Q2 2023 Crescent Point Energy Corp Earnings Call

Good morning, Ladies and gentlemen, my name is Julie and I will be your alternative for Crescent point Energy's second quarter 2023 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 conference of Crescent point energy.

All amounts discussed today are in Canadian dollars with the exception of West, Texas Intermediate R. W. T.

Pricing, which is quoted in U S dollars.

The complete financial statements and management's discussion and analysis for the period ending June 30th 2023 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 for members of investment community.

If you'd like to ask a question over the phone lines. During this time simply press Star then the number one on your telephone keypad, if you'd 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.

Actual performance events or results may differ.

At.

Additional information or factors that could affect crescent point.

Operation or financial results are included in Creston point most information.

Information.

Which may be accessed through the Crescent point theater or Edgar websites or by.

Contacting Crescent point energy.

Management also calls your attention to their forward looking information and the non-GAAP measures sections of the press release issued earlier today.

I'll turn the call over to Craig Britzka.

President and Chief Executive Officer at Crescent Point. Please go ahead, Mr breaks up.

Thank you operator, I'd like to welcome everyone to our second quarter 2023 conference call with me today are Ken Lamont, our Chief Financial Officer, and Ryan grid scale, our Chief operating officer.

As the operator highlighted this conference call is being webcast, along with a slide deck, which can be found our website.

And they were introducing a new format to our conference call at a level of further engagement and to turn the call onto more of a discussion on our Florida.

Earlier today, we issued our quarterly press release financial results, an updated corporate presentation, each of which can be found on our website.

During this call I'll provide a brief strategy update highlight our strong quarterly results and discuss our overall outlook for the remainder of the year.

We'll then move into a Q&A session, we will start by taking questions over the conference line as we usually do.

And once those questions have concluded I'll, then turn the call over to Shawn Marion, Our Vice President capital markets.

Great questions from participants joining us on our webcast.

We encourage those on our webcast to Smith questions using the chat function on the online portal.

We look forward to the discussion that this format will provide so let's get started.

On the strategy front, we significantly advanced our portfolio optimization through our successful Alberta Montney acquisition during the second quarter.

This transaction materially enhances the quality of our portfolio both in terms of our depth of premium inventory as well as our excess cash flow profile and a return of capital per share.

This acquisition is consistent with our strategy of pairing quick payback short cycle assets, such as the Alberta, Montney and K, Bob Duvernay, which are longer cycle low decline assets in Saskatchewan.

This mix of short and long cycle plays resulting in significant excess cash flow for the company and our shareholders.

It also allows us to execute on our strategy to generate sustainable long term returns through a combination of per share growth and a compelling return of capital offerings, all while maintaining a strong balance sheet.

Our multi basin approach remain strategically focused on oil and liquids, which account for 75% of our current production.

Our remaining dedicated to this approach we were able to deliver on one of the highest cash flow net backs in the industry, along with significant excess cash flow per share.

We are successfully integrating the new montney asset into our portfolio and have a near term goal of further enhancing our returns through additional productivity gains and cost efficiencies.

Part of our early success in this play has been the result of our efforts to leverage our existing relationships with our suppliers to reduce our costs.

We've also identified additional areas for potential efficiencies, including ongoing well completion optimization deploying longer lateral lengths and shifting to larger multi well pads.

As you can tell we're excited about our new Alberta, montney position, especially given its recent prolific well results for.

For example, four of the top five liquids wells drilled in the Western Canadian sedimentary basin in May where our wells in the montney highlighting the attractive reservoir characteristics and the scalability of this asset.

We've continued our drilling success into June achieving impressive results that are in line with or exceeding our early well results.

Like the keyboard Duvernay, our Montney play provides the opportunity for new reserve additions and ultimately net asset value per share growth given that only 25% of the locations. We are internally identified have been booked.

This transaction along with our strategic steps, we have taken over the past few years has allowed us to build a very strong profile or portfolio that is well positioned to generate long term returns for our shareholders.

I'll now shift to our quarterly results and the execution across our portfolio.

During the past quarter, we continued to demonstrate our operational excellence is reflected in strong performance of our Cape up do bringing assets.

I'd note that our second quarter production of 155000 BOE per day included the impact of approximately 7000 Boe per day of downtime associated with the wildfires.

First off I'd like to commend our teams in the field and thank our local community members and first responders for their incredible efforts to keep everyone safe during the wildfires.

Furthermore, thanks to our dedicated teams and Battle field operation Technology, we were able to quickly restore our K Bob do you have any volumes as the fire subsided.

These wildfires masked our true outperformance in the quarter, which was driven by our K, Bob Duvernay assets with recent Onstream production outpacing our type wells in the area.

Due to this outperformance in the first half of the year, we have kept our annual production and capital expenditures guidance unchanged.

Our second quarter results also demonstrate our commitment to returning capital.

During the quarter, we returned $167 million or approximately 60% of our excess cash flow directly to our shareholders. This included $93 million of share repurchases. In addition to our dividends.

In total we have now repurchased for cancellation nearly 17 million shares year to date and remain active on your buyback program, which is the tool of choice within our return of capital framework.

Over the past 12 months, we have delivered more than $550 million to shareholders, marking our fourth consecutive quarter of returning approximately 60% of our excess cash flow.

I'll now touch on our outlook for the remainder of 2023, along with our five year plan.

During the second half of this year, we expect to realize the benefits of our recent Montney acquisition and continued momentum in our key Bob Duvernay play as we plan to bring on stream additional pads in both areas during the third and fourth quarter.

Our second half 2023 production is expected to average approximately 179000 Boe per day generating over $1 billion of excess cash flow on an annualized basis, assuming a $75 U S price deck.

As we look further out we expect to generate $5 billion of cumulative excess cash flow under our five year plan at similar commodity price assumptions.

Riding a combination of disciplined per share growth.

Attractive return of capital and further debt reduction.

We plan to provide our preliminary 2024 outlook later this fall alongside an updated five year plan.

Lastly on the ESG front, we remain steadfast in our commitment to strong environmental social and governance practices.

During the quarter, we released our fifth annual sustainability report, highlighting our strong ESG performance and detailing our key ESG initiatives.

I'm proud to report that our environmental initiatives over the past five years have resulted in a reduction of approximately 50% in both our scope one emissions intensity and our asset retirement obligations.

We also continued to achieve record safety scores, which speaks to our safety first culture.

I'd like to thank everyone for their continued support and engagement in particular, our staff, we continue to deliver on our purpose of bringing energy to our world the right way.

Well now open the call for questions from the analysts and follow with a Q&A session for those on our webcast.

Operator, please open the call.

Thanks to you as a reminder for members of the investment humanity, if you'd like to ask a question. Please press Star then the number one on your keypad, if you'd like to withdraw your question. Please press star two.

For a moment.

Roster.

Dolson the webcast. Please use the chat function to ask a question.

Your first question comes from Dennis Fong from CIBC World markets. Please go ahead.

The solid quarter and thanks for taking my question.

The first one I have is just related to the Montney theres a lot of discussion around.

<unk> Creek East and West I was just curious as to some of the potential development plans around car just given also attractive economics in that region or is there any kind of.

I don't recall at kindred, but things that you need to complete before further developing that region.

Yeah.

He has this is Ryan here I'll take that one so see a car obviously, it's a it's an area that we really like it's obviously a little bit more a higher oil percent higher liquids percent than gold Creek.

Not as many future.

Future drilling locations there as in as in Gold Creek, but we do like the area.

We finished drilling a pad there when we took over from Spartan and actually right now fracking a pad there, which we should have results to to disclose our next quarter.

But yes, we are drilling there for the rest of this year into 2024.

And of course, we'll continue as we get locations ready.

But yeah, we just haven't we just haven't talked about card yet.

We don't have any results.

Since the close of the acquisition, but we are fracking a pad there as we speak and we will speak to that next quarter.

Great great. Thanks.

My follow up sorry.

My follow up here is.

Also on the Montney here.

You've obviously talked a lot about optimizing both cost structure and completion design now that you've taken over the property.

What would maybe drive a decision and order timing to add a second rig in the Montney and kind of what are you looking for to help drive the confidence around accelerating capital deployment because that region. Thanks.

Hey, Dennis it's Craig here, Thanks for the question.

So obviously very excited with the results we've been seeing to date and bringing that acquisition now and it is having an in house and our technical team has really been able to spend the time and dig into it. So the more we get in there and the more we worked through it the more excited we get about this and you can see that as the results are are coming out here.

Year over through May and into June and what we were putting here into our quarter. So on all fronts. It looks really good I think as the technical team gets into it.

We'll do things a little bit differently like we did in the Duvernay. If you remember when we picked that up we moved in there with purpose.

We got smarter over call. It the first couple of years of owning owning that asset now are moving in the second rig into the Duvernay here.

In in October of this year, so look for us here to do it in a similar fashion Dennis we're going to we're going to spend some time, we're going to get active in there we're going to do what we think is right as far as landing the wells.

In the landing zone of our preference were going to change up some completion design ultimately really maximize some heightened growth within there and then ultimately that should show through in the results. So.

We thank you our 2024 program.

Right now it's sitting at one rig in the Montney, but if there is capital shifts Oh.

Across the portfolio I would expect that to be moving into the montney and maybe out of other areas, but I wouldn't expect anything over within the next 12 months Dennis So right now I'd say its a one rate plan here.

We'll see how things play out as we get smarter and really test, but we want to do and again this is where I get excited about a dentist is because if.

You think of our technical teams within this organization and what Theyre going to what they were able to unlock in the duvernay and now parlayed that into the Montney.

I guess, that's a long winded way of.

Long winded way of me, saying that.

Nothing here incremental in the next 12 months, but over that when.

When we get beyond that and we're a little bit smarter look for us to start shifting some capital.

Great great. Thanks, and I appreciate the color there Craig I'll turn it back.

Okay. Thanks Dennis.

We have time for one more question coming from Joseph switch from National Bank Financial. Please go ahead.

Yes, thanks, and good morning.

Wanted to talk about divestitures and with a few things in the fire and just assuming that's something closes across the portfolio here over the next several months.

How are you thinking about the allocation of those proceeds maybe just from a debt.

Variable special and base dividend perspective, but then also.

How are you as you look at opportunities than kind of future business opportunities.

And you evaluate those how are you ranking those future opportunities from our conventional oil or oil sands liquids rich perspective, as you look at future inventory expansion from a M&A perspective.

Yes.

Thanks, Travis So it's Craig I'll take this one and if Kevin Ryan or a shop, one add any color feel free jets, but so Travis obviously a lot of work in the last five years of what we've been doing as far as building out our portfolio I can tell you how we sit today, we're extremely excited about what we have especially when you think of.

The short cycle and the long cycle pairing like we've talked about quite a bit in the past.

And really to premium North American unconventional resource plays paired with our Saskatchewan waterflood assets, So really loved the balance in the portfolio, we love that the weighting that we have in the portfolio, particularly when you think about it around 75% liquids.

And at the same time now on the backend of these these this transformation that we have a premium inventory of 15 years. So we're sitting in a really good spot and feel really good about it.

Your question as far as disposal, we have we have talked in the past that there is maybe some things that don't necessarily fit with the build out here at the long term and we will look to move off.

A piece of that or a piece or two over time, and we'll see how that plays out.

And I would tell you is.

Happy as we are with with how things have come together in the balance sheet, our balance sheet strength that only one four times.

Debt to cash flow here and that should be around one times at the end of this year to call. It $75 deck. So balance sheet is strong Travis, but I would expect the proceeds of any of those sales to be earmarked for for near term debt reduction so to further strengthen that even more.

And then to your comment around.

What does the portfolio look like going forward.

Travis again, very happy with where we are I would tell you our sandbox as they're fairly well defined right now don't look for us to expand out of where we are in between K Bob in Montney.

The Alberta, Montney and then into the Saskatchewan Waterflood that I would say our sandbox is fairly well defined on on that front. So.

We'll see how things play out happy with how things are absolutely in no rush to do anything on an eight or a D front.

It's been we've spent the last five years really building this out extremely happy with where we are.

Okay. That's great color. Thanks for that that's all for me.

Okay. Thanks Travis.

There are no further questions over the phone at this time Craig. Please proceed.

Okay I'll pass it over to Shawn I think he's got a few questions here coming in.

Yes, Thanks, Greg.

Couple of questions coming in as we've been chatting.

One a couple still around cost front.

One asking if we're continuing to see any cost pressures.

Someone else seeing if we're actually seeing any cost easing. So maybe you can give a little bit of an update on that but that one is probably best for Ryan to speak too Yeah, I would say in general we're seeing.

Flattening.

Of course in <unk>.

Rates coming out of the recent inflationary environment here probably.

Led by reductions in casing steel tubing cost.

Probably pressures cost pressures still remain more on equipment utilization.

Labor costs et cetera.

But with that.

We're keeping our kind of our current cost estimates.

Quo puts us kind of a rate right in range of our 2023 capital budget of 1.15 to one 5 billion.

I would say a couple of exciting things upon the close of our acquisition.

Like Craig said.

The montney.

We had our gold Creek type wells at around nine to nine 5 million per well range. We've we've quickly after really any operating there for two months been able to leverage our existing supply chain, our current service partner relationships.

Already have already reduced our casing costs reduce some of our of our frac cost specifically.

On sand sourcing and so already have line of sight to.

To sub 9 million well costs here so.

That's one thing that I would highlight and something that we're really excited about.

Thanks Ryan.

A couple more questions here on return of capital and try to break it up into two.

Once someone's just looking for clarity it looks like a return of capital payout are questioning whether or not we increased it from 50% to 60%. So we didn't give some clarity there first and then the second question someone's asking if we're looking at forward consider increasing that return on capital payout or perhaps accelerating buybacks to narrow the discount to NAV.

Sure maybe I'll take this one Craig it's Ken.

No our framework hasn't changed our total return of capital is really comprised of two parts. One is the base dividend and the other is a return of some discretionary excess cash and in really the 60%. What we've done here is just simplified how we present it we're doing that now in aggregate return of capital as a percentage of excess cash.

Cash and that really now just makes us more comparable to our peers when youre sort of comparing our return of capital proposition relative to peers.

So I guess, that's the first part of it has not changed and obviously, we're proud of this framework we have been following it now for.

This is the fourth quarter so the.

The second part of that is no. We don't have any plans to revisit the 60% return level.

I think that's really strikes a healthy balance between a <unk>.

<unk> of return of capital.

Well as allowing us some access to capital to reinvest in the business and to repay debt. So no.

We don't have any plans to revisit the 60%.

Thanks, Ken.

Another question around hedging.

Any plans for more hedges in for 2024, and just someone asking particularly on wide dips in Q4 'twenty three.

And you're probably best to speak to that as well sure. So just as a matter of an update we are about 25% hedged out through the second half of 2023. So I think we built a pretty solid book, there and I'm always just looking to enhance that a little bit, but I would expect us probably not to get past the 30% level.

As we look into 2024, we've actually started a program now into 2024 into the first half.

So we're going to start chipping away at hedging there.

Looking to kind of get hedged out about a year out in that 20% to 30% level and obviously still fighting a little bit of backwardation as you get out.

A year out here now and so we'll be patient and disciplined and when as these market moves up as it has done in the past week here, we will look to take advantage of that.

Thanks, Ken.

Market access related question can you talk to Cpg's relative market access position and if trans mountain coming online soon will help in any way.

You're going to grab that right yeah sure yeah.

Obviously.

<unk> coming on definitely helps egress out of the basin.

We don't.

We don't have any volumes earmarked.

For that pipeline, but definitely we'll open up space and you'd have to think that differentials FERC.

For most products.

Well to be especially.

Our products out of the Montney will will strengthen significantly with that so I think thats.

Definitely a positive for industry and hopeful that will help realized pricing go forward and the only thing I'd add on that is when you look at our portfolio.

We have very good position as far as where are we where we sit on the enbridge mainline.

So on that front.

Wait for us.

Is the strength I would also say as we look into as we look at assets in particular, what we like to both more both the Montney and Duvernay acquisitions that we've done over the past few years.

The.

The takeaway or the flexibility around the takeaway out of those assets. So that's certainly a criteria. We look at is ensuring that we always have that market access.

Thanks, guys.

Another question here back on Montney gold pick West why are you seeing goldcreek west results stronger than group.

Yes, I'll take that it's Greg.

So, yes, I mean goldcreek he's still very good our results are are on type well there.

Three of the four wells that were in the top five of the top Alberta liquids producers in May our gold <unk>, so really on a typo there.

What we're obviously most excited about are the gold Creek West results, we're getting.

I would say based on all the work our teams have done.

Geo modeling reservoir Petro physical when you look at the outperformance in Goldcreek West.

Still early days, there, but we think kind of like what.

What we did in the Duvernay with wells that are already landed at the bottom part of the reservoir are getting the best results and so we think that the way we're going to Frac. These wells, we can access all of the net pay by drilling a single bench and so thats, we think is going to be the most.

Capital efficient way to develop this area.

The results we're getting in.

They're worth repeating because they are significant.

First well 1900 BOE a day 80, plus 85% liquids. It's also the IP 90, so that well is hanging in there.

First pad that we fracked.

The two best Wells are averaging 600 BOE a day and then.

The second pad that we fracked.

At only 15 days production, where over 1000 BOE, a day, 80% liquids liquids already and so.

Obviously very excited about that area recall that 300 locations of the 600 locations that we identified in the acquisition are in this gold treat west area.

Less than 20% of our booked and also recall the type well the book type well is only 1000 BOE a day IP 30, yet like less than 60% liquids. So obviously, we're really excited about this area I think a ton of upside and like I said with only a couple of months.

<unk>, so far we've already seen.

Well cost path to get to sub $9 million and we will continue continue doing that as we trial.

Drilling techniques different bit technology, as we continue to drill here. So obviously really excited about that area.

And what it can do in our five and 10 year plans.

Thanks, Brian .

Another question just going back on the on the M&A theme.

You guys have clearly grown in the Montney and Duvernay you've defined your sandbox is there more opportunities still to do on the conventional oil side of the business back in Saskatchewan.

Yes, I think I mean like anything will.

We'll always look at opportunities that are in front of us and you never know what's put in front of you and we certainly will do our homework and look at it I just double back to what I was saying earlier that and we've done a lot of work strategically as we've repositioned the company here over the last five years and extremely excited about where we're at now and the pairing.

Of the two North American Premier resource plays with the Sky.

Saskatchewan Waterflood, it's got us extremely excited, especially when you think of the balance within the portfolio. So certainly we would look at doing it I would say again, though I'm going to double back to earlier don't expect this to go outside of our sandbox as our sandbox is extremely well defined and.

We'll see again, how it plays out here over the next 12 24 36 months all of those things, but very content with where we are today and feel really good about not only the the five years and our five year plan, but the next 10 years and how that looks for Crescent point and what that means for everybody.

Our shareholders our employees are our staff.

There's a lot of excitement now around this table.

So feeling really good about where we are.

Thanks, Greg.

At this time Theres no additional questions from those listening online or on the phone lines as well. So thanks for everyone for joining our call today and if you have any follow up questions that weren't answered please call our investor relations team at your convenience.

Thanks, everyone.

Crescent Point's Investor Relations Department can be rich reached at 18557676923, Thank you and have a good day.

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