Crescent Point Energy Corp.
Q2 2021 Earnings Call Transcript

Published: 28 Jul 2021

[Operator:]

Good morning ladies and gentlemen. My name is Michelle, and I will be your operator for Crescent Point Energy's Second Quarter 2021 Conference Call. This conference call is being recorded today and will be webcast alongside with a slide deck, which can be found on Crescent Point's website homepage. 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 Discussion & Analysis for the period ending June 30, 2021, were announced this morning and are available on the Crescent Point SEDAR and EDGAR websites. 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 members of the investments community. .

[Craig Bryksa:]

Thank you, Operator. I'd like to welcome everyone to our Q2 2021 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. Before I jump into our Q2 results, I'd like to rewind a bit and set the table for today's call. Three years ago, we set in motion an ambitious plan to transform the company with a focus on strengthening the balance sheet and enhancing sustainability. Since then, we have successfully implemented a disciplined capital allocation framework to guide our decision making process and provide transparency to our investors, streamlined our asset base to build a portfolio of high return, long-life assets, and reduce our cost structure and decline rates to enhance our excess cash flow generation. Because we made these transformative improvements, we successfully met the challenges of the pandemic and capitalized on opportunities as commodity prices improved. We believe that adhering to these principles will be equally important in times of more bullish outlooks, like we have seen recently. We've remained committed to our principles during this period of rising commodity prices, which has resulted in significant excess cash flow generation. Through our capital allocation framework, we have set clear priorities for how we intend to use the excess cash flow to enhance our balance sheet strength, while also looking to increase shareholder value. At the beginning of the quarter, we closed our Kaybob acquisition which included a cash purchase price of approximately $670 million. Since the closing of this acquisition, we successfully reduced our net debt by approximately $360 million and plan to continue to prioritize debt reduction to achieve our optimum leverage targets.

[Ken Lamont:]

Thanks Craig. For the quarter ended June 30, 2021, adjusted funds flow totaled over $387 million or $0.66 per share fully diluted, driven by a strong operating netback of approximately $40 per BOE.

[Ryan Gritzfeldt:]

Thanks, Ken. Our second quarter production averaged 148,641 BOE per day, comprised of over 85% oil and liquids. And due to our strong second quarter production, second half 2021 reactivation volumes and some base operational performance, we are increasing our 2021 annual production guidance by 2,000 BOE per day to 130,000 to 134,000 BOE per day. This is the first quarter that reflects the impact of our recently acquired Kaybob Duvernay assets, and includes production from approximately 15 wells that were recently completed in the place. These wells continue to flow at significant initial production rates that are meeting or exceeding our internal type wells with the high liquids weighting of over 80%.

[Craig Bryksa:]

Thanks, Ryan. Our second quarter results continue to demonstrate our commitment to our core principles of balance sheet strength, and sustainability. Our recent strategic A&D activities are expected to deliver meaningful improvements to the business by enhancing our excess free cash flow generation, accelerating our deleveraging goals, improving our cost structure, increasing our overall scalability, and reducing future decommissioning liability. As Ryan mentioned, based on our continued operational outperformance and the reactivation of some volumes that were previously shut-in during a lower price environment, we're increasing our 2021 annual average production guidance to 130,000 to 134,000 BOE per day. Our development capital expenditures remain unchanged within the range of our prior guidance, allowing us to maximize excess cash flow generation and further enhance shareholder value. We anticipate generating approximately $675 million to $775 million of excess cash flow in 2021 assuming WTI prices of US$65 to US$75 per barrel for the remainder of the year. We plan to continue allocating excess cash flow towards our balance sheet while also evaluating the return of additional capital to shareholders in the context of our capital allocation framework, and leverage targets. Following that, we will assess the allocation of any remaining excess cash flow to other value enhancing opportunities as per our capital allocation framework, including potential share buybacks, organic or inorganic growth opportunities, long-term initiatives or additional debt reduction. I'd like to thank all our stakeholders for their continued support, and our employees for their hard work and execution of our business strategy. I'll now open the call for questions from the investment community. Operator, please open the call.

[Operator:]

. Your first question comes from Travis Wood of National Bank Financial. Please go ahead.

[Travis Wood:]

Yes, good morning, everybody and congrats on what looks to be a good quarter. And Craig, you hit it on your opening remarks, congrats to you for the execution over the last several years. My question is around this kind of the capital or more so the free cash framework and you laid out in pretty good detail and have some slides highlighting exactly how you want to allocate the free cash but more specifically with this very much accelerated free cash profile with the help of the commodity, balance sheet compressing probably much quicker than you guys had expected. Could we see that return to shareholders whether it's dividend growth back into the equation, or a buyback, do we see that in 2021 or do you want to play more of a wait and see approach around how that free cash gets allocated?

[Craig Bryksa:]

Hey, Travis, and thanks for the question. So it's Craig here. One of the things we're really excited to get out to the market last year was our capital allocation framework. And to your point, it's a very transparent view of how the management team and the board at Crescent Point think of allocating capital. So the first step that you see within that framework is our maintenance capital budget. And as we go through our budgeting process here, we'll provide some color on what 2022 looks like later, later in the year. And then the next priority down on that framework, our balance sheet strength and bringing back that base level dividend. The other thing I would say is we've been very transparent with the market to what our overall leverage targets are. We want to be one-time debt to cash flow at $55. So that would imply at the current company size that would imply absolute debt somewhere in that range of $1.3 billion to $1.4 billion. However, Travis, keep in mind that we don't absolutely need to be at that leverage target before we bring back a dividend. But we certainly need to have some sightlines into that. So, as far as the exact timing of how things on that front will play out, I can't comment on that, but look for us to stay very disciplined towards that framework. And then if you look beyond like I've said before, balance sheet strength and core dividend, then look for us to allocate based on other priorities again, all returns based off competing on returns, and whether that's share repurchases or inorganic or organic growth or further debt repayment, that's how we think through things. So I don’t know if Ken or Ryan if you had anything else. Thanks for the question, Travis.

[Travis Wood:]

Okay. That sounds great.

[Operator:]

Your next question comes from Jeremy Mccrea of Raymond James. Please go ahead.

[Jeremy Mccrea:]

Well, hi, guys, I got a couple questions here. The first one is just it's been a busy year with you guys with M&A. And I'm wondering if you're probably done for the meantime, or if you're still seeing lots of deals come through the office here versus last year? And maybe what you're looking for in terms of different M&A deals? And the second question is just in terms of the reactivation of some wells and bring on more production, is there more reactivations to possibly bring on as well, even as prices continue to hold at these prices?

[Craig Bryksa:]

Thanks for the question, Jeremy, maybe what we'll do is I'll take the first one, and then Ryan can give you some color on reactivations on the second one. As far as A&D, if on the D side, I think we've had a good strategic disposition here, it made a lot of sense for us to move that off an asset that really doesn't fit in what we're trying to build. And at the end of the day, really clean up above 25% of our ARO liabilities on that disposition. As far as acquisitions, if there are things that come in front of us, that make sense within the portfolio, that we're assembling and they improve us in the context of one of those key pillars of our strategy that we've talked to you about, over the last few years, one being balance sheet strength, or the other being sustainability. If it improves us in the context of one or the other, there was uncertainty; we would look at layering that in to our organization. So we'll continue to evaluate those on a one-off basis as they present themselves. And then as far as dispositions, I would say we'll always look to optimize the bottom end of our portfolio. I think what we did here with the southeast staff disposition was a good example of that. That being said, don't expect us Jeremy to get any smaller here than where we're at the current 130,000 BOE per day. And then as far as -- go ahead.

[Jeremy Mccrea:]

So I guess just kind of the follow-up you've been talking about those two pillars here. Are you seeing just as much opportunity still in the current market in terms of Kaybob Duvernay opportunity came about? Are you still seeing just as many things come through the door that potentially looks exciting for you guys? Or is it still just kind of one-offs very, there's one-offs I guess?

[Craig Bryksa:]

So Jeremy, there’s certainly things out there. I would say there's things out on the market now that we'll certainly we will look through and revisit and if it makes sense for us to do then we would act on that. Again, it's going to improve us in the context of one of those. So we’ll see how they come off again individually. As far as the second question, I don't know, Ryan, do you want to add some color on that question?

[Ryan Gritzfeldt:]

Yes. Hi, Jeremy. Yes, we've pretty much brought all of our shut-in volumes back on, like we communicated in the past we kind of wanted to see sustained higher level commodity prices, which we have here. So we made the call to bring back on pretty much all of our previously shut-in volumes. If we see sustained higher pricing again, there might be a few more barrels to bring back on, but very insignificant compared to our total production base.

[Operator:]

Ladies and gentlemen, at this time, I will now turn the conference back over to Craig Bryksa. Please go ahead sir.

[Craig Bryksa:]

Thank you for joining our call today. If you have any questions that were not answered, please call Investor Relations team at your convenience. Thanks, everyone.

[Operator:]

Crescent Point's Investor Relations department can be reached at 1-855-767-6923. Thank you and have a good day.