescent Point had approximately two dozen drilling rigs working in Canada, all but one making holes in Saskatchewan. At that time, Crescent Point led drilling activity across Canada by a wide margin, often employing as many rigs as the number two and number three companies actively drilling combined.
Crescent Point’s 2021 capital expenditures are now expected to be approximately $625 million, within its prior guidance range of $600 to $625 million. This budget includes capital associated with the additional completions of partner wells in the Kaybob Duvernay along with reductions in other operating areas.
According to CAOEC data published by Riggertalk.com, on Oct. 28, Crescent Point had two rigs working in southeast Saskatchewan, one near Torquay and another north of Kisbey, and another two in the southwest, near Shaunavon.
Crescent Point drilled 67 wells (62.2 net) in the quarter. In the nine months ended Sept. 30, 160 (152.8 net) wells were drilled and $69.9 million was spent on facilities and seismic.
In the nine months ended Sept. 30, the company disposed of its remaining non-core southeast Saskatchewan conventional assets for consideration of $85.9 million including closing adjustments. These assets had a net carrying value of $11.9 million, resulting in a gain of $74.0 million.
“We have achieved initial success in our Kaybob Development Program with strong execution on our D&C (drilling and completion) activities, including delivered delivering cost savings of approximately 20 per cent on well completions to date,” said president and CEO Craig Bryksa.
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Touching on the financials, he said, “We’ve continued to reduce our net debt, putting us on track to attain a leverage ratio of one times adjusted funds flow in early 2022.
“The rate of change and the improvements we’ve made to our business during the current commodity price environment are significant and shouldn’t be lost on anyone. For those that have watched our industry evolve over the past several years, you can appreciate how much stronger companies are now, versus (the) past cycle. Balance sheets are healthy and continue to strengthen daily, providing protection for shareholders during periods of commodity price volatility. Management teams are increasingly focused on shareholder friendly capital allocation programs, which is also a positive for the supply demand balance.
“And the overarching ESG performance of our sector has improved tremendously, especially within the Canadian industry,” Bryksa said.
“At Crescent Point, specifically, we have been able to take advantage of the current pricing environment through our industry-leading netbacks, our strong market access position, and a product mix comprised of both light oil and condensate. When we look forward to the upcoming year, we are excited about the position we are in, and the opportunities we see to create additional shareholder value. For example, in this $75 WTI price environment, we expect to generate $925 million of excess cash flow in 2022, which is after the dividend we recently increased. We’re in a solid position to further strengthen our balance, sheet return additional capital to shareholders and evaluate projects that can enhance sustainability to create additional returns for our shareholders on a debt adjusted per share basis.”
Operations
Vice president of Operations Ryan Gritzfeldt said third quarter production averaged 132,186 barrels of oil equivalent per day (boepd), over 80 per cent in oil and liquids.
He spoke of the effect of several high-impact, multi-well pads that were brought onstream in the first half of the year. In the Kaybob Duvernay, the company initiated its first multi-well pad drilling program during the third quarter.
As for Saskatchewan, Gritzfeldt said, “In our other operating areas in Saskatchewan and North Dakota, we continue to successfully execute our development plan of low-risk, high-return wells. In Viewfield and Shaunavon, specifically, we’ve had success this past year and expanding the economic boundaries of each play through our step out drilling programs. We also received approval from the government of Saskatchewan to fully unitize an additional two units in Viewfield, bringing our total now to six units. This provides us the opportunity to further expand our waterflood program over the coming years. As part of our decline mitigation initiatives in 2021, we have now converted approximately 115 producing wells to water injection wells, and remain on track to convert over 135 wells this year.”
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Bryksa was asked about rising costs from the service sector. He said, “When we put out our 2022 guidance, we did build in inflation into that, so we feel very good at where we’re at and that in ’22 to $900 million of capital spend.”
Gritzfeldt said, “Regarding cost pressures, in US$70, US$75 word strip pricing for next year, if you look at our overall capital program, yeah, we’re probably expecting five-ish per cent increases, you know, some categories a little bit higher than others, but overall, five per cent.”
Savings at Kaybob will offset other cost escalations, he noted.
In the third quarter, Crescent Point produced 75,856 boepd in Saskatchewan, 39,521 boepd in Alberta, and 16,809 boepd in the U.S. For Saskatchewan, that was a decline of 14 per cent, compared to the 87,779 boepd it produced in the same quarter in 2020.
Financials
The company’s overall value increased substantially over course of 2021. Crescent Point’s market capitalization increased to $3.40 billion at Sept. 30, 2021 from $1.57 billion at Dec. 31, 2020, primarily due to the increase in the company’s share price and the 50.0 million shares issued in conjunction with the Kaybob Duvernay acquisition, it said in its detailed statements.
Crescent Point generated over $180 million of excess cash flow in the third quarter, or over $580 million year-to-date. The company’s adjusted funds flow totaled $393.9 million or $0.67 per share diluted during third quarter, supported by a “strong operating netback of $44.15 per boe.”
Crescent Point said its adjusted funds flow generation continues to benefit from its improved cost structure, high liquids weighting and strong market access that positively impacted realized pricing in the quarter. In particular, the company’s liquids product streams in its North Dakota and Kaybob Duvernay assets currently trade at a premium to WTI.
For the quarter ended Sept 30, the company’s development capital expenditures, which included drilling and development, facilities and seismic costs, totaled $187.1 million.
Crescent Point’s net debt as of Sept. 30, totaled approximately $2.1 billion, reflecting over $180 million of net debt reduction in the quarter. Since the closing of the Kaybob Duvernay acquisition in second quarter 2021, the company has reduced its net debt by approximately $550 million, or over 80 percent of the cash portion of the purchase price.
As part of its risk management program to reduce cash flow volatility, Crescent Point said it maintains an active and diversified hedging portfolio. The company currently has approximately 45 percent of its oil and liquids production, net of royalty interest, hedged for 2022 utilizing a portfolio of swaps and collars that provide a combination of price protection with upside participation. Crescent Point said it plans to remain disciplined in its approach to layering on additional protection in the context of commodity prices.
The company reported net income of $77.5 million for the three-month period ended Sept. 30. Crescent Point’s third quarter net income included approximately $44 million in non-recurring charges primarily related to a re-evaluation of the company’s tax pools in addition to costs incurred related to the closure of its U.S. corporate office.
During the quarter, the Company’s Board of Directors approved and declared a fourth quarter dividend increase to $0.03 per share, payable on Jan. 4, 2022 to shareholders of record on Dec. 15, 2021. This equates to an annualized dividend of $0.12 per share, an increase of $0.11 per share from the prior level.
Editor’s note: If you want to see the difference local, in depth reporting means, especially to you, as someone working in the Saskatchewan oilpatch, read the stories posted by SaskToday.ca , BOEReport.com and EnergyNow.ca. Where did you find the most information that pertains to what you are doing, today, and in the months to come?
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