Q4 2022 Crescent Point Energy Corp Earnings Call
And our shareholders.
Speaker 1: for our company and our shareholders.
Speaker 1: We make great strides in executing on our key pillars of balance sheet strength and sustainability. In many aspects, 2022 was an inflection point for us in terms of our fundamental strength of our business and our value proposition to our shareholders. Over the past five years, we have worked diligently too.
Speaker 1: Optimize our portfolio, including our strategic entry into the K-Boff-Duverny, and the execution of multiple non-core dispositions. Prioritize our balance sheet strength by reducing our net debt by $3 billion.
Speaker 1: improve our capital discipline by executing our programs on budget, illustrate our technical capabilities with consistent operational excellence, and affirm our commitment to returning capital to our shareholders. As a result of our accomplishments, we generated $1.2 billion of excess cash flow in 2022, driven by our portfolio of industry-leading netbacks. We also...
Speaker 1: reduced our net debt by $850 million, returned nearly half a billion dollars directly to our shareholders, and delivered very strong year-end reserves. I'm pleased to report that in 2022, we also achieved our safest year on record, driven by our relentless focus on safe operations across our asset base. During the past year, we executed a disciplined A&E strategy by disposing of non-core assets while increasing our growth capacity in our core K-Bob Duvernay plate.
Speaker 1: We currently have over 20 years of inventory and cable, which gives us significant running room and operational flexibility, as well as the opportunity to realize further efficiencies given our increased scale. We plan to accelerate development of this asset in late 2023 with the addition of the second drill. Our capital discipline throughout 2022 mirrored our framework as we first prioritize our balance sheet strength to achieve our near term leverage targets. We then begin increasing our base dividend, which we supplemented with additional return of capital offerings. In total, we return nearly $500 million to our shareholders in 2022 through dividends and share purchases. This includes the return of 60% of our excess cash flow in the second half of the year once we formalized our return of capital framework.
Speaker 1: We continue to focus on share purchases as our primary tool within this framework given our current valuation. During 2022, we've repurchased over 5% of our float with an increased pace of repurchases in the second half of the year. Through our dedication to our strategy over the past five years, we have significantly transformed our company, delivering tangible results and an improvement in the underlying value of our business. As we look to 2023, we are on track to generate $1 billion of excess cash flow at $75 WTI pricing, allowing us to return over $600 million of capital directly to our shareholders, but also delivering per share growth and further net debt reductions.
Speaker 1: Our long-term outlook is also very strong with a disciplined plan that focuses on maximizing returns and access to casual generations.
Speaker 1: Under our current five-year plan alone, we expect to generate over $4.2 billion of cumulative after-tax excess cashflow at $75 per barrel pricing.
Speaker 1: That's equivalent to 80% of our current market capitalization. Before I pass it over to Ken to discuss our financial results, I'd like to thank our employees for their continued hard work and execution during the quarter and throw it the past year to realize our vision. And thanks Craig. For the quarter ended December 31st, the Justice Funds flow totaled 523 million.
Speaker 1: or 93 cents per share diluted. On an annual basis, our adjusted funds flow was $2.2 billion, or $3.91 per share diluted, driven by our strong operating netback of approximately $63 per Buee. Our 2022 capital expenditures, including drilling and development facilities and seismic, totaled $956 million in line with our annual guidance. During the year, we significantly reduced our debt by $850 million over 40 percent.
Speaker 1: and exited the year with a leverage ratio of 0.5 times fun slope. We reported net income of approximately 1.5 billion for the year, including the positive impact of non-cash impairment reversal of 400 million due to the higher commodity prices. In 2022, we steadily increased our base dividends to 40 cents per share on an annualized basis.
Speaker 1: This dividend provides a stable yield and equates to a simple payout of less than 10% of funds flow at current commodity prices. As part of our return to capital framework, we target the supplement our base dividend with share repurchases and special dividends.
Speaker 1: In the fourth quarter, we repurchased 8.6 million shares, bringing our total repurchases to greater than 31 million shares for the year, equating to over 5% of our shares outstanding. Altogether, we allocated 294 million to share repurchases in 2022.
Speaker 1: We remain active on our buyback program, given the underlying value or shares, and have repurchased an additional 3.2 million shares a year to date.
Speaker 1: To ensure we return our targeted percentage of discretionary access cash flow in each quarter, we also provide for a special dividend to round out our total return of capital to shareholders. Based on the fourth quarter 2022 results, we have declared a special dividend of $3.2 per share, which is payable on March 17, 2023.
Speaker 1: This is an addition to our quarterly-based dividend of 10 cents per share or 40 cents a share on an annualized basis which will be paid on April 3rd, 2023. Subsequent to the year end, we successfully close the acquisition of certain cave-op duverning lands and associated production for cash consideration of $370 million.
Speaker 1: Our net debt as of closing of this deal on January 11th, 2023 was approximately 1.5 billion.
Speaker 1: Based on our guidance for the year, we expect our net debt at year end 23 to be less than 1.1 billion at $75 WTI, or 0.5 times net debt to adjusted funds flow. Given our high liquids waiting, a $5 change in WTI for us generates approximately an additional 200 million in funds flow.
Speaker 1: in 2023. To further project our financial position, we also remain disciplined in our hedging strategy. For 2023, we have currently hedged approximately 15% of our total production, including over 20% in the first half of the year.
Speaker 1: I will now turn the call over to Ryan to speak to our operating highlights. Ryan? Thanks, Ken.
Speaker 2: 2022 really was another strong year for us across our operations during which we achieved our safest year on record for both serious serious incident frequency and total recordable incident frequency.
Speaker 2: Our results reflect our proactive approach to safety, our strong engagement with our employees and contractors, and our prioritization of safe operations above all else.
Speaker 2: With respect to our annual results, average production for the year was 132,282 BoE per day, comprised of over 80% oil and liquids, which was in line with our annual guidance.
Speaker 2: In our K-Bob Duvernay play, we continue to achieve strong production results, highlighting the consistency in our operational execution. For example, we recently brought on stream our sixth fully operated multi-well pad in the liquid's rich phase of the basin with an average IP30 rate of over 1200 BoE per day per well.
Speaker 2: comprise a 51% condensate 15% NGLs and 34% gas.
Speaker 2: This is yet another highly productive multi-well pad for us that demonstrates our continued successful execution in the play and the scalability of this asset.
Speaker 2: All of our results today have generated strong reserve bookings from our independent reserve evaluator, McDaniel and Associates.
Speaker 2: For the wells we have drilled and or completed since entering the play, the independent engineers have currently booked wells with expected, ultimate, recoverable reserves ranging from 700,000 BuWe with 70% liquids up to 2 million BuWe with 45% liquids depending on their location within the basin.
Speaker 2: For those that are not as familiar with the K-bog dubernae, the basin has multiple phase windows within it. In the north it is more condensate rich and has more oil resorts in place.
Speaker 2: As you move south into the more liquid rich and then lean gas areas, the base in deepens and becomes gasier with a large gas resource in place. In addition to the condensate oil and natural gas liquids that are prevalent throughout the base, and this also provides the condensate oil from the adjacent dose remained in style and
Speaker 2: Our land base is primarily located in the northern volatile oil condensate rich window, which delivers high condensate production. However, we also have lands in the liquids rich and lean gas windows.
Speaker 2: Each area generates very competitive returns with significant profitability.
Speaker 2: We've been very pleased with this asset since entering the play in 2021 and are currently on track to generate approximately $900 million of excess free cash flow or net operating income less capex by the end of first quarter 2023. This equates to a very quick two-year payback on our original acquisition.
Speaker 2: After nearly two years of operating within the basin, we made the strategic decision in late 2022 to increase our land position. And in so doing, have increased our drilling inventory in the play to over 20 years, which underpins our corporate 10-year plan.
Speaker 2: With these recent acquisitions and the outperformance we have achieved in the play, we now plan to grow our K-Bog Duvernay production from 40,000 Bu per day to over 60,000 Bu per day in our five year plan.
Speaker 2: Outside of K-Bop, we continue to build momentum in our other resource plays during this past year. For example, in the view field box, and we have identified approximately 150 new drilling locations, or four years of additional inventory in the play, by successfully implementing new well-board designs in open hole multilateral drilling.
Speaker 2: We plan to drill several of these open-hole wells in 2023 and are evaluating the potential to apply this technology in other areas within our portfolio. In addition to these asset development advancements, we also achieved great success in lowering our emissions profile.
Speaker 2: Earlier in 2022, we successfully reached our target to reduce our direct emissions intensity by 50%, including a 70% reduction in absolute methane emissions, three years ahead of schedule.
Speaker 2: To continue our momentum, we set an even more ambitious target to reduce our direct and indirect emissions intensity to 0.02 tons of CO2 equivalent per BoE by 2030, or 38% reduction from 2020 levels.
Speaker 2: We also announced two new water targets in addition to our goal to reduce our inactive well inventory by 30% by 2031.
Speaker 2: Before I hand it back to Craig, I will briefly speak to our reserve highlights. A year end 2022, our 2P reserves totaled 713 million BLE comprised of 82% liquids, while our 1P and PDP reserves totaled 482 million BLE.
Speaker 2: and 301 million BUE respectively.
Speaker 2: On a 2P basis, we added approximately 55 million BoE during the year, replacing 113% of our 2022 production.
Speaker 2: Majority of this increase in reserves was from organic ads relating to our development execution in our K-bogged Duvernet Play and included net positive performance-related technical revisions.
Speaker 2: Within our K-Bob Duvernay asset, we generated an attractive F&D of approximately $12 per BOE for wells brought on stream in 2022, which equates to a strong recycle ratio of over five times.
Speaker 2: Overall, our reserve life index is approximately 15 years based on our 2022 production, giving us significant running room in the years ahead.
Speaker 2: Our reserve ads generated attractive recycle ratios of 3.4 times based on PDP, FDNA, or 2.3 times on a 2P basis, both including changes in future development capital.
Speaker 2: Altogether, our two PNED asset value reached $21.50 per share a year in 2022, while our 1P and PDP PNED apps were $15.14 and $10.38 per share respectively.
Speaker 2: These naps per share are after deducting our net debt at year end, reflecting an increase of 30 to 35% across all categories from the prior year.
Speaker 1: I'll now turn things over to Craig to provide some closing remarks. Thanks, Ryan. As you can see, we had some great accomplishments during the past year that have really set us up for success going forward. Thank you.
Speaker 1: Through the continued execution of our strategy over the last few years, we have significantly enhanced our free cash flow generation, improved our long-term sustainability, and ultimately increased the underlying value of the business.
Speaker 1: We've consistently demonstrated our strong technical know-how and continue to optimize our assets while prioritizing safe operations.
Speaker 1: This execution further reinforces my belief that our asset teams are the best in the business.
Speaker 1: as they continue to innovate and build upon our track record of operational excellence. We continue to look forward into 2023 and beyond to our five and ten-year plans. We are well positioned to deliver sustainable returns for our shareholders now and well into the future.
Speaker 1: Our value proposition continues to be centered around returning meaningful amount of capital back to our shareholders combined with sustainable per share growth and a strong balance sheet.
Speaker 1: In closing, I'd like to thank our shareholders for all their support and continued engagement.
Speaker 3: Operator, please open the line for questions. Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by 2.
Speaker 3: If using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please press star 1 now if you have any questions.
Speaker 3: And your first question will be from Travis Wood at National Bank. Please go ahead.
Speaker 2: Yeah, good morning guys and thanks for taking the question. It's probably for Ryan, I just wanted to see if you could provide some context around.
Speaker 2: the kind of multilateral locations that you've identified. It looks like you've kind of been pushing the Bakken boundary at Bufield with the first couple of those.
Speaker 2: Is there opportunity to bring that back into the core and even take in a step further? Is there opportunity to potentially go back into existing wells and recompelate those so to speak?
Speaker 2: Yeah, hey Travis, thanks for the question. Yeah, I would say, I mean, we're looking at applying this across all of our areas. I don't know if it would be applicable to go back into the core where this really works as we've said, we're pushing. The boundaries of the pool where it gets a little bit thinner and there's overlying lodge pole.
Speaker 2: essentially the way to think about it is you know you can basically drill these multilaterals for you know one and a half times the capital of a kind of a traditional infill well and you know we're expecting three to four times the
Speaker 2: the EOR. So definitely better economics and pushing the boundaries of the play were our kind of traditional fracked wells, you know, wouldn't access those reserves.
Speaker 4: Okay, perfect. And then you kind of alluded to that in terms of pushing to and trying to.
Speaker 4: deploy this across other plays. Would this work in the Sean of N has you think about the reservoir there as well?
Speaker 2: Yeah, yeah, you bet. And the shanaman is thicker as well. So maybe instead of just doing multilaterals that are at the same height, maybe we start to access more vertical heights in our reservoirs in shanaman. But early days there, it's a different reservoir, a different rock.
Speaker 2: Our teams are looking at it and exciting to try something here soon.
Speaker 4: Okay, perfect. Thanks for that color. Sounds interesting. Thank you.
Speaker 5: Thank you.
Speaker 3: Next question will be from Chris Shockey at Angular Research. Please go ahead.
Speaker 1: Yes, hi, good morning. Just had a question on for 2023, are you still forecasting costs in the 85 WTI range? And did your inflation assumptions change at all in the fourth quarter?
Speaker 2: Yeah, so I would say we're assuming kind of prices in the 75, 80, $85 WTI range. We're basically assuming the same capital costs, the same unit costs that we experienced at the end of 2022. There have been small movements.
Speaker 2: in unit costs. I would say, you know, costs, you know, more related to services with labor. Those have crept up a little bit, but we've offset those with deficiencies and even some, you know, commodity-based costs, like steel, diesel, chemicals, they've...
Speaker 2: came down a little bit to offset those increases. So overall, we're assuming the same cost that we saw at year end 2022.
Speaker 6: Okay.
Speaker 7: That's good and then for 2023.
Speaker 7: If your percentage head ratio is still going to be in the 20% range, can you shed some light there?
Speaker 1: Yeah, thanks for the question, Chris. It's Craig here. When you look at us here in the front half of the year, we're about 20% hedged.
Speaker 1: using mainly the collars of the tool. And then when you look to the back part of the year, we're about 10% hedged. We do have hedge target set, and we are hedgers as you do, I'll know. Historically, when you looked at Crescent Point, we've been somewhere in the neighborhood that have fought 40 to 50% of our volumes hedged. With our balance sheet being in the position that it's in right now as strong as it is.
Speaker 1: And with some of that backwardation on the curve, we don't really feel the need to continue to build that book up into that 40 to 50% level. And going forward, you're going to see a hedge book in the range of around that 20-ish, 25%. And then building that out roughly 12 months going forward. And what that really does for us, Chris, is it...
Speaker 1: It allows us to protect our fixed costs at the same time that base level dividend here into the future. So we will have a hedge book probably somewhere in that 20-25% range going out of about 12 months and typical tool right now has been callers. So targets are set and as the market moves into that, we bump into those.
Speaker 3: Okay, thanks for that, Craig. Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press our followed by one on your touch-down phone.
Speaker 3: And at this time, Mr. Bricksa, we have no other questions registered. Please proceed.
Speaker 1: Thanks for joining our call today. If you have any questions that we're not answered, please call our investor relations team at your convenience. Thanks again, everyone.
Speaker 3: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending, and at this time we do ask that you please disconnect your lines. Stop! Stop jazzing