Crescent Point Energy Corp. (NYSE:CPG) Q4 2023 Earnings Call Transcript

Crescent Point Energy Corp. (NYSE:CPG) Q4 2023 Earnings Call Transcript February 29, 2024

Crescent Point Energy Corp. beats earnings expectations. Reported EPS is $1.68, expectations were $0.31. CPG 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 Lester, and I will be your operator for Crescent Point Energy’s Fourth Quarter 2023 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 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 December 31, 2023 were announced this morning and are available on 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. I’d like to welcome everyone to our fourth quarter 2023 conference call. With me today are Ken Lamont, our Chief Financial Officer; and Justin Foraie, our Vice President of Operations and Marketing. On today’s call, I will first touch on a few of our key accomplishments in 2023 and will then provide some insight into our reserves and our 5-year outlook. Looking back at our Q4 results and our success through 2023, our most remarkable achievement has been how significantly we have transformed our portfolio and how it has materially strengthened Crescent Point’s future outlook. These strategic steps were taken with purpose to secure premium drilling inventory depth in world-class basins. In doing so, we focused on acquiring oil and liquids weighted assets that provide synergies to our existing business and also enhance our long term excess cash flow generation and return to capital profile for our shareholders.

Through our efforts, we have built a portfolio that now has over 20 years of premium drilling inventory. We also control the largest land position in both the condensate rich Kaybob Duvernay play and the volatile oil window in the Alberta Montney. The portfolio we have built provides us with significant running room and growth potential in these plays coupled with our high netback, low decline assets in Saskatchewan. In Kaybob, we continue to be impressed by the strong oil production and the consistent repeatable success we’ve achieved since entering the play in 2021. Similar to Kaybob, our well productivity in the Alberta Montney has been remarkable. We have achieved IP30 results that continually rank in the top 10 oil and liquids wells in the Western Canadian Cemetery Basin.

In fact, 25 of the top 30 oil wells in the Alberta Montney over the past year are now owned by Crescent Point. We’re incredibly excited about the addition of this new asset to our portfolio and eager to report back as we further develop this world class resource. With our successful portfolio transformation, our focus now turns to operational execution, enhancing our balance sheet strength and increasing our return of capital to our shareholders. In 2023, we generated $980 million of excess cash flow, $600 million of which was returned directly to our shareholders through dividends and share repurchases. We remain committed to returning 60% of our excess cash flow to our shareholders and are pleased to raise our base dividend once again to $0.115 per quarter or $0.46 per share on an annualized basis.

Even with this dividend increase, we maintain a very conservative budget that is fully funded at low commodity price of $55 per barrel WTI, assuming our current cost structure and capital expenditures guidance. The strength of our portfolio and our operational execution continue to generate significant value for our shareholders as demonstrated in our 2023 reserve metrics. Last year, we replaced over 900% of our 2023 production including strategic A&D on a 2P reserve basis. We replaced 150% of our 20 20 3 production organically, driven largely by increased reserves additions in our Kaybob Duvernay asset. By entering into the Alberta Montney, we added significant reserves in 2023, increasing our total corporate reserve life index to approximately 16 years.

When factoring in our organic additions and strategic A&D, I’m pleased to report that our 2P finding, development and acquisition costs in 2023 generated a very strong recycle ratio of 2.5x, including change in future development capital. It’s also worth highlighting that approximately 60% of our premium locations in the Kaybob Duvernay and over 70% of our inventory in the Alberta Montney remain unbooked at year-end 2023, allowing for future reserve additions. Looking ahead, we’re forecasting production of 198,000 to 206,000 BOE per day with development capital expenditures of $1.4 billion to $1.5 billion in 2024. Operationally, we will continue to focus on enhancing efficiencies and returns including drilling longer laterals in the Kaybob Duvernay and optimizing well design and inner well spacing in the Alberta Montney.

We have begun drilling on our recently acquired lands utilizing our new well design and look forward to sharing our results in the second half of 2024. In Saskatchewan, we will continue to advance our decline mitigation programs and our open hole multilateral development. We expect to generate significant excess cash flow of approximately $830 million under our 2024 budget, assuming a full year average WTI pricing of approximately $75 per barrel and AECO of $2.30 per Mcf. We continue to earmark 60% of our excess cash flow for shareholders with approximately $500 million expected to be delivered this year through a combination of dividends and share repurchases. Our significant excess cash flow generation and return of capital in 2024 is further complemented by our 5-year plan, which is set to deliver excess cash flow per share growth on a compounded annual basis of approximately 10% at $70 per barrel of WTI.

In aggregate, we expect to generate cumulative excess cash flow of $4.7 billion under our 5-year plan. We believe our plan provides shareholders with a compelling combination of high netback production, strong excess cash flow generation, a significant return of capital in addition to organic per share growth. In closing, I’d like to reiterate just how excited we are about our transformed portfolio. We have significantly enhanced our 5-year outlook and we’re excited to further bolster our returns for each of our assets. I’d like to thank our shareholders for all their support and continued engagement as we transformed our business. We look forward to providing more details on our operational results and long-term development plan at our upcoming Investor Day on March 20.

I’d also like to thank our staff who continue to demonstrate our commitment to operational excellence with yet another safest year on record. We’ll now open the call to questions from the investment community, followed by questions from the webcast. Operator, please open the line.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from Aaron Bilkoski from TD.

Aaron Bilkoski: I have a couple of reserve related questions. The first is related to the technical revisions. I was hoping you could provide some details on what oil and NGL technical revisions in the probable category?

Craig Bryksa: So, as far as reserves, really good numbers when you look at it this year, like I had mentioned on the call, 2P FD&A recycle ratio of 2.5x. So, really strong on those numbers. When you look at the technical revisions, we’re somewhere in the neighborhood in around that 13-ish million total on performance and then technicals on the negative side. About half of that, Aaron, is driven through op costs in more of our legacy assets. So, in our Saskatchewan plays and by definition, those are called technicals when you truncate the back end of the curves. And then the other half of that actually is in a couple of the assets that we ended up moving off here over the last quarter. So, when you look at Swan Hills and Turner Valley.

So, as far as the base business going forward, reserves look really good, really tight. Kaybob came in very strong for us this year. And then, of course, when you look at the Montney with us doing that those series of deals this year, those reserves came in under acquisitions. So, you’ll see cleaner version of that as we roll into 2024.

Aaron Bilkoski: If I could follow it up with another question on the FDC. When I look at the FDC in the reserve report, it looks like capital expenditures are growing too little over $1.7 billion by 2027. How should I reconcile that against your corporate 5-year plan that has corporate CapEx hovering around that 1.45 range over that period?

Craig Bryksa: So when you look at our development plan within our reserves, one thing that we really like about it is, our FDC fairly tightly follows our 5-year plan here in the near-term. And then more importantly, we only have roughly call it 6.5 years of our inventory book and that ties into what you’re seeing on that FDC. So, for us, it’s tough, Aaron, to get them exact, between the independents and how we see our budget. But fairly tight when you look at it here in the near-term in the 5 years. And then again, roughly only about a 6.5 year FDC outlook or profile going forward is how we got it. So what that really speaks to is what I mentioned on the call. So you’ve only got, call it 30% or sorry, 25% to 30% of the Montney locations booked and then only about 40% of the Duvernay locations booked.

So that really speaks to how we’re going to be able to add reserves organically as we move the business forward here throughout the year. So I guess it’s my long way of saying Aaron, it’s really tough to get those exact between the two firms. But we feel really good about how they line up in the 5 years. And then more importantly, if you double back Aaron and get a look at the production profile, the independents have both on a 1P and 2P basis, it’s pretty tight to what we’re showing in the 5-year plan.

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

Travis Wood: Wanted to touch on M&A. You have some ongoing divestiture processes in the works. And at the same time there’s some opportunities to continue to consolidate your core areas, specifically across the Duvernay with some asset packages out for sale from others. So how are you thinking about M&A now, and why not use this kind of opportunity to continue to buy some inventory while it’s on sale?

Craig Bryksa: Hey, Travis. Thanks for the question. So very active on that front over the last year. I think we’re extremely happy with how our portfolio has come together and really the transformation on the portfolio. More importantly for us, when you look at not only our 5- but our 10-year plan, how that looks moving forward. And then again, now on the back end of the latest transaction, we’ve got 20 years of premium drilling inventory in front of us, Travis. And it looks really good for us into the future. As far as acquisitions, we’re not going to be doing anything on that front. So on the acquisitions, I would say no. As far as the dispositions, we’ve got a couple of smaller things that we’re working through as we continue to focus in our asset base into what we’re really looking for on that front.

So there’s a couple of things out there that we’re working through. I would tell you we’re in the middle of the process on that. And as we get some clarity on how that’s going to play out, we’ll give the market an update around that. But that’ll be it for us here this year is the focus on some of these dispos, nothing on the acquisition front. The other thing I’d highlight for you too, Travis, is it’s not only a couple of the asset packages we’re looking at, but we are starting to think through potential on infrastructure and what does that mean for us going forward as well too.

Travis Wood: Painful question, but I need to ask it. Any dialogue with Riverstone and kind of how they’re potentially thinking about their equity stake? I know since the deal they’re a bit underwater on it by 10% or so. But have you had any dialogue with them in terms of how we should think about that block that’s out there potentially?

Craig Bryksa: Yes. And so it is a painful question, Travis, and you do have to ask it. So we absolutely get it. And like you mentioned, on the back end of that deal, part of the deal, which was again very strategic deal for us and made a lot of sense when you think of the long-term business of Crescent Point. So on the back end of the deal, part of the consideration was moving equity into Riverstone as they were the major shareholder, like you mentioned to Hammerhead, to the tune of around 40-ish million shares, Travis, of which you have lockups for split 50% for a 3 and 6-month period. So the first lockup is after the first 3 months and then that remainder is after the second. That being said, I’ve had conversations with Riverstone, both Ken and I.