Crescent Point Energy Corp. (NYSE:CPG) Q1 2024 Earnings Call Transcript

Crescent Point Energy Corp. (NYSE:CPG) Q1 2024 Earnings Call Transcript May 10, 2024

Crescent Point Energy Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. My name is Annes, and I will be your operator for Crescent Point Energy’s First Quarter 2024 Conference Call. This conference call is being recorded today and will be webcast along with a slide deck which can be found on Crescent Point’s website home page. The webcast may not be recorded or rebroadcast without the expressed consent of Crescent Point Energy. All amounts discussed today 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 & Analysis for the period ending March 31, 2024, were announced this morning and are available on the Crescent Point, SEDAR+, and EDGAR websites.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a 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 operation or financial results are included in Crescent Point’s most recent annual information form, which may be accessed through 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 early today.

I will now turn the call over to Craig Bryksa, President and Chief Executive Officer of Crescent Point. Please go ahead, Mr. Bryksa.

Craig Bryksa: Thank you, Operator. Welcome, everyone to our Q1 2024 conference call. With me today are Ken Lamont, our Chief Financial Officer, and Ryan Gritzfeldt, our Chief Operating Officer. We’re off to a great start in 2024. As recently stated, our strategic priorities are focused on operational execution, optimizing our balance sheet, and increasing our return to capital. Our first quarter results showcased how our operational execution and capital discipline led to solid results across our business. In the first quarter, we produced over 198,000 BOE per day. We generated $130 million of excess cash flow, returning 60% of that to our shareholders through our base dividend and share repurchases. And on the balance sheet front, we reduced our net debt by over $150 million.

Earlier this week, we entered into an agreement to dispose of non-core assets in Saskatchewan for $600 million. We plan to direct the net proceeds from this disposition towards debt repayment further strengthening our financial position. As a result, we forecast our net debt at the end of 2024 to be $2.8 billion or 1.1x debt to cash flow. This would mark significant net debt reduction of $1 billion since year-end 2023. All these highlights serve as examples of how we are executing on our strategic plan and maintaining our commitment to enhance shareholder value. I’d like to focus today on our operational excellence across our entire portfolio because that is what ultimately drives the effectiveness of our strategic priorities. In the Alberta Montney, we continue to demonstrate the quality of our asset base and our technical strength.

Our recent well results show that we are drilling some of the top wells, oil and liquids producing wells not just in the area, but across the entire Western Canadian Cemetery Basin. We have also seamlessly integrated our recently acquired Alberta Montney assets and brought on stream 18 wells year-to-date with strong results. In Karr West, we brought on stream three multi-well pads since closing our acquisition in late 2023. These wells were drilled by the prior operator using their frac design including tighter well space. The peak 30-day well rates from these first two pads have ranged from 400 to 1,400 BOE per day with 85% liquids. The third pad recently came on stream with strong initial results. We will be bringing on stream our first fully operated pad in this area early second half of the year, which will utilize our drilling and completions design, including wider well space.

At our recent multi-well pad in Gold Creek West, we tested different completions designs. We used a plug and perf technique on two of the four wells instead of sliding sleeves and have seen promising results to-date. This pad had an average peak 30-day rate of 1,800 BOE per day per well with 85% liquid weighting. As good as these results are we believe that we can do more to unlock future value by further optimizing our drilling and completion designs. Consistent with previous quarters, our Kaybob Duvernay results also feature strong IP30 rates with high liquids weighting, most of which is condensate. This leads to generating prolific returns in the area. In the first quarter, I’m proud to say that our operating team achieved a remarkable milestone by successfully drilling the longest onshore well in Canadian history.

Our record well had a total measured depth of over 9,000 meters, which included a lateral length of over 5,400 meters. It was drilled as part of a multi-well pad in the volatile oil window to access portions of the reservoir that otherwise would not have been recovered. We will bring this pad on stream in the second half of the year and we are excited to see the results. Our most recent pad in this area, which came on stream in the first quarter had an average peak 30-day rate of over 1,500 BOE per day per well, comprised of 75% liquids. I’d like to congratulate our Kaybob Duvernay team for their tremendous accomplishment in drilling this record setting well. This is yet another example of our technical bench strength and overall operating expertise.

In Southeast Saskatchewan, we continue to advance our open hole multi-lateral well development program and are seeing encouraging results from these wells. We plan to drill 10 2 mile, 8 legged wells during 2024. With the recently announced government of Saskatchewan royalty incentive, the net present value and payout of our program improves by 10%. With our recently announced non-core asset disposition in Saskatchewan, we revised our 2024 annual production guidance to 191,000 to 199,000 BOE per day. Our capital expenditures guidance of $1.4 billion to $1.5 billion remains unchanged due to the minimal spending we had allocated to the disposed assets for the remainder of the year. On a pro forma basis, we expect to generate $875 million of excess cash flow in 2024, at $80 per barrel WTI.

The majority of this excess cash flow is weighted to the second half of the year based on the cadence of our capital program. We will continue to allocate 60% of our excess cash flow to shareholders and the remaining 40% to the balance sheet. As I step back and look at where our company is headed, I’ve never been more excited. We will continue to focus on our strategic priorities of operational execution, optimizing our balance sheet, and increasing our return of capital to our shareholders. Our priorities are supported by an asset portfolio with 20 years of premium drilling inventory to provide disciplined per share growth and significant excess cash flow. Our corporate transformation improvements that we’ve made to get to this point are truly exceptional.

Our first quarter results clearly show how positive the start of the year has been for us. Before wrapping up, I’d like to invite everyone listening in on this call to our AGM later this morning, which will be held virtually. Please visit our website for further details. I’ll now open the call to questions from the investment community, followed by questions from the webcast. Operator, please open the line to questions.

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Q&A Session

Operator: Thank you, sir. Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Dennis Fong with CIBC World Markets. Dennis, please go ahead.

Dennis Fong: Hi, good morning, and congrats on the strong results this morning, and thanks for taking my questions. My first one is maybe focused around the strong type curve results that you guys have showcased. I was just curious as to how would you think about or what level of improved confidence would you need to start applying these stronger results to your plan? And how would that potentially affect either the cadence of production growth or CapEx or free cash flow generated over both the next 12 months and the five-year program?

Craig Bryksa: Hey Dennis thanks for the question. It’s Craig here. I’ll take some of this and then I’ll pass it to Ryan as he’s with me here too. And he can talk to you a lot about how the operations have been going. But Dennis, off to a great start to the year. Happy to be with where we are just over that 198,000 BOE per day. Got a good cadence of operations running, as you’re well aware. We have the two rigs running in the Duvernay, we have the three rigs running in the Montney, and then we bought between call it two to three rigs in Saskatchewan, depending on the timing of the program. But operationally, things have been going very well. Well results have been coming in very well. We’re excited to see when you think to the back half of the year with our spacing in particular in the Montney not only our spacing, but our well designs as those pads start to come online.

We’re certainly encouraged for that. Your question around well results and maybe more pointing towards some outperformance relative to type curves. I think we spoke a little bit about this at the Analyst Day. We’d like to see, call it two to three to four pads in an area with consistent results that are in and around those numbers as we slowly creep that up within our type well. So we take a little bit more of a measured or balanced approach. So ideally you start to see this flow in over time, but really happy with where we are to-date, happy with the performance, encouraged with the performance of the operations team. And Ryan, I don’t know if you’d have any other comments on wells [ph].

Ryan Gritzfeldt: Yes, I think Craig answered it well, and it is a good question. We’ve been getting that question a lot, specifically in Gold Creek West, where like Craig mentioned, we’re getting really strong results. 1,800 BOE a day, 85% liquids IP30s versus our type curve closer to 1,300 BOE a day. We do need more — we need more production history. How are those wells going to decline before we up our type well across the area in our five and 10-year plans. We have 300 locations in that area, and we’re going to actually test probably tighter spacing to seven wells a section, which would add another 100 locations. But I think it’s not proven to just apply that 1,800 BOE a day result across the whole area. So I think that kind of shows the how we’ve adequately risked our production in our 2024 budget and five-year plan.

And as we continue to get more results, more pads, more production history to fully understand the declines, that’s when we’ll look at bumping our assumptions in the current year and go-forward.

Dennis Fong: Great, great. Appreciate that color and context. My second question is shifting maybe more towards the balance sheet. You’ve obviously completed some non-core asset sales in the first quarter and recently announced further non-core asset sales. When I think about we’ll call it the billion dollars of potential debt or deleveraging that you see over the next 12 months both organically and inorganically. How comfortable are you with that pace of deleveraging? And obviously, there’s a further debt target behind that, but I just wanted to understand about the pace of that versus where any commodities are your current capital plans, and what that might afford you for flexibility in terms of capital allocation. Thanks.

Craig Bryksa: Yes. Thanks, Dennis. So Ken is with us here too, as well, so he can give you some color on this in a second. But for us, when you look at where we were at the end of last year, after we did that big strategic Montney acquisition with Hammerhead, we had our balance sheet at about call it just under $3.7-ish billion of absolute debt. So for us to chew up basically $1 billion in a 12-month period, I would say is a good pace of debt reduction. We’re happy with that and happy with projections on that both through the non-core dispositions in Southern Alberta and Northern Alberta, which we closed in the first quarter, and now that the most recent one here in Saskatchewan that we just had announced. So when you combine the proceeds from that plus what we see for excess cash flow generation and the share that the company keeps, that’s in and around $1 billion, so it’s a good significant move or strengthening of our balance sheet.

Look for us, as we talked Dennis and you and I have talked in the past, we’d like to be here a near-term debt target. I’m seeing near-term of around $2.2 billion of absolute debt that’s about one times debt to cash flow. And that, call it $60 to $70 price environment — sorry, $60 to $65 WTI price environment, that would be about one-time. So we want to move quickly towards that. So look for us to try and accelerate into that as we go, but very happy with the progress we’ve made to-date. And we’ll continue towards that, strengthening towards it that, like you say, $2.2 billion. And then as we get to that level, look for us to start to talk about increasing our return of capital to shareholders. So right now we return 60% of our excess cash flow to our shareholders.