Crescent Point Energy Corp.
Q4 2020 Earnings Call Transcript

Published: 24 Feb 2021

[Operator:]

Good morning, ladies and gentlemen, my name is Joanna, and I will be your operator for Crescent Point Energy's Year End 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 homepage. The webcast maybe 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 and analysis for the period ending December 31, 2020 were announced this morning and are available on the Crescent Point, SEDAR and EDGAR websites. . 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.

[Craig Bryksa:]

Thank you, operator. I would like to welcome everyone to our year-end 2020 conference call. With me today are Ken Lamont, 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. I think I speak for many in our industry when I say it's difficult to fathom the scope of turbulence and uncertainty we faced over the past year. 2020 tested our resolve, but by meeting this test, we were able to demonstrate the strength of our asset base and operations, our financial discipline and our agility. Throughout the year, I was impressed by how well our staff embraced change and adapted to the new normal, while remaining focused on our key pillars of balance sheet strength and sustainability. We accomplished this while protecting the health and safety of our employees and stakeholders throughout this pandemic. Despite facing strong headwinds, we realized notable success across a number of different metrics, including achieving annual average production ahead of guidance and under budget, reducing our net debt by more than CAD650 million, improving our sustainability by reducing costs and lowering our decline rates, enhancing our ESG performance, including by setting new targets and expanding our ESG disclosure, and increasing our 2P net asset value by approximately 13%, excluding year-over-year changes in commodity prices. Our achievements over the past two years have provided us with added flexibility to capitalize on return-enhancing opportunities, such as our recently announced acquisition in the Kaybob Duvernay area of Alberta. This strategic acquisition checks a number of boxes that align with both of our key pillars. These assets enhance our sustainability by providing over 10 years of internally identified high quality drilling locations in the core of the condensate rich fairway. They also have attractive risk-adjusted returns, free cash flow generation and scalability, and provides strong market access given the significant infrastructure that is already in place.

[Ken Lamont:]

Great. Thanks, Craig. For the quarter ended December 31, 2020, adjusted funds flow totaled over CAD220 million or CAD0.41 per share fully diluted. Annual adjusted funds flow in 2020 was over CAD874 million or CAD1.64 per share fully diluted. Fourth quarter development expenditures totaled CAD169 million or CAD655 million for the year, beating our most recent annual guidance by CAD10 million. Net debt as of December 31, 2020 was approximately CAD2.1 billion, and reflects over CAD615 million of net debt reduction during the year, including CAD40 million in the fourth quarter alone. Our significant net debt reduction in 2020 was driven by both proceeds from an accretive disposition during the first quarter and excess cash flow we generated during the year through a disciplined capital expenditure program. Our unutilized credit capacity at the end of 2020 was approximately CAD2.6 billion, with credit facilities not due for renewal until October of 2023. Our excess cash flow generation during the year totaled approximately CAD125 million, which was enhanced through various cost initiatives, including the reduction of approximately 10%, in both operating expenses and per well unit costs. Based on our company's current hedge positions in place, approximately 30% of our forecast 2021oil and liquids production, net of royalty interest, is hedged through the remainder of the year upon closing of the acquisition in April. These hedges consist primarily of swaps, with an average price of over CAD60 per barrel. We will remain disciplined in our approach to layering on additional hedge protection in the context of commodity prices. As previously announced, during the first quarter of 2020, we recorded a non-cash impairment charge of CAD3.6 billion, or CAD2.7 billion after-tax, primarily due to a significant decrease in the independent engineering price forecast. This resulted in a net loss of CAD2.5 billion for the year ended December 31, 2020. However, neither our adjusted funds flow nor our credit capacity were impacted by this charge. This charge is reversible in future periods should there be indications of a change in value, including as a result of higher forecast commodity prices.

[Ryan Gritzfeldt:]

Thanks, Ken. In 2020, we achieved average production ahead of guidance at 121,642 BOE per day comprised of over 90% oil and liquids. Our average production in the fourth quarter was 111,217 BOE per day, which reflects the impact of our reduced capital budget announced earlier in the year. Throughout the year, we continued to optimize our workflows and expand our operational technology or OT platform across our Saskatchewan asset base. Through these efforts, we have permanently reduced our operating cost by approximately CAD60 million, and we plan to continue to rollout our OT platform throughout the rest of our operating areas in 2021 to realize further efficiencies. Over the past year, we also successfully reduced our average per well capital cost by over 10%. This improvement highlights the benefits our significant operational experience has on our results, including the ongoing knowledge transfer and optimization within our asset portfolio. We are very excited to merge our track record of operational excellence with that of Shell's technical expertise to the Kaybob Duvernay area, and are eager to pursue further improvements in production optimization and cost reductions from those assets. Our development plan of the Kaybob Duvernay asset includes pursuing horizontal well pad development at depths of approximately 3,000 meters. We are very familiar with operations at these depths, as we have been developing our U.S. North Dakota operations, and previously our Uinta Basin assets, our current East Shale Duvernay assets and our Swan Hills assets at similar depths. Also on the surface side, our Swan Hills land is in very close proximity to the Kaybob area. Over the years, we have drilled approximately 300 horizontal wells in these areas, including multi-well pad development and have successfully reduced unit costs in each play, particularly in recent years. We're excited to add the Kaybob Duvernay asset to our portfolio as it brings considerable undeveloped potential with strong high netback proved plus probable reserves. In the past year, we increased our 2P net asset value per share by approximately 13%, excluding the impact from changes in commodity prices. This improvement was driven by our success in lowering our cost structure, reducing our debt and disposing of certain assets.

[Craig Bryksa:]

Thanks, Ryan. Despite a challenging year with unprecedented market conditions, we remain disciplined and focused on our key pillars. By doing so, we successfully enhanced our balance sheet strength and our sustainability. We have built an asset portfolio that is well positioned to benefit from a rising price environment, given our light oil weighting and high netbacks.

[Craig Bryksa:]

Thank you everyone for joining us today. If you have any questions, you can always reach out to our Investor Relations team at your convenience. Thanks again, for taking the time.

[Operator:]

Thank you ladies and gentleman, this concludes today’s conference. Crescent Point's Investor Relations Department can be reached at 1-855-767-6923.