Crescent Point Energy Corp. (NYSE:CPG) Q2 2023 Earnings Call Transcript

Crescent Point Energy Corp. (NYSE:CPG) Q2 2023 Earnings Call Transcript July 26, 2023

Crescent Point Energy Corp. beats earnings expectations. Reported EPS is $0.37, expectations were $0.31.

Operator: Good morning, ladies and gentlemen. My name is Julie, and I will be operator for Crescent Point Energy’s Second 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 Web site 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 discussions and analysis for the period ending June 30, 2023, were announced this morning and are available on the Crescent Point, SEDAR, and EDGAR Web site.

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 Web sites, 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 second 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 Web site. Today we are introducing a new format to our conference call to add a level of further engagement and to turn the call into more of a discussion on our forward outlook. Earlier today we issued our quarterly press release, financial results, and updated corporate presentation, each of which can found on our Web site. During this call, I’ll provide a brief strategy update, highlight our strong quarterly results, and discuss our overall outlook for the remainder of the year.

We will then move into a Q&A session. We will start by taking questions over the conference line, as we usually do. And once those questions have concluded, I’ll then turn the call over to Shant Madian, our Vice President of Capital Markets, who will moderate questions from participants joining us on our webcast. We encourage those in our webcast to submit questions using the chat function on the online portal. We look forward to the discussion that this format will provide. So, let’s get started. On the strategy front, we significantly advanced our portfolio optimization through our successful Alberta Montney acquisition during the second quarter. This transaction materially enhances the quality of our portfolio, both in terms of our depth of premium inventory, as well as our excess cash flow profile and a return of capital per share.

This acquisition is consistent with our strategy of pairing quick payback, short-cycle assets, such as the Alberta Montney and Kaybob Duvernay, which are longer-cycle low-decline assets in Saskatchewan. This mix of short and long-cycle plays results in significant excess cash flow for the company and our shareholders. It also allows us to execute on our strategy to generate sustainable long-term returns through a combination of per-share growth and a compelling return of capital offering, all while maintaining a strong balance sheet. Our multi-basin approach remains strategically focused on oil and liquids, which account for 75% of our current production. By remaining dedicated to this approach, we are able to deliver on one of the highest cash flow netbacks in the industry, along with significant excess cash flow per share.

We are successfully integrating the new Montney asset into our portfolio, and have a near-term goal of further enhancing our returns through additional productivity gains and cost efficiencies. Part of our early success in this play has been the result of our efforts to leverage our existing relationships with our suppliers to reduce our costs. We have also identified additional areas for potential efficiencies, including ongoing well completion optimization, deploying longer lateral lengths, and shifting to larger multi-well pads. As you can tell, we’re excited about our new Alberta Montney position, especially given its recent prolific well results. For example four of the top five liquids wells drilled in the Western Canadian Sedimentary Basin, in May, were our wells in the Montney, highlighting the attractive reservoir characteristics and the scalability of this asset.

We’ve continued our drilling success into June, achieving impressive results that are in line with or exceeding our early well results. Like the Kaybob Duvernay, our Montney play provides the opportunity for new reserve additions, and ultimately net asset value per share growth, given that only 25% of the locations we have internally identified have been booked. This transaction, along with our strategic steps we have taken over the past few years has allowed us to build a very strong profile or portfolio that is well-positioned to generate long-term returns for our shareholders. I’ll now shift to our quarterly results and the execution across our portfolio. During the past quarter, we continued to demonstrate our operational excellence, as reflected in strong performance of our Kaybob Duvernay assets.

I’d note that our second quarter production of 155,000 boe per day included the impact of approximately 7,000 boe per day of downtime associated with the wildfires. First off, I’d like to commend our teams in the field and thank our local community members and first responders for their incredible efforts to keep everyone safe during the wildfires. Furthermore, thanks to our dedicated teams and advanced field operation technology, we were able to quickly restore our Kaybob Duvernay volumes as the fires subsided. These wildfires massed our true outperformance in the quarter, which was driven by our Kaybob Duvernay assets, with recent onstream production outpacing our type wells in the area. Due to this outperformance in the first-half of the year, we have kept our annual production and capital expenditures guidance unchanged.

Our second quarter results also demonstrate our commitment to returning capital. During the quarter, we returned CAD 167 million or approximately 60% of our excess cash flow directly to our shareholders. This included CAD 93 million of share repurchases in addition to our dividends. In total, we have now repurchased for cancellation nearly 17 million shares year-to-date, and remain active on our buyback program, which is the tool of choice within our return of capital framework. Over the past 12 months, we have delivered more than CAD 550 million to shareholders, marking our fourth consecutive quarter of returning approximately 60% of our excess cash flow. I’ll now touch on our outlook for the remainder of 2023, along with our five-year plan.

During the second-half of this year, we expect to realize the benefits of our recent Montney acquisition and continued momentum in our Kaybob Duvernay play, as we plan to bring on stream additional pads in both areas during the third and fourth quarter. Our second-half 2023 production is expected to average approximately 179,000 boe per day, generating over CAD 1 billion of excess cash flow on an annualized basis, assuming a $75 price tag. As we look further out, we expect to generate CAD 5 billion of cumulative excess cash flow under our five-year plan, at similar commodity price assumptions, providing a combination of disciplined per-share growth, attractive return of capital, and further debt reduction. We plan to provide our preliminary 2024 outlook later this fall, alongside an updated five-year plan.

Lastly, on the ESG front, we remain steadfast in our commitment to strong environmental, social, and governance practices. During the quarter, we released our fifth annual sustainability report, highlighting our strong ESG performance and detailing our key ESG initiatives. I’m proud to report that our environmental initiatives over the past five years have resulted in a reduction of approximately 50% in both our Scope 1 emissions intensity and our asset retirement obligations. We also continue to achieve record safety scores, which speaks to our safety first culture. I’d like to thank everyone for their continued support and engagement, in particular our staff who continue to deliver on our purpose of bringing energy to our world the right way.

We’ll now open the call for questions from the analysts, and follow with a Q&A session for those on our webcast. Operator, please open the call.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Dennis Fong from CIBC World Markets. Please go ahead.

Dennis Fong: [Technical difficulty] the solid quarter, and thanks for taking my question. The first one I have is just related to Montney. There is a lot of discussion around Gold Creek East, and West. I was just curious as to some of the potential development plans around Karr, just given also attractive economics in that region, or is there any kind of, I don’t call it hindrance, but things that you need to complete before further developing that region?

Ryan Gritzfeldt: Hey, this is Ryan here, I’ll take that one. So, yes, Karr, obviously, it’s an area that we really like. It’s obviously a little bit more higher oil percent, higher liquids percent than Gold Creek. Not as many future drilling locations there as in Gold Creek. But we do like the area. We finished drilling a pad there when we took over from Spartan, and actually, right now, [fracking] (ph) a pad there, which we should have results to disclose next quarter. But yes, we are drilling there for the rest of this year, into 2024. And of course, we’ll continue as we get locations ready. But yes, we just haven’t talked about Karr yet because we don’t have any results since the close of the acquisition. But we are fracking a pad there as we speak, and we’ll speak to that next quarter.

Dennis Fong: Great, thanks. And my follow-up here is also on the Montney here. You’ve obviously talked a lot about optimizing both cost structure and even completion design now that you’ve taken over the property. What would maybe drive the decision and/or timing to add a second rig in the Montney, and what are you looking for to help drive the confidence around accelerating capital deployment into that region? Thanks.

Craig Bryksa: Hey, Dennis, it’s Craig here. Thanks for the question. So, obviously, very excited with the results we’ve been seeing to date, and bringing that acquisition now, and then having it in-house and our technical teams really being able to spend the time and dig into it. So, the more we get in there and the more we work through it the more excited we get about this, and you could see that as the results are coming out here, over through May, and into June, and what we were putting here into our quarter. So, on all fronts, it looks really good. I think as the technical team gets into it, we’ll do things a little bit differently, like we did in the Duvernay. If you remember, when we picked that up, we moved in there with purpose.

We got smarter over, call it, the first couple years of owning that asset, and now are moving the second rig into the Duvernay here in October, of this year. So, look for us here to do it in a similar fashion, Dennis. We’re going to spend some time, we’re going to get active in there, we’re going to do what we think is right as far as landing the wells in the landing zone of our preference. We’re going to change up some completion design, ultimately really maximize some height growth within there. And then, ultimately, that should show through in the results. As we think through our 2024 program, right now, it’s sitting at one rig in the Montney. But if there is capital shifts across the portfolio, I would expect that to be moving into the Montney, and maybe out of other areas.