Crescent Point Energy Corp

TSX:CPG

Earnings Call Analysis

Significant Operational and Financial Achievements in Q2 2024

Veren reported strong Q2 2024 performance, producing 192,500 BOE per day with 65% oil and liquids, and generating $195 million in excess cash flow, 60% of which was returned to shareholders. The company reduced its net debt by nearly $800 million year-to-date, achieving an investment-grade BBB rating. Operational milestones included top-performing wells in Alberta Montney and Kaybob Duvernay, where major production increases were noted. Veren remains on track to meet its 2024 guidance of 191,000 to 199,000 BOE per day and expects $825 million in excess cash flow at $80 WTI per barrel.

Strong Operational Performance

In the second quarter of 2024, Veren achieved a production rate of 192,500 barrels of oil equivalent (BOE) per day, composed of 65% oil and liquids. This success highlights their robust performance in the Alberta Montney and Kaybob Duvernay regions, where they had several top-performing wells, including the top four light oil-producing wells in the Western Canadian Sedimentary Basin.

Optimizing Assets and Generating Cash Flow

During Q2 2024, Veren generated $195 million in excess cash flow. The company is committed to returning capital to its shareholders, returning 60% of this cash through share repurchases and dividends. The remaining 40% was used to reduce net debt, which has been lowered by almost $800 million since the beginning of the year, targeting to end the year with $2.8 billion of net debt.

Investment-Grade Rating and Capital Market Access

Veren received an investment-grade rating of BBB low with a stable trend from Morningstar DBRS. This significant milestone allowed them to issue $1 billion in senior notes at favorable rates, which were fully used to retire existing debt, including a bank term loan. This strategic financial management is expected to provide long-term benefits for the company.

Impressive Well Results

Veren's operational success in the Montney region includes bringing a new pad online in Karr West with an average peak 30-day production rate of 1,300 BOE per day per well, consisting of over 65% oil and liquids. Similarly, in Gold Creek, the company drilled a well in a record 9 days, reducing the average drilling time significantly.

Deleveraging and Financial Health

Reducing debt remains a critical focus for Veren. The company started the year with $3.7 billion in debt and reduced it to around $3 billion by the end of the second quarter. They aim to further decrease this to $2.8 billion by year-end, maintaining a 1x debt-to-cash flow ratio, especially with a significant cash flow expected in the latter half of the year.

Strategic Production Outlook and Guidance

Looking forward, Veren plans to maintain its 2024 production guidance of 191,000 to 199,000 BOE per day and development capital expenditures between $1.4 billion and $1.5 billion. The company projects to generate $825 million in excess cash flow at $80 per barrel WTI pricing, with 60% expected in the second half of the year.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. My name is Ynah, and I will be your operator for Veren's Second Quarter 2024 Conference Call. This conference call is being recorded today and will be webcast along with a slide deck, which can be found on Veren's website. All amounts discussed today are in Canadian dollars with the exception of West Texas intermediate pricing, which is quoted in U.S. dollars. [Operator Instructions] During the call, management may make projections or other forward-looking statements regarding future events or future financial performance. Any such statements are made subject to the forward-looking information and non-GAAP measure sections of the press release issued earlier today. I will now turn the call over to Craig Bryksa, President and Chief Executive Officer at Veren. Please go ahead, Mr. Bryksa.

[Craig Bryksa, executive]

Thank you, operator. Welcome, everyone, to our Q2 2024 conference call. With me today are Ken Lamont, our Chief Financial Officer; and Ryan Gritzfeldt, our Chief Operating Officer.

Throughout the first half of this year, we have focused on operational execution, strengthening and optimizing our balance sheet and consistently returning capital to our shareholders. During the quarter, we again demonstrated our operational success with well results in the Alberta Montney and Kaybob Duvernay ranking among the top in the Western Canadian Sedimentary Basin. We produced 192,500 BOE per day comprised of 65% oil and liquids and continue to successfully optimize drilling and completions across our asset base.

We also generated $195 million in excess cash flow for the quarter and returned 60% of that back to our shareholders through share repurchases and base dividend. We allocated the remaining 40%, along with the proceeds from our noncore Saskatchewan asset disposition to reduce our net debt. Since the beginning of this year, we have reduced our net debt by almost $800 million and remain on track to exit this year with $2.8 billion of net debt or 1x debt to cash flow.

Also during the quarter, we received an investment-grade rating of BBB low with a stable trend issued by Morningstar DBRS. Achieving this milestone was a direct result of our strategic transformation over the past few years where we added significant premium drilling inventory, increased our production and cash flow and strengthened our balance sheet. Our investment-grade rating allowed us to access the public debt market and diversify our capital structure.

Subsequently, we issued $1 billion of senior notes at a favorable rate. We directed all proceeds to repay our existing debt, including fully retiring our bank term loan. We are very pleased with our efforts to reduce our net debt and optimizing our balance sheet, which will provide many long-term benefits for our company. In addition to improving our financial outlook in the quarter, we continue to demonstrate our successful operational execution, which remains the company's top strategic priority.

In the Montney, we had the top 4 light oil-producing wells in the Western Canadian sedimentary basin based on recent results. We brought on our first fully operated pad onstream in the quarter, utilizing our drilling and completions design on the lands we acquired in late 2023. This pad located in Karr West generated an average peak 30-day rate of 1,300 BOE per day per well and consisted of over 65% oil and liquids.

In Gold Creek, we drilled a new pacesetter well in a record 9 days with the pad averaging 11.3 days drilling per well. This is an improvement of 3 days since entering the play just over a year ago. We are in the process of bringing 11 wells on stream in Gold Creek that were completed in the late second quarter and plan to bring on additional 22 wells on stream in the Alberta Montney during the remainder of 2024.

In the Kaybob Duvernay, 3 of our recent wells ranked among the top 5 producing wells in the area. We brought 3 pads on stream during the quarter in the volatile oil window of the play. One pad has been on stream for over 30 days and has generated an average peak 30-day rate of 1,300 BOE per day per well consisting of 75% condensate and liquids. We plan to bring an additional 22 wells on stream in the Kaybob Duvernay area throughout the remainder of 2024. We continue to refine our technical expertise in both the Alberta Montney and Kaybob Duvernay and will rely on consistent rig utilization, optimized drilling and completions and knowledge transfer across our assets to further improve results and drive efficiencies.

In Saskatchewan, we continue to advance our decline mitigation programs to further enhance our long-term sustainability and excess cash flow generation. These long-cycle properties continue to play a valuable role in our overall excess cash flow profile as they feature minimal sustaining capital requirements driven by low decline rates.

Looking ahead, we remain on track to meet both our 2024 production guidance of 191,000 to 199,000 BOE per day and our development capital expenditures guidance of $1.4 billion to $1.5 billion. We anticipate generating, $825 million of excess cash flow at $80 per barrel WTI pricing, with 60% of that expected to be realized in the second half of this year.

I'm very pleased with our execution year-to-date, the progress we have made across our business and remain excited about our trajectory. I'd like to thank all our employees for their hard work this quarter and our shareholders for their ongoing support. I'll now turn the call back to the operator to begin the Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Dennis Fong from CIBC World Markets.

[Dennis Fong, analyst]

The first one that I have here is just around as we look in the back half, it looks like you have about 44 wells to be brought on. Can you talk towards a little bit about the cadence of bringing on that production and how that sets you up for 2025 production model?

[Craig Bryksa, executive]

Dennis, thanks for the questions. It's great to talk to you. So it's Craig here. We've got a fairly consistent capital program, and I'll let Ryan provide some color on timing of how these pads are coming. But when you think of how we've laid out our capital program here for 2024, it's actually a fairly even split between half 1 and half 2. So we've got about 48% of our capital remaining for the remainder of the year, and we are running fairly consistently the 3-rig program in the Montney and then the 2-rig program in the Duvernay and then following along with a frac spread in each of those areas.

So I'll let Ryan maybe give you some color on timing of how we're looking through pads here in the back half.

[Ryan Chad Raymond Gritzfeldt, executive]

Yes. So maybe I can speak to results a little bit on that question, too. Obviously, in the Montney, Craig spoke to that Karr West result. Really pleased with that, 1,300 BOE a day on our typo. Actually, those were a little bit shorter lateral, so probably beat our type well there a little bit and still hanging in at that 1,300 BOE a day. So it will be interesting to see what our wider spacing, kind of how those results hang in. We're going to be moving to a pad, offsetting that pad that had the top 4 Montney wells. So we'll be moving to that here shortly. That's a 7-well pad, and that will be coming on early in 2025.

In the Duvernay, we announced that another really strong result, just showing how kind of repeatable and consistent that Duvernay has been 1,300 BOE a day. That's our [ FC 807 ] pad. We're actually drilling a pad right offsetting that, that will be coming on early in 2025, a couple more exciting pads coming on. We're bringing on that [ FC 601 ] pad here in August in the southeast part of our play that had really strong initial pullback results earlier in the quarter. And then over to the West in Simonette, that pad will be coming on later in the year in November. So great results, exciting to see the results here for the rest of the year.

In terms of cadence, I mean, we're probably going to be in and around that low 190,000 BOE a day Q3, growing to high 190,000 BOE a day in Q4 and then obviously into 2025 kind of over that 200,000 BOE a day mark. So hopefully, that gives you a little bit of color on that, Dennis.

[Dennis Fong, analyst]

I appreciate that context. You touched on it a little bit just around productivity and definitely what you're seeing both obviously from Karr East and in the volatile oil window in the Kaybob Duvernay. Can you talk towards a little bit around I think back at the Investor Day, you discussed the idea around kind of optimizing well design, completion design, placement of wells while spacing. And as you continue to execute the program, what are some of the things that you're looking for and that we on the sell side and the buy side should be looking for to deem kind of the successful implementation of your revised completion design as well as potentially upwardly revising or revising your type curve expectations going into the future?

[Craig Bryksa, executive]

Thanks for that, Dennis. Again, so it is Craig here. So like Brian mentioned, when you think of that Karr West pad, so that's our first pad that came on with the Veren well spacing and completion design as well as our landing profile and how we've been landing the wells. We're excited about that and it looks really good, like Ryan mentioned. So we're in that 1,200, 1,300-ish BOE per day per well in that 65% oil and liquids rates. So a good strong oil well when you think of it from that standpoint -- sorry, pad. So we're excited about that. And Ryan alluded to, really, what we're looking for in that is to see how long that profile hangs in at those levels and just the consistency and steadiness of that. And so far, it looks pretty good. So that's got us fairly excited.

And then the other thing, keep in mind, Dennis, like Ryan mentioned, we've got a number of pads coming on here in the back half of this year that are designed. The other thing about them is they're spread out across the play. So it's not like they're zeroed in and focused in on one area, right? We're doing a very good job, a very disciplined job of delineating the entire asset base so that we have a full understanding of this as we move forward. So you get a pad in each of the areas coming on, and it certainly gives you more of a data point. And that really has us excited.

So as these things come online, we will get you more and more of that data, but we like to -- you'd like to see data for call it, 3, 6, 9 months before you start making material revisions to type wells. You want to see how they hang in at that spacing, that landing and then, again, with that different completion design. But as far as [ 2013 pad ] looks really good.

And then the other thing, Ryan noted is, keep in mind, 6 to 7, which is the Gold Creek West pad, which has just been an outstanding pad for us. It's in and around that 2,000 BOE per day per well plus 85% oil on that pad. It's just a great pad. We are moving the rig in there shortly and going to be drilling a 7-well pad offsetting that. So I guess it's going to take us a bit of time to make some of those revisions, but we need to see how these play out over the long run. And again, we are delineating the entire asset base as we go too, so.

[Dennis Fong, analyst]

No, I appreciate that color as well. If you could maybe kind of one more here. Flipping to the balance sheet, you've already announced, obviously, some noncore asset sales. Can you talk to and then achieving your IG rating, can you talk to a little bit towards your comfort in terms of the pace of deleveraging, obviously, making good headway with respect to free cash flow generation, and there's obviously other checks and balances that you have. But can you just talk towards, I guess, a little bit more about the pace of lowering outstanding leverage and how you -- how much comfort do you feel around that?

[Craig Bryksa, executive]

Yes. So if you look at where we started the year, Dennis, we were about $3.7 billion of absolute debt ending this quarter right now at in and around $3 billion of absolute debt. It ends up being about just about $800 million of debt repayment that we've made in the short 6 months of this year. So we feel really good about that. Part of that was excess cash flow generation. And then the other part of that was the noncore dispositions that we did in Saskatchewan to really strengthen the balance sheet on what we're building. So from that standpoint, really good.

I'd also tell you, we're extremely happy with how the investment-grade rating played out for us. And then what that allowed us to do as we went into the bond market and we're able to issue basically $1 billion of notes at very favorable terms when you think of the first tranche of that $550 million of 5-year notes at sub-5%. And then the second tranche, $450 million of 10-year notes at just over 5% in that 5.5% range. So very happy with that.

All that being said, like we've talked to you about in the past, Dennis, if you ask, Ken, myself or Ryan where we'd like to be, we'd certainly like to get the absolute debt level down. We'd like to be near term like we've talked around $2.2 billion of absolute debt if everything stays status quo in call it the commodity price range that we're in today in and around that $80-ish will be somewhere around $2.8 billion at the end of the year, which is about 1 point basically 1x debt to cash flow. So happy with it. And we do have a significant amount of excess cash flow generation here in the back half of this year, like I mentioned, about 60% of our excess cash flow comes in the back half. So things are working that way.

The other thing, keep in mind, Dennis, as far as the upstream A&D we were absolutely taking a good long pause as far as the acquisitions like we've talked. On the back end of those dispositions, we're very comfortable with our portfolio. So don't look for us to do any dispositions on the upstream assets, but we also have talked to you and the market a little bit about potential infrastructure. So that is one of the things that we'll continue to look at and work through, and we'll see how that plays out. But that -- if something like that was to happen, that would allow us to further strengthen the balance sheet a little bit more rapidly, I would say. A very long-winded answer, Dennis, of me saying we are very happy with pounding our debt down by just about $800 million in 6 months.

[Dennis Fong, analyst]

I can appreciate that and look forward to what you're able to do in the second half here as well.

[Operator]

And your next question comes from the line of Travis Wood from National Bank Financial.

[Travis Wood, analyst]

Yes. I wanted to dig in a bit on Dennis' last question there on infrastructure. And if you're able to kind of goalpost kind of what types of infrastructure you're thinking about in terms of transmission type of infrastructure, processing? And then if there's any kind of wide range goalposts of value you could kind of put around each of those buckets, if I could get incremental color from you on that?

[Craig Bryksa, executive]

Travis, thanks for the question. I'll hit some of the maybe the higher points and Ryan can give you some color as he's been looking into this for us. But if you remember, when we did the last money transaction when we closed the deal with Hammerhead late in December, one of the things we liked about the Hammerhead asset base is the infrastructure that they had in place that was built out. Keep in mind that when we did the original transaction, some of the infrastructure in that area from that original transaction is not owned and operated by Veren.

So there is a way for us to put this together and I would say, more harmonize that from a high level where you can put that together with maybe one single owner and potentially harmonize that deal for us. So I'll let Ryan give you some color on that. But Travis, as we work our way through things, know that there's a lot of balls in the air and this sort of thing. And you've got to just very disciplinely make your way through this. So we'll see how it ends up playing out. it's absolutely got to make sense for Veren in the long run, and we'll see how this goes. But Ryan, do you want to...

[Ryan Chad Raymond Gritzfeldt, executive]

Yes. I think I would just say, Travis, obviously pursuing opportunities. And what I'd say, I think what we'd be looking for in an infrastructure partner, obviously, first and foremost, like Craig said, maintain or obtain operatorship. I think that's key for us. we feel we're good operators. We want to maintain that. Obviously, you always look to leverage selling your infrastructure assets to try to reduce your fees or lower your cost structure, especially as we grow volumes, locking up capacity at key processing plants to give us greater certainty on our 5-year plan execution is obviously also key and then even potentially a future infrastructure partner for larger capital projects. So I think if we could check all those boxes, that would be pretty strategic for us, that's what we're looking to do.

[Travis Wood, analyst]

Okay. Fantastic. And just to keep the fire under you a bit. Any time lines on that? Is this like a 2024 negotiation finalization or should we be more patient on something like this? But it sounds like there's a bunch of moving parts as you say.

[Craig Bryksa, executive]

Yes. I mean, Travis, we're working through that, right? We'll see how the remainder of the year plays out. But certainly, as things get done and inked, that we put that into the market. But right now, it takes a bit of time, especially when you're looking for all the boxes that Ryan just mentioned that need to be checked. So I guess we'll see how it plays out here over the next little bit.

[Travis Wood, analyst]

Okay. And then just one more question related to that, and I'll turn it back. But I think as you mentioned, the Hammerhead facility is kind of in and around 80,000, 90,000 BOE a day of processing. Is that the right way to think of that?

[Craig Bryksa, executive]

Yes. The capacity that we picked up was right in and around 80,000 BOE/day.

[Operator]

Thank you. There are no further questions at this time. Mr. Bryksa, please proceed.

[Craig Bryksa, executive]

Okay. I'll pass it over to Sarfraz now. I think he's going to moderate a couple of questions here from our webcast portion.

[Sarfraz Somani, executive]

Yes. Thanks, Craig. Yes, there were a couple of questions online, but I think those got covered with the questions we just had from the analysts right now. So there are no questions online right now. So I'd like to thank everyone for joining our call today.

[Craig Bryksa, executive]

Thanks, everybody.

[Operator]

Thank you. Veren's Investor Relations department can be reached at 1-855-767-6923. Thank you all for participating. You may all disconnect.