Q1 2021 Crescent Point Energy Corp Earnings Call
Good morning, Ladies and gentlemen, my name is Sylvie and I will be your operator for Crescent point Energy's first quarter 2021 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 homepage. The webcast may not be recorded or rebroadcast without the express consent of Crescent point energy all amounts discussed today are in Canadian dollars unless otherwise stated.
The complete financial statements and management's discussion and the loss analysis for the period ended March 31, 2021 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 from members of the investment community.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad and if you would like to withdraw your question. Please press star two.
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 of 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 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, and I would like to turn the call over to Craig <unk>, President and Chief Executive Officer at Crescent Point. Please go ahead Sir.
Thank you operator welcome everyone to our Q1 2021 conference call with me today are Ken Lamont, Chief Financial Officer, and Ryan <unk>, 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.
Before I discuss our quarterly results I'd like to briefly speak to the improving industry sentiment and the opportunities ahead of us for this year.
After a tumultuous 2020, the macro environment became more constructive in the first quarter of 2021, although the world continues to face significant COVID-19 related challenges. The vaccination rollout has broadened and economies are beginning to open with global oil demand returning to closer to pre pandemic levels on the supply of front, we believe the industry.
Use to show renewed disciplined focusing on returns over large scale growth.
Additionally, OPEC and other oil producing nations have remained successful in managing the delicate supply demand balance as global economic recovery finds its footing.
These factors of all helped stabilize the commodity prices with <unk> hovering around $60 per barrel mark for much of the first quarter.
Though the timing of the full global recovery means uncertain, our commitment to our guiding principles of balance sheet strength and sustainability have remained unchanged for maintaining this commitment we have delivered strong first quarter results during.
During the first quarter, we generated significant excess cash flow of approximately $130 million further enhancing our balance sheet strength increased our emissions intensity reduction target to 50% by 2025 and remain on track with our annual capital spending and production guidance as a result of our initial Q1 success and further.
Actual execution, we anticipate generating excess cash flow of approximately $525 million to $650 million at U S 55 to $65 per barrel WTO for 2021 the.
The significant excess cash flow generation materially enhances our financial position based on current commodity price environment. We expect continued improvement into next year as well further enhancing our value for our shareholders subsequent to the quarter ending we closed our accretive acquisition in the K, Bob Duvernay, we expect that our entry into this play well.
Further enhance our expected free cash flow generation accelerate our deleveraging profile give us significant inventory in the infrastructure in a low risk play and improve our environmental performance all at a treat of accretive per share metrics.
Since closing the acquisition of art, our teams have moved swiftly to integrate the new assets into our portfolio and have welcomed the talented team of former shell employees, the crescent point or.
Our operations strategy continues to be holding production relatively flat at approximately 30000 Boe per day, while making an annual capital investment of approximately of $180 million.
This produces annual net operating income of approximately 365.
To $435 million at U S 55 to $65 per barrel WTS pricing.
We are confident that we will identify further opportunities to enhance returns in this play by realizing efficiencies through our expertise in multi well pad development and by identifying new drilling locations over time.
Furthermore, by requiring direct ownership of key infrastructure in the area, we should be able to develop the assets with lower capital requirements. While also gaining strategic control of our future development plans.
We look forward to sharing more news about our operational progress from the Kebob duvernay over the coming months as we continue to integrate these assets into our operations.
While we anticipate our K, Bob Duvernay entry to improve our environmental performance I also want to highlight additional ESG progress we've made at the corporate level.
Last year, we set an ambitious emissions reduction target to drop our GHT intensity by 30% and our methane emissions by 50% by the year 2025.
We've worked hard to make progress on these emissions reduction fronts and have achieved significant early success.
As a result, we are increasing our targets to achieve reductions of 50% and ghd intensity and 70% of methane emissions by the year 2025 from the same 2017 baseline as our original targets.
We continue to receive recognition for our ESG progress from sustainability reading agencies. We are in the progress of compiling this year of sustainability report, which will be highlight our continued commitment to ESG practices, including the announcement of additional environmental targets. The new performance disclosures look further forward.
To be released later this year I'll now turn the over to Ken to discuss our financial results Ken.
Great. Thanks, Craig.
For the quarter ended March 31, 2021, adjusted funds flow of totaled over $260 million for 49 per share fully diluted driven by a strong operating netback of over $35 per Boe.
Our first quarter development capital expenditures totaled $119 million, we remain on track to spend $575 million to $625 million in 2021, which is in line with our previous previously stated guidance net.
Net debt as at March 31, 2021 was approximately 2 billion, which reflects over $135 million of net debt reduction in the quarter and over $750 million at the beginning of 2020.
Our overall net debt does not include the K, Bob Duvernay acquisition, which closed on April one.
As a part of the cable of Duvernay transaction funding, our net debt increased by approximately $670 million, including normal closing adjustments how's.
However, due to the increased expected cash flow and excess cash flow generation associated with this deal our near term leverage ratios have improved alongside our expected deleveraging horizon.
We expect to obtain our long term leverage targets of approximately one times through the continued allocation of future excess cash flow to net debt repayments and through potential A&D opportunities.
We continue to be disciplined with our hedging strategy to protect against commodity price volatility over 40%.
Of our remaining oil and liquids production net of royalty interest is hedged through the remainder of 2021.
The majority of our hedges or swaps with an average price of approximately of Canadian $65 per barrel, providing us with a solid cash flow base for the year.
We will remain disciplined in our approach and layering on additional protection in the context of commodity prices and we'll chip away at locking in more hedges, which participate in some commodity price upside.
I'll now turn things over to Ryan to provide some operational highlights Brian.
Thanks, Ken our first quarter production averaged 119384 Boe per day comprised of over 90% oil and liquids, our previously announced acquisition in the K, Bob Duvernay closed April one and we have successfully integrated these assets into our operations during the <unk>.
Quarter of number of our wells were completed and brought on stream and initial rates of these wells on production for more than 30 days at IP 30 rates of approximately 800 Boe per day per well weighted to approximately 85% condensate and liquids. We are pleased with these results as development continues to step out from shelves here.
<unk> drilling locations.
Our first months of operating in the cable of Duvernay has only reinforced the excitement we have for this deal as we combine our existing in house technical knowledge with the hands on expertise of our new employees from shell, who have years of experience working with this asset Crescent point has a proven history of operational execution in two mile horizontal development plays.
With similar characteristics to the cable of Duvernay, such as our assets in North Dakota, and we look forward to applying these learnings to our K, Bob Duvernay asset to further enhance efficiencies and full cycle returns.
Our conservative 10 year development plan for these assets has a focus on free cash flow generation overgrowth.
We are excited about the opportunity for us to enhance returns through potential cost efficiencies to potentially identify new locations, given our conservative well spacing assumptions and undeveloped land base, and therefore grow economic reserves and net asset value given the unblocked nature of this asset.
As we.
The great the K, Bob Duvernay assets, we will also remain focused on enhancing the sustainability of our entire asset base through our decline mitigation efforts in first quarter. We successfully converted 30 waterflood injectors and plan to convert over 135 for the year. The continued success of our waterflood programs as evidenced by the law.
Low decline production the generate approximately 25% of our current corporate oil production is under waterflood with the base decline rate of only 5% and as we continue to convert producers to injectors and re pressurize our reservoirs, we expect to see ongoing improvement in our corporate decline rate.
Moving to ESG as Craig mentioned, we've had tremendous success, reducing our emissions intensity since releasing our original 30% reduction target and last year's sustainability report we.
We have achieved significant reductions to date by taking a proactive approach to mitigating emissions in our day to day development planning and field operations. As a result of this early success, we are setting more aggressive targets to achieve reductions of 50% and greenhouse gas intensity, including a 70% reduction in methane emissions.
By 2025.
Our success has also been driven through new workflows in the adoption of our <unk> platform, which has increased field automation, while reducing costs and operator, driving the requirements, thereby further reducing emissions.
Altogether I think our progress to date has been incredible and I am proud of our team's success and look forward to delivering continued improvements over the coming years.
<unk> considerations are part of everything we do and we're excited to announce new environmental performance targets and disclosures and our third annual sustainability report. This report, which we plan to release later this year will include greater detail on our new targets and increased accountability.
Before I turn it back over to Craig I'd like to thank all of our field and operations staff for their tireless work over the past three months your hard work dedication to safe operations and continued execution is pivotal to our overall success I'd also like to welcome all of our new employees from shell as we're very excited to have you of.
Board and look forward to working alongside you as we develop the cable of asset.
Now I'll pass it back to Craig for some final remarks.
Thanks, Brian our first quarter.
The results have us well positioned for a strong fiscal 2021, especially if the rising oil price environment, we've experienced so far this year per se.
We are optimistic that the global economic recovery will continue in the summer months as more people receive vaccines.
Economies open further however, we will remain prudent in our risk management and disciplined in our capital allocation to protect ourselves under any commodity price scenario.
Our light oil weighted.
The high net back asset base gives us a robust free cash flow generation outlook with significant upside in the event commodity prices continued to improve.
We are excited for what this means to our outlook and the opportunity to increase for our shareholders. Our capital allocation framework is centered on sustaining production and initially directing free cash flow, we generate toward our balance sheet and base dividend as.
As market conditions continue to improve and we approach our optimal leverage target, we will consider gradually increasing our base dividend of <unk>.
Following that we will assess the allocation of any remaining free cash flow in the context of returns and our long term development plans I.
I want to thank all our stakeholders for their continued support and our employees for their hard work and execution on our business strategy, we look forward to having the opportunity to engage with our shareholders at our annual General meeting on May 20th similar last year, we will be hosting the event virtually to protect the health and well being of all of our valued stakeholders.
For more information on how to attend our AGM. Please visit our website I will now open the call to the investment community for questions. Operator. Please open the call. Thank you Sir as a reminder for members of the investment community. If you would like to ask a question. Please slowly press Star then the number of one on your telephone keypad and if you would like to withdraw your.
A question Press Star two we will pause for a moment to compile the Q&A roster.
And your first question comes from the line of Cody Kwong at Stifel. Please go ahead. Your line is open.
Good morning, guys. Thanks for taking my call got a quick question on on your capital budget for this year I see a lot of your peers of either increase their budget with rising oil prices or at least considering it right now where do you guys stand that I see there was no update to guidance here, but I mean could we possibly see something a little bit more accelerated.
In the back half of the year for you guys stand patent at this level.
Good morning, Corey Thanks for the question.
I would say our guidance is pretty much set for the year. So don't expect us to go layering in and the incremental capital here in the back half of the year, so the $575 million to $625 million capital budget that we've laid out to the market.
I would call that set for for this year for sure and then.
We're just starting the formal process here for 2022, and as we get closer to nail that down and get that done, we'll we'll lay that out to the market at some point in time here into the fall or winter season. So.
But in the base case level, though the number that you have in your presentation $850 million of sustaining capex, that's a decent number to use for now Greg for first.
Sure. It is that's a safe assumption on the sustaining level.
Okay. That's it for me thanks.
Cody.
Thank you next question is from the line of Patrick O'rourke with BBT capital. Please go ahead of your line is open.
Hey, Good morning, guys, just a couple of questions here and they probably go in different directions, but first just wondering in terms of the duvernay in capital allocation coming up.
Shell had had a fairly concentrated approach to that I think that probably lined up with their infrastructure.
The.
The footprint is fairly wide.
I'm, assuming you're pretty set.
Where are you going to drill in 2021, but how do you approach kind of.
Delineation and de risking some of these other pockets that shell hasn't been as active on.
As we get out into 2022 here that might have considerable value and certainly see some intriguing offsetting well results.
Yes, so I can I can take that first Patrick and again. Thanks for the question and then I'll pass a little bit of of to Ryan, but as you look into 2021 like you said our program is fairly set we're going to be moving.
Iron out there and call. It. The later part of June early July to really start up of our drilling program here for this year. So we're excited about that and like I say that program is set and then as you look out into 2022, we'll step out a little bit but also keep in mind Patrick debt.
The play is fairly well delineated and of <unk>.
Not only by shell and what they've done over the past decade, but also by a number of the competitors in the area of when you look to the north and the south from the east and the West. So it gives us the significant amount of confidence in the asset base and in the land base as we move a little bit to the east and then even a little bit to the west.
As far as the timing around all of that like I say 'twenty. One is fairly set 2022, we're starting to plan into.
And then Ryan I don't know if you'd have any additional comments you'd want to speak to on on K Bob.
Yes, I don't think of too much extra Craig you handle that one pretty well I mean as you know these these are kind of bigger pads and some undeveloped areas until there is.
12 months planning that goes into these pads, so like Craig said.
Our 2021 program is is pretty set here.
Offsetting some of the some of the.
Current results, we're getting that we're pleased with and then 2022 as well starting to plan that out in and definitely following up.
Some of our results in the northeast part of the play and then more of kind of in the in the central part.
Offsetting shelves historic drilling.
Maybe shifting gears a little bit here.
You guys sound fairly.
Optimistic maybe thats not the right word.
Operating in a recovery here in commodity prices.
And on the back end of the curve is has come off but we're still in a fairly backward dated position hedges are rolling off just wondering how you're thinking about.
Maintaining that enthusiasm, but also managing.
On the risk management side here going forward with that backwardation.
Yes, so thats a good question too and I'll take a bit of a patent and then I'll pass it over to Ken as well to speak to you give you a little bit of color on you and how we're approaching the hedge book, but.
Obviously commodity prices, where they are call. It today 65 Bucks very strong.
We're we're obviously excited about that in one of what it's done here over the last year, just from where we were to where we are so.
It really it really speaks to the high net back asset base that we have when you look at the free cash flow generation for us this year, even at the at a $65 price deck were 650 million of of excess free cash flow.
A lot of torque there to the upside, but again to your point, we certainly.
Have have been very active in the very discipline with our hedge book.
So don't look for that to change and I can give her just passed it here to Ken and he can give you a little bit of color on our thoughts on that as well. So Ken do you want to speak to the book.
Sure. Thanks, Craig.
Yes, so obviously, we do hedge and we do hedge to protect for <unk>.
Commodity price volatility and the impact that has obviously on our capital programs and our dividend so.
Look to us to be disciplined on that.
Obviously as you pointed out the curse of pretty backward dated so.
As the front end of the spikes of bit. We obviously are just filling in the book of little bit into Q3, and Q4 here and taken advantage of some of this.
Robust oil prices as you look towards 2022.
We are layering in a little bit of hedges, but we're doing that very.
Very selectively obviously, if you look at call it $60, the USW Ti and above.
That's a pretty attractive level when we look at free cash into 2022, and that's kind of a nice base level, where you can start chipping away at a little bit of hedge protection.
We are using instruments swaps, but we're also using a combination of colors in three ways to do a little bit of hedging out there in 2022, just so that we have a little bit of an upside participation.
Should oil prices continue to kind of strength in the back end of the curve coming up but.
Look for us the stay disciplined and we will keep chipping away here a little bit.
Great.
Yes.
I don't want him when Im looking at your the way you are your hedge book is constructed and it looks like those three way collars.
And colors are gaining a little bit more relevancy as we go out in the future you expect that to continue.
Yes, as you look out into into 2020 do you expect that to continue Patrick like.
When you think of it this way basically two thirds of the book that has a very solid floor and two thirds of the book lets you participate in a little bit of the upside.
So again, it's staying disciplined to our process and to Ken's point, starting to chip away at that and layer in a pretty solid foundation for.
For us as we look out into the next year, but we will remain disciplined towards that so.
Okay, great. Thank you.
Thanks for the questions.
Yeah.
Thank you once again as I remember as a reminder for members of the investment community. If you would like to ask a question. Please press star followed by one of your telephone keypad.
And at this time Mr. <unk>, we have no further questions. Please proceed.
Thank you all for joining our call today. If you have any questions that were not answered please call our investor relations team at your convenience. Thanks again, everyone take care.
Thank you Sir.
Please note that Crescent Point's Investor Relations Department can be reached at 18557676923. Thank you for attending and have a good day.
Okay.
Okay.
Okay.
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