Q2 2021 Crescent Point Energy Corp Earnings Call
Yeah.
Good morning, Ladies and gentlemen, my name is Michelle and I will be your operator for Crescent point Energy's second quarter 2021 conference call.
This conference call is being recorded today and will be webcast along side 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.
Discussed today are in Canadian dollars, unless otherwise stated that.
The complete financial statements and management's discussion and analysis for the period ending June 30th 2021 were announced this morning and are available on the Crescent point SEDAR and Edgar.
Ed Gar 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.
If you would like to ask a question. During this time simply press Star then number 1 on your telephone keypad.
[noise] amount if you would like to withdraw your question Press Star 2.
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.
All information or 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.
Additionally 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 <unk>, President and Chief Executive Officer at Press Crescent point. Please go ahead Mr.
<unk> zone.
Thank you operator, I'd like to welcome everyone to our Q2.2021 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 a slide deck, which can be found on our website.
Before I jump into.
Q2 results I'd like to rewind, a bit and set the table for today's call.
3 years ago, we set in motion an ambitious plan to transform the company with a focus on strengthening the balance sheet and enhancing sustainability.
Since then we have successfully implemented a disciplined capital allocation framework to guide our decision, making process and provide transparent.
<unk> to our investors streams.
<unk> streamlined our asset base to build a portfolio of high return long life assets and reduce our cost structure and decline rate to enhance our excess cash flow generation.
Because we made these transformative improvements we successfully met the challenges of the pandemic and capitalize on opportunities as commodity prices.
<unk>.
We believe that adhering to these principles will be equally important in times of more bullish outlooks like we've seen recently.
We remain committed to our principles. During this period of rising commodity prices, which has resulted in significant excess cash flow generation.
Through our capital allocation framework, we have set clear priorities for how we intend.
And per use the excess cash flow to enhance our balance sheet strength, while also looking to increase shareholder value.
At the beginning of the quarter, we closed our cable Kebob acquisition, which included a cash purchase price of approximately $670 million.
Since the closing of this acquisition, we successfully reduced our net debt by approximately.
<unk> hundred $60 million and plan to continue to prioritize debt reduction to achieve our optimum leverage targets.
Assuming wty prices of U S 65 to $75 per barrel for the remainder of the year, we expect to generate approximately $675 million to $775 million of excess cash flow in 2021.
3 times, we gain line of sight towards our leverage target of 1 times debt to cash flow, we plan to gradually increase our focus on returning additional capital to shareholders. We.
We see great value in being transparent with the market about our capital allocation priorities and our overall framework, which we've laid out in detail in our corporate materials found on our website.
We believe sharing this.
Level of insight provides greater clarity and predictability to investors.
<unk>, we're also providing greater transparency into how we manage the risk and opportunities we face including through the disclosures in our recently released sustainability and Tcf day reports are strong governance practices progressive social initiatives and ambitious.
<unk> environmental stewardship targets demonstrate our commitment to ESG performance in.
In fact, our progress has been noted externally with a recent improvement in MFS Ci readings shifting from a triple B 2 and 8 I'd also note that this improvement was issued prior to the release of our sustainability report, which included enhanced targets.
Compensation framework and capital allocation processes, all centered around ESG.
Before I pass the call over to Ken I'd like to make a quick comparison of how the business has significantly improved since 2018, which is the most recent period when WTO last averaged approximately $65 U S per barrel.
During that year the companies.
These reinvestment rate exceeded 100% with no excess cash flow available to enhance shareholder value.
However, through our team's execution and concerted efforts to enhance discipline.
Focus and cost structure, the business that will generate significant excess cash flow at a similar price level with a reinvestment rate of just over 50%.
This improvement highlights the cost savings we've delivered enhanced net backs, we've achieved through our A&D efforts and the positive impact from other efficiencies we have realized.
We will remain disciplined no matter the commodity price environment, and we will continue to move the business forward to further enhance our key pillars of balance sheet strength and sustainability I'll now turn the call over to Kent.
Ken to discuss our financial results Kent.
Thanks, Craig for the quarter ended June 32021, adjusted funds flow totaled over $387 million or 66 per share fully diluted driven by a strong operating netback of approximately $40 per Boe.
Our second quarter development capital expenditures.
About $88 million, resulting in significant excess cash flow generation.
Net income totaled $2.1 billion for the quarter ended June 32021, primarily resulting from a $1.9 billion after tax reversal of a noncash impairment due to an increase in forward commodity prices and the independent.
<unk> total hearing price forecast.
Our second quarter net income also included a gain on sale of over $70 million related to our previously announced disposition of our southeast Saskatchewan assets.
Adjusted net earnings for the quarter were $118 million or <unk> 20 per share.
Net debt as of June.
Net and Judy at 2021 was approximately $2.3 billion, including approximately $670 million of cash.
Consideration paid for the acquisition of the <unk> Duvernay assets, which closed on April 1.
As Craig highlighted earlier, we successfully reduced our net debt after the closing of the cable on the acquisition biomarker.
<unk> $360 million during the quarter over half the cash purchase price of the acquisition.
We achieved this reduction through significant excess cash flow generation and from the proceeds of our previously announced disposition base.
Based on current commodity prices, we expect to pay off the balance of the cash purchase price.
<unk> through the remainder of the year.
During the second quarter, we also repaid senior note maturities totaling approximately $185 million.
Our next senior note maturities totaling $225 million.
Were not due until the second quarter of 2022 with significant liquidity in place through our current.
Current hedge our current credit facilities.
We continue to be disciplined on our hedging strategy to protect against commodity price volatility over 40% of our oil and liquids production net of royalty interest is hedged through the second half of 2021.
We also have approximately 20% of our 2022 production.
<unk> currently hedged and we will remain disciplined in our approach to layering on additional protection in the context of commodity prices.
I'll now turn things over to Ryan to provide some operational highlights Brian.
Thanks, Ken our second quarter production averaged 148641 Boe per day comprise.
Comprised of over 85% oil and liquids and due to our strong second quarter production.
Half 2021, reactivation volumes and some base operational outperformance, we are increasing our 2021 annual production guidance by 2000 Boe per day to 130 to 134000 Boe.
Per day.
This is the first quarter that reflects the impact of our recently acquired cable <unk> Duvernay assets and includes production from approximately 15 wells that were recently completed in the play. These wells continued to flow at significant initial production rates that are meeting or exceeding our internal type wells with a high liquids weighting of over 80%.
Based on Shell's capital costs, we expect these wells to generate competitive full cycle returns and we are focused on further enhancing these returns by pursuing a conservative development plan, while also leveraging our operational expertise to optimize overall efficiencies. We are excited to mention that we recently commenced drilling our first.
<unk> 5 well pad in the <unk> Duvernay with initial production rates expected at the end of this year.
Within our southeast and southwest Saskatchewan Resource plays we continue to focus on low risk high return infill drilling in the <unk> and the advancement of our decline mitigation programs to further enhance long term excess cash.
Cash flow and sustainability during the first half of the year, we converted approximately 55, producing wells to water injection wells and remain on track with our plan to convert a total of over 135 wells to injection in 2021.
We are also advancing other decline mitigation programs and enhance.
The oil recovery techniques, including the continued development of our polymer floods in southwest Saskatchewan.
Last month, we released our third annual sustainability report outlining our latest progress and ongoing commitment to strong environmental social and governance performance throughout our operations.
The 2021 sustainability report highlights our increased target for emissions intensity reduction to 50% by 2025 as well as a 70% reduction in absolute methane emissions in each case relative to our 2017 baseline I'm proud to report that we remain on track to meet these targets.
And continue to assess and pursue new opportunities to further reduce our emissions. We also.
We introduced the target to reduce our inactive well inventory by 30% over the next 10 years, excluding the impact of the previously announced disposition, which significantly reduced our inactive well inventory and lowered our.
<unk> asset retirement obligations by over $220 million.
To help achieve this target we anticipate the safe retirement of approximately 400 wells this year.
In addition, we will also announce the development of new freshwater use targets, which are expected to be released later this year.
Corporate center to support all of these initiatives, we are committed to allocate 3% to 5% of our annual capital budget to environmental stewardship moving forward.
Finally, again I would like to commend our employees and specifically our field staff for their continued commitment and dedication to safe operations and even more specifically to our cable.
In order to staff for a very safe and successful integration of the Duvernay assets into our organization ill now pass it back to Craig for final remarks, Craig.
Thanks, Brian our second quarter results continue to demonstrate our commitment to our core principles of balance sheet strength and sustainability, our recent strategic A&D activities.
Bob the effected to deliver meaningful improvements to the business.
By enhancing our excess free cash flow generation accelerating our deleveraging goals, improving our cost structure, increasing our overall scalability and reducing future decommissioning liabilities.
As Ryan mentioned based on our continued operational outperformance and the reactivation.
Are some volumes that were previously shut in during a lower price environment. We are increasing our 2021 annual average production guidance to 130 to 134000 Boe per day.
Our development capital expenditures remained unchanged within the range of our prior guidance, allowing us to maximize excess cash flow generation and further.
Enhance shareholder value.
We anticipate generating approximately $675 million to $775 million of excess cash flow in 2021, assuming wty prices of U S 65 to $75 per barrel for the remainder of the year.
We plan to continue allocating excess cash flow towards our balance sheet, while also evaluating the.
Return of additional capital to shareholders in the context of our capital allocation framework and leverage targets.
Following that we will assess the allocation of any remaining excess cash flow to other value enhancing opportunities as per our capital allocation framework, including potential share buybacks organic or inorganic growth opportunities long.
Long term initiatives or additional debt reduction.
I'd like to thank all our stakeholders for their continued support and our employees for their hard work and execution of our business strategy I will now open the call to questions from the investment community operator, Please open the call.
As a reminder for our members.
Of the investment community. If you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
If you would like to withdraw your question Press Star 2 we.
We will pause for a moment to compile the Q&A roster.
You are.
First question comes from Travis Wood of National Bank Financial. Please go ahead.
Yes, good morning, everybody.
Congrats on what looks to be a good quarter and Craig you hit it on your opening remarks, congrats to you for the execution over the last several years.
My question is around this.
The capital or more so the free cash framework and you laid out in pretty good detail on have some some slides highlighting exactly how you want to allocate the free cash, but more specifically with this you know.
Very much excel.
The net free cash profile with the help of the commodity.
Balance sheet compressing probably much quicker than.
And you guys had expected.
Could we see.
On that return to shareholders, whether it's dividend growth back into the equation.
Or a buyback do we see.
Seller in 2021 or do you want to play more of a wait and see approach around how that free cash gets allocated.
Hey, Travis Thanks for the question so it's Craig here.
1 of the things, we're really excited to get out to the market last year was our capital allocation framework and to your point, it's a very.
See that a transparent view of how the management team and the board of Crescent point think of allocating capital.
So the first step that you see within that framework is our maintenance capital budget and as we go through our budgeting process here will provide some color on what 2022 looks like later on.
Later in the year and then the next priority is down on that framework.
Our balance sheet strength.
And bringing back that base level of dividend.
The other thing I would say is we've been very transparent with the market.
To what our overall leverage targets are we want to be 1 times debt to cash flow at $55. So that would imply at the current company size that would imply on absolute debt somewhere in that.
$1.3 billion to $1.4 billion.
However, travelers keep in mind that we don't absolutely need to be at that leverage target before we bring back a dividend, but we certainly need to have some sightlines into that so as far as the exact timing.
Power things on that front will play out.
Can't comment on that but.
Our range of look for us to stay very disciplined towards that framework and then as you look beyond like I've said before balance sheet strength and core dividend then look for us to allocate based on on other priorities again, all returns based all competing on returns on whether that share repurchases or inorganic or organic growth or.
Further debt repayment.
How we think through things so.
I don't know, Ken or Brian if you had anything else.
Thanks for the question Travis.
Thanks, Greg.
Okay.
Your next question comes from Jeremy.
Our <unk> of Raymond James Please go ahead.
Hey, guys I got a couple of questions here.
First 1.
Is just it's been a busy year with you guys with M&A and I'm wondering if you're probably done for the meantime, or if you're still seeing lots of deals come through the office here versus last year.
And maybe what.
What are you looking for in terms of different M&A deals and the second question is just in terms of the reactivation of some wells and bring on more production is there more reactivation too.
Possibly bring on as well even as prices continued to hold at these prices.
Thanks for the questions Jeremy maybe what we'll do is I'll take the first 1 and then Ryan can give you some color on reactivation on the second 1.
As far as as A&D.
If.
On the day side I think we've had a good strategic disposition here. It made a lot of sense for us to move that often asset that really doesn't fit.
Fit on what we're trying to build and at the end of the day really cleaned up about 25% of our Aro liabilities on that.
Disposition as far as acquisitions, if there are things that come in front of us that makes sense within the portfolio that we're assembling and they improve us in the context of 1 of those key pillars.
<unk> of our strategy that we've talked to you about.
The last few years, 1 being balance sheet strength are the other being sustainability if it improves us in the context of 1 or the other there was and certainly we would look at layering that in.
To our organization.
We will continue to evaluate those on a on a 1 off basis as.
They present themselves.
Sales and then as far as dispositions.
I would say, we will always look to optimize the bottom end of our portfolio I think what we did here with the southeast SaaS disposition was a good example of that that being said don't expect us Jeremy to get any smaller here than than where we are at the current 130.
<unk> thousand Boe per day, and then as far as.
Go ahead.
So I guess just kind of on the follow up you've been talking about those 2 pillars here are you seeing.
Just as much opportunity still on the current market.
So you know the Shelby can ache opportunity came about.
We're still seeing them just as many things come through the door that potentially look exciting for you guys or is it still.
You know, it's just kind of 1 offs vary.
Just 1 offs I guess.
So Jeremy there there are certainly things out there I would say there's there's.
Things out on the market now that.
Hum, we'll certainly.
We will look through and revisit and if it makes sense for us to do then we would act on that again, it's got improve us in the context on 1 of those so.
So we'll see how they come off.
Individually.
Sure.
You know on.
As far as the second question I don't know Ryan do you want to add some color.
<unk>.
Yes, Hi, Jeremy Yes.
We've pretty much brought all of our shut in volumes back on.
We communicated in the past, we kind of wanted to see sustained higher level of commodity prices, which we have here. So so we made the call. We made the call to bring back on pretty much all of our.
Her on from previously shut in volumes, if we see sustained higher pricing again, there might be.
A few more barrels to bring back on but very insignificant.
Compared to our total production base.
Okay.
Thanks, Ed.
Thanks, Jeremy.
Ladies and gentlemen at this time I will now turn the conference back over to Craig break Sir. Please go ahead Sir.
Thank you for joining our call today, if you have any questions that were not answered please call our investor relations team at your convenience. Thanks, everyone.
Crescent point Investor Relations.
Nations Department can be reached at 1855.
7676923 thank.
Thank you and have a good day.
Okay.