Crescent Point Energy Corp

TSX:CPG

Earnings Call Analysis

Crescent Point's Promising Future Outlook

Crescent Point Energy continues to refine its approach to business with strategic asset acquisitions and dispositions, notably the addition of Alberta Montney and the sale of the North Dakota assets, enhancing the company's portfolio and balance sheet. The Alberta Montney acquisition has resulted in impressive operational results with highly productive wells and significant growth potential, fostering long-term shareholder returns through excess cash flow, disciplined growth, and substantial capital returns. The company's production and excess cash flow projections look promising, with a 2024 forecast of 145,000 to 151,000 BOE per day and about $1 billion in excess cash flow at $80 WTI, and a 5-year plan aiming for production growth to 180,000 BOE per day by 2028. Crescent Point's strategy ensures cumulative after-tax excess cash flow generation of over $4.3 billion through 2028, intending to return 60% to shareholders.

Experimentation and Cost Efficiency in the Duvernay Play

The company is reaping the rewards of consistent and repeatable results in the Duvernay region thanks to their operational excellence and successful cost management strategies. Incorporating a second rig into the play has bolstered their capability to drive compelling returns.

Strategic Tax Positioning and Oil Price Sensitivity

Under the current strip pricing, the company anticipates paying zero taxes in 2024, with an effective tax rate of about 6% in 2025 relative to its cash flow. However, they acknowledge a scenario where $100 oil prices could introduce taxes earlier in 2024 at approximately a 5% rate.

Innovative Drilling Practices Fueling Economic and Operational Gains

The company has successfully drilled eight wells ranging in length, improving their economics by reducing 2-mile drilling costs to under $3 million. The strategy isn't about adding more rigs; rather, it is aimed at supplementing the drilling inventory and managing production decline rates in Saskatchewan. This approach is expected to yield almost double the Estimated Ultimate Recovery (EUR) at a marginally lower capital investment.

Montney Operations: A Focus on Modern Fracturing and Cost Reduction

The company expresses high satisfaction with their operations in Montney, highlighting the advantages of their position within the volatile oil window of the geological play. Advanced fracturing techniques are yielding significant vertical growth in well completions. A change in drilling rigs to a more efficient model is projected to further reduce drilling times and costs.

Optimizing Well Spacing and Continuous Development

Having entered the region with a conservative approach to well spacing at 600 meters, the company has adjusted to 500 meters spacing amid encouraging results and the potential to tighten it further. They also plan to explore and potentially develop the western side of the volatile oil window as part of the 2024 drilling program.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen. My name is John, and I will be your operator for Crescent Point Energy's Third Quarter 2023 Conference Call. This conference call is being recorded today and will be webcast along with the slide deck, which can be found on Crescent Point's website home page. The webcast may not be recorded or rebroadcast without the express consent of Crescent Point Energy.

All amounts discussed today are in Canadian dollars, with the exception of West Texas Intermediate pricing, which is quoted in U.S. dollars. The complete financial statements and management's discussion and analysis for the period ending September 30, 2023, 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 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 operation or financial results are included in Crescent Point's most recent annual information form, which may be accessed through the Crescent Point, SEDAR+ and 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 will now turn the call over to Craig Bryksa, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. Bryksa.

[Craig Bryksa, executive]

Thank you, operator. I'd like to welcome everyone to our third quarter 2023 conference call. With me today are Ken Lamont, our Chief Financial Officer; and Ryan Gritzfeldt, our Chief Operating Officer. As the operator highlighted, this conference call is being webcast along with the slide deck which can be found on our website.

We're continuing with our new conference call format to add a level of further engagement and to turn the call into more of a discussion. Earlier today, we issued our quarterly press release, financial results and 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 results and discuss our overall outlook. We'll then move into a Q&A session.

We will start by taking questions over the conference line. As we usually do, once those questions have concluded, I'll then turn the call over to Shant Madian, our Vice President of Capital Markets, who will moderate questions from participants joining us on our webcast. We encourage those on the webcast to submit questions using the chat function on the online portal. We look forward to the discussions that this format will provide.

Let's get started. It has been a busy year at Crescent Point as we continue to execute on our portfolio optimization strategy. Our recent acquisition in the Alberta Montney has generated strong returns for the company, and we have been impressed with the operational results achieved to date, which I will speak to shortly. We've also been active on the disposition side to further streamline our portfolio, which included the sale of our North Dakota assets, which closed subsequent to the quarter. This transaction allowed us to bring forward the future expected value for this area while also strengthening our balance sheet.

These transactions are consistent with our strategy to focus our portfolio on high return, high netback, short- and long-cycle plays. This balanced portfolio allows us to deliver sustainable long-term returns for our shareholders through a combination of disciplined per share growth, a significant return of capital and our balance sheet strength.

I want to spend a few minutes touching on our Alberta Montney as we are very excited about this addition to our portfolio and our results to date. From a strategic perspective, the Alberta Montney provides a deep drilling inventory, positioning within the volatile oil window, consistent geology with significant resource in place and the opportunity to enhance returns through drilling and completions optimization. Since entering the play, we continue to achieve consistent and repeatable results that are in line or ahead of our expectations, including some of the highest productivity wells in the entire Western Canadian Sedimentary Basin.

At Gold Creek West, for example, our most recent pad brought onstream achieved peak 30-day rates of 1,200 BOE per day per well with a high liquids weighting of nearly 70%. In addition to these results, we are also making progress on reducing costs and are evaluating opportunities to develop certain areas of the play at tighter spacing that would provide additional drilling inventory. We are currently running a 1-rig program in the Montney but will be evaluating, eventually looking to add a second rig to further accelerate the high-return development of our deep inventory in the play. Altogether, the addition of these Montney assets has significantly enhanced the quality of our overall portfolio and the company's long-term outlook.

Shifting to the Kaybob Duvernay, we continue to generate very strong consistent results, which has been a major part of our production in 2023. If you recall, when we adjusted our 2023 production guidance to reflect our recent North Dakota disposition, our outperformance, largely driven from the Kaybob Duvernay allowed us to partially offset the volumes that were sold. Our latest Kaybob pad, which came onstream during the third quarter, was ahead of our type well forecast with peak 30-day rates of approximately 1,500 BOE per day per well comprised of over 80% liquids. What's notable from these results is that they are more than double those of an offsetting pad from the previous operator prior to our acquisition in 2021. And it is located on the eastern portion of our land, supporting future development in the area and investment in infrastructure in 2024.

These results also highlight the benefits of our optimized well design and completion techniques. Our Kaybob Duvernay and Alberta Montney assets are both expected to generate a combination of sustainable production growth and excess cash flow generation for the company in the years ahead.

Within our longer-cycle operations, we are generating strong netbacks and excess cash flow as we progress our decline mitigation programs to enhance ultimate recoveries from our large oil-in-place pools. Our waterflood and polymer flood operations continue to support strong oil production within our Saskatchewan holdings, resulting in a low decline rate of approximately 15%. We've also achieved great success in proving up our open-hole multilateral well designs with strong results to date in the Viewfield Bakken. We recently improved the design of these wells to extend our laterals to enhance production and reduce costs through drilling efficiencies.

Our latest wells using this approach consist of approximately 2-mile laterals across 8 legs, which significantly increases reservoir contact and oil production. We recently achieved peak 30-day well results of over 300 barrels per day from our most recent 2 wells, with 100% oil weighting and very attractive economics. We are excited about this innovation as it has enhanced our overall returns and added new premium locations to our drilling inventory. We look forward to piloting this approach in other areas within our Saskatchewan assets.

Looking ahead, we couldn't be more excited about our outlook. Our preliminary 2024 budget forecasts production guidance of 145,000 to 151,000 BOE per day and excess cash flow generation of approximately $1 billion at $80 per barrel WTI pricing. Further out, our 5-year plan forecasts production growing to 180,000 BOE per day by 2028, representing a 5% compounded annual growth rate, driven by strong production growth from our Montney and Kaybob assets. This growth is balanced by our low-decline production in Saskatchewan, which allows us to maintain consistent decline rate throughout our plan to further enhance our excess cash flow generation.

In total, we expect to generate over $4.3 billion of cumulative after-tax excess cash flow through 2028 at $75 per barrel WTI pricing, 60% of which is earmarked to be returned directly to our shareholders. I'd like to thank everyone for their continued support and engagement, in particular, our staff who continue to deliver on our purpose of bringing energy to our world the right way. We'll now open the call to questions from our -- from the analyst community and follow with a Q&A session for those on the webcast. Operator, please open the call.

[Operator]

[Operator Instructions] Your first question comes from the line of Amir Arif from ATB Capital.

[Laique Ahmad Amir Arif, analyst]

Craig, just a few quick operational questions for you. Just in the Duvernay, could you give us some color on that new pad that you referenced in the northern part of your acreage at the volatile oil window? And I think you mentioned there was strong initial results. I'm taking you don't have 30-day rates yet.

[Craig Bryksa, executive]

Yes. So we've got -- we brought 2 pads on in the quarter, Amir. That one that we mentioned in the press release is the [ FC 806 ] pad that came on at around 1,500 BOE per day per well at just about 80% liquids, so a very good pad for us. And then we've got a pad in the northern part that is coming through flowback in the second quarter and has just been brought online here now. It looks very encouraging. It looks really good. It's just we don't have an IP30 on that one yet, so as we get more well results and more time on production, look for us to then bring those volumes forth. But again, very encouraged by both those 2 pads here over the last quarter.

And then the 1 thing I would add too, Amir, is one of the things that we really love about the Duvernay since we've been in there is just how consistent and repeatable these results have been. And as you combine that with what Ryan's team and the operations front have been doing with our cost structure and then the repeatability and the predictability of the ultimate well results, it's really starting to drive some very, very, very compelling returns. So exciting for us. And note, too, Amir that rig 2 is now operating in the play for us as well, too now. So going forward with 2 full drilling rigs.

[Operator]

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

[Travis Wood, analyst]

I wanted to touch on tax. A lot of your peers have shifted over to be cash taxable here through last year and this year. How does cash tax look for you guys going forward on kind of current pricing? I know I think the presentation kind of highlights 5% to 10%, plus or minus, next year. But is there a scenario that -- or sorry, in 2025, but is there a scenario that would accelerate that to be cash taxable in 2024 by chance?

[Craig Bryksa, executive]

Travis, thanks for the question. I'll pass that over to Ken.

[Kenneth Lamont, executive]

Yes. So I guess for the first part of your question, as we sit on the strip pricing right now, we will be paying 0 taxes in 2024. And then we'll be taxable at an effective rate of about 6% in 2025 and that's relative to cash flow. So we don't see taxes at strip until 2025 and that will be at 6%.

Now the second part of your question, do I see a scenario? I do have a model run that if we hit $100 oil here today and keep that flat, we would have some taxes coming into 2024, kind of in that 5% range. So that would be the sensitivity there. We need to see $100 oil here flat.

[Travis Wood, analyst]

Okay, that's perfect color on that. So 0 next year, high probability of 0 and then a modest 6% into 2025?

[Kenneth Lamont, executive]

Yes, that's correct.

[Travis Wood, analyst]

One more question. Just I guess operationally and not related to the Duvernay or the Montney, but given a lot of open hole, multi-lat acceleration in some older well vertically delineated plays, what -- how many wells are you thinking that you would drill across Viewfield with that multi-lat strategy on those open holes that you'd announced with the quarter? And then with those 2 wells, does that make 4 total since you kind of first started talking about that open hole pushing the boundaries at Viewfield?

[Ryan Chad Raymond Gritzfeldt, executive]

Travis, it's Ryan. I can take that one. Yes, so really encouraged with those 2 most recent results. We've actually done 8 to date now. Those range from 1 milers, 1.5 milers to 2 milers. These last couple, the good thing about them, too, is we've gotten our 2-mile cost down to under $3 million so continue to increase the economics on those. And based on that, we have 8 planned in Viewfield next year. And then we also spud our first one in our Shaunavon play here.

So probably won't have results before the end of the year on that Shaunavon well but pretty excited to see what we'll get there. All of our various reservoir simulations we ran there, we're kind of doing the same design, 8 legs, 50-meter spacing. So really looking forward to see what we can get in our Shaunavon play.

[Travis Wood, analyst]

Okay. And is the right way to think about this part of the operational strategy, is it more so related to capturing, especially at Viewfield, improving the recovery? Or is it pushing the boundaries of the play and capturing some -- maybe some more growth opportunity? Or is it more about the original oil-in-place?

[Ryan Chad Raymond Gritzfeldt, executive]

Yes, I'd say both, Travis. So the first -- the reason that we started trying this was in some parts of the play where it's a little bit thinner but more porous, more permeable, it also had the wet lodge pool above. So frac-ing, you ended up frac-ing into that wet lodge pool and bringing in water. So now with the results we're seeing, to your point on is it just capturing more resource or is it economics? It's both.

You're essentially getting, in our view, almost double the EUR at a little bit less capital. So obviously, your economics look a lot better than doing it with the -- with our older style 8 wells per section and frac-ing. So yes, hopefully, that answers your question there. And like I said, we'll continue to drill. We have 8 wells planned for next year. And yes, I don't think this is something that we'll add rigs to get to. I think it just helps kind of continue to keep our Saskatchewan production and that decline rate manageable and adds to our years of drilling inventory versus adding rigs to get after it. So that's our current plan right now with the results we see.

[Travis Wood, analyst]

Okay, perfect. That makes sense.

[Operator]

There are no further questions at this time at the phone line. I will now hand over to Mr. Craig Bryksa. Please continue.

[Craig Bryksa, executive]

Shant, do you want to moderate from the webcast?

[Shant Madian, executive]

Yes. Thanks, Craig. So a couple of questions coming from the online portion. First is based on the success we've been having on the Montney well results, one of the shareholders was just asking if we can provide a little bit more color on our modified well design or frac technology that we've been using in the Montney, I guess, specifically around those elevator fracs.

[Craig Bryksa, executive]

I can give a little bit of color and then Ryan can add some comments. So extremely happy with how the operations have been going here in the Montney over the last few months since we closed that deal. As far as operations go, we're on -- currently on our fourth pad of drilling and drilling has been going very well.

One of the things, when you look at our position within the Montney from a geological aspect, is we're in the normal pressured window within the play. We're in the volatile oil window and we're on the normal pressured position within that play.

And then when you look across the benches from the Montney C, the B and the A -- into the A, there's no real change in the pressure gradient between those different benches. So really, what that's telling you is there's no real natural fracture barriers between the benches within the play. So what we've been doing is drilling the wells at the bottom of the sea and then hitting them with a very modern completion style, a modern frac, call it, 3 tons per meter.

And then because that pressure gradient doesn't change on us and no natural frac barriers in there, it allows us to fracture through the C, the B and into the A. So you get very good vertical height growth within the completion. You don't get as much horizontal growth or half-length growth but certainly get a lot of vertical growth. And that has led to some very, very encouraging results here in the near term. So look for us to continue to push this as we continue to develop it. But so far, so good.

And then the other thing with this is, as we space the wells in particular in Gold Creek West, because of the vertical height growth and maybe not as much of the half-length, it may allow us to tighten up that spacing a little bit tighter, which would ultimately add to well inventory. But we'll slowly dip our toes into that as we see results that dictate. So Ryan, I don't know if you had...

[Ryan Chad Raymond Gritzfeldt, executive]

Yes. I'll actually maybe add even on the cost side, like Craig said, what's key is we're getting consistent repeatable results and on budget. And an exciting thing for us, we've switched over our rig in the Montney to another rig. It's a walking double rig, has lots of advantages, larger pumps, higher hook loads, et cetera, et cetera. And we think with time, we're going to be able to shave a day or 2 off of our drilling days and continue to decrease our costs. So excited to do that as well.

[Shant Madian, executive]

Great. Thanks, guys. Shifting to Kaybob, a bit on the topic of well spacing. One question here specifically, how do we think about infill spacing here versus the prior operator? Typically either by phase windows or how we've approached it since in play.

[Craig Bryksa, executive]

I can start and Ryan can add some color. So when you think of when we entered the play in 2021, we had our well inventory spaced fairly wide at 600 meters. When you look at maybe some of the other operators in the area or even the previous operator that we picked the asset up from, they did space wells fairly tight and creeped in fairly tight. And we could see that from a lot of that, there is some inter-well interference and that's why we took that wider stance.

Over the last basically 12 to 18 months, we've slowly been creeping in. So you've seen us move, in particular, in the volatile oil window into that from 600 meters into 500 meters. And we'll see how things play out on that. The results are very encouraging. And even that last pad I just mentioned, that [ FC 806 ] pad at 1,500 BOE per day is spaced at that level. So look for us to maybe slowly tighten this in a little bit more and see how they get.

And then the other thing I would say, in each of the different phase envelopes, there's fairly different pressure regimes as well. So the spacing might be different between each of those, and that's reflected in how we've been drilling. But the idea is to slowly creep in, make sure we're comfortable and then start to optimize. So things on that front have been really looking good. And Ryan, I don't know if you want to...

[Ryan Chad Raymond Gritzfeldt, executive]

Yes, I don't think I have much to add to that other than like Craig said, it definitely depends where you are in the play. We have very rigorous detailed reservoir models that we continue to update with the results that we're getting. And so far, we like what we're seeing with our current spacing plans.

[Shant Madian, executive]

Thanks, guys. A follow-up to that specifically on Kaybob as well. Any plans to develop on the western side with the volatile oil sections?

[Craig Bryksa, executive]

Yes. So when you look at, Ryan and I were staring at each other there on who was going to talk to it. But yes, when you -- so when you look at our 2024 budget, again, very active 2-rig drilling program. And certainly, we are looking to get a pad on the western side there of the volatile oil window. We're going to do that this year and 2024 and then we'll see how that ends up playing out.

One thing that does give us comfort on our land position in there is some of the offsetting competitor wells that have really proven up that land position for us. So you'll see us get a pad in there this year. And as we get those results online, then we'll certainly put those into the market, but encouraged by everything that we're seeing.

[Ryan Chad Raymond Gritzfeldt, executive]

Yes. Sorry, I had to get my directions straight there. I mean, yes, 2024, our 2024 Kaybob, Duvernay drilling program is quite exciting. Like Craig said, we're stepping out to the west. We're actually -- we actually spudded a well to the southeast here recently and we'll have production rates early next year. So yes, really looking to see what these results can do to expand our drilling inventory and continue the momentum in the play.

[Shant Madian, executive]

Appreciate it, guys. At this time, there are no additional questions from those online, so we want to thank everyone for joining our call today. If you have any questions that were not answered, please call our Investor Relations team at your convenience.

[Craig Bryksa, executive]

Thanks, everyone.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.