Q1 2022 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 2022 conference call.
This conference call is being recorded today and will be broadcast along with a slide deck, which can be found on crescent point's website homepage.
This 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 or W. T.
Pricing, which is quoted in U S dollars.
The complete financial statements and management's discussion and analysis for the period ending March 31, 2022 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.
A question and answer session from members of the investment community if.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. 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.
Juul performance events or results may differ materially.
Additional 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 to the crescent point, SEDAR or Edgar websites or by contacting Crescent point energy Matt.
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 Mr. Craig, but Brooks, President and Chief Executive Officer at Crescent Point. Please go ahead Sir.
Thank you operator, I'd like to welcome everyone to our first quarter 2022 conference call with me today are Ken Lamont, Our Chief Financial Officer, and Ryan, Chris Bayle, Our 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.
We've had a great start to 2022 building upon our balance sheet strength and sustainability.
Our first quarter results demonstrate our continued capital discipline and our focus on growing excess cash flow for increased shareholder returns.
We generated $290 million of excess cash flow in the quarter, which allowed us to further reduce our net debt by $230 million and accelerate our return of capital to shareholders.
As a result of our significant excess cash flow generation. We are now on pace to achieve our near term debt target of $1 3 billion in.
In the third quarter.
I'm also pleased to announce that we are increasing our quarterly dividend by more than 40% to six five cents per share or <unk> 26 per share on an annualized basis.
This marks our third consecutive dividend increase.
We also remain on track to execute our previously announced plan to repurchase up to $150 million of our shares by mid 2022, as we continue to see tremendous value in our shares at current valuations.
Of these planned repurchases, we've already executed approximately $13 5 million shares more than 70% of our plans for the first half of the year.
As we reach our near term debt target.
That could be an even stronger position to increase the level of excess cash flow will be returned to shareholders. We plan to announce a more detailed return of capital framework in the upcoming months as part of our commitment to our shareholder returns.
On the operation side, we continued to proactively control our costs. Despite the current inflationary environment.
By putting in place contracts contracts with a number of our service providers. We have successfully managed our supply chain to mitigate inflationary pressures.
Our cost control efforts have also been enhanced by our ability to realize efficiencies across our asset base.
As a result, we expect our development capital expenditures will be between $875 to $900 million.
Which is within our prior guidance range.
We will continue to monitor our cost assumptions as the year progresses.
We have also realized great progress on our ESG performance I'm pleased to report that we have surpassed our ghd reduction target three years ahead of schedule.
<unk> continued our board renewal process, putting forward, a new independent director for election at our AGM next week.
I'd like to thank our employees for their hard work and contributions towards another great quarter Crescent point I'll now turn the call over to Ken to discuss our financial results Andrew.
Thanks, Craig.
For the quarter ended March 31, 2022, adjusted funds flow totaled $534 million or <unk> 92 per share diluted driven by a strong operating netback of $62 per Boe.
Development capital expenditures for the quarter, which includes drilling and development facilities and seismic totaled approximately $204 million.
We reported net income of $1 2 billion for the first quarter, primarily driven by a reversal of a noncash impairment, resulting from an increase in forward commodity prices.
Adjusted net earnings from operations was approximately $241 million.
Our net debt at quarter end totaled $1 8 billion, which was down 230 million since year end 2021, our unutilized credit capacity also remains strong at over $2 billion.
As Craig mentioned, we have increased our dividend for the upcoming quarter.
Our new quarterly dividend of $6.05 per share or 26% annualized is based on a framework that target the dividends sustainability at lower wty prices and allows for flexibility and to return additional capital over time.
To further supplement this core dividend, we remain active on our buyback program and expect to complete the purchase of approximately $150 million of our shares by mid year.
Since December 2021, we have now repurchased for cancellation approximately $13 5 million shares for total consideration of $110 million.
Under our current <unk>, which expires in early March 2023, we have approval to repurchase up to 10% of our public float.
Our buyback process remains disciplined and.
And is based on a framework that incorporates conservative mid cycle price assumptions, we remain active on repurchases in the current market given our compelling valuation.
Overall, our allocation of capital continues to demonstrate our commitment to a model that generates value through a combination of capital returned to the shareholders, including a dividend and debt adjusted per share growth.
Further details on our return of capital plans for the second half of the year will be provided with our framework in the following months.
We will now I will now turn the call over to Ryan to speak to some of our operational highlights Brian .
Thanks, Ken for the quarter ended March 31, 2022, our production averaged 132788 Boe per day comprised of over 80% oil and liquids during the first quarter. We commenced completion activities on our second fully operated multi well pad in the <unk> Duvernay play, which we expect to bring on.
<unk> in second quarter initial production rates from our first fully operated multi well pad in the play remained strong exceeding our expectations and continued to demonstrate the high impact nature of this asset.
Our annual average production guidance remains unchanged at 133 to 137000 Boe per day, despite temporary lower production levels in second quarter, resulting from power outages caused by late April Snow storm in North Dakota base.
Based on progress to date and expectations from the local power utility, we expect to fully restore the remainder of our North Dakota production by the end of May we anticipate that up to 500 Boe per day of annual average production may be impacted as a result of this unexpected downtime were approximately 1% of our annual guidance.
However, our production guidance range remains unchanged and continues to forecast higher production during the second half of the year based on our development program planning.
Our production profile for the second half of 2022 continues to benefit from higher expected quarterly production, including the positive impact of <unk> 16, net wells and <unk>, which are expected to come online during the balance of the year.
Our execution in our cable play continues to progress as demonstrated by our most recent pad, where we successfully reduced average drilling days per well to less than 15, a 30% reduction from our initial pad in late 2021 on a similar note we continue to drive our drilling days lower in North Dakota.
Where we have achieved record drill times lowering drilling days to less than 10, which is a 15% reduction from 2021.
On the ESG front, we remain steadfast in our commitment to environmental social and governance best practices. During the first quarter, we surpassed our emissions intensity reduction target of 50% relative to 2017 baseline, reaching an emissions intensity of approximately 0.02 tons of cotwo.
<unk> per Boe.
This reduction also includes a 70% reduction in our absolute methane emissions.
We have met these targets three years ahead of schedule as a result of our continued efforts to reduce vintage flared and fugitive emissions across our operations.
We are currently working to establish new environmental targets and expect to provide more details along with our sustainability report in the coming months.
Before I hand, it back to Craig for some closing comments I would like to thank our employees and especially our field staff.
For all their hard work persistent dedication and continued focus on safe operations throughout the first quarter. These efforts continued to demonstrate our commitment to safety operational excellence and strong ESG performance I'll now pass it back to Craig for final remarks, Thanks, Ryan in closing I'd like to reiterate our commitment to our core.
Our pillars of balance sheet strength and sustainability.
Our first quarter results demonstrate our continued capital discipline operational execution and robust excess cash flow generation.
We're on track to generate $1 two to $1 4 billion of excess cash flow in 2022, assuming 80 to $100 per barrel <unk> pricing for the remainder of the year.
Our asset base continues to benefit from high net back production in low risk high return plays generating considerable excess cash flow.
Our strong asset level returns in excess cash flow profile of our further insulated by our significant tax pools, which currently total approximately $10 billion.
As our balance sheet continues to strengthen we expect higher levels of excess cash flow to be return directly to shareholders, which we plan to detail on our upcoming framework.
Before I sign off I would like to invite all of our shareholders to our annual General meeting taking place next week on May 19th Please see our website for further details on our ATM.
I'd like to thank our shareholders and encourage you to vote your shares and continue your engagement to help drive the overall success of our business.
I will now open the call for questions from the investment community operator, Please open the call. Thank.
Thank you, Sir ladies and gentlemen ask David if he would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a three ton prompted acknowledging your request and if you would like to withdraw yourself from the question queue. Please press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before.
Pressing any keys. Please go ahead and slowly press star one now if you have a question.
And your first question will be from Michael Harvey at RBC. Please go ahead.
Yeah sure good morning.
Everybody just a couple quick ones for for Craig Craig of the team first on hedging it looks like you're only about maybe 6% 7% hedged next year. After this update we would've thought that would've been a bit.
Higher maybe you can just give us a sense for what's the driver there is bullish on pricing or do you see it has been.
Balance sheet protection, and that's just not not required anymore and just kind of your broader hedging targets just trying to get a sense for what those are going to be lower going forward.
The second question was just on the dividend I know that framework is right around the corner, but maybe you could just give us a sense for what the methodology is currently for setting the size of that.
Some companies use a simple payouts.
Just want to pace the level of earnings some targeted yield, but just curious kind of how you got to that figure as you went through the.
Do the homework there that's it for me.
I would love any color on those.
Yes, Thanks, Mike it's great to hear from you and thanks for the question.
As far as the hedge books, so as you're well aware of this year were fairly hedged out at around 50% of our volumes for 2022, and when you look out into 2023.
A lighter book being built right now that being said we are building one so.
So for us look for us going forward as our leverage continues to come into shape. So okay.
As you look out over the year here and we get down into that call. It half a turn at some point look for us to be a little bit light lighter hedged on that so somewhere in that neighborhood I would say somewhere between 20% to 30% as the balance sheet is providing that protection, so probably not moving up to the 50% like you've seen us in the past.
And then as the process Im looking at that we are looking at about 12 months right now with the backwardation in the curve. So we've been bumping into Q1 of 2023, and then bump into Q2 now of 2023 and slowly layering in our book there I would say <unk>.
<unk> seen us in the past to use a combination of swaps and collars right now.
Our main tool has been callers on that front. So look for us to continue to hedge we are hedgers.
Not moving up to the volumes that you've seen us do here in the past just based on the strength of our our balance sheet.
I can paint a picture that.
You're basically half a turn here.
The short term so no.
No need to really hedge as strong as we have in the past and then as far as the base level of dividend.
I'm happy to have now and have grown that over three quarters here when you're looking at bringing it back in September and then increased again December now increasing that again here this quarter for US we look at a simple payout Mike.
When you look at the commodity right now on strip, it's about 6%.
Always back test that to a $50 price deck to ensure that it is sustainable.
Is it more of a lower price environment, so around $50, it's about a 12%.
Sorry, 12% simple payout at that level so.
For us we want to ensure that its always sustainable.
Hello.
Ryan perfect.
Yes.
Thanks, Mike Great.
Great. Thanks, guys next.
The next question will be from Chris Sakai at singular research. Please go ahead.
Hi, good morning.
Just I had a question on the crude oil barrels per day.
Wanted to get your sense of.
Where do you see this.
Targeting in the next quarter.
And as.
I mentioned that the kidney Bob has 16, new wells coming on wanted to see how that would affect.
The barrels per day number.
Yes.
Yes, so I can take a bit of that and thanks for the question and then I'll pass a little bit of color on Kebob to Ryan, but so when you look at us here on guidance.
We're on track for that $1 33 to $1 37.
For the remainder of the year, we are having a little bit of a blip here a hiccup like Brian had mentioned earlier in the call with some downtime in <unk>.
North Dakota due to the power outages that have gone on there. So I would expect somewhere in Q2 for us to be I don't know if somewhere in the neighborhood neighborhood of a 125 to 126 ish thousand Boe per day.
With the bulk of that in that 80% still being a little bit over 80% being liquids.
And then Ryan do you want to provide any color on Kebob operations yeah. So.
616, more net wells coming on production throughout the rest of the year.
As we as we mentioned last quarter.
Our average IP 30 rate of those is around 800 Boe per day.
80% liquids and so using.
Using that production profile and those wells coming on second half, obviously, you know ramps up or our Q3 Q4 production to Ulta.
Ultimately hit our within our guidance range of 133 to 137000 Boe per day.
Okay, Great and then.
I see on your guidance.
You've got a revised annual operating expenses.
Slightly upward.
Hum.
About 50.
And the range can.
Can you just share you know why why is that revised upward.
<unk>.
What's going on there.
Yes, yes that 50.
Upwards revision on a per Boe basis is around 3% to 4%.
So again, a little bit of inflation cost increases across the board.
Trucking fuel well servicing power equipment R&M.
Some some line items, we've held flat at no cost increases.
Some are more like 10% again on fuel trucking so.
All in that works out to the 3% to 4% kind of cost increases and hence the.
The slight guidance increase to around $14 per Boe at the midpoint.
Okay, great. Thanks for the answers.
Thank you.
Next question will be from Travis Wood at National Bank. Please go ahead.
Yes, Thanks, I have two questions and the first I wanted to build off of Mike's question around kind of hedging and debt.
We've seen some producers effectively.
What are you looking to do in terms of hedge percentage over time and use the balance sheet to self hedge do you have an idea of what you want net debt to be.
At $50 World in order to potentially see.
At zero percent hedge book on a on a go forward.
Yes, so thanks for the question Travis.
I don't think you're ever going to see us without with a zero hedge book. We are we are hedgers and we use it for.
Couple of different things and one of them is to certainly protect our our dividend in a downward price environment, but.
For us look for us going forward to be somewhere like I had mentioned to Mike somewhere in that 20% to 30% range.
And as you look out at our leverage we do have a near term debt target of $1 3 billion.
Which is one times debt to cash flow at 50 555 Bucks.
When you look to a $50 price environment like you had mentioned.
To be somewhere around one time, or sorry, $1 billion of absolute debt, which would be somewhere in that neighborhood of both eight nine times debt to cash flow. So.
Look for us to continue to strengthen the balance sheet in that fashion, but also look for us to continue to have a little bit little bit of a hedge book built out in that range at 20% to 30%.
But again, taking a 12 month view out on commodities based on the backwardation in the in the strip.
Okay, no that makes sense.
And then I wanted to.
Ask questions around inflation.
I think it's a pretty common theme so far through through Q1 earnings impacting 2022.
Spending in Opex could you help us understand what drivers youre seeing on the capital side on inflation and maybe even regionally if youre seeing a shift.
And then also kind of the same questions on Opex as well.
Hey, Travis it's Ryan I can I can take that one so when you look across our entire portfolio, we're seeing up to 15%.
Cost increases.
So I think our operations supply chain management teams have done a pretty good job of forecasting that and understanding where the bulk of those cost increases life for us.
Casing fuel.
Our tracking even though we have our pricing for fracking on a on a WTO realized price basis.
And so when we look when you look across our asset base.
We have probably over over 80% of our remaining capital spend.
Either contracted or a controlled and only less than 20% of our services and costs, even though secured.
Still can still vary slightly so and we're pretty confident in how we forecast.
Forecasted those cost increases.
Having said that.
The efficiency wins that I've mentioned and in cable hub in North Dakota to help offset that so we were managing to the higher end of our previous.
Capital guidance range, and enhanced tightened that up to $875 million to $900 million.
On the operating cost question.
Pretty much.
How I answered that first question that it really is.
A bit across the board.
I said.
Higher increases in trucking fuel cost chemicals.
Some some other subcategories, we've held flat also little bit of one time.
Annual increases on stuff like property tax surface leases power et cetera, but in general are pretty small tweak, 3% to 4% higher on an inflationary pressures.
Okay. Appreciate the color there Brian Thank you very much that's all.
Yes. Thank you. Thank you.
And at this time Mr. <unk>, we have no further questions. Please proceed.
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, everybody.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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