Q1 2022 Crescent Point Energy Corp Earnings Call

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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 home page. 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 is 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 question 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.

I 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.

Actual performance events or results may differ materially Adil.

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 of 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 <unk>, 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 the third quarter.

I'm also pleased to announce that we are increasing our quarterly dividend by more than 40% to six and a half cents per share or 26 cents 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, we expect to be an even stronger position to increase the level of excess cash flow will be returned to shareholders.

I am 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 continue to proactively control our costs. Despite the current inflationary environment.

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 million 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 G. H G 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.

Thanks, Craig.

For the quarter ended March 31, 2022, adjusted funds flow totaled 534 million or <unk> 92 cents 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 six and a half cents per share or 26 cents annualized is based on a framework that targets the dividends sustainability at lower <unk> 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 N CIB, which expires in early March 2023, we have approval to repurchase up to 10% of our public float.

Our buyback process remains disciplined.

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 based.

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.

On a similar note we continued 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.

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 equivalent 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 continue 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 pillars of balance sheet strength and sustainability are.

Our first quarter results demonstrate our continued capital discipline operational execution and robust excess cash flow generation.

Which currently total approximately $10 billion.

As our balance sheet continues to strengthen we expect higher levels of excess cash flow to be returned directly to shareholders, which we plan to detail on our upcoming framework.

Before I sign off I would like to invite all our shareholders to our annual General meeting taking place next week on May 19th. Please see our website for further details on our a T M.

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'll now open the call for questions from the investment community operator, Please open the call. Thank.

Thank you, Sir ladies and gentlemen, aspirin.

I'd like to ask a question. Please press start followed by one on your Touchtone phone you have been here eight three tone prompt acknowledging your request and if you would like to withdraw yourself. Some to question to you. 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 I B C. Please go ahead.

Yeah sure. Good morning, everybody just a couple of quick ones for for Craig Craig or the team first on hedging it looks like your only about maybe six 7% hedged next year. After this update we would've thought that would have been a.

A bit higher maybe you can just give us a sense for what the driver. There is you just bullish on pricing or do you see it has a balance sheet protection. That's just not not required any more and just kind of your broader hedging targets just trying to get a sense for those are going to be lower going forward.

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 somebody who's just want to paste the level of earnings some targeted yield but just curious.

How you got to that figure as you as you went through the.

Through the homework there that's it for me, but I would love any color on those.

Yeah. Thanks, Mike it's great to hear from you and thanks for the questions as far as the hedge bookstores as you're well aware this year, we're fairly hedged out at around 50 per cent of our volumes for 2022, and when you look out into 2023 is that a lighter book being built right now that being said we are building one.

So for us look for us going forward as our leverage continues to come into shape. So I K E.

You look out over the year here and we get down into that called half a turn at some point look for us to be a little bit like lighter hedged on that so somewhere in that neighborhood.

I would say somewhere between 20% to 30% has a balance sheet is providing that protection, so probably not moving up to the 50 per cent like you've seen us in the past.

And then as the process I'm 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 bumped into the queue to know of 2023 and slowly layering in a book there I would say.

You've seen this in the past to use a combination of swaps three ways in callers I think right. Now are mean tool has been callers on that front. So look for us to continue to hedge we are hedgers, probably not moving up to the volumes that you've seen as do here in the past just based on the strength of our our balance sheet I can paint you a picture of that.

Mm, you're basically have a turn here in in the the short term so.

No need to really hedges as strong as we have in the past and then as far as the base level dividend.

I'm happy to have now had have grown that over three quarters here. When you look at this bringing it back in September and then increased again December now increasing that again here this quarter for US we look at a simple pale Mike. So when you look at the commodity right now on strip, it's about six per cent, we always back test that to a 50 <unk>.

Price tech to ensure that it's sustainable and and call it more of a lower price environment. So around $50. It's about a 12.

Sorry, a 12% simple paled at that level, so for us we Wanna assure that it's always stable.

I don't know.

And Orion perfect.

Thanks, Mike.

Great neck.

Next question will be from Kris K at singularly search. Please go ahead.

Hi, good morning.

[laughter] just I had a question on the crude oil barrels per day wanted to get your sense of.

Where do you see this.

Targeting you know in the next corner and as.

I mentioned that Kitty Bob has what 16, new wells coming on wanted to see how that would affect the barrels per day number.

Yeah, So I can take a bit of that and thanks for the question then I'll pass a little bit of color on cable up to Ryan, but so when you look at us here on guidance.

We're on track for that 133 to 137.

For the remainder of the year, we are having a little bit of a blip. Your hiccup like Brian had mentioned earlier in the call with some downtime in North Dakota due to the power outages that have gone on there. So I would expect somewhere in queue to for us to be I don't know somewhere in the neighborhood neighborhood of 125 to 126 ish thousand Viewy 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 cable up operations, yeah. So yeah <unk>.

616, more net wealth coming on production throughout the rest of the year as we as we mentioned last quarter.

Our our average.

30 rate of those is around 800 <unk> per day, you know 80 per cent liquids and so.

Using using that production profile and those wells coming on second half, obviously, you know ramped up R. R Q3, Q for production to to you know ultimately hit are within our guidance range of 133 to 137000 Viewy per day.

Okay, Great and then.

I see on your guidance you got a revised annual operating expenses slightly awkward.

What about 50 cents in the range.

Can you just share you know why why is that revised upward and.

What's going on there.

Yeah, Yeah that that 50 cents upwards revision on a <unk> basis is around 3% to 4%.

So again, a little bit of installation cost increases across the board.

Uhm trucking fuel well servicing power equipment R&M set some some line items, we've held slash at no no cost increases.

Some are more like 10% you know again on fuel trucking. So you know all in that works out to about 3% to 4% and it cost increases enhance the.

Slight guidance increase to around $14 per view at the midpoint.

Okay, great. Thanks for the answers.

Thank you.

Next question will be from Travis Wood at National Bank. Please go ahead.

Yeah. Thanks, I have two questions in the first I wanted to build up of Mike's question around kind of hedging and that we've seen some producers effectively to Jesus. What are you looking to do in terms of hedge percentage over time and and use the balance sheet to self Heche do you have an idea.

What you want that to be.

50 dollar world in order to potentially C.

That is zero percent hedge book on a on a go forward just.

Yeah. So thanks for the questioning Travis.

I I don't think you're ever going to see is without with a zero hedge book. We are we are hedgers and we do we use it for for a couple a 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 mentioned to Mike somewhere in that 20 to 30 per cent range.

And as you look out at our our leverage we do have a near term that target of $1.3 billion, which is one times that the cash what 50 555 Bucks.

When you look to 50 dollar price environment like you had mentioned, we'd we'd like to be somewhere around one time or sorry, 1 billion of absolute that which would be somewhere in that neighborhood of both 0.8 0.9 times that the cash flow. So look for us to continue to strengthen the balance sheet and that 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 of 20 to 30 per cent, but again, taking a a 12 month you out on the 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 <unk> earnings impacting 2022 spending and Opex could you help us understand what drivers your scene on the capital side on inflation and maybe even.

Regionally, if you're seeing a shift and then also kind of the same questions on opex as well.

He travels to try and I can I can take that one so.

When 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 have done a pretty good job forecasting that and understanding where the bulk of those cost increases lie for us.

Casing fuel and our fracking, even though we have our pricing for <unk> on a on a W. T I realised price basis, and so when we look when you look across our asset base, we have probably over over 80% of our remaining cat.

Little spend.

Either contractor controlled and only less than 20% of our services and costs, even though secured can still can still very slightly so and we're pretty confident in how we <unk>.

Forecasted those cost increases.

Having said that the the <unk> the.

The efficiency wins that I mentioned in in cable up in North Dakota help offset that so we were managing to the higher end of our previous capital guidance range and enhance tightened that up to $875 million to $900 million.

On the operating cost question pretty much what how answered that first question is it really is a bit across the board and you know like I said.

Higher increases and trucking fuel costs chemicals.

Some some other subcategories. We've held flat also you know a little bit of one time annual increases on stuff like property tax surface leases power.

Our et cetera, but.

General a pretty small tweak you know 3% to 4% higher.

On inflationary pressures.

Okay. That's appreciate the color of their right. Thank you very much that's all.

Yep. Thank you. Thank you.

And at this time Mister breaks that we have no further questions. Please proceed.

Thank you for joining our call today, if you have any questions that were not answered police car 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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