Q2 2019 Earnings Call

Good morning, Ladies and gentlemen, my name is Britney and I'll be your conference operator for Crescent point, Energys Q2, 2019 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 in Canadian dollars, unless otherwise stated.

The complete financial statements and management's discussion and analysts for the period ending June Thirtyth 2019 were announced this morning and are available on Crescent Point's SEDAR and Edgar as web sites.

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 the members of the investment community.

If he would like to ask a question during this time simply press.

The Star then the number one on your telephone keypad.

If you would like to withdraw your question. Please press the star followed by that too.

Thank you.

During the call management may make projections or other forward looking statements regarding future events or future financial performance.

Actual performance events or results may differ materially additional information or factors that could affect crescent points operations or financial results are included in Crescent points. Most recent annual information form.

Which may be assessed through crescent, point's, cedars or Edgars web sites.

Or by contacting Crescent point Energy management also calls your attention to forward looking information and non-GAAP measures sections of the press release issued earlier today I would now like to turn the call over to Brad or Guard Senior Vice President corporate planning and capital markets. Please go ahead Mr. Berger.

Thank you operator, and I'd like to welcome everyone to our second quarter 2019 Corporate School with me are Craig Rick <unk>, President and Chief Executive Officer, Ken The Moore, Chief Financial Officer, and Ryan Griffin Chief operating Officer.

Other members of our senior leadership team are also present to provide additional insight during the question and answer period.

As the operator highlighted this conference call and webcast, along with a slide deck, which can be found.

Absolutely.

I'll now pass the call to Craig for an overview of Crescent point, you to 2019 renewal.

Thanks, Brad and thank you everyone for joining us today.

Crescent 0.2nd quarter results continue to demonstrate the changes we are implementing throughout the organization.

Focus our asset base and become a more efficient company with a stronger balance sheet.

Our plan continues to be based on our key value drivers, which includes balance sheet strength disciplined capital allocation and cost efficiencies.

We are committed to implementing our plan and their progress each initiative during the quarter.

For example, we reduced our net debt by over 350 million during the second quarter, bringing total net debt reduction to over $450 million year to date.

This year, our operations and field teams have made tremendous improvements to realize efficiencies and recorded yet another strong quarter with improved operating expenses.

Our first half 2019 operating expenses were 5% lower than expected or 20 million below our budget.

Of note. These efficiencies are in addition to some of the other cost initiatives, including 5% lower capital costs since late 2018, and a 10% reduction in our DNA expenses.

Our return focused capital allocation is evident in our disciplined capital expenditures, despite lower year over year production, primarily due to dispositions.

Our second quarter adjusted funds flow was essentially unchanged notwithstanding significant reduced capital spending and a 12% decrease in W.P.I. prices.

During the quarter, we sold 2400 Boe per day of noncore assets with higher operating cost for cash proceeds of approximately $60 million.

We also progressed the dispositions of our south and southeast conventional package. Despite the recent significant volatility in commodity prices.

We are pleased with the progress to date of our infrastructure disposition process. This asset package includes our southern says gas on gas infrastructure and would provide annual cash flow of approximately 50 million to the purchaser.

We've structured this package with the goal of having the transaction provide meaningful proceeds to Crescent point.

While also having minimal if any impact on our operating netback.

While we remain disciplined and flexible during our disposition processes to ensure we create value for our shareholders.

Each of our initiatives that we have targeted take time, however, I am proud that our team has executed numerous changes and improvements in a very short period, we expect to fall on this success during the second half of 2019.

I would also like to highlight that we recently released our first sustainability report, which can be found on our website. This report details, our environmental social and governance practices and our commitment to safe operations diversity and the communities in which we operate.

I will now hand, the call over to Ken to discuss our second quarter financial results.

Thank you Craig.

During the second quarter of 2019 Crescent point generated adjusted funds flow of approximately $504 million or 92 cents per share fully diluted this was based on strong operating netback of over $36 per Boe.

Which reflects our recent cost improvements and narrower oil differentials during the quarter.

Second quarter capital expenditures totaled $170 million down over 300 from over $380 million in the first quarter of 2019.

Due to an extended breakup in wet weather during the quarter, we delayed approximately $60 million expenditures to the third quarter, allowing us to operate in a more cost effective manner.

During the quarter, we also return capital to shareholders through dividends and share repurchases, while significantly reducing our debt by over $350 million.

Our net debt as of June Thirtyth equated to approximately 1.9 times trailing funds flow, which is down from the two and a half times prior to the transition plan.

Our cash and Unutilized credit capacity as at June Thirtyth 2019 remains strong at approximately $2 billion with no material near term senior note maturities.

We continue to protect our financial flexibility through our hedging program. As a result, we now have on average approximately 48% of our oil and liquids production hedged for the remainder of 2019 at a weighted average market value price of approximately $70 Canadian per barrel.

Approximately 42% of our first half 2020, and 25% of our second half 2020.

Oil and liquids production is also hedged at similar prices.

Providing additional protection to our cash flows and our overall returns.

I will now pass the call over to Ryan to discuss our operating results Brian .

Thanks, Ken Crescent Point's average production of 172476 BOE per day was comprised of approximately 90% oil and liquids and was net of 2400 Boe per day of non core asset dispositions completed during the quarter.

Drilling and development activities were limited during the second quarter due to normal seasonality within our Canadian operations, we remain on track with our annual guidance and target approximately 55% of our capital budget to be spent during the second half of the year. This plan spending includes infill drilling in water flood development in each of our key focus areas along with continued two mile horizontal development in flat Lake.

In addition, we plan to continue centering our us operations on cost efficient multi well pad development for which production is expected to come on stream during the fourth quarter.

As part of our ongoing goal to improve the company's free cash flow generation, we have increased our focus on realizing cost efficiencies throughout our organization, while also increasing our decline mitigation program over prior years.

With these efforts our team has significantly improved our operating expenses through implementing new processes and continued well optimization and runtime improvements from our evolving field automation program.

Year to date, our operating expenses are $20 million or 5% below budget, which is net of any non controllable fixed costs increases incurred during the year.

These operating savings are in addition to the improvement we have achieved in capital costs since late 2018 through reducing our average drilling days completion optimization improvements and cost savings supply chain initiatives.

This is a significant achievement and I want to acknowledge our operations team and field staff for their hard work dedication and continued focus on safe operations.

Our waterflood program is yielding solid results and continues to advance in each of our key focus areas.

Viewfield, our largest operating area with the longest waterflood history as a base decline rate of 25% in 2019 with its four original waterflood units declining on average at 20%.

During the first half of the year, we converted approximately 100, producing wells into water injection wells across the company and remain on track to convert a total of about 145 wells in 2019.

I will now hand, the call to Brad for an update on our guidance.

Thanks, Ryan as part of our Q2 release, we updated our annual guidance to reflect the disposition of 2400 Boe per day of higher costs noncore assets executed during the quarter.

With our guidance, we now expect to generate annual average production of 168 to 172000 Boe per day compared to our prior guidance range of 170 to 174000 Boe per day.

Capital expenditures remain unchanged at $1.2 billion to $1.3 billion based on planned spending for those non core assets during the remainder of the year.

Notwithstanding the delay in our second quarter capital expenditures and the timing impact of the associated production.

Which is now expected to come online largely during fourth quarter, we remain on track with our annual guidance.

Our fourth quarter production is also expected to benefit from the completion of our us pad drilling program as previously budgeted.

I'll now pass the call back to Craig for closing remarks, Craig.

Thanks, Brad we continue to center strategic direction on focusing our asset base and balance sheet strength by taking this approach. We believe we will continue to improve our overall efficiencies returns financial flexibility and per share metrics.

At 55 to $60 you SWT, we expect to generate approximately $400 million to $600 million of excess cash flow in 2019.

Allowing for significant net debt reduction and accretive share repurchases.

Since our last conference call, we limited activity within our share repurchase program due to the extreme volatility we have witnessed in commodity prices, although our priority remains balance sheet strength, we are committed to allocating 20% to 30% of our excess cash flow in 2019 to share repurchases during the year.

We will continually assess the allocation of our excess cash flow as we strengthen our balance sheet, including potential asset dispositions.

I'd like to thank our shareholders and employees for their continued support engagement I will now open the call up for questions from the investment community.

Operator, please open the line for questions.

As a reminder for members of the investment community. If you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the star followed by the two.

We will pause for a moment to compile the Q and a roster.

Your first question comes from the line of.

Travis Wood from National Bank.

Your line is now open.

Okay. Thanks, good morning, everybody.

In the press release, Craig I think you highlighted about 50 million of cash flow.

Out of the infrastructure assets that you're marketing can you help us understand kind of what what needs to be realized in kind of the nuances for those assets to drive that 50 million in free cash and then in the context.

A value and we're starting to get questions on what the value of those assets could be is it fair.

For us to use kind of an eight to 11 times range, given where some of the infrastructure.

Assets have transacted to date.

Hey, Travis.

So the infrastructure packages, our southern Scotland gas infrastructure. So it's all our gas process processing facilities and our major transmission lines.

Included in that this is all in southern Saskatchewan.

So the $50 million of cash flow to the potential first purchaser thats a combination of the throughput and the tolls that would make that up.

And then your question around the Castle call. You said I think you said eight to 11 times is that right.

Yes.

Yes, so that is that's a fair assumption on that.

And is there.

And on that $50 million is.

Are you a little I know it's probably.

A bit of a sensitive subject given where we're at in the process but.

Is there a range on that potential cash flows there.

Is there a scenario, where we could see more than $50 million of cash flow.

That so to that to Travis we're right in the middle of the process and that's all part of the negotiations, but 50 million is.

What were basing that off based on the throughput on the tools.

Okay, and then maybe in the same context, if if we assume.

$50 million in cash flow take that as processing fee and throughput fee.

How how do we think about the cost structure kind of pro forma.

If something like this transaction was in Crescent point.

So our goal with this one Travis is to keep our our Netbacks basically neutral and part of that is part of this package is a oil pipeline.

That will allow us to realize better pricing for our crude stream. So at the end of the day, you've got to uptick a little bit on your operating costs due to the processing fees.

But you've got to win on the backend with the realized pricing on your oil.

So call that net net neutral and I I would say that doesn't include.

Any incremental savings is the interest to you on that as well so keep that in mind.

Okay, all right thanks for that color.

Your next question comes from the line of she Juan Jarrah from TD. Please go ahead. Your line is now open.

Hi, great. Thanks, guys I've got a bit of a big picture question.

Clearly you've had a really good Q2, you've had a number of good quarters under your belt things are moving in the right direction. I guess the question to you guys to you Craig and team is once you've executed on your strategy of dispositions.

And rightsizing the balance sheet, let's say in the next year or so.

Once you get to that let's call. It the promised land what does chriss point look like assuming like a 55 to $60 oil world.

Hey, Jay Jay So it's Craig here, that's a good question.

So some things aren't going to change I mean, our our focus on having a very focused asset base.

Maintaining and building balance sheet strength are going to remain so that's going to stay consistent with the company in any commodity price environment and as we move through this.

And our mindset around returns and our capital allocation process that is not going to change as well. So when you look at our key focus areas those areas have the ability.

To grow in the high singles to low doubles on a debt adjusted per share metric. So a significant amount of growth there, but if you look out into call. It 2020 2021, the commodity price environment is is where we're at today.

Look for us to be in that call it flat to mid singles.

Range with a focus on free cash flow generation and then continuing to return.

Capital to shareholders in some way shape or form whether it's through.

Share buybacks or dividends and if things are what they are today with with our share prices. The way. They are that focus will be on on share buybacks.

And as a follow up thank you for that as a follow up just that dividend could we see a scenario where the dividend.

Gets revisited and perhaps increased over time.

You know so to that JJ will continue to watch that any any dividend dividend adjustment, we do make would be.

We would ensure that its just sustainable adjustment towards that but right now our focus is on.

Legacy debt reduction and share buybacks with.

The share price that we're treating them.

That makes sense. Thank you.

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

Thank you for taking time to join our call. If you have any questions that were not answered you can call our Investor Relations line line at your convenience.

Thank you.

Thank you Crescent Point's Investor Relations Department can be reached at 185576769 to three thank you and have a good day.