Crescent Point Energy completed first half 2018 East Shale Duvernay drilling program with encouraging initial well results, Canadian operations back in full swing after spring break-up
New management team focused on improving balance sheet, disciplined capital allocation, cost reductions
Calgary-based Crescent Point Energy Corp released its operating and financial results for the quarter ended June 30, 2018 on Thursday, reporting a drop in its net debt of over $390 million, mostly driven by higher oil prices and the sale of $280 million in assets.
Crescent Point says it has appointed a new senior leadership team and streamlined its executive structure and now has fewer members. The company says it is focussed on improving its balance sheet, capital allocation as well as cutting costs.
Financial highlights
Funds flow from operations totalled $500.3 million, or $0.91 per share diluted, based on an operating netback of $40.74 per boe. Funds flow from operations was partially impacted by $13.5 million of incremental severance costs.
Total capital expenditures during second quarter was $313.6 million. The company spent $238.6 million on drilling and development activities, drilling 54 (36.0 net) wells, $62.6 million on facilities and seismic and $12.4 million on land.
During second quarter, Crescent Point closed previously announced dispositions of certain assets for total proceeds of approximately $280 million. Production from these assets was approximately 4,800 boe/d.
The company successfully renewed its covenant-based, unsecured credit facilities totalling $3.6 billion, with a maturity date extension to June 10, 2021.
As previously announced, Crescent Point closed a private placement of senior guaranteed notes, ranging in maturities of five to seven years, with fixed Canadian dollar coupon rates of 3.58 per cent to 3.98 per cent.
Proceeds were used to repay a portion of the outstanding bank debt and other senior guaranteed notes. As at June 30, 2018, cash and un-utilized credit capacity was approximately $1.5 billion, with no material near-term debt maturities.
As at July 20, 2018, the company had, on average, over 40 per cent of its oil and liquids production, net of royalty interest, hedged through 2018 and 2019, at a weighted average market value price of approximately CDN$77.00/bbl.
Operational highlights
Second quarter production averaged 181,818 boe/d, comprised of approximately 90 per cent oil and liquids.
Operating activity within Crescent Point’s Canadian assets was limited during the quarter due to normal seasonality related to spring break-up. Since early July, drilling activity has resumed within the company’s Canadian operations.
Crescent Point’s U.S. operations continued to advance during second quarter. This included horizontal development in the Uinta Basin and North Dakota across multiple zones.
In the East Shale Duvernay, the company completed its first half 2018 drilling program with encouraging initial well results. Crescent Point will continue to monitor well performance before increasing the amount of capital allocated to this early-stage resource play.
Summary of Drilling Results
The following table summarizes the Company’s drilling results for the three months ended June 30, 2018:
| Three months ended June 30, 2018 | Total | Net |
| Williston Basin (1) | 37 | 27.0 |
| Southwest Saskatchewan | 1 | 0.1 |
| Uinta Basin (1) | 15 | 7.9 |
| Other | 1 | 1.0 |
| Total | 54 | 36.0 |
(1) The net well count is subject to final working interest determination.
Leadership update
The Board of Directors, along with a leading executive search firm are continuing the formal review process with respect to the appointment of Crescent Point’s President and Chief Executive Officer. The company says it is considering both internal and external candidates.
Craig Bryksa, interim President and CEO, and his new senior leadership team are assessing and optimizing the Company’s future strategic direction. This team includes Ken Lamont, Chief Financial Officer, Ryan Gritzfeldt, Chief Operating Officer, Derek Christie, Senior Vice President, Exploration, and Brad Borggard, Senior Vice President, Corporate Planning and Capital Markets.
According to the company, the new team is taking a refreshed approach as it conducts an ongoing comprehensive review of its asset base, business strategy and organizational structure.
In this transition period, the team has identified and acted on certain near-term opportunities, including allocating proceeds from recent dispositions to reduce net debt, streamlining the executive structure with fewer members and rescheduling its capital investment plans.
Crescent Point recently appointed Scott Tuttle as Senior Vice President, Human Resources and Corporate Services. Mr. Tuttle joined Crescent Point from Repsol SA, where he served as Corporate Director, People and Organization, and prior to that, as Vice President and Head of Global Human Resources at Talisman Inc.
Scott Tuttle has over 25 years of human resources experience, primarily in the energy sector.
Outlook
Crescent Point’s new team is focused on a transition plan that includes revising and prioritizing the company’s strategy based on key value drivers, including balance sheet improvement, disciplined capital allocation and cost reductions.
This team is currently reviewing its asset base and business strategy with respect to these key value drivers. The Calgary-based company has also begun streamlining its organizational structure and is exploring areas for improvement within each level of the organization.
Following this review process, Crescent Point expects to identify value enhancing opportunities, including future asset dispositions, the optimization of its capital program and a reduced cost structure.
During the initial stages of its review, the new team rescheduled its capital investment plans for the remainder of 2018.
As such, a portion of the capital expenditures previously planned for third quarter 2018 has been moved to later in the year. This rescheduling allows for more consistent levels of activity into 2019 without requiring capital expenditures to be increased in 2018.
This decision also provides cost, staffing, logistics and safe operations benefits to the company. Going forward, Crescent Point intends to allocate capital in a manner designed to achieve consistent activity levels.
As a result of this rescheduled capital program, production volumes that were previously budgeted to come on stream earlier in the second half of 2018 are now expected to come on line later in the year or in first quarter 2019. This will impact the 2018 annual average production.
In addition, the company has elected to shut in approximately 1,000 boe/d of uneconomic production as it focuses on returns versus volume growth.
As a result of these two changes, Crescent Point is adjusting its 2018 annual average production guidance by approximately two per cent to 177,000 boe/d from 181,000 boe/d. The company reaffirms its annual capital expenditures guidance at $1.775 billion and remains committed to aligning its cash outflows with inflows.
“I am very excited about the future of our company and believe we have the right assets and skill set to deliver improved results,” said Bryksa. “Our new team is focused on building a revised strategy that prioritizes our key value drivers, which are expected to result in improved returns, free cash flow generation and debt adjusted per share metrics.”
Crescent Point recognizes the importance of providing clarity on its strategy. Given the team’s deep understanding and knowledge of the business and its assets, the Company will communicate its plans in a timely manner.
2018 Guidance
Crescent Point’s guidance for 2018 is as follows:
| Total average annual production (boe/d) % Oil and NGLs |
Prior 181,000 90 |
% | Revised 177,000 90 |
% |
| Capital expenditures (1) Drilling and development ($ millions) Facilities and seismic ($ millions) |
$1,595 $180 |
$1,595 $180 |
||
| Total capital expenditures, before net land and property acquisitions ($ millions) | $1,775 | $1,775 |
(1) The projection of capital expenditures excludes property and land acquisitions, which are separately considered and evaluated.
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