Q4 2019 Earnings Call

Good morning, Ladies and gentlemen, my name is still one I know with your conference call operator for Crescent point Energys, Yeah, I'm 2019 conference call.

This conference call is being recorded today and will be webcast, along with a flight deck, which can be found on question on site home page.

The webcast may not be recorded or rebroadcast without the express consent of Crescent point energy.

All amounts discussed today or in Canadian dollars, unless otherwise stated.

The complete financial statements and management's discussion and analysis for the period ending December 31st 2019 were announced this morning, and I feel a little under Crescent points.

<unk> <unk>.

All lines have been placed on mute to prevent any background noise.

The speakers remarks, there will be a question answer session for members of the investment community.

If you'd like to ask a question. During this time somebody press Star then the number one on your telephone keypad.

If you'd like to withdraw your question. Please press star followed by channel.

During the course of 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 on factors that could affect Crescent point's operations or financial results are included in cost points. Most recent annual information form which may be accessed through the crescent point seat on our website or by contacting Crescent point energy.

I'm trying to also called your attention to the forward looking information and non-GAAP measures sections have to press release issued earlier today.

I'll now turn the call over to Brad <unk> Senior Vice President corporate planning in capital markets. Please go ahead mr. broker.

Thanks, operator, and I'd like to welcome everyone to our year end 2019 conference call.

With me today are Craig <unk>, President and Chief Executive Officer, Kenmore, Chief Financial Officer, and Ryan Good sell Chief operating officer.

Other members of our senior leadership team are also prisons provide additional insight during the question and answer period at the end of this call.

As operator highlighted this conference call is being webcast along with the slide deck, which can be found on Crescent Point's website.

I'll pass things over to Craig to provide an overview of our fourth quarter at year end [laughter]. Thanks, Rod and thank you everyone for joining us state.

I'm pleased to report the Crescent Point's 2019 performance and provide some highlights in the past year.

Our fourth quarter results conclude a year of execution and significant transformation for the company.

We've worked diligently to focus our asset base enhance our cost structure and strengthen our balance sheet, while remaining disciplined in our capital allocation.

Since year end 2018, we have executed our capital program on budget demonstrating continued operational excellence sold multiple assets at attractive metrics for proceeds of approximately 1.4 or $5 billion.

Strengthened our balance sheet by reducing our net debt by more than 45% or approximately $1.75 billion.

Realized over $170 million of internal annual cost efficiencies and repurchased 26.2 million shares were approximately 5% of a public float.

These are just some of the key highlights from our past year.

We've also taken strides to further enhance our strong E.S.G. practices, which reflects our commitment to operating our business the right way.

Our U.S.G. highlights include achieving new multiyear lows in our safety incident rate continued reductions in or absolute emissions lowering our future abandonment and reclamation obligations by over $220 million and increasing our disclosure practices by releasing our inaugural sustainability report.

As a result of our successful execution across multiple aspects of our business. We now stand at a much stronger position than we did just one year ago.

And while financial markets and commodity prices remain largely outside of our control. We're nonetheless focused on what we can control in order to create value for our shareholders.

This means continued operational execution capital discipline and long term sustainability.

On that note I'm pleased to report that the Toronto stock Exchange has accepted our NC I'd be renewal pure purchase up to an additional 7% if our public float.

I'll now turn the call for the can to provide an update on our financial highlights [noise].

Thanks, Craig.

For the year ended December 31st 2019, the company's adjusted funds flow totaled $1.83 billion or $3, a 34 cents per share dilutive.

We improved our funds FFO per share by approximately 6% as compared to 2018.

We achieved this improvement by successfully implementing change throat or a business.

The effects of which more than offset a 6% reduction in our realized selling prices in 2019, and a 9% lower average production as a result of asset disposition.

We executed our 2019 capital program on budget at the midpoint of our annual guidance range of $1.25 billion.

We also decided to reduce our bank line to save costs and extend our credit facility maturity to October 2023, maintaining significant liquidity.

At December 30, Onest 2019, the company's net debt was approximately $2.8 billion with unrealized credit.

Capacity of approximately $2.2 billion [laughter] subsequent to the quarter, we closed our previously announced sale of certain gas infrastructure assets into Scotts run for $500 million further, reducing our net debt and significantly increasing the company's unutilized credit capacity.

In addition to strengthening our balance sheet, we repurchased approximately 5% of our public float or $135 million of shares under our NC IB, including $125 million worth the shares acquired in 2019 as budgeted [laughter]. We're currently in the process of renewing or into the IB and look forward to reactivating.

Our share repurchase activity, given our discounted valuation.

Our 2020 budget assumes that 20% to 30% of our excess cash flow and approximately $50 million of proceeds from our recently completed infrastructure monetization will be allocated towards share repurchases. This year.

As a part of our risk management program to protect against commodity price volatility. We have currently hedged on average 50% of our oil and liquids production net of royalty interest through 2020 at a weighted average market value price of over Canadian $76 per barrel.

For the year into 2019, we incurred a net loss of approximately $1 billion, including a noncash impairment charge in the fourth quarter of $1.2 billion or $884 million after tax.

This impairment charge is primarily due to decrease in the independent engineers price forecast and does not impact Crescent point's adjusted funds flow or its credit capacity. It is also reversible in future periods should there be any indicators that the value of the assets has increased as a result of an improvement in the outlook for commodity prices.

Our adjusted net earnings in 2019 were approximately $387 million or 71 cents per share up significantly from the $235 million or 43 cents per share in the prior year.

Well now turn it over to Ryan to provide some highlights on our operations and or year end reserves Ryan.

Thanks again.

In 2019, we produced on average slightly over 162000 Boe per day, which was at the midpoint of the company's guidance range and was comprised of approximately 91% oil and liquids. Our average production during fourth quarter was slightly over 145000 Boe per day.

Reflecting asset dispositions executed during the quarter.

Quite successfully implementing cost management initiatives, we achieve sustainable operating cost efficiencies of approximately 70 $70 million in 29 team an improvement of over 7%, excluding any positive impact from dispositions. We realize these efficiencies by adopting digital technologies that has further.

Enhanced new work flow changes, we are continuing these initiatives throughout 2020, and we expect to achieve additional operating expense savings through these efforts.

We continue to generate strong free cash flow in our key focus areas driven by our Viewfield Shaunavon resource plays.

We also continue to benefit from the successful advancement of our decline mitigation programs for which we continue to receive positive recognition from are independent reserve evaluators.

In flat Lake in 2019, we enhanced our risk adjusted returns within the towards we program by shifting to two mile horizontal well development and realizing capital cost reductions of approximately 15% through drilling and completion optimization.

We have focused our 2020 development program and slightly primarily on two mile horizontal development continued optimization of our drilling and completion program and other enhanced operating and conservation efficiencies are utilizing our existing and recently expanded infrastructure in the area.

We have also generated strong results from our Bakken three forks assets in North Dakota through enhanced efficiencies in our multi well pad development. We have directed approximately 22% of our 2020 capital budget to this resource play as our economics in returns from these assets are competitive with our other risk inventory.

As Craig previously mentioned over the last 18 months, we have transformed many aspects of the business.

Our year end 2019 reserves reflect many of these changes, including multiple asset dispositions in a more disciplined capital allocation process that prioritizes low risk high return prebook drilling versus step out exploration.

Negative technical revisions were realized during the year, which were offset by additions. These revisions relate to reassessments of certain assets in comparison to earlier forecasts from prior years.

Excluding dispositions and revisions we replaced more than our annual production in 2019 and generate as a strong recycle ratio of approximately two times on a proved plus probable basis.

We also grew our year over year PDP net asset value per share by over 20%, assuming a flat U.S. 55 dollar WT I price deck, excluding land seismic and excluding the changes made to include future asset retirement obligations.

At year end 2019 R to P. NAV was $10.57 per share based on a flat pricing assumption of U.S. $55 per barrel WT <unk>.

This now concludes $5.25 per share associated with our one p. reserves and $3.75 per share associated with our proved developed producing assets.

These net asset values compare favorably to our current valuation. They also exclude the value of our land in seismic assets, which represent an additional $1.33 cents per share of now value at year end 2019.

I'll now turn it back to Craig to provide some closing remarks, thanks, Ryan in closing I'd like to thank our shareholders for their continued support and our employees for their hard work and execution in a very challenging environment.

We remain on track with our 2020 guidance annual average production of 140 to 144000 Boe per day and capital expenditures of $1.1 billion to $1.2 billion.

Our budget is fully funded at approximately $46 per barrel you SWT <unk> with 50% of our 2020 oil production hedged at over $76 Canadian per barrel.

We will remain flexible in managing our overall spending as we continue to prioritize returns and a strong balance sheet I'm very proud of the positive changes we have accomplished over the past year I'm excited about the opportunities that lie ahead.

And a strong financial position with high netback assets that generate free cash flow and provide attractive market access points relative to our Canadian landscape.

We expect our track record of operational execution and capital discipline to allow for additional cost efficiencies and returns to be generated for our shareholders, including opportunities to further optimize our portfolio and our long term sustainability.

I will now open the call for questions from the investment community operator, Please open the lines for questions.

Thank you.

As a reminder for members at the investment community. If your question. Please press Star then the number one on your telephone keypad.

If you would like to lets try a question. Please press star followed by too we will pause for a moment to compile the <unk> roster.

Thank you. The first question comes from the line Cody Kong stifle for.

Energy Your line is now open.

Good morning, everyone. Thanks for taking my call out a couple of questions as it pertains to your reserves I can you give us any further background on any themes.

Kind of behind the nature of geography of your technical revisions that you guys took a this year.

Thanks, CODI, it's Craig here I had a feeling this one would come up when you take a look at the company here over the last caught 18 months. We've we've added a lot of change changes that we've been going through in order to transform the company a one of the things that we've noticed in the in the last few years is this negative technical revisions.

For that period of time and Weve. These are things that we don't want going forward, we brought that forward to our independent evaluators. They came back with the negative 55 million barrel technical revision that we're are fully supportive of and fully aligned with.

When you when you when you look at that it doesn't have an impact on our budgeting process. It certainly doesn't have an impact on our five year plan and doesn't have an impact on our are well inventory and at the end of the day, though it is significant when you do look at it on I'm on a percentage basis, it's only 2% of our PDP and 3%.

Our one proved number or one p. number sorry, I. So certainly gives us a good fresh start here moving forward as the company is is transforming.

Okay, and then a follow up questions that I know, that's a everything was a little bit noisy this year with all the dispositions are light, but you mentioned in the release that you guys had two times recycle ratio and I know, you're excluding a bunch of stuff can you kind of walk me behind the math behind that that statement.

Yeah, Hey, CODI its Ryan I'll take that one yes. Good question. So so if you take our total capital of $1.27 billion spent less the change in FDC, which was approximately 200 million.

Yeah with the capital is 1.07 billion and then if you divide that just by our our reserve additions of 54 million via Lee you had about a $19 SMB or about a 1.7 times recycle using our $34 barrel NAFTA, but if you further removed the capex associated with their spend on.

Our assets disposed of in 29 team because obviously these properties are now gone and therefore, we didn't get any credit for reserve adds on those dollar spent.

The capital gets reduced to about 900 million and then so based on our those same reserve adds a 54 million Boe, we DFE India's about $17 abuse. The f. Andy is about $17 be a week or about two times recycle using that same $34.

Okay. Thanks for that and that's it for me.

Thanks Cody.

Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star followed by one.

Your next question is from the line of one child TD Securities. Your line is now open.

Yeah. Thanks, Thanks for taking my question.

Touch a little bit on the 2020 <unk> program I know.

And that is sustainable down to 46 can you give us a bit of color as to what you know certain scenarios. How this could unfold if commodity prices move around a little bit and when if that's the case when and how would you look to revise that program.

Thanks, JJ, it's it's Craig here, so I'm the one thing I'd say with most of our operations in Canada as we haven't natural break in our drilling program not usually comes out with spring break up which is right in front of us.

Well you sometime in the air to reassess the program and the commodity price environment that we're in I think.

As it sits right now with us being fully funded at $46.

And continuing to work on cost cost efficiencies, we've got to a very defensive budget in place and then we built the budget from the starting point is that in mind. So we certainly feel good about that but the timeframe around that for us to revisit will be as we roll into break up here and then see how the market plays out.

Over the next couple of months.

That's great.

The only other question I had missed one off costs I mean Q4, some really good beats <unk> costs at least relative to our numbers.

Can you give us a bit of color.

Craig or Ryan as to where you see that going in 2020 'cause up.

Obviously, there's a little bit upside there to those numbers.

So I'll leave that one for Ryan the one thing I would say about op costs for the year JJ is how proud I am of the operations team on what they've done it's really been incredible when you look at it and basically if say $70 million over the year from when they initially started out and Ryan is going to continue to.

Push that that technology, and then what we've been implementing forward across the asset base, but I can leave some that color for her Ryan to speak.

Yeah for sure.

Yeah like like Craig said, we're very pleased with our Opex results in Q4 as a result of all the.

Cost initiatives and the new work flow changes, we've implemented throughout the year, our field staff really has done an outstanding job.

You know, there's lots of moving parts in any given quarter, though and so it's hard to annualize.

Just on a quarter, but having said that our guidance for 2020 is closer to $700 million for the year and by continuing to deploy the new way.

That we're operating into all of our core areas.

We hope to further achieve further cost efficiencies like Craig said and and beat that guidance.

That's great.

That's all I had.

Thanks JJ.

Thank you there no further questions ill now turn the call back over to crank back so for closing comments.

Thanks, everybody for joining our fourth quarter call today.

Ladies and gentlemen, this concludes the conference call for today.

Points Investor Relations Department can be reached at 1855767692 suite.

Thank you and have a good day.