Crescent Point Energy Corp. Q1 2023 Earnings Call
Okay.
Good morning, ladies and gentlemen.
Welcome to Griffin points energy first quarter earnings.
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 homepage.
The webcast may not be recorded or rebroadcast without the express consent of Crescent point energy.
All amounts discussed today are Anthony <unk>.
With the exception of West, Texas intermediate or dilute Ti pricing, which is what it in U S dollars.
The complete financial statements and management's discussions and.
Obviously, it's for the period ending March 31, turning to <unk> were announced this morning and are available on the Crescent point's either it's our website.
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After the Speakers' remarks, there will be a question and answer session.
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It shouldn't make me really a chance 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 Griffin points operations or financial results aren't great and Crescent Point's. Most recent annual information form which may be accessed through the Christians points, either or Edgar websites or by contacting Crescent point energy.
Management also calls your attention to the forward looking information and non-GAAP measures sections.
The press release issued earlier today.
I will now turn the call over to Craig <unk>, firsthand and Chief Executive Officer, Chris its Brian .
Please go ahead Mr <unk>.
Thank you operator, I'd like to welcome everyone to our first quarter 2023 conference call with me today are Ken Lamont, Our Chief Financial Officer, and Ryan <unk>, Our Chief operating officer as.
As the operator highlighted this conference call is being webcast, along with a slide deck, which can be found on our website.
Before we get into our first quarter update I'd like to briefly speak to the wildfires that have been impacting communities in western Canada.
Our teams in the field have done an excellent job to keep everyone safe and mobilized our response to coordination with local and provincial authorities and to offer assistance where possible.
Last weekend, we proactively shut in all our key Bob Duvernay operations as a cautionary measure with no damage reported to our assets.
As the buyers around our Fox Creek operations dissipated, we began restoring production and currently have 85% of our keep our production now back online.
Given our strong production results to date and the temporary impact expected from this outage. There is no change to our annual production guidance.
I'll now turn your attention back to our first quarter results.
We've had a great start to 2023 as a result of both our strong operational results and the completion of our strategic acquisition of the Alberta Montney assets.
Our Montney acquisition is highly accretive to our shareholders as it enhances the quality of our overall portfolio.
Our inventory of premium locations to 15 years and increases our profit profitability metrics and return of capital to our shareholders.
It also aligns with our long term strategy of focusing on high quality scalable resource pleased that meet our defined asset criteria.
We are excited about the opportunity to create additional value by applying our operational excellence to these assets.
Deliver potential reserves growth given the number of umbach locations that we've identified.
A second montney bench to take advantage of the significant resource in place within these assets.
Achieve enhanced efficiencies based on the similarity and proximity of our Montney Torquay Bob Duvernay.
When you look at our portfolio you can see the benefits of our complementary pairing of short cycle assets like our Montney and Kebob Duvernay plays with our longer cycle assets in Saskatchewan.
Our short cycle assets provide significant growth potential and long term scalability with very quick payback periods, well, our long term cycle or long cycle waterflood and polymer assets provide a consistent stream of low decline production and significant excess cash flow.
This optimal portfolio also provides added diversification and the opportunity for knowledge transfer to deliver enhanced efficiencies.
Our assets are strategically situated within the oil and liquids rich fairways, which allow us to have one of the highest net backs in North America and resulted in significant excess cash flow generation per share.
We look forward to sharing our progress in developing these great assets in the quarters ahead.
Outside our recent acquisitions, we have completed a number of noncore 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.
During the first quarter of this year, we delivered strong financial results with significant excess cash flow.
Over 60% was returned to our shareholders through dividends and share repurchases.
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.
I'll now turn it over to Ken to speak to our first quarter results in greater detail.
Thanks, Craig for the quarter ended March 31, we generated $153 million of excess cash flow with proceeds allocated towards debt reduction and shareholder returns during.
During the quarter, we returned over 60% or $103 million of our excess cash flow directly to shareholders.
These returns include our base dividend and the repurchase of more than $5 1 million shares for approximately $48 $5 million.
Adjusted funds flow for the quarter totaled $525 million or <unk> 95 per share diluted driven by strong operating netback of $45 per Boe.
Development capital expenditures for the quarter, which includes drilling and development facilities and seismic totaled $314 million.
We were also reported strong net income for the quarter, a $217 million or <unk> 39 cents per share diluted.
Our net debt as at March 31, 2023 totaled $1 4 billion or <unk> six times adjusted funds flow.
Subsequent to the quarter, we successfully closed our acquisition of Spartan Delta as Alberta, Montney assets, which included a net cash payment of $1 7 billion funded through our existing credit facilities.
Our net debt at closing was $3 billion or one three times adjusted funds flow, which is expected to improve to one times at year end using 75 dollar WTS.
We continue to target a long term conservative leverage ratio of one times net debt to adjusted funds flow at a low commodity price.
We have increased our portfolio of commodity hedges to provide additional financial protection.
As a result, approximately 30% of our oil and liquids production is currently hedged in the second and third quarter of this year and approximately 10% in the fourth quarter.
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 vehicle, including diversification to Henry hub and the U S. Midwest.
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.
I will now turn the call over to Ryan to speak to our operational highlights Ryan.
Thanks, Ken for the quarter ended March 31, 2023, our production averaged 139280 Boe per day comprised of 80% oil and liquids as Craig and Ken mentioned, we closed our acquisition of Spartan Delta as Alberta, Montney assets. This week, which adds approximately 38000 Boe per day of our.
And to our company.
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.
Late in the first quarter Spartan brought on stream a single well in the Gold Creek West area, The Alberta, Montney play, which achieved an average 30 day initial production rate of approximately 1900 Boe per day with production comprised at 90% oil and liquids.
Well is currently exceeding books type well expectations in the area and is expected to pay out in less than six months from the initial on stream date at current commodity prices ease.
These results highlight the attractive reservoir characteristics of this asset, including significant pay thickness and resource in place coupled with favorable permeability and porosity.
Looking ahead, we plan to drill 15 wells in the Alberta Montney through the remainder of 2023, and we will seek to optimize efficiencies by leveraging our expertise in multi well pad development.
In the K, Bob Duvernay, we are continuing our track record of operational execution delivering strong full cycle returns that also ranked top quartile within our asset portfolio.
We recently brought on stream, our seventh fully operated multi well pad and keyboard, which generated an average IP 30 rate of over 1000 Boe per day per well at over 80% liquids, primarily condensate and is currently exceeding bulk type well expectations in the area.
We plan to add a second rig in the <unk> Duvernay in fourth quarter of this year to further accelerate the development of our high return inventory in the play.
In Saskatchewan, we continued to advance our decline mitigation programs by converting 25 wells to injectors during the quarter.
Our waterflood programs continued to deliver strong overall results with nearly half of versus gasoline production currently under water and polymer flood with a low decline rate of 5%.
We are also advancing the development of our open hole multilateral wells and do you feel which continued to deliver highly economic production results. While also expanding our overall development fairway within the play we are currently.
Evaluating the opportunity to apply this technology in other areas within our asset base.
On the ESG front, we remain steadfast in our commitment to strong environmental social and governance best practices.
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.
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.
<unk> 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 we'll provide more insight into the progress in our upcoming sustainability report.
Before I hand, it back to Craig I'd like to reiterate his remarks regarding the wildfires impacting our Fox Creek K, Bob Duvernay operations.
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 safe as possible.
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.
We'll continue to monitor all factors and bring the remainder of the shut in production back on only went into safe to do so.
I'll now pass it back to Craig for final remarks.
Thanks, Ryan in closing I'd like to express how excited we are.
The next chapter of rewriting the Crescent point story.
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.
Our portfolio optimization strategy has substantially enhanced the quality of our asset base.
Improved our cost structure and added significant depth of high return drilling locations to our corporate inventory.
We now have 15 years of premium drilling inventory underpinned by our key Bob Duvernay, Alberta, Montney and low decline assets in Saskatchewan.
Based on a very strong start to the year. We are on track to meet our annual average production guidance of 160 to 166000 Boe per day.
Our capital program also remains unchanged at 1.15 to $1 two 5 billion pro forma the recent Montney acquisition.
We've 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.
We expect to generate significant excess cash flow in 2023, approximately $1 $1 billion at $75 per barrel WTS pricing and continue to target a return of capital framework, where approximately 60% of our excess cash flow is returned to our shareholders.
Before I sign off I would like to invite all of our shareholders to our annual General meeting taking place next week on May 18th 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.
Now I'll open the call for questions from the investment community operator, Please open the call.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
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Your first question comes from Amit <unk> from <unk> capital. Please go ahead.
Thanks, Good morning, guys just a question.
In terms of the Duvernay and Montney I mean, they're both great assets I know, you're adding a second rig into the duvernay, but that was sort of that was decided prior to you having acquired the montney asset.
Given the kind of well results Youre seeing there could you just talk about the capital allocation.
Clean the two in terms of incremental spend or incremental rigs.
We're drilling the quantity.
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 you remember we had a one rig program here for the first couple of years.
Really prove the strength of our operations and technical teams on the back end of that now.
Looking here in October to bringing that second rig.
When you look into the Montney at some point in time, we will bringing 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 will move in there in similar fashion that we did with the Duvernay get in there.
Do things a little bit different than the previous operator, and see if we can enhance the overall returns from that as well. So in the near term here I would expect a one rig program.
Maybe over the next 24 to 36 months look for us to layer in EBITDA incremental capital into that area as we go as well, but both assets 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.
Okay.
The color and then just on the recent well results that you did chemical creek lessen significantly better than the previous.
Just to the northwest of that does.
Does the geology change that significantly between the two points or is it the completion and the.
Or the way you completed the world impacting the rates on the liquids cut.
Yeah. So if you step back a bit I think when you look at Spartan Delta in their operations team. They did a great job of delineating this asset base.
And obviously they were learning as they went as well. So in this instance, they've landed that well a little bit lower and have made a few tweaks to their completion design.
And that obviously has us very excited on this well results. So certainly as we get into that play look for us to.
To change things up a little bit slightly will landa was wells a little bit lower again like we did in K Bob.
It makes some some overall design changes to the completions and ideally no mirror results like you've seen here on that.
Last well, but.
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 will we'll be able to piggyback on from.
Sounds good and one just one final question can you just summarize for us the infrastructure takeaway you have.
Anthony.
Terms of gathering and.
Hi.
Yes, yes, yes.
So near term we're in a we're in a very good position Ryan is probably the best person to give you a color here as we go.
Yeah, I think I'd say similar to what we've kind of portrayed in our long term five year plus plan in the Duvernay. The the infrastructure is for the most part is in place all the major gas plants processing facilities are in place.
What we'll be doing as we continue to.
Drilling step out a little bit is just add your typical trunk lines and gathering infrastructure, but.
From a percentage of overall.
Capital development.
Spend the infrastructure will be in line with our cable duvernay plants.
Okay perfect. Thank you.
Thanks for the questions.
Thank you.
Our next question comes from <unk> <unk> from National Bank Financial. Please go ahead.
Thanks, Thanks for taking the time to take my question here.
I wanted to step into Saskatchewan, specifically view field I think a couple of quarters ago.
You first talked about the multi laterals and kind of what the potential could look like over the longer term I think you've had some recent success as well with Q1 and some numbers tucked into the back into the presentation. So could you talk about what's driving the success on those multi laterals and potentially how you.
We're thinking about it through the rest of this year in terms of activity.
And then to the extent that you can.
Talk about kind of the geographic locations in terms of where you are tested and what are you planning to take out a test that.
Method through the remainder of the year. Thank you.
Yes, he Travis thanks for the question, Yes, we are.
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 <unk> field Bakken open hole multi laterals, we drilled 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's making those successful and economic is essentially for a given section of land, we're increasing the recoverable reserves with less capital. So that's giving us better economics in these portions of the play where were pushed.
<unk>, the economic boundaries, and adding economic drilling inventory to the place so.
Super excited to continue that we are still looking at.
Where do these apply to our our other assets, whether thats, Shawn in southwest, Saskatchewan or or in flat Lake.
Yes at this point in time, we do not have.
Any.
Open hole multi laterals planned for the other areas, but still continuing to evaluate and as we get more.
Our results in understanding the decline of the.
You feel Bakken well so.
Hope that answers your question on that.
No. It does thanks, Ryan and maybe just just one follow up and it's too granular we can take it offline, but just thinking about.
In the five year plan, you effectively have SaaS being flat.
Or are these locations and the potential.
Future development of the multi laterals embedded in that flat profile Uber over the five year plan.
Yeah, Yeah. They are.
And so as as we keep proving this out Blake IC and pushing that.
The boundaries of the play.
Right now we see that this has extended UCL Bakken drill inventory by four plus years. So so that's all part of keeping our Saskatchewan assets and our five year plan flat at that 60 ish thousand Boe per day.
And pairing that with our decline mitigation programs, probably keeps that 60000 barrels per day under a 20% decline which.
Obviously helps generate a significant portion of our corporate free cash flow.
Okay perfect. Thank you.
And then my second and final question will be it might be for Ken, but just did this quarter.
<unk> allocated.
The variable free cash to the to the buyback.
How are you thinking about that.
<unk>.
The NCI activity now that it's effectively fresh through the next through the next 12 months and how should we think about that versus the variable portion on a sequential basis.
Hey, Travis yes, thanks for the question.
Yes.
As respect to 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 focus going forward.
The special is really that we've had here in the last couple of quarters, where more of just a cleanup.
So 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 vis the buyback and obviously, that's where our focus is so I would expect going forward that yes. The lion's share is absolutely going to be on the buyback.
And if theres any cleanup needed there would be a small special just a 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.
Great. Thanks.
Thank you. Your next question comes from Chris Sakai from singular research. Please go ahead.
Yes, hi, good morning.
Just wanted to ask about.
I guess, the 2023 guidance for the total annual average production.
Looks like it's increased from the fourth.
Fourth quarter.
And wanted to get where where it was that increase coming from was it from the Montney acquisition.
Just wanted to get your color some color there.
Yeah. So thanks for the question. So when you look at our overall guidance right now.
We're at that 160 to 166000 BOE per day, we're going to spend in the neighborhood of the $1 one to the one $5 billion to execute against that.
At a $75 price environment, which we're in and around today that would generate about $1 1 billion of excess cash flow of which.
We've talked in the past, 60% is earmarked for return capital to our shareholders that change that change in the guidance is really just on the backend of the.
Montney acquisition.
And keep in mind that that it closed may 10th so we only get roughly.
50% of the year on that 38000 Boe per day, so that's really the difference on the incremental guidance.
Okay sounds good and then.
Any any outlook as far as the full year, what would be the full year for montney.
38000 Boe per day is what it's running here in the next 12 months.
As how to look at it and then if you look at.
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 in.
In the fall as you look for our preliminary 2020 for budget.
What I would do for now the simplest thing is to just bolted on what our five year program look like.
Previously so you're going to be somewhere in the neighborhood of caught up I don't know 177000 Boe per day to somewhere around 182 ish thousand Boe's per day somewhere in that neighborhood of production with our full year guidance in there on the Montney.
For 2024, and again very high level, we don't have any formal guidance out.
Right. Okay, and then can you talk about the wildfires.
Are they contain or is this could this grow and get worse.
Yeah, Ryan do you want to give some color on.
Yes. Good question. So I think this morning, the Alberta government's count was I think 73 active wildfires with still about 20 out of control.
So.
Stating the obvious, but we need cooperative weather and Theres still tremendous efforts happening out there with firefighters and local communities China's trying to contain the fires.
And let evacuees get back to their homes.
Specifically for our area in Fox Creek.
R K, Bob Duvernay operations are.
We've been able to bring 85% of our 45000 Boe per day back online now the.
The remainder of the shut in production is 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 seats to startup and only when they're safe to startup will bring the rest of our production back online.
Okay, great. Thanks for that.
Thank you.
Our next question comes from Michael Harvey from RBC. Please go ahead.
Yeah sure. Good morning, just one on North Dakota.
Not much of an update.
Okay.
It sounds like we lost him there operator.
It looks like it.
In this case there are no further questions from these time.
So I'll tell you what Mike will 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 will 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 through today just please reach out to R. R.
IR 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.