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Edited Transcript of CPG.TO earnings conference call or presentation 5-Mar-20 5:00pm GMT

Q4 2019 Crescent Point Energy Corp Earnings Call

Calgary Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Crescent Point Energy Corp earnings conference call or presentation Thursday, March 5, 2020 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brad Borggard

Crescent Point Energy Corp. - SVP of Corporate Planning & Capital Markets

* Craig Bryksa

Crescent Point Energy Corp. - President, CEO & Director

* Kenneth R. Lamont

Crescent Point Energy Corp. - CFO

* Ryan Chad Raymond Gritzfeldt

Crescent Point Energy Corp. - COO

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Conference Call Participants

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* Cody Randall Kwong

Stifel Nicolaus Canada Inc., Research Division - MD of Institutional Research

* Juan Jarrah

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. My name is Joanna, and I will be your conference call operator for Crescent Point Energy's Year-End 2019 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, unless otherwise stated. The complete financial statements and management's discussion and analysis for the period ending December 31, 2019, were announced this morning and are available on the Crescent Point, SEDAR and EDGAR websites. (Operator Instructions)

During the call, the 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 on 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 the Crescent Point SEDAR or 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 Brad Borggard, Senior Vice President, Corporate Planning and Capital Markets. Please go ahead, Mr. Borggard.

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Brad Borggard, Crescent Point Energy Corp. - SVP of Corporate Planning & Capital Markets [2]

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Thanks, operator, and I'd like to welcome everyone to our year-end 2019 conference call. With me today are Craig Bryksa, President and Chief Executive Officer; Ken Lamont, Chief Financial Officer; and Ryan Gritzfeldt, Chief Operating Officer. Other members of our senior leadership team are also present to provide additional insight during the question-and-answer period at the end of this call.

As operator highlighted, this conference call is being webcast along with a slide deck, which can be found on Crescent Point's website. I'll now pass things over to Craig to provide an overview of our fourth quarter and year-end 2019 results.

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [3]

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Thanks, Brad, and thank you, everyone, for joining us today. I'm pleased to report Crescent Point's 2019 performance and provide some highlights from the past year. Our fourth quarter results conclude a year of execution and significant transformation for the company. We worked diligently to focus our asset base, enhance our cost structure and strengthen our balance sheet while remaining disciplined in our capital allocation. Since year-end 2018, we have executed our capital program on budget, demonstrating continued operational excellence, sold multiple assets at attractive metrics for proceeds of approximately $1.45 billion, strengthened our balance sheet by reducing our net debt by more than 45% or approximately $1.75 billion, realized over $170 million of internal annual cost efficiencies and repurchased 26.2 million shares or approximately 5% of our public float.

These are just some of the key highlights from our past year. We've also taken strides to further enhance our strong ESG practices, which reflects our commitment to operating our business the right way. Our ESG highlights include achieving new multiyear lows in our safety incident rates, continued reductions in our absolute emissions, lowering our future abandonment and reclamation obligations by over $220 million and increasing our disclosure practices by releasing our inaugural sustainability report.

As a result of our successful execution across multiple aspects of our business, we now stand in a much stronger position than we did just 1 year ago. And while financial markets and commodity prices remain largely outside of our control, we are nonetheless focused on what we can control in order to create value for our shareholders. This means continued operational execution, capital discipline and long-term sustainability. On that note, I'm pleased to report that the Toronto Stock Exchange has accepted our NCIB renewal to repurchase up to an additional 7% of our public float.

I'll now turn the call over to Ken to provide an update on our financial highlights.

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Kenneth R. Lamont, Crescent Point Energy Corp. - CFO [4]

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Thanks, Craig. For the year ended December 31, 2019, the company's adjusted funds flow totaled $1.83 billion or $3.34 per share diluted. We improved our funds flow per share by approximately 6% as compared to 2018. We achieved this improvement by successfully implementing change throughout our business, the effects of which more than offset a 6% reduction in our realized selling prices in 2019 and a 9% lower average production as a result of asset disposition. We executed our 2019 capital program on budget at the midpoint of our annual guidance range of $1.25 billion. We also decided to reduce our bank line to save costs and extend our credit facility maturity to October 2023, maintaining significant liquidity. As at December 31, 2019, the company's net debt was approximately $2.8 billion with unrealized credit capacity of approximately $2.2 billion. Subsequent to the quarter, we closed our previously announced sale of certain gas infrastructure assets in Saskatchewan for $500 million, further reducing our net debt and significantly increasing the company's unutilized credit capacity.

In addition to strengthening our balance sheet, we repurchased approximately 5% of our public float or $135 million of shares under our NCIB, including $125 million worth of shares acquired in 2019 as budgeted. We are currently in the process of renewing our NCIB and look forward to reactivating our share repurchase activity given our discounted valuation.

Our 2020 budget assumes that 20% to 30% of our excess cash flow and approximately $50 million of proceeds from our recently completed infrastructure monetization will be allocated towards share repurchases this year. As a part of our risk management program to protect against commodity price volatility, we have currently hedged, on average, 50% of our oil and liquids production, net of royalty interest through 2020 at a weighted average market value price of over CAD 76 per barrel.

For the year ended 2019, we incurred a net loss of approximately $1 billion, including a noncash impairment charge in the fourth quarter of $1.2 billion or $884 million after tax. This impairment charge is primarily due to the decrease in the independent engineer's price forecast and does not impact Crescent Point's adjusted funds flow or its credit capacity. It is also reversible in future periods, should there be any indicators that the value of the assets has increased as a result of an improvement in the outlook for commodity prices.

Our adjusted net earnings in 2019 were approximately $387 million or $0.71 per share, up significantly from the $235 million or $0.43 per share in the prior year.

I will now turn it over to Ryan to provide some highlights on our operations and our year-end reserves. Ryan?

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Ryan Chad Raymond Gritzfeldt, Crescent Point Energy Corp. - COO [5]

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Thanks, Ken. In 2019, we produced, on average, slightly over 162,000 BOE per day, which was at the midpoint of the company's guidance range and was comprised of approximately 91% oil and liquids. Our average production during fourth quarter was slightly over 145,000 BOE per day, reflecting asset dispositions executed during the quarter. By successfully implementing cost management initiatives, we achieved sustainable operating cost efficiencies of approximately $70 million in 2019, an improvement of over 7%, excluding any positive impact from dispositions. We realized these efficiencies by adopting digital technologies that have further enhanced new workflow changes. We are continuing these initiatives throughout 2020, and we expect to achieve additional operating expense savings through these efforts.

We continue to generate strong free cash flow in our key focus areas, driven by our Viewfield and Shaunavon resource plays. We also continue to benefit from the successful advancement of our decline mitigation programs for which we continue to receive positive recognition from our independent reserve evaluators. In Flat Lake in 2019, we enhanced our risk-adjusted returns within the Torquay program by shifting to 2-mile horizontal well development and realizing capital cost reductions of approximately 15% through drilling and completion optimization. We have focused our 2020 development program in Flat Lake, primarily on 2-mile horizontal development, continued optimization of our drilling and completion program and other enhanced operating and conservation efficiencies by utilizing our existing and recently expanded infrastructure in the area. We have also generated strong results from our Bakken and Three Forks assets in North Dakota through enhanced efficiencies in our multi-well pad development. We have directed approximately 22% of our 2020 capital budget to this resource play as our economics and returns from these assets are competitive with our other risked inventory.

As Craig previously mentioned, over the last 18 months, we have transformed many aspects of the business. Our year-end 2019 reserves reflect many of these changes, including multiple asset dispositions and a more disciplined capital allocation process that prioritizes low-risk, high-return prebooked drilling versus step-out exploration.

Negative technical revisions were realized during the year, which were offset by additions. These revisions relate to reassessments of certain assets in comparison to earlier forecasts from prior years. Excluding dispositions and revisions, we replaced more than our annual production in 2019 and generated a strong recycle ratio of approximately 2x on a proved plus probable basis. We also grew our year-over-year PDP net asset value per share by over 20%, assuming a flat USD 55 WTI price deck, excluding land and seismic and excluding the changes made to include future asset retirement obligations.

At year-end 2019, our 2P NAV was $10.57 per share based on a flat pricing assumption of USD 55 per barrel WTI. This NAV includes $5.25 per share associated with our 1P reserves and $3.75 per share associated with our proved developed producing assets. These net asset values compare favorably to our current valuation. They also exclude the value of our land and seismic assets, which represent an additional $1.33 per share of NAV value at year-end 2019.

I'll now turn it back to Craig to provide some closing remarks.

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [6]

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Thanks, Ryan. In closing, I'd like to thank our shareholders for their continued support and our employees for their hard work and execution in a very challenging environment. We remain on track with our 2020 guidance with annual average production of 140,000 to 144,000 BOE per day and capital expenditures of $1.1 billion to $1.2 billion. Our budget is fully funded at approximately USD 46 per barrel WTI, with 50% of our 2020 oil production hedged at over CAD 76 per barrel.

We will remain flexible in managing our overall spending as we continue to prioritize returns and a strong balance sheet. I'm very proud of the positive changes we have accomplished over the past year, and I'm excited about the opportunities that lie ahead. We're in a strong financial position with high netback assets that generate free cash flow and provide attractive market access points relative to our Canadian landscape. We expect our track record of operational execution and capital discipline to allow for additional cost efficiencies and returns to be generated for our shareholders, including opportunities to further optimize our portfolio and our long-term sustainability.

I will now open the call for questions from the investment community. Operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Cody Kwong at Stifel FirstEnergy.

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Cody Randall Kwong, Stifel Nicolaus Canada Inc., Research Division - MD of Institutional Research [2]

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I had a couple of questions as they pertain to your reserves. Can you give us any further background on any themes kind of behind the nature and geography of your technical revisions that you guys took this year?

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [3]

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Thanks, Cody. It's Craig here. I had a feeling this one would come up. When you take a look at the company here over the last, call it, 18 months, we've had a lot of changes that we've been going through in order to transform the company. One of the things that we've noticed in the last few years is this negative technical revisions over that period of time. And we've -- these are things that we don't want going forward. We brought that forward to our independent evaluators. They came back with a negative 55 million barrel technical revision that we are fully supportive of and fully aligned with. When you look at that, it doesn't have an impact on our budgeting process. It certainly doesn't have an impact on our 5-year plan and doesn't have an impact on our well inventory. And at the end of the day, though, it is significant, when you do look at it on a percentage basis, it's only 2% of our PDP and 3% of our 1 proved number -- or 1P number, sorry. So it certainly gives us a good fresh start to the year moving forward as the company is transforming.

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Cody Randall Kwong, Stifel Nicolaus Canada Inc., Research Division - MD of Institutional Research [4]

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Okay. And then a follow-up question to that. I know that everything was a little bit noisy this year with all the dispositions and the like. But you mentioned in the release that you guys had a 2x recycle ratio and I know you're excluding a bunch of stuff. Can you kind of walk me behind the math behind that statement there?

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Ryan Chad Raymond Gritzfeldt, Crescent Point Energy Corp. - COO [5]

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Cody, it's Ryan. I'll take that one. Yes, good question. So if you take our total capital of $1.27 billion spent less the change in FDC which was approximately $200 million, again with the capital of $1.07 billion. And then if you divide that just by our reserve additions of 54 million BOE, you get about a $19 F&D or about 1.7x recycle using our $34 a barrel netback. But if you further remove the CapEx associated with or spent on our assets disposed off in 2019, because obviously these properties are now gone and therefore we didn't get any credit for reserve adds on those dollars spent, the capital gets reduced to about $900 million. And then, so based on our -- those same reserve adds of 54 million BOE, the F&D is about $17 -- the F&D is about $17 BOE or about 2x recycle using that same $34 barrel netback.

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Operator [6]

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(Operator Instructions) Your next question is from the line of Juan Jarrah at TD Securities.

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Juan Jarrah, TD Securities Equity Research - Research Analyst [7]

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I just want to touch a little bit on the 2020 cap program. I know you've mentioned that it's sustainable down at $46. Can you give us a bit of color as to what in certain scenarios how this could unfold if commodity prices move around a little bit? And when -- if that's the case, when and how would you look to revise that program?

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [8]

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Thanks, JJ. It's Craig here. So the one thing I would say, with most of our operations in Canada, is we have a natural break in our drilling program and that usually comes out with spring breakup, which is right in front of us. So we'll use some time in there to reassess the program and the commodity price environment that we're in. I think, as it sits right now with us being fully funded at $46 a barrel and continuing to work on cost efficiencies, we've got a very defensive budget in place, and then we built the budget from the starting point with that in mind. So we certainly feel good about that. But the time frame around that for us to revisit will be as we roll into breakup here and then see how the market plays out over the next couple of months.

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Juan Jarrah, TD Securities Equity Research - Research Analyst [9]

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That's great. The only other question I had was on OP costs. I mean, Q4, some really good beats on OP costs, at least relative to our numbers. Can you give us a bit of color whether you, Craig, or Ryan as to where you see that going in 2020 because obviously there's a little bit of upside there to those numbers.

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [10]

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So I'll leave that one for Ryan. The one thing I would say about OP cost for the year, JJ, is how proud I am of the operations team and what they've done. It's really been incredible when you look at it. They basically have saved $70 million over the year from when they initially started out, and Ryan is going to continue to push that technology and then what we've been implementing forward across the asset base, but I can leave some of that color for Ryan to speak to.

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Ryan Chad Raymond Gritzfeldt, Crescent Point Energy Corp. - COO [11]

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Yes, for sure. Yes, like Craig said, we're very pleased with our OpEx results in Q4 as a result of all the cost initiatives and the new workflow changes we've implemented throughout the year. Our field staff really has done an outstanding job. There's lots of moving parts in any given quarter, though, and so it's hard to annualize just on a quarter. But having said that, our guidance for 2020 is closer to $700 million for the year. And by continuing to deploy the new way that we're operating into all of our core areas, we hope to further achieve further cost efficiencies, like Craig said, and beat that guidance.

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Operator [12]

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There are no further questions. I will now turn the call back over to Craig Bryksa for closing comments.

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Craig Bryksa, Crescent Point Energy Corp. - President, CEO & Director [13]

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Thanks, everybody, for joining our fourth quarter call today.

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Operator [14]

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Ladies and gentlemen, this concludes your conference call for today. Crescent Point's Investor Relations department can be reached at 1 (855 )767-6923. Thank you, and have a good day.