Q3 2022 Crescent Point Energy Corp Earnings Call
Good morning, Ladies and gentlemen, my name is Joana and that will be your operator for Crescent point Energy's third quarter 2022 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 home page the.
The webcast may not be recorded or rebroadcast without the express consent of Crescent point energy.
The matters discussed today are in Canadian dollars with the exception of West, Texas Intermediate R. W. T I pricing, which is quoted in U S dollars.
The complete financial statements and management's discussion and analysis for the period ending September 30th 2022 were announced this morning and are available on the question to 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 for 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.
If you would like to withdraw your question 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 or factors that could affect crescent point's operations or financial results are included in questions. Point's. Most recent annual information form which may be accessed through the question point, SEDAR or Edgar websites or by contacting Crescent point energy.
Management also calls your attention to.
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I'm sure a question point. Please go ahead Mr <unk>.
Thank you operator, I'd like to welcome everyone to our third 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.
Our third quarter results once again demonstrate our continued focus on balance sheet strength and sustainability delivers value.
<unk> for our shareholders.
In July we successfully reached our near term debt target and released our updated return of capital frame.
This framework targets, returning up to 50% of our discretionary excess cash flow in addition to base dividend.
As a result of our continued operational execution and financial success, we are delivering on that promise.
For the third quarter, we are returning 50% of our discretionary excess cash flow through share repurchases and special dividends.
Our base dividend, our total return of capital for the quarter is about $140 million.
Our return of capital framework is only part of our overall shareholder value proposition.
We also have build a strong balance sheet and continue to enhance the sustainability of our business in the third quarter, we reduced our debt by an additional $270 million and further optimized our asset portfolio.
We disposed of certain noncore assets that had limited scalability and higher decline in emissions intensity profiles and.
In addition to using the proceeds from this disposition to strengthen our balance sheet. We also expanded our position in the keyboard Duvernay play by adding 80 net sections of undeveloped land and a considerable number of drilling locations for $87 million.
We remain very excited about this play which continues to generate attractive asset level returns within our portfolio alongside significant well results.
As part of today's release, we are pleased to announce our formal 2023 guidance, we expect to generate significant excess cash flow of $1, one to $1 $5 billion at 75 to $85 per barrel wty pricing.
This budget is fully funded at less than $50 per barrel wty, including our base dividend.
Our guidance anticipates delivering significant shareholder returns while producing between 134 to 138000 Boe per day with development capital expenditures of one to $1 $1 billion in the current price environment, we expect to attain this production guidance, while spending at the lower end of this guidance range.
Under this budget, we expect to achieve our year end 2023 leverage ratio of less than <unk> three times at U S $75 per barrel WTS, providing us with significant financial flexibility.
We will stay disciplined in our capital allocation and remain committed to our key pillars of balance sheet strength and sustainability.
Before moving on I'd like to thank our employees for their continued hard work and execution during the quarter and throughout the year with that I'll now turn the call over to Ken to discuss our financial results.
Thanks, Craig for the quarter ended September 30, adjusted funds flow totaled $577 million or one.
<unk> per share fully diluted driven by a strong operating netback of over $59 per Boe.
Our net income for the quarter was $466 million or <unk> 82 per share.
Development capital expenditures, which include drilling and development facilities and seismic totaled 309 million, resulting in excess cash flow generation of $234 million in the quarter.
Our discretionary excess cash or excess cash less our base dividend totaled $189 million of which 50% is being returned to shareholders through our buyback program and a special dividend.
During the third quarter, we repurchased $8 2 million shares at an average price of $9 16 per share and we have declared a special dividend for three and a half cents per share payable on November 14th 2022.
We remain active in our buyback program given the underlying value of our shares and have already repurchased three 3 million shares during the month of October at an average price of $9 80 per share.
In addition to the return of capital offering we continue to direct a portion of our excess cash to our balance sheet as of September 32022, our net debt was $1 2 billion, reflecting approximately $270 million of debt reduction in the quarter.
We remain disciplined in our hedging strategy in the context of the market conditions for 2023, we have hedged approximately 15% of our total production, including over 20% in the first half of the year.
I will now turn the call over to Ryan as you speak store operations highlights Brian .
Ken we continued to achieve strong operational success across our asset base in third quarter. Our Q3 average production was 133019 Boe per day comprised of over 80% oil and liquids in.
In our K, Bob Duvernay play, we continued our strong operational execution with exciting well results in an efficient drilling program. We recently brought on stream our third fully operated multi well pad in the Duvernay. This pad had an average IP 30 rate of approximately 900 Boe per day per well with over 85% liquids.
Providing attractive returns and a payout period of approximately six months from the initial onstream date at current commodity prices are.
Our drilling efficiency also remains impressive averaging only 14 days per well in our most recent operated pad, which we believe makes us a pacesetter in the basin as.
As Craig mentioned, we acquired 80 net sections of land in cable, which further enhances our drilling inventory in the play and our current plans have us drilling a pad on these lands later in 2023.
Based on our continued execution the attractive returns, we have achieved and significant running room to develop our assets. We now expect to grow our cable production in a disciplined manner from approximately 35000 Boe per day in 2022, Silver 50000 Boe per day by 2027 subject to commodity prices.
Our continued success and ongoing innovation in K, Bob is emblematic of the knowledge transfer corporate culture and can do attitude that our employees apply across all of our place. Our operating team strongly believe that there is always further value to unlock and efficiencies to be gained even in our more mature place.
For example, in our view feel Bakken play, we drilled our first multilateral open hole horizontal well and are now drilling our second based on the success of the first.
By adopting a new well design, we have removed the need for fracture stimulation in these multilateral horizontals expanding the economic boundaries of the play.
We also continue advancing our decline mitigation projects throughout our Saskatchewan operations to enhance secondary recoveries and moderate future capital requirements.
In third quarter, we initiated a polymer flood as a tertiary form of recovery within a unit of our Sean are in play and are encouraged by early results.
For the fiscal year 2022, we are on track to achieve annual production guidance at the midpoint of our range of 132000 Boe per day.
We have revised our 2022 capital expenditures guidance to $950 million from our prior range of $875 million to $900 million revision reflects a higher inflationary environment and our decision to maintain an active drilling rigs in our duvernay in North Dakota place, where we are currently ahead of our drill schedule. Thanks to efficiencies we've achieved.
As Greg highlighted we continue to allocate capital in our 2023 budget based on risk adjusted returns and sustainability.
Our budget focuses on the Companys four major operating areas with approximately 15% directed to long term projects such as various decline mitigation programs and environmental initiatives.
Our ESG approach is ingrained into everything we do at Crescent point and our continued efforts are being positively recognized and showcase the tangible progress we are making in.
The third quarter, we received an upgraded MSCI rating of double H, which is the second consecutive year that we've received an increase in our ESG ratings assessment.
I'd like to thank all of our teams for their commitment to our success and in particular, thanks to our field staff for all their hard work and safely achieving our goals.
I'll now turn it back to Craig for some closing comments. Thanks, Ryan at Crescent point, we take great pride in our operational excellence and creating outstanding value for our shareholders.
Our 2023 budget reflects our disciplined capital allocation and commitment to generating excess cash flow and delivering meaningful returns to our shareholders.
Issuing to setting our 2023 budget. We have also updated our five year outlook, where we expect to generate up to $6 billion of cumulative after tax excess cash flow at $85 per barrel <unk> pricing.
Our disciplined five year plan assumes production growth to approximately 145000 Boe per day by 2027 subject to commodity prices with a continued focus on returns and sustainability.
Our growth is expected to be driven by our key Bob Duvernay asset where are returns continue to rank in the top quartile cross Sir our asset portfolio.
Our teams remained focused on further enhancing these returns with ongoing efficiencies and optimization.
Before taking questions I'd like to thank our shareholders for all their support and continued engagement operator, you can now open the call for questions.
Thank you, ladies and gentlemen, Anthony remind us should you have any questions. Please press star followed by one.
Next question comes from Michael Harvey at RBC Capital markets. Please go ahead.
Yeah sure. Good morning, So just a quick one for me on that multilateral you drilled a few field is there any other color you can help folks with them that I know you mentioned.
Strong performance, but anything like early production rates as well costs that type of thing and then just.
Do you see that technology.
Being applied across other labs will be fueled elsewhere or is it just kind of a science experiment for now any color.
I appreciate it.
Yes, thanks for the question Michael Yes. So.
This is something that our teams have been looking at.
Trying to figure out how to expand the economic boundaries of the play as you step up from the corps. So.
With this I think.
I think drilling has the drilling technology has gotten so good that.
<unk>.
It's a little bit cheaper now to to attack some of the.
The areas in this play with with just drilling instead of having to Frac. So these multi laterals are obviously tighter space than in our Frac wells in and if you look at total recovery and initial production from a section under these multilateral wells versus our conventional fracked well.
You get higher higher production and higher reserves potentially for lower capital. So.
We're pretty excited about it.
Early days.
Third 25, plus Boe per.
Per day per.
Per well.
And if our production hangs in and it hits our EUR estimates, we probably have over 100 more locations to go.
And incorporate that into our five year plan and do you feel.
And we are looking at other areas in our portfolio Ie like Jonathan.
Obviously.
This area and view field has a little bit better porosity permeability, maybe than say Shawn has been does so early days still but we will look to see if we can apply it throughout our other assets.
Gotcha. Thanks.
Yes.
Thank you next question comes from Travis Wood at National Bank. Please go ahead.
Yes. Good morning, guys two questions for you first on just kind of broader themes around accretion modestly kicked up 2022 a bit.
What type of inflation are you baking in the 'twenty three program.
Kind of specific color you could share in terms of where we.
Where youre seeing most most kind of that inflationary pressure.
Are you seeing that also.
In the Duvernay, we've made some.
Pretty big strides on the efficiency gain but are you getting some pressure from the service side in that place specifically as well.
Yes, yes, so the so our new 2022 guidance of 950 million Travis a 7% bump from our previous midpoint.
And really only a modest 10% bump.
From the original midpoint way back at the start of the year. So.
We had to we had to bump here.
Obviously, some inflationary costs.
And we've been drilling a little bit faster in cable in North Dakota like I mentioned, so wanted to.
Keep those rigs warm and keep the momentum going into 2023. So added a few wells in those plays so while we're going to what we're forecasting for 2023 is essentially the costs, we're seeing right now ill say an $85 <unk> environment.
Which I think.
I think is a good forecast overall.
I think cost we've seen a little bit of a bump in drilling day.
Drilling rig day rates.
Casing is start starting to flatten out a little bit obviously that was a big cost.
That hit us on the on the inflation side.
And obviously, obviously plays into it a little bit deeper like cable of North Dakota that requires more casing.
More fracking, obviously fuel costs hit us so.
I think those were the areas, where we saw some increases but I think using using these costs right now in an $85 <unk> for next year is is where we're forecasting our cost side.
And then so Travis it's Craig here and thanks for the question just to add on that so when you look at our 2023 guidance. We're in that 134 to 138000 BOE per day range, we're going to spend in the neighborhood of that one one or sorry, one to $1 1 billion.
And keep in mind, we built in all of those inflation assumptions.
And are trending towards the lower end of that right now as things are looking out and then the highlight for that is if you apply an $85 price deck to that it's $1 5 billion of excess cash flow.
So we're feeling really good with how things are setting up into 2023 on the back end of coming out of a strong 2022.
Okay perfect great. Thanks to both of you for the great color.
And then last question separately.
The return of capital framework.
I think we ask this question every quarter, but just in terms of how should we think about how active you'll be with BN CIB just as we can try to telegraph the impact of that variable.
Going forward and should we just assume that.
For the full 10% of the NCI B gets done on kind of that 12 month rolling basis, just broadly how are you.
Are you thinking about the balance of those two.
Yes, so thanks for the question Travis so.
One of the things, we're really happy to put out in July was that return of capital framework.
And getting that out to the market and then in Q3, it's nice to be executing against that and demonstrate to the market. As we said. This said this now we're doing it.
For us when you look into Q4 and beyond we are applying that 50%.
Excess discretionary cash flow being returned to shareholders and I would say Travis the bulk of that is in this environment with our shares trading how they trade has been Eric.
Targeted towards share.
Share repurchases and buybacks and then there is going to be some of that does come out in a special dividend.
Keep in mind, where we're navigating a quarter lives we're actively in the market buying back shares everyday but you've got some volatilities in the commodity pricing that youre working through when youre trying to hit that 50%. So for us we target the bulk of it towards the share repurchases and then two.
To ensure that we hit that 50% at the end of the quarter. We used that the difference there is being cleaned up with that special so.
Look for for Q4 to be very similar.
And then look for for us to behave very similar as we get into 2023 on that Ken I don't know.
Yes.
Okay fair enough.
Thats perfect and then maybe just one follow on there.
If I may the 50% like as you seems rapidly get to the debt target.
Do you see a scenario where that 50% starts to be expanded out.
And so that's a good question Travis and we get that one a lot I think when you look at our total return proposition to shareholders. We're above 50%. If you layer in the base dividend and ideally we continue to grow that base dividend over time as our balance sheet gets stronger and stronger and we continue to grow our our cash flow per share.
And keep in mind, our base dividend is very sustainable it's only a 15% simple payout at $50. So it does speak to the sustainability and the ability to continue to grow that so for us.
And we think as a management team and the board here Crescent point that 50% is a is a very compelling strong return on that discretionary funds for especially when you add in the base dividend and then that other 50% is going to stay.
Stay internal here for us to continue to reinvest in the business and whether thats.
Some type of organic growth layer in a bit more capital here and do a bit of organic growth or in the event of an acquisition, where maybe it's some inorganic growth.
And then it.
At the same time, there is also continuing to strengthen that balance sheet and deleverage even further.
Well.
I would never say never Travis but.
For us the 15% to reinvest in the business for US right now it seems to make sense.
Okay. Thanks, so much for all the great color I appreciate it that's all.
Thanks Travis.
Thank you. Your next question comes from Patrick Wang from ATB Capital markets. Please go ahead.
Hey, good morning, guys.
Sharp question from Travis Lan with <unk>.
I was going to ask and alluded to here with the balance sheet looking too.
Sort of extinguished the debt in 2024, just wondering.
<unk>.
You mentioned not going above 50% excess cash flow distribution to shareholders wondering how you think about managing the base level of debt for the business is the goal to extinguish it completely.
Or is there an ideal amount of leverage that you would like in the capital structure here.
Sure. It's Kent here I'll take that question. So yes, we do have a bit of an ideal or target leverage that we're shooting for and I would say, it's kind of a one times debt to cash flow and that 45 to $50 <unk> range.
It's really.
In the long run.
What we're shooting for as far as the target there will be periods of time, where we potentially are under that ideal or target leverage.
Maybe as commodities commodities run up things like that but there may be also times, where we're slightly above that and it sort of goes back to craig's comments earlier around the.
The cash are retaining in the business I mean, obviously, that's balance sheet strengthening but.
There is opportunities on both the organic side with our plays as well on the inorganic side and so we think this is a prudent way to run the business in a sustainable way to run the business. So.
But that's a bit of a target on how we'll look to operate but.
Obviously, we're not going to.
It's more of a target level and as I said, sometimes you need to be loved sometimes may be below that target, but that's how we're looking to manage it.
So if we just kind of take flat base case assumptions here that puts us into a range of somewhere between four and $600 million in excess cash flow not needed for the balance sheet in 2024.
Do you see a greater opportunity set for.
Organic growth within the portfolio now or is it.
<unk> that and be acquisitive and use that cash.
<unk> per share returns.
Yes.
So I think what youre seeing from US now Patrick on the 2023 budget.
Pretty much set right at that 134 to 138000 Boe per day that excess cash flow that comes in or the 50% of the discretionary cash flow that we're keeping internally that will be to continue to strengthen the balance sheet during that time period.
And then again as you look out into the five year plan, which we put out we.
We see the business growing to that Cogs, approximately 147000 145000 beauty per deal over the next five years.
And that is what I would describe as disciplined managed growth over that time period, but again the focus on that free cash flow generation. So that excess amount will will use in the organization to to look towards maybe some inorganic growth maybe some organic growth through then again this further strengthen that balance sheet.
Okay. Thank you.
Thanks, Patrick.
Yes.
Thank you. Your next question comes from Chris Sakai from singular research. Please go ahead.
Hi, Craig good morning.
Just final question on.
The company.
On hedging strategy for 2023, it looks like.
15% of total production hedged can you provide some color on that and would that increase or decrease going into the fourth quarter.
Yes, I think.
If you look at Crescent point, historically, we've always been hedgers, Chris. So we do have a little bit of a hedge book being built out and it really protects our fixed costs in our base level of dividend.
A downward commodity environment, what you've seen from us in the past has typically been somewhere around that 40% to 50% of our our base production.
Hedged out for us as we look forward into 2023.
Our balance sheet being significantly improved and our financial position being significantly improved we don't we don't feel we need to go to those levels of about 40 or 50, so look for us to carry a bit of a hedge book, we will I'd look for it to be.
In that range of call. It 20 to 25 ish percent.
And right now we're looking at generally go on about 12 months out so right now we're looking into Q3 and into Q4 and slowly building up that book.
Do you have targets in the market and as the market moves into those levels. We now we bump into a daily to to get towards those levels. So you can look for US next year on average to carry somewhere in that 20 ish percent range. The other thing I'd say too Chris.
Two of choice right now has been callers, where you have the absolute protection in a downward commodity price environment and at the same time. It allows you to participate in some of that upside. So we will have a book it will probably be in that call. It 20 ish percent range.
Mainly using callers right now and then looking at roughly 12 months, because you've got some pretty significant backwardation in that curve.
Thanks for that and then.
Can you talk about <unk>.
Hey, Bob Duvernay expansion, you guys spot was 87 million of land.
Is there any plans in the future for buying more even more land.
Yes, so during the quarter, we did do a small deal with another producer in the area. We picked up 80 net sections for right around that $87 million.
We're excited about it it fits right in with with our R. R.
Our asset base of our land position right in there so it would add to that.
Kind of that three to four years of drilling inventory. So for us. It's a good addition for what we see is a very reasonable price.
That being said, Chris if there's other things out there that makes sense for us to look at we certainly would.
Whether it's.
An acquisition or a bit of a land pick up here and there we certainly would end.
That gets back to the question earlier, there on Patrick with that.
US maintaining that 50% of that discretionary cash flow. It gives us the ability to then invest within the business and into that organic or inorganic. So certainly we would but very happy.
We have executed on that one in the quarter.
Okay. Thanks, Craig.
Thanks, Chris good talking to you.
There are no further questions at this time I will turn the call back over to Craig <unk> for closing comments.
Thanks, everyone 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.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.