Crescent Point Energy Corp. Q1 2023 Earnings Call
Speaker 1: Outside our recent acquisitions, we have completed a number of non-core asset dispositions to optimize our portfolio. We expect to continue to pursue, in a disciplined manner, opportunities to further improve our portfolio to enhance our long-term profitability.
Speaker 1: During the first quarter of this year, we delivered strong financial results with significant excess cash flow, of which over 60% was returned to our shareholders through dividends and share of purchases.
Speaker 1: We have also had a great start to the year operationally and are on track to meet our annual average production guidance with our capital budget remaining unchanged.
Speaker 1: I'll now turn it over to Ken to speak to our first quarter results in greater detail. Ken?-
Speaker 1: Thanks Craig. For the quarter ended March 31st, we generated $153 million of excess cash flow with proceeds allocated towards debt reduction and shareholder returns.
Speaker 1: During the quarter, we returned over 60%, or $103 million, of our excess cash flow directly to shareholders.
Speaker 1: These returns include our base dividend and the repurchase of more than 5.1 million shares for approximately $48.5 million.
Speaker 1: Adjusted funds flow for the quarter total $525 million, or $0.95 per share diluted, driven by strong operating netback of $45 per BOE.
Speaker 1: Development capital expenditures for the quarter, which includes drilling and development, facilities and seismic, totaled $314 million.
Speaker 1: We also reported a strong net income for the quarter of $217 million, or $0.39 per share diluted.
Speaker 1: Our net debt as of March 31, 2023 totaled $1.4 billion, or 0.6 times adjusted funds flow.
Speaker 1: Subsequent to the quarter, we successfully closed our acquisition of Spartan Delta's Alberta Montney assets, which included a net cash payment of $1.7 billion funded through our existing credit facilities.
Speaker 1: Our net debt at closing was $3 billion, or 1.3 times adjusted funds flow, which is expected to improve to 1 times at year end using $75 WTI.
Speaker 1: We continue to target a long-term conservative leverage ratio of one times net debt to adjusted funds flow at a low commodity price.
Speaker 1: We have increased our portfolio of commodity hedges to provide additional financial protection.
Speaker 1: As a result, approximately 30 percent of our oil and liquids production is currently hedged in the second and third quarter of this year, and approximately 10 percent in the fourth quarter.
Speaker 1: Although gas only represents 25% of our overall production, we have also hedged over 15% of our volumes in 2023, with a significant portion of our unhedged volumes exposed to pricing outside of ACO, including diversification to Henry Hub and the U.S. Midwest.
Speaker 1: We plan to layer in additional protection in the context of market conditions with a goal of hedging up to 30% of our overall near-term production.
Speaker 1: I will now turn the call over to Ryan to speak to our operational highlights. Ryan.
Speaker 1: Thanks Ken. For the quarter ended March 31, 2023, our production averaged 139,280 BoE per day, comprised of 80% oil and liquids. As Craig and Ken mentioned, we closed our acquisition of Spartan Delta's Alberta Montney assets this week, which adds approximately 38,000 BoE per day of production to our company.
Speaker 1: Our new Montney assets are strategically situated in the volatile oil fairway of the play and provide over 20 years of premium drilling locations with full cycle returns that rank in the top quartile of our portfolio.
Speaker 1: Late in the first quarter, Spartan brought on stream a single well in the Gold Creek West area of the Alberta Montney Plate, which achieved an average 30-day initial production rate of approximately 1,900 BoE per day, with production comprised of 90% oil and liquids.
Speaker 1: as well as currently exceeding booked type 1 expectations in the area and is expected to pay out in less than 6 months from the initial on stream date at current commodity prices.
Speaker 1: These results highlight the attractive reservoir characteristics of this asset, including significant pay thickness and resource in place coupled with favorable permeability and porosity.
Speaker 1: Looking ahead, we plan to drill 15 wells in the Alberta Montney through the remainder of 2023, and will seek to optimize efficiencies by leveraging our expertise in multi-well pad development. For more information, visit www.fema.gov
Speaker 1: In the KVOP Duvernay, we are continuing our track record of operational execution, delivering strong full-cycle returns that also rank top quartile within our asset portfolio.
Speaker 1: We recently brought on stream our 7th fully operated multi-well pad in KVOP, which generated an average IP30 rate of over 1000 BUE per day per well at over 80% liquids primarily condensate and is currently exceeding both type expectations in the area.
Speaker 1: We plan to add a second rig in the K-Bob Duvernay in fourth quarter of this year to further accelerate the development of our high return inventory into place.
Speaker 1: In Saskatchewan, we continue to advance our decline mitigation programs by converting 25 wells to injectors during the quarter. Our water flip programs continue to deliver strong overall results with nearly half of our Saskatchewan production currently under water and polymer flood with a low decline rate of 5%.
Speaker 1: We are also advancing the development of our open hole multilateral wells in Dufield, which continue to deliver highly economic production results, while also expanding our overall development fairway within the plate.
Speaker 1: We are currently evaluating the opportunity to apply this technology in other areas within our asset base.
Speaker 1: On the ESG front, we remain steadfast in our commitment to strong environmental, social and governance best practices.
Speaker 1: Leading into the first quarter, we rolled out a targeted safety awareness campaign that proved to be very effective in reducing our serious incident frequency and total recordable incident frequency.
Speaker 1: This safety campaign, titled Refocus, Reconnect, Recharge, helps reinforce our commitment to safe operations and prioritizes the health and wellbeing of our employees and contractors above all else.
Speaker 1: Similarly, our commitment to strong environmental performance continues to position the company well within our industry. We remain on track with our climate, water and asset retirement goals and will provide more insight into the progress in our upcoming sustainability report.
Speaker 1: Before I hand it back to Craig, I'd like to reiterate his remarks regarding the wildfires impacting our Fox Creek K-BOP Kuvernay operations.
Speaker 1: I'd like to commend the tremendous efforts of our staff, industry partners, firefighters, emergency responders, and local officials and regulators for keeping our communities as safe as possible.
Speaker 1: It is obviously still a very fluid situation, but we are able to report that the circumstances in our area specifically have allowed us to bring 85% of our production back online.
Speaker 1: We will continue to monitor all factors and bring the remainder of the shut-in production back on only when it is safe to do so.
Speaker 1: I'll now pass it back to Craig for final remarks.
Speaker 1: Thanks Ryan. In closing, I'd like to express how excited we are about the next chapter we are writing in Crescent Point Story.
Speaker 1: Through the hard work and dedication of our team, we have materially transformed the organization into a highly profitable, shareholder-focused enterprise that is poised to deliver compelling returns in the years ahead.
Speaker 2: Our portfolio optimization strategy has substantially enhanced the quality of our asset base.
Speaker 2: improved our cost structure, and added significant depth of high return drilling locations to our corporate inventory.
Speaker 2: We now have 15 years of premium drilling inventory underpinned by our K-Bob Duvernay, Alberta Montney and low decline assets in Saskatchewan.
Speaker 2: Based on a very strong start to the year, we are on track to meet our annual average production guidance of 160 to 166,000 BUE per day. Our capital program also remains unchanged at 1.15 to 1.25 billion pro forma the recent moni acquisition.
Speaker 2: We have recently entered into agreements to secure a significant portion of our drilling and completion services for the balance of 2023, which provide us with additional certainty around our capital expenditures guidance.
Speaker 2: We expect to generate significant excess cash flow in 2023 of approximately $1.1 billion at $75 per barrel WTI pricing, and continue to target a return of capital framework where approximately 60% of our excess cash flow is returned to our shareholders.
Speaker 2: Before I sign off, I would like to invite all our shareholders to our annual general meeting taking place next week on May 18th.
Speaker 2: Please see our website for further details on our AGM. I'd like to thank our shareholders for their continued support and feedback over the years to help drive the overall success of our business.
Speaker 2: I'll now open the call for questions from the investment community. Operator, please open the call.
Speaker 3: Thank you.
Speaker 4: Ladies and gentlemen, we will now begin the question and answer session.
Speaker 4: As mentioned before, if you would like to ask a question simply press star 1.
Speaker 4: If you would like to with your question please press R2
Speaker 4: Your questions will be pulled in the order they are received.
Speaker 4: If you are using a speakerphone please lift the handset before pressing any keys.
Speaker 4: One moment please for your first question. Your first question comes from Amir Arif from ATB Capital. Please go ahead.
Speaker 5: Thanks, good morning guys. Just a question in terms of the DuVernay and the Montney. I mean they're both great assets. I know you're adding a second week into the DuVernay but that was decided prior to you having acquired the Montney asset. Just given the kind of well results you're seeing there, could you just talk about the capital allocation between the two in terms of incremental?
Speaker 2: spend or incremental rigs that you are growing that you plan to do? Yeah, so thanks for the question. I think when you look at the overall portfolio and what we've been doing, very happy with how the DuVernay has played out. And as we did move into the DuVernay, remember we had a one-rig program here for the first couple of years and have...
Speaker 2: really prove the strength of our operations and technical teams on the back end of that. Now, looking here in October to bring in that second rig, when you look into the Montney, at some point in time, we will bring in a second rig for the remainder of this year. We do have a one rig program, which is approximately call it 15-ish wells. We'll move in there in similar fashion that we did with the Duvernay, get in there.
Speaker 2: extremely strong returns, fit in the top quartile of our portfolio as far as returns. So happy to have both of them within the portfolio.
Speaker 5: I appreciate the cover. Just on the recent well result that you did get at Gold Creek West, and significantly better than the previous pad just to the northwest of that, does the geology change that significantly between the two points, or is it the completion and the way you completed the well impacting the rates and the... You can see the rotation eastern
Speaker 2: tweaks to their completion design. That obviously has us very excited on this well result. So certainly, you know, as we get into that play, look for us to change things up a little bit slightly. We'll land those wells a little bit lower, again, like we did in K-Bob, make some overall design changes to the completions and ideally
Speaker 2: mirror results like you've seen here on that last well. Again, the Spartan team has done a great job overall when you look at the delineation that they went through on the asset base and they're learning over time as well too that we'll be able to piggyback on from.
Speaker 5: Just one final question, can you just summarize where the infrastructure take away you have in the Montney in terms of gathering and de-high and compression? Yeah, so near term we're in a very good position. Ryan's probably the best person to give you a color here as we go.
Speaker 1: Yeah, you know, I think I'd say similar to what we've kind of portrayed in our long term, you know, 5 year plus plan in the Duvernay, the infrastructure is for the most part is in place. All the major gas plants, processing facilities are in place. You know what we'll be doing as we continue to drill and step.
Speaker 6: Terrific, thank you.
Speaker 7: Thanks for the questions.
Speaker 4: Thank you. Your next question comes from Travis Gluitt from National Bank Financial. Please go ahead.
Speaker 1: Thanks for taking the time to take my question here. I want to step into Saskatchewan, specifically Viewfield. I think a couple of quarters ago you first talked about the multilaterals and what the potential could look like over the longer term. I think you've had some recent success as well with...
Speaker 8: talk about kind of the geographic locations in terms of where you're tested and where you plan to kind of test that drilling method through the remainder of the year. Thank you.
Speaker 1: Yeah, hey Travis, thanks for the question. Yeah, we do spend a lot of time talking about Montney and Duvernay, which shows our excitement having these assets in our portfolio now, but we do still have very economic drilling programs in Saskatchewan, specifically the viewfield, baulkin, open-hole multilaterals we drilled.
Speaker 1: Two more of those in Q1 here, really happy with the results. And we have seven more planned for the rest of this year. And that's pushing the economic boundaries of the play in a couple of different directions. And I think to your point on what
Speaker 1: making those successful and economic is essentially, you know, for a given section of land, we're increasing the recoverable reserves with less capital. So that's, you know, giving us...
Speaker 1: better economics in these portions of the play where we're pushing the economic boundaries and adding economic drilling inventory to the place. Super excited to continue that. We are still looking at where do these apply to our other assets, whether that's
Speaker 1: you know, ShawnaVin, Southwest Saskatchewan or in Flat Lake. At this point of time, we do not have any open-home multilaterals planned for the other areas, but still continuing to evaluate. And as we get more...
Speaker 8: results and understanding the decline of the Eufel-Balkenwell. So I hope that answers your question on that. No, it does. Thanks Ryan. And maybe just one follow-up and if it's too granular we can take it offline. But just thinking about in the five-year plan you effectively have Sask being flat.
Speaker 8: are these locations and the potential future development of the multilaterals embedded in that black profile over the five-year plan.
Speaker 1: Yeah, they are. And so as we keep proving this up, like I say, and pushing the boundaries of the plate, right now we see that this has extended, you know, vehicle blocking drill inventory by four plus years. So
Speaker 1: So that's all part of keeping our Saskatchewan assets in our 5 year plan flat at that 60-ish thousand B.O.E. per day. And pairing that with our decline mitigation programs probably keeps that 60,000 barrels per day under a 20% decline, which is a little bit more than that.
Speaker 1: you know, obviously helps generate a significant portion of our corporate free cash flow.
Speaker 8: Okay, perfect. Thank you. And then my second and final question will be, it might be for this quarter, you allocated the variable free cash to the buyback.
Speaker 8: How are you thinking about the NCIB activity now that it's effectively fresh through the next 12 months and how should we think about that versus the variable portion on a sequential basis?
Speaker 2: Thanks for the question. Yeah, with respect to the, the, the allocation this quarter, obviously, as we've said to the market here, our focus is on the share buyback and that will continue to be the focus going forward. The specials really that we've had.
Speaker 1: here in the last couple of quarters were more just of a cleanup to really just solidify the 50% return of discretionary excess cash under the framework. This quarter was just unique in the sense that we did get that 50% taken care of just vis-a-vis the buyback.
Speaker 8: And obviously that's where our focus is. So I would expect going forward that yeah, the lion's share is absolutely going to be on the buyback. And if there's any cleanup needed, there would be a small special just to respect the framework. So we're honoring the framework this quarter. We got it done on the buyback and pleased with that. Okay, perfect. That's all from me. I'll turn it back. Thanks guys.
Speaker 5: 2023 guidance for the total annual average production. Looks like it's increased from the fourth quarter and wanted to get where was that increase coming from? Was it from the Montney acquisition? So just wanted to get your color, some color there. Yeah, so thanks for the question. So when you look at our...
Speaker 2: you know, we've talked in the past 60% is earmarked for return of capital to our shareholders. That change in the guidance is really just on the back end of the Montney acquisition and keep in mind that that closed May 10th. So we only get roughly.
Speaker 2: 50% of the year on that 38,000 BUE per day. So that's really the difference on the incremental guidance. Okay, sounds good. And then any outlook as far as the full year? What would be the full year for Montney?
Speaker 2: 38,000 B.O.E. per day is what it's running here in the next 12 months. Is how to look at it and then if you look at, you know, if you look into 2024, obviously we don't have any formal guidance out right now. We are continuously working through that and we'll have something out in the fall as you look for our preliminary 2024 budget. But what I would do for now, the simplest thing is to just bolt it on what our.
Speaker 5: don't have any formal guidance. Right, okay, and then can you talk about the wildfires? Are they contained or could this grow and get worse?
Speaker 1: Yeah Ryan do you want to give some color on? Yeah good question so I think this morning the Alberta government count was I think 73 active wildfires.
Speaker 1: with still about 20 out of control. So, you know, stating the obvious, but we need cooperative weather and there's still tremendous efforts happening out there with firefighters and local communities trying to contain the fires and let evacuees get back to their homes.
Speaker 1: Specifically for our area in Fox Creek, where our cable up, do any operations are, you know, we've been able to bring 85% of our. 45,000 per day back online now. The remainder of the shut in production is.
Speaker 1: is currently in a restricted area and so we will not go back into that area until local authorities allow us to and then once we can do that we can get in there and see if the sites are safe to start up and only when they're safe to start up will bring.
Speaker 1: the rest of our production back online. Okay, great. Thanks for that.
Speaker 6: online. Okay, great. Thanks for that. Thank you.
Speaker 4: Your next question comes from Michael Harvey from RBC. Please go ahead. Yeah sure, good morning. Just one on North Dakota. Much of an update in the...
Speaker 2: It sounds like we lost them there operator.
Speaker 9: Yeah, it looks like it. Well in this case there are no further questions at this time.
Speaker 2: So I'll tell you what, Mike, we'll reach out to you following up on this call. Sorry about that, we're not sure what happened here on our end, but it looks like we lost you. So we'll reach out to you here right away, one of us. For those of you that have any other questions that we didn't get a chance to get to today, just please reach out to our...
Speaker 9: our team at your convenience. Thanks, everyone. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.