Crescent Point Energy Corp

TSX:CPG

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen. My name is Chris, and I will be your conference call operator for Crescent Point Energy's First Quarter 2020 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 home page. The webcast may not be recorded or rebroadcast without the expressed consent of Crescent Point Energy.All amounts discussed today are in Canadian dollars, unless otherwise stated. The complete financial statements and management's discussions and analysis for the period ending March 31, 2019, were announced this morning and are available on the Crescent Point, SEDAR and EDGAR websites. [Operator Instructions] 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 cause -- that could affect Crescent Point's operations or financial results are included in Crescent Point's most recent annual information form, which may be accessed through the Crescent Point SEDAR or EDGAR websites or by contacting Crescent Point Energy.Management also calls your attention to the forward-looking information and non-GAAP measures sections of the press release issued earlier today. I'll now turn the call over to Craig Bryksa, President and Chief Executive Officer of Crescent Point. Please go ahead, Mr. Bryksa.

[Craig Bryksa, President, CEO & Director]

Thank you, operator. I would like to welcome everyone to our first quarter 2020 conference call. With me today are Ken Lamont, Chief Financial Officer; and Ryan Gritzfeldt, Chief Operating Officer. As the operator highlighted, this conference call is being webcast along with a slide deck, which can be found on our website. During today's call, we will discuss our strong first quarter financial and operating results, how we are managing our business in the light of COVID-19 and the decisions we have made, including our key priorities in response to the current environment.Our first quarter results show continued progress following our successful 2019, where we significantly reduced our net debt and improved our cost structure. We have continued to maintain capital discipline and strong execution in 2020, providing us with greater flexibility to manage our business and adapt to new pricing forecast. In the first quarter, we continued our operational execution despite shifting to a modified working environment; reduced our net debt by completing the $500 million sale of our Saskatchewan gas infrastructure assets; delivered $50 million of permanent operating expense savings; reduced our capital budget by $75 million with no associated impact to production; took decisive action to revise our operations and capital plans in response to the rapidly changing macroeconomic environment and continue to actively manage risk through our hedging program. Our results demonstrate both our command of those elements that are within our control and our focus on discipline and sustainability. I'm very proud of how our people have responded to the challenge posed by COVID-19. We all need to play a role and work together in this very important time to physically distance ourselves and to flatten the curve. Our operational teams and office staff have done a tremendous job to maintain our production in a safe and responsible manner, while ensuring their own health and safety and that of the communities in which we operate.Our proactive investments in remote well monitoring and optimized workflows have given us a competitive advantage and has allowed us to successfully mitigate any negative impact to our field production.As I mentioned earlier, our focus on safe operations has yielded impressive results this quarter, and we continue to see positive trends in our hazard identification program and risk mitigation efforts. We plan to share more detail of our operational execution and safety measures within our upcoming sustainability report, which will be released in June of this year.Since the start of 2020, we have taken additional measures as part of our operational and capital planning processes to sharpen our focus on returns and protect our balance sheet. We have proactively adapted to the commodity price uncertainty by reducing our capital activity by approximately 40%, shutting in approximately 25,000 BOE per day of production, identifying new cost-saving measures across the organization, shifting capital to later in the year to provide additional flexibility and making the difficult decision to lower our quarterly dividend and suspend our repurchases under our NCIB. During this period of volatility, we are focused on continuing to protect our balance sheet and financial liquidity and as well as our long-term value of our assets to enhance our overall sustainability. Over the past 2 years, our team has worked tremendously hard to steer the company in the right direction. We will continue to maintain a steady hand on the wheel, keeping a clear eye on our key value drivers. We will also remain flexible and returns-focused and continue to reduce costs while aiming to balance our cash inflows and outflows to protect our overall financial position.With that, I'll now turn the -- turn it over to Ken to provide an update on our financial highlights.

[Kenneth R. Lamont, Chief Financial Officer]

Great. Thank you, Craig. During the quarter ended March 31, 2020, our adjusted funds flow totaled $310 million or $0.59 per share diluted. This was driven by a strong operating netback of $22.31 a BOE. For the quarter ended March 31, 2020, our development capital expenditures totaled $320 million or approximately half of our revised annual budget. During the second quarter, capital expenditures will be minimal due to normal seasonal breakup and largely limited to completing projects that were initiated during the first quarter.As a result of our recent shift in our capital program, we expect to incur the bulk of our remaining 2020 budget during the fourth quarter. This shift provides us with added time and flexibility to make further adjustments to our program, if necessary. Given our focus on returns and balance sheet strength, we will review any discretionary capital spending in context of the commodity prices and the overall environment. Net debt as of March 31, 2020, equated approximately $2.3 billion, down from approximately $3.9 billion in the prior year. Cash and unutilized credit capacity as at March 31, 2020, was over $2.5 billion.During the quarter, we repaid a senior note maturity of $158 million with our next set of maturities in the amount of approximately $185 million, not due until the second quarter of 2021. In addition, our credit facilities are not due for renewal until October 2023.As a part of our risk management program to protect against commodity price volatility, we have currently hedged, on average, over 65% of our oil and liquids production, net of royalty interest throughout the remainder of 2020. We will remain disciplined in our approach to layering on additional hedges in the context of commodity prices to further detect funds flow in 2020 and later years. Due to a significant decrease in the independent engineers price forecast due to concerns over the global demand and supply for oil, Crescent Point incurred a noncash impairment charge of $3.6 billion or $2.7 billion after tax, which resulted in a net loss of $2.3 billion for the quarter ended March 31, 2020. The impairment charge does not impact the company's adjusted funds flow or its credit capacity and is reversible in future periods should there be indications of change in value, including higher commodity forecast prices. I will now turn it over to Ryan to provide some highlights on our operations. Ryan?

[Ryan Chad Raymond Gritzfeldt, Chief Operating Officer]

Thanks, Ken. In the first quarter 2020, we produced 141,330 BOE per day, comprised of over 90% oil and liquids. As Craig mentioned earlier, we continue to realize internal efficiencies and unit cost savings, delivering outperformance in our operational year-to-date results. These successes have allowed us to reduce our annual budgeted capital spending and operating expenses for 2020. We recently reduced our annual capital expenditures guidance by $75 million with no associated impact to production. And we are also anticipating lower annual operating expenses for the year, which are forecasted to include $50 million of long-term sustainable cost savings we have achieved by continuing to focus on enhanced workflows and digital technology. Since the beginning of 2019, we have now permanently removed approximately $120 million or over 15% of our annual operating expenses. As previously announced on April 20, we elected to shut in approximately 25,000 BOE per day of production. The assets shut in are primarily located outside of our key focus areas and have operating costs above the corporate average. We will continue to monitor the commodity price environment, including market access and we'll look to restore these shut-in wells when warranted. I want to highlight that we are taking a measured and staged approach when dealing with shut-in scenarios, and we retain significant flexibility should we have to shut in additional production due to economics or potential market access limitations. We remain on track with our 2020 budget with expected annual average production of 110,000 to 114,000 BOE per day, which assumes previously announced shut-in production remains off-line for the rest of the year, and planned development capital expenditures of $650 million to $700 million. I would like to commend our employees and specifically our field staff for their dedication and commitment to ensuring we continue to operate safely and effectively throughout this pandemic. I will now pass it back to Craig for some closing remarks.

[Craig Bryksa, President, CEO & Director]

Thanks, Ryan. In closing, I'd like to thank our shareholders for their continued support and our employees for their hard work and execution in a very challenging environment. While we cannot control commodity prices or the pandemic, we are, as an organization, doing everything within our power to enhance our flexibility, ensure we emerge from this period of uncertainty in a strong position. Our high netback assets and our committed workforce form the core of our competitive advantage, and they have proven their resilience and agility in these trying times. Our industry and all of us as stakeholders need to work together during this period of rapid change and uncertainty. By doing so, we can protect each other's health and safety while ensuring successful long-term relationships with all of our stakeholders. At Crescent Point, we strive to manage our business the right way, with continued discipline, operational excellence and a focus on sustainability in order to generate value for all our stakeholders. On that note, I would like to invite those interested to attend our virtual Annual General Meeting, which will be held next Thursday, May 14. Please see our website for more details. I will now open the call for questions from the investment community. Operator, please open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Travis Wood, National Bank Financial.

[Travis Wood, Analyst]

I trust you're all doing well. Maybe a 2-part question here. First, can you give us a sense of how you're thinking about the budget? I know it's been recently set. But kind of how you're thinking about that $650 million to $700 million? As we think about the forward strip, that front-end of the strip continues to compress lower, it feels like. So maybe just some context around the thought process of setting that $650 million to $700 million, and if there's much wiggle room left there? And then the second part that kind of aligns with that is the shut-in volumes. And is there more shut ins that we could see if we continue to stay in this kind of $25 to $30 environment? Those are the 2.

[Craig Bryksa, President, CEO & Director]

Thanks, Travis. It's Craig here. And I hope you and your family are all doing well through this. Maybe what we'll do is I can take the first part of that, and then I'll pass the shut-ins to Ryan. He's been doing a lot of work on that in the background. But as far as the budget goes, we set the new budget when we brought that press release. So call it, whatever, it was now a few weeks ago. The focus for us as a management team was to really have a lot of flexibility within that budget. So if you look at that $650 million to $700 million guidance that we've got out there, a big component of that is really being spent in the later part of the year. So if you look at the remaining capital, the majority of that 65% of that capital is in Q4. So that really gives us the flexibility if commodity prices are what they are right now. And when you're looking at a strip price that is very challenging, then look for us to reduce capital even further to remain disciplined on our -- and our focus on returns and try and balance inflows and outflows as best as we can. So if we're looking at an environment in Q4 that looks at what we're seeing today, look for us to further reduce and then, like I say, balance inflows and outflows as best as we can. As far as the shut ins, Ryan, do you want to add some color on that?

[Ryan Chad Raymond Gritzfeldt, Chief Operating Officer]

Yes. You bet, Craig. Travis, yes, thanks for the question. Yes. So on shut ins, we initiated a full shut-in review back in mid-March on a well by well, facility by facility basis, so in a lot of detail. And the decision to shut in what we announced, obviously, based on a number of factors, including economics, market access, and we'll continue to monitor the commodity price environment differentials and other key factors in order to determine if further voluntary shut-in decisions are warranted or if bringing the shut-in volumes back on is warranted. I can say we've been very proactive in our analysis so we can act quickly and logically to execute further decisions that we'll have in front of us.

[Travis Wood, Analyst]

Okay. And is the right way to -- or how you guys are thinking about the shut ins? Is it kind of been buckets of pricing? So if we're -- if we continue to be $25 to $30, you've identified X amount of wells or certain region to shut in. And as we slide up or down on that scale, that's where we'll see the shut-in volumes ebb and flow?

[Ryan Chad Raymond Gritzfeldt, Chief Operating Officer]

Yes. Yes. You're right, Travis. Yes. We looked at it at various number of kind of economic threshold buckets. Obviously, what we announced to shut in majority are the higher cost production. And so like I said, a lot goes into it. But we've got our detailed analysis done and we'll be ready to execute any further decisions quickly and logically and go from there.

[Operator]

There are no further questions at this time. I would now like to turn it over to Mr. Bryksa for closing remarks.

[Craig Bryksa, President, CEO & Director]

Thank you all for taking the time to join our call today. If you have any questions that were not answered, you can call our Investor Relations team at your convenience. And again, thank you all for taking the time.

[Operator]

Thank you. Crescent Point's Investor Relations department can be reached at 1 [phone]. Thank you, and have a good day.