Crescent Point Energy Corp

TSX:CPG

Earnings Call Transcript 2018-Q2

[Operator]

Good morning ladies and gentlemen. My name is Candace, and I will be your conference operator for Crescent Point Energy's Second Quarter 2018 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 at www.crescentpointenergy.com by clicking on Conference Calls and Webcasts under the Invest heading. 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 analysis for the period ended June 30, 2018, were announced this morning and are available on Crescent Point's website and on the 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 affect Crescent Point's operations or financial results are included in Crescent Point's most recent Annual Information Form, which may be accessed through Crescent Point's website, the SEDAR website, the EDGAR website 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 will now turn the call over to Brad Borggard, Senior Vice President, Corporate Planning and Capital Markets. Please go ahead, Mr. Borggard.

[Brad Borggard]

Thank you, operator. I would like to welcome everyone to our second quarter 2018 conference call. With me are Craig Bryksa, Interim President and Chief Executive Officer; Ken Lamont, Chief Financial Officer; and Ryan Gritzfeldt, Chief Operating Officer. As the operator highlighted, this conference call is being webcast along with the slide deck, which can be found on Crescent Point's website by clicking first on the Conference Calls and Webcasts, and then under the Invest heading. As you'll hear about in the call, our team is focused on ongoing comprehensive review of Crescent Point's asset base, business strategy and organizational structure. As a result, today's call and question-and-answer session will be focused on our second quarter results with an update on our initial near-term progress and a summary of the longer-term goals the new senior leadership team is focused on. We intend to communicate the results of our review process as soon as we can. Before I hand things over to Craig, I'd also like to comment on the letter issued on July 25 by Cation Capital. As our shareholders know, we are always open to ideas and feedback. The new team brings fresh perspectives with respect to the go-forward strategy, and not listening to new ideas would be counterproductive. That being said, we don't engage with any shareholder during our official quiet periods, which take place prior to the issuance of our quarterly results. We do not believe it is in shareholders' interests for us to spend our time and resources having a public exchange with Cation. Our focus remains on the business and optimizing our strategy. With that, I'll now turn things over to Craig.

[Craig Bryksa, Former Vice President of Engineering West]

Thank you, Brad, and thank you, everyone, for joining us today on the call. While this is my first conference call as Interim President and CEO of Crescent Point, I'm quite familiar with the company, and I'm excited to help usher it into a new chapter. Having been with Crescent Point for over the last 12 years, I've overseen the operating activities of each of the company's main areas. And by doing so, I have gained a deep understanding of our asset base. Crescent Point has great assets, a talented staff, and I expect that we will deliver even stronger results for our shareholders. As part of our transition plan, we have established a new senior leadership team with strong technical and financial skills. I will be working with this team to assess and optimize the future strategic direction of the company. I'll speak for the team here and say that we are all taking a new, fresh -- refresh approach as we conduct our full review of the business. As part of our transition period, we are examining our asset base, business strategy and organizational structure with a focus on key value drivers, including balance sheet improvements, disciplined capital allocation and cost reductions. We expect these drivers to result in improved rates of return, free cash flow generation, debt-adjusted per-share metrics and long-term sustainability. Crescent Point recognizes the investment community requires more detail on these plans, and we intend to communicate these results of our review process as quickly as possible. Although we are focused on a comprehensive review, we have identified some intermediate opportunities for change tied to our key value drivers. We ensured proceeds from the recent dispositions were allocated to reduce debt instead of additional volume growth. This helped support our total net debt reduction in the quarter of over 390 million. We identified and took action to shut in uneconomic production as we focus on returns versus growth for the sake of growth. And we rescheduled the remainder of our 2018 capital program, which allows for a more consistent level of activity and production profile moving into 2019. As a result, a portion of the previously allocated third quarter 2018 capital expenditures will now be moved to later in the year, and production volumes that were previously forecast to come onstream early -- earlier in the second half of 2018 will also be moved to later in the year or into the first quarter of 2019. These decisions align with our mindset of living within our means and prioritizing returns and stability over short-term growth. During the quarter, Crescent Point also streamlined its executive structure and reduced the size of the executive team. My new team and I are focused on ensuring we are as efficient as possible in all facets of our business and continue to review our organizational structure to identify areas for improvement throughout the company. I'd now like to pass things over to Ken and Ryan to discuss our quarterly guidance. Ken?

[Kenneth R. Lamont, Chief Financial Officer]

Thanks, Craig. During the second quarter, Crescent Point had very strong financial results. We generated funds flow of over 500 million or 0.91 per share fully diluted, driven by strong operating netbacks of 40.74 per BOE. Funds flow during the second quarter included onetime charges of 13.5 million related to executive departures. And we reduced our net debt by over 390 million, driven by excess free cash flow and proceeds from approximately 280 million of recent dispositions. We renewed our covenant-based, unsecured credit facilities totaling 3.6 billion with a maturity date extension to June 2021. We successfully closed a private placement of senior guaranteed long-term notes, which carry attractive coupon rates. The proceeds from the private placement were used to repay outstanding bank debt and other near-term senior guaranteed notes. Our debt profile continues to have no material near-term debt maturities. As of July 20, 2018, Crescent Point had, on average, over 40% of its oil and liquids production, net of royalty interest, hedged through the remainder of 2018 and 2019 at a weighted average market value price of approximately CAD 77.00 per barrel. Our hedging policy is in place to protect our cash flows and balance sheet, and this is one of the financial levers, in addition to dispositions, we can use to improve our financial flexibility. We will continue to manage such risks rather than speculate on commodity prices. I will now pass things over to Ryan to discuss our operational highlights. Ryan?

[Ryan Chad Raymond Gritzfeldt, Chief Operating Officer]

Thank you, Ken. Our second quarter production averaged 181,818 BOE per day weighted approximately 90% to oil and liquids. As is the norm with spring breakup seasonality, our second quarter activity in Canada was limited. This drove total capital expenditures in the quarter up 313.6 million with 238.6 million spent on drilling and development activities, including drilling 54 gross or 36 net wells. Our U.S. operations continued to advance in the Uinta Basin in North Dakota with horizontal development across multiple zones. In the Uinta Basin, our program remains active with 1- and 2-mile horizontal development, showing ongoing success in the newer Wasatch and Uteland Butte zones. We continue to monitor the strong results achieved from our recent STACK development program, which targeted the Castle Peak, Uteland Butte and Wasatch zones in the same drill spacing unit, and we will continue to allocate capital based on returns, stage of delineation and differentials. In the emerging East Shale Duvernay play, we completed our first half 2018 drilling program of 4 net operated wells and 2 gross or 1 net non-operated well, all with encouraging initial results. We plan to drill one operated well in the play during the second half of 2018 while also participating in some non-operated wells. We will continue to monitor our well performance before increasing the amount of capital allocated to this early-stage resource play. As we review our asset base and business strategy, we will be examining our operations, seeking further improvements in our operating costs, efficiencies and capital allocation processes. I'll now pass things over to Brad to discuss our updated guidance for 2018.

[Brad Borggard]

Thanks, Ryan. We've adjusted our annual production guidance for 2018 to 177,000 BOE per day average from 181,000 BOE per day or approximately 2%. This change reflects the shut-in of 1,000 BOE per day of uneconomic production and the rescheduling of our activity program whereby we moved a portion of our remaining 2018 capital budget to the latter portion of the year. As a result, production scheduled to come online during second half 2018 will now be pushed into the later part of the year or into Q1 of 2019. Our goal in rescheduling a part of the capital program is to allow for more consistent levels of activity into 2019 without requiring additional capital expenditures to be incurred in 2018. We believe maintaining a consistent level of activity, excluding periods for normal seasonality, provides cost, staffing, logistics and safe operations benefits to the company. Going forward, Crescent Point intends to allocate capital in a manner designed to achieve consistent levels of activity. These changes, albeit small, highlight our focus on returns and living within cash flow versus chasing production. I will now hand things over to Craig for closing remarks.

[Craig Bryksa, Former Vice President of Engineering West]

Thank you, Brad. I would like to thank the investment community for your patience as we conduct our business review as part of our transition plan. My team and I take great pride in the company and want to ensure that the appropriate time is taken to set the right direction for Crescent Point's next chapter. Before I close, I would also like to thank our employees for their hard work, support and commitment. At this point, we're ready to answer questions from members of the investment community. I'll now turn it back to the operator.

[Operator]

[Operator Instructions] And I'm showing no questions at this time. I'd like to turn the conference back over to management for closing remarks.

[Craig Bryksa, Former Vice President of Engineering West]

Thank you, everyone.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.