Crescent Point Energy Corp. (NYSE:CPG) Q3 2023 Earnings Call Transcript

Crescent Point Energy Corp. (NYSE:CPG) Q3 2023 Earnings Call Transcript November 2, 2023

Crescent Point Energy Corp. misses on earnings expectations. Reported EPS is $-1.52 EPS, expectations were $0.37.

Operator: Good morning, ladies and gentlemen. My name is John, and I will be your operator for Crescent Point Energy’s Third 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 pricing, which is quoted in U.S. dollars. The complete financial statements and management’s discussion and analysis for the period ending September 30, 2023, were announced this morning and are available on the Crescent Point, SEDAR+ and EDGAR websites.

[Operator Instructions]. During the call, management may make projections or 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 the Crescent Point, SEDAR+ and 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 third 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. We’re continuing with our new conference call format to add a level of further engagement and to turn the call into more of a discussion. Earlier today, we issued our quarterly press release, financial results and an updated corporate presentation, each of which can be found on our website. During this call, I’ll provide a brief strategy update, highlight our results and discuss our overall outlook.

We’ll then move into a Q&A session. We will start by taking questions over the conference line. As we usually do, 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 on the webcast to submit questions using the chat function on the online portal. We look forward to the discussions that this format will provide. Let’s get started. It has been a busy year at Crescent Point as we continue to execute on our portfolio optimization strategy. Our recent acquisition in the Alberta Montney has generated strong returns for the company, and we have been impressed with the operational results achieved to date, which I will speak to shortly.

We’ve also been active on the disposition side to further streamline our portfolio, which included the sale of our North Dakota assets, which closed subsequent to the quarter. This transaction allowed us to bring forward the future expected value for this area while also strengthening our balance sheet. These transactions are consistent with our strategy to focus our portfolio on high return, high netback, short- and long-cycle plays. This balanced portfolio allows us to deliver sustainable long-term returns for our shareholders through a combination of disciplined per share growth, a significant return of capital and our balance sheet strength. I want to spend a few minutes touching on our Alberta Montney as we are very excited about this addition to our portfolio and our results to date.

From a strategic perspective, the Alberta Montney provides a deep drilling inventory, positioning within the volatile oil window, consistent geology with significant resource in place and the opportunity to enhance returns through drilling and completions optimization. Since entering the play, we continue to achieve consistent and repeatable results that are in line or ahead of our expectations, including some of the highest productivity wells in the entire Western Canadian Sedimentary Basin. At Gold Creek West, for example, our most recent pad brought onstream achieved peak 30-day rates of 1,200 BOE per day per well with a high liquids weighting of nearly 70%. In addition to these results, we are also making progress on reducing costs and are evaluating opportunities to develop certain areas of the play at tighter spacing that would provide additional drilling inventory.

We are currently running a 1-rig program in the Montney but will be evaluating, eventually looking to add a second rig to further accelerate the high-return development of our deep inventory in the play. Altogether, the addition of these Montney assets has significantly enhanced the quality of our overall portfolio and the company’s long-term outlook. Shifting to the Kaybob Duvernay, we continue to generate very strong consistent results, which has been a major part of our production in 2023. If you recall, when we adjusted our 2023 production guidance to reflect our recent North Dakota disposition, our outperformance, largely driven from the Kaybob Duvernay allowed us to partially offset the volumes that were sold. Our latest Kaybob pad, which came onstream during the third quarter, was ahead of our type well forecast with peak 30-day rates of approximately 1,500 BOE per day per well comprised of over 80% liquids.

What’s notable from these results is that they are more than double those of an offsetting pad from the previous operator prior to our acquisition in 2021. And it is located on the eastern portion of our land, supporting future development in the area and investment in infrastructure in 2024. These results also highlight the benefits of our optimized well design and completion techniques. Our Kaybob Duvernay and Alberta Montney assets are both expected to generate a combination of sustainable production growth and excess cash flow generation for the company in the years ahead. Within our longer-cycle operations, we are generating strong netbacks and excess cash flow as we progress our decline mitigation programs to enhance ultimate recoveries from our large oil-in-place pools.

Our waterflood and polymer flood operations continue to support strong oil production within our Saskatchewan holdings, resulting in a low decline rate of approximately 15%. We’ve also achieved great success in proving up our open-hole multilateral well designs with strong results to date in the Viewfield Bakken. We recently improved the design of these wells to extend our laterals to enhance production and reduce costs through drilling efficiencies. Our latest wells using this approach consist of approximately 2-mile laterals across 8 legs, which significantly increases reservoir contact and oil production. We recently achieved peak 30-day well results of over 300 barrels per day from our most recent 2 wells, with 100% oil weighting and very attractive economics.

We are excited about this innovation as it has enhanced our overall returns and added new premium locations to our drilling inventory. We look forward to piloting this approach in other areas within our Saskatchewan assets. Looking ahead, we couldn’t be more excited about our outlook. Our preliminary 2024 budget forecasts production guidance of 145,000 to 151,000 BOE per day and excess cash flow generation of approximately $1 billion at $80 per barrel WTI pricing. Further out, our 5-year plan forecasts production growing to 180,000 BOE per day by 2028, representing a 5% compounded annual growth rate, driven by strong production growth from our Montney and Kaybob assets. This growth is balanced by our low-decline production in Saskatchewan, which allows us to maintain consistent decline rate throughout our plan to further enhance our excess cash flow generation.

In total, we expect to generate over $4.3 billion of cumulative after-tax excess cash flow through 2028 at $75 per barrel WTI pricing, 60% of which is earmarked to be returned directly to our shareholders. 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 to questions from our — from the analyst community and follow with a Q&A session for those on the webcast. Operator, please open the call.

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Q&A Session

Operator: [Operator Instructions]. Your first question comes from the line of Amir Arif from ATB Capital.

Amir Arif: Craig, just a few quick operational questions for you. Just in the Duvernay, could you give us some color on that new pad that you referenced in the northern part of your acreage at the volatile oil window? And I think you mentioned there was strong initial results. I’m taking you don’t have 30-day rates yet.

Craig Bryksa: Yes. So we’ve got — we brought 2 pads on in the quarter, Amir. That one that we mentioned in the press release is the pad that came on at around 1,500 BOE per day per well at just about 80% liquids, so a very good pad for us. And then we’ve got a pad in the northern part that is coming through flowback in the second quarter and has just been brought online here now. It looks very encouraging. It looks really good. It’s just we don’t have an IP30 on that one yet, so as we get more well results and more time on production, look for us to then bring those volumes forth. But again, very encouraged by both those 2 pads here over the last quarter. And then the 1 thing I would add too, Amir, is one of the things that we really love about the Duvernay since we’ve been in there is just how consistent and repeatable these results have been.

And as you combine that with what Ryan’s team and the operations front have been doing with our cost structure and then the repeatability and the predictability of the ultimate well results, it’s really starting to drive some very, very, very compelling returns. So exciting for us. And note, too, Amir that rig 2 is now operating in the play for us as well, too now. So going forward with 2 full drilling rigs.

Operator: Your next question comes from the line of Travis Wood from National Bank Financial.

Travis Wood: I wanted to touch on tax. A lot of your peers have shifted over to be cash taxable here through last year and this year. How does cash tax look for you guys going forward on kind of current pricing? I know I think the presentation kind of highlights 5% to 10%, plus or minus, next year. But is there a scenario that — or sorry, in 2025, but is there a scenario that would accelerate that to be cash taxable in 2024 by chance?

Craig Bryksa: Travis, thanks for the question. I’ll pass that over to Ken.

Kenneth Lamont: Yes. So I guess for the first part of your question, as we sit on the strip pricing right now, we will be paying 0 taxes in 2024. And then we’ll be taxable at an effective rate of about 6% in 2025 and that’s relative to cash flow. So we don’t see taxes at strip until 2025 and that will be at 6%. Now the second part of your question, do I see a scenario? I do have a model run that if we hit $100 oil here today and keep that flat, we would have some taxes coming into 2024, kind of in that 5% range. So that would be the sensitivity there. We need to see $100 oil here flat.

Travis Wood: Okay, that’s perfect color on that. So 0 next year, high probability of 0 and then a modest 6% into 2025?

Kenneth Lamont: Yes, that’s correct.

Travis Wood: One more question. Just I guess operationally and not related to the Duvernay or the Montney, but given a lot of open hole, multi-lat acceleration in some older well vertically delineated plays, what — how many wells are you thinking that you would drill across Viewfield with that multi-lat strategy on those open holes that you’d announced with the quarter? And then with those 2 wells, does that make 4 total since you kind of first started talking about that open hole pushing the boundaries at Viewfield?