Crescent Point Energy Corp. (NYSE:CPG) Q1 2023 Earnings Call Transcript May 12, 2023
Crescent Point Energy Corp. misses on earnings expectations. Reported EPS is $0.39 EPS, expectations were $0.4.
Operator: Good morning, ladies and gentlemen. And welcome to Crescent Point Energy First Quarter 2023 Conference Call. This conference call is being recorded today and will be webcast along with the slide deck, which can be found on Crescent Point’s website home page. The webcast may not be recorded or rebroadcast without the express consent of Crescent Point Energy. All amounts discussed today are in Canadian dollars with the exception of West Texas Intermediate or WTI pricing, which is quoted in U.S. dollars. The complete financial statements and management’s discussion and analysis for the period ending March 31, 2023, were announced this morning and are available on the Crescent Point’s SEDAR and EDGAR website. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be question-and-answer session for members of the investment community. [Operator Instructions] During the call, management may make projections or other forward-looking statements regarding future events or future financial performance. Actual performance, events or results may differ materially. Additional information or factors that could affect Crescent Point’s operations or financial results are included in Crescent Point’s most recent annual information form, which may be accessed through the Crescent Point, SEDAR or EDGAR websites or by contacting Crescent Point Energy. Management also calls your attention to the forward-looking information and non-GAAP measures sections of the press release issued earlier today.
I will now turn the call over to Craig Bryksa, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. Bryksa.
Craig Bryksa: Thank you, operator. I’d like to welcome everyone to our first quarter 2023 conference call. With me today are Ken Lamont, our Chief Financial Officer; and Ryan Gritzfeldt, our Chief Operating Officer. As the operator highlighted, this conference call is being webcast along with the slide deck, which can be found on our website. Before we get in to our first quarter update, I’d like to briefly speak to the wildfires that have been impacting communities in Western Canada. Our teams in the field have done an excellent job to keep everyone safe and mobilize our response to coordination with local and provincial authorities, and to offer assistance where possible. Last weekend, we proactively shut in all our Kaybob Duvernay operations as a precautionary measure, with no damage reported to our assets.
As the fires around our Fox Creek operations dissipated, we began restoring production and currently have 85% of our Kaybob production now back on line. Given our strong production results to date, and the temporary impact expected from this outage, there is no change to our annual production guidance. I’ll now turn your attention back to our first quarter results. We’ve had a great start to 2023 as a result of both, our strong operational results and the completion of our strategic acquisition of the Alberta Montney assets. Our Montney acquisition is highly accretive to our shareholders, as it enhances the quality of our overall portfolio, extends our inventory of premium locations to 15 years, and increases our profitability metrics and return of capital to our shareholders.
It also aligns with our long-term strategy of focusing on high quality scalable resource plays that meet our defined asset criteria. We’re excited about the opportunity to create additional value by applying our operational excellence to these assets who deliver potential reserves growth, given the number of unbooked locations that we have identified, develop a second Montney bench to take advantage of the significant resource in place within these assets, and achieve enhanced efficiencies based on the similarity and proximity of our Montney to our Kaybob Duvernay. When you look at our portfolio, you can see the benefits of our complementary pairing of short cycle assets like our Montney and Kaybob Duvernay plays with our longer cycle assets in Saskatchewan.
Our short cycle assets provide significant growth potential and long-term scalability with very quick payback periods, while our long-term cycle — our long-cycle waterflood and polymer assets provide a consistent stream of low decline production and significant excess cash flow. This optimal portfolio also provides added diversification and the opportunity for knowledge transferred to deliver enhanced efficiencies. Our assets are strategically situated within the oil and liquids rich fairways, which allow us to have one of the highest net backs in North America, and results in significant excess cash flow generation per share. We look forward to sharing our progress in developing these great assets in the quarters ahead. Outside our recent acquisitions, we have completed a number of non-core asset dispositions to optimize our portfolio.
We expect to continue to pursue in a disciplined manner opportunities to further improve our portfolio to enhance our long-term profitability. During the first quarter of this year, we delivered strong financial results with significant excess cash flow, of which over 60% was returned to our shareholders through dividends and share repurchases. We have also had a great start to the year operationally and are on track to meet our annual average production guidance with our capital budget remaining unchanged. I’ll now turn it over to Ken to speak to our first quarter results in greater detail. Ken?
Ken Lamont: Thanks Craig. For the quarter ended March 31st, we generated $153 million of excess cash flow with proceeds allocated towards debt reduction and shareholder returns. During the quarter we returned over 60% or $103 million of our excess cash flow directly to shareholders. These returns include our base dividend and the repurchase of more than 5.1 million shares for approximately $48.5 million. Adjusted funds flow for the quarter totaled $525 million or $0.95 per share diluted, driven by strong operating netback of $45 per Boe. Development capital expenditures for the quarter, which includes drilling and development, facilities and seismic, totaled $314 million. We also reported a strong net income for the quarter of $217 million or $0.39 per share diluted.
Our net debt as of March 31, 2023, totaled $1.4 billion or 0.6 times adjusted funds flow. Subsequent to the quarter, we successfully closed our acquisition of Spartan Delta’s Alberta Montney assets, which included a net cash payment of $1.7 billion funded through our existing credit facilities. Our net data at closing was $3 billion or 1.3 times adjusted funds flow, which is expected to improve to 1 times at year-end, using $75 WTI. We continue to target a long-term conservative leverage ratio of 1-times net debt to adjusted funds flow at a low commodity price. We have increased our portfolio of commodity hedges to provide additional financial protection. As a result, approximately 30% of our oil and liquids production is currently hedged in the second and third quarter of this year, and approximately 10% in the fourth quarter.
Although gas only represents 25% of our overall production, we’ve also hedged over 15% of our volumes in 2023, with a significant portion of our unhedged volumes exposed to pricing outside of AECO including diversification to Henry Hub and the U.S. Midwest. We plan to layer in additional protection in the context of market conditions with a goal of hedging up to 30% of our overall near-term production. I will now turn the call over to Ryan to speak to our operational highlights. Ryan?
Ryan Gritzfeldt: Thanks Ken. For the quarter ended March 31, 2023, our production averaged 139,280 boe per day comprised of 80% oil and liquids. As Craig and Ken mentioned, we closed our acquisition of Spartan Delta’s Alberta Montney assets this week, which adds approximately 38,000 boe per day of production to our company. Our new Montney assets are strategically situated in the volatile oil fairway of the play and provide over 20 years of premium drilling locations with full-cycle returns that rank in the top quartile of our portfolio. Late in the first quarter, Spartan brought on stream a single well in the Gold Creek West area of the Alberta Montney play, which achieved an average 30-day initial production rate of approximately 1,900 boe per day, with production comprised of 90% oil and liquids, as well as currently exceeding both type well expectations in the area and is expected to pay out in less than six months from the initial onstream date at current commodity prices.
These results highlight the attractive reservoir characteristics of this asset, including significant pace, thickness and resource in place coupled with favorable permeability and porosity. Looking ahead, we plan to drill 15 wells in the Alberta Montney through the remainder of 2023 and will seek to optimize efficiencies by leveraging our expertise in multi-well pad development. In the Kaybob Duvernay, we are continuing our track record of operational execution, delivering strong full-cycle returns that also rank top quartile within our asset portfolio. We recently brought on stream our seventh fully operated multi-well pad in Kaybob, which generated an average IP30 rate of over 1,000 boe per day per well at over 80% liquids, primarily condensate and is currently exceeding booked type well expectations in the area.
We plan to add a second rig in the Kaybob Duvernay in fourth quarter of this year to further accelerate the development of our high-return inventory in the play. In Saskatchewan we continued to advance our decline mitigation programs by converting 25 wells to injectors during the quarter. Our waterflood programs continued to deliver strong overall results, with nearly half of our Saskatchewan production currently underwater and polymer flood with a low decline rate of 5%. We are also advancing the development of our open-hole multilateral wells and Viewfield, which continue to deliver highly economic production results, while also expanding our overall development fairway within the play. We are currently evaluating the opportunity to apply this technology in other areas within our asset base.
On the ESG front, we remain steadfast in our commitment to strong environmental, social and governance best practices. Leading into the first quarter we rolled out a targeted safety awareness campaign that proved to be very effective in reducing our serious incident frequency, and total recordable incident frequency. This safety campaign titled refocus, reconnect, recharge, helps reinforce our commitment to safe operations and prioritizes, the health and wellbeing of our employees and contractors above all else. Similarly, our commitment to strong environmental performance continues to position the Company well within our industry. We remain on track with our climate, water and asset retirement goals. And we’ll provide more insight into the progress in our upcoming sustainability report.
Before I hand it back to Craig, I’d like to reiterate his remarks regarding the wildfires impacting our Fox Creek, Kaybob Duvernay operations. I’d like to commend the tremendous efforts of our staff, industry partners, firefighters, emergency responders, and local officials and regulators for keeping our communities as safe as possible. It is obviously still a very fluid situation, but we are able to report that the circumstances in our area specifically have allowed us to bring 85% of our production back on line. We will continue to monitor all factors and bring the remainder of the shut in production back on only when it is safe to do so. I’ll now pass it back to Craig for final remarks.
Craig Bryksa: Thanks, Ryan. In closing, I’d like to express how excited we are about the next chapter we are writing in Crescent Point story. Through the hard work and dedication of our team we’ve materially transformed the organization into a highly profitable, shareholder-focused enterprise that is poised to deliver compelling returns in the years ahead. Our portfolio optimization strategy has substantially enhanced the quality of our asset base, improved our cost structure and added significant depth of high return drilling locations to our corporate inventory. We now have 15 years of premium drilling inventory underpinned by our Kaybob Duvernay, Alberta Montney and low decline assets in Saskatchewan. Based on a very strong start to the year, we are on track to meet our annual average production guidance of 160,000 to 166,000 Boe per day.
Our capital program also remains unchanged at $1.15 billion to $1.25 billion pro forma the recent Montney acquisition. We’ve recently entered into agreements to secure a significant portion of our drilling and completion services for the balance 2023, which provide us with additional certainty around our capital expenditures guidance. We expect to generate significant excess cash flow in 2023 of approximately $1.1 billion at $75 per barrel WTI pricing and continue to target a return of capital framework where approximately 60% of our excess cash flow is returned to our shareholders Before I sign off, I would like to invite all our shareholders to our annual general meeting taking place next week on May 18th. Please see our website for further details on our AGM.
I’d like to thank our shareholders for their continued support and feedback over the years to help drive the overall success of our business. I’ll now open the call for questions from the investment community. Operator, please open the call.
Q&A Session
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Operator: Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Your first question comes from Amir Arif from ATB Capital. Please go ahead.
Operator: Your next question comes from Travis Wood from National Bank Financial.
Operator: Thank you. Your next question comes from Chris Sakai from Singular Research. Please go ahead.
Operator: Your next question comes from Michael Harvey from RBC. Please go ahead.
Operator: Yes. It looks like it. Well, in this case, there are no further questions at this time.
Craig Bryksa: So, I’ll tell you what, Mike. We’ll reach out to you following up on this call. Sorry about that. We’re not sure what happened here on our end, but it looks like we lost you. So, we’ll reach out to you here right away, one of us. For those of you that have any other questions that we didn’t get a chance to get to today, just please reach out to our IR team at your convenience. Thanks, everyone.
Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.
